Staff StudiesFederal Deposit Insurance Corporation

Staff Studies

Report No. 2020-05

FDIC Resolution Tasks and Approaches:

A Comparison of the 1980 to 1994 and 

2008 to 2013 Crises

July 2020

www.fdic.gov/cfr • @FDICgov • #FDICCFR • #FDICResearch
1

FDIC Resolution Tasks and Approaches:

A Comparison of the 1980 to 1994 and 2008 to 2013 Crises

Lynn Shibut and George de Verges1

Abstract: The FDIC faced banking crises from 1980 to 1994 and from 2008 to 2013. This study compares the FDIC-insured banks 

that failed and the FDIC’s response to those failures during each crisis. It also discusses major trends that influenced the FDIC’s 

response, including industry consolidation, characteristics of failed banks, major banking legislation, and changes in the FDIC’s 

resolution philosophy. The FDIC resolved more than three times as many banks in the lengthier 1980 to 1994 crisis than in the 

2008 to 2013 crisis, but total failed bank assets were larger during the 2008 to 2013 period; both the geography and the loan mix 

of the failed banks also varied substantially. In response to philosophical changes and market conditions, the FDIC sold assets 

more quickly and relied more heavily on risk-sharing methods during the second crisis. The comparison reveals that the nature 

of banking crises can vary widely and indicates that the FDIC’s resolution strategies are likely to evolve as the agency adapts to 

changing circumstances.

We are grateful to Chacko George and Jianting Hu for computational support; Michael Carabello, Theron Gray, Caitlin Kasper, 

Michael Pessin, and Kevin Wong for research assistance; and Rachel Ackmann, Kathleen Armentrout, Rosalind Bennett, 

Fred Carns, Lee Davison, Bret Edwards, Chacko George, Jianting Hu, Emily Johnston-Ross, Tom Murray, Richard Salmon, and 

Smith Williams for useful comments. 

The views expressed are those of the authors and do not necessarily reflect the official positions of the Federal Deposit Insurance 

Corporation or the United States. FDIC Staff Studies can be cited without additional permission.

1

 Lynn Shibut is a Senior Economist and George de Verges is a Senior Attorney at the Federal Deposit Insurance Corporation (FDIC). Shibut is the 

corresponding author and can be reached at lshibut@fdic.gov.
2

1 Introduction

As banks failed during the 1980 to 1994 crisis and the 2008 to 2013 crisis,2 the FDIC faced the same obligations: provide 

depositors ready access to their insured deposits, liquidate the failed banks’ assets, and resolve the liabilities of the failed 

banks. In both crises, the FDIC sought to accomplish these tasks as effectively and efficiently as practical, guided by its legal 

obligations, mission, capacity, and constraints.

The differences between the two crises, and the intervening changes in the banking industry and the FDIC’s operating 

environment and philosophy, resulted in different approaches to bank resolution. The 1980 to 1994 crisis (the first crisis) 

involved large numbers of failures over many years, and the focus of the crisis shifted geographically. The 2008 to 2013 crisis 

(the second crisis) arrived more rapidly and had a national scope, with failing banks in smaller numbers but substantially 

larger asset portfolios. FDIC liquidation operations grew steadily in the first crisis, moving its focus from region to region of 

the country. In the second crisis, liquidation operations grew more rapidly, but the assets retained from failed banks and FDIC 

resolution and receivership staffing peaked at substantially lower levels as the FDIC limited the increase in permanent staff to 

avoid the difficulties of having to downsize after the crisis. 

During and after the first crisis, legislation (a) reshaped and streamlined the FDIC’s receivership responsibilities, powers, 

and operations; (b) mandated bank closings once certain capital thresholds were passed; and (c) directed that the FDIC 

accept the bid at failure that imposed the least cost to the Deposit Insurance Fund (DIF). These statutes led to significant 

changes in resolution practices and procedures between the crises.

While the causes of the banking crises are beyond the scope of this study, the regional nature of the first crisis, the 

continuing increase in concentration in the banking industry during and between the crises, and the unexpected loss of 

liquidity in the second crisis each influenced the characteristics of banks that failed and the FDIC’s response. Resolution 

approaches were adopted, altered, and abandoned in response to the nature of each crisis and the statutory environment. 

Approaches to bank resolution and asset disposition, at times adopted in haste and with minimal time to prepare, remain the 

subject of intense review and reflection within the FDIC and among interested observers.

The FDIC attempted to return failed bank assets to the private sector more quickly during the second crisis than in the 

first. To increase the speed of asset disposition and to increase the appeal of problematic assets to potential buyers in the 

second crisis, the FDIC adopted strategies that, while achieving the desired goals of speedy sales at higher prices, exposed the 

DIF fund to long-term contingent liabilities as a result of commitments made as part of the sales to asset acquirers.

This study compares the FDIC’s resolution function between the two crises. The analysis omits both systemically 

important resolutions3 of FDIC-insured institutions and resolutions of thrift institutions by the Federal Savings and Loan 

Insurance Corporation (FSLIC) and the Resolution Trust Corporation (RTC).4 It begins with a discussion of the resolution task 

the FDIC faced in each crisis and the characteristics of the banks that failed, including bank location, size, condition, and loan 

composition. The impact of fraud and the extent of liquidity problems are also examined. Second, we describe parts 

2

 Throughout the paper, we use the term “bank” to include all FDIC-insured financial institutions, including banks, savings banks and, in the 2008 to 2013 

crisis, thrifts. It excludes institutions that the FDIC did not insure, such as investment banks and credit unions, and depository institutions not insured by the 

FDIC during the first crisis, such as savings and loans.

3

 Continental Illinois (1984), Citibank (2008), and Bank of America (2009) are treated as systemic failures. Because one non-systemic failure (Washington 

Mutual, or WaMu) made up almost half of the non-systemic failed bank assets during the 2008 to 2013 crisis, it is sometimes excluded from tables and figures. 

If so, it is noted within the table or figure, and the related discussion follows the treatment in the table or figure. For a discussion of Continental Illinois and 

the thrift failures during the 1980 to 1994 crisis, see FDIC (1998). For a discussion of Citibank and Bank of America, see FDIC (2017), chapter 3.

4

 The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC and created the RTC, effective 

August 9, 1989. In addition, the FSLIC’s assets and liabilities transferred to the FSLIC Resolution Fund (FRF) managed by the FDIC. The RTC Completion Act 

of 1993 terminated the RTC as of December 31, 1995. All remaining assets and liabilities of the RTC were transferred to the FRF on January 1, 1996. See 2016 

Annual Report, FSLIC Resolution Fund, January 21, 2010, https://www.fdic.gov/about/strategic/report/2016annualreport/section5-02.html.
3

of various statutes enacted during and after the first crisis that most influenced the FDIC’s resolution processes, including 

information about the problems the laws sought to address and the solutions that each law provided. These statutes included 

provisions that improved the FDIC’s powers and resolution processes and yet sometimes restricted the FDIC’s options. 

Next, we review the FDIC’s resolution philosophy at the onset of each crisis and how it evolved in response to changes 

in the financial markets and the statutory landscape. In the second crisis, statutory changes required the FDIC to abandon 

forbearance and open bank financial assistance5 for non-systemic banks, and the agency used lessons learned in the first 

crisis to employ various forms of risk sharing to speed asset disposition and mitigate losses. This is followed by a discussion 

of the resolution strategies used in each crisis, including the transactions deployed, the amount of failed bank assets held by 

the FDIC, staff levels, the types and extent of risk-sharing methods used to facilitate asset sales, and the losses suffered by the 

FDIC from failed bank resolutions. The analysis ends with a few concluding remarks.

2 Characteristics of Failed Banks

Major differences existed in the characteristics of banks that failed during the crises and the way in which they failed. This 

section examines some of the key differences.

2.1 Location and Size of Bank Failures

Any comparison of the geographic distribution of bank failures between the two crises quickly reveals the effects of 

industry consolidation on the number of bank failures.6 Of the 50 states and Puerto Rico, and regardless of the percentage of 

banks that failed, only 11 states had more failed FDIC-insured depository institutions during the second crisis than during the 

first crisis.7 

Table 1 shows that only a few states suffered high levels of bank failures during both crises.8 Four states (Arizona, 

California, Oregon, and Nevada) and Puerto Rico suffered double-digit rates of bank failures in both banking crises. Other 

states had widely different failure rates. Texas suffered a loss of more than 40 percent of its FDIC-insured banks to failure 

during the first crisis but lost only 1.7 percent of its FDIC-insured banks during the second crisis. Similarly, the neighboring 

states of Oklahoma, Louisiana, and New Mexico had sharply lower rates of bank failure in the second crisis than the doubledigit loss rate that those states had in the first crisis.9

 Georgia had only three failures (0.7 percent of FDIC-insured Georgia 

institutions at the onset of the crisis) in the first crisis but 87 (24.7 percent) in the second crisis. 

The geographic distribution of bank failures in the first crisis generally followed the regional economic downturns from 

the declines in prices for agricultural products in the mid-1980s (Kansas, Nebraska, and Iowa), the declines in oil and gas 

prices in the 1980s (Texas and neighboring states), declines in residential and commercial property after overbuilding in 

New England (Connecticut, Massachusetts, and New Hampshire), and residential home price declines and reductions in the 

defense industry (California). During the second crisis, the geographic variation was weaker, but there were higher failure rates 

in California and adjoining states,10 and in Georgia and Florida. These regional patterns can be seen in Figure 1 (first crisis) and 

Figure 2 (second crisis).

5

 Open bank assistance occurs when the FDIC provides assistance to a bank without closing the bank charter. When open bank assistance occurs, most or all 

creditors are paid in full and stockholders retain ownership. 

6

 The passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was one contributing factor. It is discussed later in the section on 

significant resolution statutory changes.

7

 The states were Florida, Georgia, Illinois, Maryland, Michigan, North Carolina, Nevada, Pennsylvania, South Carolina, Washington, and Wisconsin. However, 

many of these states had only a few failures in both crises. Those that had failure rates above 10 percent in the 2008 to 2013 crisis were Florida, Georgia, 

Nevada, and Washington.

8

 Failure rates are calculated by dividing the total number of failed banks by the number of banks in existence at the onset of the crisis. Note, however, that 

there were new banks chartered during the crisis that were excluded from the total column (primarily during the 1980 to 1994 crisis).

9

 For a fuller review of the first crisis, see FDIC (1997).

10 Nine of the 20 largest bank failures by size were headquartered in California and all failed in 2008 and 2009.
4

Table 1 (Continued)

Bank Failure Rate by State

State

1980 to 1994 2008 to 2013

Failed Banks Total Banks Failure Rate 

(Percent) Failed Banks Total Banks Failure Rate (Percent)

AK 8 14 57.14 0 8 0.00

AL 9 317 2.84 7 160 4.38

AR 11 258 4.26 2 152 1.32

AZ 17 22 77.27 15 57 26.32

CA 87 242 35.95 39 320 12.19

CO 59 307 19.22 9 160 5.63

CT 32 130 24.62 1 56 1.79

DC 5 17 29.41 0 8 0.00

DE 1 20 5.00 0 41 0.00

FL 39 577 6.76 70 321 21.81

GA 3 439 0.68 87 353 24.65

HI 2 9 22.22 0 9 0.00

IA 40 651 6.14 2 393 0.51

ID 1 27 3.70 1 19 5.26

IL 32 1250 2.56 56 675 8.30

IN 10 408 2.45 3 166 1.81

KS 69 616 11.20 9 357 2.52

KY 7 342 2.05 2 207 0.97

LA 70 262 26.72 2 163 1.23

MA 44 167 26.35 1 187 0.53

MD 2 105 1.90 8 97 8.25

ME 2 70 2.86 0 35 0.00

MI 3 371 0.81 13 166 7.83

MN 38 760 5.00 22 446 4.93

MO 41 721 5.69 16 363 4.41

MS 3 182 1.65 2 97 2.06

MT 10 162 6.17 0 79 0.00

NC 2 82 2.44 7 112 6.25
5

Table 1 (Continued)

Bank Failure Rate by State

State

1980 to 1994 2008 to 2013

Failed Banks Total Banks Failure Rate 

(Percent) Failed Banks Total Banks Failure Rate (Percent)

ND 9 172 5.23 0 97 0.00

NE 33 454 7.27 3 248 1.21

NH 16 104 15.38 0 24 0.00

NJ 14 196 7.14 5 128 3.91

NM 11 86 12.79 3 53 5.66

NV 1 9 11.11 12 45 26.67

NY 34 331 10.27 4 217 1.84

OH 5 407 1.23 4 267 1.50

OK 122 489 24.95 5 261 1.92

OR 17 77 22.08 6 41 14.63

PA 5 376 1.33 6 251 2.39

PR 5 12 41.67 3 10 30.00

RI 2 20 10.00 0 14 0.00

SC 1 85 1.18 9 93 9.68

SD 8 154 5.19 1 90 1.11

TN 36 350 10.29 5 203 2.46

TX 600 1422 42.19 11 661 1.66

UT 11 74 14.86 6 68 8.82

VA 7 233 3.00 4 121 3.31

VT 2 35 5.71 0 16 0.00

WA 4 110 3.64 18 97 18.56

WI 2 634 0.32 8 299 2.68

WV 5 235 2.13 1 69 1.45

WY 20 94 21.28 1 43 2.33

Others 0 1 0.00 0 9 0.00

Total 1,617 14,688 11.0 489 8,632 5.7

Source: FDIC.
6

0−5%

5−10%

10−15%

15−20%

>20%



0−5%

5−10%

10−15%

15−20%

>20%


7

The average size of failed banks increased substantially from the first crisis to the second crisis. The 1,617 non-systemic 

banks that failed between 1980 and 1994 held $491 billion of assets at failure (in 2016 dollars), an average of $304 million in 

assets each.11 During the second crisis, the 489 non-systemic failed banks held assets of $768 billion at failure (in 2016 dollars), 

an average of approximately $1.6 billion in assets each (Figure 3).12 

Of the 1,617 banks that failed from 1980 to 1994, 1,129 (70 percent) held less than $100 million in assets (in 2016 dollars). 

The next-largest asset size class, banks holding between $100 million and $1 billion in assets, constituted 26 percent of all 

failed banks. Banks holding $1 billion or more in assets made up 4.6 percent of the failed banks. In contrast, of the 489 bank 

failures during the 2008 to 2013 crisis, only 99 banks (20 percent) held less than $100 million in assets. Banks of $1 billion or 

more in assets comprised 14.9 percent of failures. During both crises, the assets held by banks with more than $1 billion in 

assets made up the bulk of failed bank assets: 66 percent for the first crisis and 85 percent for the second crisis.13

The large reduction in the number of small bank failures between the two crises is consistent with trends that reduced the 

number of insured depository institutions and increased the concentration of assets in the banking system. Figures 4 and 5 show 

consolidation trends in the banking industry (especially for banks with less than $100 million in assets) from 1984 to 2013.14

11 To remove the distortion caused by inflation between 1980 and 2013, most of the figures and tables in this document adjust the dollar amounts for inflation. Inflation adjustment is indicated in each table or graph that uses it. All figures cited in the text follow the treatment in the related table or figure. 

12 If WaMu had been excluded, average assets for failed banks would have been $865 million.

13 If WaMu is excluded from the 2008 to 2013 crisis, the share is 73 percent. 

14 The years 1980 to 1983 were omitted because data are not available for all FDIC-insured institutions before 1984.

Figure 3 

1600

1400

1200

1000

800

600

400

200

0





	



8

7

6

5

4

3

2

1

0



	




Less Than $100M $100M–$1B $1B–$10B $10B–$200B >$200B

1980–1994 2008–2013 1980–1994 2008–2013
8



	





	

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

   

 20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0




	



Figure 4 



FDIC-Insured Banking Assets by Bank Asset Size Class



< $100M $100M–$1B $1B–$10B > $10B

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

 18

16

14

12

10

8

6

4

2

0



9

However, industry consolidation does not fully explain the large shift in the composition of failed banks. From 1984 

to 1994, banks in all bank asset size classes suffered; of all the insured banks in 1984, more than 6 percent in all four asset 

size classes failed. However, the failure rates were highest, approximately 10 percent, among the smallest banks (under 

$100 million in assets) and the largest banks (over $10 billion in assets) (Figure 6). 

During the second crisis, banks in the smallest bank asset size class suffered relatively few failures, with a failure rate of 

3.3 percent. Banks with assets between $100 million and $1 billion and banks with more than $10 billion in assets suffered 

failure rates in excess of 6 percent. The bank asset size class holding between $1 billion and $10 billion in assets suffered the 

highest failure rate (nearly 10 percent).

2.2 Liquidity Pressure and Fraud 

During the second crisis, failed banks faced more acute liquidity problems than during the first crisis. These liquidity 

issues affected bank assets, traditional bank deposits, and substitutes for traditional bank deposits. 

In the decade prior to 2007, bank asset growth exceeded the growth in traditional retail deposit accounts. Therefore, 

banks increasingly turned to other funding sources.15 From 2001 to the beginning of the second crisis, the percentage of bank 

funding provided by non-core deposits and Federal Home Loan Bank (FHLB) borrowing increased from approximately 

21 percent to more than 26 percent (Figure 7).16

15 See McIntyre and Martino (2008). 

16 Non-core deposits are defined as jumbo time deposits (that is, time deposits that exceed the insurance limit) plus estimated fully insured brokered 

deposits. Note that these figures may not fully capture the extent of nontraditional deposits held at the banks because of evolving deposit collection 

methods (such as internet) and changing customer preferences (fewer time deposits, more savings, and MMDA accounts).

Figure 6 

Bank Failure Rates by Bank Asset Size Class





	

1984–1994 2008–2013

 >$10B

$1B–

$10B

$100M–

$1B

<$100M

0% 2% 4% 6% 8% 10% 12%
10

At the onset of the second crisis, the financial services industry—both banks and nonbanks—suffered a major liquidity 

crunch.17 At banks, the shift to less liquid assets and less traditional deposits for funding during the period between the two 

crises brought about unexpected problems for many community banks if creditors experienced financial distress or thought 

that the banks might experience financial distress. As banks found access to liquidity restricted, unexpected demands, such 

as public depositors demanding additional collateral for public funds, placed new strains on bank liquidity while the cost of 

that liquidity was rising. Uninsured depositors withdrew funds to reduce exposure.18 Unanticipated demands on lending and 

interbank financial arrangements, such as draws on loan commitments, repurchase demands on securitized assets, margin 

calls in the derivatives market, and the withdrawal of funds from wholesale short-term financing arrangements, added to the 

demands on a bank’s liquidity.19 Troubled banks were especially vulnerable to these market forces; Cooke et al (2015) found 

that banks with a “liquidity mismatch” were more likely to fail.20 Troubled banks suffering a decline in capital ratings faced 

restrictions in the interest rates that they could offer and on their usage of brokered deposits (absent a waiver from the FDIC).21

As a bank’s condition declined, the FHLBs no longer accepted a general pledge of collateral but required troubled banks to 

17 A full discussion of these problems is beyond the scope of this paper. For additional information, see Financial Crisis Inquiry Commission (2010), especially 

chapter 20.

18 Numerous authors have confirmed this phenomenon. See, for example, Park and Peristiani (1998) and McDill and Maechler (2003).

19 Strahan (2012).

20 Cooke et al. (2015). The authors developed liquidity mismatch measure by subtracting liquidity-weighted assets from liquidity-weighted liabilities and 

dividing the result by total assets. Failed banks in 2008 and 2009 were found to have on average twice the liquidity mismatch of banks that did not fail. 

21 12 C.F.R. § 337.6(c)(3)(i). The FDIC recently proposed changes to the interest rate and brokered deposit regulations to address technology changes and the 

evolving practices in collecting deposits. See Unsafe and Unsound Banking Practices: Brokered Deposits and Interest Rate Restrictions, 84 Fed. Reg. 2366 

(Feb. 6, 2019); Interest Rate Restrictions on Institutions That Are Less Than Well Capitalized, 84 Fed. Reg. 54044 (Oct. 9, 2019); and Unsafe and Unsound 

Banking Practices: Brokered Deposits Restrictions, 85 Fed. Reg. 7453 (Feb. 10, 2020).

Figure 7 



Non-Core Deposits FHLB Borrowing

Mar-01 Dec-01 Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08

Non-Core Funding at FDIC-Insured Institutions With Assets

Below $1 Billion

25

20

15

10

5

0

Percent of Liabilities
11

deliver physical possession of collateral. The FHLBs could also place additional restrictions on borrowing by troubled banks 

or demand additional collateral.22

The liquidity pressures influenced the characteristics of the banks that failed and the FDIC’s resolution process. Table 2 

provides selected financial condition indicators shortly before the banks failed.23

The top panel reports statistics on CAMELS ratings. Banking regulators assign CAMELS ratings based on evaluations 

of a bank’s managerial, operational, financial, and compliance performance. The six components of the ratings are capital 

adequacy, asset quality, management capability, earnings quantity and quality, the adequacy of liquidity, and sensitivity to 

market risk (CAMELS).24 The rating scale ranges from 1 to 5, with a rating of 1 for the strongest banks and 5 for the weakest. 

The mean CAMELS rating for liquidity was 3.5 for failed banks during the 1984 to 1994 crisis. It was 4.4—almost a full point 

worse —for the 2008 to 2013 crisis. Cash and U.S. Treasury and Agency securities comprised a smaller share of assets during 

the 2008 to 2013 crisis (11.1 percent for the 2008 to 2013 crisis; 17.4 percent for the 1980 to 1994 crisis).25 Loans comprised a 

much larger share of assets (75 percent for 2008 to 2013 crisis; 65 percent for the 1980 to 1994 crisis). Usage of nontraditional 

funding sources increased. Capital was higher (4.6 percent for the 2008 to 2013 crisis; –0.8 percent for the 1980 to 1994 crisis).

22 Lending and Collateral Q & A, Federal Home Loan Bank System, March 28, 2017.

23 CAMELS ratings for all banks, and the ratios and indicators for savings banks, were excluded prior to 1984 because of missing data.

24 The last component of the CAMELS rating, sensitivity to risk, was added in 1996.

25 The figure for the 2008 to 2013 crisis comes from the weighted average column, which provides a picture of the overall portfolio of failed bank assets. The 

figure cited includes WaMu. Excluding WaMu, the ratio was 15.3 percent for the 2008 to 2013 crisis.

Table 2

Bank Condition Indicators Reported Shortly Before Failure

1980 to 1994 2008 to 2013

Mean Median Weighted 

Mean * Mean Median Weighted Mean *

Weighted 

Mean no 

WaMu *

CAMELS Ratings

Liquidity 3.50 4 3.64 4.41 5 3.84 4.52 

Assets 4.22 5 4.00 4.89 5 4.01 4.83 

Composite 4.44 5 4.68 4.92 5 4.02 4.84 

Ratios and Indicators

Cash and Treas/Agency Secs to Assets 19.4% 17.4% 17.1% 17.5% 16.4% 11.1% 15.3%

Loans to Assets 64.3% 66.3% 65.1% 70.8% 71.2% 75.0% 72.1%

Noncurrent Loans and OREO to Assets 12.9% 11.6% 14.4% 16.8% 15.2% 9.6% 14.3%

Loan Loss Reserve to Noncurrent Loans 63.2% 39.7% 56.1% 36.9% 29.5% 55.9% 33.1%

Capital to Assets –0.5% 0.5% –0.8% 1.3% 1.4% 4.7% 2.1%

* Weighted by assets.

Source: FDIC.

Note: CAMELS ratings for all banks, and the ratios and indicators for Savings Banks, were excluded prior to 1984 because. of missing 

data. WaMu is Washington Mutual, Treas is Treasury, Secs is Securities, and ORE is Other Real Estate.
12

The higher capital ratio during the second crisis may have been influenced by both the Prompt Corrective Action (PCA)26

provisions introduced by the FDIC Improvement Act of 1991 (FDICIA) and liquidity problems at failing banks.27 Under the PCA 

provisions, Congress required that banks with a leverage ratio of 2 percent or less be closed within 90 days.28

These differences influenced the task at hand for the resolution staff. Liquidity failures often occur quickly, allowing 

less time for failure preparations and marketing. FHLB advances and nontraditional deposits are less appealing to potential 

acquirers, thus reducing the franchise value of the banks and increasing the marketing challenges.29 It is easier to sell Treasury 

and Agency securities than loans, especially noncurrent loans.

Bank fraud was a contributing factor at many bank failures in the first crisis but was less often a major contributor to 

failure in the second crisis.30 A 1994 report by the General Accounting Office (GAO)31 indicated that FDIC investigators found 

insider fraud to be a major cause of failure in 26 percent of a sample of 286 banks that failed from 1990 to 1991, and found 

insider problems (fraud, noncriminal abuses, and loan losses on insider loans) to be present in 61 percent.32 A study by the 

Office of the Comptroller of the Currency (OCC) found that insider abuse, such as self-dealing, inappropriate transactions with 

affiliates, or unauthorized transactions involving bank management, was a significant factor leading to failure in 35 percent 

of failed banks.33 While it is difficult to determine how many banks failed because of insider fraud and abuse in either crisis, it 

seems likely that it was more prevalent during the first crisis than during the second. 

The sorts of bank fraud (self-dealing, insider abuse, undocumented loans to principals) found often in failed banks 

during the first crisis (although present during the second crisis) were not as often a significant factor in bank failure.34 A GAO 

report from January of 2013 identified nonperforming commercial real estate (CRE) loans, weak underwriting, riskier funding 

sources, and inadequate management as causes of failure during the second crisis but did not identify fraud as a significant 

contributing factor.35 Another study of bank failures during the second crisis identified as causes of failure an imbalance of risk 

versus return, excessive reliance on volatile funding sources, and poor understanding and management of risks, but likewise 

did not identify fraud as a contributing factor.36

2.3 Loan Mix and Failures From Single-Family Loans 

Banks closed during the first crisis failed because of losses in one or more segments of their loan portfolios, but in general 

an unexpectedly high default rate in the single-family residential (SFR) loan portfolio of banks was not the principal cause of 

failure. If failed banks during the first crisis held SFR loans, the FDIC suffered minimal losses in resolving them. Figures for the 

26 12 U.S.C. §1831o (West Supp. 1992), added by Pub. L. No. 102-242, § 131, 105 Stat. 2236, 2253 (1991).

27 Excluding WaMu, the equity of failed banks during the 2008 to 2013 crisis was only 2.1 percent.

28 The PCA requirements are discussed in more detail in Section 3.4.

29 Several observers have noted a positive relationship between FHLB advances and the FDIC’s bank failure costs, and recommended changes. See, for example, Hearing on Merging of the Deposit Insurance Funds Before the House Banking Subcommittee on Financial Institutions and Consumer Credit, 106th Cong. 

(February 16, 2000) (statement of Gregory A. Baer, Assistant Secretary for Financial Institutions, The Department of Treasury) and Hearing on Viewpoints of the 

FDIC and Select Industry Experts on Deposit Insurance Reform Before the Committee on Financial Services Subcommittee on Financial Institutions and Consumer 

Credit, 107th Cong. (October 17, 2001) (statement of Richard S. Carnell). See Bennett et al. (2005) for additional discussion. Some acquirers of failed banks 

have expressed preferences for traditional deposits over certain types of nontraditional deposits. For additional information, see FDIC (2011) and FDIC (2017), 

p. 190. Because of the liens and prepayment penalties tied to FHLB advances, the FDIC almost always passes these advances to acquirers. 

30 Fraud was more frequently present within failed banks during the earlier crisis. See O’Keefe (1993) for discussion.

31 Pub. L. No. 108-271, § 8(b), substituted “Government Accountability Office” for “General Accounting Office.”

32 U.S. General Accounting Office, Bank Insider Activities: Insider Problems and Violations Indicate Broader Management Deficiencies (GAO/GGD-94-88, 

March 1994).

33 OCC, Bank Failure: An Evaluation of the Factors Contributing to the Failure of National Banks, June 1988, p. 9, https://www.occ.gov/publications/publications-by-type/other-publications-reports/pub-other-bank-failure.pdf. The study examined 171 banks that failed from 1979 to 1987.

34 For example, see “‘Dead’ GA. Banker Gets 30 Years for Fraud, Embezzlement,” Crimesider, October 28, 2014, http://www.cbsnews.com/news/dead-georgia-investment-banker-gets-30-years-for-fraud-embezzlement/.

35 Government Accountability Office, “Financial Institutions: Causes and Consequences of Recent Bank Failures,” GAO, 13-71, http://www.gao.gov/products/

GAO-13-71.

36 Fuchs and Bosch (2009). 
13

FDIC SFR loan portfolio’s performance during the first crisis are not available, but the RTC’s records from 1989 to 1995 show 

loss rates on SFR loans of 3.9 percent compared with an RTC average loss rate of 20.9 percent for other types of loans.37

During the second crisis, both the volume of SFR loans and the associated losses proved much more significant. 

Figure 8 compares the composition of assets held by failed banks in the two crises. From 1984 to 1994, SFR loans constituted 

14.1 percent of all failed bank assets. In the 2008 to 2013 crisis, SFR loan concentrations were much higher, at 40.7 percent. 

In addition, some of the failed banks had significant exposures to single-family loans through residential mortgage-backed 

securities.

After 2007, the increase of SFR loan defaults relative to all loan defaults was greatest among banks with more than 

$10 billion in assets.38 Of the 489 bank failures in the 2008 to 2013 crisis, five banks—IndyMac Bank, FSB (IndyMac), 

Washington Mutual Bank (WaMu), Downey Savings and Loan Association (Downey), BankUnited, FSB (BankUnited), and 

AmTrust Bank (AmTrust)—held more than $10 billion in assets and specialized in originating, servicing, and acquiring SFR 

loans.39 These banks dealt in all types of SFR loans, including adjustable-rate mortgages (ARMs) and alternative A-paper (Alt-A) 

mortgages.40 Asset holdings for each of these five banks were dominated by SFR loans (Table 3). In comparison, SFR loans 

comprised only 17 percent of assets at the other 484 closed banks during the 2008 to 2013 crisis. These five banks also held 

more than half of the non-systemic failed bank assets ($416 billion of $757 billion). Even excluding WaMu, the remaining four 

SFR banks held approximately $48.4 billion in SFR loans, compared with $56.3 billion for the other 484 failed banks. 

37 Calculated from RTC, Statistical Abstract (1995), p. 18.

38 Davison (2020).

39 For additional discussion about problems with single-family lending that led into the 2008 to 2013 crisis, see FDIC (2017), chapter 1.

40 These are other types of home mortgages that were graded as below “prime” for investors. 

Figure 8 

Failed Bank Asset Concentration (Percent)









40.7

9.5

18.2

3.6

15.7

9.4

14.1

5.5

14.8 16.6

12.5

21.6

14.8

40.7

9.5

18.2

3.6

15.7

9.4

14.1

5.5

14.8 16.6

12.5

21.6

14.8

1984 to 1994 2008 to 2013

Single-Family Residential

CRE: Construction & Development

CRE: Others

Commercial & Industrial

Other Loans

Cash & Securities

All Other Assets

3.0
14

The five banks with significant SFR loan concentrations failed early in the 2008 to 2013 crisis. Of these, IndyMac failed first, 

on July 11, 2008. WaMu failed on September 25, 2008, and Downey on November 21, 2008. BankUnited failed on May 21, 2009. 

AmTrust, the last to fail, closed on December 4, 2009. After AmTrust’s failure, regulators would close another 331 banks before 

the end of 2013.

WaMu’s failure caused no loss to the DIF, but the other four SFR bank failures caused significant losses to the DIF.

Estimated losses from these five bank failures total approximately $19.4 billion, or roughly 27 percent of total losses to the

DIF from all bank failures during the 2008 to 2013 crisis. Excluding WaMu, the loss rate for these banks was higher than for

the remaining 484 banks (29 percent versus 17 percent).41

To mitigate losses to the FDIC and to reduce the harm of foreclosures to borrowers and affected neighborhoods, the 

FDIC adopted various loan modification programs where the acquiring banks modified loans to borrowers that met the 

required criteria. The FDIC introduced its first programs at IndyMac after it failed and was temporarily placed under FDIC 

conservatorship before it was resolved.Four of these five banks (all except WaMu) were resolved using strategies that required 

asset buyers to offer loan modification programs in the years immediately following failure. The FDIC also placed such 

requirements on the acquirers of 284 smaller banks.42

There were other differences in loan mix across the two crises. In both crises, CRE loans and construction and

development (C&D) loans were associated with bank failure.43 However, the failed banks during the second crisis were

more heavily concentrated in commercial real estate lending—especially in C&D lending—than was the case in the first 

crisis. In the earlier crisis, many bank failures were related to serious downturns in the energy and agricultural sectors, and 

those banks had heavier concentrations of commercial and industrial (C&I) loans—another asset class that sometimes has 

high loss rates. Table 4 shows the concentration levels for various loan types for the two crises. The top panel shows 

percentages within each asset concentration category, and the bottom panel shows the number of banks within each

category. The left-most column shows banks that held less than 10 percent of assets in each listed asset class (very low

concentration), and the right-most column shows banks with more than half of assets held in each asset class (very high

concentration).

41 Including WaMu, the loss rate for large single-family lenders was only 5 percent.

42 The requirements lasted for ten years and were part of the loss share agreements that covered SFR loans. The four largest portfolios of SFR loans covered 

by FDIC loss share are those that originated with IndyMac, Downey, Bank United, and AmTrust.

43 Cole and White (2012).

Table 3

Single-Family Asset Concentration of Selected Failed Banks

Failed Bank

Assets at Failure SFR to Total Failed 

Bank Assets 

(Percent)

SFR Assets 

($ Billions)

Total Assets 

($ Billions)

SFR to Total Assets 

(Percent)

Washington Mutual 203.1 340.6 59.6 26.8 

IndyMac 18.1 34.1 53.0 2.4 

BankUnited 10.6 14.5 72.9 1.4 

Downey 12.2 14.1 86.1 1.6 

AmTrust 7.5 12.6 59.3 1.0 

All Others (484 banks) 56.3 340.7 16.5 7.4 

Total 307.7 756.6 40.7 40.7 

Source: FDIC.

Note: SFR is single-family residential.
15

As expected, a higher share of failed banks had heavy concentrations in single-family loans during the second crisis: SFR 

loans comprised at least 50 percent of the loan portfolio at 8.8 percent of failed banks compared with only 6.4 percent of 

failed banks in the 1980 to 1994 crisis. The difference in C&D loans is striking: during the first crisis, more than 80 percent of the 

failed banks had less than 10 percent of assets held in C&D lending, whereas 66 percent of the failed banks during the second 

crisis had C&D loan exposures that exceeded 20 percent of total assets. Exposures to other CRE loans (multifamily, retail, office 

buildings, hotels) were also higher in the second crisis, and exposures to C&I lending were much lower. C&I loans comprised 

40 percent or more of total assets at less than 2 percent of banks in the second crisis and 26 percent of banks in the first crisis. 

Table 4

Asset Class Concentration

Asset Class Period

Percentage of Failed Banks 

Asset Class to Total Failed Bank Assets (%)

0–10 10–20 20–30 30–40 40–50 > 50

SFR 

1980–94 45.0 28.7 13.8 4.2 2.1 6.4

2008–13 32.2 26.0 19.9 9.0 4.1 8.8

CRE: C&D

1980–94 81.3 11.9 4.2 2.0 0.4 0.2

2008–13 15.6 18.4 19.1 18.7 13.9 14.3

CRE: Others

1980–94 63.8 26.3 7.3 1.6 0.7 0.4

2008–13 8.6 17.4 28.7 23.0 12.3 10.0

C&I

1980–94 12.4 18.1 22.7 20.5 12.6 13.7

2008–13 50.4 29.9 13.7 4.3 1.0 0.6

Asset Class Period

Number of Failed Banks

Asset Class to Total Failed Bank Assets (%)

0–10 10–20 20–30 30–40 40–50 > 50

SFR 

 1980–94 668 423 199 58 28 90 

 2008–13 157 127 97 45 20 43 

CRE: C&D

 1980–94 1,174 186 65 30 6 5 

 2008–13 76 90 94 91 68 70 

CRE: Others

 1980–94 921 402 105 23 10 5 

 2008–13 42 85 140 113 60 49 

C&I

 1980–94 174 262 327 307 193 203 

 2008–13 246 146 68 21 5 3 

Source: FDIC.

Note: FDIC-insured savings banks that failed prior to 1984 are omitted because of missing data. SFR is single-family residential, CRE is 

commercial real estate, C&D is construction and development, and C&I is commercial and industrial.
16

3 Significant Statutory Changes to Resolution Authority

Congress passed several statutes relevant to banks, bank regulation, and failed bank resolution from 1980 to 2013. This 

section describes parts of six statutes that resulted in significant changes to the FDIC’s resolution options and processes for 

non-systemic failed banks.44

3.1 Garn St. Germain Act of 1982 (Garn St. Germain)

Garn St. Germain introduced Net Worth Certificates, a form of capital forbearance available to certain savings banks 

insured by the FDIC.45 This program was designed for savings institutions that were solvent, had weak capital positions, had 

asset portfolios that were performing, and had management that was viewed by bank supervisors as sound. The institutions 

were losing money because they held long-term mortgages with low interest rates funded by short-term deposits with higher 

interest rates. Many observers believed that interest rates on deposits would decline, thus allowing the institutions to return 

to good health.

3.2 Competitive Equality Banking Act of 1987 (CEBA)

CEBA46 authorized the FDIC to form and manage temporary “bridge banks” to aid in resolving failed banks.47 When a 

bridge bank is formed, the FDIC charters a de novo bank (that is, a bridge bank) that is run by the FDIC briefly until the FDIC 

executes a final resolution strategy. CEBA also extended the Net Worth Certificate Program authorized in 1982 and allowed 

small agricultural banks to amortize loan losses over time (an accounting forbearance).48

3.3 Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)

FIRREA established a comprehensive scheme granting the FDIC exclusive initial jurisdiction to resolve and dispose of all 

claims against a receivership,49 with judicial review allowed only after the FDIC had determined which claims were allowed.50

As receiver, the FDIC could transfer assets of the failed bank free of interference or oversight by any court,51 with the assets 

protected while in the hands of the FDIC from judicial seizure or execution52 and free of most forms of taxation.53 The FDIC 

could enforce any bank agreement or contract even if the contract provided for termination upon appointment of a receiver,54

while the FDIC could repudiate contracts and leases that it determined, in its sole judgment, to be burdensome.55 FIRREA 

codified previous cases barring the enforcement of claims or the assertion of rights against the FDIC based on unwritten 

agreements.56 Finally, FIRREA established that the FDIC could operate as receiver once appointed without having to receive 

authorization, oversight, or review from a state or local court.57 

44 This is by no means an exhaustive review of the statutes; sections of the statutes not directly related to bank resolution or receiverships have been omitted 

from the discussion. In addition, other statutes influenced the FDIC’s resolution and receivership options to a lesser degree.

45 12 U.S.C. § 1823(i), repealed by Pub. L. No. 97-320, Title II, § 206, Oct. 15, 1982, 96 Stat. 1496.

46 Pub. L. No. 100-86, Aug. 10, 1987, 101 Stat. 552.

47 12 U.S.C. § 1821(n).

48 Pub. L. No. 100-86, Section 509, amending 12 U.S.C. § 1729, repealed by Pub. L. No. 101-73, Title IV, § 407, August 9, 1989, 103 Stat. 363.

49 12 U.S.C. § 1821(d)(3)–(13).

50 12 U.S.C. § 1821(d)(13)(D).

51 12 U.S.C. § 1821(d)(2)G)(i)(II).

52 12 U.S.C. § 1821(d)(13)(C).

53 12 U.S.C. § 1825(b)(2).

54 12 U.S.C. § 1821(e)(13)(A).

55 12 U.S.C. § 1821(e)(1). The FDIC would have to pay compensation in some cases.

56 12 U.S.C. § 1821(d)(9)(A).

57 12 U.S.C. § 1821(c)(2)(C) and (c)(3)(C). Several protections remain in place, but they typically result in the FDIC having to pay compensation rather than the 

FDIC being unable to administer the receivership.
17

The adoption of FIRREA simplified the FDIC’s receivership duties and allowed for more uniform receivership procedures. 

It reduced time spent in court and the associated costs.58 FIRREA also included provisions that disallowed accounting 

forbearance to avoid failure.59 Such provisions had been used regularly before FIRREA was passed.

3.4 Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)

FDICIA barred certain practices that were judged to have increased the cost of resolution of failed insured depository 

institutions during the 1980s. Regulatory agencies often could not close banks before the book value of capital fell below zero. 

Further, some regulators had hesitated to close banks even after the institutions were insolvent, hoping that the insolvent 

institutions would “grow out” of the problems or that improving economic conditions would restore the institution’s health. 

To address these issues, FDICIA introduced PCA, which defined requirements for capitalization and imposed increasingly strict 

restrictions and penalties on banks as capital fell below statutory thresholds. When banks became critically undercapitalized 

(defined as tangible equity 2 percent or less of total assets), they were required to be closed within 90 days of the notice, with 

few exceptions.60 The FDIC was also given authority to close a bank and appoint itself as receiver in limited circumstances. 

Despite the brevity of the 90-day time limit, the PCA provisions may have, on average, increased the time available for the 

FDIC to prepare for failure. Before FDICIA, the FDIC often had little time to prepare for failure because the chartering authority 

would not close the bank until the failing bank’s condition was so poor that any franchise value had disappeared and the 

bank had to be closed immediately. 

FDICIA also introduced the least cost test (LCT). Prior to FDICIA, the FDIC could accept any failed bank bid so long as it 

was less costly than a payout of the failed bank’s insured deposits. The LCT mandates that the resolution bid accepted must 

be the least costly of all the available bids—even bids that do not conform to the FDIC’s recommended resolution structure.61

Compared with the pre-FDICIA time period, the FDIC’s analysis of bids is now more complete, because every bid, even 

nonconforming bids, is subject to the LCT analysis and comparison. In addition, FDICIA effectively prohibited the use of open 

bank assistance without a systemic risk determination, thereby substantially limiting its use.62 

58 The FDIC operates in two capacities. The FDIC when it acts as an appointed receiver of a failed depository institution is referred to as the receiver. See 

12 U.S.C. § 1819, § 1821(c). The FDIC in its corporate capacity administers the federal deposit insurance fund, a pool of assets used to guarantee the safety 

of federally insured deposits. Bullion Services Inc. v. Valley State Bank, 50 F.3d 705, 708 (9th Cir.1995). The FDIC when acting as a receiver has broad authority 

to “take over the assets ... and conduct all business of the institution,” “collect all obligations and money due the institution,” and “preserve and conserve 

the assets and property of such institution.” 12 U.S.C. § 1821(d)(2)(B)(i), (ii), (iv). The FDIC as receiver may also “transfer any asset or liability of the institution 

in default ... without any approval, assignment, or consent ... .” 12 U.S.C. § 1821(d)(2)(G)(i)(II). Finally, the FDIC as receiver may “exercise ... such incidental 

powers as shall be necessary to carry out such powers,” and “take any action authorized by this Chapter” which the FDIC as receiver “determines is in the best 

interests of the depository institution, its depositors, or the [FDIC].” 12 U.S.C. § 1821(d)(2)(J)(i), (ii), Sahni v. FDIC, 83 F.3d 1054, 1058 (9th Cir. 1996).

59 Regulators were no longer allowed to permit banks to use accounting methods that were less stringent than Generally Accepted Accounting Principles 

(GAAP) in terms of capital reporting. See United States v. Winstar Corp., 518 U.S. 839, 844-859, 116 S.Ct. 2432, 2440–2448, 135 L.Ed.2d 964 (1996) for a summary 

of the shifts in treatment of regulatory goodwill and capital credits.

60 See 12 U.S.C. § 1831o, 12 C.F.R. § 324.401 et seq. The FDIC is permitted to extend the time frame up to 270 days if it determines that it would reduce the cost 

of resolution. This exception has never been used.

61 See 12 U.S.C. § 1823(c)(4), 12 C.F.R. § 360.1. In addition, the cost of the bid must be lower than the cost of a payout. There are two exceptions. First, the 

FDIC is always permitted to pay out the deposits of a failed bank. Second, under extremely limited conditions, the FDIC can invoke an exception if the least 

cost failure could threaten the U.S. financial system. In addition, the FDIC is not required to consider a bid if it is unable to estimate its cost or if the resulting 

institution is viewed as unsafe and unsound.

62 See 12 U.S.C. § 1823(c)(1). The FDIC also required several approvals before a systemic risk exception could be granted. 12 U.S.C. § 1823(a)(4)(G). The 

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) included provisions that further restricted the FDIC’s use of the systemic 

risk exception and open bank assistance.
18

3.5 The National Depositor Preference Amendment (Omnibus Budget Reconciliation Act of 1993)

The National Depositor Preference Amendment established the primacy of the claims of domestic depositors over all 

other classes of creditors.63 Before this amendment was adopted, there had been a hodgepodge of state priority schemes, 

many of which placed deposit claims in the same priority class as general creditors. The National Depositor Preference 

Amendment imposed a uniform nationwide schedule of priority: 

1. Secured claims (up to the value of the perfected collateral)

2. Administrative expenses of the receivership

3. Domestic deposit liabilities

4. General liabilities (including foreign deposits64 and unsecured borrowing)

5. Subordinated obligations

6. Obligations to stockholders65

The National Depositor Preference Amendment allowed the FDIC to administer satisfaction of deposit and other claims 

uniformly, with no special requirements or varying obligations imposed on receiverships of banks chartered in specific states. In 

addition, since most non-deposit claims were valueless due to the priority of deposit claims, many claimants with a subordinate 

(that is, lower) claim status than domestic deposits elected not to pursue their claims, which reduced the FDIC’s cost of 

administering non-deposit claims. Because some of these claims were associated with active litigation at bank failure, legal 

expenses were also reduced. Although the benefits associated with administering the receivership were clear, some researchers 

questioned whether this legislative change would result in a substantial shift in losses from the FDIC to other creditors because 

many creditors exited failing banks before failure (especially those that were likely to lose money if the bank failed).66

3.6 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

This act,67 plus several changes in various state laws that preceded it, provided more flexibility to the ownership structure 

for banks and removed barriers to interstate and branch banking. Before its enactment, many states set restrictions on 

interstate banking and the number or location of branches held by a single bank, and the restrictions influenced both the 

size and number of banks in the industry. Because of pressure from bank owners, many states had already moved away 

from these types of restrictions. This act required states to eliminate almost all such restrictions unless they opted out.68

It contributed to industry consolidation and thus contributed to the increase in the size of failed banks between the first 

crisis and the second crisis. The act allowed banks to consolidate operations and pursue geographic diversification through 

acquisitions, and it exposed formerly sheltered banks to larger and more diverse competitors.69

63 Secured claimants are permitted to be paid ahead of deposit claimants to the extent that the collateral satisfies the claim, provided that the lien on the 

collateral is perfected under applicable law. See 12 U.S.C. § 1821(d)(5)(D)(ii).

64 On September 13, 2013, the FDIC clarified that certain foreign deposits payable in the United States will be in the depositor creditor class but are not 

insured deposits. See “Deposit Insurance Regulations; Definition of Insured Deposit,” Federal Register 78, no. 178 (September 13, 2013): 56583–56589.

65 12 U.S.C. § 1821(d)(11)(A).

66 See Marino and Bennett (1999).

67 Pub. L. No. 103-328, Sept. 29, 1994, 108 Stat. 2338, codified as 12 U.S.C. §§ 43, 215a-1, 1831u, 1835a.

68 States were given multiple options for opting in early or opting out. At this point, all states have opted in. For more information, see Johnson and Rice (2007).

69 Jones and Critchfield (2005). 
19

4 The FDIC’s Failed Bank Asset Disposition Philosophy

This section discusses the FDIC’s asset disposition philosophy during each crisis. In both cases, the FDIC’s views and 

anticipated strategies were shaped by its experience before the crisis, and its viewpoints and related strategies changed as the 

crises played out. This review of the FDIC’s evolving strategies is followed by a brief section about changes in the FDIC’s information 

technology infrastructure during the period between the crises, which also influenced the FDIC’s practices in the second crisis. 

There are natural tradeoffs when the FDIC considers its options for the disposal of the assets of failed institutions. The 

FDIC can sell assets quickly despite the downward pressure on asset values that such a distressed sale could entail. Or the 

FDIC can sell assets gradually, which would ideally mitigate the risk that a sale would trigger large price drops and potentially 

undermine a local economy or put significant downward pressure on the price of an asset class.70 In practice, the FDIC’s 

choices fall along a continuum between a quick sale and longer-term ownership. Another tradeoff relates to risk retention: 

buyers usually pay higher asset prices if the FDIC retains some or all of the risk associated with the assets, but consequently 

the FDIC retains the risk of declining asset prices. In addition, risk retention by the FDIC may reduce or distort the incentives 

of the buyers to minimize asset losses, and the risk retention strategies could be subject to poor contract design or 

administration that might increase asset losses or operating costs. 

Likewise, there are tradeoffs associated with the treatment of creditors at failing banks. Imposing losses on uninsured 

depositors and other unprotected creditors when banks fail can reduce the FDIC’s losses at failure (because other creditors 

absorb some of the losses at the bank), can encourage unprotected creditors at banks to exert discipline on banks that take 

excessive risks, and may encourage banks to limit risk-taking in response to creditor concerns. However, if the FDIC imposes 

such losses during crisis periods, then depositors and other creditors at other financial institutions may panic and thus harm 

both the banking system and the general economy. In addition, in most cases, resolution methods that impose losses on 

uninsured depositors and other creditors are operationally more complex for the FDIC to execute.

4.1 Viewpoints and Anticipated Strategies at the Onset of the 1980 to 1994 Crisis

From 1943 to 1979, the average number of bank failures per year was only five, and the total of assets of failed banks per 

year averaged merely $1.1 billion (in 2016 dollars). Thus, FDIC staff began the first crisis with no recent crisis experience to 

draw from in crafting its resolution and receivership strategies. Even so, the FDIC tried to improve its resolution processes in 

the years preceding the first crisis. In the mid-1960s, the FDIC’s preferences shifted from payouts to Purchase and Assumption 

(P&A) agreements, where another bank acquires some or all of the assets and then assumes the deposits and sometimes 

other liabilities.71 As the crisis began, P&A agreements were viewed as generally more efficient than payouts and less 

disruptive to the depositors and local community.72 All P&As at that time passed both insured and uninsured deposits to 

the acquirer. Often, the FDIC offered P&A bidders a short-term option to purchase the failing banks’ loans at book value—an 

offer that was more often declined than accepted. The FDIC attributed those declinations to the poor quality of the loans, the 

limited information available to bidders, and the tight timelines for resolution.73

For assets retained in receiverships (that is, not sold to an acquiring bank when the bank was resolved), the FDIC focused 

on recovering as much of the total book value of the assets as possible and placed less emphasis on the cost of holding the 

assets. Thus, assets tended not to be sold during recessions, and asset holding periods were often long.74 FDIC staff levels 

and receivership asset balances reflected this philosophy. As of year-end 1979, the FDIC’s Division of Liquidation had 

432 employees, and $5 billion (in 2016 dollars) in failed bank assets remained to be liquidated.

70 Bovenzi (2015), p. 48.

71 For more information about the resolution options used by the FDIC, see FDIC (2014) or FDIC (1998), especially chapter 3.

72 FDIC (1984), p. 86.

73 FDIC (1977), pp. 9–10. Other reasons included loans with below-market interest rates and better lending opportunities elsewhere.

74 Seidman (1993), pp. 99–100.
20

At the onset of the crisis, as interest rates soared to record highs, the FDIC anticipated an increased workload and planned 

to accommodate it. The introduction to its 1980 Annual Report stated, “The FDIC plans to intensify its efforts to find new ways to 

meet its burgeoning workload and increased statutory responsibilities in an era of employment ceilings and limited resources.”75

4.2 Evolution of Viewpoints During the 1980 to 1994 Crisis

The 1980 to 1994 crisis involved a series of regional recessions, major legislative changes, and significant changes within 

the banking industry. Not surprisingly, the FDIC’s viewpoints changed a great deal over this tumultuous 15-year period.76

The viewpoints expressed in the previous section prevailed early in the crisis. As the number of failures increased, the 

volume of assets remaining to be liquidated also increased and the cash in the Bank Insurance Fund (BIF)77 that was available 

for failures declined. These factors highlighted the costs of holding assets in receivership. And, after L. William Seidman 

became Chairman in 1985, the FDIC placed a stronger emphasis on selling assets retained in receiverships more quickly.78 The 

FDIC also sought to increase the volume of assets sold to acquirers at resolution amid concerns that the value of assets may 

decline once they are placed in government hands.79 The FDIC adopted bid evaluation procedures that favored passing assets 

to acquirers in 1986 and introduced a new whole-bank P&A approach in 1988.80 Throughout the crisis—and indeed through 

both crises—the FDIC continued to prefer P&A agreements (as opposed to payouts) for resolving closed banks.81 

The FDIC also believed that it was sometimes more cost-effective (that is, less costly to the BIF) to judiciously assist 

distressed banks to avoid failure rather than closing them. For example, many savings banks had funded long-term mortgages 

with low interest rates using short-term deposits. When interest rates spiked in the late 1970s and early 1980s, these 

institutions suffered losses that might have been reversed if interest rates dropped—provided that the institutions were well 

managed.82 Congressional views and related legislation (and thus the FDIC’s scope, and sometimes its mandate, for the use of 

such assistance) changed markedly during the crisis: Garn St. Germain (1982) and CEBA (1987) expanded the FDIC’s ability to 

use such methods, whereas FIRREA (1989) and FDICIA (1991) restricted their use. 

Early in the crisis, the FDIC recommended that it be granted bridge bank authority, and Congress authorized it in 1987. The 

bridge bank structure allows the FDIC to close a failing bank and temporarily run the bank as an operating institution while it 

devises and executes a strategy for final resolution. Where failure occurred quickly, this authority improved the FDIC’s resolution 

options because it enabled the FDIC to choose options that defer some of its resolution tasks until after the bank failed.83 As it 

exercised the new authority later in the crisis, the FDIC found that it effectively facilitated the resolution of larger failures, and 

FDIC staff viewed it as the preferred tool when failure occurred at a large or complex bank too quickly to arrange a P&A and if 

the bank still had franchise value.84

75 FDIC Annual Report (1980), p. 6. It is unlikely that the FDIC anticipated the extent of the future crisis. The paragraph indicated that most of the changes 

were anticipated in the examination function, which made up 70 percent of its budget that year. By 1985, direct receivership expenses (excluding overhead) 

comprised 65 percent of its budget. (The source for the details in this footnote is Historical FDIC Expenses, FDIC Division of Finance.) 

76 This section draws heavily from chapter 3 and chapter 12 of FDIC (1998). Chapter 3 discusses the evolution of resolution methods used by the FDIC during 

this period. Chapter 12 discusses methods used to sell assets retained in receiverships.

77 At that time, the FDIC insured banks and savings banks through the BIF but did not insure thrifts. On July 1, 1995, the FDIC began resolving insolvent thrifts 

through the Savings Association Insurance Fund (SAIF). On March 31, 2006, the SAIF and the BIF were merged into the DIF. 

78 Seidman (1993), pp. 99–102.

79 Potential reasons for this viewpoint include: (a) borrowers may be less inclined to pay loans if they are held by the government, especially if there are no 

longer prospects for future borrowing; (b) government staff may be paid less or have weaker incentives to diligently pursue high asset prices (fewer sales 

bonuses, etc.); (c) political influence may reduce recoveries; and (d) government requires more extensive oversight and reporting, which adds costs.

80 See FDIC (1998), pp. 86–90 and FDIC, “FDIC Chairman Unveils New Approach to Handling Bank Failures,” news release no. PR-79-88, April 18, 1988, for 

additional discussion.

81 However, the scope for acting on its preference was reduced after the LCT was introduced in 1992.

82 See FDIC (1986).

83 Without a bridge bank option, the FDIC must either execute a payout (where the franchise value of the bank is lost) or have enough time to identify potential acquirers and market the failing bank before the failure. 

84 That is, the value of the bank as an operating company exceeded the value of the individual assets minus liabilities. For a discussion of these options in the 

context of large bank failures before the 2008 to 2013 crisis, see Marino and Shibut (2006).
21

Through most of the crisis, the FDIC avoided sales methods that involved retaining risk after the assets were sold. That 

began to change as the crisis peaked. In 1991, the FDIC introduced a P&A agreement where the FDIC would share in the future 

credit losses of selected troubled asset portfolios sold to the acquirer. This P&A agreement, known as “loss share,” was viewed 

as a means to reduce costs and improve credit availability for the failed bank’s borrowers.85 Near the end of the crisis, the FDIC 

used risk-sharing methods for a limited amount of assets retained in receiverships.86

4.3 Viewpoints and Anticipated Strategies at the Onset of the 2008 to 2013 Crisis

In 2007, the FDIC’s resolution staff had an average FDIC tenure of 21 years. Many staff members had vivid memories of the 

previous crisis and the lessons that they had learned from it.87 Senior FDIC staff believed that a quick sale was advantageous 

to the FDIC because of its effect on long-term financial stability and operational simplicity.88 First, it allowed markets to 

recover quickly after the potential short-run drop in asset prices. Managing large volumes of assets for an extended period 

theoretically could mitigate short-term asset-price volatility, but it would extend the period of market disruption.89 Second, 

because troubled assets are difficult to manage, the receivership asset values might deteriorate even as the overall asset 

markets improve.90 Through quicker asset sales, the FDIC could reduce its influence on financial markets and increase the role 

of the private sector in determining market prices.91 Removing the FDIC as the primary custodian of a large volume of banking 

assets is also operationally simpler for the FDIC. As an asset manager, the FDIC must devote substantial resources to servicing 

and liquidating assets. By minimizing its role as an asset manager, the FDIC reduces its need for a large infrastructure to 

maintain and manage assets before disposition. 

The FDIC also found that serving as an asset manager can increase the odds of experiencing political pressure. In the 

first crisis, the FDIC was the subject of congressional hearings where its handling of troubled assets was criticized and “better 

treatment” of borrowers was sought.92 John Bovenzi, the highest-level career executive who had served at the FDIC during 

both crises, explained that the job of asset servicing “never produces many friends” but that it instead “assured screams of 

protest by the borrowers to their elected officials.”93 By removing itself from the business of servicing assets, the FDIC could 

focus its resources on resolving the more immediate concerns that arise during a banking crisis, such as the payment of 

deposit insurance claims and the resolution of failed institutions.94

One of the most painful lessons the FDIC learned after the first crisis was the high human capital cost of downsizing 

when a permanent workforce is hired for temporary work. The FDIC’s workload is countercyclical, and the FDIC requires more 

resources, including staff, when institutions are failing and assets are being liquidated than when the banking industry is in 

an extended period of stability. As of year-end 1992, the FDIC’s resolution divisions had 6,757 employees, 1,754 (24 percent) 

of whom were permanent. In addition, the FDIC was required to absorb the remaining staff at the RTC as it wound down its 

operations; the RTC had 7,382 staff as of year-end 1992, almost all of whom performed resolution and receivership tasks.95

85 See FDIC, “FDIC Approves Assumption of Deposits of Southeast Bank N.A., Miami and Southeast Bank of West Florida, Pensacola,” press release no. 

PR-137-91, September 19, 1991.

86 See FDIC (1998), chapters 7, 16, and 17.

87 The experience of the FSLIC and RTC was also considered. Some FDIC employees shifted to the RTC during its tenure, and (by law) all RTC employees were 

given jobs at the FDIC when the RTC closed. In addition, a task force was formed to review FDIC and RTC differences and adopt best practices. See FDIC (1995). 

88 See Bovenzi (2015), pp. 59–60.

89 Bovenzi (2015), p. 48.

90 There are also costs associated with holding assets, such as loan servicing and management fees.

91 Economists have also raised concerns related to government control of banking assets, such as reduced efficiency. See Clarke et al. (2003) and Shirley and 

Walsh (2000) for a discussion of the theoretical and empirical evidence. Also note that sale prices are likely to be lower when assets are sold quickly during 

distress periods. See Shleifer and Vishny (2011) for additional discussion.

92 Bovenzi (2015), p. 164. See also Seidman (1993).

93 Seidman (1993), p. 210.

94 The FDIC did not escape criticism in the second crisis. For example, a number of criticisms about the FDIC’s resolution process were raised at a field hearing 

in 2011. See H.R. Field Hearings for the Committee on Financial Services titled Potential Mixed Messages: Is Guidance from Washington Implemented by Federal 

Bank Examiners? 112th Congress (2011). 

95 FDIC 1992 Annual Report and internal FDIC sources.
22

Resolution activity slowed quickly after that: from 1995 to 2007, there were on average only five resolutions per year, with the 

average total of assets of failed banks per year of $1.4 billion (in 2016 dollars); no failures occurred from July 2004 through 

January 2007. The more aggressive asset disposition philosophy resulted in only $1 billion (in 2016 dollars) in failed bank 

assets remaining to be liquidated as of year-end 2007. Although the problem bank list grew to 76 banks in 2007,96 it was still low 

by historical standards and there was no expectation of a looming, large-scale crisis. Therefore, while the FDIC continued to 

consider readiness to meet its resolution and receivership responsibilities in its planning, the FDIC increasingly focused on being 

a responsible steward of the DIF by controlling its operating expenses and reducing its budget to reflect the reduced workload.97

To reduce staff, the FDIC imposed a hiring freeze, stopped renewing temporary employment contracts, offered buyouts, and 

carried out layoffs. By year-end 2007, the FDIC had cut its resolution staff to 218, or only 3 percent of its 1992 staff level.

By reducing the number of employees to this level, there was a risk that the FDIC could be initially understaffed if a large 

number of institutions failed in a short time. But the FDIC accepted this risk since the probability of such an event appeared 

remote, the FDIC had external pressure to reduce its staffing levels based on its current workload,98 and the FDIC believed its 

staffing levels were sufficient to handle the most likely scenarios of increased resolution-related work. In addition, lowered 

staffing levels saved money in years with modest resolution activity levels and addressed concerns about keeping the 

resolution staff engaged. 

At the onset of the crisis, senior staff at the FDIC viewed structured asset sale transactions as the most effective vehicles 

for liquidating assets quickly when a large volume of assets was available for sale, because of the potential for a greater 

recovery. Structured transactions include securitizations and limited liability corporations (LLCs).99 Both of these sales 

methods, which had performed well in the first crisis, involve sharing risk with asset buyers. Therefore, senior management 

anticipated that securitizations and LLCs would be the key sales methods used for receivership assets during crisis periods; 

they viewed auctions, combined asset sale and management contracts,100 and loss share as useful options that would 

probably not be widely used during periods with high levels of activity. During the period between the two crises, the FDIC 

sold 39 percent of failed bank assets to acquirers at failure, and the remaining assets were usually sold quickly through 

auctions. The volume of assets sold was too small to merit the use of securitizations or LLCs.

Another strategy used during the first crisis that senior FDIC staff planned to use in the future was the bridge bank 

structure. Because the FDIC had found that the bridge bank structure effectively facilitated the resolution of larger failures, 

senior FDIC staff anticipated that bridge banks would continue to be a valuable tool for the FDIC and would be the preferred 

method for resolving the failure of larger and more complex insured depository institutions.101 

4.4 Evolution of Viewpoints During the 2008 to 2013 Crisis

Once again, the FDIC adapted its viewpoints and strategies during the 2008 to 2013 crisis. The changes in the FDIC’s 

general philosophy about asset disposition were relatively modest, especially given the extent of the depth of the crisis 

and its effects on the economy. 

96 FDIC, Quarterly Banking Profile (2007). Although this was an increase from 2006, it was less than one-tenth of the 1992 figure (863 institutions).

97 The 2006 FDIC Annual Report stated that “[T]he Corporation seeks to operate in a consistently efficient and cost-effective manner in order to fulfill its 

fiduciary responsibilities,” and “[T]he FDIC has had an extraordinary record of controlling its operating expenses over the past five years.” See also 

Bovenzi (2015), chapter 9.

98 See Bair (2007).

99 The LLC was co-owned by the FDIC and an outside investor, with accompanying agreements that described the responsibilities of both parties. The FDIC 

transferred troubled assets, usually nonperforming loans and other real estate owned (ORE), from its receiverships into the LLC. It retained partial ownership 

of the LLC and sold the remaining ownership to investors. The investors managed and sold the assets. The FDIC and the investor shared the funds recovered 

from the assets (net of expenses). See FDIC (1998), chapter 17 for a more detailed description. Example contracts can be found at https://www.fdic.gov/

buying/historical/structured/index.html.

100 During the first crisis, a third-party contractor often would be responsible for both servicing and liquidating a pool of retained assets. For additional 

information about asset sale and management contracts used during the first crisis, see FDIC (1998), chapter 14.

101 FDIC (1998), p. 186. See also Bair (2007) and Marino and Shibut (2006).
23

Early in the crisis, the market’s appetite for purchasing failed bank assets nosedived. During the first nine months of 

2008, the FDIC resolved 11 small and midsized institutions and the acquirers purchased only 8.5 percent of the assets.102

Buyer interest in failed bank assets retained in receiverships was similarly weak. In addition, the previously robust market 

for securitized assets evaporated. Consequently, the FDIC had to quickly reconsider its marketing strategies if it wanted to 

achieve its goals of selling assets promptly. Given market conditions, the losses associated with asset sales without risk 

sharing were exceedingly high. But the combination of the viewpoints expressed above, low staff levels, and rapidly increasing 

numbers of potential bank failures continued to support a strategy that would dispose of as many assets as possible at failure. 

Although opinions varied about the best strategy early in the crisis, it did not take long for the FDIC to shift to whole-bank 

P&As—with virtually all of the failed bank’s assets passing to the assuming institution—coupled with loss share coverage for 

the transferred loans and real estate assets, as its primary asset disposition strategy.103 

As the markets normalized, the pace of bank failures slowed, and staff levels increased, the FDIC gradually shifted to 

strategies it had viewed as optimal during the period between the first and second crisis. The FDIC began reducing the scope of 

loss share coverage it offered to bidders at resolution in 2011, and it executed its last loss share resolution in September 2013.

4.5 Information Technology Improvements and Bank Resolutions 

During the period between the two crises, the FDIC initiated several new computer systems that could be used for 

resolution activity. In 2005, the FDIC updated its general ledger. The new ledger is an enterprise-wide, integrated financial 

system that provides accounting, reporting, and management data to support the financial management needs of the FDIC. 

In 2007, the FDIC implemented a new franchise marketing and asset management tool called Communication, Capability, 

Challenge, and Control (4C), which replaced several outdated systems. The intent of 4C was to allow the FDIC to more 

efficiently market financial institution franchises, manage and sell the assets of failed institutions, and easily report on these 

activities.104 The FDIC also began development of a new insurance determination system called the Claims Administration 

System (CAS) in 2007.105 CAS was intended to determine the insurance status of depositors if a failure occurs, “minimize the 

potential for FDIC losses, reduce any spillover effects that could lead to systemic risks, [and] preserve franchise value.”106 CAS 

was also designed to manage receivership claims after resolution. It was implemented in 2010.

During the first crisis, the FDIC’s franchise marketing staff prepared confidential summaries for each potential failing bank. 

The summaries, called “information packages,” were 40 to 50 pages long and included a summary balance sheet, asset and 

liability schedules, limited organizational charts, income statements, deposit data, interest yield, cost data, and fee income. 

Preparation of each information package required five to ten specialists working on site for three to four weeks.

The information package was typically hand-delivered to potential bidders at a confidential bidders meeting held 

near the headquarters of the failing bank. Potential bidders would have to travel to that location if they wanted to learn 

details about the institution. The limited data available in the information package and the need to commit significant bank 

resources to even inquire about the attractiveness of the failed bank’s franchise and assets discouraged potential acquirers 

from participating in the review and bidding.

Beginning in 2000, improvements to technology allowed the FDIC to simplify and improve its collection and dissemination 

of critical failing bank data. Upon notice of a potential bank failure, FDIC staff downloaded detailed data on site and then 

loaded the data in a secure location at the FDIC for processing. Detailed data from the failing bank and summaries developed 

102 These figures exclude WaMu (with $300 billion in assets) and IndyMac (which failed in July 2008 but was not resolved until 2009).

103 See FDIC (2017), chapter 6.

104 2007 FDIC Annual Report. 

105 Ibid. 

106 2006 FDIC Annual Report. (“The FDIC is taking advantage of the hiatus in resolution activity by modernizing the way it determines the insurance status 

of depositors in the event of failure by streamlining its business processes and modernizing the internal systems used to facilitate a deposit insurance 

determination through improved use of current technology.”)
24

by FDIC staff were provided to prospective bidders and select FDIC staff through a secure web portal called a Virtual Data Room 

(VDR). VDRs are electronically accessed data depositories that provide qualified potential bidders that have executed a 

confidentiality agreement with access to financial data on the institution, legal documents, information on the due diligence 

process, bidding procedures, and descriptions of the resolution transactions being offered.107 This process provided several 

benefits: Prospective franchise bidders could receive substantially more data about potential failed banks, the data format 

was easier to use, and prospective bidders did not have to travel to learn details about the bank. Costs and risks associated 

with the bidding process dropped. In addition, increased availability of bank data allowed the FDIC to prepare more 

effectively for failure.

The FDIC instituted similar improvements to its process for selling assets held in its receiverships. In 2003, the FDIC 

adopted an online secure sales system for these assets that expanded the available information and reduced transaction 

costs for interested buyers. During the second crisis, the FDIC routinely posted up-to-date information about prospective asset 

sales on its public website. In addition, the FDIC enhanced its publication of information on closed transactions for franchise 

sales and receivership asset sales. 

5 Resolution Transactions and Results

In this section, we compare the resolution transactions used for each crisis, examine the speed of asset disposition and 

the resulting volume of assets held by the FDIC during each crisis, and review the FDIC’s risk retention and loss rates.

5.1 Resolution Approaches and Asset Disposition 

During the 1980 to 1994 crisis, the FDIC used several approaches to resolve failed banks.108 In a P&A agreement without 

loss share (P&A without LS), the assuming institution purchases assets and assumes certain liabilities, including deposits, with 

little or no recourse to the FDIC. In a P&A agreement with loss share (P&A with LS), the assuming institution purchases assets 

and assumes certain defined liabilities (primarily deposits and secured liabilities), with some assets covered by a loss share 

agreement. The acquiring bank assumed all domestic deposits for P&As prior to 1992; after 1992, they sometimes assumed 

only the insured deposits. In an insured deposit transfer (IDT), the assuming institution purchases certain assets and assumes 

only the insured deposits.109 In a payout (PO), there is no assuming institution and the insured deposits are paid directly to 

depositors. In a Deposit Insurance National Bank (DINB), there is likewise no assuming institution; the FDIC charters a bank to 

hold the insured deposits for a limited time to permit the depositors to access the deposit accounts, allowing for a less disruptive 

transfer of depositor funds. In both a PO and a DINB, the FDIC retains all failed bank assets. Finally, in an assistance agreement 

(AA), the FDIC contracts to provide financial assistance to facilitate a merger of the troubled bank with a healthy bank. Unlike the 

other transactions, the AA is a form of open bank assistance and the troubled bank is not placed into receivership as part of the 

transaction. Figure 9 shows the number of each of these resolution approaches used in the two crises.

107 FDIC Resolution Handbook (2014), p. 11.

108 For more information about the resolution options used by the FDIC, see FDIC (2014) or FDIC (1998), especially chapter 3.

109 The FDIC stopped using the IDT transaction after it introduced the P&A transaction, in which only insured deposits were assumed by the acquiring 

bank. In addition, for P&A transactions from 1992 forward, the FDIC would sometimes pay out brokered deposits directly rather than passing them to the 

acquiring bank. 
25

During the second crisis, the FDIC used a smaller set of resolution approaches: the P&A with LS, the P&A without LS, 

the PO, and the DINB. AAs and IDTs were not used. After FDICIA was passed, AAs were not permitted except under extremely 

limited circumstances. In 1992, the FDIC introduced a form of a P&A that passed only insured deposits to assuming 

institutions and abandoned the IDT transaction. The FDIC used loss share agreements much more often in the second crisis 

(304 receiverships, or 62 percent of non-systemic resolutions, compared with 24, or 1.5 percent, during the first crisis). There 

were 8 DINBs and 18 POs. 

There were arguably additional “failures” of FDIC-insured institutions during the first crisis where the FDIC did not render 

direct financial assistance. During that crisis, the FDIC had varying degrees of authority to permit certain forms of accounting 

or capital forbearance that might allow troubled banks to avoid failure if their problems were deemed temporary and bank 

management was sound. In total, 363 FDIC-insured institutions received forbearance under these programs, and 

77 (21.2 percent) subsequently failed. The remaining 286 institutions are excluded from the failure statistics reported 

elsewhere in this study.110

Figure 10 reports the value of failed bank assets that passed through each of the resolution approaches during the two 

crises. During both crises, banks resolved using loss share were, on average, larger than other failed banks. In the first crisis, 

banks resolved using assistance agreements were also larger on average. Payouts and DINBs were mainly used for smaller 

institutions in both crises.

110 See FDIC (1998), chapter 3, RTC (1989), and FDIC (1997), chapter 6.

Figure 9 

Number of Bank Failures





	


	


	



	



1980 to 1994 2008 to 2013

AA

DINB

IDT

P&A With Loss Share

P&A Without Loss Share

PO

136 1 (DINB)

176

24

1161

119 8

304

159

18

119

1161
26

The treatment of uninsured depositors and other unprotected creditors also changed over time. From 1980 to 1987, losses 

were imposed at 24 percent of resolutions. From 1988 to 1991—at the peak of the first crisis but before the least-cost test 

provisions of FDICIA had been implemented—this ratio dropped to 14 percent. FDICIA had a profound effect on the treatment 

of uninsured depositors, and from 1992 to 2007 losses were imposed on uninsured depositors at 65 percent of bank failures. 

In 2008, concerns about public confidence in deposits increased, the deposit insurance limit was increased from $100,000 to 

$250,000, and a temporary guarantee program for uninsured noninterest-bearing transaction accounts was introduced. As a 

result, losses were imposed on uninsured depositors at 28 percent of the failures in 2008 and at only 6 percent of failures from 

2009 to 2013.111

The usage of bridge banks also differed across crises. Although the authority to use bridge banks was only first granted 

in 1987, the FDIC used it for 115 banks during the first crisis, primarily for resolving large banking companies.112 In the second 

crisis, bridge banks were used for only three institutions, even though more of the banks were larger and failed more quickly.113

111 After the insurance limit was raised, and especially when the Transaction Account Guarantee Program (TAGP) was in place, the amount of uninsured 

deposits declined. The TAGP protected all noninterest-bearing transaction accounts at participating banks, even if the balances exceeded the insurance limit. 

The program was enacted in October 2008 and ended in December 2010. Section 343 of Dodd-Frank provided the same additional protection to participating 

banks from January 2011 through December 2012. Participation in TAGP was voluntary, but most banks participated. At some failed banks, losses that would 

have been imposed on uninsured depositors exceeded the cost of administering the deposit insurance limit. In that situation, resolution transactions where 

all deposits were assumed by the acquirer would be less costly to the FDIC than transactions where only insured deposits were assumed by the acquirer.

112 In many cases, multiple institutions within a bank holding company were closed simultaneously. Bridge bank authority was used for only ten banking 

companies. See FDIC (1998), p. 171. In seven of the ten instances in which the FDIC used this authority, the failure involved institutions with assets of more than 

$1 billion.

113 See FDIC (2017), pp. 196–197.

Figure 10 

Failed Bank Assets (Billions of 2016 Dollars)







	

 ­


­­­­ ­­



 

AA

DINB

IDT

P&A With Loss Share

P&A Without Loss Share

PO

5.8

348.0

56.8

11.9

108.8

0.9 (DINB)

19.4

67.9

286.5

8.9
27

Changes in the FDIC’s philosophy had a profound effect on the speed in which assets were sold from receiverships. 

Figures 11 and 12 provide information about the speed of asset liquidation over the first four years of the receiverships for the 

two crises.114 The first column (Assets at Resolution) reports the total asset balance when the banks were resolved. The second 

column (Assets after Resolution) reports the assets that remained after the acquirer’s purchase on the resolution date. Then, 

the balances are reported for each three-month period after the banks failed. From 1986 to 1994, the FDIC as receiver retained 

61 percent of the assets held by the failed banks after resolution.115 During the second crisis, the FDIC sought to sell as many 

assets as possible to the acquiring institution to keep assets in the private sector and in recognition of staffing and funding 

shortfalls, and only 19 percent of assets remained in receivership after resolution.

114 Figure 11 excludes failures from 1980 to 1985 (because the data are not available), and assistance agreements are omitted (because these were not 

receiverships). Figure 12 excludes WaMu and failures after year-end 2012. If WaMu had been included, the asset sales speed for the second crisis would 

have been faster. 

115 The acquirers purchased 39 percent of the assets. Data prior to 1986 are not available.

Figure 11 

Outstanding Asset Balance Over Life of Receivership (1986 to 1994)



Quarter Since Resolution At Resolution

Aer Resolution

400

350

300

250

200

150

100

50

0

Assets ($ Billions)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Figure 12 

Outstanding Asset Balance Over Life of Receivership (2008 to 2012)

Assets ($ Billions)

400

350

300

250

200

150

100

50

0





	


Quarter Since Resolution At Resolution

Aer Resolution

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
28

In addition to passing a greater portion of failed bank assets to the assuming institutions, the FDIC disposed of retained 

assets much more quickly during the second crisis than during the first crisis. From 1986 to 1994, the FDIC held approximately 

9 percent of failed bank assets 16 quarters following bank failure. At the same point during the second crisis, the FDIC held only 

3.7 percent of failed bank assets. 

The effects of the philosophical shift are also revealed by comparing cumulative assets of banks that were closed, 

receivership assets, and FDIC resolution division staff levels during each crisis (Figure 13). 

In the first crisis, receivership assets available for sale peaked in 1991 at $69.6 billion (in 2016 dollars), or 18 percent of 

assets placed into receivership during the crisis period. In the second crisis, receivership assets available for sale peaked in 

2009 at $46 billion, or 10.8 percent of total assets placed into receivership (excluding WaMu). Staff levels were much higher in 

the first crisis: resolution division staff peaked at 6,757 in 1992, dropped to a low of 219 in 2007, and then reached a maximum 

of 2,110 during the second crisis. 

Figure 13 





	






	



	
		
		


 



­
	
		

	




 	


		 




	
	
	 	

 2008 2010 2012

Cumulative Closed Bank Assets, Receivership Assets Available for Sale,

and FDIC Resolution Division Sta

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

6,000

4,000

2,000

0

100 Billions (2016 dollars) 10 Billions (2016 dollars) 

7

6

5

4

3

2

1

0

Cumulative Closed Bank Assets

Assets in Liquidation

1980 1982 1984 1986 1988 1990 1992 1994 

FDIC Resolution

Division Sta
29

5.2 Risk Sharing and Securitized Asset Resolution

Loss share agreements, securitizations, and structured transactions all involve the retention, or sharing, by the FDIC of 

the risk of loss related to assets sold.116 With a guarantee from the FDIC in its corporate capacity, asset purchasers under loss 

share agreements have the right to recover certain defined and covered shortfalls in the expected return on covered assets. 

Such recovery comes not from the limited (and declining) assets of the individual receiverships that held the assets before the 

sale or other transaction, but from the DIF. In other transactions, the FDIC also transferred assets but retained risk exposure, 

and sometimes rights of recovery, based on the future value of the assets.

The FDIC first used loss sharing on September 19, 1991. With the sale of the assets of the failed Southeast Bank, Miami, 

Florida, to First Union National Bank, the FDIC agreed to reimburse the assuming institution for 85 percent of the loss on 

certain assets, primarily commercial loans. During the first crisis, the FDIC entered into 16 loss sharing agreements to resolve 

24 banks. The loss share banks were, on average, relatively large: while loss share was used on only 1.5 percent of the banks 

that failed during that period, failed banks with loss share agreements held 14 percent of total failed bank assets. The FDIC 

found that its cost of resolution as a percentage of assets for failing banks holding $500 million or more in assets with loss 

share was 7.8 percent, compared with 12.2 percent for similarly sized banks closed without loss share. For failed banks with 

less than $500 million in assets, the difference in cost of resolution to assets was greater: 6.1 percent with loss share versus 

17.1 percent without loss share. The FDIC made loss share payments of slightly more than $1 billion, approximately 

74.3 percent of the amount it had originally forecast.117

The FDIC used loss share much more frequently in bank resolutions during the second crisis. Loss share agreements 

covering single-family loans, commercial loans, or both were part of 304 bank failures. Approximately 215 billion in failed bank 

assets was passed to 152 assuming institutions118 and covered by loss share agreements. As of December 31, 2018, the FDIC 

had paid $29.1 billion in claims (net of recoveries) to assuming institutions, with remaining net loss share payments estimated 

to be $566 million.

During the first crisis, the RTC conducted 72 securitizations to dispose of $42 billion in assets, but the FDIC engaged in 

only two securitization transactions.119 During the second crisis, the FDIC conducted seven loan securitizations, including 

performing residential and commercial transactions and nonperforming residential loan securitizations. To increase 

marketability, the FDIC in its corporate capacity guaranteed the senior bond classes of the performing loan securitizations. 

Under this asset disposition strategy, certain retained loans ($3 billion in all) from one or more failed banks were pooled and 

then sold into a trust structure, followed by the issuance of securities with varying characteristics of risk and return. Those 

assets with similar characteristics and payment histories would be combined into either performing or nonperforming 

securitizations. In addition to the loan securitizations, the FDIC re-securitized eight mortgage-backed securities, with 

$6.3 billion in interests held by failed banks in earlier mortgage-backed securities transactions repackaged and sold. 

As with securitizations, the RTC created many more private-public partnerships than did the FDIC to sell troubled assets 

during the first crisis. The RTC sold $21.4 billion in troubled assets through 72 structured transactions, but the FDIC created 

only two LLCs to sell $3.7 billion in troubled failed bank assets.120

From 2008 to 2013, the FDIC used 35 LLCs to sell $26.2 billion in failed bank assets. For 23 of the transactions, the LLC 

issued a note, guaranteed by the FDIC in its corporate capacity and payable to the FDIC, to cover a portion of the value of the 

116 Other types of risk sharing exist. Examples include stock warrants (or other ownership-sharing devices), seller financing, representations and warranties, 

and putbacks. The FDIC has made only limited use of these methods. For example, only narrowly defined representations and warranties were provided to 

buyers. For more information about these three methods, see FDIC (1998), chapters 7, 16, and 17, and FDIC (2017), chapter 6.

117 FDIC (1998), pp. 193–209.

118 Many acquirers purchased multiple failed banks.

119 See FDIC (1998), chapter 16.

120 See FDIC (1998), chapter 17.
30

assets transferred. Recoveries on the contributed assets went to pay expenses and repay the notes held by the FDIC, with no 

equity distribution until the note was paid. Three notes were sold to third parties, providing an immediate recovery to the FDIC. 

All of the FDIC notes have been paid in full.

Table 5 summarizes the risk-sharing programs for the two crises. 

The FDIC relied much more heavily on risk-sharing programs in the second crisis, especially loss share and structured 

transactions using LLCs. Loss share coverage was provided on 32 percent of failed bank assets during the second crisis but 

only 6 percent during the first crisis.121 Likewise, LLC usage increased from 1.2 percent during the first crisis to 3.8 percent 

during the second crisis.122 Risk-sharing sales methods were used four times as often during the second crisis (37 percent 

versus 8 percent); excluding WaMu, usage of risk-sharing sales methods increased eight-fold (66 percent versus 8 percent).

121 If WaMu is excluded, the FDIC’s usage of loss share for the second crisis increases to 56 percent.

122 If WaMu is excluded, the FDIC’s usage of structured sales/LLC for the second crisis increases to 6.9 percent.

Table 5

Summary of Asset Sales with Risk Sharing 

(Dollars in Billions)

1980 to 1994 Crisis 2008 to 2013 Crisis

Amount % Total Amount % Total % Total excl 

WaMu

Loss Share

Number of Banks 24 1.5 304 62.2 62.3

Assets with Loss Share Coverage $18.5 6.2 $214.9 31.6 56.4

Total Assets $41.4 13.9 $314.0 46.2 82.4

Loan Securitizations

Number of Deals 2 8 

Assets Sold $1.5 0.5 $3.0 0.4 0.8

Resecuritizations of MBS

Number of Resecuritizations 0 8 

Assets Sold $0 0.0 $6.3 0.9 1.7

Joint Ventures (LLCs)

Number of Deals 2 35 

Assets Sold $3.7 1.2 $26.2 3.8 6.9

Total Assets Sold with Risk Sharing $23.7 8.0 $250.0 36.8 65.7

Source: FDIC.

Note: The 1980 to 1994 crisis excludes activity from the Resolution Trust Corporation (RTC). The RTC relied heavily on securitizations and 

joint ventures for loan sales; it sold $42 billion in loans through 72 loan securitization deals and $21.4 billion in troubled assets in 

72 joint ventures. "Total Assets Sold" in the 2008 to 2013 crisis includes an adjustment for a situation in which a loan was sold, repurchased, 

and resold again. The sale and resale of loans to Franklin Venture are both included in "Assets Sold" under the Securitizations and 

LLC sections of this table, but the resale has been excluded from the total amount of assets sold. WaMu is Washington Mutual, MBS is 

mortgage-backed securities, and LLC is Limited Liability Corporation.
31

5.3 Comparison of Loss Rates

A comprehensive analysis of the overall loss rate on failed banks between the crises presents difficulties.123 Many more 

bank failures occurred in the first crisis than in the second crisis. The first crisis was much longer than the second crisis. 

Significant legislative changes altered the FDIC’s resolution toolbox and restrictions as well as its supervisory practices. The 

FDIC changed its resolution philosophy repeatedly over this time period. The first crisis passed through regional phases, while 

the second crisis was national in scope amid a broader and deeper recession. Table 6 presents loss rates for the two crises.

With these differences noted, the overall loss rates for the crises were remarkably similar: 12.7 percent for all bank 

failures during the first crisis and 10.4 percent for the second crisis. However, if WaMu is excluded, then the second crisis had a 

significantly higher loss rate (18.8 percent). The loss rate on assets covered by loss share is noteworthy: for the limited number 

of banks where loss share was used during the first crisis, the loss rate was 5.5 percent, while the loss rate on a much larger 

share of failures during the second crisis was 17.8 percent. 

The overall loss rate on assets passing through a P&A without loss share during the second crisis was only 3.2 percent, 

compared with 14.4 percent for the first crisis. However, if WaMu is excluded from the second crisis, the loss rate for the second 

crisis period jumps to 22.3 percent. It is noteworthy that the loss rate (excluding WaMu) was higher in the second crisis than in 

the first, even though most of the P&A without loss share transactions occurred as the second crisis waned, when the markets 

were less fragile and had a greater appetite for failed bank assets and fewer concerns about the real value of those assets. 

The loss rates for bank assets passing through POs and DINBs were similar for both crises. Because almost all banks 

resolved using POs and DINBs lack franchise value or interested bidders, it is not surprising that their loss rates usually 

exceeded those of other resolution strategies. Many of these institutions were small (and lack the benefits of economies of 

scale) and in economically depressed areas.

123 Throughout this section, the loss rate is calculated as the FDIC’s costs of resolution divided by total assets. 

Table 6

Loss Rates for Each Crisis*

   Program Wide ** Mean Median

1980 to 1994 Crisis

 Assistance Agreements 8.3% 7.9% 3.3%

P&A With Loss Share 5.5% 8.7% 7.5%

P&A Without Loss Share 14.4% 21.2% 19.8%

IDT 28.0% 26.7% 26.1%

Payout/DINB 26.2% 25.1% 25.2%

Total 12.7% 20.8% 19.5%

2008 to 2013 Crisis

P&A With Loss Share 17.8% 22.0% 21.3%

P&A Without Loss Share 3.2% 28.2% 26.5%

Payout/DINB 27.1% 32.7% 34.5%

Total 10.4% 24.6% 23.6%

Total Excluding Washington Mutual 18.8% 24.6% 23.6%

* Losses are calculated as the FDIC loss estimate as of year-end 2018 divided by total assets as of the quarter prior to resolution.

** Mean losses, weighted by assets as of the quarter prior to resolution.

Source: FDIC.

Note: P&A is Purchase and Assumption, IDT is Insured Deposit Transfer, and DINB is Deposit Insurance National Bank.
32

6 Conclusion

This study has compared certain aspects of the 1980 to 1994 crisis with the 2008 to 2013 crisis, and discussed key 

differences in the characteristics of the banks that the FDIC resolved and the FDIC’s response in meeting its obligations. 

There were substantive differences in numerous areas. These differences between the crises were shaped by forces and 

trends in banking and finance, changes in the statutory environment and the associated tools available to the FDIC, the 

FDIC’s viewpoints about its resolution strategy options, and the FDIC’s operational capacity. The comparison reveals that 

crises can vary markedly, and that the availability of a wide variety of resolution tools—combined with the operational 

capacity to wield those tools given evolving circumstances—benefited the FDIC. It also demonstrates how resolution 

philosophies have a strong influence on results. Finally, it shows that the banking industry continues to evolve, and that 

the FDIC’s decisions about any future resolution strategies are also likely to evolve as the agency adapts to changes in its 

environment and circumstances. 
33

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