Why Close the Bank, Just Bail it Out.

Carrie Bay writes in DS News Regulators Shut Down Four Banks, about the recent spate of closures by the FDIC of community banks including shutting down La Jolla Bank FSB. According to Carrie:

"The FDIC brokered a deal with OneWest Bank in Pasadena to take over La Jolla Bank’s $2.8 billion in deposits and reopen its ten branches. One West, which was formed to take over IndyMac Bank when it collapsed, also agreed to purchase “essentially all” of the La Jolla Bank’s $3.6 billion in assets, $3.3 billion of which the FDIC agreed to share losses on. The California bank’s failure is expected to cost the FDIC $882.3 million."

This deal follows on the heels of questions raised about the deal brokered by the FDIC when One West Bank took over Indy Mac Bank and One West Banks most recent profit disclosures.

All of this raises the question, what would happen if the FDIC didn't close the community banks holding the toxic loans and instead, simply shared the losses with the failing banks?  What if, in the case of La Jolla Bank, the FDIC just agreed to share the losses with the bank, expecting to lose $882.3 million?