Managing the Crisis: The FDIC and RTC
Experience Chronological Overview: Chapter Twenty
The year 2000 may well be remembered as a watershed in the
history of the FDIC. The Corporation undertook a comprehensive review of the
insurance system with an eye toward addressing its weaknesses.
Fund Balance as a Percent of Insured Deposits
Fund Balance as a Percent of Insured Deposits
# Includes two SAIF institution failures, one each in 1999 and 2000.
for all resolutions occurring in this calendar year have been updated through
12/31/03. The loss amounts on open receiverships are routinely adjusted with updated information
from new appraisals and asset sales, which ultimately affect projected
Back to table
2000 Annual Report and Reports from FDIC Division of Finance and
Division of Research and Statistics.
The FDIC began
a major study of its deposit insurance system in order to offer
a constructive framework for change to better promote macroeconomic
and appropriate economic incentives for the banking and thrift
industries. The FDIC believes the recommendations for deposit insurance
during the year will provide a sound basis for helping the agency
achieve it mission, more effectively and more fairly, for years
One core recommendation from the FDIC to Congress was to resume
operating one insurance fund by merging the Bank Insurance Fund (BIF)
and the Savings Association Insurance Fund (SAIF).
Other FDIC recommendations were:
Sharp premium swings triggered by deviations from the Designated
Reserve Ratio should be eliminated. If the fund falls below a target
level, premiums should gradually increase. If it grows above the
target level, funds should gradually be rebated.
The current statutory restrictions on the FDIC’s ability
to charge risk-based premiums to all institutions should be eliminated;
the FDIC should charge regular premiums for risk regardless of
the level of the fund.
Rebates should be based on past contributions to the fund,
not the current assessment base.
The deposit insurance coverage limit should be indexed to keep
pace with inflation.
In May, the Corporation
and the Financial Stability Institute co-hosted a seminar on the
above issues and drew approximately 150 people from more than 60
countries as part of the FDIC-sponsored global efforts to establish
or improve deposit insurance systems.
In 2000, the Corporation
undertook several safety and soundness initiatives to address emerging
risks. It also developed contingency plans for the failure of a very
large institution, and the failure of an Internet institution.
By year-end 2000, the FDIC had established the Electronic Banking
Branch in its Division of Supervision and trained bank examiners and
similar specialists nationwide in electronic banking.
The U.S. economy
continued to set new records for the longevity of this peace-time expansion
and the economy showed remarkable strength, as GDP grew by 6.5 percent.
Unemployment reflected this hearty pace of economic activity, declining
10 basis points to a phenomenal 4 percent. Office vacancies fell by
100 basis points to 8.3 percent. Rounding out the year’s positive
economic news was a 48 basis-point decline in interest on 30-year mortgages,
to 7.58 percent.
Fueled primarily by a sharp spike in both oil and natural gas prices,
inflation rose to 3.5 percent, the highest level in several years—but
nonetheless quite modest by historic standards. This inflation scare
helped to prompt an increase of 100 basis points in the discount
rate—from 5 percent to 6 percent. This shift toward tightening
the discount rate may have contributed to the 4.4 percent decline
in housing starts experienced during 2000. New home sales remained
virtually consistent with the 1999 level, declining by an imperceptible
30 basis points.23-1
For most financial institutions, the returns on assets and equity
fell during the year. Even though, the asset growth rate for commercial
banks went from 5.4 percent to 8.8 percent. Commercial banks’ total
net income decreased 2 percent to $69.8 billion. The decline in profitability
was due mainly to the continued narrowing of net interest margins,
an increase in loan-loss provisions, and the slowed growth of non-interest
income. Banks had a strong first quarter, but some institutions experienced
large restructuring charges in the second quarter. A total of 605
banks reported negative income. However, this was down from 1999,
which had 658 banks experiencing negative income. Holdings of securities
expanded 6.4 percent; largely attributed to the increase in trading
accounts. Growth of securities in investment accounts did not rise
(due to the fact that holdings in U.S. Treasury securities had a
record drop). Equity capital rose 10.5 percent.
Overall, loans expanded in 2000. Commercial and Industrial loans
grew 12.9 percent during the first half of the year; but slowed to
2.9 percent during second half because of variety of reasons. On
the demand side, there was a reduced need for credit. On the supply
side, commercial banks tightened lending standards. The growth rate
for commercial real estate loans slowed to 12.1 percent. Consumer
loans rose by 8.7 percent and home equity loans increased by 24.6
Core deposits increased by 7.5 percent. This can partly be explained
by the falling equity prices and economic uncertainty which increases
the incentive to hold liquid bank assets. Managed liabilities expanded
at a slower rate than the previous year (at 8.8 percent down from
15.5 percent pace in 1999). Over 70 percent of the industry assets
were held by the top 100 largest banks. Fleet Bank and BankBoston
combined to create the nation’s fourth largest bank (resulting
in the 10 largest banks controlling 38 percent of assets).23-2
For the fifth year in a row, the number of financial institutions
dropped. Overall, 9,923 financial institutions were in operation
at the end of 2000. The number of banks on the problem bank list
increased from 79 banks to 94.23-3 Table 23-2 shows the number and
total assets of FDIC insured institutions, as well as their profitability
as of the end of 2000.
Open Financial Institutions Insured by FDIC
($ in Billions)
During 2000, seven
FDIC-insured institutions failed. Six of those institutions were insured
by the BIF and one was insured by the SAIF. The failed institutions had combined
assets of approximately $414.5 million. Losses for the seven failures are
estimated at $37.3 million. All resolutions involved purchase and assumption
In 2000, the FDIC conducted its first teleconference with prospective
acquirers for a failed bank at five locations across the country. With
the failure of Bank of Honolulu, Honolulu, Hawaii, it was not economically
feasible to conduct an information meeting in Hawaii. Marketing specialists
set up video teleconferences in San Francisco, Chicago, Dallas, New York
and Washington, D. C., with the main presentation held in Dallas. The result
was several competitive bids received and a successful resolution consummated.
As a result of the Y2K preparedness efforts, the FDIC discovered the value
of using a secure Web site as a communication tool for rapid sharing confidential
information with prospective acquirers for a failed institution. By the
end of the year, one resolution was in process. All bidders were contacted
via email, and all financial and legal information concerning the resolution
was posted to the secure web site.
A more recent estimate of losses per transaction type is shown in Table
Estimated Losses by FDIC Transaction Type ($ in Millions)
as of 12/31/03
Losses as a
Percent of Assets
for all resolutions occurring in this calendar year have been updated
through 12/31/03. The loss amounts on open receiverships are routinely
adjusted with updated information from new appraisals and asset
sales, which ultimately affect projected recoveries.
Source: Reports from FDIC Website – Historical Statistics on Banking.
to Depositors and Other Creditors
In the seven financial institutions that failed in 2000, deposits totaled
$343.9 million in 39,250 deposit accounts. Dividends paid on all active receiverships
totaled almost $1.7 billion in 2000.
There have been a total of 2,211 insured financial institution resolutions
since the FDIC began operations in 1934. Of this total, 1,467 were
P&A transactions, 141 were open bank assistance transactions,
and 603 were deposit payoff transactions.
Total disbursements by the FDIC since January 1, 1934, have amounted
to $108.4 billion. Of that amount, actual and projected recoveries
are anticipated to be approximately $70.3 billion, which equates
to a projected loss of $38.1 billion to the BIF/SAIF funds.
At the beginning of 2000, the FDIC held $2 billion in assets from failed
institutions. That included $1.5 billion in BIF assets, $10 million in
SAIF assets, $42 million in FSLIC Resolution Fund (FRF) assets, and $467
million in Resolution Trust Corporation (RTC) assets. During the year,
the FDIC acquired an additional $407.6 million in assets from six bank
failures and one thrift failure. The FDIC collected $604 million during
the year,23-4 and the ending balance for assets in liquidation was $535.5
million, a reduction of $1.4 billion. Of the $535 million, $226.2 million
was assets in liquidation for BIF, $8.1 million for SAIF, $28.3 million
for FRF, and $272.9 million for RTC.
During 2000, the FDIC sold real estate properties for a total of $15
million, yielding a recovery of 79 percent of average appraised value.
More than 11,584 loans and other assets totaling $337 million in book
value were sold through asset marketing efforts, with net sales proceeds
during 2000 representing 132 percent of appraised value.
Asset Marketing conducted its first sale of financial assets over the
Internet, with approximately $12.3 million of loans at a recovery
that was 16 percent higher than expected. Table 23-4 shows the FDIC's assets in
liquidation and Chart 23-1 shows the asset mix.
FDIC End of the Year Assets in Liquidation ($ in Billions*)
In 2000, the Corporation undertook a comprehensive
review of the deposit insurance system. As part of that effort, the
Corporation commissioned a national household survey, conducted by
the Gallup Organization, to measure public understanding of—and
support for—the deposit insurance program. Also, the FDIC sponsored
global efforts to establish or improve deposit insurance systems.
The BIF balance was $31 billion at year-end 2000, or 1.35 percent
of estimated insured deposits. This was down from the year-end 1999
reserve ratio of 1.36 percent as the $1.6 billion growth of the fund’s
balance during 2000 was more than offset by the growth of insured
deposits. The balance of the SAIF was $10.8 billion on December 31,
2000. SAIF-insured deposits were $753 billion at year-end 2000, having grown 5.8 percent for the year.
The annual growth rate was the highest since the inception of the SAIF in 1989.
an effort to keep pace with its declining workload, the Corporation
reduced its staff by 814 (11.2 percent) during the year, down to
6,452. The reductions were accomplished largely through the Corporation’s
continuing practice of allowing temporary and term appointments
to expire, which accounted for 63 percent of the decline. Most
remaining decline was attributable to the closing of the DRR field
site in Hartford, Connecticut during the year, leaving Dallas as
the sole field site for the division. The Hartford office was originally
scheduled to close prior to 2000, however the FDIC Board of Directors
delayed the closing date until June 30, 2000, so that the Corporation
would have an experienced staff available to respond to an unexpected
increase in bank failures in early 2000, in the event of any Y2K
issues. Chart 23-2 shows the staffing levels for the past five years.
Bureau of Labor and Statistics, Department of Labor; Bureau of Economic
Analysis, Department of Commerce; Housing Market Statistics, National Association
Home Builders; and Federal Home Loan Mortgage Corporation. Back
Federal Reserve Bulletin Volume 87, Number 6, June 2001. Back
FDIC Quarterly Banking Profile, Fourth Quarter 2000. Back
Collections include prior year activity. This activity has the net result
of reducing Collections by $50 million. Back