Acquisition of Troubled Financial Institutions and Assisted Transactions

My partners Craig M. Wasserman, Richard K. Kim, Lawrence S. Makow, Nicholas G. Demmo and Matthew M. Guest and I have recently issued a memorandum entitled “Acquisition of Troubled Financial Institutions and Assisted Transactions.” The memorandum discusses the credit-related losses suffered by some financial institutions, their efforts to raise capital, and the increasingly prominent role played by federal and state regulators in monitoring and shoring up the capital and liquidity situations of struggling institutions. Against this backdrop, the memorandum discusses the FDIC’s historical approach to addressing failures of insured depository institutions. In this context, the FDIC is required by law to guarantee insured deposits and dispose of the failed institution’s assets in the manner least costly to the FDIC’s deposit insured fund. We also discuss the FDIC’s formal resolution process, which may include a managed auction to dispose of failed bank franchises, and explain the options open to the FDIC after a bank has been declared insolvent. In view of distinguishing features of the current economic downturn, we expect a more receptive regulatory climate for private investments into banks and thrifts.

The memorandum is available here.