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The Federal Deposit Insurance Corp. took one step closer to a resolution for three troubled banks in Puerto Rico, as the agency on Tuesday finalized the bidding for W Holding Co. Inc.'s (WHI) Westernbank, R&G Financial Corp.'s (RGFC) R-G Premier Bank, and EuroBancshares Inc.'s (EUBK) EuroBank, according to several people with knowledge of the matter.

The auction attracted more participants than originally expected, according to one person familiar with the matter, suggesting that the FDIC had some success in marketing the island's banks and assets as attractive deals.

However, the FDIC's resolution of the troubled banks could do considerable damage to its insurance fund. The three banks have a combined total of about $21 billion in assets, a quarter of the island's bank assets, and hold 30% of its deposits. The FDIC declined to comment. Calls to the three banks remained unanswered.

Popular Inc. (BPOP), Doral Financial Corp. (DRL) and Oriental Financial Group Inc. (OFG), all in San Juan, Puerto Rico, had raised capital in anticipation of the FDIC's auction and put in bids, according to several people familiar with the matter. They haven't been informed whether their bids were successful.

Banco Santander SA (STD, SAN.MC), which has a small presence on the island through its Santander Bancorp (SBP) unit, also participated in the bidding, according to a person familiar with the matter. The Madrid bank bought Sovereign Bancorp of Philadelphia in 2008.

Many banks in Puerto Rico have expressed interest in consolidating the island's banking business. The island is a tough banking market, because of its slow economic growth, low household income and high unemployment. Deposits are hard to come by and the island's 11 banks compete fiercely for loans. The fragile market, loaded with troubled loans from soured real estate deals, will have a chance to stabilize if there are fewer banks, bankers and analysts have argued.

The island has been in a recession since 2006, and its government has struggled to reach a fiscal balance and to reshape an economy once heavily dependent on manufacturing and the pharmaceutical industry.

But Popular, Oriental, and Doral were able to raise almost $2 billion in capital combined in recent weeks. Popular, helped by Morgan Stanley (MS), raised $1.15 billion; Oriental, through Keefe, Bruyette & Woods Inc. (KBW), raised $100 million, and Doral, with the help of Barclays Capital (BCS, BARC.LN), raised $600 million, $420 million of which is contingent upon Doral making an acquisition.

First BanCorp Puerto Rico (FBP), the island's second-largest bank after Popular, had also wanted to be a consolidator but said Monday it isn't considering participating in any FDIC-assisted transaction until it raises capital. First BanCorp is seeking to raise $500 million in common stock and a spokesman said investors have shown interest in the offering.

In a recent filing with the Securities and Exchange Commission, First BanCorp said the FDIC ordered the bank "to raise capital in an expedited process." It hired Sandler O'Neill & Partners LP and UBS AG (UBS, UBSN.VX).

On Monday, the bank said its first-quarter loss doubled from the previous quarter, to $107 million.

A First BanCorp spokesman said the bank plans to benefit from the consolidation by luring more customers; it has been increasing its market share for core deposits.

Westernbank, R-G Premier Bank, and EuroBank also suffer from a heavy load of delinquent loans that are eating up capital. Too much of the banks' deposits are from institutional investors, such as mutual and pension funds, rather than the island's bank customers. Such brokered deposits are expensive and less stable than customer deposits.

How big the loss for the FDIC will be depends on how the agency structures the deals for the three banks and their assets, and on bidders' interest. It has hired Deutsche Bank AG (DB, DBK.XE) to help find a solution. Real-estate investors have expressed interest in the assets, mainly commercial real estate loans for upscale apartment buildings and hotels, that may recover their value once the island rebounds from its recession.

The FDIC could spin off some of the banks' assets and sell them separately--prices for such real-estate assets have broadly stabilized and the agency has been successful in selling assets left over from failed banks.

Sources familiar with the matter have said the Puerto Rican banks who are bidding are also interested in keeping the assets, which make up most of the value of the three troubled banks.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

(Robin Sidel contributed to this article.)

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