Questions and Answers
Are Assuming Institutions permitted to conduct portfolio sales of Shared Loss assets?

"Yes, if the ¶à±¦ÓÎÏ·ÏÂÔØ provides prior written consent and the Assuming Institution satisfies the applicable provisions of the SLA."
Does Shared Loss put the taxpayer on the hook for additional losses down the road?

"No. When the ¶à±¦ÓÎÏ·ÏÂÔØ calculates the estimated cost of a failure, all expected losses on the assets covered within SLAs are considered. These market assumptions are built into the cost of failure at the time of resolution. Thus, the cost of all expected future payments are recognized at the time of bank failure and no losses are deferred. Any future shared loss payments are made from receivership funds from the specific failed bank. If those funds are insufficient, shared loss payments are paid from the ¶à±¦ÓÎÏ·ÏÂÔØ's Deposit Insurance Fund (DIF), which is funded by assessments paid by insured banks and thrifts (i.e. not from taxpayer funds)."
Does the ¶à±¦ÓÎÏ·ÏÂÔØ receive any benefits if the Assuming Institution makes money on the covered assets?

"Yes. If there are recoveries on assets which have been charged off by the failed bank or the Assuming Institution, the ¶à±¦ÓÎÏ·ÏÂÔØ receives a percentage of the recoveries at a rate outlined within the SLA."
How does Shared Loss work?

"The ¶à±¦ÓÎÏ·ÏÂÔØ uses two primary forms of Shared Loss Agreements: the first agreement supports commercial assets, and the second agreement supports residential mortgages. The ¶à±¦ÓÎÏ·ÏÂÔØ offers a range of credit loss coverage terms depending upon market conditions and types of assets. Potential Assuming Institutions can bid to receive varying percentages of ¶à±¦ÓÎÏ·ÏÂÔØ loss coverage."

"Within the Commercial SLA, the ¶à±¦ÓÎÏ·ÏÂÔØ provides coverage for qualified losses on commercial assets up to a stated threshold amount."

"Within the Single-Family SLA, the ¶à±¦ÓÎÏ·ÏÂÔØ provides coverage on three basic single-family first lien mortgage loss events: loan modification, short sale, and foreclosure loss. Second liens are permitted to be charged off according to regulatory criteria when the first lien is not held by the Assuming Institution."

"For either agreement, recoveries on loans that have experienced prior covered loss events are typically shared in most instances, with negotiated percentages of the recovery going to the Assuming Institution and the ¶à±¦ÓÎÏ·ÏÂÔØ."
How does the early termination program work?

"Assuming Institutions may approach the ¶à±¦ÓÎÏ·ÏÂÔØ with offers to terminate SLAs prior to their expiration. ¶à±¦ÓÎÏ·ÏÂÔØ’s decision for the early termination of SLAs comprises a review of a bank’s eligibility criteria, a financial evaluation, and supervisory concurrence."

The ¶à±¦ÓÎÏ·ÏÂÔØ may only approve an early termination offer if the terms are less costly to the ¶à±¦ÓÎÏ·ÏÂÔØ than the projected costs of continuing the SLA for its full term.

"Early termination program parameters have changed over time, as market conditions have evolved and the Shared Loss Program has matured."

"The process begins with the Assuming Institution submitting an offer in writing. The ¶à±¦ÓÎÏ·ÏÂÔØ evaluates the portfolios and estimates future losses and recoveries, which are modeled to account for the remaining term of the SLA. If the total projected costs of continuing the SLA are greater than the termination offer, and the Assuming Institution is in compliance with the terms of the SLA, the ¶à±¦ÓÎÏ·ÏÂÔØ may accept the termination offer, subject to approval by the Assuming Institution's primary federal regulator, as well as the ¶à±¦ÓÎÏ·ÏÂÔØ's Division of Risk Management Supervision."
How does the ¶à±¦ÓÎÏ·ÏÂÔØ know it is getting the best deal with Shared Loss?

"When preparing the sale of a failing bank, the ¶à±¦ÓÎÏ·ÏÂÔØ reaches out to numerous potential bidders to bid for the customer deposits and the failing bank's assets. The sale relies on a confidential, competitive bidding process. To support this effort, the ¶à±¦ÓÎÏ·ÏÂÔØ uses financial advisors to estimate asset values."

"After bids are received, the ¶à±¦ÓÎÏ·ÏÂÔØ selects the least costly option. To facilitate this analysis, the ¶à±¦ÓÎÏ·ÏÂÔØ may dictate the terms and conditions of an SLA, as well as the assets to be covered when potential Assuming Institutions bid on a failing bank. This allows the ¶à±¦ÓÎÏ·ÏÂÔØ to expeditiously analyze and compare each of the bids to determine which is the least costly to the Deposit Insurance Fund (DIF). The terms and conditions also enable the ¶à±¦ÓÎÏ·ÏÂÔØ to monitor the SLAs effectively."

"In poor market conditions, shared loss can actually save the DIF money. SLAs enable the ¶à±¦ÓÎÏ·ÏÂÔØ to sell the assets of the failed bank with the commitment to share future losses, without requiring the acceptance of lower market prices prevalent at the time. Assuming Institutions are often able to resolve troubled assets at a higher price once market conditions improve, sharing the higher recovery amount with the ¶à±¦ÓÎÏ·ÏÂÔØ."
What can/ should a borrower or banker do if they are having a problem with a Shared Loss Assuming Institution?

"Borrowers or other bankers with concerns should first initiate communication with the Assuming Institution for resolution. If unsuccessful in communicating with the Shared Loss Assuming Institution, borrowers or other bankers may request support from the ¶à±¦ÓÎÏ·ÏÂÔØ as follows:"

"1. Complete a ¶à±¦ÓÎÏ·ÏÂÔØ Customer Assistance Online Form, or"
"2. Contact the ¶à±¦ÓÎÏ·ÏÂÔØ Call Center / Office of the Ombudsman at 1-877-275-3342, via e-mail at Ombudsman@fdic.gov, or through the Ombudsman's web site"

What is Shared Loss?

"Under a Shared Loss Agreement (SLA), the ¶à±¦ÓÎÏ·ÏÂÔØ absorbs a portion of the loss on a specified pool of assets sold through the resolution of a failing bank—in effect sharing the loss with the purchaser of the failing bank."
What type of oversight does the ¶à±¦ÓÎÏ·ÏÂÔØ have over the SLAs?

"The ¶à±¦ÓÎÏ·ÏÂÔØ conducts annual reviews and regular monitoring of records of covered losses and overall compliance of Assuming Institutions with the SLAs. ¶à±¦ÓÎÏ·ÏÂÔØ also requires Assuming Institutions to provide quarterly reports to ensure compliance with the program and to monitor the performance of the assets. In the event that an Assuming Institution is not in compliance with the SLA, the ¶à±¦ÓÎÏ·ÏÂÔØ has the right to stop shared loss payments until the problem findings are resolved, and, in extreme cases, to sell the assets through a competitive bid process."
What types of losses on the assets are covered and when does the ¶à±¦ÓÎÏ·ÏÂÔØ reimburse the buyer for those losses?

The ¶à±¦ÓÎÏ·ÏÂÔØ shares credit losses with the Assuming Institution. The ¶à±¦ÓÎÏ·ÏÂÔØ does not cover losses or expenses associated with changes in interest rates.

"Within the Single-Family SLA, the Assuming Institution is reimbursed when the loan is modified or the property is sold."

"Within the Commercial SLA, the Assuming Institution is reimbursed when the asset is written down according to established regulatory guidelines or when the asset is sold."
Where can I learn more about the history of Shared Loss?

Additional information may be found from the following ¶à±¦ÓÎÏ·ÏÂÔØ publications:

"Managing the Crisis: The ¶à±¦ÓÎÏ·ÏÂÔØ and RTC Experience 1980-1994, Chapter 7"
"Crisis and Response: An ¶à±¦ÓÎÏ·ÏÂÔØ History, 2008-2013, Chapter 6"

Why doesn't the ¶à±¦ÓÎÏ·ÏÂÔØ use Shared Loss for all failures?

"The ¶à±¦ÓÎÏ·ÏÂÔØ has developed a variety of resolution methods designed to enhance the marketability of a failing bank. SLAs are just one of the resolution methods the ¶à±¦ÓÎÏ·ÏÂÔØ has available. Market conditions are a major factor which influence the resolution types offered by the ¶à±¦ÓÎÏ·ÏÂÔØ for each failing bank. By law, the ¶à±¦ÓÎÏ·ÏÂÔØ must select the least costly resolution transaction for the failing bank."