The FDIC has the unique mission of protecting depositors of insured banks and savings
associations. No depositor within the insured limit of $100,000 has ever experienced a
loss in an FDIC-insured institution due to a failure. The FDIC protects depositors by
managing the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).
On July 1, 1995, the FDIC was given the
responsibility for handling SAIF-insured institutions that close. Previously, the
Resolution Trust Corporation (RTC) performed this function, which it took over from the
former Federal Savings and Loan Insurance Corporation (FSLIC) on August 9, 1989. The FDIC
also manages the remaining assets and liabilities of the former FSLIC and the former RTC.
In most cases, a depository
institution is closed by its chartering authority when it fails to meet prescribed capital
requirements or is insolvent. The state is the chartering authority for state banks and
savings associations, the Office of the Comptroller of the Currency for national banks,
and the Office of Thrift Supervision for federal savings associations. The FDIC works
closely with all chartering authorities when dealing with institutions in danger of
The FDIC is responsible for
resolving a failing bank or savings association by using the least-costly method. Staff
gathers data about the failing institution, estimates the potential loss from a
liquidation, solicits and evaluates bids from potential acquirers, and recommends the
least-costly resolution to the FDICs Board of Directors.
* The FDIC became responsible for failed SAIF-insured institutions on
July 1, 1995.
To handle the
reduced levels of resolutions and liquidation activity projected for the near term more
efficiently, the FDIC in December combined the two divisions that handle the bulk of
failed bank and thrift activity. The new Division of Resolutions and Receiverships (DRR)
will handle the responsibilities of the former Division of Resolutions and the Division of
Depositor and Asset Services. For more information on this new
division, click here.
During 1996, the FDIC resolved six
institutions five insured by the BIF and one insured by the SAIF. One of the
BIF-insured institutions, however, also had a portion of its deposits insured by the SAIF
(this is known as an Oakar institution). The five BIF-insured failures, with
combined assets of $183 million, were the fewest bank failures since 1974 when there were
four. The one SAIF-insured institution that closed, with total assets of $35 million, was
the first SAIF-insured failure since the FDIC took over that responsibility from the RTC.
In the approximately six years the RTC was in operation, it resolved 747 failed
SAIF-insured savings associations.
(P&A) transactions were used to resolve all six failures in 1996. In a P&A
transaction, some of the assets of the failed bank or thrift are acquired by another
institution along with all deposits, or just those within the $100,000 insurance limit. In
two of the six failures, all deposits were assumed. In the remaining four, the acquiring
institution assumed only the insured deposits; depositors with balances above the $100,000
insurance limit will receive a proportionate share of the proceeds from the liquidation of
the failed institutions assets. (If a buyer for a failing institution is not found,
the FDIC is responsible for making payments to the insured depositors of the failed
institution. Payments are often made as soon as the next business day.)
To ease the burden on uninsured
depositors, the FDIC may authorize advance dividends soon after an institution fails. The
advance dividend is based on the estimated value of the receivership. The FDIC made
advance-dividend payments of $4 million to uninsured depositors in two of the four
failures in 1996 in which uninsured deposits were not assumed. This represented
approximately 60 percent of the uninsured deposits in those cases. Generally, an advance
dividend is not paid in cases in which the value of the failed institution cannot be
When appropriate, as assets are
liquidated, DRR makes subsequent dividend payments to uninsured depositors and general
creditors of failed banks, including payments to the FDIC as a creditor for advancing
funds for the payment of insured deposits at the time of an institutions failure.
Total dividend payments during 1996 totaled $10.2 billion, which includes payments to
creditors of institutions that failed in prior years. For more
information about the resolution of the six failures of 1996, see
DRR in 1996 unveiled the Standard
Asset Valuation Estimation (SAVE) project, which provides consistent asset valuation
methodology in the resolution and liquidation process by employing standard discounted
cash flow models and valuation assumptions to the valuation of assets. SAVE methodology
was used to calculate loss reserve estimations for assets held by the BIF, the SAIF, and
the FSLIC Resolution Fund (FRF) as a part of the FDIC year-end 1996 financial statements.
Assets remaining after resolution
are liquidated by DRR in an orderly manner and the proceeds are used to pay, to the extent
possible, uninsured depositors and any remaining creditors. The FDICs ability to
provide incentives for healthy institutions to assume deposits and purchase assets of
failed banks and savings associations allows a portion of assets to be returned to the
private sector immediately. The remaining assets are retained by the FDIC for later sale,
loan workouts or other disposition. As a result of this effort, approximately 36 percent
($78 million out of $218 million) of the six failed institutions assets were sold at
the time of closing.
Dollars in billions
Total Failed Banks
Assets of Failed
Total Failed Savings Associations
Assets of Failed
Total Assets in
a The FDIC assumed responsibility for resolving failed
savings associations from the Resolution Trust Corporation (RTC) on July 1, 1995. All
savings association failures in 1994 and 1995 were resolved by the RTC. b Only one SAIF-insured institution failed in 1996, with assets totaling $35
million. c Also includes assets from thrifts resolved by the former Federal Savings and
Loan Insurance Corporation (FSLIC) and the RTC. These assets are serviced by the FDIC as
well as by asset management contractors and national servicers.
In an effort to make the resolution process more
efficient, the FDIC developed the Joint Asset Marketing (JAM) project. The goal of JAM is
to increase competition in the resolution process by inviting parties not bidding on a
failing institutions deposits to purchase assets of the bank or savings association
at the time of resolution. This is expected to increase sales of assets at resolution,
lowering the ultimate cost of the resolution.
In 1996, DRR also began providing for-sale
information on assets retained from failures on the FDICs Internet home page (www.fdic.gov). The information includes: dates when loans and real
estate will be offered for sale; lists of available real estate; and individual assets
that have been sold.
DRR successfully settled, sold or otherwise
resolved a significant portion of its asset inventory from failed institutions during the
year as follows:
The FDIC reduced the book value of
the combined FDIC/RTC assets in liquidation by 51.7 percent, to $8.7 billion from $18.0
billion. Net collections for all funds totaled about $6.6 billion.
2,045 real estate properties, which
were sold for a total of $352.8 million, yielded a recovery of 94.7 percent of the average
17,112 loans and other assets,
totaling $4.1 billion in book value, were sold in sealed-bid offerings and other sales
The FDIC reduced the number of
receiverships managed by DRR by 249 to 879 (715 active and 164 in termination status).
At year-end 1996, DRR was managing
30 assistance agreements and two of the former RTCs asset management and disposition
agreements (AMDAs). The FDIC sometimes uses assistance agreements to resolve troubled or
failing institutions. Although not used in 1996, assistance is generally either a one-time
cash payment of capital or on-going payments over a period of time to cover losses
incurred by the assuming bank on certain assets it took from the failing institution. Of
these 32 agreements, five involved open bank assistance, 11 involved loss-sharing
agreements, five comprised other types of assistance, two were AMDA limited partnership
agreements and nine were Interim Capital Assistance Agreements the RTC entered into with
minority institutions. DRR also monitored the general partners compliance with terms
of 22 Judgment, Deficiency and Charge-off (JDC) partnerships, in which the FDIC is the
limited partner and the general partner is from the private sector. The JDC partnership
program places hard-to-collect assets in the private sector where they can be worked to
When the RTCs unfinished work
was transferred to the FDIC at the end of 1995, the FDIC assumed responsibility for the
RTC affordable housing program. The combined program was revised in 1996 to meet standards
for asset disposition set forth in the FDIC Improvement Act of 1991. The revised program
includes: a 90-day period during which all single and multifamily properties designated as
affordable housing are marketed exclusively to eligible individuals or organizations; an
expanded clearinghouse program to provide property lists to potential buyers; and a
technical assistance program to advise nonprofit organizations and public agencies when
purchasing multifamily properties.
During 1996, the FDIC sold more than
3,266 affordable housing units from failed thrifts and banks for $39.9 million under this
program. Sales included 46 multifamily and 455 single-family properties. Since 1990, the
FDIC and RTC programs have had cumulative sales of more than 123,900 affordable housing
units for $1.8 billion.
In addition, 32 state housing
agencies and nonprofit organizations, acting under a memorandum of understanding with the
FDIC, monitor 38,567 rental units for low- and very low-income households to ensure that
purchasers are making units available to these households at adjusted rents as specified
in the purchase agreement. These units originally were sold under the FDIC/RTC affordable
FSLIC Resolution Fund
The FDIC, through the FSLIC
Resolution Fund (FRF), is responsible for managing and monitoring assistance agreements
the former FSLIC entered into prior to August 9,1989. The FRF also is responsible for
disposing of all remaining assets and liabilities of the former RTC, which were
transferred to the FDIC on January 1,1996. The FRF, as successor to the FSLIC, receives
federally appropriated funds. In 1994, the FRF was allocated $827 million, which is
available until expended. Of that amount, $636 million was still available.
DRR, which is responsible for
managing the assets and liabilities of the FRF, reduced the number of former FSLIC open
cases to four from seven. The assistance agreements of the three closed cases were
terminated before the contracted expiration dates. Other early terminations
are expected to be closed out before the contracted expiration dates. These early
terminations are expected to yield a cost savings of $1.1 million. Covered assets from the
former FSLIC (those for which acquirers were guaranteed against loss and/or guaranteed a
certain yield) at year-end 1996 were reduced to $261,000 from $108 million through sales
and other adjustments. In addition, DRR is responsible for administering 24 terminated FRF
agreements from the former FSLIC that have outstanding issues and 42 agreements that
require monitoring and collecting tax benefits still due to the FRF. About $39.7 million
in tax benefits were realized by the FRF in 1996.
Besides covered assets owned by
others, the FDIC is responsible for liquidating FRF assets and liabilities that have been
transferred to the FDIC. At year-end 1996, the FRF portfolio of assets in liquidation from
the former FSLIC had a book value of $476 million, down from $1.5 billion at the end of
1995, despite the purchase of $534 million in assets during 1996 related to the early
terminations. FRF net liquidation collections totaled $571 million for the former FSLIC in
The FRF also is responsible for
disposing of the assets remaining from failed thrift institutions of the former RTC,
managing the reserves (credit enhancements reserves) set aside to support the sale of
securities collateralized by RTC assets, and repaying the RTCs debt from the Federal
Financing Bank (FFB). At year-end 1996, the FRF portfolio of assets in liquidation from
the former RTC had a book value of $4.4 billion, down from $7.7 billion at the end of
1995. During the same time period, reserves dropped from $6.8 billion to $5.8 billion, and
FFB borrowings were reduced from $10.5 billion to $4.6 billion. The FDIC expects to
recover sufficient funds from the RTCs receivership assets to cover the
approximately $5 billion in RTC-corporate liabilities remaining at year-end.
The FRF will continue until all of
its assets are sold or liquidated and all of its liabilities are satisfied. Any remaining
funds will revert to the Department of the Treasury.
a veteran of more than 40 years with General Motors, oversees failed banks and liquidation
activities for the FDIC in the western United States.
The FDICs Legal Division and
DRR work together to identify claims against directors and officers, accountants,
appraisers, attorneys and other professionals who may have contributed to the failure of
an insured financial institution. The Corporation investigates the circumstances
surrounding the failure of every institution and, when appropriate, sends suspicious
activity reports (SARs) to the Department of Justice. During 1996, a total of 93 new SARs
were generated. In addition, the FDIC collected $25.5 million in criminal restitution.
Also during 1996, the Legal Division
and DRR recovered $154.7 million from professional liability settlements or judgments. The
FDICs caseload at the end of the year included investigations, lawsuits and
settlement collections involving 244 institutions. This caseload includes RTC cases the
FDIC assumed on January 1,1996.