In two separate transactions, the FDIC sold 20% of a $1.45 billion portfolio to Diversified Business Strategies and Stearns Bank NA. The loans were originally issued by First National Bank of Nevada, which was seized by regulators in July.
The private-public partnership ensures that the government will share in any profits that are generated as loans are worked out, while, at the same time, sharing the risk.
Under the terms of the sale, the FDIC will retain an 80% stake, which will be reduced to 60% once certain certain loan performance standards are met.
Over the last year, the FDIC has sold a total of $3.2 billion of distressed loans in five separate private-public transactions.
William Isaac, who was FDIC chairman from 1981 to 1985, said private-public partnerships are a common way to handle the disposition of troubled assets from a failed bank.
"It gives incentives for private purchasers to come in and to maximize returns," he said. "It also gives the FDIC significant upside potential."
The partnership is based on the Resolution Trust Corporation, which was set up in the 1980s to liquidate assets during the savings and loan crisis.
"During the last banking crisis, when asset values were similarly difficult to ascertain, these types of structures ultimately resulted in superior recoveries relative to the then-depressed market valuations," said James Wigand, deputy director of the FDIC's division of resolutions and receiverships, in a statement.
First National Bank of Nevada was one of 25 banks that failed in 2008 as the downturn in the housing market took a toll on regional banks.
So far this year, a total of 14 banks have failed. At the current rate, nearly 100 institutions - with a combined $50 billion in assets - will collapse by the end of 2009.
Many economists think the number of failed banks will continue to rise as more consumers and businesses default on loans amid one of the longest recessions on record.
Three regional banks fail
Government’s proposal for banks comes today
Get ready for a wave of bank failures
Large banks take beating on Wall Street
