Ombudsman Report to the Industry
Message from Cottrell L. Webster, FDIC Ombudsman
I am pleased to present the latest in our series of online reports to
the financial services industry about issues and concerns raised to
the FDIC Office of the Ombudsman (OO). This report covers the period
1, 2008 through December 31, 2008.
During the second half of the year, 643 bankers contacted the OO requesting
assistance. In addition, OO staff spoke about banking matters with
65 financial industry representatives through outreach visits, telephone
calls and industry-sponsored conferences. Bankers continued to express
overall satisfaction with the FDIC. Their areas of concern shifted
fear of overreaction by Congress regarding subprime lending to the
economy in general and the effect of increasing premiums for FDIC-insured
During this reporting period, the FDIC resolved 21 bank failures, which
further elevated public concern about deposit insurance coverage. In
response to this concern, Congress - with the enactment of the Emergency
Economic Stabilization Act (EESA) - temporarily increased deposit insurance
coverage to $250,000. In addition, the FDIC simplified deposit insurance
rules and implemented the Temporary Liquidity Guarantee Program. These
actions as well as other relevant banking issues are discussed in greater
detail in this report.
We welcome institutions' suggestions and concerns about the FDIC in
its supervisory role. The OO summarizes these comments for FDIC senior
management's review - without attribution to the institutions - to eliminate
the possibility of retaliation. In addition to Regional Ombudsmen, OO
specialists in Washington, D.C., can provide assistance, regardless
of your location. Please visit our Web site (www.fdic.gov/regulations/resources/ombudsman)
for more information.
||Cottrell L. Webster
Office of the Ombudsman
about the Economy
The worsening economy was the greatest single concern for bankers
during the second half of 2008. The federal government has taken
extraordinary steps to revive the financial services industry and
the economy as a whole, some of which directly involve the FDIC.
Increased Deposit Insurance Coverage
With the enactment of the EESA, deposit insurance coverage for all deposit
accounts at FDIC-insured institutions was temporarily increased to $250,000
until December 31, 2009. Temporarily raising the deposit insurance limits
has bolstered public confidence in the banking system and successfully provided
additional liquidity to FDIC-insured institutions.
For more information about FDIC deposit insurance visit www.fdic.gov/deposit.
Temporary Liquidity Guarantee Program
On November 21, the FDIC Board of Directors adopted a final rule for a
new Temporary Liquidity Guarantee Program (TLGP) to unlock inter-bank credit
markets and restore rationality to credit spreads. This voluntary program
is designed to free up funding for banks to make loans to creditworthy businesses
The program has two key features. The first is a guarantee for new, senior
unsecured debt issued by banks, thrifts, bank holding companies and most
thrift holding companies, which will help institutions fund their operations.
The second feature of the program provides insurance coverage for all deposits
in non-interest-bearing transaction accounts, as well as NOW accounts that
pay minimal interest, at insured depository institutions that chose not to
opt out of the program.
For more information about the FDIC's Temporary Liquidity Guarantee Program
IndyMac Federal Bank Loan Modification Program
The former IndyMac Bank, F.S.B., Pasadena, California, was closed July
11, 2008, and the FDIC was appointed conservator for a new institution,
IndyMac Federal Bank, F.S.B. (IndyMac Federal), which continued the depository,
mortgage servicing and other operations of the former IndyMac Bank, F.S.B.
until IndyMac Federal’s sale in March 2009. On August 20, 2008, while
still acting as conservator, the FDIC announced a loan modification program
to systematically modify troubled residential loans for borrowers with mortgages
owned or serviced by IndyMac Federal. As of March 27, 2009, 13,822 loans
had been modified since the program’s inception.
The program used a model to achieve mortgage payments for qualified borrowers
that were both affordable and sustainable, thereby reducing future defaults,
improving the value of the mortgages, and cutting servicing costs. The streamlined
modification program will achieve improved recoveries on loans in default
or in danger of default, and improve the return to uninsured depositors,
the Deposit Insurance Fund, and other creditors of the failed institution.
At the same time, many troubled borrowers can remain in their homes. Modifications
were only offered where doing so would result in an improved value for IndyMac
Federal or for investors in securitized or whole loans (over foreclosure),
and where consistent with relevant servicing agreements.
For more information about proposals and programs put forth by the FDIC
and federal government since May 2008 regarding loan modification programs
Cost of Deposit Insurance
Since the Deposit Insurance Fund (DIF) has fallen below the 1.15
percent threshold of insured deposits, the FDIC has a statutory requirement
to restore the DIF to 1.15 percent within five years (absent extraordinary
circumstances). Consequently, on February 27, 2009, the FDIC Board
approved increases in deposit insurance premiums across all risk
assessment categories, as well as a special assessment subject to
public comment. While FDIC-insured institution executives typically
understand the need for increased premiums for deposit insurance,
they are concerned about its negative effect on earnings, capital
and availability of credit.
Bankers discussed two areas in which they believed that FDIC activities
may cause negative pressure on credit availability, which is counter
to the current need. The first area is some bankers’ perception
that the FDIC has been more critical concerning the credit quality
of borrowers. The second area cited by bankers is the FDIC’s
encouragement of loan modifications, which bankers worry, could be
viewed as a decrease in asset quality and put negative pressure on
The federal financial institution regulatory agencies responded to the
first concern in the “Interagency Statement on Meeting the Needs of
Creditworthy Borrowers,” issued on November 12, 2008. In this statement,
the regulatory agencies emphasize that it is “essential that banking
organizations provide credit in a manner consistent with prudent lending
practices and continue to ensure that they consider new lending opportunities
on the basis of realistic asset valuations and a balanced assessment of
borrowers’ repayment capacities.” The agencies caution the banking
industry about excessive tightening of credit by stating “if underwriting
standards tighten excessively or banking organizations retreat from making
sound credit decisions, the current market conditions may be exacerbated,
leading to slower growth and potential damage to the economy as well as
the long-term interests and profitability of individual banking organizations.” The
agencies acknowledge that institutions must strike a balance between prudent
lending practices and excessive tightening of credit. To view this statement
you can visit www.fdic.gov/news/news/press/2008/pr08115.html.
The FDIC’s loan modification program implemented at Indymac Federal
Bank as well as the loan modification programs encouraged by the FDIC
call for modifying mortgages with asset quality impairments. Therefore,
these loan modification programs should be viewed as a systemic response
to already existing asset quality problems and not a cause related to
the existing problems.
NOTE: If you have comments or suggestions about this semiannual report, please contact
FDIC Ombudsman Cottrell Webster at (703) 562-6040, or by e-mail at firstname.lastname@example.org.
To receive e-mail notifications of future OO semiannual reports as soon as
they are posted to the FDIC's Web site, follow the instructions at E-Mail updates.