The Federal Deposit Insurance Corp. (FDIC) began its courting of pension funds interested in buying assets of distressed bank holding companies.
The entrance of pension funds would provide another potential outlet for the diversification of the FDIC’s exit strategy that also includes a large securitization program announced last week.
Public pension funds that control more that $2 trillion would be eligible to inject capital directly into the banking system by buying failed lenders, according to a Bloomberg report.
The direct investment would allow public retirement funds to reduce fees for private equity managers and FDIC to get better prices for distressed assets, according to the report on the FDIC’s Web site.
While David Barr, an FDIC spokesperson, did not confirm or deny that the institution is looking to do business with public pension funds, he did tell Investment Management Weekly: “The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods. We welcome and work with all investors.”
Barr added that buying failed banks from the FDIC is a good way for the banks and “new entrants” to expand or enter into new markets.
“A receivership acts like a filter to keep the problems that cause a bank to fail from spilling over to the assuming institution,” Barr said. “The FDIC can either retain certain assets or it can wrap assets in a loss-share arrangement to help better protect the assuming bank.”