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US officials table rules on failed banks

SIX Illinois banks and one bank in Texas were shuttered on Thursday as United States government regulators proposed new rules for private equity firms seeking to take over failed banks.

That brought the number of US bank failures this year to 52. That's more than double the 25 which failed in all of 2008 and the three that closed in 2007.

The Federal Deposit Insurance Corp was appointed receiver of all seven. The total cost to the Deposit Insurance Fund from the seven closings will be US$314.3 million, the FDIC said. The assets of most of the failed banks will certainly be turned over to other institutions.

Under new rules proposed on Thursday by the FDIC, private equity firms seeking to buy failed banks would face strict capitalization and disclosure requirements, but some regulators warned the proposal may 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.


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