FDIC Moving Away From Generous Guarantees

For failed-bank bidders, the end of the sweetheart deal may be at hand. During the financial crisis, the Federal Deposit Insurance Corp. has routinely guaranteed 80% of the potential losses on assets at scores of failed banks, a bargain for those trying to enter or expand their reach in the banking market. But in one of its most recent deals-TD Bank's purchase of three Florida banks on April 16-the FDIC agreed to cover only half the losses, a significantly less generous arrangement. Though an 80% guarantee is likely to remain the norm in the near term, the FDIC is expected to do more deals like the one with TD Bank. "We would expect that as the market continues to improve the terms of the loss-share transactions will change and that the amount of risk an acquirer will be willing to assume will increase," said James Wigand, deputy director in the FDIC's division of resolutions and receiverships.