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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

2015-2019 Strategic Plan

Receivership Management Program

Program Description

When an insured depository institution fails, the FDIC is ordinarily appointed receiver.  In that capacity, it assumes responsibility for efficiently recovering the maximum amount possible from the disposition of the receivership’s assets and the pursuit of the receivership’s claims.  Funds that are collected from the sale of assets and the disposition of valid claims are distributed to the receivership’s creditors according to priorities set by law.

The FDIC seeks to terminate receiverships in an orderly and expeditious manner.  Once the FDIC has completed the disposition of the receivership’s assets and has resolved all obligations, claims, and other legal impediments, the receivership is terminated, and a final distribution is made to its creditors.  Receivership creditors may include secured creditors, unsecured creditors (including general trade creditors), subordinate debt holders, shareholders, uninsured depositors, and the DIF (as subrogee).  The FDIC is often the largest creditor of the receivership.

Under Title II of the Dodd-Frank Act, the FDIC may also be called upon to resolve the failure of a large, systemically important financial company.  Although the Act makes clear that bankruptcy is the preferred resolution framework, the Congress also recognized that circumstances could arise in which a large, complex financial institution might not be resolvable under bankruptcy without posing a systemic risk to the U.S. economy.  Title II, therefore, provides a backup authority to place a failed or failing financial company into an FDIC receivership process if no viable private-sector alternative is available to prevent the default of the company and if a resolution through the bankruptcy process would have a serious adverse effect on U.S. financial stability.  In such circumstances, the FDIC’s Orderly Liquidation Authority under Title II is intended to ensure the rapid and orderly resolution of the failure of a covered financial company in accordance with statutory mandates.  The FDIC has been actively engaged in, and will continue over the next several years to pursue, resolution planning and operational readiness initiatives to make sure that it is prepared, if necessary, to fulfill this responsibility.

The FDIC’s assessment of the resolution plans submitted by bank holding companies, other covered companies, and IDIs helps develop and improve its capabilities to administer large resolutions under any of the available authorities.  The actions firms take to address the shortcomings identified in their plans and the direction to address those shortcomings will improve the likelihood that the firms will be resolvable under bankruptcy and/or traditional FDIC resolution processes and will enhance the FDIC’s ability to conduct a rapid and orderly resolution under Title II, if that becomes necessary.

Strategic Goal 5

Resolutions are orderly and receiverships are managed effectively.

Strategic Objectives

5.1 Receiverships are managed to maximize net return and terminated in an orderly and timely manner.
   
5.2 Potential recoveries, including claims against professionals, are investigated and resolved in a fair and cost-effective manner.
   
5.3 Resolution of the failure of a large, complex financial institution is carried out in an orderly manner in accordance with statutory mandates.

The means and strategies used to achieve these strategic objectives and the external factors that could impact their achievement are described below.

5.1 Receiverships are managed to maximize net return and terminated in an orderly and timely manner.

    Means & Strategies:   Under the FDI Act, the FDIC in its receivership capacity manages the assets of failed IDI receiverships to preserve or enhance their value and disposes of them as quickly as possible, consistent with the objective of maximizing the net return on those assets.  The oversight and prompt termination of receiverships preserves value for the uninsured depositors and other receivership claimants by reducing overhead and other holding costs.  By quickly returning the assets of a failed institution to the private sector, the FDIC maximizes net recoveries and minimizes disruption to the local community.

    In fulfilling its responsibilities to creditors of failed institutions, the FDIC, as receiver, manages and sells the receivership assets using a variety of strategies and identifies and collects monies due to the receivership.  Given adequate time, the FDIC prepares in advance an information package and an asset valuation review for each failing insured depository institution to help solicit bidders and sell as many of the institution’s assets as possible at resolution or shortly thereafter.  The FDIC manages the remaining assets in a cost-effective manner to preserve value until they can be marketed.  Most of the remaining assets are marketed within 120 days after an insured institution fails. The failed institution’s assets are often grouped into pools to be most appealing to acquirers and are marketed through an Internet-based platform.  From 2008 through 2012, whole bank loss-share transactions were used extensively to sell most of the assets of a failed bank to an acquiring bank.

    External Factors:   A severe economic downturn could lead to more institution failures and could affect the pace at which the FDIC markets assets and terminates receiverships.  Economic and other factors, such as extended litigation and problems resolving environmentally tainted receivership properties, might also delay the termination of a receivership.

5.2 Potential recoveries, including claims against professionals, are investigated and resolved in a fair and cost-effective manner.

    Means & Strategies:   When an insured depository institution fails, the FDIC, as receiver, acquires a group of legal rights, titles, and privileges generally known as professional liability claims.  The FDIC’s attorneys and investigators work together to assure that valid claims arising from the failure of an insured institution are properly pursued.  The team conducts a factual investigation of the events that contributed to losses at the institution as well as legal research and analysis of the facts and potential claims.  For each potential claim, the team recommends whether the claim should be pursued based on an assessment of the likelihood of a recovery exceeding the estimated cost of pursuing the claim.  The prompt investigation and evaluation of potential claims against professionals who may have caused losses to the institution promotes fairness and leads to more cost-effective results.

    External Factors:   Each potential claim has a statute of limitations that establishes a time limit for the claim to be filed.  A substantial increase in the number of failures could make it difficult to complete investigations of all potential claims and to decide within the established time limit whether to pursue a claim.  The same problem could occur with very complex investigations or claims.  In such cases, the FDIC may seek to enter into a tolling agreement with the potential defendant to extend the allowable timeframe for the claim to be filed.

5.3 Resolution of the failure of a large, complex financial institution is carried out in an orderly manner in accordance with statutory mandates.

    Means & Strategies:   Large, complex financial institutions in the United States are generally organized under a holding company structure with a top-tier parent and operating subsidiaries that comprise hundreds, or even thousands, of interconnected entities that share funding and support services and span legal and regulatory jurisdictions across international borders.  Functions and core business lines are often not aligned with individual legal entity structures.  Critical operations can cross legal entities and jurisdictions, and funding is often dispersed among affiliates as needs arise.  These integrated legal structures make it very difficult to conduct an orderly resolution of one part of the company without triggering a costly collapse of the entire company and potentially transmitting adverse effects throughout the financial system.  In addition, it is the top-tier company that raises the equity capital of the institution and subsequently down-streams equity and some debt funding to its subsidiaries.

    To improve the ability of firms to be resolved in bankruptcy under Title I, the FDIC and FRB have directed some firms to rationalize their legal structures as part of the development of their resolution plans.  In addition to taking steps to improve resolvability under bankruptcy, the FDIC is preparing contingency plans for firms to be resolved under Title II should a Title II resolution be determined as necessary.

    To ensure the Corporation’s operational readiness to conduct the resolution of a large, complex financial institution, the FDIC continues to update and refine its firm-specific contingency plans.  In addition, the FDIC is developing operational procedures for administration of a Title II receivership, if necessary.  The FDIC conducts simulations and tabletop exercises and undertakes joint contingency planning with other U.S. and foreign regulatory authorities to enhance communications and operational readiness, and it is exploring other opportunities to collaborate with U.S. and foreign authorities to ensure effective coordination and cooperation in a resolution.  In addition, the FDIC, together with other U.S. financial regulatory agencies, is working to develop relationships with key regulatory authorities in other countries to facilitate closer coordination and cooperation in the event of the failure of a global SIFI.  The FDIC also analyzes emerging issues and is improving its understanding of the legal and policy structures in other countries that might affect a rapid and orderly resolution.

    The FDIC established and consults regularly with the Systemic Resolution Advisory Committee, which advises the FDIC on the potential effects the failure of a large, complex financial institution would have on financial stability and economic conditions and the ways in which specific resolution strategies would affect stakeholders and their customers.  Members of the Advisory Committee bring a wide range of knowledge and experience to resolution-related issues, including expertise in managing complex firms, administering bankruptcies, working within different legal jurisdictions, and understanding the application of accounting rules and practices.

    External Factors:   The specific facts surrounding the failure of a large, complex financial institution may affect the FDIC’s ability to execute the resolution as planned, especially considering the complex and interconnected nature and global reach of these firms.  As part of its contingency planning efforts, the FDIC will seek to mitigate this risk by collecting and maintaining comprehensive, up-to-date information on these institutions that will support a rapid and orderly resolution under Title II of the Dodd-Frank Act, if that becomes necessary.