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