Aug. 25 (Bloomberg) -- The Federal Deposit Insurance Corp., is poised to make it easier for private-equity firms to buy banks after the fastest pace of bank closings in 17 years cost the agency’s insurance fund more than $21 billion.

The FDIC board meets tomorrow in Washington and probably will lower the requirements for private investors to buy failed lenders after a proposal made in July sparked opposition from the industry. The agency needs new bidders as bankers avoid buying failed lenders, forcing the FDIC to share losses or take other steps that deplete its insurance fund.

“There are a lot of private-equity bidders that have been waiting to see how this rule plays out,” Mark Tenhundfeld, senior vice president at the American Bankers Association, said yesterday in a telephone interview. “As modified, I think private equity is likelier to want to get back in the game.”

Banks are collapsing at the fastest pace since 1992, with 81 failures so far this year, as losses mount on unpaid real- estate debt. The failures have cost the FDIC’s deposit insurance fund an estimated $21.5 billion this year. The agency may impose an emergency fee in the third quarter -- sooner than planned -- to replenish the fund, the second such assessment this year.

The modifications may lower to 10 percent from 15 percent the Tier 1 capital ratio private-equity investors must maintain after buying a bank, Tenhundfeld said. Tier 1 ratios measure a lender’s ability to withstand losses and new banks must maintain at least 8 percent to be deemed well capitalized.

“It is a proposed rule,” FDIC spokesman Andrew Gray said in a telephone interview. “The purpose of the comment period is to get feedback from all stakeholders and refine the proposal based on that.”

FDIC Brokers Deals

The FDIC has twice brokered deals with investor groups this year. In March, California-based IndyMac Federal Bank was sold to investors led by Steven Mnuchin, an ex-Goldman Sachs Group Inc. investment banker, and including buyout firm J.C. Flowers & Co. Florida’s BankUnited Financial Corp. was sold in May to firms including Blackstone Group and WL Ross & Co.

Senator Jack Reed, a Rhode Island Democrat who leads a subcommittee overseeing the securities industry, wrote in May to FDIC Chairman Sheila Bair and Federal Reserve Chairman Ben S. Bernanke asking them to spell out rules for investments in banks so private investors can’t take advantage of U.S. assistance.

The FDIC is a state-bank regulator that insures consumer deposits at lenders, finds buyers for institutions on the verge of collapse and unwinds them after they fail. The agency in July gave the industry 30 days to comment on the guidelines and tomorrow plans to release modified rules based on the feedback.

The capital requirement as proposed “is onerous” and would eliminate interest from private-equity investors, Douglas Lowenstein, president of the Private Equity Council, a Washington-based industry group, wrote in an Aug. 6 comment letter to the FDIC.

Guarantee Provision

The FDIC also may drop the cross-guarantee provision, which would require a private-equity firm with investments in more than one failed bank to provide guarantees for losses based on its level of investment in each of the institutions, said Joseph Lynyak, a partner specializing in banking at Venable LLP in Washington.

“It’s an open-ended loss guarantee that I don’t think anybody is willing to accept,” Lynyak said of the proposal.

Even with the changes, private-equity firms may be reluctant to participate out of concern the government could modify the rules later, Lynyak said.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: August 25, 2009 00:01 EDT