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2003 Annual Report
I. Management's Discussion and Analysis – Receivership Management
The FDIC has the unique mission of protecting the depositors of insured banks and savings associations. Since FDIC's inception over 70 years ago, no depositor has ever experienced a loss of insured deposits at an FDIC-insured institution due to a failure. The FDIC protects insured depositors by prudently managing the BIF and the SAIF and using the assets of the funds to make insured depositors whole at the time of institution failure. Once an institution is closed by its chartering authority - the state for state-chartered institutions, the OCC for national banks, or the OTS for federal savings associations - the FDIC is responsible for the resolution of failed bank or savings association. FDIC staff gathers data about the troubled institution, estimates the potential loss due to its failure, solicits and evaluates bids from potential acquirers, and then recommends the least costly resolution transaction to the FDIC's Board of Directors.
Protecting Insured Depositors Through Asset Marketing
The FDIC's ability to attract healthy FDIC-insured institutions to assume deposits and to purchase the assets of failed banks and savings associations ensures that depositors have prompt access to their insured deposits, minimizes the disruption to the customers and the community, and allows a fair portion of the failed institution's assets to be returned to the private sector almost immediately. Assets remaining after the resolution transaction are liquidated by the FDIC in an orderly manner, and the proceeds are used to pay creditors, uninsured depositors (depositors whose accounts exceed the $100,000 deposit insurance limits), and reimburse the insurance fund that funded the resolution transaction. In 2003, the FDIC again met its goal of marketing 85 percent of a failed institution's marketable assets within 90 days of the institution's failure.
During 2003, the FDIC resolved three BIF-insured institution failures. Southern Pacific Bank, Torrance, California, with total assets of $1.052 billion, was closed on February 7. Southern Pacific's insured deposits and a large portion of its assets were sold to another FDIC-insured institution. First National Bank of Blanchardville, Blanchardville, Wisconsin, with total assets of $35.5 million, failed on May 9, and all insured deposits were sold to another FDIC-insured institution. Pulaski Savings Bank, Philadelphia, Pennsylvania, with total assets of $8.9 million, failed on November 14, and all insured deposits were sold to another FDIC-insured institution. (See the accompanying table for details about liquidation activities.)
The FDIC initiated a number of projects in 2003 to better manage and leverage its resources to meet potential challenges in the resolution of future financial institution failures. These projects are in the areas of processing depositor claims, franchise and asset marketing, asset valuation and sales, asset servicing, receivership operations and management, information systems, planning and communication, cost containment, and field operations.
Lessons Learned Symposium
The FDIC, in association with the SW Graduate School of Banking and Southern Methodist University's Cox School of Business, presented the Lessons Learned from Recent Bank Failures symposium on October 24. This conference served as a forum for academics, regulators and industry participants to present analyses and to debate the causes and costs of recent bank failures. Presentations and discussions centered on the root causes of recent bank failures, the impact of new banking activities on bank failures, and the costs of recent bank failures.
Customer Service Center
In order to help consumers needing assistance with matters arising from failed financial institutions, the FDIC also operates a Customer Service Center with staff dedicated to handling records research and collateral releases. During 2003, FDIC staff responded to nearly 86,000 inquiries and was recognized for Outstanding Customer Service provided through expanded e-Government initiatives at the President's Quality Awards for their innovative work and rapid response time in this area The records research staff reviews the historical records of failed financial institutions in order to answer customer questions on deposit accounts, loan transaction histories, tax suits for delinquent real estate, and other issues. The collateral release staff researches and determines ownership of collateral securing loans of failed financial institutions in order to provide a release of lien, assignment or reconveyance to the borrower. This staff successfully handled over 17,000 collateral release inquiries in 2003. Finally, the Customer Service Call Center handled over 85,000 calls asking for information or assistance.
The FDIC, as receiver, manages the receivership estate and the subsidiaries of failed insured financial institutions with the goal of achieving an expeditious and orderly termination. The oversight and prompt termination of receiverships help to preserve value for the uninsured depositors and creditors by reducing overhead and other holding costs. For that reason, the FDIC has established a target of terminating 75 percent of receiverships within three years of the failure date. The goal would have been achieved in 2003 except for outstanding professional liability claims and other impediments. At year-end 2003, three receiverships remained active from the seven receiverships established following institution failures in 2000. These three receiverships could not be terminated due to the existence of ongoing professional liability litigation and non-asset defensive litigation. These cases continue to be vigorously pursued through appropriate negotiations and litigation proceedings.
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