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Federal Deposit
Insurance Corporation

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

2017 Annual Performance Plan

Receivership Management Program

When an insured institution fails, the FDIC is appointed receiver.  In its receivership capacity, the FDIC assumes responsibility for efficiently recovering the maximum amount possible from the disposition of the receivership’s assets and the pursuit of the receivership’s claims.  Funds collected from the sale of assets and the dispositions of valid claims are distributed to the receivership’s creditors under the priorities set by law.

The FDIC focuses its receivership management efforts on four objectives:

The FDIC assesses the assets and liabilities of a failing institution to determine the institution’s current market value.  Using this information, the FDIC markets and sells various parts of the institution to acquiring institutions and investors.  The FDIC markets failed institutions broadly, ensuring that all qualified parties are given an opportunity to present bids.

When an institution fails, it is closed by the appropriate chartering agency, and the FDIC is appointed receiver.  After paying depositors their insured funds (if another institution has not assumed the deposits), the FDIC inventories and values any retained assets.  It uses various strategies to sell the assets as quickly as practicable, although sales of certain complex assets can take a considerable amount of time.  In the interim, the FDIC performs required asset servicing (such as maintenance of owned real estate and the collection and processing of loan payments) to maintain the value of these assets until they are sold. Throughout the asset valuation and sales processes, the FDIC also seeks payment from the debtors of the failed institution.

FDIC staff identifies and investigates claims owed to the receivership and pursues those claims on behalf of the receivership when it is cost effective to do so and/or when public policy dictates that the FDIC pursue legal action against potentially liable professionals (e.g., in certain negligence or fraud cases).  The FDIC also ensures that legitimate claims against the receivership are satisfied fairly.  The FDIC notifies likely claimants of the failed institution and provides them instructions on how to file a claim.  Once the FDIC receives and analyzes the information, valid claims are paid under the priorities set by law.

Following the resolution of receivership claims, disposition of most assets, payment of eligible creditor claims, and allocation of any other funds on behalf of the receivership, the FDIC terminates the receivership.  This involves preparation of final accounting statements and can require judicial confirmation that the obligations of the FDIC as receiver have been met.

In addition to resolutions administered using FDI Act authority, the FDIC may be called upon to carry out the orderly liquidation of certain large, systemically important financial companies under Title II of the DFA.  In 2017, the FDIC will continue to pursue planning and operational readiness initiatives to bolster its ability to administer, if necessary, the resolution of large financial institutions including those designated as systemically important.

The following table depicts the strategic goal, strategic objectives, and annual performance goals for the Receivership Management Program.

Strategic Goal

Strategic Objectives

Annual Performance Goals

Resolutions are orderly and receiverships are managed effectively.

Receiverships are managed to maximize net return and terminated in an orderly and timely manner.


Value, manage, and market assets of failed institutions and their subsidiaries in a timely manner to maximize net return. (5.1-1)


Manage the receivership estate and its subsidiaries toward an orderly termination. (5.1-2)

Potential recoveries, including claims against professionals, are investigated and resolved in a fair and cost-effective manner.


Conduct investigations into all potential professional liability claim areas for all failed insured depository institutions, and decide as promptly as possible to close or pursue each claim, considering the size and complexity of the institution. (5.2-1)

Resolution of the failure of a large, complex financial institution is carried out in an orderly manner in accordance with statutory mandates


Ensure the FDIC’s operational readiness to administer the resolution of large financial institutions, including those designated as systemically important. (5.3-1)



STRATEGIC GOAL 5:
Resolutions are orderly and receiverships are managed effectively.


STRATEGIC OBJECTIVE 5.1

Receiverships are managed to maximize net return and terminated in an orderly and timely manner.

Annual Performance Goal 5.1-1

Value, manage, and market assets of failed institutions and their subsidiaries in a timely manner to maximize net return.

Indicator and Target

  1. Percentage of the assets marketed for each failed institution
    • For at least 95 percent of insured institution failures, market at least 90 percent of the book value of the institution’s marketable assets within 90 days of the failure date (for cash sales) or 120 days of the failure date (for structured sales).

Means and Strategies

Operational Processes (initiatives and strategies):  By quickly returning the assets of a failed institution to the private sector, the FDIC maximizes net recoveries and minimizes disruption to the local community.  Given adequate time, the FDIC prepares an online information package and an asset valuation review for each failing insured depository institution to help solicit bidders, analyze bids received for the assumption of deposits, and sell as many of the institution’s assets as possible at resolution or shortly thereafter.  The FDIC markets most of the remaining assets within 120 days after an insured institution fails.  Between 2008 and 2012, whole bank loss-share transactions were used extensively to sell most of the assets of a failed bank to an acquiring bank.  Because of continued improvement in the economy, the use of loss-share transactions decreased significantly in 2013, and there were no loss-share transactions in 2014, 2015, or 2016.

After the resolution of the failed institution, the FDIC collects and manages the remaining assets in a cost-effective manner to maximize recoveries and preserve value until the assets can be marketed.  The failed institution’s assets are grouped into pools that will be most appealing to acquirers and are marketed through an internet-based platform.  Potential asset purchasers are given the opportunity to view all sales information electronically before submitting bids online. 

Where appropriate, the FDIC manages and disposes of the remaining assets from the failed bank location.  The FDIC uses the Standard Asset Valuation Estimation (SAVE) methodology, valuation contractors, and financial advisors to value most of the assets of the failed institution and to decide how to market and dispose of them. The SAVE methodology uses standard assumptions and market information to ensure consistency in the valuation of assets.  The valuation process, methodology, and assumptions used to value assets are continually reviewed and, when necessary, updated.  The FDIC will continue to update and refine its marketing strategies to market assets as quickly and efficiently as possible.

Human Resources (staffing and training):  The FDIC has a permanent staff that manages its resolutions and receivership management functions.  When workload increases, as it did from 2007 through 2011, the FDIC may add nonpermanent staff and contractor resources to help with these responsibilities.  The FDIC may also deploy cross-trained employees from elsewhere within the Corporation.  Current and projected workload is continually assessed to ensure that adequate staff and contractor resources are available to fulfill the FDIC’s receivership management responsibilities.

Contractors are used as necessary to manage and sell the assets of failed institutions.  The FDIC has comprehensive policies, procedures, and internal controls that cover every phase of the contracting process.  Contract expenditures declined in 2016, continuing a trend that began in 2011.  In 2017, the FDIC will continue to refine its contract support requirements and to shift work from contractors to FDIC employees, where appropriate.  In addition, consistent with the requirements of DFA, the FDIC will continue to identify and address barriers to the participation of underrepresented groups, including minority- and women-owned businesses and law firms, in FDIC contracting and asset purchase opportunities.

Information Technology:  The FDIC uses technology extensively to make its asset management/servicing, sales strategies, and other business processes more efficient and to keep pace with changing market and business practices.  The FDIC will continue to use the internet to deliver asset marketing information to potential investors and to sell assets received from failed institutions.  In addition, the Franchise Marketing System (FMS) is used to track franchise marketing activities for failed financial institutions.  FMS provides a comprehensive source of information on the management, valuation, marketing, and sale of assets.  It extracts from ViSION up-to-date examination and supervisory information on each failed institution.  The FDIC also establishes bid list criteria for each prospective transaction and identifies qualified bidders in FMS.

Verification and Validation

Progress in meeting this annual performance goal is tracked in FMS and reported through established management reporting processes.  Each primary federal regulatory agency reviews bid lists before bids are solicited to make sure that they include only those institutions that meet the established criteria for the transaction.

2016 Performance Results

The FDIC successfully met the performance target for this annual performance goal in 2016.  This annual performance goal and its associated performance indicator and target are unchanged for 2017.


Annual Performance Goal 5.1-2

Manage the receivership estate and its subsidiaries toward an orderly termination.

Indicator and Target

  1. Timely termination of new receiverships
    • Terminate at least 75 percent of new receiverships that are not subject to loss-share agreements, structured sales, or other legal impediments within three years of the date of failure.

Means and Strategies

Operational Processes (initiatives and strategies):  The oversight and prompt termination of a receivership preserves value for the uninsured depositors and other receivership claimants by reducing overhead and other holding costs.  An individual action plan is established for each receivership, and staff is assigned from the appropriate functional areas (e.g., asset, liability, finance, and legal) to execute that plan.  Receivership oversight staff monitors the execution of each action plan, including goals and milestones.  In addition, an oversight committee consisting of department managers meets monthly to review and evaluate the progress that has been made in carrying out each plan.

To be eligible for termination, a receivership must be free of impediments that represent material financial or legal risks to the FDIC.  These impediments may include outstanding contractual liabilities, outstanding offensive or defensive litigation, potential representation and warranty asset sale claims, open employee benefit plans, open subsidiary corporations where articles of dissolution have not yet been approved, and known or potential environmental contamination liabilities.  Once the FDIC has disposed of all of the assets of the receivership, resolved all liabilities, and made sure that no material financial or legal risks remain, a final distribution is made to the creditors of the receivership and the receivership entity is terminated. 

The FDIC continues to work to remove impediments to the termination of its remaining open receiverships.  During 2016, five new receiverships were added to the FDIC’s inventory of receiverships and 73 were terminated, leaving 378 active receiverships at year end.

Human Resources (staffing and training): Current and projected workloads are continually assessed to ensure that adequate staff and contractor resources (if needed) are available to fulfill the FDIC’s receivership management responsibilities.

Information Technology: The Receivership Oversight Management System (ROMS) tracks FDIC receiverships through the termination process and assists in tracking active and inactive receiverships.  ROMS identifies impediments to termination as well as termination milestone dates.

Verification and Validation

The process of inactivating a receivership is tracked in FDIC systems.  Monthly reports of deactivations are reviewed for accuracy.  System users validate the data, and any discrepancies are reconciled.  Results are reported through established management processes.

2016 Performance Results

The FDIC successfully met the performance target for this annual performance goal in 2016.  This annual performance goal and its associated performance indicator and target are unchanged for 2017.


STRATEGIC OBJECTIVE 5.2

Potential recoveries, including claims against professionals, are investigated and resolved in a fair and cost-effective manner.

Annual Performance Goal 5.2-1     

Conduct investigations into all potential professional liability claim areas for all failed insured depository institutions and decide as promptly as possible to close or pursue each claim, considering the size and complexity of the institution.

Indicator and Target

  1. Percentage of investigated claim areas for which a decision has been made to close or pursue the claim
    • For 80 percent of all claim areas, make a decision to close or pursue professional liability claims within 18 months of the failure of an insured depository institution.

Means and Strategies

Operational Processes (initiatives and strategies): The FDIC investigates potential claims against professionals (e.g., directors, officers, attorneys, and others) whose actions may have contributed to losses at a failed institution and assesses the viability of insurance policies and the carriers that provide fidelity insurance to the failed institution.  Once the investigation is complete, the FDIC determines whether it has viable, cost-effective claims and whether it should pursue them.  Most professional liability investigations must be completed and viable claims filed within three years following an institution’s failure to meet statute of limitations requirements.

The FDIC’s attorneys and investigators make sure that valid claims arising from the failure of an insured institution are fully evaluated within the prescribed time.  They investigate the events that contributed to losses at the institution and research and analyze potential claims.  They also determine if a recovery will exceed the estimated cost of pursuing each claim.  The team then recommends to senior FDIC management whether a claim should be pursued or the investigation closed.

Human Resources (staffing and training): Workload requirements are regularly reassessed to make sure that staffing is sufficient to fulfill these responsibilities.  The FDIC uses contractor resources (including outside legal counsel) and hires temporary staff, as needed.  In 2017, the FDIC will identify training needs and provide training to investigators on topics such as insurance claims, interviews, and loan review analysis.

Information Technology:  Data necessary to track failure dates of insured institutions, potential statute of limitation expiration dates, and other pertinent dates are routinely collected and stored in FDIC systems. Status information and decisions are also tracked.

Verification and Validation

Periodic data reviews are conducted to ensure that the information in FDIC systems is current and accurate.  Consistent maintenance of these systems ensures that accurate data are readily available to measure compliance with the annual performance goal.  Progress in meeting this goal is reported through established management processes.

2016 Performance Results

The FDIC successfully met the performance target for this annual performance goal in 2016.  This annual performance goal and its associated performance indicator and target are unchanged for 2017.


STRATEGIC OBJECTIVE 5.3

Resolution of the failure of a large, complex financial institution is carried out in an orderly manner in accordance with statutory mandates.

Annual Performance Goal 5.3-1     

Ensure the FDIC’s operational readiness to administer the resolution of large financial institutions, including those designated as systemically important.           

Indicators and Targets

  1. Refinement of resolution plans and strategies
    • Continue to refine plans to ensure the FDIC’s operational readiness to administer the resolution of large financial institutions under Title II of the DFA, including those nonbank financial companies designated as systematically important.
  1. Enhanced cross-border coordination and cooperation in resolution planning
    • Continue to deepen and strengthen bilateral working relationships with key foreign jurisdictions.

Means and Strategies

Operational Processes (initiatives and strategies): The largest bank holding companies and designated nonbank financial companies are required to prepare resolution plans under Title I of the DFA. These resolution plans must demonstrate that the firm could be resolved under bankruptcy without severe adverse consequences for the financial system or the U.S. economy. As a backstop, for circumstances in which an orderly bankruptcy process might not be possible, Title II of the DFA provides the FDIC with Orderly Liquidation Authority (OLA) to manage the failure of the firm.  This authority may only be implemented after recommendations by the appropriate federal regulatory agencies and a determination by the Secretary of the Treasury in consultation with the President.

OLA is the mechanism for ensuring that policymakers will not be faced with the same poor choices they faced in 2008.  Its tools are intended to enable the FDIC to carry out the process of winding down and liquidating the firm, while ensuring that shareholders, creditors, and culpable management are held accountable and taxpayers do not bear losses.  The OLA provides the FDIC with several authorities—not all of which are available under bankruptcy—that are broadly similar to those that the FDIC has to resolve the failure of IDI’s under the FDI Act.  They include the authority to establish a bridge financial company, to stay the termination of certain financial contracts, to provide temporary liquidity that may not otherwise be available, to convert debt to equity, and to coordinate with domestic and foreign authorities in advance of a resolution to better address any cross-border impediments.  In the years since enactment of the DFA, the FDIC has made significant progress in developing the operational capabilities to carry out a resolution using the OLA, if necessary.

Given the challenges presented in the resolution of a large, complex financial company—especially as these companies are currently organized and operated—the FDIC initially focused its efforts on developing a resolution strategy called the single point of entry.  This strategy would place the top-tier parent company of the firm into receivership while establishing a temporary bridge financial company to hold and manage its critical operating subsidiaries for a limited period.  To operate the bridge financial company, the FDIC would appoint a new board of directors and senior management that would be charged with managing the wind-down of the firm in a way that minimizes systemic disruption.  In order to minimize moral hazard and promote market discipline, shareholders and creditors would bear losses, and culpable management would be replaced.

As a well-capitalized entity, the FDIC expects that the bridge financial company and its subsidiaries would be in a position to borrow from customary sources in private markets to meet its liquidity needs. However, if such funding was not immediately available, the law provides a dedicated, back-up source of liquidity—not capital—through the Orderly Liquidation Fund (OLF).  The OLF would be used, if necessary, in the initial stage of resolution until private funding could be accessed.

There are a number of important limitations on the use of the OLF.  The DFA limits the amount that can be borrowed and requires that any OLF borrowing must be repaid from recoveries on the assets of the failed firm.  If that should prove insufficient, assessments would be levied on the largest financial companies.  Under the law, taxpayers cannot bear losses.  Instead, losses are borne by the failed company through its shareholders and creditors, and, if necessary, by the financial industry through assessments.

The FDIC also established and consults regularly with the SRAC, which advises the FDIC on the potential effects of a large complex financial institution failure on financial stability and economic conditions, the ways in which specific resolution strategies would affect stakeholders and their customers, the tools available to the FDIC to wind down the operations of a failed organization, and the tools needed to assist in cross-border relations with foreign regulators and governments when a systemic company has international operations.  Members of SRAC bring a wide range of knowledge and experience to these issues, including expertise in managing complex firms, administering bankruptcies, working within different legal jurisdictions, and applying accounting rules and practices.

Advance planning and cross-border coordination for the resolution of G-SIFIs will be essential to minimizing disruptions to global financial markets.  Recognizing that G-SIFIs create complex international legal and operational concerns, the FDIC continues to work with foreign regulators to establish frameworks for effective cross-border cooperation.

Human Resources (staffing and training): This annual performance goal will be carried out largely by existing FDIC staff.  The training needs of staff are reviewed regularly to ensure that teams have knowledge and expertise necessary to appropriately perform their assigned responsibilities.

Information Technology:  Existing information technology systems from the failed institution will be used in the resolution of a large, complex firm.  The FDIC will continue to identify other IT needs relative to a failure of a large, complex financial institution during 2017.

Verification and Validation

The FDIC has extensive experience in resolving the failure of IDIs and has devoted considerable time and resources to planning for the rapid and orderly resolution of a financial institution under Title II of the DFA.  To evaluate the effectiveness of these planning efforts and to identify areas of further development, the FDIC held two operational exercises to validate the steps involved in carrying out a systemic resolution. The first operational exercise conducted in December 2015 focused on the initial appointment of the FDIC as receiver of a SIFI and the stabilization phase immediately following appointment.  The second exercise covered the operation of a bridge financial company, and the wind down and liquidation of the failed firm. The exercises included senior FDIC managers and staff representing areas within the organization that would be responsible for executing a resolution under Title II of the DFA.  Both operational exercises enhanced organization cooperation, validated the systemic resolution framework, and identified areas for further work.

2016 Performance Results

The FDIC successfully met the performance targets for this annual performance goal in 2016.  This annual performance goal is unchanged, but its associated performance indicators and targets have been updated, for 2017.


                                     

 

 

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