The FDIC board today rescinded a 2009 policy that prevented private equity firms and other nonbanks from bidding on failed banks.
According to a board memo, the rescinded policy included “onerous and highly prescriptive measures” such as heightened capital standards and lengthy continuity of ownership requirements. The board also rescinded a Q&A on the policy.
“The FDIC recognizes that nonbank entities such as private equity firms can play a significant role in the resolution process, given their ability to access and deploy significant pools of capital,” the agency said in the memo. “Given the increased speed with which a bank failure may occur, in part driven by the advancement of technology and ongoing evolution of the financial system, these impacts could, in turn, result in considerably increased costs of resolution and risk to the Deposit Insurance Fund.”
FDIC Chairman Travis Hill previously announced the agency was pursuing the policy change, arguing that opening up the bidding process could potentially soften the blow to the DIF following a bank closure. Also, at the American Bankers Association’s Washington Summit earlier this month, he said the FDIC is working with other banking agencies to possibly create an emergency exception that would enable a nonbank to rapidly set up a shelf charter to bid on a failed institution following a sudden failure.
