A top bank regulator has said struggling U. S. banks will not be allowed to aggressively raise interest rates, in their bid to attract customers' money.

The Federal Deposit Insurance Corp. (FDIC) voted for the barring of banks with insured deposits, from paying interest that significantly exceeds those prevailing in the market, if deemed to be not well capitalized. According to FDIC, the new rule better defines normal market rates.

As well, a rule that expands the FDIC's debt-guarantee programme for including mandatory convertible debt has also been finalized, an interim rule passed in February for expanding the programme, designed to give a boost to public confidence in banks.

The interest-rate rule comes at a time when many smaller regional banks are encumbered with bad loans and credit losses, with the number of problem banks on FDIC's list growing 21% in the first quarter to 305-institutions, the highest since 1994.

While, it is likely that some institutions will be nursed back to health, there is little doubt that others will join the ranks of the 36-U. S. banks that failed this year.

Seized bank numbers have been consistently creeping upward, 25-failed banks in 2008 compared to three in 2007, a number FDIC Chairman Sheila Bair said will continue to grow.