WSJ headlines and questions for March 30 2011

WSJ headlines and questions for March 30 2011 - The BIF of...

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WSJ headlines and questions March 30, 2011. WSJ Headline March 17. Tab Nears $9 Billion for Bank Failures The FDIC has paid out nearly $9 billion to cover losses on loans and other assets at 165 failed institutions that were sold to stronger companies during the financial crisis. The payments were made under loss-sharing agreements struck by the FDIC that shield buyers from much of the risk associated with loans inherited from failed banks. As of January 31, the FDIC had paid out $8.89 billion under the loss-sharing agreements. Such deals are in place at 236 financial institutions with the FDIC agreeing to assume most future losses on $160 billion of assets. FDIC officials expect to make an additional $21.5 billion in payments through 2014.
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Unformatted text preview: The BIF of the FDIC had a negative $7.4 billion as of December 31, not as bad as the minus $20 billion at the end of 2009. One bank with no loss-share payments as of January is OneWest bank, which bought the loan portfolio of IndyMac Bank. Questions: 1. Why did the FDIC do the loss-sharing agreements, rather than just pay off the depositors and sell off the bad loans? Did they do it just to delay the losses or is there a real savings? 2. Is it OK for an insurer to run a negative balance in its insurance fund? How does the FDIC get away with it? 3. Do the loss-sharing agreements provide the right incentives for banks to monitor the delinquent borrowers?...
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This note was uploaded on 07/02/2011 for the course FINA 465 taught by Professor Berger during the Spring '11 term at South Carolina.

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