The FDIC will allow private equity firms and other nonbanks to bid on failed banks to soften the blow to the Deposit Insurance Fund after an institution’s closure, Acting FDIC Chairman Travis Hill said today. Hill also said the agency is drafting a proposal to revise its large bank resolution planning rule.
Speaking at a conference in Brussels on bank resolution, Hill said the FDIC is working on “a better-understood, competitive and nimble failed-bank marketing process” for banks in receivership. As part of that effort, the agency is revising its bidding process as the current criteria for bidder eligibility are “too restrictive when it comes to large failures.”
“Today, nonbanks control substantial pools of capital that can be deployed to bid on assets of failed institutions and can be used in partnership with banks to bid on entire institutions,” Hill added. “As an example of our work in this area, the FDIC has developed a seller-financing program for nonbank bidders, to increase competition by including private equity firms and other nonbank entities in the marketing process, and thereby ultimately reduce costs to the DIF.”
In addition, Hill said the FDIC has developed a pre-qualification process for nonbank bidders, with the pilot including parties who participated in the bidding process following the 2023 failures of Republic First Bank and Signature Bank, as well as other nonbank firms that have expressed interest in pre-failure loan sales. The pilot will launch in January 2026.
Hill also noted that the 2023 bank failures imposed significant short-term liquidity demands on the FDIC as receiver, so the agency is taking steps to be better prepared to confront a similar situation in the future.
“For example, the FDIC has engaged with the Federal Financing Bank to implement a rapid process for securitizing assets assumed from large failed IDI (insured depository institution),” he said. “These assets could include purchase money notes used to cover asset/liability mismatches of a failed IDI, or to provide leverage for asset purchases to facilitate the sale of large complex transactions.”
Large bank resolution planning
The FDIC has begun work on a proposal to make amendments to the large bank resolution planning rule that, at a minimum, would codify changes made earlier this year to the agency’s FAQ on the topic, Hill said. He noted that among the changes to the FAQ was the requirement that institutions build their resolution plans around a bridge bank strategy. Instead, they must describe “the potential suitable resolution strategy or strategies that reasonably could be executed by the FDIC.”
“We are also evaluating other content elements that could be adjusted or streamlined to further improve the value of these filings, and we will remain focused on what is most critical for the FDIC’s ability to successfully execute a resolution,” he said. “Finally, we will continue to consider ways to shift the [resolution] rule process towards engagement and capabilities testing, focusing on operational capabilities, and away from static plans.”
ABA recommendations
An American Bankers Association task force in August released a series of proposals for deposit insurance reform, including proposed reforms to the bank resolution process. The proposed resolution reforms are:
- Broaden the scope of considerations applied in determination of “least cost” to include potential contagion or other unwanted impacts.
- Enhance community bank participation in resolutions to preserve essential banking services.
- Open resolution-associated asset auctions to a greater diversity of investors.
- Publicly release resolution approaches considered in a given case and their respective estimated costs.