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Construction Law Today

How an FDIC Loss-Sharing Agreement Really Works – With Video

Posted in Construction Finance and Insolvency, FDIC & Bank Failures

Loss-Sharing Agreements are one of the principal features when the FDIC takes over a failed bank.  Loss-Sharing Agreements have an air of mystery about them, something almost approaching a contemporary urban legend in the public consciousness.  To dispel some of the confusion surrounding Loss-Sharing Agreements, the FDIC explains how they work in multiple media, including videos and print articles.   Scroll down for two of the most helpful examples….

Loss-Sharing Video

The FDIC produced this video about Loss-Sharing Agreements for the general public: 


Loss-Sharing Articles

More technical are articles like the recently published FDIC Loss-Sharing Agreement: A Primer (PDF) in the FDIC’s newsletter Supervisory Insights.  Though the target audience is banking regulators and examiners, it’s invaluable also for anyone interested in the nuts and bolts of how a Loss-Sharing Agreement works, including accountants, financial advisers, and consultants who advise banks on buying assets from failed bank receiverships and managing them under a Loss-Sharing Agreement.

 Highlights include:

  • Conditional Guaranty: explaining that a Loss-Sharing Agreement provides a partial and conditional guaranty of payment to a bank that buys loans from the FDIC as receiver for another failed bank that failed 
  • Like Other Guaranty Programs: comparing Loss-Sharing Agreements to other government guaranty programs like those offered by the FHA and VA
  • What is Guaranteed: summarizing what losses and costs from holding and managing the acquired assets (i.e., loans) are covered for payment under the Loss-Sharing Agreement
  • Accounting Treatment for Covered Loans: explaining how bankers and banking regulators should account for the risk of covered loans and the value of a loss-sharing guarantee
  • Summary Due Diligence: recognizing that Loss-Sharing Agreements reduce the risks that an acquiring bank takes because they have so limited an opportunity to perform due diligence on loans before buying them
  • Restrictions and Claims: Identifying restrictions that Loss-Sharing Agreements impose on acquiring banks in how they manage, restructure, and dispose of covered loans as well as how acquiring banks go about claiming payment for losses and costs related to covered loans
  • Gabriel P Castano

    This is another example of how this agreements are boosting incredible profits for Banks on the backs of ‘impared’ borrowers. I call this “the rush to cash”.
    It’s easier to liquidate and decimate equity and borrowers instead of orderly re-structure a loan. The pay-offs are obscene!!!(320% profit for First Citizens Bank) in the face of the worst economic implosion in 80 yrs.!!!???…all hand fed by THE FDIC!, VERY NICE, THANK YOU.

  • Rennie Matthews

    When is the government going to start protecting the workers?

  • greg langford

    Can i get a copy of the loss share agreement between south Carolina bank and trust and the FDIC regarding Community Bank and Trust in Georgia?
    This is the fifth bank that has closed it’s doors with me and each one is screwing me in favor of their agreement with the FDIC.

  • Greg, you sure can get a copy of that Loss Share Agreement. Here’s a link to it: http://www.fdic.gov/bank/individual/failed/cbt-cornelia_P_and_A.pdf

  • Hemant Thaker

    Can you provide me the loss sharing agreement between Rialto And FDIC for Omni National Bank, i have a loan that has matured and i am current on payment, Rialto is giving me a tough time negotiating a pay off for this loan.

  • Hemant, I’m afraid there is no loss share agreement for Omni National Bank (Georgia). It was what’s known as a “deposit payout.” No other bank purchased the assets or deposits of Omni. Instead, the FDIC as receiver paid insured depositors, seized the assets, and, from what you said, sold at least some of them to Rialto.
    For more about the Omni National Bank closing and receivership, go here: http://www.fdic.gov/bank/individual/failed/omni.html