FDIC Reimbursement Alternatives

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FDIC Reimbursement Alternatives

• Penelope Moreland-Gunn
• Sr. Policy Analyst

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Three Reimbursement Case Studies

• Bank Profile
• Challenges
• Role of Automation
• Post Closing Issues

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FDIC Resolution Activity 2007 - 2013
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FDICs legal framework
Banking Act of 1933 Establishes FDIC as a
temporary agency and separates commercial banking
from investment banking Banking Act of 1935
Establishes the FDIC as an independent
corporation of the Federal Government Federal
Deposit Insurance Act of 1950 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)
Federal Deposit Insurance Corporation Improvement
Act of 1991 Increases the powers of the FDIC,
recapitalizes the BIF, and mandates the least
cost method Gramm-Leach-Bliley Act of 1999
Repeals Glass-Steagall Act Sarbanes-Oxley Act
of 2002 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
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Resolution Transaction Structures

• Closed Bank
• Clean Bank Purchase Assumption (PA)
• PA with Put Call Options
• PA with Optional Loan Pools
• Whole Bank (All Deposit)
• Can be modified
• Whole Bank with Loss Share
• Can be modified
• Straight Deposit Payoff

• Open Bank
• Limited in 1991 by FDICIA
• Restricted to Systemic Risk Only
• Dodd-Frank- Limits further to Guarantee Program
  approved by Congress
• Bridge Depositor Institution
• Used when not sufficient time to find a Acquirer
• Transfer most Assets/Liabilities
• Two Years (up to five)

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Purchase and assumption was the dominant form of
resolution in the SL crisis
Deposits and assets of failed and assisted institutions, 1980 1995 Deposits and assets of failed and assisted institutions, 1980 1995 Deposits and assets of failed and assisted institutions, 1980 1995 Deposits and assets of failed and assisted institutions, 1980 1995 Deposits and assets of failed and assisted institutions, 1980 1995 Deposits and assets of failed and assisted institutions, 1980 1995
  of Institutions   Deposits ( mill.)   Assets ( mill.)
1995 8   1,191   1,226
1994 15   1,525   1,601
1993 50   8,391   9,977
1992 181   74,715   89,575
1991 271   118,211   143,544
1990 382   114,064   146,600
1989 534   138,057   164,143
1988 470   122,691   158,791
1987 262   22,885   24,466
1986 204   24,550   26,674
1985 180   29,001   32,833
1984 106   36,164   49,000
1983 99   14,035   16,799
1982 119   29,969   38,480
1981 40   6,393   8,427
1980 22   6,160   9,516
Total 2,943   748,002   921,651
Source HSOB, Failures and Assistance
Transactions Data as of August 17, 2012
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Types of resolution methods used in the recent
crisis
Data as of 9/25/2013
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The 90-day window is crucial to the resolution
process
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• Three Reimbursement Case Studies

1. Purchase and Assumption All Deposits
2. Deposit Insurance National Bank (DINB)
3. Pay Out

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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

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Case 1All 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)

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Case 1All 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

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Case 1All 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

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Case 1All Deposit Transfer - Claims

• Priority of Claims after administration expenses
• Depositors
• General Unsecured Creditors
• Subordinated Debt
• All Shares Owned by Holding Company
• As of March 2013, 58.22 dividend has been
  declared for Depositor Class.

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Case 1All 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

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Case 2Deposit 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
  

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Case 2DINB 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)

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Case 2Transactional 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

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Case 2DINB - 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

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Case 2DINB Role of Automation

• Banks 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)

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Case 2DINB 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

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Case 2DINB - Priority of Claims

• After administration expenses
• Depositors
• General Unsecured Creditors
• Subordinated Debt
• All Shares Owned by Holding Company
• 51 Bank President Chairman of Board
• 85 of Outstanding Stock Banks Board
• As of March 2013, 29.83 Dividend Paid to
  Depositors

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Case 3Pay 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

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Case 3Pay 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- PANJ 7.5m 49 1 1 63
FDIC Supervision Instructed Bank to Unwind
Division Anticipated Business At
Closing
Clients Incoming Outgoing Remote
83 9 50 93
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Case 3Pay Out AFS Issues

• Money Services is High Risk Business
• Large Number of Charge Backs
• Support Several Small Business Owners
• Alternatives Considered at Bank
• 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

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Case 3Pay 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

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Case 3Pay Out Hurricane Sandy
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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)

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Case 3Pay 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

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Case 3Pay Out - Priority of Claims

• After administration expenses
• Depositors
• General Unsecured Creditors
• Subordinated Debt
• All Shares Owned by Holding Company
• As of March 2013, no dividends have been declared.

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Summary

• Pre-Closing Bank Profile
• Pre-Closing Deposit Insurance Estimate
• Planning
• Staffing
• Post-Closing Issues

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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
• Raised Insurance Limit (100,000 to 250,000)
• Transactional Account Guarantee Program (TAG)

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Thank You

• Penelope Moreland-Gunn
• FDIC Senior Policy Analyst
• Pmoreland-gunn_at_fdic.gov