Lone Star Funds joined other big private equity names in opposing proposed U.S. rules for investments in failed banks, as a designated period for public comment on the draft regulations comes to an end on Monday.

The Federal Deposit Insurance Corp (FDIC) kicked up a storm last month when it proposed tough guidelines for private investors seeking to buy failed banks, suggesting such groups should have to maintain higher capital levels and support the banks they buy.

The proposed guidelines have drawn critical comments from many investors who argue that they unfairly place an onerous burden on them and warn that the rules, if finalized as they are, would chill private investments in banks.

Firms such as Blackstone Group LP and Corsair Capital, and legal and financial advisors like Skadden, Arps, Slate, Meagher & Flom, Jones Day and FBR Capital Markets have opposed parts of the proposed guidelines, according to letters posted on the FDIC website.

But the regulator's proposed policy has also drawn some support. Three U.S. Senators -- Susan Collins, Carl Levin and Daniel Akaka -- have urged the FDIC to strengthen its policy related to use of offshore structures.

In its letter on Monday, Lone Star, which has invested more than $60 billion in buying nonperforming loans and related securities from financial institutions, also highlighted a proposal dealing with the type of deal structures that can be used in bank takeovers.

Lone Star said regulators should prefer the silo structures in bank takeovers, where an investor wants to take a controlling stake, rather than club deals, where several investors take smaller bits of the company.

'Club' or 'consortium' arrangements necessarily reduce the number of potential bidders for a given institution, Senior Managing Director Len Allen wrote in the letter.

In a separate letter, Kohlberg Kravis Roberts & Co said there was a case for engaging private equity firms to buy failed banks.

If we succeed, there is an understandable public concern that we may make too much money too quickly, KKR's Deryck Maughan wrote. There is no easy way around this concern.

But he added the auction process resulted in lower cost to the taxpayer, and the FDIC could retain an interest in the bank so that it gets a piece of the recovery.

Private investors' interest in buying banks surged this summer after a group of buyout shops, including Wilbur Ross' WL Ross & Co, Carlyle Group and Blackstone, took over Florida's BankUnited in an FDIC-assisted deal.

But uncertainty over the rules has stalled plans by investors to buy banks, and slowed some deals already in the works, sources previously told Reuters.

Last week, industry sources said the FDIC is expected to move quickly in finalizing the guidelines, possibly easing one of its most controversial proposals that would impose a high capital requirement.

(Reporting by Paritosh Bansal; Editing by Phil Berlowitz)

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