FDIC Eases Rules on Failed Bank Asset Purchases

The government is going outside of the financial services sector in an attempt to find bidders for the growing pool of assets of failed financial institutions, the first time it has ever done so, according to a spokesman for the regulator.

The FDIC late last week announced that it was establishing a modified bidder qualification process to expand the pool of qualified bidders for the deposits and assets of failing depository institutions, allowing parties that do not currently have a bank charter to participate in the bid process through which failing depository institutions are resolved.

“The FDIC recognizes that investors not organized as an FDIC insured depository institution or holding company may potentially be interested in bidding to purchase a failing institution,” the agency said in a prepared statement. Speed is essential, the agency added, so the regulator will consider abbreviated information submissions and applications, and may issue conditional approval for Deposit Insurance, in order to qualify interested parties for the FDIC’s failing institution bidders list.

“There’s been a lot of interest, [but] we have only 90 days to market a failing bank,” said FDIC spokesperson David Barr. “That’s not always enough time to get the necessary charters and approvals. This system would open up the bidding process to those who do not have a banking charter.”

Investors must have conditional approval for a charter from the responsible agency (e.g., FDIC, Office of Thrift Supervision) and meet the bid criteria established by the FDIC. In certain cases it would also be necessary to obtain conditional approval to establish a bank or thrift holding company.

Federal and state agencies are coordinating on specific information needs and timing requirements and ultimately the granting of a charter and deposit insurance.

“It’s important to point out that this isn’t being done to circumvent any of the necessary approvals,” Barr added.

In order to qualify for the bidding process, bidders would need to have a business plan that complies with the Community Reinvestment Act, readily available capital, and a management team subject to financial and biographical review.