The FDIC has the unique mission of protecting depositors of insured banks and savings associations. No depositor has ever experienced a loss on the insured amount of his or her deposit in an FDIC-insured institution due to a failure. Once an institution is closed by its chartering authority – the state for state-chartered institutions, the Office of the Comptroller of the Currency (OCC) for national banks and the Office of Thrift Supervision (OTS) for federal savings associations – and the FDIC is appointed receiver, it is responsible for resolving the failed bank or savings association. The FDIC gathers data about the troubled institution, estimates the potential loss to the insurance fund from various resolution alternatives, solicits and evaluates bids from potential acquirers (if any), and recommends the least-costly resolution method to the FDIC's Board of Directors for approval.
Resolving Financial Institutions Failures
During 2007, three FDIC-insured institutions failed. The accompanying chart provides liquidation highlights and trends for the past three years. No federally-insured financial institution failures occurred in either 2005 or 2006.
Liquidation Highlights 2005 - 2007
Dollars in Billions
*Includes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the Resolution Trust Corporation. #Least Cost Test Savings. The least cost test is performed prior to resolution to rank order the various resolution alternatives by estimated cost to the Deposit Insurance Fund.
Metropolitan Savings Bank in Pittsburgh, Pennsylvania, was the first FDIC-insured institution closed since June 2004. This institution was closed by the Pennsylvania Department of Banking on February 2, 2007. At the time of closure, Metropolitan had total assets of $15.3 million and total deposits of $17.5 million with $925 thousand in deposits that exceeded the federal deposit insurance limit. Allegheny Valley Bank of Pittsburgh, Pennsylvania, paid the FDIC a premium of six percent on assumed deposits of approximately $12.3 million and purchased certain assets in the form of cash equivalents, securities, and loans secured by deposits for $1.9 million. The estimated cost to the DIF is $2.5 million.
NetBank of Alpharetta, Georgia, was closed by the Office of Thrift Supervision on September 28, 2007. NetBank was an Internet bank and had no physical branches. At the time of closure, NetBank had total assets of $2.2 billion and total deposits of $1.94 billion with $94.5 million in deposits that exceeded the federal deposit insurance limit. Uninsured depositors received an immediate dividend of 50 percent of their uninsured balance. ING Bank, FSB, Wilmington, Delaware, assumed $1.38 billion of the failed bank's insured non-brokered deposits for a one percent premium and purchased $464 million of NetBank's assets. The estimated cost to the DIF is $107.7 million.
Miami Valley Bank of Lakeview, Ohio, was closed by the Ohio Superintendent of Financial Institutions on October 4, 2007. At the time of closure, Miami Valley had total assets of $92.6 million and total deposits of $65 million with $3.9 million in deposits that exceeded the federal deposit insurance limit. The Citizens Banking Company, Sandusky, Ohio, assumed $56.4 million of the failed bank's insured deposits for a two percent premium and purchased $9 million of Miami Valley's assets. The estimated cost to the DIF is $3 million.
Receivership Management Activities
The FDIC, as receiver, manages the failed banks and their subsidiaries with the goal of expeditiously winding up their affairs. The oversight and prompt termination of receiverships help to preserve value for the uninsured depositors and other creditors by reducing overhead and other holding costs. Once the assets of a failed institution have been sold and the final distribution of any proceeds is made, the FDIC terminates the receivership estate. In 2007, the number of receiverships under management was reduced by 22 percent (from 55 to 43), while the book value of assets under management increased by 158 percent (from $352 million to $907 million).
For the institutions that failed in 2007, the FDIC successfully contacted all known qualified and interested bidders to market these institutions. Additionally, the FDIC marketed 90 percent of the marketable assets of these institutions at the time of failure and made insured funds available to all depositors within one business day of the failure.
Receivership-Related Securities Disposition and Cash Collections
A total of 56 securities, including mortgage-backed securities, swap agreements, corporate bonds and common stock, were managed throughout the year or were sold, with cash collections from sales and management totaling approximately $29 million.
Claims Administration System and Related Notice of Proposed Rulemaking
During 2007, the FDIC identified requirements and completed the high-level design of a new insurance determination system called the Claims Administration System, targeted to be implemented in 2009. The FDIC also issued a Notice of Proposed Rulemaking that, in the event of a financial institution failure, would require all insured institutions, regardless of size to assist in the insurance determination process and to provide the FDIC with depositor data in a standard format. In both 2005 and 2006, the FDIC had issued Advance Notices of Proposed Rulemaking on this topic.
Asset Servicing Technology Enhancement Project
In 2007, the Asset Servicing Technology Enhancement Project (ASTEP) implemented a new asset management system called 4C. This effort takes advantage of new technology and replaces several outdated systems. The 4C system currently supports the management of receivership loans, real estate, securities, and other assets. It also provides a data warehouse. On May 8, 2007, the FDIC Board of Directors approved funding for the inclusion of the institution franchise and the asset marketing functions in the 4C system. 4C will be completed in late 2008 allowing the FDIC to more efficiently market financial institutions franchises, manage and sell the assets of failed banks, and to easily report on these activities.
Protecting Insured Depositors
Although the FDIC's focus in recent years has shifted from resolving large numbers of failed institutions to addressing existing and emerging risks in insured depository institutions, the FDIC continues to protect deposits in institutions that fail. The FDIC's ability to attract healthy institutions to assume deposits and purchase assets of failed banks and savings associations at the time of failure minimizes the disruption to customers and allows some assets to be returned to the private sector immediately. Assets remaining after resolution are liquidated by the FDIC in an orderly manner and the proceeds are used to pay creditors, including depositors whose accounts exceeded the $100,000 (or $250,000) insurance limit. During 2007, the FDIC paid dividends of $64.3 million to depositors whose accounts exceeded the insured limit(s).
Professional Liability Recoveries
The FDIC staff works to identify potential claims against directors and officers, accountants, appraisers, attorneys and other professionals who may have contributed to the failure of an insured financial institution. Once a claim is deemed meritorious and cost effective to pursue, the FDIC initiates legal action against the appropriate parties. During the year, the FDIC recovered approximately $47.1 million from these professional liability claims. In addition, as part of the sentencing process for those convicted of criminal wrongdoing against institutions that later failed, a court may order a defendant to pay restitution or to forfeit funds or property to the receivership. The FDIC, working in conjunction with the U.S. Department of Justice, collected more than $5.3 million in criminal restitution during the year. At the end of 2007, the FDIC's caseload was comprised of nine professional liability lawsuits (up from 8 at year-end 2006), 34 open investigations (up from 2), and 93 active settlement collections (down from 97). At year end, there were 687 active restitution and forfeiture orders (down from 814). This includes 357 Resolution Trust Corporation orders that the FDIC inherited on January 1, 1996.