The Federal Deposit Insurance Corporation has the unique mission to protect depositors of
insured banks and savings associations. No insured depositor 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). The FDIC
also manages the remaining assets and liabilities of the former Federal Savings and Loan
Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC) through
the FSLIC Resolution Fund (FRF).
Once an institution is closed by its chartering authoritythe state for
state-chartered institutions, the Office of the Comptroller of the Currency (OCC) for
national banks and the Office of Thrift Supervision (OTS) for federal savings
associationsthe FDIC is responsible for resolving that failed bank or savings
association. The Division of Resolutions and Receiverships (DRR) staff gathers data about
the troubled 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.
Donald Linker (standing l) and
Daniel Bell of the FDICs
Southwest Service Center join Russell Welsh (seated), of the Colorado River Indian Tribes,
in closing a deal that returned 7,808 acres of California land to the tribes. The deal
involved the sale of a company, for which the FDIC was trustee, that held a 65-year lease
on the tribal property.
Protecting Insured Depositors
The FDICs ability to attract healthy institutions to assume deposits and purchase
assets of failed banks and savings associations minimizes the disruption to customers and
allows some assets to be returned to the private sector immediately. Assets remaining
after resolution are liquidated by DRR in an orderly manner and the proceeds are used to
pay creditors, including depositors whose accounts exceeded the insured $100,000 limit.
During 1997, the FDIC resolved only one institution, the fewest
in one year since 1962. (In 1972, only one commercial bank failed but another received
assistance from the FDIC to prevent failure.) Southwest Bank of Jennings, Louisiana, which
was insured by the BIF, was closed by the state banking commissioner on November 21,1997.
It had total deposits of $26.8 million and total assets of $25.9 million. The FDIC was
able to find a bank to assume all of the banks deposits and $20 million of its
As assets of failed institutions are liquidated by the FDIC, DRR
makes payments, known as dividends, 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 1997 to all creditors of institutions that failed in prior years were just
more than $5.3 billion.
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, workout or other
disposition. At year-end, the FDIC was managing $4.1 billion in assets in liquidation and
$7.9 billion in assets not in liquidation, consisting of cash and securitization reserves.
DRR successfully settled, sold or other-wise resolved a
significant portion of its asset inventory from failed institutions during the year as
- The FDIC reduced the book value of the combined FDIC/RTC assets in liquidation by
52.8 percent, to $4.1 billion from $8.7 billion. Net collections for all funds totaled about $3.6 billion.
- 1,288 real estate properties, which were sold for a total of $320.6
million, yielded a recovery of 102.4 percent of their average appraised
value as determined by independent appraisers.
- 23,207 loans and other assets, which were sold for a total of $845 million,
yielded a recovery of 111.3 percent of their average appraised value.
strategies are used by DRR to sell assets. These include the use of brokers, auctions and
sealed bids. For the one bank failure in 1997, DRR began a Joint Asset Marketing (JAM)
program designed to increase competition and speed the sale of assets from failing
institutions. In the past, DRR would
arrange for the assuming bank to buy as many of the
failed banks assets as possible,
leaving the rest for the division to dispose. With JAM, the FDIC sells pools of assets to
banks at the time of closing. As a result, in the one failure in 1997, approximately 79
percent of the banks assets were sold at the time of resolution.
In 1997, the Corporation continued to expand its use of the Internet to
provide information on upcoming loan and real estate sales. Investors interested in
purchasing real estate acquired from failed institutions can now conduct their own
Internet searches by property type, state, city, name, and/or market price. Also added in
1997 was a Web site listing properties with environmental conditions, including those with
historical or cultural significance or special resources.
The FDIC is the limited partner in 40 equity transactions entered
into by the former RTC. The RTC contributed asset pools (usually sub-performing loans,
non-performing loans and real estate) to the partnerships. The general partner invested
equity capital and has responsibility for the day-to-day management and disposition of the
assets. Partnership distributions are generally split 50-50 between the partners. During
1997, the FDIC received $302 million in distributions, based on several reports.
The FDIC also has limited partnership investments in 29 Judgment,
Deficiency, and Charge-Off (JDC) partnerships. The JDC partnerships were created by the
RTC in 1993 to place hard-to-collect assets in the private sector, and the FDIC has
continued using them. These judgments, deficiencies, charge-offs and small balance assets
acquired from failed institutions generally had been written off or determined to be
uncollectible by the failed institutions. The RTC contributed these assets to the
partnerships in return for the general partners private sector expertise and
willingness to absorb the cost of pursuing collections. Collections typically are shared
equally between the general partner and the FDIC as a limited partner. During 1997, the
FDIC delivered to the partnerships $449 million of assets, which is carried on the
FDICs books at a small fraction of the original value. Due to declining deliveries,
one partnership was terminated in 1997, eight partnerships have initiated termination
procedures and 21 still are actively working to collect on assets.
During 1997, the FDIC Affordable Housing Disposition Program sold 37 multifamily and 25
single family properties, consisting of 1,755 units, for $9.8 million. Since 1990, the
FDIC and RTC affordable housing programs had cumulative sales of more than 125,000
affordable housing units for $1.8 billion.
In addition, 30 state housing agencies and nonprofit
organizations, acting under a memorandum of understanding with the FDIC, monitor 93,409
multifamily rental units to ensure that the purchasers are making units available at
adjusted rents as specified in the purchase agreements.
Receivership Management Activities
Once the assets of failed institutions have been sold and the proceeds distributed to
creditors, the FDIC terminates the receiverships. During 1997, the FDIC terminated 251
receivership operations, or approximately 19 percent of the open receiverships as of
January 1, 1997. Of those, 76 were FRF receiverships commonly referred to as
Southwest Plan institutions, five were FSLIC institutions, 21 were RTC
pass-through receiverships (where assets and liabilities are passed to a newly created
institution while certain claims were retained by the RTC as receiver), and the remaining
149 were BIF or FRF/RTC financial institutions. In addition, a total of 197 receiverships
entered into the final stages of the termination process and are expected to be terminated
in early 1998.
The FDIC has updated its tracking system and centralized the
oversight of the receivership program in the Dallas Field Operations Branch in order to
terminate receiverships more quickly.
The FDIC in December 1997 published a two-volume study on the banking crisis of the 1980s
and early 1990s. History of the Eighties Lessons for the Future provides a careful
examination and analysis of the crisis, and an evaluation of the lessons learned. The
two-year study, spearheaded by the Division of Research and Statistics, determined that
there was no single cause or short list of causes for the rise in the number of bank
failures during the period.Rather, failures resulted from a number of
forcesstructural, economic, supervisory and legislativeworking together at
that time. The study is available on the FDICs Internet home page.
Top: Former FDIC official Robert Miailovich at the History of the
Eighties symposium on the banking and thrift crisis. Bottom (l-r): FDIC Chairman Ricki
Helfer, former FDIC Chairman William Isaac, former Federal Reserve Chairman Paul Volker,
and FDIC Vice Chairman Andrew C. Hove, Jr., also at the symposium.
During the year, the FDIC also continued
an internal study of the aftermath of bank and thrift failures from 1980 to1994. This
study covers the evolution of resolution and closing strategies used by the FDIC and the
RTC, with an emphasis on the approaches used for the larger, more complex failures. It
includes case analyses of some of the more notable bank and thrift failures. The study
also focuses on asset sales techniques, securitization, equity partnerships, and other
innovative methods used by the FDIC and RTC to dispose of the substantial volume of assets
once held by both agencies. The study will be published in 1998.
FSLIC Resolution Fund
The FDIC, through the FRF, is responsible for managing and monitoring
assistance agreements that 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. 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,
$602 million was still available at year-end 1997.
The FRF portfolio of FSLIC assets in liquidation had a book value
of $169 million at year-end, down from $476 million at the end of 1996. FRF net
liquidation collections totaled $291 for the former FSLIC in 1997. At year-end 1997, the
FRF portfolio of assets from the former RTC had a book value of $2.2 billion, down from
$4.4 billion at the end of 1996. During the same period, securitization credit enhancement
reserves dropped from $5.8 billion to $4.9 billion, and the FDIC, through the FRF, was
able to repay $3.8 billion of the $4.6 billion in RTC borrowings from the Federal
Financing Bank. The FDIC expects to recover sufficient funds from the RTCs
receivership assets to cover the approximately $1 billion in RTC- corporate liabilities
remaining at year-end.
The FRF will continue to exist until all of its assets are sold or
liquidated and all of its liabilities are satisfied. Any remaining funds from FRF
liquidation activities will revert to the U.S. Department of the Treasury. For more
information on the FRF (click here).
Professional Liability Recoveries
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 insured financial institutions. During the year, the
Corporation recovered nearly $156.8 million from these professional liability suits.
In addition, as part of the sentencing process for those convicted of criminal wrongdoing against failed
institutions, the court may order a defendant to pay restitution to the receivership. The FDIC, working
in conjunction with the U.S. Department of Justice, collected more than $13 million in
criminal restitution during the year.
The Corporation also investigates the circumstances surrounding the failure of every institution and, where
appropriate, sends suspicious activity reports to the Justice Department. Six such reports
were sent during the year. The FDICs caseload at the end of the year included
investigations, lawsuits and ongoing settlement collections involving 182 institutions,
down from 244 at the beginning of 1997. This caseload includes RTC cases the FDIC assumed
on January 1, 1996.