Value Appreciation Instruments In FDIC-Assisted Acquisitions

Since the beginning of 2008 through May 2011, 366 banks and thrifts have failed in the United States. The FDIC, as receiver or conservator, has resolved most of these failed institutions by disposing of their assets and liabilities in purchase and assumption transactions (each, a "P&A"). Section 13(c)(4) of the Federal Deposit Insurance Act (the "FDI Act") requires the FDIC to resolve failed banks in the least costly manner. Value appreciation instruments or warrants (collectively, "VAIs") have been taken from time to time by the FDIC from winning bidders to reduce the costs to the FDIC's Deposit Insurance Fund ("DIF") of resolving insured depository institutions.

The Appeal of VAIs