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FDIC Reimbursement Alternatives

FDIC Reimbursement Alternatives. Penelope Moreland-Gunn Sr. Policy Analyst. Three Reimbursement Case Studies. Bank Profile Challenges Role of Automation Post Closing Issues. FDIC Resolution Activity 2007 - 2013. FDIC ’ s legal framework. Banking Act of 1933 –

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FDIC Reimbursement Alternatives

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  1. FDIC Reimbursement Alternatives Penelope Moreland-Gunn Sr. Policy Analyst

  2. Three Reimbursement Case Studies • Bank Profile • Challenges • Role of Automation • Post Closing Issues

  3. FDIC Resolution Activity 2007 - 2013

  4. 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 – 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

  5. Resolution Transaction Structures • Closed Bank • Clean Bank Purchase & Assumption (P&A) • P&A with Put Call Options • P&A 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) 4

  6. Purchase and assumption was the dominant form of resolution in the S&L crisis… Source: HSOB, Failures and Assistance Transactions Data as of August 17, 2012

  7. Types of resolution methods used in the recent crisis Data as of 9/25/2013

  8. The 90-day window is crucial to the resolution process

  9. Three Reimbursement Case Studies • Purchase and Assumption – All Deposits • Deposit Insurance National Bank (DINB) • Pay Out

  10. 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

  11. 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)

  12. 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

  13. 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

  14. 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.

  15. 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

  16. 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

  17. 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)

  18. 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

  19. 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

  20. Case 2DINB – 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)

  21. 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

  22. 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 – Bank’s Board As of March 2013, 29.83% Dividend Paid to Depositors

  23. 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

  24. Case 3Pay Out - Challenges Alternative Financial Services (Division of Bank) • FDIC Supervision Instructed Bank to Unwind Division • Anticipated Business At Closing

  25. 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

  26. 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

  27. Case 3Pay Out – Hurricane Sandy

  28. 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)

  29. 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

  30. 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.

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

  32. 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)

  33. Thank You Penelope Moreland-Gunn FDIC Senior Policy Analyst Pmoreland-gunn@fdic.gov

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