Reduce liability for losses on commercial accounts by adhering to four requirements.
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Some FDIC loss-sharing Arrangements May be Ending Soon
In more than 300 transactions since 2008, the FDIC, acting as the receiver of a failed bank, has entered into agreements for the sale of failed-bank assets to a healthier bank or other financial institution, and the sharing of losses of that failed bank between the FDIC and the assuming institution. The aim of such arrangements is to reduce the burden on the FDIC’s Deposit Insurance
Fund, and enhance the attractiveness of failed-bank assets to potential purchasers.
Typically, a single-family shared-loss agreement has a term of 10 years. A commercial SLA normally covers an eight-year period; in the first five years, losses and recoveries are shared, and in the final three years, recoveries only are shared. Many assuming institutions with commercial SLAs, therefore, are approaching the end of their loss sharing.
If you are an assuming institution, you are familiar with the ongoing compliance issues of loss-sharing arrangements. However, as SLAs mature, it is time to think more strategically about the next steps in managing the assets, both single family and commercial. Because the FDIC used numerous versions of SLAs, it is important to review the individual provisions of each agreement.