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 their 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 – the FDIC is responsible for resolving that 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,
and recommends the least-costly resolution method to the FDIC's Board of Directors.
Resolving Financial Institution Failures
For the second consecutive calendar year, there was no failure of an insured depository
institution in 2006, further extending the longest period in the history of the FDIC during which
no insured institution failed-a record 31 months. The Corporation's remaining receivership
management workload also continued to decline. The accompanying chart provides liquidation
highlights and trends for the past three years.
Liquidation Highlights 2004-2006 Dollars in billions (except where noted) |
| 2006* | 2005* | 2004 |
Total Resolved Banks | 0 | 0 | 3 |
Assets of Resolved Banks | $0.00 | $0.00 | $0.15 |
Total Resolved Savings Associations | 0 | 0 | 1 |
Assets of Resolved Savings Associations | $0.00 | $0.00 | $0.01 |
Net Collections from Assets in Liquidation@ | $0.17 | $0.37 | $0.38 |
Total Assets in Liquidation@ | $0.35 | $0.44 | $0.61 |
Total Dividends Paid@ | $0.17 | $0.44 | $0.38 |
Savings Over Cost of Liquidation# | 0 | 0 | 11.6 million |
*No failures in 2005 or 2006
@Includes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the
Resolution Trust Corporation
#Least Cost Test Savings
Large Bank Contingency Planning
The FDIC must ensure that it has the tools and strategies necessary to fulfill its missions as
deposit insurer and receiver for all insured banks and thrifts. As the banking industry has become
more concentrated and as larger insured institutions have grown significantly, the FDIC has
undertaken a number of concrete steps to enhance its capabilities to manage the resolution of a
large bank. Some of the initiatives involved in this ongoing process are contingency planning
exercises, system and process improvements for determination of deposit insurance claims and
management of failing bank assets, consultations with domestic and international regulators,
improvements to the FDIC's supervisory program for larger banks, and the designation of
internal and external expertise to focus on larger bank issues. The Claims Administration System
(CAS), described in the following section, is one of these initiatives. This effort will continue
and evolve as the challenges change in the future.
Claims Modernization Project
The FDIC is taking advantage of the hiatus in resolution activity by modernizing the way it
determines the insurance status of depositors in the event of failure by streamlining its business
processes and modernizing the internal systems used to facilitate a deposit insurance
determination through improved use of current technology. This includes development and
implementation of a new insurance determination system called the Claims Administration
System (CAS) to be implemented in 2008, which will provide an integrated solution that will
meet the current and future deposit insurance determination needs of the FDIC. The new system
will minimize the potential for FDIC losses, reduce any spillover effects that could lead to
systemic risks, preserve franchise value, and produce deposit insurance results in a timely
manner in order to quickly provide funds to claimants.
The Corporation is also seeking cooperation from the largest insured institutions to assist in the
insurance determination process in the event of failure. During 2006, the FDIC reviewed 28
comment letters received in response to an advance notice of proposed rulemaking (ANPR)
published in December 2005, requesting input on three options that could be applied to the
largest 145 insured institutions. Based on this review, a new ANPR was published in December
2006, seeking comment on a new option and strategy for this purpose. The FDIC is currently
awaiting comments on this revised proposal.
Receivership Management
The FDIC, as receiver, manages 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 all impediments to termination
have been resolved, the FDIC makes the final distribution of any proceeds and terminates the
receivership estate. In 2006, the number of receiverships under management was reduced by
15.4 percent (from 65 to 55), while the book value of assets under management was reduced by
20.2 percent (from $441 million to $352 million). The ten receiverships terminated in 2006 were
all terminated within 90 days of the resolution of all impediments.
Professional Liability Recoveries
The FDIC 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 viable and cost-effective to pursue, the
FDIC initiates legal action against the appropriate parties. The FDIC strives to make a decision
to close or pursue 80 percent of all potential claims within 18 months of the failure date.5
During 2006, the FDIC recovered approximately $36.2 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 approximately
$10.5 million in criminal restitution payments during the year. The FDIC's caseload at the end of
2006 included investigations, lawsuits and ongoing settlement collections involving 13 claims
and 95 other active collection matters, down from 127 at the beginning of 2006. At the end of
2006, there were 814 pending restitution orders, down from 995. This includes orders won by the
former Resolution Trust Corporation for which the FDIC assumed responsibility on January 1,
1996.
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 depositors and other stakeholders of those institutions that fail. The FDIC's
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 the FDIC in
an orderly manner, and the proceeds are used to pay creditors, including depositors whose
accounts exceeded the insured limit. During 2006, the FDIC paid dividends of 80.2 percent of
the deposit amount exceeding the insured limit, which represents an increase of 2.3 percent from
2005.