WASHINGTON — Regulators were working up until the eleventh hour to piece together a final policy today on allowing nonbank firms to buy failing institutions.

The Federal Deposit Insurance Corp. is expected to dilute its policy on private-equity bank investments significantly, but sources said exact details remained in flux ahead of a scheduled board meeting this afternoon.

As late as Tuesday, multiple drafts of the final guidelines were circulating among senior officials — and it was clear that the FDIC's five board members were not all on the same page, sources said.

FDIC Vice Chairman Martin Gruenberg was pushing for tough restrictions on private capital — similar to the July 2 proposal — while Comptroller of the Currency John Dugan and John Bowman, acting director of the Office of Thrift Supervision, favored a lighter touch to attract investments, sources said.

The OCC and OTS are worried that discouraging private-equity firms from bidding for failed banks could raise resolution costs, potentially endangering what's left of the Deposit Insurance Fund, while Gruenberg and others see the need for stricter rules for nontraditional bank owners.

That breakdown puts FDIC Chairman Sheila Bair in the position of being a swing vote, many said. The views of the fifth member, independent director Thomas Curry, were also somewhat unclear.

"The real wild card is the chairman," said one source familiar with the situation.

Wayne Abernathy, the American Bankers Association's executive vice president for policy and regulatory affairs, said the agency has been relatively quiet about its move, which, he said, may reflect a lack of a resolution.

"It's a little different from what you normally have with a rule of this importance," he said Tuesday. "There hasn't been much early indication to industry or others about which way the FDIC wants to go. Sometimes, certainly in the past, that has been an indication that the policy is still being worked on."

Thomas Vartanian, a partner at Fried, Frank, Harris, Shriver & Jacobson LLP, said drafting a policy of this magnitude, with several key players needing to agree, takes time. It is significant that the OCC and OTS have votes on the board, he noted.

"Regulatory action is a little more complicated when you're dealing with an agency that has three agencies as a part of it," Vartanian said.

To be sure, observers still expect any final policy to dial back from the July proposal, which private-equity investors vigorously opposed.

Many expect the agency to lower the capital ratio qualifying private-equity firms to own failed banks to around 10% from the 15% minimum in the proposed guidelines.

Though the agency may also dilute other provisions — such as forcing investors to cover FDIC losses if they own stakes in multiple banks; a three-year hold period before a private-equity firm can sell an institution; and standards by which an investor must be a "source of strength" for a bank — the consensus on those appears less firm.

"It appears to be something that looks like 10% tangible capital, but it's not clear to me what they're coming out with on the cross-guarantee or the source-of-strength obligations," said John Douglas, a former FDIC general counsel and now a partner at Davis, Polk & Wardwell.

The July 2 proposal elicited a strong response from private-equity firms and other groups, arguing the policy would restrict nonbank investors far beyond the requirements on traditional bank owners.

V. Gerard Comizio, a partner at Paul, Hastings, Janofsky & Walker LLP, said the agency may be considering pulling back on the cross-guarantee and hold-time provisions.

He said existing law already addresses restrictions on investors owning majority pieces of multiple institutions, eliminating the need for cross-guarantees.

"Since the law already addresses this specifically, the agencies, including the FDIC, should be very cautious about adopting an across-the-board position that goes beyond what the law requires," Comizio said. "My guess is the FDIC board may be carefully reviewing this issue."

Comizio also noted that the agency's proposal said firms could potentially avoid the three-year hold period if the FDIC consented, and a shorter time frame would reflect positive signs in the market for bank mergers.

"The banking industry and banking regulators should be so lucky that the market for these institutions should come back in a time period that's less than the three-year limitation," he said.

But Douglas said even if the agency pulls back on the requirements, the policy is not likely to be viewed in a glowing light by investors.

"It's still going to be higher capital standards and tougher restrictions than what would apply to other bank buyers," he said.

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