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Owning Your Own Bank May Be Easier than Ever


FDIC could loosen rules for investors ready to snap up those that have failed.

Buying that failed bank you've had your eye on is about to get a whole lot easier.

With banks across the country going bust at an alarming pace, the Federal Deposit Insurance Corporation, or FDIC, is expected to loosen the rules governing private investors snapping up failed institutions. According to Bloomberg, the FDIC board meets today and may reduce the amount of capital buyers must pour into collapsed banks, making them more attractive to potential investors.

Eighty-one bank failures have cost the FDIC over $21 billion this year -- the most since the the Savings and Loan crisis of the early 1990s. Losses are piling up so quickly and depleting the deposit insurance fund so rapidly that the FDIC is considering imposing a second round of emergency fees on member institutions to keep its coffers full. Meanwhile, with announcements of bank seizures now a regularly scheduled program for the Friday evening news circuit, cash-flush investors are scouring the American banking landscape looking for opportunities.

In June, the FDIC issued a new set of proposed requirements which would have made buying troubled banks more difficult for these investors. The private equity community -- the subset of sophisticated investors most actively engaged in bidding on failed banks -- balked. The Private Equity Council, a lobbyist group, called the new rules "onerous," saying they'd greatly reduce the private sector's ability to help clean up the minefield that is the US banking system.

To be sure, the opportunities in banking have rarely looked this good. The big money center banks, namely Bank of America (BAC), JPMorgan (JPM), Citibank (C) and Wells Fargo (WFC), are scaling back everything from credit cards to construction lending to small-business loans. Services are being slashed as well, as lenders cut costs, fire staff, and eliminate offerings that could be perceived as being too risky for the new risk-averse world of American banking. In short, banks are just trying to survive; if they lose a few clients along the way, so be it.

This is where the opportunities begin. Private Equity and other investors can take over banks laden with soured loans, strike a deal with the FDIC to help unload the bad assets, and end up with a virtually clean slate. As long as they bring in the right management team, implement good loan underwriting, and reconnect with what could be an estranged client-base, the chance to remake a bank into a community-driven lending institution is huge.

As bad assets -- largely real estate and construction related -- work their way through the banking system, the opportunistic purchasing of crippled banks can help hasten an eventual stabilization and recovery in the banking system. This type of government-sanctioned investment -- not subsidies and outright intervention into the private markets -- is the stuff of sustainable economic recoveries. The FDIC would be well to support this type of healthy, market-clearing behavior.
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