Bridge bank
Encyclopedia
In the United States law of banking regulation, a bridge bank is a temporary bank organized by federal bank regulators to administer the deposits and liabilities of a failed bank
. Under the Competitive Equality Banking Act (CEBA) of 1987, the Federal Deposit Insurance Corporation
(FDIC) is authorized to operate a failed bank for a period of up to three years, until a buyer can be found for its operations.
Under CEBA, when a FDIC-insured bank is in financial trouble, the FDIC "may establish a bridge bank to —
(A) assume the deposits of the closed bank;
(B) assume such other liabilities of the closed bank as the Corporation, in the Corporation's discretion, may determine to be appropriate;
(C) purchase such assets of the closed bank as the Corporation, in the Corporation's discretion, may determine to be appropriate; and
(D) perform any other temporary function which the Corporation may prescribe in accordance with this Act."
Bridge banks must be chartered as national bank
s. To the extent possible, bridge banks are required to honor the commitments of the failed bank to its customers, and not to interrupt or terminate adequately secured
loan
s. Bridge banks are authorized to seek to liquidate failed banks, either by finding buyers for the bank as a going concern, or by liquidating its portfolio
of assets, within two years, which can be extended for cause by an additional year. Should the bridge bank fail to wind down its operations within the allotted time, the bridge bank must notify the Comptroller of the Currency of its intent to dissolve
the bridge bank. Under this situation, the FDIC is appointed as the receiver of the bridge bank's assets.
Bank failure
A bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. More specifically, a bank usually fails economically when the market value of its assets declines to a value that is...
. Under the Competitive Equality Banking Act (CEBA) of 1987, the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
(FDIC) is authorized to operate a failed bank for a period of up to three years, until a buyer can be found for its operations.
Under CEBA, when a FDIC-insured bank is in financial trouble, the FDIC "may establish a bridge bank to —
(A) assume the deposits of the closed bank;
(B) assume such other liabilities of the closed bank as the Corporation, in the Corporation's discretion, may determine to be appropriate;
(C) purchase such assets of the closed bank as the Corporation, in the Corporation's discretion, may determine to be appropriate; and
(D) perform any other temporary function which the Corporation may prescribe in accordance with this Act."
Bridge banks must be chartered as national bank
National bank
In banking, the term national bank carries several meanings:* especially in developing countries, a bank owned by the state* an ordinary private bank which operates nationally...
s. To the extent possible, bridge banks are required to honor the commitments of the failed bank to its customers, and not to interrupt or terminate adequately secured
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s. Bridge banks are authorized to seek to liquidate failed banks, either by finding buyers for the bank as a going concern, or by liquidating its portfolio
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
of assets, within two years, which can be extended for cause by an additional year. Should the bridge bank fail to wind down its operations within the allotted time, the bridge bank must notify the Comptroller of the Currency of its intent to dissolve
Dissolution (law)
In law, dissolution has multiple meanings.Dissolution is the last stage of liquidation, the process by which a company is brought to an end, and the assets and property of the company redistributed....
the bridge bank. Under this situation, the FDIC is appointed as the receiver of the bridge bank's assets.