Banks (FDIC Insured Depository Institutions) may be established under federal or state law. State-chartered banks are regulated by the state and the FDIC or the Board of Governors of the Federal Reserve System (Federal Reserve). National banks are chartered and regulated by the Office of the Comptroller of the Currency (OCC).
Banks are examined regularly for their safety and soundness to identify undue risks and weak risk management practices. Examination activities center on evaluating a bank’s Capital, Assets, Management, Earnings, Liquidity, and Sensitivity to market risk, referred to as CAMELS.
Learn how the FDIC conducts Bank Examinations.
Bank examinations result in category and composite ratings from 1-5 that indicate whether it is in excellent or good condition (rated 1-2), needs improvement, (rated 3), or more serious weaknesses have been identified (4-5).
If a bank receives a needs improvement or more serious supervisory rating, examiners work closely with the bank’s management to resolve issues and attract capital and additional sources of funding. A bank typically fails due to inadequate capital resulting in insolvency, or inadequate liquidity and the inability to meet its obligations.
Once the FDIC learns of the risk of failure, preparation for a potential resolution begins with the collection of information on the bank's assets, liabilities, and operations.
The FDIC is statutorily required to resolve failed banks using the least costly resolution option and minimizing losses to the Deposit Insurance Fund.
The FDIC typically has time to market failing banks to healthy institutions, and maintains a database of banks that are eligible to buy a failed bank based on various criteria including geographic location, size, etc. A confidential solicitation is distributed with general information and interested, eligible bidders can receive more detailed information after executing a confidentiality agreement.
Learn everything you need to know about Failing Bank Acquisitions at the FDIC.
When a bank fails the FDIC is named as receiver by the chartering authority.
To minimize disruption to the local community when a bank fails, the FDIC performs the resolution process as quickly and smoothly as possible, and makes insured deposits available as soon as possible.
Congress gave the FDIC special resolution powers to use in the liquidation of assets from failed banks and the payment of claims against the receivership estate. These laws were designed to promote the efficient and expedient liquidation of failed banks at the least cost to the Deposit Insurance Fund. The FDIC Law, Regulations, and Related Acts provides these powers.
The most common, and preferred, method for resolving a failing bank is a Purchase and Assumption (P&A) transaction, where a healthy institution (Assuming Institution) agrees to purchase some or all of the assets and assume some or all of the liabilities (including insured deposits) of the failed bank. P&A transactions typically reduce the FDIC’s asset disposition costs, provide greater continuity to failed bank customers, and more quickly move assets into the private sector.
When a P&A transaction with a third party is not feasible the FDIC implements a deposit payoff, where the FDIC pays all the insured depositors of the failed bank and it is permanently closed.
Information regarding the Assuming Institution, how accounts and loans are impacted, how to obtain a lien release from a failed bank, and how depositors, creditors, and vendors of the failed bank can file a claim against the Receivership can be found on the Failed Banks page.
In the absence of a P&A transaction, or if the Assuming Institution does not acquire all of the assets, the FDIC, as receiver for the failed bank, assumes ownership of the failed bank's remaining assets and must manage, market, and sell the assets.
The FDIC conducts sales of a variety of failed bank assets including owned real estate, furniture, fixtures, and equipment, loans, and securities. Sales can be conducted by Sealed Bids or Auctions. The receiver uses the proceeds of asset sales to pay eligible claimants, including uninsured depositors.
Information regarding FDIC-managed failed bank assets as well as the sale and bidding process can be found on the Asset Sales page.
