House Financial Services Subcommittee on Financial Institutions and Consumer Credit Hearing

Chairman Gutierrez, Ranking Member Hensarling and members of the Subcommittee, I appreciate the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC) regarding the resolution process used when an insured depository institution fails. These hearings are an important way for Congress and the public to understand the statutorily-driven process for resolving depository institution failures and the work we do to ensure that there is minimal disruption to bank customers and the communities these institutions serve.

In 2009, the FDIC resolved 140 insured institutions with over $171 billion in total assets. While the economy is showing signs of improvement, recovery in the banking industry tends to lag behind other sectors. We expect to see the level of failures continue to be high during 2010.

My testimony will describe the FDIC's basic process for handling the failure of insured depository institutions. In addition, I will explain the FDIC's cross-guarantee authority and how it is applied, with specific reference to the resolution of nine insured depository institutions commonly controlled by FBOP Corporation, a registered bank holding company headquartered in Oak Park, Illinois (FBOP). Finally, I will discuss how the FDIC continues to position itself to ensure it has the necessary resources and expertise to handle the level of bank failures expected over the near term.

Overview of the Resolution Process

Insured depository institutions that fail are administered in a manner that fosters stability of the banking system and fulfills the FDIC's obligations to the failed institution's customers who have insured deposits. This responsibility is basically administered through two steps:

? The resolution process involves collecting information on the assets, liabilities and franchise value of a failing insured depository institution, marketing strategies, soliciting and accepting bids for the sale of the institution, determining which bid is least costly to the Deposit Insurance Fund (DIF) and working with acquiring institution(s) through the closing process (or paying insured deposits in the event there is no acquirer).

? The receivership process involves performing the closing function at the failed institution, liquidating any failed institution assets not purchased by the acquirer and distributing any proceeds of the liquidation to the FDIC, to the failed institution's customers who had uninsured deposit amounts and, if there are sufficient funds, to other creditors with approved claims.

The goals of the resolution and receivership processes are to:

? Provide depositors timely access to their insured funds.

? Resolve failing institutions in the least-costly manner, as required by law. n1

? Manage receiverships to maximize net return in order to fulfill our statutory obligation to all creditors of the receivership.

The FDIC normally uses, depending on the circumstances, two basic resolution techniques:

? A purchase and assumption (P&A) transaction occurs when a healthy institution (generally referred to as the acquiring or assuming institution) purchases some or all of the assets of a failed bank or thrift and assumes some or all of the liabilities, including insured deposits. Typically the acquiring institution will receive assistance from the FDIC to complete the transaction. As described in more detail later, the FDIC approaches a wide pool of potential acquirers with terms of the P&A transaction to solicit bids. The acquirer may pay a premium to the FDIC for the assumed deposits, which decreases the total resolution costs. If timing considerations do not allow the FDIC to have an acquirer on hand at the point of failure, a bridge institution may be established as an interim step to preserve the failed institution's franchise.


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Oil Falls for a Sixth Day on Sufficient Supplies, Slow Recovery

Crude oil fell for a sixth day, the longest losing streak in a month, on concern supplies are more than sufficient to meet demand as the pace of global economic recovery may be slow.

Oil traded below $78 a barrel after Qatar’s Energy Minister Abdullah bin Hamad al-Attiyah said yesterday the Organization of Petroleum Exporting Countries won’t change its output quotas because markets are well-stocked. Consumer confidence in the U.S., the world’s biggest energy user, rose less than forecast in January, missing the median economist estimate.

“It looks like a little bit of a swing in sentiment,” said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “The market’s been held up by some sentiment issues and some less-solid fundamental factors such as some of the economic data and some of the weather forecasts. The hard supply and demand numbers behind it really don’t hold up all that strongly.”

Crude oil for February delivery fell as much as 93 cents, or 1.2 percent, to $77.07 a barrel in electronic trading on the New York Mercantile Exchange. The contract, which expires Jan. 20, was at $77.87 a barrel at 3:20 p.m. in Singapore. The more widely traded March futures lost 15 cents to $78.22 a barrel.

Prices dropped 5.7 percent last week, the first weekly decline in five, after U.S. crude oil and refined-product stockpiles rose and temperatures climbed.

The Reuters/University of Michigan preliminary index of U.S. consumer sentiment increased to 72.8 from 72.5 in December. It was forecast to strengthen to 74, according to the median of 68 economists surveyed by Bloomberg News. JPMorgan Chase & Co., the first of the largest U.S. banks to post fourth-quarter earnings, Jan. 15 reported a loss in retail banking.

‘Real Fundamentals’

“People are coming back to real fundamentals, and really suggesting that perhaps we are awash with some commodities and we just don’t have economic performance to substantiate” higher prices, Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, said in a Bloomberg Television interview. “We’re seeing adverse weather conditions ease, we’re seeing inventories once again build.”

U.S. distillate fuel stockpiles, including heating oil and diesel, increased in the week ended Jan. 8, snapping a four-week drawdown, according to the Energy Department. Crude oil and gasoline inventories climbed for a second week.

Temperatures in the U.S. northeast, which consumes four- fifths of the country’s heating oil, will probably be above average through Jan. 27, according to the National Weather Service. Oil rallied 4.3 percent in the first 10 days of 2010 as demand for heating fuels gained during a cold snap.

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