The federal government is turning to Main Street and Wall Street to revive the failed Bank of New England under a new owner.

As of next Monday, Fleet-Norstar Financial Group Inc. of Providence, R.I., and the New York corporate takeover specialist Kohlberg Kravis Roberts & Co. begin a buyout process that will create New England's largest financial institution.The two firms won approval late Monday from the Federal Deposit Insurance Corp. to take over BNE, which was declared insolvent and seized by the federal government on Jan. 6. The ultimate cost to the FDIC is expected to be about $2.5 billion.

The transaction keeps Bank of New England in local hands while bringing in hundreds of millions in outside investment, money that is desperately needed in the credit-starved Northeast.

"We are delighted to have new capital coming into the banking system," FDIC Chairman William Seidman said at a news conference.

In all, the new owners will pump $875 million in capital into the region. Fleet would get the profitable portion of Bank of New England's loan portfolio, pushing its asset size past $40 billion and making it New England's largest banking company.

Fleet also has the right to return to the FDIC any assets that go sour over the next three years.

As a further sweetener, the FDIC - without using taxpayer money - will absorb bad assets with a book value of $5.5 billion left over from the old Bank of New England. It would hire Fleet to manage any collections from what are mostly bad real estate loans.