Purchase And Assumption - P&A

AAA

DEFINITION of 'Purchase And Assumption - P&A'

A transaction in which a healthy bank or thrift purchases assets and assumes liabilities from an unhealthy bank or thrift. Purchase and assumption (P&A) is the most common of three basic resolution methods used by the Federal Deposit Insurance Corporation (FDIC) to deal with failing banks. The other types are deposit payoffs and liquidation and open bank assistance transactions.

INVESTOPEDIA EXPLAINS 'Purchase And Assumption - P&A'

Purchase and assumption is a broad category that includes more specialized types of P&A transactions, such as loss sharing and bridge banks. Bridge-bank transactions are considered better than deposit payoffs, but they involve more time, effort and responsibility from the SEC. In the late 1980s and early 1990s, the FDIC used bridge-bank transactions with banks such as Capital Bank & Trust Co., First Republic Bank and First American Bank & Trust.

In a type of P&A called a whole-bank transaction, all of the failing bank's assets and liabilities are transferred to the acquiring bank. However, certain categories of assets are never or infrequently transferred in P&A transactions. The value of assets being purchased is determined by an FDIC asset evaluation.

RELATED TERMS
  1. Bridge Bank

    A bank authorized to hold the assets and liabilities of another ...
  2. Bank

    A financial institution licensed as a receiver of deposits. There ...
  3. Asset

    1. A resource with economic value that an individual, corporation ...
  4. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
  5. Liability

    A company's legal debts or obligations that arise during the ...
  6. Thrift Bank

    A financial institution focusing on taking deposits and originating ...
Related Articles
  1. Are Your Bank Deposits Insured?
    Savings

    Are Your Bank Deposits Insured?

  2. Bank Failure: Will Your Assets Be Protected?
    Options & Futures

    Bank Failure: Will Your Assets Be Protected?

  3. The History Of The FDIC
    Retirement

    The History Of The FDIC

  4. Financial Regulators: Who They Are And ...
    Options & Futures

    Financial Regulators: Who They Are And ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center