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2013 Annual Report

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Resolutions and Receiverships

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 his or her deposits in an FDIC-insured institution due to a failure. Upon closure of an institution, typically by its chartering authority—the state for state-chartered institutions and the Office of the Comptroller of the Currency (OCC) for national banks and federal savings associations—the FDIC is appointed receiver and is responsible for resolving the failed institution.

The FDIC uses a variety of business practices to resolve a failed institution. These practices are typically associated with either the resolution process or the receivership process. Depending on the characteristics of the institution, the FDIC may recommend several of these methods to ensure the prompt and smooth payment of deposit insurance to insured depositors, to minimize the impact on the DIF, and to speed dividend payments to uninsured depositors and other creditors of the failed institution.

The resolution process involves evaluating and marketing a failing institution, soliciting and accepting bids for the sale of the institution, determining which bid is least costly to the DIF, and working with the acquiring institution through the closing process.

To minimize disruption to the local community, the resolution process must be performed as quickly and smoothly as possible. There are three basic resolution methods used by the FDIC: purchase and assumption transactions, deposit payoffs, and Deposit Insurance National Bank (DINB) assumptions.

The purchase and assumption (P&A) transaction is the most commonly used resolution method. In a P&A transaction, a healthy institution purchases certain assets and assumes certain liabilities of the failed institution. A variety of P&A transactions can be used. Since each failing bank situation is different, P&A transactions provide flexibility to structure deals that result in the highest value for the failed institution. For each possible P&A transaction, the acquirer may either acquire all or only the insured portion of the deposits. Loss sharing may be offered by the receiver in connection with a P&A transaction. In a loss-share transaction, the FDIC as receiver agrees to share losses on certain assets with the acquirer. The FDIC usually agrees to absorb a significant portion (for example, 80 percent) of future losses on assets that have been designated as "shared loss assets" for a specific period of time (for example, five to ten years). The economic rationale for these transactions is that keeping shared loss assets in the banking sector can produce a better net recovery than the FDIC's immediate liquidation of these assets.

Deposit payoffs are only executed if a bid for a P&A transaction is more costly to the DIF than liquidation or if no bids are received, in which case the FDIC, in its corporate capacity, makes sure that the customers of the failed institution receive the full amount of their insured deposits.

The Federal Deposit Insurance Act authorizes the FDIC to establish a DINB to assume the insured deposits of a failed bank. A DINB is a new national bank with limited life and powers that allows failed-bank customers a brief period of time to move their deposit account(s) to other insured institutions. Though infrequently used, a DINB allows for a failed bank to be liquidated in an orderly fashion, minimizing disruption to local communities and financial markets.

The receivership process involves performing the closing functions at the failed institution, liquidating any remaining failed institution assets, and distributing any proceeds of the liquidation to the FDIC and other creditors of the receivership. In its role as receiver, the FDIC has used a wide variety of strategies and tools to manage and sell retained assets. These include, but are not limited to, asset sale and/or management agreements, structured transactions, and securitizations.

Financial Institution Failures

During 2013, there were 24 institution failures, compared to 51 failures in 2012. For the institutions that failed, the FDIC successfully contacted all known qualified and interested bidders to market these institutions. The FDIC also made insured funds available to all depositors within one business day of the failure if it occurred on a Friday, and within two business days if the failure occurred on any other day of the week. There were no losses on insured deposits, and no appropriated funds were required to pay insured deposits.

The following chart provides a comparison of failure activity over the last three years.

Failure Activity 2011-2013
Dollars In Billions
2013 2012 2011
Total Institutions
Total Assets of Failed Institutions1
Total Deposits of Failed Institutions1
Estimated Loss to the DIF2

1 Total assets and total deposits data are based on the last Call Report filed by the institution prior to failure.

2 Estimated DIF losses from 2011 and 2012 failures are updated as of December 31, 2013.

Asset Management and Sales

As part of its resolution process, the FDIC makes every effort to sell as many assets as possible to an assuming institution. Assets that are retained by the receivership are evaluated. For 95 percent of the failed institutions, at least 90 percent of the book value of marketable assets is marketed for sale within 90 days of an institution's failure for cash sales and within 120 days for structured sales.

Structured sales for 2013 totaled $199 million in unpaid principal balances from commercial real estate and acquisition, development, and construction assets acquired from various receiverships. Cash sales of assets for the year totaled $260 million in book value. In addition to structured and cash sales, the FDIC also uses securitizations to dispose of bank assets. In 2013, securitization sales totaled $954 million.

As a result of our marketing and collection efforts, the book value of assets in inventory decreased by $5.7 billion (34 percent) in 2013. The following chart shows the beginning and ending balances of these assets by asset type.

Assets in Inventory by Asset Type
Dollars in Millions
Asset Type 12/31/13 12/31/12
Consumer Loans
Commercial Loans
Real Estate Mortgages
Other Assets/Judgments
Owned Assets
Net Investments in Subsidiaries
Structured and Securitized Assets

Receivership Management Activities

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 the final distribution of any proceeds is made, the FDIC terminates the receivership. In 2013, the number of receiverships under management increased by 3 percent, as a result of new failures. The following chart shows overall receivership activity for the FDIC in 2013.

Receivership Activity
Active Receiverships as of 12/31/121
New Receiverships
Receiverships Terminated
Active Receiverships as of 12/31/131

1 Includes one FSLIC Resolution Fund receivership at year-end 2013.

Minority and Women Outreach

The FDIC relies on contractors to help meet its mission. During 2013, the FDIC has awarded 995 contracts. Of these, 282 contracts (28 percent) were awarded to minority- and women-owned businesses (MWOBs). The total value of contracts awarded in 2013 was $573 million, of which $199 million (35 percent) was awarded to MWOBs, compared to 30 percent for all of 2012. In 2013, the FDIC paid $141 million of its total contract payments (25 percent) to MWOBs. Engagements of minority and women-owned law firms (MWOLFs) were 18 percent of all legal engagements for 2013, with total payments of $13 million going to MWOLFs (13 percent) of all payments to outside counsel, compared to 13 percent for all of 2012.

In 2013, the FDIC participated in a combined total of 25 business expos, one-on-one matchmaking sessions, and panel presentations. Dissemination of information and responses to inquiries regarding FDIC business opportunities for minorities and women took place at these sessions. In addition to targeting MWOBs, these efforts also targeted veteran-owned and small disadvantaged businesses. Vendors were provided with the FDIC's general contracting procedures, prime contractors' contact information, and possible upcoming solicitations. Vendors were also encouraged to register with the FDIC's Contractors Resource List (a principal database for vendors interested in doing business with the FDIC).

The FDIC participated in trade events where information was provided to MWOLFs about opportunities for legal representation and how to enter into co-counsel arrangements with majority law firms. In addition to attending nine bar association conferences during 2013, the FDIC presented a training workshop for MWOLFs entitled "Anatomy of a Bank Closing" to provide firms with ideas for marketing their services to FDIC in-house attorneys following the resolution of a financial institution. This workshop was presented at events sponsored by the National Association of Minority and Women Owned Law Firms (NAMWOLF) affinity group. These events were well-attended and received with great enthusiasm. The FDIC continues to explore new opportunities to partner with NAMWOLF.

The FDIC also conducted a series of outreach events to raise awareness, and provide information on how to purchase Owned Real Estate (ORE) through the FDIC's Owned Assets Marketplace and Auctions program. These events also facilitated interaction between smaller investors and asset managers, which includes minority and women-owned (MWO) firms. These included three informational sessions with 95 participants, and several workshops/webinars targeting small investors and MWO investors in the southeast.

In 2013, the FDIC's Office of Minority and Women Inclusion (OMWI) participated with other Dodd-Frank Act agency OMWIs in drafting an interagency policy statement for assessing the diversity policies and practices of entities regulated by their agencies. The proposed statement was posted for comments in the Federal Register on October 25, 2013. The comment period was extended 45 days and ended on February 7, 2014. The FDIC will continue efforts in 2014 to fully implement Section 342 of the Dodd-Frank Act.

In 2014, the FDIC will continue to encourage and foster diversity and inclusion of minorities and women in its business, procurement activities and outside counsel engagements, and MWO investors, as well as promote strong commitment to diversity inclusion within its workforce and with all financial institutions and law firms that do business with the FDIC.

Protecting Insured Depositors

The FDIC's ability to attract healthy institutions to assume deposits and purchase assets of failed banks and savings associations at the time of failure minimizes the disruption to customers and allows 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 insurance limit. During 2013, the FDIC paid dividends of $7 million to depositors whose accounts exceeded the insurance limit.

Professional Liability and Financial Crimes Recoveries

FDIC staff works to identify potential claims against directors, officers, fidelity bond insurance carriers, appraisers, attorneys, accountants, mortgage loan brokers, title insurance companies, securities underwriters, securities issuers, and other professionals who may have contributed to the failure of an IDI. Once a claim is determined to be meritorious and cost-effective to pursue, the FDIC initiates legal action against the appropriate parties. During 2013, the FDIC recovered more than $674 million from professional liability claims and settlements. The FDIC also authorized lawsuits related to 42 failed institutions against 316 individuals for director and officer liability and authorized 10 other lawsuits for fidelity bond, liability insurance, attorney malpractice, appraiser malpractice, and securities law violations for residential mortgage-backed securities. Eighty-three residential mortgage malpractice and fraud lawsuits were pending as of year-end 2013. Also, by year-end 2013, the FDIC's caseload included 119 professional liability lawsuits (up from 95 at year-end 2012) and 796 open investigations (down from 1,343 at year-end 2012).

In addition, as part of the sentencing process for those convicted of criminal wrongdoing against institutions that later failed, a court may order a defendant to pay restitution or to forfeit funds or property to the receivership. The FDIC, working with the U.S. Department of Justice, collected $8.4 million from criminal restitution and forfeiture orders through year-end 2013. As of year-end 2013, there were 4,073 active restitution and forfeiture orders (down from 4,860 at year-end 2012). This includes 126 orders held by the FSLIC Resolution Fund orders, (i.e., orders arising out of failed financial institutions that were in receivership or conservatorship by the Federal Savings and Loan Insurance Corporation or the Resolution Trust Corporation).

International Outreach

Throughout 2013, the FDIC played a leading role among international standard-setting, regulatory, supervisory, and multi-lateral organizations by supporting the global development of effective deposit insurance and bank supervision systems, maintaining public confidence and financial stability, and promoting effective resolution regimes as integral components of the financial safety net. Among the key institutions the FDIC collaborated with were the Association of Supervisors of Banks of the Americas (ASBA), the Basel Committee on Banking Supervision (BCBS), the European Forum of Deposit Insurers, the Financial Stability Board (FSB), the Financial Stability Institute (FSI), the International Association of Deposit Insurers (IADI), the International Monetary Fund (IMF), and the World Bank.

Key to the international collaboration was the ongoing dialogue among FDIC Chairman Martin J. Gruenberg, other senior FDIC leaders, and a number of policymakers and senior financial regulators from the United Kingdom (U.K.) about the implementation of the Dodd-Frank Act, Basel III, and how changes in U.S., U.K., and European Union (EU) financial regulations affect global information sharing, crisis management, and recovery and resolution activities. In light of the large number of cross-border operations of large, complex financial institutions, the primary areas of discussion and collaboration were the FDIC's OLA under Title II of the Dodd-Frank Act, and the importance of cross-border coordination in the event a SIFI begins to experience financial distress. In addition, FDIC leadership was engaged in numerous consultations with EU policymakers on creating a Banking Union in Europe to encompass bank supervision, resolution, and deposit insurance.

During 2013, the FDIC participated in both Governors and Heads of Supervision and BCBS meetings. The FDIC supported work streams, task forces, and policy development group meetings to participate in BCBS work on a variety of topics. The FDIC assisted in several quantitative analyses conducted by the BCBS, including those with respect to the leverage ratio and liquidity standards. Additionally, the FDIC participated in BCBS initiatives related to topics including comparability and simplicity within the Basel Accord, standards implementation, accounting, external audits, review of the trading book, capital planning, liquidity standards, and credit ratings and securitizations.

International Association of Deposit Insurers (IADI)

Since its founding in 2002, IADI has grown from 26 founding members to 71 deposit insurers from 69 jurisdictions. IADI contributes to the security of individual depositors and global financial stability and is recognized as the standard-setting body for deposit insurance by all the major public international financial institutions, including the FSB, the Group of 20 (G-20), the BCBS, the IMF, and the World Bank. Chairman Gruenberg served as the President of IADI and the Chair of its Executive Council from November 2007 to October 2012. FDIC Vice Chairman Thomas Hoenig currently serves on IADI's Executive Council.

Under the FDIC's leadership, IADI has made significant progress in advancing the 2009 IADI and BCBS Core Principles for Effective Deposit Insurance Systems (Core Principles). In February 2011, the FSB approved the Core Principles and the Core Principles Assessment Methodology for inclusion in its Compendium of Key Standards for Sound Financial Systems. During 2013, an IADI Steering Committee led by the FDIC and the Canada Deposit Insurance Corporation was established to review and update the Core Principles. The Steering Committee plans to submit a revised document to the FSB in July 2014. To-date, IADI has trained over 250 staff members from over 70 jurisdictions in conducting self-assessments for compliance with the Core Principles.

The Core Principles are officially recognized by both the IMF and World Bank and are now accepted for use in their Financial Sector Assessment Program (FSAP). This represents an important milestone in the acceptance of the role of effective systems of deposit insurance in maintaining financial stability. The FDIC has also worked with senior officials at the World Bank and IMF, and formalized IADI collaboration and support of the deposit insurance review portion of the FSAP reviews. This support includes the provision of FDIC member-experts for IMF/World Bank FSAP Review Teams and the on-going training of additional IADI experts for subsequent FSAP missions. Core Principles regional workshops, training sessions, self-assessment reviews and Steering Committee meetings were held in Istanbul, Turkey; Manila, Philippines; Basel, Switzerland; Warsaw, Poland; Buenos Aires, Argentina; and Mumbai, India during 2013. In addition, the FDIC hosted the IADI executive training seminar, "Claims Management: Reimbursement to Insured Depositors" July 16-18, 2013, at the Seidman Center in Arlington, Virginia. Fifty-three people from 31 jurisdictions participated in the seminar.

The FDIC continued its global role in supporting the development of effective deposit insurance and banking supervision systems through the provision of training, consultations, and briefings to foreign bank supervisors, deposit insurance authorities, international financial institutions, partner U.S. agencies, and other governmental officials. Many of these consultations were multi-day study tours that enabled delegations to receive in-depth advice on a wide range of deposit insurance issues. Officials from the European Commission, the Ukraine Deposit Guarantee Fund, the Malaysian Deposit Insurance Corporation, the Philippine Deposit Insurance Corporation, the Bank of Thailand, and the Central Bank of Kenya benefited from these extended consultations.

Association of Supervisors of Banks of the Americas (ASBA)

The FDIC has been a member of ASBA since its founding in 1999 and supports ASBA's mission of promoting sound banking supervision and regulation throughout the Western Hemisphere. In recognition of the FDIC's enduring leadership in ASBA, the General Assembly elected FDIC Director of Risk Management Supervision Sandra Thompson to serve a two-year term as Vice Chairman of ASBA in November 2011, a position she held until her departure from the FDIC in early 2013. In this capacity, Director Thompson presided over meetings of the Training and Technical Cooperation Committee, the General Assembly, and the ASBA board.

To assist ASBA in promoting capacity- and leadership-building in the Americas, the FDIC currently chairs the Association's Training and Technical Cooperation Committee, and led two ASBA technical assistance training missions in 2013, including Financial Institution Analysis in Panama City, Panama, and Anti-Money Laundering in Santo Domingo, Dominican Republic. The FDIC continued to provide subject-matter experts as instructors and speakers to support ASBA-sponsored training programs, seminars, and conferences.

In support of building institutional leadership, the FDIC hosted its second Secondment Program in the spring of 2013, designed to demonstrate how the FDIC has successfully implemented best international bank supervisory practices into its Risk Management and Supervision programs. Three ASBA members, representing bank supervisory agencies from the National Commission of Banks and Insurances of Honduras; the Bank of Jamaica; and the Superintendent of Banking, Insurance, and Private Pension Funds Administrators of Peru, participated in this intensive eight-week study tour at the various policy and operational levels within the FDIC at headquarters, a regional office, and a field office.

In addition, to promote and influence sound bank supervision policy, and the adoption of international best practices, the FDIC actively participates in Research and Guidance Working Groups sponsored by ASBA, including those on Corporate Governance, Enterprise Risk Management, and Anti-Money Laundering and Combating the Financing of Terrorism.

Foreign Visitors Program

The FDIC's international efforts supporting the development of effective deposit insurance systems, bank supervisory practices, and bank resolution regimes continued to grow in 2013. FDIC management and staff met with 533 individuals, representing over 39 jurisdictions during the year.

Discussions with European authorities were an important focus of the FDIC's international efforts this year. Senior management and subject-matter experts provided advice and consultation on a number of major European initiatives, including the Single Supervisory mechanism, the proposed bank recovery and resolution directive, and the directive on deposit guarantee schemes.

Questions about the FDIC's expanded authorities under the Dodd-Frank Act continued to be a common area of intense interest, with particular focus on how the FDIC would resolve a SIFI with cross-border operations. Other major topics discussed include the FDIC's management of the DIF, offsite monitoring methodologies, and corporate training programs.

During 2013, the FDIC provided subject-matter experts to participate in seven FSI seminars around the world. The topics included resolution planning, liquidity risk, stress testing, bank resolution, SIFI resolution, and supervising SIFIs. Additionally, 204 individuals representing over 16 jurisdictions attended training programs offered through the FDIC's Corporate University.

The FDIC made major strides in strengthening its relationships with Chinese authorities in 2013. The 5th U.S.-China Strategic and Economic Dialogue was held in Washington, D.C. in July. U.S. Treasury Secretary Jacob Lew and Chinese Vice Premier Wang Qishan led the Economic Track discussions. FDIC Chairman Martin Gruenberg participated in the meetings alongside a high-level delegation of Cabinet members, ministers, agency heads, and senior officials from both countries. Chairman Gruenberg discussed the importance of a well-developed deposit insurance framework and bank resolution regime for financial stability. In October 2013, Chairman Gruenberg visited China to meet with Chinese officials to discuss effective deposit insurance and bank resolution systems, and how the FDIC expects to resolve U.S. SIFIs under the OLA of the Dodd-Frank Act. While there, Chairman Gruenberg signed an MOU with the People's Bank of China (PBOC) designed to extend their effective international working relationship in the areas of deposit insurance and resolution. The purpose of the MOU is to develop and expand the interaction between the FDIC and the PBOC and to demonstrate a shared commitment to cooperation among banking agencies. The MOU also seeks to enhance cooperation in analyzing cross-border financial institution recovery and resolution issues, and planning for potential recovery and resolution scenarios, including appropriate simulations, contingency planning, and other work designed to improve preparations to manage troubled institutions with operations in the United States and the People's Republic of China. In November 2013, a senior government delegation which included representatives from the Chinese State Council, visited the FDIC for a series of discussions with FDIC management, subject-matter experts, and academics about the operations of the FDIC, the benefits of an effective deposit insurance system and bank resolution regime, and advice on China's plans to implement a deposit insurance system.

Financial Services Volunteer Corps (FSVC)

The FDIC placed two staff members on long-term assignments with the FSVC during 2013 as part of a continuing written agreement between the two organizations. FDIC personnel provided a variety of consulting and training services focused on risk management supervision in Angola, Egypt, and Tanzania. SME credit analysis, credit risk ratings, corporate governance best practices, risk management organization and policy, and financial education teaching aids were among the projects completed for the benefit of central banks, training institutes, financial business associations, and commercial banking organizations. Over the past several years, the FDIC has assisted the FSVC with a wide variety of programs and projects funded in large part by the U.S. Agency for International Development to help strengthen regulatory frameworks and banking systems in developing countries.

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