Private Equity Waits Out the Feds

The U.S. is making it tough for private equity firms to buy ailing banks. In late August the Federal Deposit Insurance Corp. imposed stricter rules for acquisitions, the latest move in a long game of chess between the banking regulator and the buyout giants. But analysts say the FDIC may back down. The number of troubled banks is rising, and the regulator's pot of money is dwindling.

For months private equity players such as Carlyle Group, Blackstone Group (BX), and KKR have been salivating over bad banks. That's because the FDIC has agreed to eat the bulk of the losses in most deals, leaving buyers with huge potential for profits. The FDIC says these "loss-sharing" pacts ultimately save taxpayers money, in part because it's costlier for the U.S. to take over the banks outright. For buyout players, the deals "are like licenses to print money," says a banking lawyer.