Banking Law Prof Blog

FDIC Proposes Requiring Banks to Prepay Deposit Insurance Premiums through 2012

The FDIC Insurance Fund will be insolvent this week -- but Chairman Sheila Bair has a plan:  Under the pending proposal, FDIC-insured banks would be required to prepay deposit insurance premiums through 2012.  That's enough to wipe out all earnings by the banking industry this year.  Besides that, assessments will increase substantially in 2011. 

Oh, and there's some funny accounting to go with the proposal:  Banks don't have to record the prepayment as an expense until it would have come due originally.  So, for "regulatory accounting purposes" (should still be a bad word from the S&L regulatory forbearance days of the 1980s crisis), these payments will show up on all banks' financial statements as an "asset" called "prepaid expense." 

The deposit insurance fund deficit, caused by the high number of bank failures and bailouts, could have been fixed by:  1. assessing the banks a higher amount right now, 2. getting a loan from some of the biggest banks, or 3. drawing on FDIC's line of credit at Treasury.  FDIC didn't want to choose the third option because it would have looked like another taxpayer bailout -- even though the loan would eventually be repaid through bank assessments.

Link to story: http://www.nytimes.com/2009/09/30/business/economy/30regulate.html?em=&adxnnl=1&adxnnlx=1254348103-/c2jE77CHL9r/1moKKOxnw

(ag) Sept. 30, 2009, in FDIC

The Bailout Makes a Full Circle? FDIC May Borrow Money from Banks to Stay Afloat

Well, if this doesn't beat all as a proposal!  FDIC needs to replenish the insurance fund it has drained to deal with bank failures.  In the past, FDIC has imposed fees or assessments on the surviving banks in the industry to build the fund back up.  Now, however, the American Bankers Association has endorsed a proposal (not a done deal yet) whereby large banks would loan money to the FDIC -- even though they themselves are still relying on FDIC guarantees and emergency subsidies.  This would allow FDIC to avoid drawing on a line of credit from Treasury and would keep this rebuilding of the insurance fund within the industry rather than tapping taxpayers. 

Link to story:  http://news.yahoo.com/s/ap/20090922/ap_on_bi_ge/us_banks_fdic_bailout

(ag) Sept. 22, 2009, in Economy, FDIC

FDIC Completes First Sale of "Legacy Loans" AKA "Toxic Assets"

Yesterday, FDIC announced the winning bidder and explained the process for the Pilot sale of "legacy loans."  This package of legacy loans involves the unpaid principal balance of $1.3 billion in residential mortgage loans acquired by FDIC through the failure of Franklin Bank, SSB, Houston, Texas.

FDIC's Press Release explains the successful bidder's purchase price and the FDIC guarantee.

Link: http://www.fdic.gov/news/news/press/2009/pr09172.html

(ag)  Sept. 17, 2009, in FDIC

FDIC Proposing Orderly Exit from Liquidity Program

On Sepember. 9, 2009, FDIC adopted a Notice of Proposed Rulemaking that does not change the October 31, 2009, end of the Temporary Liquidity Guarantee Program (TLGP).  It does seek comment on whether to extend another temporary emergency liquidity program for six months past October 31.

(ag) Sept. 10, 2009, in Economy, Federal Banking Agencies/FDIC

Second Quarter 2009 Not Pretty for FDIC Insured Institutions Nationwide

Although Texas banks may be doing "less bad" than the rest of the country as I've discussed in a previous post, the FDIC's Quarterly Profile based on aggregate second quarter figures for all insured institutions paints a grim picture for the banking industry as a whole following many years of profitability. Following are some key points (can't use the word "highlights" here) from the report:

• The banking industry posted its second quarterly loss in the past 18 years.
• Higher loss provisions still weigh heavily on industry earnings.
• Loss provision expenses have been growing in significance for two years.
• Margins improved slightly in the Second Quarter of 2009.
• Troubled loans increased at a slower rate in the Second Quarter.
• Noncurrent ["delinquent" or "90 days or more past due"] loan growth is outpacing growth in reserves.
• The noncurrent loan rate has risen to a record 4.35% of all loans and leases.
• On a more positive note, loans that were 30-89 days past due declined substantially.
• Overall capital levels have improved.
• The number of "problem" institutions is at a 15-year high.

Link:  http://www2.fdic.gov/qbp/2009jun/qbpall.html

(ag) Sept. 3, 2009, in Economy, Federal Banking Agencies/FDIC

Guaranty Bank - Second Largest Bank Failure for 2009

Last Friday, the Office of Thrift Supervision (OTS) closed Guaranty Bank, Austin, TX, and appointed FDIC Receiver.  This is the 10th largest failure in U.S. history.  Cost to the deposit insurance fund is estimated at $3 Billion.  BBVA Compass, headquarted in Birmingham, AL, bought all the closed thrift's deposits and $12 Billion of its assets. 

Link:  http://www.fdic.gov/bank/individual/failed/guaranty-tx.html

(ag) August 27, 2009, in FDIC

Will FDIC Need a Loan from Treasury?

AP Business Writer Stevenson Jacobs' article, "Agency That Insures Bank Deposits May Need Help," notes that tomorrow the FDIC will publish the amount of reserves it holds to satisfy deposit insurance claims. 

Only once before, during the Bank and S&L crisis of the 1980s and early 1990s did FDIC's reserves dip into the negative column.  If this does appear imminent, FDIC could borrow from Treasury and pay back the loan with interest or it could raise deposit insurance assessments on banks.

Link:  http://news.yahoo.com/s/ap/20090826/ap_on_bi_ge/us_fdic_shrinking_fund/print 

(ag) August 26, 2009, in Economy, FDIC

A Dead S&L, the FDIC, and Attorney Client Privilege Issues for a Big Law Firm

FDIC has sued the Houston law firm of Baker Botts seeking turnover of an internal investigation of Franklin Bank, a failed savings institution.  The accounting firm of Ernst & Young is also a defendant in FDIC v. Baker Botts, 4:09-CV- 02492, U.S. District Court, Houston, TX. 

FDIC subpoenaed the results of an investigation the law firm and the accounting firm conducted of S&L records, including 250,000 e-mails.  The law firm claims attorney-client privilege.  Law and accounting fees paid by the failed institution to Baker Botts and Ernst and Young totalled more than $2 million.

Link to story:  http://www.law.com/jsp/article.jsp?id=1202432811725

(ag) Aug. 8, 2009, in Federal Banking Agencies/FDIC

Bribe 'Em to Save?

Good grief!  FDIC is having a meeting to discuss how to encourage "prize-linked savings accounts" for underserved and low income consumers.  Some of these programs are described as being like a lottery pool, giving savers a "chance" to win big interest. 

Link to Harvard Business School article on "Innovative Ways to Encourage Personal Savings":  http://hbswk.hbs.edu/item/5908.html

Link to FDIC Announcement of July 30, 2009, meeting:  http://www.fdic.gov/news/news/press/2009/pr09128.html

(ag) July 26, 2009, in FDIC

No More Too Big To Fail

FDIC Chairman Sheila Bair testified Thursday before the Senate Committee on Banking, Housing and Urban Affiars.  I could not agree more with her view that "too big to fail" is a concept we need to dispense with.

"We must find ways to impose greater market discipline on systemically important institutions. In a properly functioning market economy there will be winners and losers, and when firms -- through their own mismanagement and excessive risk taking – are no longer viable, they should fail. Actions that prevent firms from failing ultimately distort market mechanisms, including the market's incentive to monitor the actions of similarly situated firms. Unfortunately, the actions taken during the past year have reinforced the idea that some financial organizations are too big to fail. The solution must involve a practical, effective and highly credible mechanism for the orderly resolution of these institutions similar to that which exists for FDIC-insured banks. In short, we need an end to too big to fail."

Link:  http://www.fdic.gov/news/news/speeches/chairman/spjuly2309.html

(ag) July 25, 2009, in Economy, FDIC, Financial Regulatory Reform

Banks Just Keep Failing

Friday, three banks failed:

• First National Bank of Anthony, Anthony, Kansas - Deposits:  $142.5M
• Cooperative Bank, Wilmington, North Carolina - Deposits $774M

• Southern Community Bank, Fayetteville, Georgia - Deposits $307M

• Each of these was resolved by a Purchase and Assumption Transaction, with another bank buying the deposits and certain assets of the failed bank.  Locations of the failed bank reopen under the acquiring bank's name so that customer impact is minimized.

• This brings the total number of bank failures this year to 40.

(ag) June 21, 2009, in Economy, FDIC

What's on FDIC's Agenda?

FDIC's Board of Directors meets on Tuesday next week and here are some items they will cover

• IInteragency Interim Rule on Capital Maintenance: Residential Mortgage Loans Modified Pursuant to the Making Home Affordable Program of the U.S. Department of Treasury.
• Proposed Rulemaking regarding Proposed Interagency Guidance - Funding and Liquidity Risk Management.
• Proposed Rulemaking on the Transaction Account Guarantee Program.
• Community Reinvestment Act Regulation Amendments.
• Final Rule on Annual Audit and Reporting Requirements (Part 363) and Related Technical Amendment to (Part 308, Subpart U).

Link to FDIC's website:  www.fdic.gov

(ag) June 21, 2009, in FDIC

 

FDIC's Supervisory Insights

FDIC's Summer 2009 "Supervisory Insights" Bulletin, released today, reviews a year of crisis and highlights areas of supervisory focus going forward.  FDIC's Director of Supervision and Consumer Protection Sandra Thompson recognizes the impact of increasing mortgage foreclosures and emphasizes new anti-predatory lending, consumer protection changes to Regulation Z ("Truth in Lending") and HOEPA (the "Home Ownership and Equity Protection Act").

My view:  As we debate regulatory reform, many commentators find an irreconcilable conflict within banking agencies between safety-and-soundness and consumer protection.  In my observance throughout the years of crisis, FDIC -- particularly under Sheila Bair's leadership -- has views these two important concepts as complementary rather than contradictory.  Here's what the report says:

"This crisis also has demonstrated the linkages between safe-and-sound banking, and banking that complies with the letter and spirit of laws designed to protect consumers and investors." 

--

New technology to streamline check processing, Remote Deposit Capture, is the subject of an informative article in the Bulletin.  Paper check processing is declining dramatically, with attendant cost savings.  An understanding of RDC capabilities and applications is worth reading about.

--

Link to "Supervisory Insights":  http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/si_sum09.pdf

(ag) June 16, 2009, in FDIC

Community Banking - "The Lifeblood of Our Nation's Financial System"

FDIC's Board of Directors announces the formation of a new Advisory Committee on Community Banking.  The Committee will advise on issues facing community banks and the communities they serve, with a special concern for rural areas.

Link:  http://www.fdic.gov/news/news/press/2009/pr09080.html

(ag) June 2, 2009, in FDIC

Making It Tougher for Troubled Banks to Buy Deposits

FDIC published a new final rule yesterday to further restrict "less than well-capitalized banks" from paying an interest rate that exceeds the national average to acquire deposits.  The new rule becomes effective January 1, 2010.  It closes a loophole in FDIC's current implementation of the FDI Act restrictions on the ability of troubled banks to "buy deposits" in an effort to stay afloat.  Currently, the ceiling on interests rates that can be paid by "less than well-capitalized banks" includes a factor for local rates which is capable of being skewed by other weak banks in a local market.

Link to Final Rule:   http://www.fdic.gov/news/news/press/2009/pr09082.html

(ag) May 30, 2009, in FDIC

FDIC's Quarterly Banking Profile

FDIC's Quarterly Banking Profile for the first quarter 2009, released May 27, 2009, summarizes insured institution performance as follows:

• Net income for the first quarter of 2009 was lower than that posted for the first quarter of 2008 but significantly better than the net loss posted for the last quarter of 2008.
• Non-interest income is rebounding at large banks.
• Aggressive reserve building is not keeping up with the increase in troubled loans.  Charge-offs continue to rise in all major loan categories.
• Industry assets contracted by $302 Billion.
• Twenty-one failures is the highest quarterly total since 1992.

The report notes the death of former FDIC Chairman William Seidman.

Link to report:  http://www2.fdic.gov/qbp/2009mar/qbp.pdf

(ag) May 29, 2009, in FDIC, Economy

What Bankers Are Complaining About

The FDIC has posted its Ombudsman's Report:

http://www.fdic.gov/regulations/resources/ombudsman/feedback/message0409.html

(ag) May 25, 2009 in Federal Banking Agencies/FDIC

Bank Failure Basics for Borrowers

The FDIC has a new “Borrower’s Guide to an FDIC Insured Bank Failure,” which provides information about:

·          Bank Failure generally

·         FDIC’s policy to return assets (loans are bank assets) to the private sector as quickly as possible

·         How FDIC communicates with borrowers about loan servicing, including who to pay and the advice to seek new financing promptly if possible

·         What a borrower should do when experiencing financial difficulty

·         FDIC policies about lines of credit, construction & development financing, and additional funding requests

·         What to expect when FDIC sells a loan

·         How to contact the Ombudsman

 

(ag) May 25, 2009 In Lending Issues/Federal Banking Agencies-FDIC

 

Bank Failure Count

The troubled economy has made this a busy year for FDIC.  So how many failures have there been so far this year?  FDIC's Failed Bank List says 33 to date.

Link to list and info:  http://www.fdic.gov/bank/individual/failed/banklist.html

(ag) May 13, 2009, in Economy, Federal Banking Agencies/FDIC

Apples to Apples

FDIC has standardized and modernized the rules for how the 160 largest insured depository institutions calculate and report information about deposits.  These rules were effective in 2008, but FDIC's staff has now compiled FAQs about compliance with the "Large Bank Deposit Insurance Determination Modernization" Regulations -- important information for FDIC in paying off insured deposits in the event of a bank closing.

Link:  http://www.fdic.gov/regulations/resources/largebankdim/large_bank.html

(ag) May 12, 2009, in Federal Banking Agencies/FDIC