FDIC looks to benefit from bank rescues
When the FDIC swooped in last week to facilitate the sale of failed Colonial BancGroup to BB&T, it pushed for something new called a “clawback.” Karen Petrou of Federal Financial Analytics explains the new policy with Tess Vigeland.
Tess Vigeland: Last Friday the FDIC swooped in to manage the year’s biggest bank failure. It facilitated the sale of Alabama-based Colonial BancGroup to the regional bank BB&T. It was the 77th bank failure of 2009. But it turns out this deal was a little different. For most of the previous failures — the FDIC brought in healthy banks to assume leftover assets. And it took on a good chunk of the risk from those assets. But this time the agency also pushed for something called a clawback, where, if the bank rescue works, the FDIC gets some of its investment back. Joining us now for some explanation is Karen Petrou. She’s managing partner at Federal Financial Analytics. Welcome to the program. KAREN PETROU: Thanks very much, Tess. VIGELAND: Now, this deal with Colonial Bank last Friday sort of changed the game. Can you describe what happened and why it was different? PETROU: Colonial, just to put it in perspective, is the 5th biggest bank failure in U.S. history. This was a $25 billion bank with a lot of significant issues, including now criminal investigations and complexities that aren’t typical in bank failures — both from the size and the complexity and its big book of bad loans.
But this time the FDIC didn’t just look at it, say yuck, and hand it over. They looked at it and said, Yuck, but in case it’s not so bad, we want a little of the upside. And that’s the first time the FDIC has ever done that.
Listen to the show: