From James Sterngold at Bloomberg: ‘On the Edge’ Banks Facing Writedowns After FDIC Loan Auctions (ht jb)

A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month ... may trigger writedowns that weaken lenders nationwide.

...

The auctions may have wider repercussions. Of the $50.4 billion in loans seized from failed banks currently held by the FDIC, 63 percent involve participations by other lenders, according to data provided by agency spokesman Greg Hernandez.



“These banks can’t believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses,” said Robert Reynolds, a lawyer at Reynolds Reynolds & Duncan LLC in Tuscaloosa, Alabama, ... “Our banks just cannot believe they’re being treated in a way that ultimately hurts the FDIC’s insurance fund, because some of them are right on the edge.”

...

“We have a number of banks teetering on the edge, and we don’t need this problem,” [John J. Collins, president of Community Bankers of Washington in Lakewood, Washington] said in an interview.

"This problem" is many small and regional banks are carrying loans above market value. The FDIC auction will establish market value (update: actually examiners can consider the distressed nature of the auction) - and the fear is this will lead to significant losses for many banks - and more bank failures.