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Federal Deposit
Insurance Corporation

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

2018-2022 Strategic Plan

Receivership Management Program

Program Description

When an IDI fails, the FDIC is ordinarily appointed receiver.  In that capacity, it 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 that are collected from the sale of assets and the disposition of valid claims are distributed to the receivership’s creditors according to priorities set by law.

The FDIC seeks to terminate receiverships in an orderly and expeditious manner.  Once the FDIC has completed the disposition of the receivership’s assets and has resolved all obligations, claims, and other legal impediments, the receivership is terminated, and a final distribution is made to its creditors.  Receivership creditors may include secured creditors, unsecured creditors (including general trade creditors), subordinate debt holders, shareholders, uninsured depositors, and the DIF (as subrogee).  The FDIC, in its corporate capacity, is often the largest creditor of the receivership.

The FDIC may also be called upon to resolve the failure of a large, systemically important financial company if failure under the Bankruptcy Code would threaten U.S. financial stability.  In such circumstances, the authority now exists to place a failed or failing financial company into an FDIC receivership process if no viable private-sector alternative is available to prevent the default of the company.  The FDIC’s Orderly Liquidation Authority (OLA) is intended to ensure the rapid and orderly resolution of the failure of the covered financial company in accordance with statutory mandates.  The FDIC has been actively engaged in, and will continue over the next several years to pursue, resolution planning and operational readiness initiatives to make sure that it is prepared, if necessary, to fulfill this responsibility.

The FDIC’s assessment of the resolution plans submitted by bank holding companies, other covered companies, and IDIs helps develop and improve its capabilities to administer large resolutions under any of the available authorities.  The actions firms take to address the shortcomings identified in their plans and the direction to address those shortcomings will improve the likelihood that the firms will be resolvable under bankruptcy and/or traditional FDIC resolution processes and will enhance the FDIC’s ability to conduct a rapid and orderly resolution under the OLA, if necessary, to protect U.S. financial stability.

Strategic Goal 5

Resolutions are orderly and receiverships are managed effectively.

Strategic Objectives

5.1 Receiverships are managed to maximize net return and terminated in an orderly and timely manner.
   
5.2 Potential recoveries, including claims against professionals, are investigated and pursued if deemed to be meritorious and expected to be cost-effective.
   
5.3 Resolution of the failure of a large, complex financial institution is carried out in an orderly manner in accordance with statutory mandates.

The means and strategies used to achieve these strategic objectives and the external factors that could impact their achievement are described below.

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

    Means & Strategies:  Under the Federal Deposit Insurance (FDI) Act, the FDIC, in its receivership capacity, manages the assets of failed IDI receiverships to preserve their value and disposes of them as quickly as possible, consistent with the objective of maximizing the net return on those assets.  The oversight and prompt termination of receiverships preserves value for the uninsured depositors and other receivership claimants by reducing overhead and other holding costs.  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.  In addition, the FDIC has a new rule that requires IDIs with large numbers of deposit accounts to implement information technology and recordkeeping enhancements to improve the FDIC’s ability to pay deposit insurance rapidly and resolve such institutions at the least cost to the DIF.

    In fulfilling its responsibilities to creditors of failed institutions, the FDIC, as receiver, manages and sells the receivership assets using a variety of strategies, and identifies and collects monies due to the receivership.  Given adequate time, the FDIC prepares in advance an information package and an asset valuation review for each failing IDI to help solicit bidders and sell as many of the institution’s assets as possible at resolution or shortly thereafter.  The FDIC manages the remaining assets in a cost-effective manner to preserve value until they can be marketed.  Most of the remaining assets are marketed within 120 days after an insured institution fails.  The failed institution’s assets are often grouped into pools to be most appealing to acquirers and are marketed through an internet-based platform.

    External Factors:  A severe economic downturn could lead to more institution failures and could affect the pace at which the FDIC markets assets and terminates receiverships.  Economic and other factors, such as extended litigation and problems resolving environmentally tainted receivership properties, might also delay the termination of a receivership.

5.2 Potential recoveries, including claims against professionals, are investigated and pursued if deemed meritorious and expected to be cost-effective.

    Means & Strategies:  When an insured depository institution fails, the FDIC, as receiver, acquires a group of legal rights, titles, and privileges generally known as professional liability claims.  The FDIC’s attorneys and investigators work together to identify and pursue claims arising from the failure of an insured institution that are deemed to be meritorious and expected to be cost-effective.  The team conducts a factual investigation of the events that contributed to losses at the institution as well as legal research and analysis of the facts and potential claims.  For each potential claim, the team recommends whether the claim should be pursued based on an assessment of the merits of the claim and likelihood of a recovery exceeding the estimated cost of pursuing the claim.  The timely investigation and evaluation of potential claims against professionals who may have caused losses to the institution enables the FDIC to identify opportunities to maximize recoveries to each receivership and to hold accountable directors, officers, and professionals who cause losses to insured financial institutions.  This process also enhances industry awareness of sound corporate governance standards.

    External Factors:  Potential claims are generally subject to statutes of limitations that establish time limits for the claim to be filed.  A substantial increase in the number of failures could make it difficult to complete investigations of all potential claims and to decide within the established time limit whether to pursue claims.  The same problem could occur with very complex investigations or claims.  Other obstacles to timely investigation and evaluation of claims include difficulty accessing critical information or witnesses.  In such cases, the FDIC may seek to enter into tolling agreements with the potential defendants to extend the allowable timeframe for the claims to be filed.

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

    Means & Strategies:  Large, complex financial institutions in the United States historically have been organized under a holding company structure, with a top-tier parent and operating subsidiaries that comprise hundreds, or even thousands, of interconnected entities that share funding and support services and span legal and regulatory jurisdictions across international borders.  Functions and core business lines often are not aligned with individual legal entity structures, and critical operations cross legal entities and jurisdictions, with funding dispersed among affiliates as needs arise.  These integrated legal structures present obstacles to the orderly resolution of one part of the company without triggering a costly collapse of the entire company and potentially transmitting adverse effects throughout the financial system.

    To improve the ability of firms to be resolved in bankruptcy, the FDIC and FRB have worked closely with firms, and provided detailed feedback regarding key issues and obstacles to orderly resolution in bankruptcy.  In response, firms have made significant changes to their operations and legal structure.  The agencies also have fostered significant public transparency surrounding the resolution planning process to improve the public’s understanding of the progress that has been made.  In addition to taking steps to improve resolvability under bankruptcy, the FDIC has been preparing contingency plans for firms to be resolved under the OLA, should that be necessary to protect U.S. financial stability.

    To ensure the FDIC’s operational readiness to conduct the resolution of a large, complex financial institution, the FDIC continues to update and refine its firm-specific contingency plans.  In addition, the FDIC is developing operational procedures for administration of a receivership, if necessary.  The FDIC conducts simulations and tabletop exercises and undertakes joint contingency planning with other U.S. and foreign regulatory authorities to enhance communications and operational readiness, and it is exploring other opportunities to collaborate with U.S. and foreign authorities to ensure effective coordination and cooperation in a resolution.  In addition, the FDIC, together with other U.S. financial regulatory agencies, continues to develop its relationships with key regulatory authorities in other countries to facilitate closer coordination and cooperation in the event of the failure of a global SIFI.  The FDIC also analyzes emerging issues and is  enhancing its understanding of the legal and policy structures in other countries that might affect a rapid and orderly resolution.

    The FDIC established the Systemic Resolution Advisory Committee, to advise on the potential effects the failure of a large, complex financial institution would have on financial stability and economic conditions.  Members of the Advisory Committee bring a wide range of knowledge and experience to resolution-related issues, including expertise in managing complex firms, administering bankruptcies, working within different legal jurisdictions, and understanding the application of accounting rules and practices.

    External Factors:  The specific facts surrounding the failure of a large, complex financial institution may affect the FDIC’s ability to execute a resolution as planned, especially considering the complex and interconnected nature and global reach of these firms.  As part of its contingency planning efforts, the FDIC will seek to mitigate this risk by collecting and maintaining comprehensive, up-to-date information on these institutions that will support a rapid and orderly resolution, if that becomes necessary.


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