US banking regulator's tab for failed banks nears $9B

WASHINGTON — US banking regulators have 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 Wall Street Journal reported Thursday.

The payments were made under loss sharing agreements struck by the Federal Deposit Insurance Corp. (FDIC) that shield buyers from much of the risk associated with loans inherited from failed banks. The deals, covering everything from empty Las Vegas shopping centers to nearly worthless mortgages in Florida, were a reminder of the price tag attached to many government programs launched near the worst of the crisis.

As the number of bank failures surged, FDIC officials dangled loss share arrangements as an incentive for banks to acquire institutions and then work to improve the value of their assets over time.

As of Jan. 31, the latest month for which figures were available, the FDIC paid out $8.89 billion to banks under the loss share agreements. Such deals were in place at 236 financial institutions, with the FDIC agreeing to assume most future losses on $160 billion of assets.

FDIC officials expected to make an additional $21.5 billion in payments from 2011 to 2014. More than half of that total was predicted for this year, followed by an estimated $6 billion in loss share reimbursements in 2012, according to the agency. Some of the loss share deals will be in place for 10 years.

The payments to date were smaller than FDIC officials anticipated, and they said it would cost much more to liquidate the mountain of bad loans at fair market value. The FDIC said Wednesday it could not be more specific about its previous estimates for future payouts because the agency continually revises those estimates based on new loss share deals and claims submitted under existing arrangements.

The biggest stream of reimbursements, $1.21 billion in all, went to BankUnited, of Miami Lakes, Fla. Its private equity owners resurrected a similarly named savings institution that collapsed in 2009 under the weight of home loans made before the housing bust. The FDIC was on the hook to cover as much as 95 percent of losses on some loans at BankUnited, which went public in January.

Those were some of the sweetest terms offered by the FDIC, which became less generous as more banks scrambled to buy failed financial institutions. Regulators seized and sold 25 financial institutions this year, down from 30 in the same period last year. Among deals for this year's 25 institutions, 11 did not include any loss sharing protection.