FDIC Employs Tool Used for S&L Crisis
By DAMIAN PALETTA and DAVID ENRICH
WSJ
JANUARY 2, 2009
WASHINGTON -- Federal regulators are dusting off a tool used during the savings-and-loan crisis to help deal with an expected wave of bank failures in 2009.
The mechanism, known as "loss sharing," gives healthy banks an incentive to take on troubled assets of a failed institution, with the government agreeing to assume the majority of future losses. In most other cases, the buyer takes the failed bank's deposits, leaving most of the assets to be managed and sold by the Federal Deposit Insurance Corp.
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At the same time, such deals could reduce the pile of bad assets the government would inherit in bank failures, especially from banks heavy with commercial real-estate loans that would be tough for the FDIC to manage.
"They don't have the capacity" to handle that kind of portfolio, says Pat Doyle, co-head of the financial-institutions group at law firm Arnold & Porter LLP.
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