A glance at how the Federal Reserve may soon pave the way for private-equity firms and other deep-pocketed investors to sink their cash into Wall Street’s more overwrought banks.

With bank stocks crumbling and the second quarter drawing to a close Monday, the changes could offer a lifeline to cash-strapped lenders desperate to secure capital.

"This would be a bit of a sea change for the Fed," said Gregory Lyons, head of the financial-services practice at law firm Goodwin Procter LLP. "A number of banks would love to access the private-equity pool. It's a clean slug of money."

The move comes as regulators grow increasingly worried about the ability of many banks to replenish capital amid the worst banking crisis in decades. Small and regional lenders are expected to have a tougher time lining up new investors, particularly since some recent capital infusions have stuck banks' new shareholders with big losses.

The Fed and other banking regulators historically have resisted unregulated entities' exerting control over banks, and tough enforcement of federal rules has often prevented private-equity firms from pumping much cash into banks.

Instead, banks recently have drummed up cash from a combination of government investment funds, mutual funds and other investors, often through public offerings of stock or other securities. But there are signs that the capital pool is starting to dry up at a time when many financial institutions are still ailing.

"We are looking at ways we can make those things more workable and gain from the experience we've had over the past few years," Federal Reserve general counsel Scott Alvarez said.

Continue reading on WSJ.com

Next article » Barclays Raises The Roof In Capital-Raising

Previous article « Lehman: The (Used) Book