Financial Crisis News Center

FDIC Votes to Require Prepayment of Assessments

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

With the pace of resolutions continuing to put downward pressure on its cash balances, the Federal Deposit Insurance Corp. voted November 12 to require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Annual assessment rates will also rise by three basis points starting in 2011.The move is expected to yield approximately $45 billion.

The FDIC will return any unused portion of the prepaid assessment on June 30, 2013, rather than Dec. 30, 2014, as originally proposed. A bank can seek an exemption from the prepayment requirement if it can show that the prepayment would significantly impair its liquidity or otherwise create significant hardship. The FDIC does not believe that the exemptions that will be granted will prevent it from meeting its current liquidity needs.

Too Big to Fail Discussed at International Banking Conference

This story appeared in Bank Digest.

"It's time we changed the rules of the game,” stated FDIC Chairman Sheila Bair in comments on strengthening the banking system before the Institute of International Bankers Conference in New York, N.Y., on Nov. 10, 2009. According to Bair, “It's time we closed the book on the doctrine of too big to fail. Only by instituting a credible resolution process and removing the existing incentives for size and complexity can we limit systemic risk, and the long-term competitive advantages and public subsidy it confers on the largest institutions.”

At the same conference, Federal Reserve Board Governor Daniel K Tarullo stated, “Resolution mechanisms must be understood not as silver bullets, but as critical pieces of a broader agenda directed at the too-big-to-fail problem.” According to Tarullo, “In light of what has happened over the past 18 months, it is imperative that governments convince markets that they can and will put large financial firms into a resolution process rather than bail out its creditors and shareholders...Measures such as strengthening capital standards and bringing all systemically important firms within the perimeter of regulation are other essential elements of that agenda.”

New White Paper Offers Detailed Look at Dodd Bill

Jim Hamilton, J.D., LL. M., CCH Principal Analyst, and Richard Roth, CCH Writer Analyst, have authored an extensive white paper entitled, “Senate Banking Committee Releases Draft Legislation: Restoring American Financial Stability Act of 2009.” From the Introduction:

The Senate Banking Committee has released draft legislation that, if enacted, would provide a sweeping overhaul of the regulation of U.S. financial services and markets. The Restoring American Financial Stability Act of 2009 would regulate systemic risk, enhance transparency and disclosure, delink executive compensation from excessive risk, expand consumer and investor protection, and prevent regulatory arbitrage. The draft provides for the regulation of hedge funds and over-the-counter derivatives and would establish a new resolution authority to unwind failing financial firms. The legislation also provides for major corporate-governance reforms, such as shareholder advisory votes on compensation and enhanced compensation committees. The draft further envisions a completely reformed securitization process playing an important role in the financial markets. A new independent regulator would be created with authority to make sure that consumer protection regulations are written and enforced.

Download the White Paper

Bair Cites Alf Landon's Wisdom in Reform Debate

This story appeared in Bank Digest.

Citing the common sense approaches that Alf Landon used as governor of Kansas during the Great Depression, Sheila Bair, Chairman of the Federal Deposit Insurance Corp., discussed how the stability of the nation's financial system was jeopardized to the point that the federal government was forced to intervene in ways that were unthinkable just a few years ago, and what the government learned from this very painful episode, and what must be changed to avoid these problems from recurring in the future. Bair made her remarks at the Kansas State University Alfred M. Landon Lecture Series, in Manhattan, Kan., on Nov. 2, 2009.

In regards to regulatory reform, Bair noted, “Many in the industry are working constructively in Washington for meaningful reform. Some however, are working furiously against it. Fear is their tactic. They say reform would stifle innovation. They say reform would impede the ability of our country to grow and compete in the global economy. But these are the very same arguments used to justify deregulation in the first place. Some want to keep the status quo. And, by implication, they want to keep the taxpayer on the hook.”

FDIC Warns of Fake Property Sales

This story appeared in Bank Digest.

The FDIC has issued a warning to the general public and interested investors of false claims from various entities (individuals and companies) claiming to represent the FDIC in the sales of FDIC-owned properties. These individuals and companies present a common theme. First, they claim to have “inside access” and, secondly, they attempt to charge fees or collect money up front from potential buyers of FDIC Owned Real Estate (ORE) properties with promises of steep discounts off appraised values. Information on ORE assets in the FDIC’s inventory is free to the general public.

COP Report: Asset Guarantees Had Calming Effect, But Other Concerns Remain

In its November 2009 monthly report, the Congressional Oversight Panel (COP) studied government-backed guarantees under the Troubled Asset Relief Program.  The COP stated in the report that the asset guarantees from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation helped calm panic in financial markets, with minimal cost to taxpayers to date. The report raised concerns about moral hazard created by the guarantees and recommended greater disclosure by the Treasury Department with regard to government-guaranteed assets of Citigroup Inc. COP Chair Elizabeth Warren commented on these issues in an interview on CNBC.

Agencies Issue Policy Statement on Prudent CRE Workouts

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp., in coordination with the other member agencies of the Federal Financial Institutions Examination Council, adopted a policy statement supporting prudent commercial real estate (CRE) loan workouts.  The policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined.

Geithner Defends Resolution Authority Plan; Bair Raises Objections

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Proposed new authority that would allow the government to step in and resolve large, failing financial institutions would not result in a category of firms deemed too big to fail, Treasury Secretary Tim Geithner assured Congress on Oct. 29, 2009. Geithner told the House Financial Services Committee that the proposed legislation, announced a day earlier by the Treasury Department and the committee, would mean that if systemically important firms got themselves in the position where they could not survive on their own, “then the only authority we would have is to manage their failure.” Committee Chairman Barney Frank, D-Mass., said he hoped to mark up the legislation next week.

Fraudulent E-Mails Claiming to Be from FDIC Are Being Circulated

This story appeared in Bank Digest.

The FDIC has received numerous reports of a fraudulent e-mail that has the appearance of being sent from the FDIC. The subject line of the e-mail states: check your Bank Deposit Insurance Coverage. The e-mail tells recipients that, “You have received this message because you are a holder of a FDIC-insured bank account. Recently FDIC has officially named the bank you have opened your account with as a failed bank, thus, taking control of its assets.” The e-mail then asks recipients to visit the official FDIC website and perform the following steps to check your Deposit Insurance Coverage (a fraudulent link is provided). It then instructs recipients to download and open your personal FDIC Insurance File to check your Deposit Insurance Coverage. This e-mail and associated Web site are fraudulent. Recipients should consider the intent of this e-mail as an attempt to collect personal or confidential information, some of which may be used to gain unauthorized access to online banking services or to conduct identity theft. The FDIC noted that it does not issue unsolicited e-mails to consumers.

http://www.fdic.gov/consumers/consumer/alerts/index.html

Treasury Releases Asset Guarantee Program—Bank of America Termination Agreement

This story appeared in Bank Digest.

The Treasury Department has published a copy of the Asset Guarantee Program—Bank of America Termination Agreement, signed on Sept. 21, 2009. The Agreement, entered into between Bank of America, and the Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corp., provided protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other similar assets. The majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch.

http://www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf