FDIC opens failed bank auctions to private equity firms

• Key insight: FDIC is lifting the ban on nonbanks buying failed banks to speed failed bank sales.
• Expert quote: "The downside risk of not finding an acquirer, or of the best bid coming at a substantial cost to the DIF, may outweigh the downside risk of potential future problems at certain potential bidders," FDIC chair Travis Hill.
• Forward look: The expanded bidder pool may raise concerns about concentration.

The Federal Deposit Insurance Corp. board on Thursday voted unanimously to rescind a  post-2008 crisis policy that barred nonbanks from acquiring failed banks, a move FDIC chair Travis Hill said "will remove regulatory barriers to nonbank participation in the failed bank process, with the ultimate objective of lowering the cost of failures to the deposit insurance fund." The rescission will be finalized when published in the Federal Register. 

The move to revoke the statement of policy on nonbank investments in failed banks, first issued in 2009, fulfills Hill's previously voiced view that opening the bidding process to nonbanks could help the FDIC quickly sell a failed bank, minimizing any drain on deposits caused by a prolonged receivership. 

"The downside risk of not finding an acquirer, or of the best bid coming at a substantial cost to the [Deposit Insurance Fund], may outweigh the downside risk of potential future problems at certain potential bidders," Hill said, speaking remotely last fall before a conference in Brussels commemorating the 10th anniversary of the European Central Bank Single Resolution Mechanism board. "Of course, maintaining criteria that exclude institutions with immediate vulnerabilities remains critical, but the smaller the number of potential acquirers, the less luxury there is to be selective in setting eligibility criteria."

In that October speech, Hill said the FDIC was working to establish a prequalification system for nonbank bidders, which would allow private equity firms to participate in purchases of banks or parts of their portfolios. The agency said it would begin a pilot process in January and later revise the program after receiving subsequent feedback. Expanding the pool of firms that can bid, Hill believes, can help ensure the agency avoids a prolonged bidding process. 

The agency has been overhauling its wind-down standards for failed banks with the goal of increasing the speed of resolution. In April 2025, the agency eliminated the need for big banks to include hypothetical failure scenarios and bridge bank strategies in the plans they regularly submit to the agency. At the time, Hill said the aim of the change was to "maximiz[e] the likelihood of a lower cost and more stabilizing resolution for large regional banks."

Under the current requirements, banks become subject to FDIC resolution planning rules once they reach $50 billion in total assets, based on the average of their last four quarterly reports. After crossing this threshold, they are designated as Covered Insured Depository Institutions — or CIDIs — and must submit a full resolution plan within at least 270 days of notification. 

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The resolution framework favored during the second Trump administration requires banks to file only the most crucial information potential buyers need to close a deal quickly and reflects Hill's skepticism of the bridge-bank model. That model, in which the failed bank's operations are transferred to a temporary institution under the FDIC, was used to wind-down and sell Silicon Valley bank and Signature bank, which failed in 2023, the second- and third-largest respective bank failures in U.S. history. 

Hill has criticized that method, likening the prolonged efforts to sell a bank to a "melting ice cube" wherein the value of a failing bank rapidly declines after its collapse, making it harder to sell and increasing the cost of resolution.

While expanding the pool of bidders for a failed bank could increase the speed of resolution, banking experts have warned resolution deals involving merger and acquisitions by large institutions can exacerbate concentration in the banking industry.