FDIC Reimbursement
Alternatives
Penelope Moreland-Gunn
Sr. Policy Analyst
Three Reimbursement Case Studies
• Bank Profile
• Challenges
• Role of Automation
• Post Closing Issues
2
FDIC Resolution Activity 2007 - 2013
180
157
160
140
140
120
100
92
80
60
51
40
25
22
20
3
0
2007
2008
2009
2010
2011
2012
2013
FDIC’s legal framework
Banking Act of 1933 –
Establishes FDIC as a temporary agency and separates
commercial banking from investment banking
Banking Act of 1935 –
Federal Deposit Insurance Corporation
Improvement Act of 1991 –
Increases the powers of the FDIC, recapitalizes the BIF, and
mandates the least cost method
Establishes the FDIC as an independent corporation of the
Federal Government
Gramm-Leach-Bliley Act of 1999 –
Federal Deposit Insurance Act of 1950 –
Sarbanes-Oxley Act of 2002 –
Extends deposit insurance to state banks
Depository Institutions Act of 1982 –
Expands FDIC powers to assist troubled banks and the
powers of thrift institutions
Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 –
Abolishes Federal Savings & Loan Insurance Corporation
(FSLIC) and gives FDIC responsibility for insuring thrifts
The Savings Association Insurance Fund (SAIF) was created
in addition to the Bank Insurance Fund (BIF)
Repeals Glass-Steagall Act
Establishes the Public Company Accounting Oversight Board
to regulate public accounting firms
Federal Deposit Insurance Reform Act of 2005 –
Merges SAIF and BIF into single fund, the Deposit Insurance
Fund (DIF)
Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 –
Expands role of FDIC through Title I and Title II resolution
authority
4
Resolution Transaction Structures
Closed Bank
Open Bank
•P&A with Put Call Options
•Dodd-Frank- Limits further to
Guarantee Program approved by
Congress
•Limited in 1991 by FDICIA
•Clean Bank Purchase & Assumption
• Restricted to Systemic Risk
(P&A)
Only
•P&A with Optional Loan Pools
•Whole Bank (All Deposit)
• Can be modified
•Whole Bank with Loss Share
• Can be modified
•Straight Deposit Payoff
•Bridge Depositor Institution
• Used when not sufficient time
to find a Acquirer
• Transfer most
Assets/Liabilities
• Two Years (up to five)
4
Purchase and assumption was the
dominant form of resolution in the
S&L crisis…
Deposits and assets of failed and assisted institutions, 1980 – 1995
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Total
# of Institutions
8
15
50
181
271
382
534
470
262
204
180
106
99
119
40
22
2,943
Deposits ($ mill.)
$1,191
$1,525
$8,391
$74,715
$118,211
$114,064
$138,057
$122,691
$22,885
$24,550
$29,001
$36,164
$14,035
$29,969
$6,393
$6,160
$748,002
Assets ($ mill.)
$1,226
$1,601
$9,977
$89,575
$143,544
$146,600
$164,143
$158,791
$24,466
$26,674
$32,833
$49,000
$16,799
$38,480
$8,427
$9,516
$921,651
Resolution Methods 1980 - 1995
Payout
8%
Assistance
20%
Purchase &
Assumption of
Insured Deposits
Only
3%
Purchase &
Assumption
48%
Insured Deposit
Transfer
14%
Management
Consignment
Program
1%
Undefinied
Purchase &
Assumption
6%
Source: HSOB, Failures and Assistance Transactions
Data as of August 17, 2012
6
Types of resolution methods
used in the recent crisis
Bridge Bank
<1%
P&A:
insured
deposits
3%
Payout
5%
Assistance
3%
Deposits and assets of failed and assisted institutions, 2007 - 2013
# of Institutions
Deposits ($ mill.)
Assets ($ mill.)
2013
22
4,965
5,460
2012
51
11,009
11,617
2011
92
31,072
34,923
2010
157
79,548
92,085
2009
148
1,227,385
2,087,191
2008
30
515,129
1,677,987
2007
3
2,424
2,615
Total
503
1,871,532
3,911,878
Purchase &
Assumption
89%
7
Data as of 9/25/2013
The 90-day window is crucial to
the resolution process
Marketing Authorization
Financial Downloads
SharePoint/Virtual Data Room Load
Marketing Plan
Board Resolution
IP / AVR
Virtual Data Room Opens
Bidders Invited
On-Site Due Diligence
Bid Acceptance
Winning Bidder Signs
Institution Closes
0
10
20
30
40
50
60
70
80
90
DAYS
8
Three Reimbursement Case Studies
1) Purchase and Assumption – All Deposits
2) Deposit Insurance National Bank (DINB)
3) Pay Out
9
Reimbursement Preparation
• Open Bank Questionnaire & Documents
• Complete a Pre-Closing Estimate in System
• Strategic Resolution Plan
—Depositor Profile
—Staffing
—Issues
• Frequently Asked Questions Handout at Bank
• Failed Bank Website (Am I Insured?)
• Update Failed Bank Website
— Dividends & Receivership Balance Sheet
10
Case 1
All Deposit Transfer – Bank Profile
• Washington State Chartered – State Member Bank
• $544 million Total Deposits (23,347 accounts)
• 20 Branches (population: 206 to 209,000)
• Pre-Closing Uninsured $8.17 mil (138 accounts)
• Pre-Closing Pass w/Hold $130.23 (98 accounts)
11
Case 1
All Deposit Transfer - Challenges
• Decentralization
• Little Interest for Bank – Insurance Plan
— Pay Out
— Deposit Insurance National Bank (DINB)
— Insured Deposit Transfer
• FDIC Accepted an All Deposit Bid
• Assuming Institution Closed 12 Branches
12
Case 1
All Deposit Transfer – Role of IT
• Claims Administration System (CAS)
—Automates Insurability by Ownership Basis
—Improved Categorization
—System of Record for Insurance and Claims
» Deposit
» Creditor Claims
—Reconcile Outstanding Official Items
—Balance to Proforma
—Research and Reporting
13
Case 1
All Deposit Transfer - Claims
Priority of Claims after administration
expenses:
1.Depositors
2.General Unsecured Creditors
3.Subordinated Debt
4.All Shares Owned by Holding Company
As of March 2013, 58.22% dividend has been
declared for Depositor Class.
14
Case 1
All Deposit Transfer – Post Closing
• All Deposits Passed - No Uninsured
• Interesting Note: Largest Closed Branch
• Planning for Worst Case Scenario
• 437 Unclaimed Deposits – 3 million (at 15
months)
• Creditor Claims
—Received: 82 for $63.3 million
—Approved: 34 for $900,000
15
Case 2
Deposit Insurance National
Bank (DINB) – Bank Profile
• Georgia State Chartered – State Nonmember Bank
• $95 million Total Deposits (2,205 accounts)
• Main Office and Small Branch (130 miles away)
• Pre-Closing Uninsured $25,215 (17 accounts)
• Pre-Closing Pass w/ Hold $9.13 million (20
accounts)
• Limited Market Interest - No Bids Received DINB
16
Case 2
DINB – 7 Day Bank - Challenges
• At Closing No Uninsured
• All Deposits Transferred Except:
— Broker Deposits
— Certificates of Deposit
— Individual Retirement Accounts (IRA)
• Continue Merchant Deposit Capture
• Government Direct Deposits – Agent Bank
• Commercial Automated Clearing House
(ACH)
17
Case 2
Transactional Account Controls
• DINB Allows Transactional Accounts to Clear
• Limited Emergency Cash from ATM
• Closeout Safe Deposit Boxes
• Transfer Account to Another Institution
• Labor Intensive and Risky
• FDIC Staffing
18
Case 2
DINB - Communication
• Proactive Calling Campaign
—Scripted Message Advising about Closing
—Discuss Repayment for Overdrawn Accounts
• Staggered Basis for Crowd Control
• Call Center w/ Specially Assigned Staff
• Claims Agents and Ombudsmen at Door
—Numbering System / Sign In Sheet
—Frequently Asked Questions Hand Out
—Additional Seating and Refreshments
19
Case 2
DINB – Role of Automation
• Bank’s Core System Very Old and Manual
—Difficult to Provide Account Information
—Manual Reconciliation Processes
—Slow System Updates
—Concerns Over System Accuracy
—Double Check System Developed
—Branch Did Not Have Updated Information
• Claims Administration System (CAS)
20
Case 2
DINB – Post Closing Issues
• No Uninsured at Closing
• Creditor Claims
—Received: 82 for $28.5 million
—Approved: 34 for $900 thousand
—Asset Management
—Unfunded Commitments
—Letters of Credit
—Participations
—Securities
—Owned Real Estate
21
Case 2
DINB - Priority of Claims
After administration expenses:
1.Depositors
2.General Unsecured Creditors
3.Subordinated Debt
4.All Shares Owned by Holding Company
— 51% Bank President & Chairman of Board
— 85% of Outstanding Stock – Bank’s Board
As of March 2013, 29.83% Dividend Paid to
Depositors
22
Case 3
Pay Out – Bank Profile
• Pennsylvania Chartered
• $418 million Total Deposits (12,261 accounts)
• 5 Bank Owned Subsidiaries
• Pre-Closing Uninsured $13.7 (87 accounts)
• Pre-Closing Pass w/Hold $21.6 million (65)
• No Bids Received – Pay Out
23
Case 3
Pay Out - Challenges
Alternative Financial Services (Division of Bank)
Location
Average
Balance
Clients Incoming
Outgoing
Remote
International
$18m
44
90%
49%
7%
Outside
$15m
34
9%
49%
30%
Local- PA&NJ
$7.5m
49
1%
1%
63%
FDIC Supervision Instructed Bank to Unwind Division
Anticipated Business At Closing
Clients
Incoming Outgoing
Remote
83
9%
93%
50%
24
Case 3
Pay Out – AFS Issues
• Money Services is High Risk Business
• Large Number of Charge Backs
• Support Several Small Business Owners
• Alternatives Considered at Bank
1.
2.
3.
4.
Pay Deposits and Attempt Collection for Charge Backs
Partial Payment with Payment After Charge Backs Applied
No Payment of Deposit Until All Charge Backs Cleared
Engage a Paying Agent
25
Case 3
Pay Out - Challenges
• Branch Network
—10 in 4 Counties in PA
—2 in I County in NJ
—8 Branches have Safe Deposit Boxes
—9 Branches Open on Saturday
—10 Branches with ATM
• Bank Operations in 3 Locations
26
Case 3
Pay Out – Hurricane Sandy
27
Case Study 3 Closing Timeline
• Friday morning an emergency communication plan
developed for impending storm
• Bank closed Friday night
• Insurance determination completed Sunday
• 12,000 checks printed in Dallas – Sunday night
• Sunday evening power outages at bank and hotel
• Staff worked from hotel with power on Monday
• Staff returned to bank Tuesday
• Bank opened on Wednesday(Insurance questions/safe deposit boxes)
28
Case 3
Pay Out – Post Closing Issues
• Uninsured: 86 for $9.6 million
• Creditor Claims
—Received 107 for $44 million
—Approved 30 for $776 thousand
• Customers with Charge Backs
—28 for $200,000
• Deposit Clean Up
—ACH payments, errant wires, and bounced
checks
29
Case 3
Pay Out - Priority of Claims
After administration expenses:
1.Depositors
2.General Unsecured Creditors
3.Subordinated Debt
4.All Shares Owned by Holding Company
As of March 2013, no dividends have been
declared.
30
Summary
• Pre-Closing Bank Profile
• Pre-Closing Deposit Insurance Estimate
• Planning
• Staffing
• Post-Closing Issues
31
Uninsured Depositor Losses in
Recent Financial Crisis
2008-2012 FDIC Closed 465 banks w/ $13 billion
Only $224 million uninsured not assumed by FI
Government Extraordinary Measures:
1. Raised Insurance Limit ($100,000 to $250,000)
2. Transactional Account Guarantee Program (TAG)
32
Thank You
Penelope Moreland-Gunn
FDIC Senior Policy Analyst
Pmoreland-gunn@fdic.gov