A move by regulators to open up the failed bank bidding process has sparked a wave of investor interest. But experts are wary about its real impact.
NEW YORK (CNNMoney.com) — More banks will certainly fail in the months ahead, but at least regulators shouldn’t have any trouble finding buyers.
Last month, two of the nation’s top banking regulators – the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – widened the buyer pool for failed banks by opening up the bidding process to both investor groups and individuals.
Traditionally, this process has been limited to chartered banks and savings institutions. But regulators changed their stance partly in response to strong demand from non-bank investors and expectations that the supply of failed banks will grow in 2009.
So far this year, only 26 of the more than 8,400 FDIC-insured institutions have failed. But with 171 institutions on the FDIC’s so-called ‘problem bank’ list as of the end of the third quarter, it’s likely that the assets of many more failed banks will be up for grabs next year.
Despite some high-profile bank mergers in the past few months, there has yet to be a major wave of consolidation in the industry since many banks have been afraid of inheriting another company’s troubled loan portfolio.
Instead, many banks have waited for others to fail outright before stepping in. That’s because once the FDIC assumes control of the failed bank’s troubled assets, an acquirer can get deposits on the cheap and a clean balance sheet.
Officials at the OCC and FDIC were unable to provide any figures as to how many investors have applied to buy failed banks so far. But they said interest in the program has been robust since it first launched.
One firm that has already won conditional approval to bid for a failed bank is Ford Group Holdings, an investment group which includes long-time Texas bank investor Gerald J. Ford.
That interest could extend to wealthy individuals who want to break into the banking game and even private equity players.
Christopher Flowers, who runs the buyout shop J.C. Flowers, scooped up a tiny bank in northern Missouri with $14 million in assets in August. At the time, he hinted at plans to expand. more