Definition
The term assuming institution refers to a financial institution that purchases some, or all, of the assets of a failed financial institution. Assuming institutions acquire the assets, deposits, and liabilities of the failed bank or thrift via a purchase and assumption transaction.
Explanation
Also known as an acquiring institution, an assuming institution is a financially healthy business that has the resources to purchase the assets and liabilities of a failed bank or thrift. The process starts when the Federal Deposit Insurance Corporation (FDIC) makes a determination a financial institution no longer has the resources to serve its customers and fulfill its obligations to creditors. As part of the process, the FDIC will assemble an inventory of the failed financial institution's assets and liabilities. This inventory is then presented to potential assuming institutions.
These companies have a relatively short timeframe to decide if they want to proceed with the transaction. Once they have agreed to participate in this process, the assuming institution will work with the FDIC through what is referred to as the settlement process, which includes establishing a date on which the failed financial institution will close. While the assuming institution has the ability to designate which assets it is willing to purchase, the FDIC gives preference to those financially healthy institutions that are willing to assume all of the financial obligations of the failed thrift or bank.
