Resolutions Under Bridge Banks: What Does It Mean?

Following the significant turmoil and fears of contagion created by two bank failures within the past week, the Federal Deposit Insurance Corporation (FDIC), as receiver for the banks,¹ along with the Department of the Treasury and the Board of Governors of the Federal Reserve System, stepped into the breach Sunday evening and announced that, as a result of the application of a systemic exemption to the nominal deposit insurance limitations, all deposits would be protected above the $250,000 insurance limit, and that the business of the bank would resume on Monday more or less as normal. Following these appointments, the FDIC resorted to a seldom-used tool called a "bridge bank."² Added to the FDIC's receivership powers in 1987, a bridge bank allows the FDIC to continue the operations of a failed or failing bank while it seeks a buyer (or buyers) for the institution or its assets. Bridge banks minimize customer disruption while in theory allowing the FDIC to maximize