Asset Valuation Review (AVR)

DEFINITION of 'Asset Valuation Review (AVR)'

A process that establishes an estimate of the value of a failed bank’s assets. The asset valuation review process is used to set the minimum price that a regulatory body is willing to accept for the bank’s assets from other financial institutions looking to purchase them.

BREAKING DOWN 'Asset Valuation Review (AVR)'

In the United States, a financial institution that has failed is turned over to the Federal Deposit Insurance Corporation (FDIC) so that the bank can be liquidated or merged with a financially healthier institution. The resolution process involves gathering information on the failed bank’s assets and liabilities, notifying the public and other financial institutions that the bank has failed, and trying to find other financial institutions to purchase the failed bank. The FDIC can provide financial assistance, such as capital loss coverage, in order to attract other banks into undertaking the transaction. The goal is to end the liquidation process as quickly as possible with the least financial impact to the deposit insurance fund.

Establishing the value of a failed financial institution’s assets can be a complicated endeavor, especially when the FDIC is unsure of the complexities involved with the bank until it examines the books. The regulator assesses the value of the bank’s portfolio of assets, and assigns a price to each type of loan grouping. By categorizing assets into different pools, the regulator is able to cross-match the different pools to different banks depending on their levels of interest. Due to the fact that most banks have a large portfolio of assets, such as loans, the asset valuation review uses a sampling method to estimate the value of the assets. The sample is typically a stratified random sample, and the process is automated as much as possible to ensure that the valuation is completed quickly. The regulator may spend more time evaluating the value of a failed bank’s largest loans.