|
Managing the Crisis: The FDIC and RTC
Experience
Chronological Overview: Chapter Fourteen—1991
For the first time in the history of the FDIC, the Bank
Insurance Fund (BIF) dropped below zero to a negative $7 billion. On April
30, 1991, the FDIC issued a regulation raising the deposit insurance assessment
rate from 19.5 cents to 23 cents per $100 in assessable deposits. That increase
in assessment revenue was designed to help offset BIF losses, which had been
outpacing revenue since 1984.
Table 14-1
|
1990 - 1991: FDIC at a Glance ($ in Millions) |
| |
12/31/90 |
12/31/91 |
Percent Change |
| Number of Bank
Failures |
168 |
124 |
-26.19% |
| Assistance to
Open Banks |
1 |
3 |
200.00% |
| Total Failed
and Assisted Banks |
169 |
127 |
-24.85% |
| Total Assets
of Failed and Assisted Banks |
$16,937.7 |
$64,635.0 |
281.60% |
| Estimated Losses
on Failed and Assisted Banks* |
$2,786.3 |
$6,136.1 |
120.22% |
Estimated Losses
as a Percent of Total Assets |
16.45% |
9.49% |
-42.31% |
| Assets in Liquidation |
$30,906.5 |
$43,258.3 |
39.97% |
| FDIC Staffing |
14,348 |
13,972 |
-2.62% |
| Number of Problem
Banks |
1,046 |
1,090 |
4.21% |
| Bank Insurance
Fund Balance |
$4,044.5 |
-$7,027.9 |
-- |
| Bank Insurance
Fund Balance as a Percent of Insured Deposits |
0.21% |
-0.36% |
-- |
*Losses
for all resolutions occurring in this calendar year have been updated
through 12/31/03. The loss amounts on open receiverships are routinely
adjusted with updated information from new appraisals and asset sales,
which ultimately affect projected recoveries.
Percent change is not provided if either the latest period or the
year-ago period contains a negative number. Back
to table
Source:
FDIC, 1990 Annual Report and Reports from FDIC Division of Finance
and Division of Research and Statistics.
|
Notable Events
On October 25, 1991,
William Taylor became the 15th chairman of the FDIC. Chairman Taylor
had spent most of his professional career with the Federal Reserve
System. Prior
to his appointment to the FDIC, Chairman Taylor was staff director
at the Federal Reserve Board’s Division of Banking Supervision and
Regulation. Chairman Taylor replaced L. William Seidman, whose six-year
term as
chairman expired on October 16, 1991.
Economic/Banking Conditions
While the U.S. was still involved in the Persian Gulf War, the U.S.
economy had negative growth in 1991 with Gross Domestic Product down 0.97
percent.14-1 Employment growth also was negative at -2.1 percent. The unemployment
rate continued to rise with a substantial increase to 6.8 percent, up from
5.6 percent a year earlier.14-2 The discount rate decreased by more than one
and a half points to 5.5 percent, and the 30-year mortgage rate fell to 9.3
percent.14-3 Inflation also was down slightly at 4 percent.14-4 Home sales
and housing starts remained steady while the office vacancy rate continued
to rise and was at 18.9 percent.14-5 Total real estate loans in the U.S. continued
to increase to 26 percent of assets, as did commercial real estate loans,
rising to 7.3 percent.
Bank failures in the Southwest continued to drop, with 41 for the year,
approximately 32.3 percent of all resolutions. Gross State Product (GSP)
in the Southwest increased despite the national recession.14-6 Lending in
all areas continued to decline and stayed below the national medians.
Problems continued to mount in the Northeast. There were 52 Northeast
bank failures in the year, which accounted for more than 90 percent ($5.7
billion) of total U.S. resolution costs and 40 percent of all failures.
The Bank of New England, Boston, Massachusetts, and its sister banks, Connecticut
Bank & Trust Company, N.A., Hartford, Connecticut, and Maine National
Bank, Portland, Maine, failed in January 1991, with an aggregate $21.7
billion in assets and an estimated loss of $889 million. It was the second
largest bank failure to that time 14-7 and the seventh costliest. Goldome,
Buffalo, New York, also failed in 1991, with $8.7 billion in assets and
an estimated loss of $848 million. It was the seventh largest and the fifth
costliest failure up to that time. In the previous years, those banks,
like many in the region, had grown through the use of acquisitions and
aggressive real estate lending. They were now being adversely affected
by the collapsing real estate market.
The Northeast banking industry continued to struggle with the depressed
real estate markets. Return on assets remained steady at just under 30
basis points. Nonperforming assets also remained unchanged at 5 percent
of assets, and net charge-offs on loans and leases peaked at 0.4 percent
of assets. More than 23 percent (208) of the institutions were considered
problem banks. Total lending continued to tighten as total loans and leases
in the region were only 65.7 percent of assets. That was due to a drop
in Commercial and Industrial (C&I) loans, from 6.3 percent of assets
in 1990 to 4.7 percent in 1991. Total real estate loans and commercial
real estate loans fell slightly relative to assets but remained well above
the national medians.
California was hit hard by the national recession, as well as by reductions
in defense spending. In 1991, California had negative GSP growth
at -1.8 percent. 14-8 Southern California was hit the worst by the defense
cutbacks. The state lost 6 percent of its employment base in the recession,
and 65 percent of the loss was in the Los Angeles area alone. The most
substantial employment losses occurred in manufacturing, with a reduction
in 290,300 jobs accounting for 14 percent of manufacturing employment.
Particularly hard hit was the high-tech aerospace industry, which lost
25 percent of its jobs.14-9 Many of the defense-related manufacturers worked
solely for the Department of Defense and had no fallback market.14-10 Median
home prices in California peaked in 1991 at $200,660, approximately six
times the nation’s average household income. Home sales were declining,
since many residents could not afford to purchase median price homes. Furthermore,
uncertainty of future real estate values reduced sale activity to 425,420
sales. 14-11 Real estate lending was finally leveling off, but was still much
higher than national levels. Total real estate loans were 41 percent of
assets, almost 15 percent higher than the national median, and commercial
real estate loans were at 25 percent of assets compared with 7.3 percent
for the U.S. C&I loans in southern California fell from 17.2 percent
of assets in 1990 to 15.7 percent in 1991.
Though the “Big Four” fared comparatively well in the recession,
the Los Angeles based banks, Security Pacific and First Interstate, found
the recession considerably more damaging. In 1991, Security Pacific recorded
a loss of $555 million, and its weakened condition led to its purchase
by Bank of America the next year. First Interstate incurred a loss on its
California operations with -0.25 ROA, but was able to make a full recovery
in the next few years. Wells Fargo’s income dipped to $23 million
for the year, while Bank of America reported a return on assets higher
than the U.S. banking industry at 0.98.
The number of newly chartered banks fell slightly to 110. Despite the
enormous volume of problem bank assets removed from the system through
FDIC resolutions and supervision activity in 1991, and some signs that
the condition of the banking industry was improving, underlying difficulties
continued to trouble the industry. At the end of 1991, about $600 billion
in assets were held by problem banks, compared with about $400 billion
one year earlier. Moreover, bank exposure to weakened real estate markets
in several regions of the country remained substantial. The number of banks
on the FDIC’s problem bank list increased slightly to 1,090 at the
end of 1991 from 1,046 at the end of 1990. In addition, there were 337
Savings Association Insurance Fund insured savings banks with combined
assets of $209 billion on the FDIC’s problem list by the end of 1991.
Table 14-2 shows the number and total assets of FDIC insured institutions,
as well as their profitability as of the end of 1991.
|
Table 14-2
Open
Financial Institutions Insured by FDIC ($ in Billions)
|
Commercial Banks - FDIC
Regulated |
| |
1990 |
1991 |
Percent Change |
| Number |
12,343 |
11,921 |
-3.42% |
| Total Assets |
$3,389.5 |
$3,430.7 |
1.22% |
| Return on Assets |
0.48% |
0.53% |
10.42% |
| Return on Equity |
7.45% |
7.94% |
6.58% |
|
Savings
Banks – FDIC Regulated |
| |
1990 |
1991 |
Percent Change |
| Number
|
456 |
449 |
-1.54% |
| Total Assets |
$229.3 |
$217.8 |
-5.02% |
| Return on Assets |
-0.76% |
-0.27% |
64.47% |
| Return on Equity |
-10.34% |
-3.57% |
65.47% |
|
Savings
Associations – OTS Regulated |
| |
1990 |
1991 |
Percent Change |
| Number
|
2,359 |
2,112 |
-10.47% |
| Total Assets |
$1,029.8 |
$895.2 |
-13.07% |
| Return on Assets |
-0.28% |
0.16% |
-- |
| Return on Equity |
-5.50% |
2.73% |
-- |
Percent change is not provided if either the latest period or the year-ago
period contains a negative number.
Source: Reports from FDIC Division of Research and Statistics.
|
Bank
Failures and Assistance to Open Banks In
1991, a new Division of Resolutions (DOR) was created to coordinate
the FDIC’s response to failed and failing banks. The number
of failed banks in 1991 was 124, a decline from 168 in 1990.
Reflecting the depressed real estate market and the overall slump
in the
economy, assets in failed and assisted institutions grew to
a record $64.6 billion in 1991, up from $16.9 billion in 1990.
That
dramatic increase was due to the failure of several large institutions.
Estimated losses to BIF for 1991 closures reached a record
high of $6.1 billion in 1991.
Of the 124 banks that failed, 103 were resolved with purchase
and assumption (P&A) transactions, 24 of which were whole
bank deals. Of the remaining 21 failed banks, 17 were resolved
through a transfer of insured deposits to another institution,
and 4 were payoffs.
In 1991, the FDIC provided open bank assistance (OBA) to three
institutions.
-
On September 16, First Bank and Trust, Harrisburg,
Illinois, a $26.7 million institution, received OBA
and was then acquired by a newly formed holding company,
Shawnee Bancorp, Inc., of Harrisburg, Illinois.
- On October
2, a $20 million bank, Gunnison Bank and Trust Company,
Gunnison, Colorado, was approved for an assistance plan
through which
Lindoe, Inc., Ordway, Colorado, acquired the bank.
- On December 4,
the FDIC assisted a $31.9 million bank, Douglass Bank,
Kansas City, Kansas, a minority-owned bank. Part of the
assistance plan involved
a $2.3 million injection of capital from the bank’s parent company,
and most of the funds came from nonprofit community organizations.
On May 14, the FDIC announced a public sale of its remaining 26 percent
equity holding in Continental Bank Corporation of Chicago. Shortly after the
stock was acquired by the FDIC as part of the government’s 1984 assistance
package for Continental Illinois National Bank and Trust Company (Continental),
the FDIC began to return the stock to private ownership. That sale completed
the return and produced a net gain of $200 million over the $1 billion of
capital originally provided to Continental. Dividend income on the stock amounted
to an additional $202 million. The final net resolution cost to the FDIC was
approximately $1.1 billion, or 3 percent of Continental’s assets.14-12
At the end of 1991, there were three institutions remaining in the Net
Worth Certificate Program with outstanding certificates of $132 million.
The Net Worth Certificate Program, which began in 1982, expired on October
13, 1991. During the program’s ten-year duration, 29 savings banks
obtained $718.1 million in certificates. Figures 14-1 and 14-2 show the
total number of banks participating in the program and the dollar amounts
per year.
Figure
14-1
FDIC
Net Worth Certificate Program -
Number of Banks in Program
1982 - 1993
 d
Figure
14-2
FDIC
Net Worth Certificate Program -
Dollars in Program -
1982 - 1993
($ in Millions)
 d
Significant legislative
reform that would have a direct impact on the FDIC’s activities occurred
in 1991. In December, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) of 1991. The legislation had an immediate impact
on the resolution process. Specifically, FDICIA established:
-
The “least cost” standard, which was effective
upon enactment. Under that standard, the resolution method
selected by the FDIC must be the least costly to the
deposit insurance fund of all possible methods. Previously,
the
resolution method needed only to be less costly than
a payoff, with an emphasis on selling all assets and
causing the least
disruption to the community;
- An increase
from $5 billion to $30 billion in the FDIC’s authority
to borrow from the Treasury Department to cover losses
in the BIF; .
- Authority for the
FDIC to borrow money on a short-term basis for working
capital, within certain guidelines;
- A requirement that “prompt
corrective action” be taken for insured institutions with capital
below prescribed levels;
- A requirement that
the FDIC’s Board of Directors revise deposit insurance premium
rates to recapitalize both the Bank Insurance Fund and
the Savings Association Insurance Fund according to statutory
limits;
- An increased frequency
of required on-site safety and soundness examinations
and generally enhanced enforcement standards;
- A requirement that
the FDIC begin assessing deposit insurance premiums based
on the risks posed to the insurance fund by an institution, in 1994;
and;
- Authorization for
the FDIC to deny insurance to any applicant, including
any national bank or state chartered bank supervised
by the Federal Reserve Board.
A recent estimate of losses per transaction type is shown in Table 14-3.
|
Table 14-3
|
1991
Estimated Losses by FDIC Transaction Type ($ in Millions) |
Transaction
Type |
Number
of
Transactions |
Total
Assets |
Estimated
Loss*
as of 12/31/03 |
Estimated
Losses
as a
Percent of Assets |
| OBA |
3 |
$78.5 |
$3.0 |
3.82% |
| P&As |
103 |
63,039.0 |
5,665.5 |
8.99% |
| IDTs |
17 |
1,445.7 |
447.6 |
30.96% |
| Payoffs |
4 |
71.8 |
20.0 |
27.86% |
| Totals |
127 |
$64,635.0 |
$6,136.1 |
9.49% |
*Losses
for all resolutions occurring in this calendar year have been updated
through 12/31/03. The loss amounts on open receiverships are routinely
adjusted with
updated information from new appraisals and asset sales, which ultimately
affect projected recoveries.
Back
to table
Source: Reports from FDIC Division of Research and Statistics.
The Office of the Comptroller of the Currency (OCC) closed the three commercial
banking subsidiaries of the Bank of New England Corporation, Boston, Massachusetts,
on January 6, 1991: Bank of New England, N.A., Boston, Massachusetts; Connecticut
Bank & Trust Company, N.A., Hartford, Connecticut; and Maine National
Bank, Portland, Maine. Total assets of the banking subsidiaries at the time
of the closings were $21.7 billion. The decline of the regional economy and
rapid growth in commercial real estate contributed to those failures. The
FDIC established three bridge banks and transferred all deposits and most
assets of the three institutions to the bridge banks. The FDIC marketed the
bridge banks to potential acquirers both as a package and individually. On
July 14, 1991, the FDIC Board of Directors closed a P&A transaction for
the purchase of the three bridge banks with Fleet/Norstar Financial Group
(Fleet), Providence, Rhode Island. The FDIC retained certain assets that were
serviced by a subsidiary of Fleet named RECOLL Management Corporation under
a servicing agreement with the FDIC.
On May 31, 1991, state regulators closed Goldome, Buffalo, New York, naming
the FDIC as receiver. Goldome had assets totaling $9.9 billion. The FDIC
arranged the assumption of the deposits by Key Bank of Western New York,
National Association, a subsidiary of KeyCorp, Albany, New York. In turn,
KeyCorp sold certain branches, assets, and deposits to First Empire State
Corporation of Buffalo, the parent company of Manufacturers and Traders
Bank, Buffalo, New York. In a situation similar to that of the Bank of New
England, the FDIC retained a pool of assets serviced by a subsidiary of
Key Bank named Niagara Asset Corporation under a contract that was overseen
by the FDIC.
|
The
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
of 1989 gave the FDIC the authority to assess Cross Guarantees.
The cross guarantee authority was used to recover all or part of
the losses incurred by the FDIC in liquidating or aiding a troubled
institution from other institutions with the same ownership as the
failing institution. Institutions with that type of ownership arrangement
also were called “commonly controlled” institutions.
Assessment of cross guarantees sometimes created a liquidity strain,
which resulted in failure of the affiliate or, in some cases, immediate
insolvency of the affiliate. |
|
On
September 19, 1991, the OCC closed Southeast Bank, N.A., Miami,
Florida, with $11 billion in assets after the bank was unable to
repay a loan from the Federal Reserve Bank of Atlanta. That failure
was caused by a liquidity strain rather than a depletion of book
capital. In addition, state regulators closed Southeast Bank of
West Florida, Pensacola, Florida, which had $97.3 million in assets.
Southeast Bank of West Florida was a member of the same bank holding
company as Southeast Bank, N.A., and was closed because it was unable
to cover its share of the FDIC’s anticipated loss from the
resolution of the national bank under the cross guarantee provisions. |
| |
| To accomplish
the Southeast resolution, the FDIC arranged two P&A transactions
with First Union National Bank of Florida, Jacksonville, Florida.
The FDIC used a new resolution method for the first time, a loss
share arrangement designed to keep bank assets in the private sector
and to maximize their value. Under the loss share arrangement, First
Union purchased $10 billion of the assets, including problem loans.
The FDIC agreed to reimburse First Union for 85 percent of the net
charge-offs from the failed banks’ portfolios over the next
five years, with First Union absorbing 15 percent of
the loss during that time period. First Union agreed to reimburse
the FDIC for its
portion of recoveries received for an |
|
The
Loss Share Transaction was designed to address problems associated
with marketing large banks that typically had sizeable commercial
loan and commercial real estate portfolios. Acquiring institutions
had been reluctant to acquire commercial assets in FDIC transactions
for three main reasons: limited due diligence periods; questionable
underwriting criteria of the failed bank; and questionable commercial
real estate markets in the late 1980s and early 1990s. In a Loss
Share Agreement, the FDIC agreed to absorb a significant portion,
typically 80 percent, of any credit losses on certain loans |
|
additional
two years. The loss sharing was slightly different
for credit card debt and home equity loans. The loss share percentage
declined by 5 percent per year from 85 percent in the first year
to 65 percent in the fifth year.
The 1991 recession was particularly severe in New Hampshire, where
12 banks failed. Seven New Hampshire banks, with assets totaling
$4.8 billion, were resolved on October 10, 1991. To accomplish the
resolution, the FDIC developed the “New Hampshire Plan,” grouping
the failed banks together and marketing them to potential acquirers
as two separate franchises. The seven banks were resolved as follows:
the four commercial banks became branches of First NH Bank, Concord,
New Hampshire, a U.S. subsidiary of The Bank of Ireland, Dublin,
Ireland. Three savings banks were assumed by New Dartmouth Bank,
Manchester, New Hampshire. Both of those transactions were unusual
because the FDIC packaged unaffiliated banks in two franchises for
sale instead of marketing the banks individually. The transactions
also included loss sharing provisions applying to consumer and residential
mortgage loans totaling $1.5 billion original balance, or $1.7 billion
with permitted advances and additions, and a servicing contract
applying to $1.6 billion in assets.
|
Table 14-3
New
Hampshire Plan
($ in Millions)
|
Shared Loss Assets -
Consumer Loans and Residential Mortgages |
| Acquiring
Bank |
Amount |
| New Dartmouth
Bank |
$912.3 |
| First NH Bank |
$623.9 |
| Total |
$1,536.2 |
| Contract
Servicer |
Amount |
| BONHAM - New
Hampshire I |
$745.0 |
| BONHAM - New
Hampshire II |
$831.0 |
| Total |
$1,576.0 |
Source: Reports from FDIC Division of Resolutions and Receiverships.
12The resolutions of the seven New Hampshire banks involved 28 percent
of the state’s deposits. The cost to BIF for the resolution of the seven
New Hampshire banks was close to $891 million--$319 million for the Concord
Franchise and $572 million for the Manchester Franchise. The FDIC also agreed
to purchase preferred stock of the acquiring institutions so the institutions
could obtain the necessary capital for the transactions.
In the New Hampshire Plan, a third party, Bank One New Hampshire Asset
Management (BONHAM) was appointed under a servicing contract monitored by
the FDIC to be manager of the failed banks’ classified assets, repossessed
real estate, all subsidiaries, and unwanted bank premises.
The New Hampshire Plan was significant because it was the first time the
FDIC solicited bidders for the servicing contract who were not also bidding
to be an assuming bank. The FDIC presented different plans for which bidders
could submit a proposal. The winning bid was the most beneficial to the
FDIC from a cost standpoint. That type of bidding arrangement also was used
at a subsequent resolution in Connecticut.
Payments to Depositors and Other Creditors
.In the 127 banks
that failed or were assisted in 1991, deposits totaled $50 billion in 6,277,960
deposit accounts. There were three assistance agreements with total deposits
of $75.7 million. Payoffs accounted for four transactions with 6,050 deposit
accounts with total deposits of $66.9 million. Dividends paid on all active
receiverships totaled $34.6 billion in 1991.
Of the 1,940 insured bank resolutions 14-13 since the FDIC began operations
in 1934, 1,098 were P&A transactions and 197 additional transactions
were whole bank deals. There were 573 deposit payoff transactions, including
162 IDTs. Also, there have been 72 OBA transactions since 1981.
Disbursements by the FDIC since January 1, 1934, amounted to $86.5 billion.
Of that amount, the FDIC recovered $51 billion, for a net loss of $35.5
billion.
Asset Disposition
At the beginning of 1991, the FDIC had $30.9 billion in failed bank
assets for both BIF and the FSLIC Resolution Fund (FRF). During the year,
the FDIC handled 124 bank closings with $64.6 billion in total assets;
the FDIC acquired $28.6 billion in assets for liquidation from those failed
banks. At the end of 1991, total assets in liquidation totaled $43.3 billion,
which included $34.4 billion in BIF assets and $8.9 billion in FRF assets.
On December 12, 1991, the largest real estate auction in the FDIC’s
history to date was held in Dallas, Texas, to liquidate properties with
an aggregate appraised value of $500 million. The properties sold at the
auction were located in 23 states. Arrangements had been made for potential
bidders to review the properties before the sale. On auction day, satellite
hookups were established in five cities, attracting 1,000 bidders. The
FDIC offered financing to bidders, increasing the ability of buyers to
purchase property during a period in which financing real estate was becoming
more difficult. The FDIC used that method in subsequent real estate auctions,
but also provided a 5 percent discount from the sales price to bidders
who arranged their own financing. Seller financing was targeted only for
assets with appraised values exceeding $500,000.
The FDIC continued to contract with servicers to manage its portfolio
of performing mortgages with a total book value of $2.7 billion. During
1991, the national sales center in Irvine, California, sold 7,600 of those
loans for $401 million. The book value was $429 million and the appraised
value was $404 million. The sales price equaled 93.5 percent of the book
value and 99.3 percent of the appraised value.
In addition to the performing loan servicing contractors, the FDIC oversaw
other third-party contractors who administered, managed, and collected
pools of nonperforming assets totaling $13.3 billion in assets. Total assets
managed by all outside servicers totaled $16 billion at the end of 1991,
or about 37 percent of total assets in liquidation.
The various FDIC offices sold 143,460 loans in 1991 with a total book
value of $2.1 billion for a price of $1.5 billion, or 71.4 percent of book
value. In addition to the Dallas national real estate auction, the FDIC
sold 6,885 owned real estate properties for $1 billion, or 98 percent of
appraised value.
In 1991, the FDIC collected $300 million through professional liability
claims and by pursuing criminal matters arising from the alleged actions
of directors, accountants, and others responsible for losses at failed
insured institutions.
Table 14-5 shows the FDIC’s assets in liquidation and Chart 14-1
shows the asset mix.
Resolution
Trust Corporation
Table 14-6
|
1990
- 1991: RTC at a Glance
($ in Millions)
|
| |
12/31/90 |
12/31/91 |
Percent Change |
| Number of Conservatorships
at the beginning of the year |
281 |
179 |
-36.30% |
| Number of Conservatorships
added during the year |
207 |
123 |
-40.58% |
| Thrifts in the
ARP Program* |
|
21 |
250.00% |
| Total of all
thrift takeovers |
213 |
144 |
-32.39% |
| Conservatorships
resolved during the year |
309 |
211 |
-31.72% |
|
Thrifts in the ARP Program* |
|
21 |
250.00% |
| Total of thrift
resolutions |
315 |
232 |
-26.35% |
| Conservatorships
at the end of the year |
179 |
91 |
-49.16% |
|
|
12/31/90 |
12/31/91 |
Percent Change |
| Conservatorships |
$126,616 |
$70,929 |
-43.98% |
| Thrifts in the
ARP Program |
$3,631 |
$8,105 |
123.22% |
| Total |
$130,247 |
$79,034 |
-39.32% |
| Estimated Losses
on thrift resolutions*** |
$20,837 |
$10,773 |
-48.30% |
| Estimated Losses
as a Percent of Total Assets |
16.00% |
13.63% |
-14.81% |
| |
1989 |
1990 |
Percent Change |
| Conservatorships |
$87,467 |
$47,318 |
-45.90% |
| Receiverships |
$59,270 |
$83,066 |
40.15% |
| Total |
$146,737 |
$130,384 |
-11.14% |
| RTC Staffing |
4,899 |
8,614 |
75.83% |
*Thrifts
placed into the ARP program are included for clarity, although they were
never placed into the conservatorship program.
Back
to table
**Includes
two institutions which were P&A transactions, but were neither in conservatorship
nor in ARP.
Back
to table
***Losses
for all resolutions occurring in this calendar year have been updated through
12/31/95. The loss amounts are routinely adjusted with updated information from
new appraisals and asset sales, which ultimately affect projected recoveries.
Back
to table
Source: RTC, 1991 Annual Report and Reports from FDIC Division of Research
and Statistics.
Table 13-5
|
1991
FDIC End of the Year Assets in Liquidation ($ in Billions*) |
| Asset
Type |
12/31/90
Book
Value |
1991
Assets
Acquired |
1991
Prin.
Coll. |
1991
Write
Downs |
12/31/91
Book
Value |
12/31/91
Est. Rec.
Value |
Commercial
Loans |
$7.9 |
$11.4 |
$1.8 |
$2.2 |
$15.3 |
$9.4 |
| Mortgage Loans |
12.7 |
3.5 |
2.1 |
1.3 |
12.8 |
5.6 |
| Other Loans |
0.8 |
1.7 |
1.0 |
0.1 |
1.4 |
|
| Real Estate Owned |
4.5 |
3.7 |
0.9 |
1.3 |
6.0 |
4.4 |
| Judgments |
1.3 |
1.2 |
0.0 |
0.6 |
1.9 |
|
| Securities |
0.9 |
0.4 |
1.0 |
0.0 |
0.3 |
0.1 |
| Other Assets |
2.8 |
6.7 |
0.7 |
3.2 |
5.6 |
5.6 |
| Totals |
$30.9 |
$28.6 |
$7.5 |
$8.7 |
$43.3 |
$25.1 |
*Totals
may not foot due to rounding differences.
Back
to table
**For
estimated value only, Commercial Loans includes Other Loans and Other Assets
includes Judgments.
Back
to table
Source: Reports from FDIC Division of Finance.
Chart 14-1
1991
FDIC End of Year Asset Mix
 d
|
Chart 13-2
FDIC/RTC Staffing
|
|
 d |
Insurance
Fund and Staffing By the end of 1991, problem banks were holding $600 billion in
assets, compared with $400 billion in 1990. Consequently, the FDIC decided
to reserve for high levels of risk to BIF and began to set aside reserves
not only for banks certain to fail in the near future, but also for those
banks that were weak but not yet failing. As a result, BIF decreased to a
negative $7 billion, the first negative balance since the FDIC’s inception
in 1934.
The FDIC’s liquidity problem, which stemmed from a record number
of bank failures from 1984 through 1990, was eased on January 8,
1991, when the FDIC entered into a Note Purchase Agreement with
the Federal Financing Bank. The Note Purchase Agreement permitted
the
FDIC to borrow to |
| meet
its financing requirements. That provided the FDIC with the ability
to fund the acquisition of assets from failed institutions and
to cover the cost of carrying those assets on the records of
the FDIC.
That obligation was fully satisfied on August 6, 1993.
|
By
the end of 1991, the FDIC’s Division of Liquidation had four
regional offices and 16 consolidated offices. During 1991, the
consolidated offices in Knoxville, Tennessee, and Midland, Texas,
were closed.
However, consolidated office was opened in Hartford, Connecticut.
The Legal Division of the FDIC, which had been handling the legal
affairs of both the FDIC and the RTC, was separated into two legal
divisions, one for each entity, during 1991. A total of 1,572 positions
were transferred to the new RTC Legal Division. After those shifts
of personnel, there was a 19 percent net increase in Legal Division staff devoted to FDIC
matters during the year. The Legal Division added 143 staff members devoted
to professional liability cases. They were placed in FDIC offices around
the country to improve supervision of those cases. |
|
The Legal Division’s Professional Liability Section worked to identify
claims against directors and officers, appraisers, attorneys, accountants, and
other professionals who may have contributed to the failure of insured financial
institutions. The unit investigated the circumstances surrounding the failure
of every institution and, where appropriate, sent criminal referrals to the Department
of Justice. The Professional Liability Section also pursued administrative enforcement
actions and professional liability proceedings |
|
Total FDIC staffing, excluding the RTC, at the end of 1991 was 13,972,
compared with 14,348 at the end of 1990. The number of Division of Supervision
employees increased to 3,813 from 3,400 the previous year. The number of
Division of Liquidation employees dropped to 6,097 from 6,311. Total staffing
including 8,614 RTC employees equaled 22,586. Chart 14-2 shows the staffing
levels for the past five years.
|
|
Private
Resolutions
The Rhode Island Share and Deposit Indemnity
Corporation (RISDIC), created in 1969 to insure deposits at
state chartered credit unions, collapsed in December of 1990.
Problems
at the following member institutions led to the failure of
RISDIC:
-
Jefferson Loan and Investment Company suffered losses
on lease investments purchased from two firms that
had since failed;
- Heritage
Loan and Investment Company’s loan portfolio suffered
substantial losses and its president was charged with
embezzling $13 million;
- Marquette
Credit Union had a negative net worth of $30 million;
- Davisville Credit
Union had a negative net worth of $18 million; and
- Rhode Island Central
Credit Union had a negative net worth of $19 million
and suffered a major run in December of 1990.
When Rhode Island
Central Credit Union was denied additional loans from the Rhode
Island Credit Union League’s Corporate Credit Union, the RISDIC
board met on December 31, 1990, to assess the situation and asked
that a conservator be appointed.
On January 1, 1991, within a few hours of taking office, the
governor of Rhode Island issued an Executive Order closing all
45 RISDIC insured institutions. There were 35 credit unions, seven
loan and investment companies, and three banks or trust companies.
All closed institutions were ordered to apply for federal insurance.
Depositors at nine closed institutions were only allowed to withdraw
up to $12,500. By February of 1991, only 27 institutions had reopened.
Two had gone out of business (with no losses to depositors) and
two were not depository institutions at the time of closing. Fourteen
institutions remained closed.
Legislation was enacted to create the Rhode Island Depositors’ Economic
Protection Corporation (DEPCO). The state issued $150 million
to assist in providing 100 percent coverage for all deposits up
to $100,000 and partial insurance for deposits over that amount
in the 14 closed institutions. The bonds were to be repaid from
liquidating the failed institutions’ assets and from a 0.5
percent increase in the state sales tax. On February 9, 1991,
the governor of Rhode Island promised that payments to depositors
would be made within 60 days, but by January of 1992, depositors
had received only about 10 percent of their deposits. Nine institutions
remained closed despite state efforts to sell them.
By June 1992, 18 months after the closings, all but 38,000 depositors
had received their deposits and those depositors had received
90 percent of their money. Costs to the state of Rhode Island
reached $471 million as of June 1992.13-14
The failure of RISDIC is another example of how dependent state
insurance funds were on the well-being of the state’s economy.
As was the case with the failure of other private deposit insurers,
many depositors were severely harmed by the governor’s decision
to limit the amount of withdrawals and by the substantial delay
in reopening the solvent institutions.
|
|
Table 13-5
Resolution
Trust Corporation ($ in Billions)
|
1989 - 1990: RTC at a Glance ($ in Millions) |
| |
12/31/90 |
12/31/91 |
Percent Change |
| Number of Conservatorships
at the beginning of the year |
0 |
281 |
N/A |
| Number of Conservatorships
added during the year |
318 |
207 |
-34.91% |
| Thrifts in the
ARP Program* |
0 |
6 |
N/A |
| Total of all
thrift takeovers |
318 |
213 |
-33.02% |
| Conservatorships
resolved during the year |
37 |
309 |
735.14% |
|
Thrifts in the ARP Program* |
0 |
|
N/A |
| Total of thrift
resolutions |
37 |
315 |
751.35% |
| Conservatorships
at the end of the year |
281 |
179 |
-36.30% |
| |
12/31/89 |
12/31/90 |
Percent Change |
| Conservatorships |
$141,749 |
$126,616 |
-10.68% |
| Thrifts in the
ARP Program |
$0 |
$3,631 |
N/A |
| Total |
$141,749 |
$130,247 |
-8.11% |
| Estimated Losses
on thrift resolutions*** |
$51,076 |
$20,837 |
-59.20% |
| Estimated Losses
as a Percent of Total Assets |
36.03% |
16.00% |
-55.59% |
| |
12/31/90 |
12/31/91 |
Percent Change |
| Conservatorships |
$104,899 |
$87,467 |
-16.62% |
| Receiverships |
$7,945 |
$59,270 |
646.00% |
| Total |
$112,844 |
$146,737 |
30.04% |
| RTC Staffing |
1,516 |
4,899 |
223.15% |
*Thrifts
placed into the ARP program are included for clarity, although they were
never placed into the conservatorship program.
Back
to table
**Includes
two institutions which were P&A transactions, but were neither in conservatorship
nor in ARP.
Back
to table
***Losses
for all resolutions occurring in this calendar year have been updated through
12/31/95. The loss amounts are routinely adjusted with updated information from
new appraisals and asset sales, which ultimately affect projected recoveries.
Back
to table
Source: RTC, 1990 Annual Report and Reports from FDIC Division of Research
and Statistics.
Notable Events
The
RTC’s organizational structure changed in 1991. In October, Chairman
Seidman ended his term as chairman of both the FDIC and the RTC, and Albert
V. Casey became the first President of the RTC. Mr. Casey subsequently became
the RTC’s chief executive officer on February 1, 1992, pursuant to
the passage of the RTC Refinancing, Restructuring, and Improvement Act (RTCRRIA)
of 1991.
Significant provisions of RTCRRIA included the following:
-
Funding of $25 billion through April 1, 1992;
- Ability
to accept appointment as conservator or receiver from
August 9, 1992, to September 30, 1993;
- Redesignation
of the RTC Oversight Board as Thrift Depositor Protection
Oversight Board, and redefinition of its membership;
- Abolishment
of the RTC Board of Directors and removal of the FDIC
as exclusive manager of the RTC, creating more independence
for the RTC; and
- Creation of the
office of chief executive officer of the RTC.
S&L Resolutions
At
the beginning of 1991, the RTC managed 179 thrifts in the conservatorship
program and an additional 123 thrifts with total assets of $70.9 billion
were placed into conservatorship during the year. Of the conservatorships,
211 were resolved by year end. In addition, 21 thrifts were resolved
through the Accelerated Resolution Program (ARP) during the year without
ever being in conservatorship. During 1991, the RTC resolved a total
of 232 thrifts (compared to 315 in 1990) with total deposits of $71.3
billion.
The 165 P&A transactions involved thrifts with total assets of
$61 billion. IDTs accounted for 34 failed thrift transactions with
total assets of $14.6 billion. The 33 institutions which were paid
off in 1991 had assets of $2.5 billion. The number of payoffs for 1991
had declined from 47 in 1990.
More than $700 million in premiums was collected from the acquiring
institutions, representing about 1.39 percent of the assumed core deposits.
Overall, the resolution transactions generated an estimated $809 million
in savings in 1991 over the estimated cost of deposit payoffs for the
232 resolved thrifts.
Nearly 25 percent of the total number of assuming bank transactions
(48 resolutions) were resolved on a branch breakup basis (compared
to 35 branch breakups in 1990). In the most complex transaction, 22
institutions acquired the nearly $1 billion in deposits at the 32 offices
of First Savings of Arkansas, Little Rock, Arkansas.
The largest resolution of 1991 was City Savings Bank, F.S.B. (formerly
City Savings), Somerset, New Jersey, with $4.4 billion in deposits
and 109 offices. The next largest resolution in 1991 was Columbia Savings & Loan
Association, Beverly Hills, California, with $4.2 billion in deposits.
Losses per transaction type are shown in Table 14-7 and Table 14-8
shows conservatorships and receiverships at year-end 1991.
|
Table 14-7
|
1991 Losses by RTC Transaction Type ($ in Millions) |
Transaction
Type |
Number
of
Transactions |
Total Assets |
| | |
