FDIC has the unique mission to protect depositors of insured banks and savings
associations. No depositor has ever experienced a loss of insured funds in an FDIC-insured
institution due to a failure. The FDIC protects depositors by managing the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF). The FDIC also manages the
remaining assets and liabilities of the former Federal Savings and Loan Insurance
Corporation (FSLIC) and the former Resolution Trust Corporation (RTC) through the FSLIC
Resolution Fund (FRF).
Once an institution is closed by its chartering
authoritythe 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 associationsthe FDIC is responsible for resolving that failed bank
or savings association. The Division of Resolutions and Receiverships (DRR) staff gathers
data about the troubled institution, estimates the potential loss from a liquidation,
solicits and evaluates bids from potential acquirers, and recommends the least costly
resolution to the FDICs Board of Directors.
Although the focus of the FDIC 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 those institutions that fail. The
FDICs ability to attract healthy institutions to assume deposits and purchase assets
of failed banks and savings associations minimizes the disruption to customers and allows
some assets to be returned to the private sector immediately. Assets remaining after
resolution are liquidated by DRR in an orderly manner and the proceeds are used to pay
creditors, including depositors whose accounts exceeded the insured $100,000 limit, as
well as the FDIC for repayment to the insurance fund.
During 1998, the FDIC resolved three BIF-insured institutions that failed. OmniBank,
River Rouge, MI, with a total of $38 million in assets, was closed on April 9. The
majority of the banks assets and all of the deposits were acquired under a
"loss-share agreement" (explained in the next section). BestBank, Boulder, CO,
with total assets of $318 million, was closed on July 23. Its insured deposits and certain
assets were acquired by an assuming bank. Q Bank, Fort Benton, MT, with total assets of
$14 million, was closed on August 7. The failed banks insured deposits and some
assets were acquired by an assuming bank.
To keep as many of a failed institutions assets in the private sector as possible
(as opposed to being in a liquidation mode if left behind in receivership), the FDIC
developed several new procedures and concepts. One such concept included opening the
competition to bidders who might want to buy the troubled institutions loans, but
not its branches. The expansion of potential acquirers was designed to decrease the cost
of failures through increased competition.
In addition, previously used resolution tools and methods were reintroduced. Typically
used in larger transactions, the FDIC utilized the loss-sharing agreement with the
OmniBank resolution. The loss-share transaction allows flexibility for the potential
acquirers of failing banks. The structure provides for the FDIC and the acquirer to share
future losses and recoveries on specified assets within a limited time from the
failuregenerally two years for loss-sharing, with recovery-sharing extending an
Assets not sold at the time of resolution are retained by the FDIC for later sale,
workout or other disposition. During the year, the FDIC had reduced the book value of the
combined FDIC/RTC assets in liquidation from $4.1 billion to $2.4 billion, a reduction of
42 percent. In addition to the $2.4 billion in assets in liquidation, the FDIC was also
managing $6.7 billion in assets not in liquidation, consisting of cash, securitization
reserves and residuals. During the year, 806 real estate properties were sold for a total
of $148.7 million, which yielded a recovery of 88.9 percent of their average appraised
value as determined by independent appraisers. Also, 6,545 loans and other assets were
sold for a total of $203.8 million.
Regulators and former regulators, bankers and members of
the academic community joined in a wide-ranging discussion at the April 29 FDIC- sponsored
symposium Managing the Crisis: The FDIC and RTC Experience.
Once the assets of the failed institutions have been sold and the final distribution of
any proceeds made, the FDIC terminates the receivership estates. During 1998, the FDIC
terminated 274 receiverships. Of these, 155 were RTC pass-through receiverships (where
assets and liabilities are passed to an acquirer while certain claims were retained by the
RTC as receiver), 14 were FRF receiverships (commonly referred to as "Southwest
Plan" institutions), and the remaining 105 were BIF or FRF/RTC receiverships. A total
of 140 receiverships are currently in termination status, which means that expenses are no
longer charged to the receiverships in anticipation of their termination.
The FDIC in 1998 created a new team approach to administering receiverships. The
Receivership Management Oversight program is designed to increase efficiency and reduce
receivership costs. Each receivership created from a failed institution was assigned a
team of experts to oversee the liquidation of the assets, manage the costs charged to the
receivership and facilitate the receiverships timely termination. These experts
created a business plan for the receivership that broadly defined the anticipated life
cycle of the receivership.
The FDIC has also targeted specific older receiverships to be terminated by a
streamlined process intended to resolve receiverships sooner. This streamlining was fully
explored during the fourth quarter of 1998 and will be in place for 1999.
During 1998, the FDIC continued its studies on the banking crisis of the late 1980s and
early 1990s. In August 1998, DRR issued a publication entitled Managing The Crisis
The FDIC and RTC Experience. Virtually every division of the FDIC contributed to the
study. This book provides a historical summary of the policies and procedures used by the
FDIC and RTC in resolving the large volume of banks and thrifts that failed during the
crisis. It studies the various asset disposition and bank resolution methods used and the
lessons learned by both the FDIC and the RTC. This publication complements a previous
study completed by the FDIC in 1997 entitled History of the EightiesLessons for
the Future: An Examination of the Banking Crises of the 1980s and Early 1990s. The
1998 publication, which has been widely distributed, is accessible through the Internet
and numerous libraries. The information from this study was the centerpiece of an
FDIC-sponsored public symposium in April 1998.
A second book, entitled Resolutions Handbook, was also published in 1998 by
the same FDIC groups that completed Managing the Crisis. This 90-page book
focuses on the resolution process of bank failures. It relates the historical efforts and
experience of the FDIC and RTC and is an aid for the many foreign governments that have
requested the FDICs assistance. Numerous FDIC seminars involving participants from
foreign countries have used or are expected to use this book as their reference guide.
These three publications establish permanent resource documents of the nations
most troubled financial crisis since the Great Depression. In addition, as the United
States is now being called upon to provide international fiscal guidance, these
publications will aid countries that are now struggling through their own banking
The FRF was established by law in 1989 to assume the remaining assets and obligations
of the former FSLIC arising from thrift failures before January 1, 1989. Congress placed
this new fund under FDIC management on August 9, 1989, when the FSLIC was abolished. On
January 1, 1996, the FRF also assumed the RTCs residual assets and obligations.
Today, the FRF consists of two distinct pools of assets and liabilities: one from the
former FSLIC (FRF-FSLIC) transferred on August 9, 1989, and the other from the former RTC
(FRF-RTC) transferred to the FRF on January 1, 1996. The assets of one pool are not
available to satisfy obligations of the other.
At year-end 1998, the FRF-FSLIC had resolution equity of $2.1 billion, and the FRF-RTC
had resolution equity of $8.2 billion. The FRF will continue to exist until all of its
assets are sold or liquidated and all of its liabilities are satisfied. Any funds
remaining in the FRF-FSLIC will be paid to the U.S. Treasury. Any remaining funds of the
FRF-RTC will be distributed to the U.S. Treasury to repay RTC Completion Act
appropriations and to the REFCORP to pay the interest on the REFCORP bonds.
The FDICs Legal Division and DRR work together to identify claims against
directors and officers, accountants, appraisers, attorneys and other professionals who may
have contributed to the failure of an insured financial institution. During the year, the
FDIC recovered more than $186.5 million from these professional liability suits. In
addition, as part of the sentencing process for those convicted of criminal wrongdoing
against failed institutions, the court may order a defendant to pay restitution to the
receivership. The FDIC, working in conjunction with the U.S. Department of Justice,
collected more than $17 million in criminal restitution and asset forfeiture during the
The Corporation also investigates the circumstances surrounding the failure of every
institution and, where appropriate, sends suspicious activity reports to the Justice
Department. In recent years, 6,434 such reports have been issued regarding failures. The
FDICs caseload at the end of 1998 included investigations, lawsuits and ongoing
settlement collections involving 141 institutions, down from 180 at the beginning of 1998.
This caseload includes RTC cases that the FDIC assumed on January 1, 1996.