Purchase And Assumption - P&A

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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.

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