So a couple of banks in my state were closed by the FDIC this weekend. Luckly, not my bank. Anyways, in reading the press release for one of the banks, I can't figure out why this bank closed. According to the release, the bank had "total assets of approximately $874.0 million and total deposits of approximately $838.0 million". So this was, I guess, the "value" of the bank. Then the release says that the FDIC entered into a "loss-share transaction on approximately $692 million" with another bank, to assume the assets and liabilities of the first bank.
So my questions are,
1.) What were the outlays/expenses/liabilities of the first bank? Is it just $692 million?
2.) I think the answer to question #1 must be "no", other wise their deposits and assets could easily cover their outlays. So, how did this bank fail when others do not? Surely this bank was at the 10% reserve limit just like all other banks.
3.) Can someone give me a *simple* explanation of a loss-share transaction? The only thing I can find is from the FDIC, itself
4.) Why would the second bank buy these assets? Surely it is in the business of making money. And if it makes money then mustn't the FDIC and/or the first bank's clients lose money?
press release here: http://www.fdic.gov/news/news/press/2009/pr09219.html