FDIC May Securitize Assets of Failed Banks
[Update 1: Adds details of the first "shelf charter."] The Federal Deposit Insurance Corp. (FDIC) is considering securitizing assets seized from failed banks and depository institutions, an FDIC source tells HousingWire. Details are still being fleshed out as this story published, but an FDIC spokesperson said any discussions to securitize bank assets are "really still in the early stages of development." There is a large supply of failed bank assets on-hand, with the latest round of five failures on Friday leaving the FDIC with at least $20.1m in total assets for later disposition. The FDIC is said to be diversifying its options for offloading failed banks when no buyer can be found. Entering asset-backed securitization (ABS), for example, would mark a break from the FDIC's more common means of spinning off acquired assets. The FDIC often packages failed bank assets into limited liability companies (LLCs) and then sells the ownership interest. For example, the FDIC in early January sold a 40% equity stake in a LLC with $1bn of distressed commercial real estate loans seized from banks that failed in the past 18 months. This practice is often a way for banks to increase their market share, similar to the way Spanish bank BBVA Compass became the 15th largest US commercial bank when it took over Austin, TX-based Guaranty Bank in August. Another means for winding down failed banks, a "shelf charter" was used over the weekend for the first time. Regulators previously granted approval to a group of investors to form a national bank charter that remained inactive until the closure of Premier American Bank late last week. The charter received approval to form Premier American Bank, National Association and acquire the failed bank. The FDIC's entrance into securitization would follow chairman Sheila Bair's invitation for the commercial real estate industry to submit feedback on market revival for commercial mortgage-backed securitization (CMBS). The more optimistic outlook for CMBS revival came after Bair recently warned against the securitization credit-rating alchemy that contributed to the current crisis. Write to Diana Golobay.