Alerts and Updates

Changing Seasons of FDIC Shared-Loss Programs

September 22, 2016

It may be worthwhile to review shared-loss programs on a regular basis and prepare for their changing seasons in addition to staying apprised of the FDIC’s changing regulatory guidance and tenor as these programs mature.

As we head into autumn, many of us change our seasonal wardrobes, replace the filters in our home heating/cooling systems, swap our summer screens for winter’s storm windows and ready our vehicles for winter. Bankers participating in a Federal Deposit Insurance Corporation (FDIC) shared-loss program should consider adding one more seasonal item to their list—a check-up on the status of your shared-loss participation, particularly your commercial shared-loss program. Many banks acquired assets and deposit accounts of failed institutions in the years following the Great Recession via purchase and assumption agreements entered into with the FDIC. Those agreements included an eight-year commercial shared-loss component, whereby the acquiring bank shares losses with the FDIC during the first five years and then shares recoveries for the remaining three years of the term.

It may be worthwhile to review shared-loss programs on a regular basis and prepare for their changing seasons in addition to staying apprised of the FDIC’s changing regulatory guidance and tenor as these programs mature. Earlier this year, the FDIC’s Risk Sharing Asset Management (RSAM) group issued RSAM Guidance 2016-G001 for those acquiring institutions entering or in the recovery reporting period for commercial shared-loss agreements. This guidance may have been issued after senior management last focused on the commercial shared-loss program and could catch some by surprise who are near the conclusion of their shared-loss period and preparing to enter the recovery period.

Early termination is an intriguing and potentially viable legal option for certain acquiring institutions who no longer wish to incur the administrative costs of participating in a highly regulated, intricate program, especially as they move from the FDIC sharing in losses to the FDIC taking a portion of the acquiring institution’s recoveries. Many acquiring institutions have faced challenges in dealing with the RSAM group and feel pressure to leave potential revenue for their institution on the table because the process is complex.

While the changing of the seasons cannot be stopped any more than the coming change in shared-loss programs from the shared-loss to recovery period, acquiring institutions may want to prepare for the changes ahead so that the next season can be as well-managed and lucrative as possible. 

About Duane Morris

Attorneys in the Bank and Financial Institution Representation Practice Group assist multiple acquiring institutions on a wide range of shared-loss issues, including disputed shared-loss claims, compliance reviews and audits, and negotiation of early termination. They are familiar with the regulatory process and guidelines and provide representation as acquiring banks continue to work through their portfolio of shared-loss assets.

For Further Information

If you have any questions about this Alert, please contact Mark D. Belongia, Mark A. Bradford, any of the attorneys in our Bank and Financial Institution Representation Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.