Under the purchase-and-assumption method, the FDIC usually finds it:
A) can sell the failed bank for more than the bank is actually worth.
B) can sell the bank at a price equaling the value of the failed banks assets.
C) has to sell the bank at a negative price since the bank is insolvent.
D) cannot sell the bank and almost always has to revert to the payoff method for dealing with a failed bank.

Question

Quizplus · Accepted Answer

Under the purchase-and-assumption method, the FDIC often has to sell the bank at a negative price because the bank is insolvent, meaning its liabilities exceed its assets. This method allows another bank to assume the deposits and purchase some or all of the failed bank's assets, but because the failed bank is insolvent, the transaction might effectively be at a "negative price" to make it appealing for another institution to take over.

Under the Purchase-And-Assumption Method, the FDIC Usually Finds It