WASHINGTON — Three Illinois banks were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks.
Regulators shut down John Warner Bank of Clinton, Ill.; First State Bank of Winchester in Winchester, Ill.; and Rock River Bank of Oregon, Ill., bringing to 48 the number of U.S. bank failures this year.
The Federal Deposit Insurance Corp. was appointed receiver of all three.
Under rules proposed Thursday by the FDIC, private equity firms seeking to buy failed banks would face strict capitalization and disclosure requirements, but some regulators already warn the proposal might go too far.
The FDIC is seeking to expand the number of potential buyers for the growing number of banks it has closed during the financial crisis. With mounting interest from private equity firms, whose methods and motives aren’t always clear, the FDIC is trying to set requirements to ensure the banks won’t fail again.
One of the proposals under discussion would require investors to maintain a healthy amount of cash in the banks they acquire, keeping them at about a 15-percent leverage ratio for three years. Most banks have lower leverage ratios, which measure capital divided by assets.
Investors also would have to own the banks for at least three years and face limits on their ability to lend to any of the owners’ affiliates.
Regulators said their intent was to tap into the potentially deep source of private equity, while ensuring that banks remain well-capitalized once they are sold.
“We want nontraditional investors,” FDIC Chairwoman Sheila Bair said at the board meeting. “There is a significant need for capital, and there is capital out there.”
Still, some regulators worried that the rules could stifle a potentially valuable new source of investment. Bair said the proposal was “solid” but acknowledged that some details, including the high capital requirements, could be controversial.
