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

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 January 1, 2009, through June 30, 2009.

During the first half of the year, 243 industry representatives contacted the OO requesting assistance. In addition, OO staff spoke about banking matters with 44 financial industry representatives through outreach visits, telephone calls and industry-sponsored conferences. Bankers continued to express overall satisfaction with the FDIC. Their major area of concern continued to be the struggling economy and its impact on the Deposit Insurance Fund (DIF).

The OO also spoke to 563 members of the public about the FDIC and banking matters affecting them – a continuing reminder that actions taken by the FDIC not only affect the industry, but also touch the lives of the public.

During the six-month reporting period ending June 30, the FDIC resolved 45 bank failures at considerable expense to the DIF. While the public is reassured by the FDIC's ability to resolve bank failures, concerns about the level and sufficiency of the DIF were common. Through its authority, the FDIC has increased general assessments and charged a special assessment, to be collected on September 30, 2009, with the ultimate goal of returning the DIF to the statutory threshold defined by Congress. As OO representatives reassured the public about prospects for the DIF, we also noted that FDIC obligations are backed by the full faith and credit of the United States Government.

Many of the government programs implemented during the latter half of 2008 to revive the economy continue to function. In addition, a pilot Legacy Loans Program is in the works to help facilitate the sale of assets acquired by the FDIC through receivership. This report offers a brief summary of the programs and other relevant banking issues.

We welcome suggestions and concerns about the FDIC in its supervisory role. The OO summarizes these comments for FDIC senior management review – without attribution – to eliminate the possibility of reprisal. In addition to regional ombudsmen, OO specialists in Washington, D.C., provide assistance, regardless of your location. Please visit our Web site (www.fdic.gov/regulations/resources/ombudsman) for more information.

Concern about the Economy

The economy continued to be the greatest individual concern of bankers who spoke to the OO during the first half of 2009. The federal government has developed extraordinary programs to revive the financial services industry and the economy as a whole, some of which involve the FDIC's participation.

Extension of Increased Deposit Insurance Coverage

With the passage of Helping Families Save Their Homes Act in May 2009, Congress extended the temporary increase in deposit insurance coverage through 2013. For more information about FDIC deposit insurance visit www.fdic.gov/deposit.

Extension of Temporary Liquidity Guarantee Program

In March 2009, the FDIC Board of Directors extended the debt guarantee portion of the FDIC's Temporary Liquidity Guarantee Program (TLGP) through October 31, 2009. The program provides an FDIC guarantee for new, senior unsecured debt issued by banks, thrifts, bank holding companies, and most thrift holding companies, helping institutions to fund their operations.

In August 2009, the FDIC Board extended the Transaction Account Guarantee (TAG) component of the TLGP through June 30, 2010. The TAG component 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 opt into the program.

The TLGP, a voluntary program, has been effective in unlocking inter-bank credit markets and restoring rationality to credit spreads, thereby increasing funds for loans to creditworthy businesses and consumers. For more information about the FDIC's Temporary Liquidity Guarantee Program visit www.fdic.gov/tlgp.

Legacy Loans Program

In March 2009, the U.S. Treasury, in conjunction with the FDIC announced the formation of a Legacy Loans Program (LLP). The FDIC's initial role in this proposed program was to provide oversight for the formation, funding and operation of the new public-private investment funds that would purchase loans and other assets from open depository institutions. Although asset sales for open banks through the LLP were eventually postponed, on July 31 the FDIC announced an alternative proposal for the LLP by testing the funding mechanism via the sale of receivership assets. For more information on the Legacy Loans Program visit www.fdic.gov/llp.

Deposit Insurance Restoration

Mounting bank failures have caused the Deposit Insurance Fund to decline from record levels in 2008. As mentioned in the April 2009 OO Report to Industry, the FDIC is statutorily required to restore the Deposit Insurance Fund to 1.15 percent of estimated insured deposits within five years (absent extraordinary circumstances). On February 27, 2009, the FDIC Board adopted a revised restoration plan for the DIF to extend to seven years the length of time to restore the DIF reserve ratio to 1.15 percent, and increased the deposit insurance assessment rates for certain institutions. On May 22, the Board voted to levy a special assessment on insured institutions – to be collected on September 30, 2009 – to help replenish the DIF.

The issue of increased deposit insurance assessments for FDIC-insured institutions is a significant concern of bankers struggling for profitability in a difficult business environment. Institution executives typically understand the need for increased assessments and special assessments, but also express concern about the negative effect on earnings, capital and the availability of credit.

When asked by members of the public, the OO reiterates that the FDIC does not impose deposit insurance assessments on depositors; rather, insured banks and savings associations are responsible for paying assessments. The FDIC has no formal position on the practice of institutions passing the cost of these assessments to their customers through special fees; however, these institutions should not suggest that the FDIC is imposing the fee on the customer.

Loan Modifications

Since the FDIC announced a loan modification program at its conservatorship of IndyMac Federal Bank, FSB, on August 20, 2008, the OO has received calls from borrowers who want to participate in such a program at their own institution.

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 cwebster@fdic.gov. 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.