Failed-Bank Acquirers Are Eager to Unload Covered Loans

Banks that built up balance sheets in the earliest days of the financial crisis by buying failed banks are facing a ticking clock to unload loans they gained from those transactions. Many failed-bank acquirers are nearing expiration dates for loss-sharing agreements with the Federal Deposit Insurance Corp. The agreements typically last for five years on commercial loans and 10 years for residential loans. That means that FDIC coverage would run out next year on commercial loans associated with 2008 bank failures. Reliance on FDIC loss-sharing is declining. The amount collected from such agreements and the loan balances covered by the agency peaked in 2010, according to data compiled by FIG Partners. As coverage and collections fall, so do a bank's revenue from loss sharing. Bankers know that, once the loss-sharing expires, any failed-bank loans left are their sole responsibility. Even the healthiest loans often run a greater risk of being classified in the future, compared to those originated by the failed-bank acquirer.