(Adds action on debt program, background)
WASHINGTON May 29 U.S. banks that are
struggling to stay afloat will not be allowed to aggressively
ratchet up interest rates to attract customer money, a top bank
regulator said on Friday.
The Federal Deposit Insurance Corp voted to bar a bank with
insured deposits from paying interest rates that "significantly
exceed" prevailing market rates if the bank is deemed not well
capitalized. The new rule better defines what constitutes
normal market rates, the FDIC said.
The agency also finalized a rule that expands the FDIC's
debt-guarantee program to include mandatory convertible debt.
The FDIC passed an interim rule in February to expand the
program, which is designed to boost confidence in banks.
The interest-rate rule comes as many smaller regional banks
are weighed down by bad loans and credit losses. The FDIC said
on Wednesday that the number of banks on its "problem list"
grew 21 percent in the first quarter to 305 institutions -- the
highest number since 1994.
Some of those institutions will likely be nursed back to
health, but others will join the ranks of the 36 U.S. banks
that have failed so far this year.
The number of seized banks has been consistently creeping
upward, with 25 failed banks in 2008, and only 3 in 2007.
FDIC Chairman Sheila Bair said this week that the number of
failed banks will continue to grow.
(Reporting by Karey Wutkowski, editing by Gerald E. McCormick
and Steve Orlofsky)