IIB 

112TH CONGRESS 

1ST SESSION H. R. 2056 

IN THE SENATE OF THE UNITED STATES 

JULY 29, 2011 

Received; read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

AN ACT 

To instruct the Inspector General of the Federal Deposit 

Insurance Corporation to study the impact of insured 

depository institution failures, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. INSPECTOR GENERAL STUDY. 

2 (a) STUDY.—The Inspector General of the Federal 

3 Deposit Insurance Corporation (FDIC) shall conduct a 

4 comprehensive study on the impact of the failure of in5 sured depository institutions. 

6 (b) DEFINITIONS.—For purposes of this Act— 

7 (1) the term ‘‘insured depository institution’’ 

8 has the meaning given such term in section 3(c) of 

9 the Federal Deposit Insurance Act (12 U.S.C. 

10 1813(c)); 

11 (2) the term ‘‘private equity company’’ has the 

12 meaning given the terms ‘‘hedge fund’’ and ‘‘private 

13 equity fund’’ in section 13(h)(2) of the Bank Hold14 ing Company Act of 1956 (12 U.S.C. 1851(h)(2)); 

15 and 

16 (3) the term ‘‘paper-loss’’ means any write 

17 down on a performing asset held by an insured de18 pository institution that causes such institution to 

19 raise more capital in order to cover the write down. 

20 (c) MATTERS TO BE STUDIED.—In conducting the 

21 study under this section, the Inspector General shall ad22 dress the following: 

23 (1) LOSS-SHARING AGREEMENTS.—The effect 

24 of loss-sharing agreements (LSAs), including— 

25 (A) the impact of loss-sharing on the in26 sured depository institutions that survive and 


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1 the borrowers of insured depository institutions 

2 that fail, including— 

3 (i) the impact on the rate of loan 

4 modifications and adjustments; 

5 (ii) whether more types of loans (such 

6 as commercial (including land development 

7 and 1- to 4-family residential and commer8 cial construction loans), residential, or 

9 small business loans) could be modified 

10 with fewer LSAs, or if LSAs could be 

11 phased out altogether; 

12 (iii) the FDIC’s policies and proce13 dures for monitoring LSAs, including those 

14 designed to ensure institutions are not im15 prudently selling assets at a depressed 

16 value; 

17 (iv) the impact on the availability of 

18 credit; and 

19 (v) the impact on loans with participa20 tion agreements outstanding with other in21 sured depository institutions; 

22 (B) the FDIC’s policies and procedures for 

23 terminating LSAs and mitigating the risk of ac24 quiring institutions having substantial assets 


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1 remaining in their portfolio when the LSAs are 

2 due to expire; 

3 (C) the extent to which LSAs provide in4 centives for loan modifications and other means 

5 of increasing the probability of commercial as6 sets being considered ‘‘performing’’; 

7 (D) the nature and extent of differences 

8 for modifying residential assets and working 

9 out commercial real estate under LSAs; and 

10 (E) methods of ensuring the orderly end of 

11 expiring LSAs to prevent any adverse impact 

12 on borrowing, real estate industry and the De13 positors Insurance Fund. 

14 (2) PAPER LOSSES.—The significance of paper 

15 losses, including— 

16 (A) the number of insured depository insti17 tutions that have been placed into receivership 

18 or conservatorship due to paper losses; 

19 (B) the impact on paper losses of raising 

20 more capital; 

21 (C) the effect of changes in the application 

22 of the fair value of real estate accounting rules 

23 and other accounting standards; 


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1 (D) whether field examiners are using 

2 proper appraisal procedures with respect to 

3 paper losses; and 

4 (E) methods of stopping the vicious down5 ward spiral of losses and write downs. 

6 (3) APPRAISALS.— 

7 (A) The number of insured depository in8 stitutions placed into receivership or con9 servatorship due to asset write-downs and the 

10 policies and procedures for evaluating the ade11 quacy of an insured depository institution’s al12 lowance for loan and lease losses. 

13 (B) The policies and procedures examiners 

14 use for evaluating the appraised values of prop15 erty securing real estate loans and the extent to 

16 which those policies and procedures are fol17 lowed. 

18 (C) FDIC field examiner implementation 

19 of guidance issued December 2, 2010, titled 

20 ‘‘Agencies Issue Final Appraisal and Evaluation 

21 Guidelines’’. 

22 (4) CAPITAL.— 

23 (A) The factors that examiners use to as24 sess the adequacy of capital at insured deposi25 tory institutions, including the extent to which 


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1 the quality and risk profile of the insured insti2 tution’s loan portfolio is considered in the ex3 aminers’ assessment. 

4 (B) The number of applications received by 

5 the FDIC from private capital investors to ac6 quire insured depository institutions in receiver7 ship, the factors used by the FDIC in evalu8 ating the applications, and the number of appli9 cations that have been approved or not ap10 proved, including the reasons pertaining there11 to. 

12 (C) The policies and procedures associated 

13 with the evaluation of potential private invest14 ments in insured depository institutions and the 

15 extent to which those policies and procedures 

16 are followed. 

17 (5) WORKOUTS.—The success of FDIC field ex18 aminers in implementing FDIC guidelines titled 

19 ‘‘Policy Statement on Prudent Commercial Real Es20 tate Loan Workouts’’ (October 31, 2009) regarding 

21 workouts of commercial real estate, including— 

22 (A) whether field examiners are using the 

23 correct appraisals; and 

24 (B) whether there is any difference in im25 plementation between residential workouts and 


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1 commercial (including land development and 1- 

2 to 4-family residential and commercial construc3 tion loans) workouts. 

4 (6) ORDERS.—The application and impact of 

5 consent orders and cease and desist orders, includ6 ing— 

7 (A) whether such orders have been applied 

8 uniformly and fairly across all insured deposi9 tory institutions; 

10 (B) the reasons for failing to apply such 

11 orders uniformly and fairly when such failure 

12 occurs; 

13 (C) the impact of such orders on the abil14 ity of insured depository institutions to raise 

15 capital; 

16 (D) the impact of such orders on the abil17 ity of insured depository institutions to extend 

18 or modify credit to existing and new borrowers; 

19 and 

20 (E) whether individual insured depository 

21 institutions have improved enough to have such 

22 orders removed. 

23 (7) FDIC POLICY.—The application and impact 

24 of FDIC policies, including— 


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1 (A) the impact of FDIC policies on the in2 vestment in insured depository institutions, es3 pecially in States where more than 10 such in4 stitutions have failed since 2008; 

5 (B) whether the FDIC fairly and consist6 ently applies capital standards when an insured 

7 depository institution is successful in raising 

8 private capital; and 

9 (C) whether the FDIC steers potential in10 vestors away from insured depository institu11 tions that may be in danger of being placed in 

12 receivership or conservatorship. 

13 (8) PRIVATE EQUITY COMPANIES.—The FDIC’s 

14 handling of potential investment from private equity 

15 companies in insured depository institutions, includ16 ing— 

17 (A) the number of insured depository insti18 tutions that have been approved to receive pri19 vate equity investment by the FDIC; 

20 (B) the number of insured depository insti21 tutions that have been rejected from receiving 

22 private equity investment by the FDIC; and 

23 (C) the reasons for rejection of private eq24 uity investment when such rejection occurs. 


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1 (d) REPORT.—Not later than 1 year after the date 

2 of the enactment of this Act, the Inspector General shall 

3 submit to Congress a report— 

4 (1) on the results of the study conducted pursu5 ant to this section; and 

6 (2) any recommendations based on such study. 

7 (e) COORDINATION BETWEEN FDIC IG, TREASURY

8 IG, AND FEDERAL RESERVE IG.—In carrying out this 

9 section, the Inspector General of the FDIC shall consult 

10 with the Inspectors General of the Treasury and of the 

11 Federal Reserve System, and such Inspectors General 

12 shall provide any documents or other material requested 

13 by the Inspector General of the FDIC in order to carry 

14 out this section. 

15 SEC. 2. FUNDING. 

16 The FDIC shall make available from the portion of 

17 the FDIC budget allocated to management expenses, sums 

18 allowing the FDIC Inspector General to complete this 

19 study. 

20 SEC. 3. GAO STUDY. 

21 (a) STUDY.—The Comptroller General of the United 

22 States shall carry out a study on the following: 

23 (1) The causes of high levels of bank failures in 

24 States with 10 or more failures since 2008. 


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1 (2) The procyclical impact of fair value ac2 counting standards. 

3 (3) The causes and potential solutions for the 

4 ‘‘vicious cycle’’ of loan write downs, raising capital, 

5 and failures. 

6 (4) An analysis of the community impact of 

7 bank failures. 

8 (5) The feasibility and overall impact of loss 

9 share agreements. 

10 (b) REPORT.—Not later than the end of the 1-year 

11 period beginning on the date of the enactment of this Act, 

12 the Comptroller General shall issue a report to the Con13 gress on the study carried out pursuant to subsection (a). 

Passed the House of Representatives July 28, 2011. 

Attest: KAREN L. HAAS, 

Clerk. 


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