FDIC Quarterly

Foreword by FDIC Chairman 

Sheila C. Bair

Quarterly Banking Profile: 

First Quarter 2011

“We Must Resolve to End 

Too Big to Fail” – remarks by 

FDIC Chairman Sheila C. Bair

The Orderly Liquidation of 

Lehman Brothers Holdings Inc. 

under the Dodd-Frank Act

2011, Volume 5, Number 2
Chairman Sheila C. Bair

Director, Division of Insurance Arthur J. Murton

 and Research

Executive Editors Rae-Ann Miller

Maureen E. Sweeney

Managing Editors Richard A. Brown

Diane L. Ellis

Paul H. Kupiec

Christopher J. Newbury

Editor Kathy Zeidler

Publication Manager Lynne Montgomery

Media Inquiries (202) 898-6993

The FDIC Quarterly is published by the Division of Insurance and Research of the Federal Deposit 

Insurance Corporation and contains a comprehensive summary of the most current financial results 

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FDIC-insured institutions to research on issues affecting the banking system and the development of 

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2011, Volume 5, Number 2

FDIC Quarterly

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

Corporation. Some of the information used in the preparation of this publication was obtained from publicly available sources 

that are considered reliable. However, the use of this information does not constitute an endorsement of its accuracy by the 

Federal Deposit Insurance Corporation. Articles may be reprinted or abstracted if the publication and author(s) are credited. 

Please provide the FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material.

Foreword by FDIC Chairman Sheila C. Bair See page iii.

Quarterly Banking Profile: First Quarter 2011

FDIC-insured institutions reported an aggregate profit of $29 billion in the first quarter of 2011, an $11.6 

billion improvement (66.5 percent) from the $17.4 billion in net income the industry reported in the first 

quarter of 2010. This is the seventh consecutive quarter that earnings registered a year-over-year increase. 

More than half of all institutions (56.2 percent) reported improved earnings. For the sixth consecutive quarter, 

reduced provisions for loan losses drove the improvement in earnings. See page 1.

Insurance Fund Indicators

Estimated insured deposits (based on $250,000 coverage) increased by 1.4 percent during the first quarter 

of 2011. The Deposit Insurance Fund reserve ratio was -0.02 percent on March 31, 2011, up from -0.12 

percent on December 31, 2010, and the -0.39 percent low point reached at the end of 2009. Twenty-six 

FDIC-insured institutions failed during the quarter. See page 14.

“We Must Resolve to End Too Big to Fail”

Remarks by FDIC Chairman Sheila C. Bair on May 5, 2011, before the 47th Annual Conference on Bank 

Structure and Competition sponsored by the Federal Reserve Bank of Chicago. See page 25.

The Orderly Liquidation of Lehman Brothers Holdings Inc. 

under the Dodd-Frank Act

On September 15, 2008, Lehman Brothers Holdings Inc. (Lehman) filed for bankruptcy. The disorderly 

and costly nature of the bankruptcy—the largest, and still ongoing, financial bankruptcy in U.S. history—

contributed to the massive financial disruption of late 2008. In this article FDIC staff examine how the government could have structured a resolution of Lehman under the orderly liquidation authority of Title II of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and how the outcome could have 

differed from the outcome under bankruptcy. See page 31.

For many years, the FDIC Quarterly and its predecessor publications have been important vehicles for the FDIC to communicate with bankers, analysts and the public about 

emerging risks and timely policy issues in banking. As I prepare to conclude my term as 

FDIC Chairman, it is fitting that this issue of the FDIC Quarterly focuses on the single 

most critical policy challenge of the post-crisis period–implementing the tools provided 

in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act for resolving 

large, systemically important financial institutions without resorting to bailouts.

The events of late 2008 were among the most momentous in the nation’s financial 

history. The central policy dilemma of that period was how to respond to the serious 

financial difficulties of large, complex bank holding companies and non-bank financial 

companies. The inadequacy of our regulatory and resolution powers in place at the time left policymakers with 

the unenviable choice of either bailing these companies out or risking a dramatic escalation of the financial 

crisis. In the heat of the crisis, policymakers at times resorted to providing government assistance instead of 

letting these firms collapse into bankruptcy, because they feared that the losses generated in a failure would 

cascade through the financial system. The notable exception, when Lehman Brothers Holdings Inc. filed for 

bankruptcy on September 15, 2008, was an event that has been widely cited as triggering the most critical stage 

of the crisis.

The various forms of emergency government assistance that were provided to financial institutions in the fall of 

2008 succeeded in limiting the immediate economic damage associated with the crisis. However, an unavoidable consequence of these bailouts was to solidify the pre-existing expectation of the marketplace that certain 

large financial companies were Too Big to Fail.

We now recognize that the gradual erosion of market discipline among large, complex financial companies was 

one of the primary factors that led to the financial crisis. With the expectation of a government backstop, these 

companies were insulated from the normal discipline of the marketplace, resulting in more concentration and 

complexity in the financial system, more risk-taking at the expense of the public, and a distinct competitive 

advantage for large, complex companies over other financial providers.

The two articles that accompany the Quarterly Banking Profile in this issue focus on the importance of implementing new tools provided by the Dodd-Frank Act to ensure that systemically important financial institutions, or 

SIFIs, can be resolved without bailouts. Titles I and II of Dodd-Frank establish the regulatory authority to designate firms as SIFIs, thereby subjecting them to heightened supervision and higher capital requirements as well as 

the need to maintain detailed resolution plans that show how they can be unwound in the event of failure. 

Importantly, Title II also establishes an Orderly Liquidation Authority which gives the FDIC receivership-like 

powers to resolve a SIFI if necessary. The two accompanying articles explain in more detail how these authorities 

will work, and use the example of the Lehman failure to illustrate their advantages in bringing about an orderly 

resolution without a bailout and at a significantly lower cost than was realized in Lehman’s 2008 bankruptcy.

While important progress has been made, much work remains to achieve the full potential of the Dodd-Frank 

resolutions framework. As the elements of Titles I and II are implemented, regulators will need to stand firm in 

their commitment to a process that both gives them the information they need to evaluate how a SIFI could be 

resolved and that insists on resolution plans that are credible and actionable guides to the orderly resolution of 

each firm in a crisis. Despite the challenges, the successful completion of this work will be essential to putting 

our financial system on a sounder and more stable footing in the years ahead.

Sheila C. Bair

Chairman

Federal Deposit Insurance Corporation

iii

Foreword by FDIC Chairman Sheila C. Bair

FDIC Quarterly 1 2011, Volume 5, No. 2

Quarterly Banking Profile First Quarter 2011

Profits Rise for Seventh Consecutive Quarter

Bank earnings continued to benefit from falling loan-loss 

provisions in first quarter 2011 as FDIC-insured commercial banks and savings institutions posted their highest 

quarterly net income since the onset of the financial 

crisis. Net income totaled $29.0 billion, an $11.6 billion 

(66.5 percent) increase from first quarter 2010, and the 

best quarterly result since second quarter 2007. This is 

the seventh consecutive quarter that industry earnings 

have registered year-over-year gains. More than half of 

all institutions (56.2 percent) reported improved earnings, and fewer institutions were unprofitable (15.4 

percent, compared to 19.3 percent in first quarter 2010).

Loss Provisions Are Less than Half the Level 

of a Year Ago

Provisions for loan losses fell to $20.7 billion in the first 

quarter from $51.6 billion a year earlier. This marks the 

sixth quarter in a row that loss provisions have had a 

year-over-year decline. It is the smallest quarterly loss 

provision for the industry since third quarter 2007. The 

largest reductions in provisions occurred at credit card 

lenders that made sizable additions to their loan-loss 

reserves a year ago, but almost half of all institutions 

(48.9 percent) reported lower provisions. Fewer than a 

third (32.6 percent) increased their provisions from 

year-earlier levels.

Revenues Exhibit Weakness

The positive contribution from reduced provisions 

outweighed the negative effect of lower revenues at 

many institutions. Net operating revenue (net interest 

income plus total noninterest income) was $5.5 billion 

(3.2 percent) lower than a year ago. This is only the 

second time in the 27 years for which data are available 

that the industry has reported a year-over-year decline 

in quarterly net operating revenue.

■ Net Income Rises to $29 Billion

■ Lower Loan-Loss Provisions Remain Key to Higher Earnings

■ Revenues Post Year-over-Year Decline

■ Asset Quality Indicators Continue to Exhibit Improvement

■ Loan Balances Fall by $126.6 Billion

INSURED INSTITUTION PERFORMANCE

Quarterly Earnings Improved Year-over-Year

for a Seventh Consecutive Quarter

-40

-30

-20

-10

0

10

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60

123412341234123412341

36.9 38.0 38.035.3 35.6 36.8

28.7

0.5

19.3

4.8 0.9

-37.8

-6.1

-12.6

2006 2007 2008 2009

2.2

-1.7

2010

17.4

20.9 23.8 22.1

29.0

2011

Billions of Dollars

Securities and Other Gains/Losses, Net

Net Operating Income

Chart 1 Chart 2

Provisions Continue to Decline, but Revenues

 Are Not Growing

0

20

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123412341234123412341234 1

Billions of Dollars

2005 2006 2007 2008 2009 2010 2011 

* Net operating revenue = net interest income + noninterest income

Quarterly Net Operating Revenue*

Quarterly Loan-Loss

Provisions
FDIC Quarterly 2 2011, Volume 5, No. 2

Chart 4

The Levels of Troubled Loans and Loan Losses

Remain High

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011

Noncurrent Loan Rate

Quarterly Net Charge-off Rate

Percent

Decline in Revenues Is Concentrated Among 

Large Institutions

Net interest income declined year-over-year for the first 

time since fourth quarter 1989, falling by $3.2 billion (3 

percent), while noninterest income was $2.2 billion 

(3.7 percent) lower than in first quarter 2010. The 

reduction in net interest income was caused by 

narrower net interest margins and weak growth in interest-earning assets. The decline in noninterest income 

reflected lower revenues from service charges on deposit 

accounts (down $1.7 billion, or 17.3 percent at institutions filing Call Reports) and reduced trading income 

(down $1 billion, or 11.7 percent). Much of the reduction in net operating revenue was concentrated at 

larger institutions; more than half of all institutions 

(59.5 percent) reported year-over-year increases in net 

operating revenue, with 57.6 percent reporting higher 

net interest income and 52.1 percent reporting 

increased noninterest income. However, of the ten largest institutions, which together hold more than half of 

all insured institution assets, six reported year-over-year 

declines in net operating revenue, six had declines in 

noninterest income and eight reported lower net interest income.

Loan Losses Improve Across All Main Loan 

Categories

Net loan charge-offs (NCOs) declined for a third 

consecutive quarter. Insured institutions charged-off 

$33.3 billion in the first quarter, a $19.9 billion (37.5 

percent) decline from first quarter 2010. Almost half of 

all institutions (48.9 percent) reported lower NCOs, 

while 41.5 percent reported increases. NCOs were 

lower in all major loan categories. The largest reduction 

occurred in credit cards, where NCOs fell by $7.3 

billion (39.1 percent). Real estate construction loan 

NCOs were $3 billion (51.5 percent) lower than in first 

quarter 2010, while charge-offs of closed-end 1-4 family 

residential mortgages fell by $2.6 billion (29.6 percent). 

Commercial and industrial (C&I) loan NCOs also 

declined by $2.6 billion (43.1 percent).

Noncurrent Loan Balances Fall for a Fourth 

Consecutive Quarter

Noncurrent loan balances (loans 90 days or more past 

due or in nonaccrual status) fell by $17 billion (4.7 

percent) during the quarter. At the end of March, 

insured institutions reported $341.7 billion in noncurrent loans and leases, down from $358.7 billion at the 

end of 2010. This is the fourth consecutive quarter that 

noncurrent loans have declined, and they are now 

$68.2 billion (16.6 percent) below the peak level 

reached a year ago. Half of all institutions (50.3 

percent) reported reductions in their noncurrent loan 

balances, while 43.1 percent reported increases. 

Noncurrent balances declined in all major loan categories. Noncurrent C&I loans declined by $6.1 billion 

(21.1 percent), noncurrent construction and development loans fell by $4.3 billion (8.3 percent), and 

noncurrent closed-end 1-4 family residential mortgages 

declined by $2.8 billion (1.6 percent). The average 

noncurrent loan rate at the end of the quarter was 4.71 

percent, the lowest level since second quarter 2009.

Chart 3

Lower Asset Yields Are Putting Downward Pressure

on Net Interest Margins

2.0

2.5

3.0

3.5

4.0

4.5

12341234123412341234 1

Assets < $1 Billion

Assets $1 Billion - $10 Billion

Assets $10 Billion - $100 Billion

Assets > $100 Billion

2006 2007 2008 2009 2010 2011

Quarterly Net Interest Margin

(Percent)
FDIC Quarterly 3 2011, Volume 5, No. 2

Quarterly Banking Profile

Asset Growth Occurs Outside Loan Portfolios

Total assets of insured institutions increased by $94.7 

billion (0.7 percent) during the quarter. Balances with 

Federal Reserve banks increased by $116.3 billion (23.5 

percent) at Call Report filers with $300 million or more 

in total assets. Mortgage-backed securities holdings rose 

by $34.5 billion (2.3 percent). Total loan and lease 

balances continued to fall, declining by $126.6 billion 

(1.7 percent). This is the fifth-largest quarterly percentage decline in loan balances in the 28 years for which 

data are available, and it marks the tenth time in the 

last eleven quarters that reported loan balances have 

fallen (the one exception was caused by the implementation of FASB 166 and 167, which resulted in the 

consolidation of as much as $400 billion in securitized 

loans onto banks’ balance sheets in first quarter 2010). 

The largest declines in loan balances were in 1-4 family 

residential mortgages, which fell by $63.8 billion (3.4 

percent), credit cards (down $38.9 billion, or 5.5 

percent), and in real estate construction and development loans, which declined by $25.9 billion (8.1 

percent). Balances fell in most major loan categories, 

with the exception of C&I loans, which increased by 

$18.1 billion (1.5 percent) and loans to depository 

institutions, which rose by $10.2 billion (9.3 percent). 

Almost half of the growth in C&I loans (47 percent) 

represented loans to non-U.S. borrowers, while 86.2 

percent of the increase in loans to depository institutions consisted of loans to foreign banks. At the end of 

March, net loans and leases represented 52.4 percent of 

insured institutions’ assets, the lowest share since the 

early 1970s.

Most Large Banks Reduce Their Reserves

Net charge-offs exceeded loss provisions by $12.6 

billion in the first quarter, contributing to a $13 billion 

(5.6 percent) drop in the industry’s loan-loss reserves. 

This is the fourth consecutive quarter that aggregate 

reserves have declined; they are now $44.9 billion (17.1 

percent) below the peak level of a year ago. The decline 

in reserves was concentrated among the largest banks. 

Sixteen of the 19 institutions with assets greater than 

$100 billion reduced their reserves in the first quarter, 

and almost two-thirds of institutions with assets 

between $10 billion and $100 billion (63.2 percent) 

also reported reserve declines. Some of the largest 

reductions in reserves occurred at credit card lenders. In 

contrast to the trend at large banks, most institutions 

with less than $1 billion in assets (60.1 percent) 

increased their reserves during the quarter.

Capital Levels Improve

Additions to capital in the first quarter surpassed the 

decline in reserves. Bank equity capital increased by 

$25.1 billion (1.7 percent), as retained earnings contributed $13.9 billion. Total risk-based capital increased by 

$17.8 billion (1.3 percent). Tier 1 leverage capital 

increased by $25.8 billion (2.2 percent), but tier 2 capital fell by $7.9 billion (3.4 percent), reflecting lower 

loan-loss reserves. At the end of the quarter, 96 percent 

of all institutions, representing over 99 percent of total 

industry assets, met or exceeded the highest regulatory 

capital requirements as defined for Prompt Corrective 

Action (PCA) purposes. Industry averages for all three 

regulatory capital ratios rose to all-time high levels, 

driven by improvements at the largest institutions.

Chart 5

Banks Are Continuing to Raise Their Capital Levels

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123412341234123412341234 1

Percent

Total Risk-Based Capital Ratio

Tier 1 Risk-Based Capital Ratio

Equity to Assets Ratio

Core Capital (Leverage) Ratio

2005 2006 2007 2008 2009 2010 2011

Chart 6

Loan Balances Continue to Decline

43.4

188.9

237.3

202.6

61.4

28.1

-6.3

-116.2

-139.6

-108.6

-210.3

-133.2 -106.9

-6.6 -13.9

-126.6

220.9*

-250

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-50

0

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1234123412341234 1

2007 2008 2009 2010 2011

Quarterly Change in Reported Total Loans Outstanding

(Billions of Dollars)

* FASB Statements 166 and 167 resulted in the consolidation of large amounts of securitized 

loan balances back onto banks’ balance sheets in the first quarter of 2010. Although the total 

amount consolidated cannot be precisely quantified, the industry would have reported a decline 

in loan balances for the quarter absent this change in accounting standards. 
FDIC Quarterly 4 2011, Volume 5, No. 2

The Pace of Bank Failures Slows

The number of insured commercial banks and savings 

institutions reporting financial results declined from 

7,658 to 7,574 in the first quarter. One new reporting 

institution was added during the quarter, while 56 institutions were absorbed by mergers and 26 institutions 

failed. One report had not been received at the time 

these data were prepared. The number of institutions on 

the FDIC’s “Problem List” increased from 884 to 888 

during the quarter. Assets of “problem” institutions 

increased from $390 billion to $397 billion. Insured 

institutions reported 2.09 million full-time equivalent 

employees in the first quarter, an increase of 65,632 

(3.2 percent) from first quarter 2010.

Author: Ross Waldrop, Sr. Banking Analyst

Division of Insurance and Research

(202) 898-3951

Deposit Growth Remains Strong

Deposits at FDIC-insured institutions increased by 

$178.8 billion (1.9 percent), as deposits in foreign 

offices rose by $61.4 billion (4 percent), and domestic 

office deposits grew by $117.4 billion (1.5 percent). 

Noninterest-bearing deposits in domestic offices 

increased by $58.3 billion (3.5 percent), while interestbearing deposits were up by $59.1 billion (1 percent). 

Nondeposit liabilities fell by $101.1 billion (4.2 

percent), with Fed funds purchased declining by $44.6 

billion (37.5 percent), and FHLB advances falling by 

$28.6 billion (7.4 percent).

Chart 7

Banks Have Reduced Credit Risk and

Increased Liquidity

$20 $29

$176

$518 $488

$388

$531

$573 $596

$547

$498 $494

$611

0

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2008 2009 2010 2011

*Reported by insured Call Reporters with assets greater than $300 million.

Balances at Federal Reserve Banks*

(Billions of Dollars)

Chart 8

The Number of “Problem” Institutions Has Leveled Off

48 50 47 50 53 61 65 76 90 117

171

252

305

416

552

702

775

829860884888

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123412341234123412341

2006 2007 2008 2009 2010 2011

Number of FDIC-Insured “Problem” Institutions
FDIC Quarterly 5 2011, Volume 5, No. 2

Quarterly Banking Profile

TABLE I-A. Selected Indicators, All FDIC-Insured Institutions* 2011** 2010** 2010 2009 2008 2007 2006

Return on assets (%)������������������������������������������������������������������������������������������������������ 0.87 0.53 0.65 -0.07 0.03 0.

Return on equity (%)������������������������������������������������������������������������������������������������������� 7.75 4.87 5.90 -0.71 0.35 7.7

Core capital (leverage) ratio (%) ������������������������������������������������������������������������������������ 9.14 8.54 8.89 8.60 7.47 7.

Noncurrent assets plus other real estate owned to assets (%) ������������������������������������ 2.95 3.44 3.11 3.36 1.91 0.

Net charge-offs to loans (%) ������������������������������������������������������������������������������������������ 1.82 2.88 2.55 2.52 1.29 0.

Asset growth rate (%) ����������������������������������������������������������������������������������������������������� 0.59 -1.40 1.78 -5.45 6.19 9.

Net interest margin (%)��������������������������������������������������������������������������������������������������� 3.66 3.84 3.76 3.49 3.16 3.

Net operating income growth (%)����������������������������������������������������������������������������������� 78.81 352.07 1653.91 -154.33 -90.71 -27.

Number of institutions reporting������������������������������������������������������������������������������������� 7,574 7,934 7,658 8,012 8,305 8,534 8,680

Commercial banks��������������������������������������������������������������������������������������������������� 6,453 6,773 6,530 6,840 7,087 7,284 7,401

Savings institutions ������������������������������������������������������������������������������������������������� 1,121 1,161 1,128 1,172 1,218 1,250 1,279

Percentage of unprofitable institutions (%)�������������������������������������������������������������������� 15.36 19.31 21.81 30.8 24.89 12.

Number of problem institutions �������������������������������������������������������������������������������������� 888 775 884 702 252 76 50

Assets of problem institutions (in billions) ��������������������������������������������������������������������� $397 $431 $390 $403 $159 $22 $8

Number of failed institutions������������������������������������������������������������������������������������������� 26 41 157 140 25 3 0

Number of assisted institutions�������������������������������������������������������������������������������������� 0 0 0 8 5 0 0

* Excludes insured branches of foreign banks (IBAs)

** Through March 31, ratios annualized where appropriate. Asset growth rates are for 12 months ending March 3

TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions

(dollar figures in millions) 1st Quarter

2011

4th Quarter

2010

1st Quarter

2010

%Change 

10Q1-11Q1

Number of institutions reporting������������������������������������������������������������������������������������� 7,574 7,658 7,934 -4.

Total employees (full-time equivalent)��������������������������������������������������������������������������� 2,092,877 2,086,582 2,027,245 3.

CONDITION DATA

Total assets��������������������������������������������������������������������������������������������������������������������� $13,414,655 $13,319,971 $13,336,249 0.

Loans secured by real estate���������������������������������������������������������������������������������� 4,158,538 4,266,518 4,401,820 -5.

 1-4 family residential mortgages ��������������������������������������������������������������������� 1,833,798 1,897,610 1,887,145 -2.

 Nonfarm nonresidential������������������������������������������������������������������������������������ 1,064,489 1,070,659 1,091,364 -2.

 Construction and development 295,511 321,438 418,028 -29.

 Home equity lines��������������������������������������������������������������������������������������������� 623,994 636,903 659,712 -5.

Commercial & industrial loans �������������������������������������������������������������������������������� 1,204,518 1,186,467 1,176,799 2.

Loans to individuals������������������������������������������������������������������������������������������������� 1,275,196 1,317,602 1,366,177 -6.

 Credit cards ������������������������������������������������������������������������������������������������������ 663,194 702,058 712,776 -7.

Farm loans��������������������������������������������������������������������������������������������������������������� 55,025 59,329 55,740 -1.

Other loans & leases����������������������������������������������������������������������������������������������� 557,462 547,841 504,892 10.

Less: Unearned income ������������������������������������������������������������������������������������������ 1,995 2,441 2,711 -26.

Total loans & leases ������������������������������������������������������������������������������������������������ 7,248,745 7,375,316 7,502,717 -3.

Less: Reserve for losses����������������������������������������������������������������������������������������� 218,158 231,154 263,105 -17.

Net loans and leases����������������������������������������������������������������������������������������������� 7,030,587 7,144,163 7,239,612 -2.

Securities����������������������������������������������������������������������������������������������������������������� 2,723,194 2,667,711 2,531,621 7.

Other real estate owned������������������������������������������������������������������������������������������ 52,376 52,676 46,306 13.

Goodwill and other intangibles ������������������������������������������������������������������������������� 394,475 393,750 404,591 -2.

All other assets�������������������������������������������������������������������������������������������������������� 3,214,024 3,061,671 3,114,118 3.

Total liabilities and capital ���������������������������������������������������������������������������������������������� 13,414,655 13,319,971 13,336,249 0.

Deposits������������������������������������������������������������������������������������������������������������������� 9,601,757 9,422,958 9,198,799 4.

 Domestic office deposits���������������������������������������������������������������������������������� 7,990,506 7,873,135 7,692,355 3.

 Foreign office deposits������������������������������������������������������������������������������������� 1,611,252 1,549,823 1,506,444 7.

Other borrowed funds ��������������������������������������������������������������������������������������������� 1,629,745 1,718,333 2,052,564 -20.

Subordinated debt��������������������������������������������������������������������������������������������������� 139,860 146,833 150,540 -7.

All other liabilities ���������������������������������������������������������������������������������������������������� 514,006 519,548 475,259 8.

Total equity capital (includes minority interests)���������������������������������������������������� 1,529,286 1,512,298 1,459,088 4.

 Bank equity capital������������������������������������������������������������������������������������������� 1,510,503 1,485,442 1,439,423 4.

Loans and leases 30-89 days past due������������������������������������������������������������������������� 110,513 118,390 144,461 -23.

Noncurrent loans and leases ����������������������������������������������������������������������������������������� 341,697 358,719 409,871 -16.

Restructured loans and leases �������������������������������������������������������������������������������������� 110,107 87,487 64,426 70.

Mortgage-backed securities ������������������������������������������������������������������������������������������ 1,519,194 1,484,703 1,387,008 9.

Earning assets���������������������������������������������������������������������������������������������������������������� 11,643,457 11,555,391 11,554,212 0.

FHLB Advances�������������������������������������������������������������������������������������������������������������� 357,952 386,504 480,359 -25.

Unused loan commitments��������������������������������������������������������������������������������������������� 5,779,802 5,658,421 6,102,602 -5.

Trust assets��������������������������������������������������������������������������������������������������������������������� 19,980,826 19,341,650 18,115,247 10.

Assets securitized and sold***��������������������������������������������������������������������������������������� 976,910 967,307 996,881 -2.

Notional amount of derivatives***���������������������������������������������������������������������������������� 246,083,864 232,210,712 218,807,591 12.

INCOME DATA

Full Year 

2010

Full Year

 2009 %Change

1st Quarter 

2011

1st Quarter 

2010

%Change 

10Q1-11Q1

Total interest income ������������������������������������������������������������������� $536,917 $541,170 -0.8 $129,438 $138,521 -6

Total interest expense ����������������������������������������������������������������� 106,882 143,509 -25.5 23,238 29,091 -20

Net interest income �������������������������������������������������������������� 430,035 397,661 8.1 106,200 109,429 -3

Provision for loan and lease losses �������������������������������������������� 157,579 249,598 -36.9 20,700 51,560 -59

Total noninterest income ������������������������������������������������������������� 236,715 260,635 -9.2 58,623 60,866 -3

Total noninterest expense ����������������������������������������������������������� 392,694 406,114 -3.3 102,228 95,339 7

Securities gains (losses)������������������������������������������������������������� 9,116 -1,629 N/M -124 1,592 N/M

Applicable income taxes ������������������������������������������������������������� 38,283 6,164 521.1 12,714 7,436 71

Extraordinary gains, net�������������������������������������������������������������� -450 -3,787 88.1 106 58 83

Total net income (includes minority interests)��������������������� 86,860 -8,994 N/M 29,163 17,611 65.

 Bank net income������������������������������������������������������������ 86,206 -9,795 N/M 29,003 17,418 66.

Net charge-offs���������������������������������������������������������������������������� 187,504 188,824 -0.7 33,305 53,252 -37

Cash dividends ���������������������������������������������������������������������������� 53,895 47,189 14.2 15,101 4,374 245

Retained earnings ����������������������������������������������������������������������� 32,311 -56,984 N/M 13,902 13,044 6.

Net operating income����������������������������������������������������������� 80,280 -5,166 N/M 29,237 16,351 78.

*** Call Report filers only. N/M - Not Meaningf
FDIC Quarterly 6 2011, Volume 5, No. 2

TABLE III-A. First Quarter 2011, All FDIC-Insured Institutions

Asset Concentration Groups*

First Qu

(The way it is...)

All Insured 

Institutions

Credit 

Card 

Banks

International 

Banks

Agricultural 

Banks

Commercial 

Lenders

Mortgage 

Lenders

Consumer 

Lenders

Other 

Specialized

<$1 Billion

All Other 

<$1 Billion

All Other 

>$1 Billion

Number of institutions reporting����������������������� 7,574 21 4 1,531 3,983 700 72 355 844 64

Commercial banks������������������������������������� 6,453 17 4 1,527 3,553 168 55 327 750 52

Savings institutions ����������������������������������� 1,121 4 0 4 430 532 17 28 94 12

Total assets (in billions)������������������������������������ $13,414.7 $676.3 $3,164.6 $200.3 $4,087.1 $798.9 $118.4 $51.9 $137.

Commercial banks������������������������������������� 12,157.3 651.1 3,164.6 199.8 3,619.6 233.4 49.7 46.4 111

Savings institutions ����������������������������������� 1,257.3 25.2 0.0 0.5 467.4 565.5 68.7 5.5

Total deposits (in billions)��������������������������������� 9,601.8 290.6 2,111.7 167.5 3,155.9 569.5 96.5 41.1 114

Commercial banks������������������������������������� 8,674.6 275.0 2,111.7 167.1 2,824.5 141.6 39.0 37.1 94

Savings institutions ����������������������������������� 927.2 15.6 0.0 0.4 331.4 427.9 57.5 4.0

Bank net income (in millions) ��������������������������� 29,003 6,364 4,643 524 6,283 984 387 170 277 9,371

Commercial banks������������������������������������� 27,147 5,869 4,643 523 5,494 848 249 113 256 9,153

Savings institutions ����������������������������������� 1,855 495 0 1 789 136 138 57 21 218

Performance Ratios (annualized, %

Yield on earning assets������������������������������������ 4.47 12.20 3.25 4.87 4.70 4.21 5.52 3.65

Cost of funding earning assets ������������������������ 0.80 1.29 0.71 1.06 0.92 1.14 1.16 0.84

Net interest margin������������������������������������ 3.66 10.92 2.53 3.80 3.78 3.06 4.35 2.81

Noninterest income to assets��������������������������� 1.76 2.78 1.98 0.60 1.22 0.79 1.57 5.45

Noninterest expense to assets������������������������� 3.06 4.82 2.89 2.62 3.05 2.44 2.68 6.08

Loan and lease loss provision to assets���������� 0.62 2.01 0.29 0.26 0.69 0.53 0.99 0.19

Net operating income to assets ����������������������� 0.88 3.62 0.72 1.04 0.59 0.46 1.33 1.30

Pretax return on assets ������������������������������������ 1.25 5.70 0.80 1.23 0.87 0.73 2.05 1.78

Return on assets����������������������������������������������� 0.87 3.68 0.60 1.05 0.62 0.49 1.33 1.33

Return on equity ����������������������������������������������� 7.75 23.80 6.79 9.64 5.33 4.80 12.28 8.71

Net charge-offs to loans and leases���������������� 1.82 6.67 1.96 0.30 1.32 0.97 1.77 0.74

Loan and lease loss provision to 

net charge-offs ������������������������������������������ 62.15 35.20 43.81 136.56 78.25 94.54 75.04 87.50 13

Efficiency ratio �������������������������������������������������� 60.75 36.55 69.27 63.51 65.69 66.39 46.16 75.34 7

% of unprofitable institutions���������������������������� 15.36 4.76 0.00 5.62 21.11 15.14 6.94 10.99

% of institutions with earnings gains���������������� 56.15 90.48 0.00 55.26 58.80 50.71 44.44 46.76 5

Condition Ratios (%

Earning assets to total assets �������������������������� 86.80 88.86 85.01 91.68 88.79 93.19 94.56 91.28 9

Loss allowance to:

Loans and leases �������������������������������������� 3.01 7.57 3.68 1.63 2.43 1.49 2.39 1.86

Noncurrent loans and leases �������������������� 63.85 374.40 66.07 83.77 57.85 33.71 159.99 81.44 6

Noncurrent assets plus

other real estate owned to assets������������� 2.95 1.72 2.02 1.64 3.58 2.92 1.22 0.93

Equity capital ratio�������������������������������������������� 11.26 16.03 8.72 10.96 11.62 10.29 10.81 15.15 1

Core capital (leverage) ratio ���������������������������� 9.14 13.39 7.13 9.94 9.87 9.49 10.50 14.01 

Tier 1 risk-based capital ratio��������������������������� 13.04 15.27 11.90 14.44 12.98 19.94 14.36 31.37 1

Total risk-based capital ratio ���������������������������� 15.54 17.57 15.02 15.61 14.97 21.07 15.53 32.42 1

Net loans and leases to deposits��������������������� 73.22 182.87 48.02 71.28 84.45 78.75 87.12 34.92 6

Net loans to total assets ���������������������������������� 52.41 78.57 32.05 59.60 65.21 56.13 71.03 27.67 5

Domestic deposits to total assets �������������������� 59.57 39.51 33.03 83.62 76.07 71.19 81.35 78.14 8

Structural Change

New charters ��������������������������������������������� 1 0 0 0 1 0 0 0 0 0

Institutions absorbed by mergers ������������� 56 0 0 9 38 1 2 1 3 2

Failed institutions �������������������������������������� 26 0 0 2 24 0 0 0 0 0

PRIOR First 

(The way it was...)

Number of institutions ������������������������������2010 7,934 21 4 1,553 4,358 745 75 303 813 62

������������������������������������� 2008 8,494 26 6 1,550 4,752 809 102 362 835 52

������������������������������������� 2006 8,790 30 4 1,647 4,629 864 120 436 1,001 59

Total assets (in billions)����������������������������2010 $13,336.3 $725.0 $3,157.3 $181.1 $4,498.0 $776.9 $95.0 $40.7 $126.

������������������������������������� 2008 13,369.3 448.5 3,085.6 158.0 5,271.5 1,364.4 66.3 38.2 112

������������������������������������� 2006 11,209.8 370.2 1,972.3 140.3 3,844.9 1,745.6 98.6 50.0 128

Return on assets (%)��������������������������������2010 0.53 0.70 0.75 0.95 0.16 0.78 1.41 1.20

������������������������������������� 2008 0.58 4.59 0.35 1.19 0.78 -0.21 1.30 2.20

������������������������������������� 2006 1.34 4.57 1.16 1.26 1.35 1.05 2.19 -1.31

Net charge-offs to loans & leases (%) �����2010 2.88 14.26 2.75 0.45 1.89 1.20 2.69 0.54

������������������������������������� 2008 0.99 4.97 1.13 0.17 0.71 1.14 1.78 0.21

������������������������������������� 2006 0.32 2.95 0.53 0.09 0.17 0.11 0.95 0.16

Noncurrent assets plus 

OREO to assets (%) ��������������������������2010 3.44 2.77 2.64 1.66 4.01 3.14 1.29 0.69

������������������������������������� 2008 1.15 1.62 0.70 0.99 1.43 1.97 0.73 0.28

������������������������������������� 2006 0.48 1.17 0.42 0.67 0.49 0.55 0.51 0.23

Equity capital ratio (%)������������������������������2010 10.79 13.47 8.77 11.23 10.76 9.76 10.52 16.99 1

������������������������������������� 2008 10.18 22.85 7.57 11.22 11.36 8.09 9.01 20.28 

������������������������������������� 2006 10.38 27.22 7.95 10.81 10.28 10.81 9.63 19.39 

* See Table V-A (page 10) for explanations
FDIC Quarterly 7 2011, Volume 5, No. 2

Quarterly Banking Profile

TABLE III-A. First Quarter 2011, All FDIC-Insured Institutions 

Asset Size Distribution Geographic Region

First q

(The way it is...)

All Insured 

Institutions

Less than 

$100 

Million

$100 

Million to 

$1 Billion

$1 Billion 

to 

$10 Billion

Greater 

than 

$10 Billion New York Atlanta Chicago

Kansas 

City Dallas

San

Francisco

Number of institutions reporting����������������������������� 7,574 2,574 4,330 563 107 943 1,009 1,581 1,811 1,580 650

Commercial banks������������������������������������������� 6,453 2,277 3,659 431 86 489 892 1,302 1,713 1,465 592

Savings institutions ����������������������������������������� 1,121 297 671 132 21 454 117 279 98 115 58

Total assets (in billions)������������������������������������������ $13,414.7 $147.2 $1,284.3 $1,429.1 $10,554.1 $2,709.2 $2,912.9 $3,048.2 $1,680.3 $788

Commercial banks������������������������������������������� 12,157.3 130.4 1,050.6 1,094.0 9,882.4 2,039.4 2,791.1 2,924.4 1,625.7 69

Savings institutions ����������������������������������������� 1,257.3 16.8 233.8 335.1 671.7 669.8 121.9 123.8 54.6

Total deposits (in billions)��������������������������������������� 9,601.8 124.9 1,067.7 1,103.5 7,305.7 1,853.0 2,153.9 2,114.4 1,251.1 63

Commercial banks������������������������������������������� 8,674.6 111.5 881.7 846.1 6,835.2 1,370.8 2,062.5 2,020.5 1,208.0 56

Savings institutions ����������������������������������������� 927.2 13.4 186.0 257.3 470.5 482.2 91.4 93.9 43.1

Bank net income (in millions) ��������������������������������� 29,003 212 1,775 2,617 24,399 6,989 4,497 5,108 5,073 1,823 5,512

Commercial banks������������������������������������������� 27,147 205 1,531 2,144 23,267 6,671 4,374 5,059 4,986 1,606 4,451

Savings institutions ����������������������������������������� 1,855 7 244 472 1,132 319 123 48 87 217 1,061

Performance Ratios (annualized, %

Yield on earning assets������������������������������������������ 4.47 4.89 4.88 4.82 4.35 5.00 4.26 3.60 5.3

Cost of funding earning assets ������������������������������ 0.80 1.06 1.13 1.02 0.72 0.94 0.71 0.72 0.6

Net interest margin������������������������������������������ 3.66 3.83 3.75 3.80 3.63 4.05 3.55 2.88 4.6

Noninterest income to assets��������������������������������� 1.76 1.10 0.94 1.20 1.94 1.68 1.70 1.92 2.0

Noninterest expense to assets������������������������������� 3.06 3.62 3.18 2.92 3.06 3.12 3.06 3.02 3.4

Loan and lease loss provision to assets���������������� 0.62 0.29 0.50 0.68 0.63 0.56 0.86 0.47 0.8

Net operating income to assets ����������������������������� 0.88 0.56 0.53 0.71 0.94 1.01 0.56 0.68 1.2

Pretax return on assets ������������������������������������������ 1.25 0.69 0.73 1.06 1.35 1.58 0.85 0.94 1.7

Return on assets����������������������������������������������������� 0.87 0.58 0.56 0.73 0.93 1.04 0.62 0.68 1.2

Return on equity ����������������������������������������������������� 7.75 4.98 5.40 6.46 8.22 8.18 5.25 7.91 10.5

Net charge-offs to loans and leases���������������������� 1.82 0.41 0.75 1.32 2.09 2.29 1.81 1.41 2.0

Loan and lease loss provision to 

net charge-offs ������������������������������������������������ 62.15 121.63 102.22 81.67 57.77 44.11 84.61 71.68 61.99 

Efficiency ratio �������������������������������������������������������� 60.75 78.69 72.27 62.01 59.15 58.05 64.34 67.39 54.33 

% of unprofitable institutions���������������������������������� 15.36 17.87 14.32 12.97 9.35 13.36 30.62 14.10 10.93 

% of institutions with earnings gains���������������������� 56.15 53.03 56.17 67.50 71.03 56.73 51.64 56.29 56.16 

Condition Ratios (%

Earning assets to total assets ��������������������������������� 86.80 91.16 91.51 90.54 85.66 87.49 84.12 87.03 87.16 

Loss allowance to:

Loans and leases ��������������������������������������������� 3.01 1.77 1.92 2.24 3.32 3.03 3.03 3.09 3.3

Noncurrent loans and leases ��������������������������� 63.85 67.37 54.20 52.20 66.50 88.58 49.58 59.45 64.53 

Noncurrent assets plus

other real estate owned to assets�������������������� 2.95 2.39 3.37 3.47 2.84 2.05 3.97 2.74 4.0

Equity capital ratio��������������������������������������������������� 11.26 11.62 10.32 11.47 11.34 12.74 11.86 8.53 11.59 

Core capital (leverage) ratio ����������������������������������� 9.14 11.24 9.85 10.12 8.89 10.21 8.59 7.22 9.44

Tier 1 risk-based capital ratio���������������������������������� 13.04 17.91 14.54 14.97 12.55 14.99 11.74 10.85 11.79 

Total risk-based capital ratio ����������������������������������� 15.54 19.04 15.76 16.27 15.37 17.05 14.78 14.03 14.22 

Net loans and leases to deposits���������������������������� 73.22 67.51 75.72 79.56 72.00 77.48 73.85 63.66 85.83 

Net loans to total assets ����������������������������������������� 52.41 57.31 62.95 61.43 49.84 52.99 54.61 44.16 63.91 

Domestic deposits to total assets ��������������������������� 59.57 84.88 83.06 76.72 54.03 60.09 65.29 53.63 68.89 

Structural Change

New charters ��������������������������������������������������� 1 0 1 0 0 0 1 0 0 0 0

Institutions absorbed by mergers ������������������� 56 19 31 6 0 4 2 15 16 16 3

Failed institutions �������������������������������������������� 26 5 19 2 0 0 10 7 0 5 4

PRIOR First 

(The way it was...)

Number of institutions ������������������������������������2010 7,934 2,779 4,475 575 105 977 1,103 1,637 1,868 1,654 695

������������������������������������������� 2008 8,494 3,347 4,481 549 117 1,036 1,223 1,752 1,968 1,730 785

������������������������������������������� 2006 8,790 3,826 4,334 511 119 1,106 1,225 1,863 2,055 1,783 758

Total assets (in billions)����������������������������������2010 $13,336.3 $155.4 $1,339.9 $1,478.1 $10,362.8 $2,671.8 $2,989.0 $2,978.4 $1,664.4 $786

������������������������������������������� 2008 13,369.3 178.0 1,334.3 1,438.1 10,419.0 2,478.8 3,423.5 2,963.1 1,000.0 74

������������������������������������������� 2006 11,209.8 199.0 1,259.4 1,395.6 8,355.8 2,866.2 2,759.4 2,604.0 819.6 62

Return on assets (%)��������������������������������������2010 0.53 0.46 0.38 0.19 0.60 0.56 0.27 0.48 0.6

������������������������������������������� 2008 0.58 0.73 0.79 0.76 0.53 1.04 0.32 0.75 1.39

������������������������������������������� 2006 1.34 0.95 1.11 1.30 1.39 1.29 1.33 1.10 1.5

Net charge-offs to loans & leases (%) �����������2010 2.88 0.65 0.88 1.77 3.46 4.10 2.73 2.35 3.2

������������������������������������������� 2008 0.99 0.20 0.30 0.70 1.16 1.15 0.76 0.84 1.1

������������������������������������������� 2006 0.32 0.12 0.12 0.18 0.39 0.47 0.16 0.23 0.3

Noncurrent assets plus 

OREO to assets (%) ��������������������������������2010 3.44 2.31 3.38 3.69 3.43 2.46 4.18 3.23 4.7

������������������������������������������� 2008 1.15 1.09 1.33 1.44 1.09 0.86 1.08 1.09 1.5

������������������������������������������� 2006 0.48 0.69 0.52 0.44 0.48 0.40 0.31 0.53 0.8

Equity capital ratio (%)������������������������������������2010 10.79 11.96 10.04 10.87 10.86 11.92 11.29 8.55 11.51 

������������������������������������������� 2008 10.18 13.78 10.52 11.13 9.94 12.09 10.20 9.06 9.7

������������������������������������������� 2006 10.38 12.29 10.28 10.78 10.28 11.15 9.77 9.02 10.48 

* See Table V-A (page 11) for explanations
FDIC Quarterly 8 2011, Volume 5, No. 2

TABLE IV-A. Full Year 2010, All FDIC-Insured Institutions

Asset Concentration Groups*

Full 

(The way it is...)

All Insured 

Institutions

Credit 

Card 

Banks

International 

Banks

Agricultural 

Banks

Commercial 

Lenders

Mortgage 

Lenders

Consumer 

Lenders

Other 

Specialized

<$1 Billion

All Other 

<$1 Billion

All Other 

>$1 Billion

Number of institutions reporting����������������������� 7,658 22 4 1,559 4,085 718 73 314 815 68

Commercial banks������������������������������������� 6,530 18 4 1,555 3,640 182 59 286 732 54

Savings institutions ����������������������������������� 1,128 4 0 4 445 536 14 28 83 14

Total assets (in billions)������������������������������������ $13,320.0 $705.4 $3,038.1 $199.8 $4,097.6 $789.0 $114.4 $42.9 $132.

Commercial banks������������������������������������� 12,066.4 678.1 3,038.1 199.3 3,631.3 235.3 49.7 37.3 109

Savings institutions ����������������������������������� 1,253.6 27.4 0.0 0.5 466.3 553.7 64.7 5.6 

Total deposits (in billions)��������������������������������� 9,423.0 297.2 2,009.5 165.9 3,147.7 544.0 91.1 33.5 110

Commercial banks������������������������������������� 8,514.4 281.4 2,009.5 165.5 2,822.3 132.2 38.2 29.4 91

Savings institutions ����������������������������������� 908.6 15.8 0.0 0.4 325.4 411.8 52.9 4.1

Bank net income (in millions) ��������������������������� 86,206 12,056 21,828 1,901 8,837 5,317 1,433 624 911 33,300

Commercial banks������������������������������������� 77,948 10,914 21,828 1,898 6,451 2,701 922 365 975 31,893

Savings institutions ����������������������������������� 8,258 1,141 0 3 2,386 2,616 511 260 -64 1,406

Performance Ratios (annualized, %

Yield on earning assets������������������������������������ 4.70 13.57 3.42 5.22 4.89 4.36 5.80 3.79

Cost of funding earning assets ������������������������ 0.94 1.48 0.71 1.30 1.13 1.34 1.37 0.98

Net interest margin������������������������������������ 3.76 12.09 2.71 3.93 3.76 3.02 4.43 2.81

Noninterest income to assets��������������������������� 1.79 2.99 2.00 0.65 1.27 0.76 1.88 6.68

Noninterest expense to assets������������������������� 2.97 4.63 2.82 2.68 3.05 1.78 2.78 7.26

Loan and lease loss provision to assets���������� 1.19 6.32 0.62 0.46 1.25 0.75 1.29 0.22

Net operating income to assets ����������������������� 0.61 1.77 0.64 0.96 0.16 0.67 1.28 1.29

Pretax return on assets ������������������������������������ 0.94 2.74 0.95 1.12 0.37 1.08 2.01 1.95

Return on assets����������������������������������������������� 0.65 1.82 0.72 0.98 0.22 0.68 1.28 1.48

Return on equity ����������������������������������������������� 5.90 11.83 8.08 8.84 1.92 6.95 11.96 9.15

Net charge-offs to loans and leases���������������� 2.55 10.83 2.29 0.59 1.90 1.14 2.36 0.64

Loan and lease loss provision to 

net charge-offs ������������������������������������������ 84.04 69.06 75.96 122.88 96.27 110.05 72.49 124.09 12

Efficiency ratio �������������������������������������������������� 57.22 31.86 65.15 62.64 64.44 49.15 44.96 77.38 7

% of unprofitable institutions���������������������������� 21.81 9.09 0.00 7.06 31.63 16.43 5.48 14.33 

% of institutions with earnings gains���������������� 66.51 100.00 75.00 65.75 66.88 72.42 83.56 50.64 6

Condition Ratios (%

Earning assets to total assets �������������������������� 86.75 88.75 84.36 91.62 88.77 93.53 96.20 90.96 9

Loss allowance to:

Loans and leases �������������������������������������� 3.13 8.19 3.96 1.57 2.47 1.45 2.50 1.85

Noncurrent loans and leases �������������������� 64.44 372.36 62.79 84.98 57.35 34.16 173.56 87.85 6

Noncurrent assets plus

other real estate owned to assets������������� 3.11 1.90 2.38 1.62 3.71 2.89 1.22 0.81

Equity capital ratio�������������������������������������������� 11.15 14.96 8.93 10.86 11.42 10.06 11.00 16.32 1

Core capital (leverage) ratio ���������������������������� 8.89 12.76 6.96 9.92 9.60 9.38 10.50 14.65 

Tier 1 risk-based capital ratio��������������������������� 12.71 14.24 11.87 13.97 12.59 19.19 14.12 34.59 1

Total risk-based capital ratio ���������������������������� 15.28 16.91 15.03 15.13 14.59 20.25 15.29 35.63 1

Net loans and leases to deposits��������������������� 75.82 188.43 50.17 74.85 86.24 84.64 92.76 33.80 6

Net loans to total assets ���������������������������������� 53.63 79.39 33.18 62.15 66.25 58.35 73.88 26.36 5

Domestic deposits to total assets �������������������� 59.11 37.91 33.27 83.03 75.40 68.85 79.53 76.67 8

Structural Change

New charters ��������������������������������������������� 11 0 0 0 6 1 0 2 0 2

Institutions absorbed by mergers ������������� 197 0 0 35 119 28 0 0 6 9

Failed institutions �������������������������������������� 157 0 0 3 143 6 1 1 2 1

PRIOR Full

(The way it was...)

Number of institutions ����������������������������� 2009 8,012 23 4 1,568 4,453 766 83 289 770 56

������������������������������������� 2007 8,534 27 5 1,592 4,773 784 109 373 815 56

������������������������������������� 2005 8,833 33 4 1,685 4,617 886 125 425 995 63

Total assets (in billions)��������������������������� 2009 $13,087.0 $501.6 $3,107.1 $182.0 $4,546.9 $810.1 $96.5 $38.0 $116.

������������������������������������� 2007 13,033.9 479.2 2,784.3 157.5 4,619.0 1,328.1 94.9 37.8 110

������������������������������������� 2005 10,879.3 359.1 1,851.2 142.3 4,257.3 1,647.2 117.3 47.7 128

Return on assets (%)������������������������������� 2009 -0.07 -4.51 0.08 0.81 -0.42 0.65 0.33 0.74

������������������������������������� 2007 0.81 3.35 0.58 1.20 0.83 0.03 1.26 2.56

������������������������������������� 2005 1.28 2.90 0.86 1.27 1.36 1.07 1.55 2.18

Net charge-offs to loans & leases (%) ���� 2009 2.52 9.77 3.07 0.65 2.02 1.24 2.74 0.78

������������������������������������� 2007 0.59 3.95 0.77 0.22 0.35 0.40 0.87 0.29

������������������������������������� 2005 0.49 4.64 0.87 0.18 0.23 0.12 1.44 0.26

Noncurrent assets plus 

OREO to assets (%) ������������������������� 2009 3.36 2.40 2.75 1.55 3.87 3.17 1.45 0.69

������������������������������������� 2007 0.95 1.54 0.68 0.83 1.10 1.52 1.64 0.23

������������������������������������� 2005 0.50 1.32 0.46 0.61 0.48 0.56 0.51 0.24

Equity capital ratio (%)����������������������������� 2009 10.88 21.49 8.75 10.95 10.48 9.48 11.15 17.74 1

������������������������������������� 2007 10.34 21.26 8.01 11.17 11.00 8.38 12.62 19.98 1

������������������������������������� 2005 10.28 21.51 8.30 10.55 10.83 9.40 10.11 19.47 

* See Table V-A (page 10) for explanations
FDIC Quarterly 9 2011, Volume 5, No. 2

Quarterly Banking Profile

TABLE IV-A. Full Year 2010, All FDIC-Insured Institutions 

Asset Size Distribution Geographic Region

Full 

(The way it is...)

All Insured 

Institutions

Less than 

$100 

Million

$100 

Million to 

$1 Billion

$1 Billion 

to 

$10 Billion

Greater 

than 

$10 Billion New York Atlanta Chicago

Kansas 

City Dallas

San

Francisco

Number of institutions reporting����������������������������� 7,658 2,625 4,367 559 107 949 1,022 1,602 1,825 1,601 659

Commercial banks������������������������������������������� 6,530 2,328 3,693 423 86 492 905 1,321 1,728 1,484 600

Savings institutions ����������������������������������������� 1,128 297 674 136 21 457 117 281 97 117 59

Total assets (in billions)������������������������������������������ $13,320.0 $148.6 $1,292.0 $1,430.2 $10,449.1 $2,694.9 $2,930.1 $2,950.2 $1,686.6 $789

Commercial banks������������������������������������������� 12,066.4 132.2 1,059.0 1,089.0 9,786.2 2,027.0 2,806.8 2,825.0 1,635.8 69

Savings institutions ����������������������������������������� 1,253.6 16.5 233.0 341.3 662.9 667.9 123.3 125.2 50.8

Total deposits (in billions)��������������������������������������� 9,423.0 125.4 1,069.5 1,101.5 7,126.6 1,809.1 2,128.2 2,033.9 1,245.4 63

Commercial banks������������������������������������������� 8,514.4 112.3 884.8 841.0 6,676.3 1,338.0 2,036.0 1,939.9 1,206.2 56

Savings institutions ����������������������������������������� 908.6 13.1 184.7 260.5 450.3 471.1 92.2 94.0 39.2

Bank net income (in millions) ��������������������������������� 86,206 421 3,585 3,057 79,144 20,201 10,469 17,671 14,141 5,414 18,310

Commercial banks������������������������������������������� 77,948 418 2,943 1,711 72,877 16,108 10,453 17,865 13,922 4,598 15,003

Savings institutions ����������������������������������������� 8,258 3 642 1,346 6,267 4,094 16 -194 220 816 3,307

Performance Ratios (annualized, %

Yield on earning assets������������������������������������������ 4.70 5.18 5.17 4.90 4.60 5.40 4.39 3.80 5.7

Cost of funding earning assets ������������������������������ 0.94 1.30 1.38 1.24 0.83 1.12 0.88 0.79 0.8

Net interest margin������������������������������������������ 3.76 3.88 3.78 3.65 3.77 4.28 3.51 3.01 4.9

Noninterest income to assets��������������������������������� 1.79 1.28 0.97 1.27 1.97 1.67 1.65 2.01 2.2

Noninterest expense to assets������������������������������� 2.97 3.91 3.22 2.95 2.93 2.86 2.91 3.03 3.5

Loan and lease loss provision to assets���������������� 1.19 0.56 0.86 1.18 1.24 1.43 1.24 0.88 1.7

Net operating income to assets ����������������������������� 0.61 0.25 0.22 0.19 0.72 0.74 0.28 0.51 0.8

Pretax return on assets ������������������������������������������ 0.94 0.39 0.42 0.48 1.08 1.13 0.55 0.82 1.2

Return on assets����������������������������������������������������� 0.65 0.29 0.28 0.21 0.76 0.76 0.36 0.60 0.8

Return on equity ����������������������������������������������������� 5.90 2.39 2.74 1.94 6.85 6.15 3.11 6.83 7.3

Net charge-offs to loans and leases���������������������� 2.55 0.79 1.11 1.80 2.93 3.57 2.42 2.02 2.8

Loan and lease loss provision to 

net charge-offs ������������������������������������������������ 84.04 115.56 115.74 101.85 80.20 71.63 90.64 90.41 90.09 1

Efficiency ratio �������������������������������������������������������� 57.22 80.51 71.60 62.06 54.81 51.14 61.17 64.66 50.73 

% of unprofitable institutions���������������������������������� 21.81 22.74 21.39 22.54 12.15 15.81 43.64 20.35 14.79 

% of institutions with earnings gains���������������������� 66.51 62.32 68.31 69.95 77.57 75.45 62.23 67.23 65.97 

Condition Ratios (%

Earning assets to total assets ��������������������������������� 86.75 91.15 91.61 90.65 85.56 87.34 84.50 86.50 87.47 

Loss allowance to:

Loans and leases ��������������������������������������������� 3.13 1.71 1.90 2.27 3.49 3.30 3.07 3.16 3.4

Noncurrent loans and leases ��������������������������� 64.44 65.51 53.38 51.79 67.36 93.90 50.74 57.74 64.66 

Noncurrent assets plus

other real estate owned to assets�������������������� 3.11 2.38 3.43 3.56 3.02 2.14 3.93 2.98 4.2

Equity capital ratio��������������������������������������������������� 11.15 11.71 10.17 11.21 11.26 12.58 11.61 8.71 11.33 

Core capital (leverage) ratio ����������������������������������� 8.89 11.28 9.65 9.83 8.63 9.88 8.28 7.16 9.13

Tier 1 risk-based capital ratio���������������������������������� 12.71 17.72 14.10 14.45 12.23 14.41 11.50 10.70 11.29 

Total risk-based capital ratio ����������������������������������� 15.28 18.84 15.32 15.78 15.16 16.69 14.66 13.90 13.76 

Net loans and leases to deposits���������������������������� 75.82 70.08 78.01 80.60 74.85 80.42 75.40 66.83 89.14 

Net loans to total assets ����������������������������������������� 53.63 59.11 64.58 62.07 51.05 53.99 54.77 46.07 65.82 

Domestic deposits to total assets ��������������������������� 59.11 84.36 82.70 76.46 53.46 59.40 63.91 54.43 67.96 

Structural Change

New charters ��������������������������������������������������� 11 2 2 6 1 2 3 1 2 2 1

Institutions absorbed by mergers ������������������� 197 69 108 18 2 22 44 17 43 52 19

Failed institutions �������������������������������������������� 157 36 102 18 1 14 56 25 18 7 37

PRIOR Full

(The way it was...)

Number of institutions ����������������������������������� 2009 8,012 2,848 4,492 565 107 986 1,121 1,647 1,879 1,660 719

��������������������������������������������2007 8,534 3,440 4,424 551 119 1,043 1,221 1,763 1,986 1,742 779

��������������������������������������������2005 8,833 3,864 4,339 512 118 1,110 1,227 1,874 2,070 1,791 761

Total assets (in billions)��������������������������������� 2009 $13,087.0 $158.9 $1,354.4 $1,461.6 $10,112.1 $2,567.3 $3,427.3 $2,934.4 $1,145.6 $784

��������������������������������������������2007 13,033.9 181.9 1,308.8 1,422.0 10,121.2 2,441.0 3,329.6 2,842.5 976.3 73

��������������������������������������������2005 10,879.3 200.8 1,247.6 1,394.3 8,036.7 2,769.2 2,683.9 2,505.8 803.7 60

Return on assets (%)������������������������������������� 2009 -0.07 -0.05 -0.10 -0.36 -0.03 -0.83 0.01 0.18 0.76

��������������������������������������������2007 0.81 0.74 0.97 0.96 0.77 0.77 0.81 0.86 1.4

��������������������������������������������2005 1.28 0.99 1.24 1.28 1.29 1.21 1.36 0.99 1.6

Net charge-offs to loans & leases (%) ���������� 2009 2.52 0.88 1.25 1.90 2.87 2.76 2.29 2.36 2.4

��������������������������������������������2007 0.59 0.24 0.25 0.42 0.68 0.90 0.33 0.47 0.7

��������������������������������������������2005 0.49 0.20 0.19 0.24 0.60 0.80 0.23 0.33 0.5

Noncurrent assets plus 

OREO to assets (%) ������������������������������� 2009 3.36 2.24 3.29 3.58 3.36 2.33 4.16 3.20 4.2

��������������������������������������������2007 0.95 0.96 1.07 1.09 0.92 0.81 0.81 0.94 1.3

��������������������������������������������2005 0.50 0.69 0.52 0.44 0.50 0.44 0.30 0.54 0.8

Equity capital ratio (%)����������������������������������� 2009 10.88 11.96 9.86 10.73 11.02 12.53 11.66 8.59 10.70 

��������������������������������������������2007 10.34 13.73 10.49 11.34 10.12 12.06 10.30 9.23 9.74 

��������������������������������������������2005 10.28 12.16 10.20 10.66 10.18 10.53 9.80 9.23 10.45 

* See Table V-A (page 11) for explanations
FDIC Quarterly 10 2011, Volume 5, No. 2

TABLE V-A. Loan Performance, All FDIC-Insured Institutions

Asset Concentration Groups*

March 31, 2011 All Insured 

Institutions

Credit 

Card 

Banks

International 

Banks

Agricultural 

Banks

Commercial 

Lenders

Mortgage 

Lenders

Consumer 

Lenders

Other 

Specialized

<$1 Billion

All Other 

<$1 

Billion

All Other 

>$1 

Billion

Percent of Loans 30-89 Days Past Due

All loans secured by real estate ��������������������������������������� 1.88 1.51 2.46 1.29 1.51 1.57 1.11 1.55

Construction and development��������������������������������� 2.23 0.00 2.62 2.11 2.23 2.25 2.37 1.20

Nonfarm nonresidential��������������������������������������������� 1.14 0.00 0.78 1.13 1.18 1.26 0.51 1.33

Multifamily residential real estate ����������������������������� 1.02 0.00 0.45 0.75 1.12 1.06 0.05 0.31

Home equity loans����������������������������������������������������� 1.12 1.29 1.63 0.56 0.86 0.69 0.98 0.80

Other 1-4 family residential��������������������������������������� 2.67 1.94 3.64 1.72 2.02 1.69 1.33 1.98

Commercial and industrial loans ������������������������������������� 0.65 2.09 0.47 1.33 0.75 0.87 0.84 1.24

Loans to individuals���������������������������������������������������������� 1.72 1.79 2.01 1.57 1.48 0.87 1.42 1.88

Credit card loans ������������������������������������������������������� 1.77 1.75 2.49 1.05 1.12 1.50 0.89 1.86

Other loans to individuals ����������������������������������������� 1.66 2.74 1.75 1.58 1.53 0.82 1.64 1.89

All other loans and leases (including farm) ��������������������� 0.40 0.01 0.28 0.83 0.52 0.61 0.88 0.46

Total loans and leases������������������������������������������������������ 1.52 1.75 1.59 1.21 1.31 1.52 1.31 1.49

Percent of Loans Noncurrent**

All real estate loans ���������������������������������������������������������� 7.01 5.94 9.85 2.48 5.36 4.64 1.50 2.77

Construction and development.................................. 15.99 0.00 

Nonfarm nonresidential��������������������������������������������� 4.29 0.00 5.73 3.16 4.05 3.97 2.71 2.65

Multifamily residential real estate ����������������������������� 3.62 0.00 2.87 4.10 3.68 2.80 3.96 0.90

Home equity loans����������������������������������������������������� 1.79 4.69 2.40 1.08 1.39 1.11 0.97 0.73

Other 1-4 family residential��������������������������������������� 9.60 7.77 16.18 1.69 5.12 4.96 1.52 2.10 

Commercial and industrial loans ������������������������������������� 1.90 2.19 2.35 2.11 2.03 2.24 0.61 1.62

Loans to individuals���������������������������������������������������������� 1.65 2.08 1.89 0.69 1.23 0.49 1.54 0.79

Credit card loans ������������������������������������������������������� 2.05 2.03 2.22 0.74 1.95 1.44 1.02 1.21

Other loans to individuals ����������������������������������������� 1.21 3.11 1.72 0.69 1.13 0.41 1.75 0.75

All other loans and leases (including farm) ��������������������� 1.00 0.02 1.38 0.67 1.11 0.33 0.44 0.92

Total loans and leases������������������������������������������������������ 4.71 2.02 5.57 1.95 4.20 4.42 1.48 2.29

Percent of Loans Charged-off (net, YTD)

All real estate loans ���������������������������������������������������������� 1.45 6.09 2.12 0.31 1.40 0.93 1.37 0.45

Construction and development��������������������������������� 3.65 0.00 0.98 1.33 4.26 3.16 0.87 1.35

Nonfarm nonresidential��������������������������������������������� 0.87 0.00 1.63 0.40 0.96 0.42 0.80 0.32

Multifamily residential real estate ����������������������������� 0.79 0.00 1.33 0.65 0.82 0.35 -6.31 0.06

Home equity loans����������������������������������������������������� 2.21 2.62 2.65 1.02 1.46 1.47 2.38 0.46

Other 1-4 family residential��������������������������������������� 1.32 9.13 2.46 0.28 1.09 0.89 0.84 0.44

Commercial and industrial loans ������������������������������������� 1.14 8.17 1.40 0.61 1.12 1.91 4.25 1.52

Loans to individuals���������������������������������������������������������� 4.30 6.81 3.77 0.45 1.60 1.50 1.73 0.60

Credit card loans ������������������������������������������������������� 6.69 6.75 5.52 1.41 5.43 3.16 4.05 3.44

Other loans to individuals ����������������������������������������� 1.34 8.14 2.37 0.34 0.82 1.23 0.59 0.27

All other loans and leases (including farm) ��������������������� 0.44 0.01 0.69 0.00 0.46 0.30 4.54 2.87

Total loans and leases������������������������������������������������������ 1.82 6.67 1.96 0.30 1.31 0.97 1.76 0.74

Loans Outstanding (in billions)

All real estate loans ���������������������������������������������������������� $4,158.5 $0.1 $488.4 $73.2 $1,859.1 $425.7 $23.0 $10.3 $56.

Construction and development��������������������������������� 295.5 0.0 6.9 4.1 198.9 7.8 0.6 0.

Nonfarm nonresidential��������������������������������������������� 1,064.5 0.0 28.6 21.4 744.4 30.9 2.1 3.5 

Multifamily residential real estate ����������������������������� 214.4 0.0 37.6 1.7 128.8 9.7 0.4 0.

Home equity loans����������������������������������������������������� 624.0 0.0 113.2 1.5 199.7 35.7 10.0 0.4

Other 1-4 family residential��������������������������������������� 1,833.8 0.0 249.6 19.0 554.1 340.5 9.8 4.8 

Commercial and industrial loans ������������������������������������� 1,204.5 29.1 200.9 15.8 538.4 12.2 4.1 1.9

Loans to individuals���������������������������������������������������������� 1,275.2 527.6 159.3 5.9 201.0 14.7 59.4 1.7

Credit card loans ������������������������������������������������������� 663.2 505.1 55.6 0.1 25.5 1.1 17.4 0.

Other loans to individuals ����������������������������������������� 612.0 22.5 103.7 5.8 175.5 13.6 42.0 1.6

All other loans and leases (including farm) ��������������������� 612.5 18.1 204.7 26.5 133.8 2.7 0.3 0.8

Total loans and leases (plus unearned income)�������������� 7,250.7 574.9 1,053.3 121.4 2,732.3 455.3 86.7 14.6 75

Memo: Other Real Estate Owned (in millions

All other real estate owned����������������������������������������������� 52,376.0 -5.0 4,664.1 881.5 31,219.2 3,141.3 102.7 140.8 697.

Construction and development��������������������������������� 17,957.5 0.0 4.0 327.4 14,833.7 450.7 22.0 54.5 195

Nonfarm nonresidential��������������������������������������������� 10,719.4 0.0 162.0 290.4 8,106.8 239.4 19.1 41.7 193

Multifamily residential real estate ����������������������������� 2,476.7 0.0 746.0 33.4 1,108.1 51.4 20.6 3.9 

1-4 family residential ������������������������������������������������� 13,279.5 0.2 1,201.1 171.9 6,191.5 1,741.5 39.5 38.0 227

Farmland�������������������������������������������������������������������� 423.2 0.0 0.0 57.9 328.5 3.8 1.5 2.7

GNMA properties������������������������������������������������������� 7,316.1 0.0 2,359.0 0.6 632.0 656.5 0.0 0.0 32

* Asset Concentration Group Definitions (Groups are hierarchical and mutually exclusive):

Credit-card Lenders - Institutions whose credit-card loans plus securitized receivables exceed 50 percent of total assets plus securitized receivables

International Banks - Banks with assets greater than $10 billion and more than 25 percent of total assets in foreign offices

Agricultural Banks - Banks whose agricultural production loans plus real estate loans secured by farmland exceed 25 percent of the total loans and leases

Commercial Lenders - Institutions whose commercial and industrial loans, plus real estate construction and development loans, plus loans secured by commercial real estate properties 

exceed 25 percent of total assets

Mortgage Lenders - Institutions whose residential mortgage loans, plus mortgage-backed securities, exceed 50 percent of total assets

Consumer Lenders - Institutions whose residential mortgage loans, plus credit-card loans, plus other loans to individuals, exceed 50 percent of total assets

Other Specialized < $1 Billion - Institutions with assets less than $1 billion, whose loans and leases are less than 40 percent of total assets

All Other < $1 billion - Institutions with assets less than $1 billion that do not meet any of the definitions above, they have significant lending activity with no identified asset concentrations

All Other > $1 billion - Institutions with assets greater than $1 billion that do not meet any of the definitions above, they have significant lending activity with no identified asset 

concentrations

** Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status
FDIC Quarterly 11 2011, Volume 5, No. 2

Quarterly Banking Profile

TABLE V-A. Loan Performance, All FDIC-Insured Institutions

Asset Size Distribution Geographic Region

March 31, 2011 All Insured 

Institutions

Less than 

$100 

Million

$100 

Million to 

$1 Billion

$1 Billion 

to 

$10 Billion

Greater 

than 

$10 Billion New York Atlanta Chicago

Kansas 

City Dallas

San

Francisco

Percent of Loans 30-89 Days Past Due 

All loans secured by real estate ������������������������������ 1.88 1.87 1.62 1.32 2.08 1.52 2.09 1.81 2.3

Construction and development������������������������ 2.23 2.31 2.48 2.12 2.17 2.81 1.79 2.54 2.5

Nonfarm nonresidential������������������������������������ 1.14 1.77 1.43 1.08 1.01 1.29 1.21 1.20 1.0

Multifamily residential real estate �������������������� 1.02 1.22 1.21 1.14 0.94 0.97 1.40 0.84 1.2

Home equity loans�������������������������������������������� 1.12 0.97 0.88 0.78 1.17 0.69 1.37 1.26 1.0

Other 1-4 family residential������������������������������ 2.67 2.24 1.84 1.57 2.99 1.78 2.90 2.53 3.9

Commercial and industrial loans ���������������������������� 0.65 1.75 1.31 0.93 0.53 0.89 0.57 0.71 0.7

Loans to individuals������������������������������������������������� 1.72 1.97 1.55 1.73 1.72 1.72 1.87 1.49 2.0

Credit card loans ���������������������������������������������� 1.77 1.17 2.00 1.80 1.76 1.61 1.84 1.54 2.2

Other loans to individuals �������������������������������� 1.66 1.98 1.52 1.70 1.66 2.09 1.88 1.48 1.7

All other loans and leases (including farm) ������������ 0.40 0.88 0.66 0.47 0.37 0.33 0.33 0.49 0.5

Total loans and leases��������������������������������������������� 1.52 1.76 1.53 1.27 1.56 1.42 1.67 1.42 1.8

Percent of Loans Noncurrent** 

All real estate loans ������������������������������������������������� 7.01 3.07 4.03 5.18 8.22 4.77 9.05 7.86 8.2

Construction and development������������������������ 15.99 9.95 12.90 16.76 17.12 18.60 17.93 14.85 14.05 

Nonfarm nonresidential������������������������������������ 4.29 3.48 3.46 4.13 4.81 3.88 5.01 4.42 4.3

Multifamily residential real estate �������������������� 3.62 3.53 3.20 3.82 3.66 2.64 5.69 3.75 3.4

Home equity loans�������������������������������������������� 1.79 1.45 1.37 1.45 1.85 1.20 1.92 1.97 2.2

Other 1-4 family residential������������������������������ 9.60 2.34 2.86 4.12 11.72 4.82 12.27 12.61 12.9

Commercial and industrial loans ���������������������������� 1.90 2.56 2.46 2.41 1.76 2.31 1.52 2.07 1.8

Loans to individuals������������������������������������������������� 1.65 1.03 0.77 1.12 1.71 1.91 1.32 1.38 1.8

Credit card loans ���������������������������������������������� 2.05 0.72 1.54 1.75 2.06 2.02 1.98 2.31 2.2

Other loans to individuals �������������������������������� 1.21 1.03 0.71 0.91 1.28 1.53 0.98 1.12 1.2

All other loans and leases (including farm) ������������ 1.00 0.83 0.86 0.91 1.02 0.29 0.51 0.89 0.9

Total loans and leases��������������������������������������������� 4.71 2.63 3.54 4.29 4.99 3.42 6.10 5.20 5.2

Percent of Loans Charged-off (net, YTD) 

All real estate loans ������������������������������������������������� 1.45 0.40 0.71 1.30 1.68 0.90 1.95 1.53 1.3

Construction and development������������������������ 3.65 1.32 2.42 4.89 3.69 2.76 5.33 4.64 1.8

Nonfarm nonresidential������������������������������������ 0.87 0.44 0.52 0.99 0.99 0.84 0.96 1.23 0.5

Multifamily residential real estate �������������������� 0.79 0.50 0.62 0.82 0.83 0.57 0.95 0.72 0.3

Home equity loans�������������������������������������������� 2.21 0.55 0.70 1.16 2.41 0.95 2.80 1.96 2.9

Other 1-4 family residential������������������������������ 1.32 0.29 0.52 0.74 1.56 0.75 1.54 1.23 1.3

Commercial and industrial loans ���������������������������� 1.14 0.67 0.98 1.27 1.15 1.68 0.68 1.16 1.1

Loans to individuals������������������������������������������������� 4.30 0.49 1.09 1.93 4.57 6.01 3.45 2.12 5.3

Credit card loans ���������������������������������������������� 6.69 2.46 5.93 5.10 6.73 6.91 7.57 5.70 7.8

Other loans to individuals �������������������������������� 1.34 0.37 0.62 0.68 1.47 2.42 0.96 0.84 1.0

All other loans and leases (including farm) ������������ 0.44 0.00 0.33 0.48 0.45 0.13 0.19 0.32 0.2

Total loans and leases��������������������������������������������� 1.82 0.41 0.75 1.32 2.09 2.29 1.81 1.41 2.0

Loans Outstanding (in billions) 

All real estate loans ������������������������������������������������� $4,158.5 $60.1 $645.6 $660.8 $2,792.1 $815.5 $1,019.7 $803.8 $607.9 $3

Construction and development������������������������ 295.5 4.1 66.6 67.4 157.4 43.3 90.6 48.7 41.

Nonfarm nonresidential������������������������������������ 1,064.5 18.0 256.7 268.2 521.6 225.2 232.7 191.6 151.0 

Multifamily residential real estate �������������������� 214.4 1.8 30.8 44.5 137.3 62.4 29.8 62.7 19

Home equity loans�������������������������������������������� 624.0 1.9 35.8 47.9 538.4 89.1 178.3 155.6 110.

Other 1-4 family residential������������������������������ 1,833.8 26.1 222.3 220.6 1,364.8 389.4 478.7 330.5 260.8 

Commercial and industrial loans ���������������������������� 1,204.5 11.1 105.1 133.4 954.9 184.2 286.5 247.8 173.3

Loans to individuals������������������������������������������������� 1,275.2 5.8 37.5 71.6 1,160.3 382.6 219.9 180.9 217.4

Credit card loans ���������������������������������������������� 663.2 0.1 2.4 18.0 642.7 295.7 76.7 40.6 132.3

Other loans to individuals �������������������������������� 612.0 5.7 35.1 53.6 517.6 86.8 143.3 140.4 85.2

All other loans and leases (including farm) ������������ 612.5 8.8 36.5 33.1 534.1 98.6 114.2 156.4 112.9

Total loans and leases (plus unearned income)����� 7,250.7 85.9 824.6 898.9 5,441.4 1,480.9 1,640.4 1,389.0 1,111.5 49

Memo: Other Real Estate Owned (in millions)

All other real estate owned�������������������������������������� 52,376.0 1,226.7 13,930.5 10,881.7 26,337.1 4,723.9 14,516.9 11,266.3 9,538.3 5,87

Construction and development������������������������ 17,957.5 420.2 6,463.0 5,373.9 5,700.4 1,320.0 5,684.5 2,535.6 3,224.4 2,91

Nonfarm nonresidential������������������������������������ 10,719.4 370.6 3,792.5 2,784.8 3,771.4 1,181.5 2,537.8 2,161.8 2,071.8 1,37

Multifamily residential real estate �������������������� 2,476.7 39.9 449.6 383.3 1,603.8 208.2 415.9 440.2 337.0 

1-4 family residential ���������������������������������������� 13,279.5 363.7 2,917.8 2,153.3 7,844.8 1,665.9 4,093.3 2,705.4 2,366.7 1,24

Farmland����������������������������������������������������������� 423.2 33.1 229.3 117.5 43.2 16.5 83.1 89.7 67.1

GNMA properties���������������������������������������������� 7,316.1 0.4 79.2 69.8 7,166.6 312.6 1,703.4 3,333.7 1,471.7

* Regions

New York - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Vermont, 

U.S. Virgin Island

Atlanta - Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia

Chicago - Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin

Kansas City - Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota

Dallas - Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas

San Francisco - Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming

** Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status
FDIC Quarterly 12 2011, Volume 5, No. 2

TABLE VI-A. Derivatives, All FDIC-Insured Commercial Banks and State-Chartered Savings Banks

Asset Size Distributio

(dollar figures in millions;

notional amounts unless otherwise indicated)

1st Quarter

2011

4th Quarter

2010

3rd Quarter

2010

2nd Quarter 

2010

1st Quarter 

2010

% Change 

10Q1-

11Q1

Less 

than $100 

Million

$100 

Million to 

$1 Billion

$1 Billion 

to $10 

Billion

Greater than 

$10 Billion

ALL DERIVATIVE HOLD

Number of institutions reporting derivatives����������������� 1,144 1,168 1,207 1,159 1,148 -0.3 82 690 291 8

Total assets of institutions reporting derivatives ���������� $10,944,288 $10,834,403 $10,888,467 $10,650,392 $10,745,975 1.8 $6,000 $284,265 $844,995 $9,809,02

Total deposits of institutions reporting derivatives������� 7,705,985 7,545,587 7,402,157 7,248,634 7,281,782 5.8 5,113 232,834 662,006 6,806,03

Total derivatives������������������������������������������������������������� 246,083,864 232,210,712 236,472,606 225,518,995 218,807,591 12.5 145 17,146 66,052 246,000,52

Derivative Contracts by Underlying Risk Exposur

Interest rate�������������������������������������������������������������������� 199,547,520 193,497,885 196,558,711 188,621,077 182,641,534 9.3 141 16,825 61,231 199,469,32

Foreign exchange*��������������������������������������������������������� 28,788,641 22,002,935 22,531,799 20,245,402 19,202,392 49.9 0 77 3,843 28,784,72

Equity ����������������������������������������������������������������������������� 1,471,260 1,363,760 1,679,128 1,615,062 1,570,974 -6.3 4 109 578 1,470,56

Commodity & other (excluding credit derivatives)�������� 1,377,484 1,195,150 1,153,316 1,076,212 941,687 46.3 0 16 215 1,377,25

Credit������������������������������������������������������������������������������ 14,898,959 14,150,982 14,549,653 13,961,242 14,451,004 3.1 0 118 185 14,898,65

Total�������������������������������������������������������������������������������� 246,083,864 232,210,712 236,472,606 225,518,995 218,807,591 12.5 145 17,146 66,052 246,000,52

Derivative Contracts by Transaction Type 

Swaps ���������������������������������������������������������������������������� 152,747,048 149,256,558 146,962,909 141,427,435 136,333,735 12.0 27 9,228 45,935 152,691,85

Futures & forwards �������������������������������������������������������� 39,084,278 35,712,439 39,643,697 36,793,865 34,747,283 12.5 46 3,582 10,233 39,070,41

Purchased options��������������������������������������������������������� 19,021,195 16,174,116 16,911,279 15,399,619 15,759,306 20.7 20 665 3,543 19,016,96

Written options��������������������������������������������������������������� 18,256,144 15,904,093 16,697,323 15,898,211 15,910,886 14.7 52 3,553 5,758 18,246,78

Total�������������������������������������������������������������������������������� 229,108,665 217,047,205 220,215,208 209,519,129 202,751,210 13.0 145 17,027 65,469 229,026,02

Fair Value of Derivative Contracts 

Interest rate contracts���������������������������������������������������� 92,290 92,057 107,170 98,102 94,739 -2.6 1 4 121 92,16

Foreign exchange contracts������������������������������������������ 8,198 12,340 -7,464 -4,874 1,329 516.9 0 -1 -16 8,21

Equity contracts������������������������������������������������������������� 1,763 -2,126 -1,777 311 -849 N/M 0 2 8 1,754

Commodity & other (excluding credit derivatives)�������� -916 -1,068 -721 -503 1,064 N/M 0 2 2 -920

Credit derivatives as guarantor������������������������������������� -40,236 -68,248 -131,318 -222,427 -121,494 66.9 0 0 5 -40,24

Credit derivatives as beneficiary����������������������������������� 50,612 82,772 150,801 242,490 141,389 -64.2 0 0 -2 50,61

Derivative Contracts by Maturity** 

Interest rate contracts ����������������������������� < 1 year 92,443,214 90,842,757 90,921,190 89,002,955 84,010,725 10.0 15 5,394 10,994 92,426,81

 ������������������������������������������ 1-5 years 34,896,628 33,496,837 35,145,181 33,352,707 33,334,968 4.7 17 4,981 25,024 34,866,60

 ������������������������������������������ > 5 years 24,922,192 24,306,863 24,550,151 23,099,484 24,121,171 3.3 28 2,297 14,841 24,905,02

Foreign exchange contracts ������������������� < 1 year 18,023,979 14,467,367 13,362,678 11,959,585 11,092,119 62.5 0 74 2,577 18,021,32

 ������������������������������������������ 1-5 years 2,741,047 2,432,756 2,582,310 2,356,096 2,440,019 12.3 0 2 79 2,740,96

 ������������������������������������������ > 5 years 1,432,790 1,289,279 1,431,627 1,306,940 1,329,332 7.8 0 0 149 1,432,64

Equity contracts��������������������������������������� < 1 year 349,752 296,198 352,002 326,743 320,739 9.0 0 30 98 349,62

 ������������������������������������������ 1-5 years 204,151 190,861 217,579 205,295 220,454 -7.4 0 28 240 203,88

 ������������������������������������������ > 5 years 84,177 84,629 86,713 80,595 84,000 0.2 0 0 11 84,16

Commodity & other contracts ����������������� < 1 year 504,234 382,507 311,897 324,203 287,660 75.3 0 7 128 504,09

 ������������������������������������������ 1-5 years 225,140 239,847 241,288 207,019 177,250 27.0 0 5 45 225,09

 ������������������������������������������ > 5 years 25,209 26,176 33,836 30,459 31,220 -19.3 0 0 0 25,20

Risk-Based Capital: Credit Equivalent Amount

Total current exposure to tier 1 capital (%)������������������� 37.7 41.3 48.6 45.0 41.4 0.0 0.4

Total potential future exposure to tier 1 capital (%)������ 86.8 84.0 83.1 83.1 89.1 0.1 0.2

Total exposure (credit equivalent amount) 

to tier 1 capital (%)�������������������������������������������������� 124.5 125.2 131.7 128.1 130.4 0.1 0.7 

Credit losses on derivatives***���������������������������������� 77.0 668.4 554.7 259.2 100.1 -23.1 0.0 0.

HELD FOR TRADIN

Number of institutions reporting derivatives����������������� 193 196 201 189 195 -1.0 6 73 56 5

Total assets of institutions reporting derivatives ���������� 9,075,286 8,968,803 9,001,809 8,882,869 8,949,192 1.4 354 31,875 227,681 8,815,37

Total deposits of institutions reporting derivatives������� 6,418,885 6,279,414 6,139,890 6,078,628 6,095,318 5.3 286 25,561 177,905 6,215,13

Derivative Contracts by Underlying Risk Exposur

Interest rate�������������������������������������������������������������������� 196,013,964 191,773,865 194,585,711 186,781,466 180,761,592 8.4 12 1,195 13,417 195,999,34

Foreign exchange���������������������������������������������������������� 26,378,493 20,853,441 20,699,946 18,086,768 17,462,757 51.1 0 0 2,621 26,375,87

Equity ����������������������������������������������������������������������������� 1,465,412 1,357,525 1,672,913 1,608,817 1,563,707 -6.3 0 1 120 1,465,29

Commodity & other�������������������������������������������������������� 1,356,822 1,184,245 1,145,723 1,070,966 934,851 45.1 0 0 121 1,356,70

Total�������������������������������������������������������������������������������� 225,214,690 215,169,076 218,104,293 207,548,018 200,722,908 12.2 12 1,195 16,277 225,197,20

Trading Revenues: Cash & Derivative Instruments

Interest rate�������������������������������������������������������������������� 4,584 1,413 4,150 68 270 1,597.8 0 0 24 4,56

Foreign exchange���������������������������������������������������������� 29 1,892 -1,087 4,312 3,906 -99.3 0 0 4 2

Equity ����������������������������������������������������������������������������� 747 365 405 418 979 -23.7 0 0 4 74

Commodity & other (including credit derivatives) �������� 2,043 -226 609 1,912 3,024 -32.4 0 0 1 2,04

Total trading revenues��������������������������������������������������� 7,403 3,444 4,077 6,710 8,178 -9.5 0 0 32 7,37

Share of Revenu

Trading revenues to gross revenues (%) ���������������������� 6.2 2.8 3.5 5.5 6.6 0.0 0.

Trading revenues to net operating revenues (%)���������� 40.7 25.5 28.4 47.7 76.1 0.0 0.0 

HELD FOR PURPOSES OTHER THAN T

Number of institutions reporting derivatives����������������� 1,035 1,057 1,084 1,046 1,032 0.3 76 625 257 7

Total assets of institutions reporting derivatives ���������� 10,593,072 10,475,733 10,535,035 10,261,969 10,324,307 2.6 5,646 257,038 729,138 9,601,24

Total deposits of institutions reporting derivatives������� 7,496,306 7,333,179 7,198,525 7,015,274 7,035,315 6.6 4,826 210,868 569,248 6,711,36

Derivative Contracts by Underlying Ris

Exposure 

Interest rate�������������������������������������������������������������������� 3,533,556 1,724,020 1,973,000 1,839,611 1,879,942 88.0 129 15,631 47,815 3,469,98

Foreign exchange���������������������������������������������������������� 333,908 136,970 124,108 120,010 134,258 148.7 0 77 825 333,00

Equity ����������������������������������������������������������������������������� 5,848 6,235 6,214 6,244 7,268 -19.5 4 109 458 5,27

Commodity & other�������������������������������������������������������� 20,662 10,905 7,593 5,246 6,835 202.3 0 16 94 20,55

Total notional amount ���������������������������������������������������� 3,893,975 1,878,129 2,110,915 1,971,111 2,028,303 92.0 133 15,832 49,192 3,828,81

All line items are reported on a quarterly basis. N/M - Not Meaningf

*Include spot foreign exchange contracts. All other references to foreign exchange contracts in which notional values or fair values are reported exclude spot foreign exchange contract

** Derivative contracts subject to the risk-based capital requirements for derivatives

*** The reporting of credit losses on derivatives is applicable to all banks filing the FFIEC 031 report form and to those banks filing the FFIEC 041 report form that have $300 million or more 

in total assets
FDIC Quarterly 13 2011, Volume 5, No. 2

Quarterly Banking Profile

TABLE VII-A. Servicing, Securitization, and Asset Sales Activities (All FDIC-Insured Commercial Banks and State-Chartered 

Savings Banks)

Asset Size Distributio

(dollar figures in millions)

1st 

Quarter

2011

4th 

Quarter

2010

3rd 

Quarter

2010

2nd 

Quarter 

2010

1st 

Quarter 

2010

% Change 

10Q1-

11Q1

Less than 

$100 

Million

$100 

Million to 

$1 Billion

$1 Billion 

to $10 

Billion

Greater 

than $10 

Billion

Assets Sold and Securitized with Servicing Retained or with Recourse or Other Seller-Provided Credit Enhance

Number of institutions reporting securitization activities ����������������������������������������� 144 137 135 125 125 15.2 22 68 24 3

Outstanding Principal Balance by Asset Type 

1-4 family residential loans�������������������������������������������������������������������������������� $753,780 $752,619 $760,102 $759,032 $778,241 -3.1 $375 $841 $2,726 $749,83

Home equity loans��������������������������������������������������������������������������������������������� 0 0 0 0 15 -100.0 0 0 0 

Credit card receivables�������������������������������������������������������������������������������������� 11,607 13,748 14,320 15,452 16,133 -28.1 0 721 0 10,88

Auto loans ���������������������������������������������������������������������������������������������������������� 234 298 329 486 600 -61.0 0 0 40 19

Other consumer loans ��������������������������������������������������������������������������������������� 4,138 4,234 4,333 5,021 5,610 -26.2 0 0 0 4,13

Commercial and industrial loans����������������������������������������������������������������������� 257 4,014 4,340 871 849 -69.7 0 13 27 21

All other loans, leases, and other assets���������������������������������������������������������� 206,893 192,394 213,203 209,600 195,433 5.9 2 39 109 206,74

Total securitized and sold������������������������������������������������������������������������������������������ 976,910 967,307 996,627 990,463 996,881 -2.0 377 1,615 2,903 972,01

Maximum Credit Exposure by Asset Type 

1-4 family residential loans�������������������������������������������������������������������������������� 4,547 4,683 4,834 4,953 5,166 -12.0 2 44 54 4,44

Home equity loans��������������������������������������������������������������������������������������������� 0 0 0 0 14 -100.0 0 0 0 

Credit card receivables�������������������������������������������������������������������������������������� 552 609 574 664 730 -24.4 0 228 0 32

Auto loans ���������������������������������������������������������������������������������������������������������� 4 5 6 6 6 -33.3 0 0 4 

Other consumer loans ��������������������������������������������������������������������������������������� 201 185 207 245 237 -15.2 0 0 0 20

Commercial and industrial loans����������������������������������������������������������������������� 0 9 9 86 86 -100.0 0 0 0 

All other loans, leases, and other assets���������������������������������������������������������� 397 440 1,165 270 281 41.3 0 5 0 39

Total credit exposure ������������������������������������������������������������������������������������������������� 5,701 5,931 6,795 6,224 6,521 -12.6 2 276 58 5,36

Total unused liquidity commitments provided to institution's own securitizations ��� 125 208 211 166 162 -22.8 1 0 2 12

Securitized Loans, Leases, and Other Assets 30-89 Days Past Due (%)

1-4 family residential loans�������������������������������������������������������������������������������� 4.7 5.8 6.0 5.6 6.0 3.4 0.

Home equity loans��������������������������������������������������������������������������������������������� 0.0 0.0 0.0 0.0 0.0 0.0 0.

Credit card receivables�������������������������������������������������������������������������������������� 1.1 1.1 1.2 1.6 1.5 0.0 1.

Auto loans ���������������������������������������������������������������������������������������������������������� 1.5 1.6 1.4 1.2 1.2 0.0 0.

Other consumer loans ��������������������������������������������������������������������������������������� 3.3 3.8 3.4 3.7 3.3 0.0 0.

Commercial and industrial loans����������������������������������������������������������������������� 0.7 0.0 0.0 0.9 1.2 0.0 12.

All other loans, leases, and other assets���������������������������������������������������������� 1.3 1.1 1.5 2.5 2.2 0.0 0.

Total loans, leases, and other assets ����������������������������������������������������������������������� 3.9 4.7 4.9 4.9 5.2 3.4 1.

Securitized Loans, Leases, and Other Assets 90 Days or More Past Due (%)

1-4 family residential loans�������������������������������������������������������������������������������� 9.1 9.1 10.5 10.9 13.1 2.4 0.

Home equity loans��������������������������������������������������������������������������������������������� 0.0 0.0 0.0 0.0 0.0 0.0 0.

Credit card receivables�������������������������������������������������������������������������������������� 0.5 0.5 0.5 0.7 0.8 0.0 2.

Auto loans ���������������������������������������������������������������������������������������������������������� 0.0 0.4 0.3 0.2 0.3 0.0 0.

Other consumer loans ��������������������������������������������������������������������������������������� 2.9 2.9 2.9 2.7 2.7 0.0 0.

Commercial and industrial loans����������������������������������������������������������������������� 0.0 0.0 0.0 0.5 0.5 0.0 0.

All other loans, leases, and other assets���������������������������������������������������������� 5.8 7.4 9.7 8.4 7.4 35.4 0.

Total loans, leases, and other assets ����������������������������������������������������������������������� 8.2 8.6 10.1 10.1 11.7 2.5 1.

Securitized Loans, Leases, and Other Assets Charged-off

(net, YTD, annualized, %) 

1-4 family residential loans�������������������������������������������������������������������������������� 0.3 1.9 1.5 0.7 0.3 0.0 0.

Home equity loans��������������������������������������������������������������������������������������������� 0.0 0.0 0.0 0.0 0.0 0.0 0.

Credit card receivables�������������������������������������������������������������������������������������� 1.4 7.9 6.2 4.2 2.2 0.0 2.

Auto loans ���������������������������������������������������������������������������������������������������������� 0.0 1.4 0.9 0.4 0.3 0.0 0.0

Other consumer loans ��������������������������������������������������������������������������������������� 0.3 1.8 1.4 0.9 0.4 0.0 0.

Commercial and industrial loans����������������������������������������������������������������������� 0.0 0.0 0.0 0.1 0.0 0.0 0.

All other loans, leases, and other assets���������������������������������������������������������� 0.1 0.4 0.2 0.1 0.0 0.0 0.

Total loans, leases, and other assets ����������������������������������������������������������������������� 0.3 1.7 1.2 0.6 0.3 0.0 1.

Seller's Interests in Institution's Own Securitizations - Carried as Loan

Home equity loans��������������������������������������������������������������������������������������������� 0 0 0 0 0 0.0 0 0 0 

Credit card receivables�������������������������������������������������������������������������������������� 8,157 7,350 6,073 5,088 4,831 68.8 0 47 0 8,11

Commercial and industrial loans����������������������������������������������������������������������� 2 2 2 3 4 -50.0 0 2 0 

Seller's Interests in Institution's Own Securitizations - Carried as Securiti

Home equity loans��������������������������������������������������������������������������������������������� 0 0 0 0 0 0.0 0 0 0 

Credit card receivables�������������������������������������������������������������������������������������� 0 0 0 0 0 0.0 0 0 0 

Commercial and industrial loans����������������������������������������������������������������������� 0 0 0 0 0 0.0 0 0 0 

Assets Sold with Recourse and Not Securitized Number of institutions reporting asset sales ���������������������������������������������������� 857 855 847 835 819 4.6 161 534 12

Outstanding Principal Balance by Asset Type 

1-4 family residential loans�������������������������������������������������������������������������������� 66,156 64,175 60,998 62,747 62,207 6.3 7,930 12,052 5,014 41,16

Home equity, credit card receivables, auto, and other consumer loans ��������� 1,417 1,455 41 41 40 3,442.5 0 6 14 1,39

Commercial and industrial loans����������������������������������������������������������������������� 102 379 445 537 669 -84.8 0 40 33 2

All other loans, leases, and other assets���������������������������������������������������������� 54,961 53,860 53,588 53,130 50,039 9.8 1 61 286 54,61

Total sold and not securitized������������������������������������������������������������������������������������ 122,637 119,870 115,073 116,455 112,954 8.6 7,932 12,159 5,347 97,20

Maximum Credit Exposure by Asset Type 

1-4 family residential loans�������������������������������������������������������������������������������� 14,139 15,587 14,996 14,196 13,705 3.2 132 1,866 2,997 9,14

Home equity, credit card receivables, auto, and other consumer loans ��������� 135 132 20 21 21 542.9 0 3 3 12

Commercial and industrial loans����������������������������������������������������������������������� 81 90 77 77 62 30.6 0 29 32 2

All other loans, leases, and other assets���������������������������������������������������������� 13,420 13,115 12,969 12,809 10,481 28.0 1 42 13 13,36

Total credit exposure ������������������������������������������������������������������������������������������������� 27,776 28,925 28,061 27,103 24,269 14.5 134 1,941 3,044 22,65

Support for Securitization Facilities Sponsored by Other Institutio

Number of institutions reporting securitization facilities sponsored by others ������� 162 166 155 129 80 102.5 23 89 35 1

Total credit exposure ������������������������������������������������������������������������������������������������� 30,579 29,581 29,189 10,206 7,467 309.5 31 248 144 30,15

Total unused liquidity commitments ������������������������������������������������������������������������� 626 514 504 418 846 -26.0 0 0 0 62

Other

Assets serviced for others*��������������������������������������������������������������������������������������� 5,749,124 5,783,491 5,892,026 5,956,566 5,995,635 -4.1 4,472 87,085 104,319 5,553,24

Asset-backed commercial paper conduits 

Credit exposure to conduits sponsored by institutions and others������������������ 9,895 10,009 11,649 10,699 10,653 -7.1 5 0 52 9,83

Unused liquidity commitments to conduits sponsored by institutions 

 and others �������������������������������������������������������������������������������������������������� 62,396 61,364 74,623 70,087 63,181 -1.2 0 0 1,557 60,84

Net servicing income (for the quarter)���������������������������������������������������������������������� 4,675 4,793 2,963 3,576 5,164 -9.5 37 148 178 4,31

Net securitization income (for the quarter)��������������������������������������������������������������� 99 150 164 156 13 661.5 0 3 3 9

Total credit exposure to Tier 1 capital (%)** ������������������������������������������������������������� 5.4 5.5 5.5 3.8 3.4 1.0 2.

* The amount of financial assets serviced for others, other than closed-end 1-4 family residential mortgages, is reported when these assets are greater than $10 million

** Total credit exposure includes the sum of the three line items titled “Total credit exposure” reported above
FDIC Quarterly 14 2011, Volume 5, No. 2

Total assets of the nation’s 7,574 FDIC-insured 

commercial banks and savings institutions increased by 

0.7 percent ($94.7 billion) during the first quarter of 

2011. Total deposits increased by 1.9 percent ($178.8 

billion), domestic office deposits increased by 1.5 

percent ($117.4 billion), and foreign office deposits 

increased by 4.0 percent ($61.4 billion). Domestic 

noninterest-bearing deposits increased by 3.5 percent 

($58.3 billion) and domestic interest-bearing deposits 

increased by 1.0 percent ($59.1 billion). For the 12 

months ending March 31, total domestic deposits grew 

by 3.9 percent ($298.2 billion), as interest-bearing 

deposits increased by 1.2 percent ($76.8 billion) and 

non-interest-bearing deposits rose by 14.5 percent 

($221.3 billion).

Brokered deposits decreased by 1.7 percent ($9.8 

billion) during the first quarter. At the end of the first 

quarter of 2011, 42 percent (3,215) of FDIC-insured 

banks and thrifts used brokered deposits and 798 of 

these institutions had brokered deposits that exceeded 

10 percent of their domestic deposits. Reciprocal 

brokered deposits spread among 1,471 institutions 

totaled $28.6 billion, representing 5.1 percent of total 

outstanding brokered deposits.1 Data newly provided in 

quarterly financial reports on deposits that institutions 

obtained through listing services indicate that 1,359 

institutions held such deposits, which in aggregate 

amounted to $40.8 billion.2

The Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank), enacted on July 21, 

2010, provides temporary unlimited deposit insurance 

1

 Reciprocal brokered deposits are deposits that an insured depository 

institution receives through a deposit placement network on a reciprocal basis, such that: (1) For any deposit received, the institution (as 

agent for depositors) places the same amount with other insured 

depository institutions through the network; and (2) each member of 

the network sets the interest rate to be paid on the entire amount of 

funds it places with other network members. 

2

 Listing service deposits are obtained as a result of a bank having its 

rates listed by a deposit service that is compensated for the listing by 

either the bank listing the rates or by the person or entities who view 

the listed rates. 

coverage for noninterest-bearing transaction accounts 

from December 31, 2010, through December 31, 2012, 

regardless of the balance in the account and the ownership capacity of the funds. The unlimited coverage is 

available to all depositors, including consumers, businesses and government entities. The coverage is separate from, and in addition to, the insurance coverage 

provided for a depositor’s other accounts held at an 

FDIC-insured bank.3 Insured commercial banks and 

savings institutions had $1.75 trillion in domestic 

noninterest-bearing deposits on March 31, 2011, 60 

percent ($1.05 trillion) of which was in noninterestbearing transaction accounts larger than $250,000. 

Of this total, $894 billion exceeded the basic coverage 

limit of $250,000 per account, but was fully insured by 

the temporary unlimited coverage. Banks with under 

$10 billion in assets funded 3.3 percent of their assets 

with deposits receiving the temporary unlimited coverage. Banks with more than $10 billion in assets had 

deposits receiving temporary coverage equal to 7.6 

percent of assets. The table on the following page shows 

the distribution of accounts receiving unlimited coverage on noninterest-bearing transaction accounts by 

institution asset size.

Total estimated insured deposits increased by 1.4 

percent in the quarter ending March 31, 2011, and rose 

by a total of 16.7 percent over the past four quarters. 

The large four-quarter increase was primarily attributable to the additional temporary coverage of noninterest bearing transaction accounts authorized by the 

Dodd-Frank Act. For institutions existing at the start 

and the end of the most recent quarter, insured deposits 

increased during the quarter at 5,114 institutions (68 

percent), decreased at 2,427 institutions (32 percent), 

and remained unchanged at 32 institutions.

3

 Beginning July 21, 2011, per Dodd-Frank insured institutions will no 

longer be prohibited from paying interest on commercial demand 

deposits. At that time, if an institution modifies the terms of its 

demand deposit accounts so that the account may earn interest, the 

account will no longer satisfy the definition of a noninterest-bearing 

transaction account, and will no longer be eligible for the temporary 

unlimited coverage.

■ DIF Reserve Ratio Rises 10 Basis Points to -0.02 Percent

■ Insured Deposits Grow by 1.4 Percent

■ 26 Institutions Failed during First Quarter

■ $894 Billion Temporarily Insured in Noninterest-bearing Transaction Accounts

INSURANCE FUND INDICATORS
FDIC Quarterly 15 2011, Volume 5, No. 2

Quarterly Banking Profile

assets minus average tangible equity. Revisions to insurance assessment rates and pricing rules for large banks 

(banks with assets greater than $10 billion) also became 

effective on that date. The Fourth Quarter 2010 Quarterly Banking Profile includes a more detailed explanation of these changes.

Dodd-Frank required that, for at least five years, the 

FDIC must make available to the public the reserve 

ratio and the DRR using both estimated insured 

deposits and the new assessment base. The new assessment base will require some changes in reporting, so 

only an estimate is available at this time. As of March 

31, 2011, the FDIC estimates that the reserve ratio 

would have been -0.01 percent using the new assessment base (compared to -0.02 percent using estimated 

insured deposits) and that the proposed 2 percent DRR 

using estimated insured deposits would have been 

approximately 1 percent using the estimated new 

assessment base.

Author: Kevin Brown, Sr. Financial Analyst

Division of Insurance and Research

(202) 898-6817

The condition of the Deposit Insurance Fund (DIF) 

continues to improve. The DIF increased by $6.3 

billion during the first quarter of 2011 to negative 

$1.0 billion (unaudited), the fifth consecutive quarterly 

increase. Assessment income of $3.5 billion and a 

$3.1 billion negative provision for insurance losses 

were the primary contributors to the improvement in 

the DIF balance. Interest earnings, combined with 

unrealized gains on available-for-sale securities and 

other net revenue, increased the fund by another 

$151 million. Operating expenses reduced the fund 

balance by $395 million.

The number of bank failures has fallen three quarters in 

a row. A total of 26 insured institutions with combined 

assets of $9.8 billion failed during the first quarter of 

2011, at an estimated cost to the DIF of $1.9 billion. 

The DIF’s reserve ratio was negative 0.02 percent on 

March 31, 2011, up from negative 0.12 percent at 

December 31, 2010, and the negative 0.39 percent low 

point reached at the end of 2009.

Effective April 1, 2011, the deposit insurance assessment base has changed to average consolidated total 

Insured Commercial Banks and Savings Institutions as of March 31, 2011

Distribution of Noninterest-Bearing Domestic Deposits, by Asset Size

Asset Size

Number of 

Institutions

Total Assets 

($ Bil.)

Dodd - Frank

Domestic Noninterest-Bearing Transaction Accounts

Larger than $250,000 Other 

NoninterestBearing 

Deposits* 

($ Bil.)

Total 

($ Bil.)

Amount above 

the $250,000 

Coverage Limit 

($ Bil.)

Average 

Account 

Size ($000)

Average 

Number of 

Accounts per 

Institution

Less than $1 Billion 6,904 1,431.5 59.2 37.5 682 13 112.7 

$1 - $10 Billion 563 1,429.1 80.5 58.3 904 158 77.7 

$10 - $50 Billion 71 1,411.5 97.5 78.9 1,314 1,045 64.6 

$50 - $100 Billion 17 1,179.0 70.8 59.3 1,550 2,685 39.0 

Over $100 Billion 19 7,963.6 745.4 659.8 2,178 18,012 400.0 

Total 7,574 13,414.7 1,053.3 893.9 1,651 84 694.1 

* Includes noninterest-bearing transaction accounts smaller than $250,000 and noninterest-bearing deposits not classified as transaction accounts.
FDIC Quarterly 16 2011, Volume 5, No. 2

DIF Reserve Ratios

Percent of Insured Deposits

1.19

1.01

0.76

0.36

0.27 0.22

-0.16 -0.39 -0.38 -0.28 -0.15 -0.12 -0.02

3/08 9/08 3/09 9/09 3/10 9/10 3/11

Table I-B. Insurance Fund Balances and Selected Indicators

(dollar figures in millions)

Deposit Insurance Fund*

1st 

Quarter 

2011

4th 

Quarter 

2010

3rd 

Quarter 

2010

2nd 

Quarter 

2010

1st 

Quarter 

2010

4th 

Quarter 

2009

3rd 

Quarter 

2009

2nd 

Quarter 

2009

1st 

Quarter 

2009

4th 

Quarter 

2008

3rd 

Quarter 

2008

2nd 

Quarter 

2008

1st 

Quarter 

2008

Beginning Fund Balance ..... -$7,352 -$8,009 -$15,247 -$20,717 -$20,862 -$8,243 $10,368 $13,007 $17,276 $34,588 $45,217 $52,843 $52,413

Changes in Fund Balance:

Assessments earned .............. 3,484 3,498 3,592 3,242 3,278 3,042 2,965 9,095 2,615 996 881 640 448

Interest earned on 

investment securities ...... 28 39 40 64 62 76 176 240 212 277 526 651 618

Realized gain on sale of

investments ...................... 0 0 0 0 0 0 732 521 136 302 473 0 0

Operating expenses ............... 395 452 414 382 345 379 328 298 266 290 249 256 238

Provision for insurance 

losses ............................... -3,089 2,446 -3,763 -2,552 3,021 17,766 21,694 11,615 6,637 19,163 11,930 10,221 525

All other income, 

net of expenses ............... 66 48 94 55 22 2,721 308 375 2 15 16 1 0

Unrealized gain/(loss) on 

available-for-sale 

securities ......................... 57 -30 163 -61 149 -313 -770 -957 -331 551 -346 1,559 127

Total fund balance change ..... 6,329 657 7,238 5,470 145 -12,619 -18,611 -2,639 -4,269 -17,312 -10,629 -7,626 430

Ending Fund Balance ........... -1,023 -7,352 -8,009 -15,247 -20,717 -20,862 -8,243 10,368 13,007 17,276 34,588 45,217 52,843

Percent change from 

four quarters earlier ......... NM NM NM NM NM NM NM -77.07 -75.39 -67.04 -33.17 -11.7

Reserve Ratio (%) ................. -0.02 -0.12 -0.15 -0.28 -0.38 -0.39 -0.16 0.22 0.27 0.36

Estimated Insured 

Deposits** .............................. 6,388,688 6,302,499 5,421,718 5,437,760 5,472,259 5,407,742 5,315,920 4,817,783 4,831,748 4,750,783 4,545,198 4,468,086 4,438,256

Percent change from 

four quarters earlier ......... 16.75 16.55 1.99 12.87 13.26 13.83 16.96 7.83 8.87 10.68 7

Domestic Deposits ............... 8,006,187 7,887,746 7,753,409 7,681,284 7,702,447 7,705,353 7,561,334 7,561,996 7,546,996 7,505,408 7,230,326 7,036,264 7,076,717

Percent change from 

four quarters earlier ......... 3.94 2.37 2.54 1.58 2.06 2.66 4.58 7.47 6.65 8.43 7

Number of institutions 

reporting ......................... 7,584 7,668 7,771 7,840 7,944 8,022 8,109 8,205 8,257 8,315 8,394 8,462 8,505

Deposit Insurance Fund Balance 

and Insured Deposits

($ Millions)

DIF 

Balance

DIF-Insured 

Deposits

3/08 $52,843 $4,438,256

6/08 45,217 4,468,086

9/08 34,588 4,545,198

12/08 17,276 4,750,783

3/09 13,007 4,831,748

6/09 10,368 4,817,783

9/09 -8,243 5,315,920

12/09 -20,862 5,407,742

3/10 -20,717 5,472,259

6/10 -15,247 5,437,760

9/10 -8,009 5,421,718

12/10 -7,352 6,302,499

3/11 -1,023 6,388,688

Table II-B. Problem Institutions and Failed/Assisted Institutions

(dollar figures in millions) 2011*** 2010*** 2010 2009 2008 2007 2006

Problem Institutions

Number of institutions ������������������������������������������������ 888 775 884 702 252 76 50

Total assets����������������������������������������������������������������� $397,252 $431,189 $390,017 $402,782 $159,405 $22,189 $8,265

Failed Institutions

Number of institutions ������������������������������������������������ 26 41 157 140 25 3 0

Total assets����������������������������������������������������������������� $9,839 $22,140 $92,085 $169,709 $371,945 $2,615 $0

Assisted Institutions****

Number of institutions ������������������������������������������������ 0 0 0 8 5 0 0

Total assets����������������������������������������������������������������� $0 $0 $0 $1,917,482 $1,306,042 0 0

* Quarterly financial statement results are unaudited. NM - Not meaningf

** Beginning in the third quarter of 2009, estimates of insured deposits are based on a $250,000 general coverage limit. The Dodd-Frank Wall Street Reform and Consumer Protection Act

(Dodd-Frank) temporarily provides unlimited coverage for noninterest bearing transaction accounts for two years beginning December 31, 2010. Beginning in the fourth quarter of 2010,

estimates of insured deposits include the entire balance of noninterest bearing transaction accounts

***Through March 31

**** Assisted institutions represent five institutions under a single holding company that received assistance in 2008, and eight institutions under a different single holding company that 

received assistance in 2009
FDIC Quarterly 17 2011, Volume 5, No. 2

Quarterly Banking Profile

Table III-B. Estimated FDIC-Insured Deposits by Type of Institution

(dollar figures in millions) 

March 31, 2011

Number of 

Institutions

Total 

Assets

Domestic 

Deposits*

Est. Insured 

Deposits

Commercial Banks and Savings Institutions

FDIC-Insured Commercial Banks ����������������������������������������������� 6,453 $12,157,324 $7,063,538 $5,547,794

 FDIC-Supervised ������������������������������������������������������������������� 4,267 1,941,847 1,485,978 1,209,714

 OCC-Supervised�������������������������������������������������������������������� 1,366 8,483,600 4,529,753 3,516,251

 Federal Reserve-Supervised������������������������������������������������� 820 1,731,876 1,047,806 821,829

FDIC-Insured Savings Institutions ���������������������������������������������� 1,121 1,257,331 926,968 826,107

 OTS-Supervised Savings Institutions������������������������������������ 724 931,664 685,654 613,452

 FDIC-Supervised State Savings Banks��������������������������������� 397 325,667 241,314 212,656

Total Commercial Banks and Savings Institutions ���������������������� 7,574 13,414,655 7,990,506 6,373,901

Other FDIC-Insured Institutions

U.S. Branches of Foreign Banks ������������������������������������������������� 10 30,790 15,682 14,7

Total FDIC-Insured Institutions���������������������������������������������������� . 7,584 13,445,445 8,006,187 6,388,6

* Excludes $1.6 trillion in foreign office deposits, which are uninsure

Table IV-B. Distribution of Institutions and Domestic Deposits Among Risk Categories

Quarter Ending December 31, 2010

(dollar figures in billions)

Annual 

Rate in

Basis Points*

Number of 

Institutions

Percent 

of Total 

Institutions

Domestic 

Deposits

Percent 

of Total 

Domestic 

Deposits

Risk Category 

 7.00-12.00 1,791 23.36 $791 1

12.01-14.00 1,524 19.87 1,709 2

14.01-15.99 1,683 21.95 1,931 2

 16.00-24.00 325 4.24 382 

Risk Category I

 17.00-22.00 1,236 16.12 2,256 2

 22.01-43.00 216 2.82 496 

Risk Category II

 27.00-32.00 567 7.39 186 

 32.01-58.00 136 1.77 80 

Risk Category IV 40.00-45.00 149 1.94 41

 45.01-77.50 41 0.53 15 

Note: Institutions are categorized based on supervisory ratings, debt ratings and financial data as of December 31, 2010

* Assessment rates with a given risk category vary for several reasons, see 12 CFR Part 327
FDIC Quarterly 18 2011, Volume 5, No. 2

periods, divided by the total number of periods). For “poolingof-interest” mergers, the assets of the acquired institution(s) 

are included in average assets since the year-to-date income 

includes the results of all merged institutions. No adjustments 

are made for “purchase accounting” mergers. Growth rates 

represent the percentage change over a 12-month period in 

totals for institutions in the base period to totals for institutions in the current period.

All data are collected and presented based on the location of 

each reporting institution’s main office. Reported data may 

include assets and liabilities located outside of the reporting 

institution’s home state. In addition, institutions may relocate 

across state lines or change their charters, resulting in an 

inter-regional or inter-industry migration, e.g., institutions 

can move their home offices between regions, and savings 

institutions can convert to commercial banks or commercial 

banks may convert to savings institutions.

ACCOUNTING CHANGES

Extended Net Operating Loss Carryback Period – The Worker, 

Homeownership, and Business Assistance Act of 2009, which 

was enacted on November 6, 2009, permits banks and other 

businesses, excluding those banking organizations that received 

capital from the U.S. Treasury under the Troubled Asset Relief 

Program, to elect a net operating loss carryback period of 

three, four, or five years instead of the usual carryback period 

of two years for any one tax year ending after December 31, 

2007, and beginning before January 1, 2010. For calendar year 

banks, this extended carryback period applies to either the 

2008 or 2009 tax year. The amount of the net operating loss 

that can be carried back to the fifth carryback year is limited 

to 50 percent of the available taxable income for that fifth 

year, but this limit does not apply to other carryback years.

Under generally accepted accounting principles, banks may 

not record the effects of this tax change in their balance 

sheets and income statements for financial and regulatory 

reporting purposes until the period in which the law was 

enacted, i.e., the fourth quarter of 2009. Therefore, banks 

should recognize the effects of this fourth quarter 2009 tax 

law change on their current and deferred tax assets and liabilities, including valuation allowances for deferred tax assets, in 

their Call Reports for December 31, 2009. Banks should not 

amend their Call Reports for prior quarters for the effects of 

the extended net operating loss carryback period.

The American Recovery and Reinvestment Act of 2009, 

which was enacted on February 17, 2009, permits qualifying 

small businesses, including FDIC-insured institutions, to elect 

a net operating loss carryback period of three, four, or five 

years instead of the usual carryback period of two years for any 

tax year ending in 2008 or, at the small business’s election, 

any tax year beginning in 2008. Under generally accepted 

accounting principles, institutions may not record the effect of 

this tax change in their balance sheets and income statements 

for financial and regulatory reporting purposes until the period 

in which the law was enacted, i.e., the first quarter of 2009.

Troubled Debt Restructurings – Many institutions are restructuring or modifying the terms of loans to provide payment relief 

for those borrowers who have suffered deterioration in their 

financial condition. Such loan restructurings may include, but 

are not limited to, reductions in principal or accrued interest, 

reductions in interest rates, and extensions of the maturity 

date. Modifications may be executed at the original contractuNotes to Users

This publication contains financial data and other information 

for depository institutions insured by the Federal Deposit Insurance Corporation (FDIC). These notes are an integral part of 

this publication and provide information regarding the comparability of source data and reporting differences over time.

Tables I-A through VIII-A.

The information presented in Tables I-A through V-A of the 

FDIC Quarterly Banking Profile is aggregated for all FDICinsured institutions, both commercial banks and savings institutions. Tables VI-A (Derivatives) and VII-A (Servicing, 

Securitization, and Asset Sales Activities) aggregate information only for insured commercial banks and state-chartered 

savings banks that file quarterly Call Reports. Table VIII-A 

(Trust Services) aggregates Trust asset and income information collected annually from all FDIC-insured institutions. 

Some tables are arrayed by groups of FDIC-insured institutions based on predominant types of asset concentration, 

while other tables aggregate institutions by asset size and 

geographic region. Quarterly and full-year data are provided 

for selected indicators, including aggregate condition and 

income data, performance ratios, condition ratios, and structural changes, as well as past due, noncurrent, and charge-off 

information for loans outstanding and other assets.

Tables I-B through IV-B.

A separate set of tables (Tables I-B through IV-B) provides 

comparative quarterly data related to the Deposit Insurance 

Fund (DIF), problem institutions, failed/assisted institutions, 

estimated FDIC-insured deposits, as well as assessment rate 

information. Depository institutions that are not insured by 

the FDIC through the DIF are not included in the FDIC 

Quarterly Banking Profile. U.S. branches of institutions headquartered in foreign countries and non-deposit trust companies 

are not included unless otherwise indicated. Efforts are made 

to obtain financial reports for all active institutions. However, 

in some cases, final financial reports are not available for institutions that have closed or converted their charters.

DATA SOURCES

The financial information appearing in this publication is 

obtained primarily from the Federal Financial Institutions 

Examination Council (FFIEC) Consolidated Reports of 

Condition and Income (Call Reports) and the OTS Thrift 

Financial Reports submitted by all FDIC-insured depository 

institutions. This information is stored on and retrieved from 

the FDIC’s Research Information System (RIS) data base.

COMPUTATION METHODOLOGY

Parent institutions are required to file consolidated reports, 

while their subsidiary financial institutions are still required 

to file separate reports. Data from subsidiary institution 

reports are included in the Quarterly Banking Profile tables, 

which can lead to double-counting. No adjustments are made 

for any double-counting of subsidiary data. Additionally, certain adjustments are made to the OTS Thrift Financial Reports

to provide closer conformance with the reporting and 

accounting requirements of the FFIEC Call Reports.

All asset and liability figures used in calculating performance 

ratios represent average amounts for the period (beginning-ofperiod amount plus end-of-period amount plus any interim 
FDIC Quarterly 19 2011, Volume 5, No. 2

Quarterly Banking Profile

No. 115, Accounting for Certain Investments in Debt and Equity 

Securities); FASB Staff Position (FSP) FAS 115-1 and FAS 

124-1, The Meaning of Other-Than-Temporary Impairment and 

Its Application to Certain Investments; FSP FAS 115-2 and FAS 

124-2, Recognition and Presentation of Other-Than-Temporary 

Impairments; paragraph 6 of Accounting Principles Board 

Opinion No. 18, The Equity Method of Accounting for 

Investments in Common Stock; Emerging Issues Task Force 

(EITF) Issue No. 99-20, Recognition of Interest Income and 

Impairment on Purchased Beneficial Interests and Beneficial 

Interests That Continue to Be Held by a Transferor in Securitized 

Financial Assets; and FSP EITF 99-20-1, Amendments to the 

Impairment Guidance of EITF Issue No. 99-20. Under ASC 

Topic 320, if an institution intends to sell a debt security or it 

is more likely than not that it will be required to sell the debt 

security before recovery of its amortized cost basis, an otherthan-temporary impairment has occurred and the entire difference between the security’s amortized cost basis and its fair 

value at the balance sheet date must be recognized in earnings. In these cases, the fair value of the debt security would 

become its new amortized cost basis. In addition, under ASC 

Topic 320, if the present value of cash flows expected to be 

collected on a debt security is less than its amortized cost 

basis, a credit loss exists. In this situation, if an institution 

does not intend to sell the security and it is not more likely 

than not that the institution will be required to sell the debt 

security before recovery of its amortized cost basis less any 

current-period credit loss, an other-than-temporary impairment has occurred. The amount of the total other-thantemporary impairment related to the credit loss must be 

recognized in earnings, but the amount of the total impairment related to other factors must be recognized in other 

comprehensive income, net of applicable taxes.

ASC Topic 805 (formerly Business Combinations and Noncontrolling 

(Minority) Interests) – In December 2007, the FASB issued 

Statement No. 141 (Revised), Business Combinations FAS 

141(R)), and Statement No. 160, Noncontrolling Interests in 

Consolidated Financial Statements (FAS 160). Under FAS 

141(R), all business combinations, including combinations of 

mutual entities, are to be accounted for by applying the acquisition method. FAS 160 defines a noncontrolling interest, also 

called a minority interest, as the portion of equity in an institution’s subsidiary not attributable, directly or indirectly, to the 

parent institution. FAS 160 requires an institution to clearly 

present in its consolidated financial statements the equity 

ownership in and results of its subsidiaries that are attributable 

to the noncontrolling ownership interests in these subsidiaries. 

FAS 141(R) applies prospectively to business combinations for 

which the acquisition date is on or after the beginning of the 

first annual reporting period beginning on or after December 

15, 2008. Similarly, FAS 160 is effective for fiscal years beginning on or after December 15, 2008. Thus, for institutions 

with calendar year fiscal years, these two accounting standards 

take effect in 2009. Beginning in March 2009, Institution 

equity capital and Noncontrolling interests are separately 

reported in arriving at Total equity capital and Net income.

ASC Topic 820 (formerly FASB Statement No. 157 Fair Value 

Measurements issued in September 2006) and ASC Topic 825 

(formerly FASB Statement No. 159 The Fair Value Option for 

Financial Assets and Financial Liabilities) issued in February 2007 – 

both are effective in 2008 with early adoption permitted in 

2007. FAS 157 defines fair value and establishes a framework 

al interest rate on the loan, a current market interest rate, or a 

below-market interest rate. Many of these loan modifications 

meet the definition of a troubled debt restructuring (TDR).

The TDR accounting and reporting standards are set forth in 

ASC Subtopic 310-40, Receivables—Troubled Debt 

Restructurings by Creditors (formerly FASB Statement No. 

15, “Accounting by Debtors and Creditors for Troubled Debt 

Restructurings,” as amended). This guidance specifies that a 

restructuring of a debt constitutes a TDR if, at the date of 

restructuring, the creditor for economic or legal reasons related to a debtor’s financial difficulties grants a concession to 

the debtor that it would not otherwise consider.

In the Call Report, until a loan that is a TDR is paid in full 

or otherwise settled, sold, or charged off, it must be reported 

in the appropriate loan category, as well as identified as a performing TDR loan, if it is in compliance with its modified 

terms. If a TDR is not in compliance with its modified terms, 

it is reported as a past due and nonaccrual loan in the appropriate loan category, as well as distinguished from other past 

due and nonaccrual loans. To be considered in compliance 

with its modified terms, a loan that is a TDR must not be in 

nonaccrual status and must be current or less than 30 days 

past due on its contractual principal and interest payments 

under the modified repayment terms. A loan restructured in a 

TDR is an impaired loan. Thus, all TDRs must be measured 

for impairment in accordance with ASC Subtopic 310-10, 

Receivables—Overall (formerly FASB Statement No. 114, 

“Accounting by Creditors for Impairment of a Loan,” as 

amended), and the Call report Glossary entry for “Loan 

Impairment.”

Accounting for Loan Participations – Amended ASC Topic 860 

(formerly FAS 166) modified the criteria that must be met in 

order for a transfer of a portion of a financial asset, such as a 

loan participation, to qualify for sale accounting. These 

changes apply to transfers of loan participations on or after 

the effective date of amended ASC Topic 860 (January 1, 

2010, for banks with calendar year fiscal year), including 

advances under lines of credit that are transferred on or after 

the effective date of amended ASC Topic 860 even if the line 

of credit agreements were entered into before this effective 

date. Therefore, banks with a calendar year fiscal year must 

account for transfers of loan participations on or after January 

1, 2010, in accordance with amended ASC Topic 860. In 

general, loan participations transferred before the effective 

date of amended ASC Topic 860 are not affected by this new 

accounting standard. 

Under amended ASC Topic 860, if a transfer of a portion of 

an entire financial asset meets the definition of a “participating interest,” then the transferor (normally the lead lender) 

must evaluate whether the transfer meets all of the conditions 

in this accounting standard to qualify for sale accounting.

Other-Than-Temporary Impairment – When the fair value of an 

investment in a debt or equity security is less than its cost 

basis, the impairment is either temporary or other-thantemporary. To determine whether the impairment is otherthan-temporary, an institution must apply other pertinent 

guidance in ASC Topic 320 , Investments-Debt and Equity 

Securities—Overall; ASC Subtopic 325-20, InvestmentsOther—Cost Method Investments; and ASC Subtopic 325-

40, Investments-Other—Beneficial Interests in Securitized 

Financial Assets (formerly paragraph 16 of FASB Statement 
FDIC Quarterly 20 2011, Volume 5, No. 2

Call Report purposes. The SOP does not apply to the loans 

that a bank has originated, prohibits “carrying over” or creation of valuation allowances in the initial accounting, and 

any subsequent valuation allowances reflect only those losses 

incurred by the investor after acquisition.

GNMA Buy-back Option – If an issuer of GNMA securities has the 

option to buy back the loans that collateralize the GNMA securities, when certain delinquency criteria are met, ASC Topic 

860 (formerly FASB Statement No. 140) requires that loans 

with this buy-back option must be brought back on the issuer’s 

books as assets. The rebooking of GNMA loans is required 

regardless of whether the issuer intends to exercise the buy-back 

option. The banking agencies clarified in May 2005 that all 

GNMA loans that are rebooked because of delinquency should 

be reported as past due according to their contractual terms.

ASC Topics 860 & 810 (formerly FASB Statements 166 & 167) – 

In June 2009, the FASB issued Statement No. 166, 

Accounting for Transfers of Financial Assets (FAS 166), and 

Statement No. 167, Amendments to FASB Interpretation No. 

46(R) (FAS 167), which change the way entities account for 

securitizations and special purpose entities. FAS 166 revised 

FASB Statement No. 140, Accounting for Transfers and 

Servicing of Financial Assets and Extinguishments of Liabilities, by 

eliminating the concept of a “qualifying special-purpose entity,” creating the concept of a “participating interest,” changing the requirements for derecognizing financial assets, and 

requiring additional disclosures. FAS 167 revised FASB 

Interpretation No. 46(R), Consolidation of Variable Interest 

Entities, by changing how a bank or other company determines when an entity that is insufficiently capitalized or is 

not controlled through voting or similar rights, i.e., a “variable interest entity” (VIE), should be consolidated. Under 

FAS 167, a bank must perform a qualitative assessment to 

determine whether its variable interest or interests give it a 

controlling financial interest in a VIE. If a bank’s variable 

interest or interests provide it with the power to direct the 

most significant activities of the VIE, and the right to receive 

benefits or the obligation to absorb losses that could potentially be significant to the VIE, the bank is the primary beneficiary of, and therefore must consolidate, the VIE.

Both FAS 166 and FAS 167 take effect as of the beginning of 

each bank’s first annual reporting period that begins after 

November 15, 2009, for interim periods therein, and for interim and annual reporting periods thereafter (i.e., as of January 

1, 2010, for banks with a calendar year fiscal year). Earlier 

application is prohibited. Banks are expected to adopt FAS 

166 and FAS 167 for Call Report purposes in accordance with 

the effective date of these two standards. Also, FAS 166 has 

modified the criteria that must be met in order for a transfer of 

a portion of a financial asset, such as a loan participation, to 

qualify for sale accounting. These changes apply to transfers of 

loan participations on or after the effective date of FAS 166. 

Therefore, banks with a calendar year fiscal year must account 

for transfers of loan participations on or after January 1, 2010, 

in accordance with FAS 166. In general, loan participations 

transferred before the effective date of FAS 166 (January 1, 

2010, for calendar year banks) are not affected by this new 

accounting standard and pre-FAS 166 participations that 

were properly accounted for as sales under FASB Statement 

No. 140 will continue to be reported as having been sold.

ASC Topic 740 (formerly FASB Interpretation No. 48 on Uncertain 

Tax Positions) – FASB Interpretation No. 48, Accounting for 

for developing fair value estimates for the fair value measurements that are already required or permitted under other 

standards. FASB FSP 157-4, issued in April 2009, provides 

additional guidance for estimating fair value in accordance 

with FAS 157 when the volume and level of activity for the 

asset or liability have significantly decreased. The FSP also 

includes guidance on identifying circumstances that indicate a 

transaction is not orderly. The FSP is effective for interim and 

annual reporting periods ending after June 15, 2009, with early 

adoption permitted for periods ending after March 15, 2009.

Fair value continues to be used for derivatives, trading securities, and available-for-sale securities. Changes in fair value go 

through earnings for trading securities and most derivatives. 

Changes in the fair value of available-for-sale securities are 

reported in other comprehensive income. Available-for-sale 

securities and held-to-maturity debt securities are written down 

to fair value if impairment is other than temporary and loans 

held for sale are reported at the lower of cost or fair value.

FAS 159 allows institutions to report certain financial assets 

and liabilities at fair value with subsequent changes in fair 

value included in earnings. In general, an institution may 

elect the fair value option for an eligible financial asset or liability when it first recognizes the instrument on its balance 

sheet or enters into an eligible firm commitment.

ASC Topic 715 (formerly FASB Statement No. 158 Employers’ 

Accounting for Defined Benefit Pension and Other Postretirement 

Plans) – issued in September 2006 requires a bank to recognize 

in 2007, and subsequently, the funded status of its postretirement plans on its balance sheet. An overfunded plan is recognized as an asset and an underfunded plan is recognized as a 

liability. An adjustment is made to equity as accumulated 

other comprehensive income (AOCI) upon application of 

FAS 158, and AOCI is adjusted in subsequent periods as net 

periodic benefit costs are recognized in earnings.

ASC Topic 860 (formerly FASB Statement No. 156 Accounting for 

Servicing of Financial Assets) – issued in March 2006 and effective in 2007, requires all separately recognized servicing assets 

and liabilities to be initially measured at fair value and allows 

a bank the option to subsequently adjust that value by periodic revaluation and recognition of earnings or by periodic 

amortization to earnings.

ASC Topic 815 (formerly FASB Statement No. 155 Accounting for 

Certain Hybrid Financial Instruments) – issued in February 2006, 

requires bifurcation of certain derivatives embedded in interests in securitized financial assets and permits fair value measurement (i.e., a fair value option) for any hybrid financial 

instrument that contains an embedded derivative that would 

otherwise require bifurcation under FASB Statement No. 133, 

Accounting for Derivative Instruments and Hedging Activities

(FAS 133). In addition, FAS 155 clarifies which interest-only 

and principal-only strips are not subject to FAS 133.

Purchased Impaired Loans and Debt Securities – ASC Topic 310 

(formerly Statement of Position 03-3, Accounting for Certain Loans 

or Debt Securities Acquired in a Transfer) – The SOP applies to 

loans and debt securities acquired in fiscal years beginning 

after December 15, 2004. In general, this Statement of 

Position applies to “purchased impaired loans and debt securities” (i.e., loans and debt securities that a bank has purchased, 

including those acquired in a purchase business combination, 

when it is probable, at the purchase date, that the bank will 

be unable to collect all contractually required payments 

receivable). Banks must follow Statement of Position 03-3 for 
FDIC Quarterly 21 2011, Volume 5, No. 2

Quarterly Banking Profile

Assets securitized and sold – total outstanding principal balance 

of assets securitized and sold with servicing retained or other 

seller- provided credit enhancements.

Capital Purchase Program (CPP) – As announced in October 

2008 under the TARP, the Treasury Department purchase of 

noncumulative perpetual preferred stock and related warrants 

that is treated as Tier 1 capital for regulatory capital purposes 

is included in “Total equity capital.” Such warrants to purchase common stock or noncumulative preferred stock issued 

by publicly-traded banks are reflected as well in “Surplus.” 

Warrants to purchase common stock or noncumulative preferred stock of not-publicly-traded bank stock classified in a 

bank’s balance sheet as “Other liabilities.”

Construction and development loans – includes loans for all property types under construction, as well as loans for land acquisition and development.

Core capital – common equity capital plus noncumulative perpetual preferred stock plus minority interest in consolidated 

subsidiaries, less goodwill and other ineligible intangible 

assets. The amount of eligible intangibles (including servicing 

rights) included in core capital is limited in accordance with 

supervisory capital regulations.

Cost of funding earning assets – total interest expense paid on 

deposits and other borrowed money as a percentage of average 

earning assets.

Credit enhancements – techniques whereby a company attempts 

to reduce the credit risk of its obligations. Credit enhancement may be provided by a third party (external credit 

enhancement) or by the originator (internal credit enhancement), and more than one type of enhancement may be 

associated with a given issuance.

Deposit Insurance Fund (DIF) – the Bank (BIF) and Savings 

Association (SAIF) Insurance Funds were merged in 2006 by 

the Federal Deposit Insurance Reform Act to form the DIF.

Derivatives notional amount – the notional, or contractual, 

amounts of derivatives represent the level of involvement in 

the types of derivatives transactions and are not a quantification of market risk or credit risk. Notional amounts represent 

the amounts used to calculate contractual cash flows to be 

exchanged.

Derivatives credit equivalent amount – the fair value of the 

derivative plus an additional amount for potential future credit exposure based on the notional amount, the remaining 

maturity and type of the contract.

Derivatives transaction types:

Futures and forward contracts – contracts in which the buyer 

agrees to purchase and the seller agrees to sell, at a specified future date, a specific quantity of an underlying variable or index at a specified price or yield. These contracts 

exist for a variety of variables or indices, (traditional agricultural or physical commodities, as well as currencies and 

interest rates). Futures contracts are standardized and are 

traded on organized exchanges which set limits on counterparty credit exposure. Forward contracts do not have 

standardized terms and are traded over the counter.

Option contracts – contracts in which the buyer acquires the 

right to buy from or sell to another party some specified 

amount of an underlying variable or index at a stated price 

(strike price) during a period or on a specified future date, 

in return for compensation (such as a fee or premium). 

Uncertainty in Income Taxes (FIN 48), was issued in June 2006 

as an interpretation of FASB Statement No. 109, Accounting 

for Income Taxes. Under FIN 48, the term “tax position” refers 

to “a position in a previously filed tax return or a position 

expected to be taken in a future tax return that is reflected in 

measuring current or deferred income tax assets and liabilities.” FIN 48 further states that a “tax position can result in 

a permanent reduction of income taxes payable, a deferral of 

income taxes otherwise currently payable to future years, or 

a change in the expected realizability of deferred tax assets.” 

FIN 48 was originally issued effective for fiscal years beginning after December 15, 2006. Banks must adopt FIN 48 for 

Call Report purposes in accordance with the interpretation’s 

effective date except as follows. On December 31, 2008, the 

FASB decided to defer the effective date of FIN 48 for eligible nonpublic enterprises and to require those enterprises to 

adopt FIN 48 for annual periods beginning after December 

15, 2008. A nonpublic enterprise under certain conditions is 

eligible for deferral, even if it opted to issue interim or quarterly financial information in 2007 under earlier guidance 

that reflected the adoption of FIN 48.

ASC Topic 718 (formerly FASB Statement No. 123 (Revised 2004) 

and Share-Based Payments – refer to previously published 

Quarterly Banking Profile notes: http://www2.fdic.gov/qbp/

2008dec/qbpnot.html

ASC Topic 815 (formerly FASB Statement No. 133 Accounting for 

Derivative Instruments and Hedging Activities) – refer to previously published Quarterly Banking Profile notes: http://www2.fdic.

gov/qbp/2008dec/qbpnot.html

Accounting Standards Codification – In June 2009, the FASB 

issued Statement No. 168, The FASB Accounting Standards 

CodificationTM and the Hierarchy of Generally Accepted 

Accounting Principles (FAS 168), to establish the FASB 

Codification as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (U.S. 

GAAP). The FASB Codification reorganizes existing U.S. 

accounting and reporting standards issued by the FASB and 

other related private-sector standard setters, and all guidance 

contained in the FASB Codification carries an equal level of 

authority. All previously existing accounting standards documents are superseded as described in FAS 168. All other 

accounting literature not included in the FASB Codification 

is nonauthoritative. The FASB Codification can be accessed 

at http://asc.fasb.org/. The FASB Codification is effective for 

interim and annual periods ending after September 15, 2009. 

This is an FFIEC reference guide at http://www.ffiec.gov/pdf/

ffiec_forms/CodificationIntroduction_201006.pdf.

DEFINITIONS (in alphabetical order)

All other assets – total cash, balances due from depository 

institutions, premises, fixed assets, direct investments in real 

estate, investment in unconsolidated subsidiaries, customers’ 

liability on acceptances outstanding, assets held in trading 

accounts, federal funds sold, securities purchased with agreements to resell, fair market value of derivatives, prepaid 

deposit insurance assessments, and other assets.

All other liabilities – bank’s liability on acceptances, limited-life 

preferred stock, allowance for estimated off-balance-sheet credit 

losses, fair market value of derivatives, and other liabilities.

Assessment base – assessable deposits consist of DIF deposits 

(deposits insured by the FDIC Deposit Insurance Fund) in 

banks’ domestic offices with certain adjustments.
FDIC Quarterly 22 2011, Volume 5, No. 2

Long-term assets (5+ years) – loans and debt securities with 

remaining maturities or repricing intervals of over five years.

Maximum credit exposure – the maximum contractual credit 

exposure remaining under recourse arrangements and other 

seller-provided credit enhancements provided by the reporting bank to securitizations.

Mortgage-backed securities – certificates of participation in 

pools of residential mortgages and collateralized mortgage 

obligations issued or guaranteed by government-sponsored or 

private enterprises. Also, see “Securities,” below.

Net charge-offs – total loans and leases charged off (removed 

from balance sheet because of uncollectibility), less amounts 

recovered on loans and leases previously charged off.

Net interest margin – the difference between interest and dividends earned on interest-bearing assets and interest paid to 

depositors and other creditors, expressed as a percentage of 

average earning assets. No adjustments are made for interest 

income that is tax exempt.

Net loans to total assets – loans and lease financing receivables, net of unearned income, allowance and reserves, as a 

percent of total assets on a consolidated basis.

Net operating income – income excluding discretionary transactions such as gains (or losses) on the sale of investment securities and extraordinary items. Income taxes subtracted from 

operating income have been adjusted to exclude the portion 

applicable to securities gains (or losses).

Noncurrent assets – the sum of loans, leases, debt securities, 

and other assets that are 90 days or more past due, or in nonaccrual status.

Noncurrent loans & leases – the sum of loans and leases 90 days 

or more past due, and loans and leases in nonaccrual status.

Number of institutions reporting – the number of institutions 

that actually filed a financial report.

New charters – insured institutions filing quarterly financial 

reports for the first time.

Other borrowed funds – federal funds purchased, securities sold 

with agreements to repurchase, demand notes issued to the 

U.S. Treasury, FHLB advances, other borrowed money, mortgage indebtedness, obligations under capitalized leases and 

trading liabilities, less revaluation losses on assets held in 

trading accounts.

Other real estate owned – primarily foreclosed property. Direct 

and indirect investments in real estate ventures are excluded. 

The amount is reflected net of valuation allowances. For institutions that file a Thrift Financial Report (TFR), the valuation 

allowance subtracted also includes allowances for other repossessed assets. Also, for TFR filers the components of other real 

estate owned are reported gross of valuation allowances.

Percent of institutions with earnings gains – the percent of institutions that increased their net income (or decreased their 

losses) compared to the same period a year earlier.

“Problem” institutions – federal regulators assign a composite 

rating to each financial institution, based upon an evaluation 

of financial and operational criteria. The rating is based on a 

scale of 1 to 5 in ascending order of supervisory concern. 

“Problem” institutions are those institutions with financial, 

operational, or managerial weaknesses that threaten their 

continued financial viability. Depending upon the degree of 

risk and supervisory concern, they are rated either a “4” or 

“5.” The number and assets of “problem” institutions are 

based on FDIC composite ratings. Prior to March 31, 2008, 

The seller is obligated to purchase or sell the variable or 

index at the discretion of the buyer of the contract.

Swaps – obligations between two parties to exchange a 

series of cash flows at periodic intervals (settlement dates), 

for a specified period. The cash flows of a swap are either 

fixed, or determined for each settlement date by multiplying the quantity (notional principal) of the underlying 

variable or index by specified reference rates or prices. 

Except for currency swaps, the notional principal is used 

to calculate each payment but is not exchanged.

Derivatives underlying risk exposure – the potential exposure 

characterized by the level of banks’ concentration in particular underlying instruments, in general. Exposure can result 

from market risk, credit risk, and operational risk, as well as, 

interest rate risk.

Domestic deposits to total assets – total domestic office deposits 

as a percent of total assets on a consolidated basis.

Earning assets – all loans and other investments that earn 

interest or dividend income.

Efficiency ratio – noninterest expense less amortization of 

intangible assets as a percent of net interest income plus noninterest income. This ratio measures the proportion of net 

operating revenues that are absorbed by overhead expenses, 

so that a lower value indicates greater efficiency.

Estimated insured deposits – in general, insured deposits are total 

domestic deposits minus estimated uninsured deposits. Beginning March 31, 2008, for institutions that file Call reports, 

insured deposits are total assessable deposits minus estimated 

uninsured deposits. Beginning September 30, 2009, insured 

deposits include deposits in accounts of $100,000 to $250,000 

that are covered by a temporary increase in the FDIC’s standard maximum deposit insurance amount (SMDIA).

Failed/assisted institutions – an institution fails when regulators 

take control of the institution, placing the assets and liabilities into a bridge bank, conservatorship, receivership, or 

another healthy institution. This action may require the 

FDIC to provide funds to cover losses. An institution is 

defined as “assisted” when the institution remains open and 

receives assistance in order to continue operating.

Fair Value – the valuation of various assets and liabilities on 

the balance sheet—including trading assets and liabilities, 

available-for-sale securities, loans held for sale, assets and 

liabilities accounted for under the fair value option, and foreclosed assets—involves the use of fair values. During periods 

of market stress, the fair values of some financial instruments 

and nonfinancial assets may decline.

FHLB advances – all borrowings by FDIC insured institutions 

from the Federal Home Loan Bank System (FHLB), as reported by Call Report filers and by TFR filers.

Goodwill and other intangibles – intangible assets include 

servicing rights, purchased credit card relationships, and other 

identifiable intangible assets. Goodwill is the excess of the 

purchase price over the fair market value of the net assets 

acquired, less subsequent impairment adjustments. Other 

intangible assets are recorded at fair value, less subsequent 

quarterly amortization and impairment adjustments.

Loans secured by real estate – includes home equity loans, 

junior liens secured by 1-4 family residential properties, and 

all other loans secured by real estate.

Loans to individuals – includes outstanding credit card balances 

and other secured and unsecured consumer loans.
FDIC Quarterly 23 2011, Volume 5, No. 2

Quarterly Banking Profile

Effective April 1, 2009, the initial base assessment rates are 

12 to 45 basis points. An institution’s total assessment rate 

may be less than or greater than its initial base assessment 

rate as a result of additional risk adjustments.

The base assessment rates for most institutions in Risk 

Category I are based on a combination of financial ratios and 

CAMELS component ratings (the financial ratios method).

For large institutions in Risk Category I (generally those with 

at least $10 billion in assets) that have long-term debt issuer 

ratings, assessment rates are determined by equally weighting 

the institution’s CAMELS component ratings, long-term debt 

issuer ratings, and the financial ratios method assessment rate. 

For all large Risk Category I institutions, additional risk factors are considered to determine whether assessment rates 

should be adjusted. This additional information includes 

market data, financial performance measures, considerations 

of the ability of an institution to withstand financial stress, 

and loss severity indicators. Any adjustment is limited to no 

more than one basis point.

Effective April 1, 2009, the FDIC introduced three possible 

adjustments to an institution’s initial base assessment rate: 

(1) a decrease of up to 5 basis points for long-term unsecured 

debt and, for small institutions, a portion of Tier 1 capital; 

(2) an increase not to exceed 50 percent of an institution’s 

assessment rate before the increase for secured liabilities in 

excess of 25 percent of domestic deposits; and (3) for nonRisk Category I institutions, an increase not to exceed 10 

basis points for brokered deposits in excess of 10 percent of 

domestic deposits. After applying all possible adjustments, 

minimum and maximum total base assessment rates for each 

risk category are as follows:

Total Base Assessment Rates*

Risk 

Category 

I

Risk 

Category 

II

Risk 

Category 

III

Risk 

Category 

IV

Initial base 

assessment rate 12–16 22 32 45

Unsecured debt 

adjustment -5 –0 -5–0 -5 –0 -5–0

Secured liability 

adjustment 0 –8 0 –11 0 –16 0 –22.5

Brokered deposit 

adjustment – 0 –10 0 –10 0 –10

Total base 

assessment rate 7–24.0 17–43.0 27–58.0 40–77.5

*All amounts for all risk categories are in basis points annually. Total base rates that are 

not the minimum or maximum rate will vary between these rates. 

Beginning in 2007, each institution is assigned a risk-based 

rate for a quarterly assessment period near the end of the 

quarter following the assessment period. Payment is generally 

due on the 30th day of the last month of the quarter following the assessment period. Supervisory rating changes are 

effective for assessment purposes as of the examination 

transmittal date. For institutions with long-term debt issuer 

ratings, changes in ratings are effective for assessment purposes as of the date the change was announced.

Special Assessment – On May 22, 2009, the FDIC board 

approved a final rule that imposed a 5 basis point special 

assessment as of June 30, 2009. The special assessment was 

for institutions whose primary federal regulator was the OTS, 

the OTS composite rating was used.

Recourse – an arrangement in which a bank retains, in form or 

in substance, any credit risk directly or indirectly associated 

with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the 

bank’s claim on the asset. If a bank has no claim on an asset 

it has sold, then the retention of any credit risk is recourse.

Reserves for losses – the allowance for loan and lease losses on 

a consolidated basis.

Restructured loans and leases – loan and lease financing receivables with terms restructured from the original contract. 

Excludes restructured loans and leases that are not in compliance with the modified terms.

Retained earnings – net income less cash dividends on common and preferred stock for the reporting period.

Return on assets – bank net income (including gains or losses 

on securities and extraordinary items) as a percentage of average total (consolidated) assets. The basic yardstick of bank 

profitability.

Return on equity – bank net income (including gains or losses 

on securities and extraordinary items) as a percentage of average total equity capital.

Risk-based capital groups – definition:

(Percent)

Total 

Risk-Based 

Capital*

Tier 1

Risk-Based 

Capital*

Tier 1 

Leverage

Tangible

Equity

Well-capitalized ≥10 and ≥6 and ≥5 –

Adequately 

capitalized ≥8 and ≥4 and ≥4 –

Undercapitalized ≥6 and ≥3 and ≥3 –

Significantly 

undercapitalized <6 or <3 or <3 and >2

Critically 

undercapitalized – – – ≤2

* As a percentage of risk-weighted assets.

Risk Categories and Assessment Rate Schedule – The current risk 

categories became effective January 1, 2007. Capital ratios 

and supervisory ratings distinguish one risk category from 

another. The following table shows the relationship of risk 

categories (I, II, III, IV) to capital and supervisory groups as 

well as the initial base assessment rates (in basis points), 

effective April 1, 2009, for each risk category. Supervisory 

Group A generally includes institutions with CAMELS 

composite ratings of 1 or 2; Supervisory Group B generally 

includes institutions with a CAMELS composite rating of 3; 

and Supervisory Group C generally includes institutions with 

CAMELS composite ratings of 4 or 5. For purposes of riskbased assessment capital groups, undercapitalized includes 

institutions that are significantly or critically undercapitalized.

Capital Category

Supervisory Group

A B C

1. Well Capitalized I

12–16 bps II

22 bps

III

32 bps 2. Adequately Capitalized II

22 bps

3. Undercapitalized III

32 bps

IV

45 bps
FDIC Quarterly 24 2011, Volume 5, No. 2

interim rule extending the TAG program for six months 

through December 31, 2010, with a possibility of an additional 12-month extension, through December 31, 2011. 

(Section 343 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act) provides 

temporary unlimited insurance coverage to noninterestbearing transaction accounts at all FDIC-insured institutions. The separate coverage for these accounts becomes 

effective on December 31, 2010, and ends on December 

31, 2012.)

Debt Guarantee Program (DGP) provides a full guarantee of 

senior unsecured debt1 issued by eligible institutions after 

October 14, 2008. Initially, debt issued before June 30, 

2009, and maturing on or before June 30, 2012, could be 

guaranteed. On March 17, 2009, the deadline for issuance 

under the program was extended to October 31, 2009, and 

the expiration of the guarantee was set at the earlier of 

maturity of the debt or December 31, 2012. Institutions 

eligible for participation in the debt guarantee program 

include insured depository institutions, U.S. bank holding 

companies, certain U.S. savings and loan holding companies, and other affiliates of an insured depository institution that the FDIC designates as eligible entities. The 

FDIC Board adopted a final rule on October 20, 2009, 

that established a limited six-month emergency guarantee 

facility upon expiration of the DGP.

Trust assets – market value, or other reasonably available 

value of fiduciary and related assets, to include marketable 

securities, and other financial and physical assets. Common 

physical assets held in fiduciary accounts include real estate, 

equipment, collectibles, and household goods. Such fiduciary 

assets are not included in the assets of the financial 

institution.

Unearned income & contra accounts – unearned income for Call 

Report filers only.

Unused loan commitments – includes credit card lines, home 

equity lines, commitments to make loans for construction, 

loans secured by commercial real estate, and unused commitments to originate or purchase loans. (Excluded are 

commitments after June 2003 for originated mortgage loans 

held for sale, which are accounted for as derivatives on the 

balance sheet.)

Volatile liabilities – the sum of large-denomination time deposits, foreign-office deposits, federal funds purchased, securities 

sold under agreements to repurchase, and other borrowings.

Yield on earning assets – total interest, dividend, and fee 

income earned on loans and investments as a percentage of 

average earning assets.

1

 Senior unsecured debt generally includes term Federal funds 

purchased, promissory notes, commercial paper, unsubordinated 

unsecured notes, certificates of deposit (CDs) standing to the credit of 

a bank, and U.S. dollar denominated bank deposits owed to an insured 

depository institution.

levied on each insured depository institution’s assets minus its 

Tier 1 capital as reported in its report of condition as of June 

30, 2009. The special assessment was collected September 30, 

2009, at the same time that the risk-based assessment for the 

second quarter of 2009 was collected. The special assessment 

for any institution was capped at 10 basis points of the institution’s assessment base for the second quarter of 2009 riskbased assessment.

Prepaid Deposit Insurance Assessments – In November 2009, the 

FDIC Board of Directors adopted a final rule requiring insured 

depository institutions (except those that are exempted) to 

prepay their quarterly risk-based deposit insurance assessments 

for the fourth quarter of 2009, and for all of 2010, 2011, and 

2012, on December 30, 2009. Each institution’s regular riskbased deposit insurance assessment for the third quarter of 

2009, which is paid in arrears, also is payable on December 

30, 2009.

Risk-weighted assets – assets adjusted for risk-based capital 

definitions which include on-balance-sheet as well as offbalance-sheet items multiplied by risk-weights that range from 

zero to 200 percent. A conversion factor is used to assign a 

balance sheet equivalent amount for selected off-balancesheet accounts.

Securities – excludes securities held in trading accounts. 

Banks’ securities portfolios consist of securities designated 

as “held-to-maturity,” which are reported at amortized cost 

(book value), and securities designated as “available-for-sale,” 

reported at fair (market) value.

Securities gains (losses) – realized gains (losses) on held-tomaturity and available-for-sale securities, before adjustments 

for income taxes. Thrift Financial Report (TFR) filers also 

include gains (losses) on the sales of assets held for sale.

Seller’s interest in institution’s own securitizations – the reporting 

bank’s ownership interest in loans and other assets that have 

been securitized, except an interest that is a form of recourse 

or other seller-provided credit enhancement. Seller’s interests 

differ from the securities issued to investors by the securitization structure. The principal amount of a seller’s interest is 

generally equal to the total principal amount of the pool of 

assets included in the securitization structure less the principal amount of those assets attributable to investors, i.e., in the 

form of securities issued to investors.

Subchapter S Corporation – a Subchapter S corporation is treated as a pass-through entity, similar to a partnership, for federal income tax purposes. It is generally not subject to any 

federal income taxes at the corporate level. This can have the 

effect of reducing institutions’ reported taxes and increasing 

their after-tax earnings.

Temporary Liquidity Guarantee Program (TLGP) – was approved 

by the FDIC Board on October 13, 2008. The TLGP was 

designed to help relieve the crisis in the credit markets by 

giving banks access to liquidity during a time of global financial distress. Participation in the TLGP is voluntary. The 

TLGP has two components:

Transaction Account Guarantee Program (TAGP) provides a full 

guarantee of non-interest-bearing deposit transaction 

accounts above $250,000, at depository institutions that 

elected to participate in the program. On August 26, 

2009, the FDIC Board voted to extend the TAGP six 

months beyond its original expiration date to June 30, 

2010. On April 13, 2010, the FDIC Board adopted an 
FDIC Quarterly 25 2011, Volume 5, No. 2

The following are remarks by FDIC Chairman Sheila C. Bair 

on May 5, 2011, before the 47th Annual Conference on 

Bank Structure and Competition sponsored by the Federal 

Reserve Bank of Chicago.

I am very pleased to have the opportunity to address 

this conference once again as FDIC Chairman. For 

nearly 50 years, the Bank Structure Conference has 

been a vitally important forum for addressing the challenges facing the financial services industry. It all began 

in the early 1960s as a series of symposia on competition and market structure in what was then, in many 

respects, a much more heavily regulated banking industry. In those days, branching restrictions, product and 

service limitations, and interest-rate ceilings were the 

norm. But by the 1970s, the focus shifted somewhat to 

the need for banking deregulation in a fast-changing 

financial landscape.

With the crises of the 1980s, the issues of moral 

hazard—resulting from the federal safety net and the 

resulting need for better market discipline—came to the 

fore. And more recently, the emphasis has shifted again 

to financial innovation and nonbank financial providers, followed, of course, by debate as to the causes of the 

recent crisis and the reforms needed to prevent such a 

disaster from recurring.

Besides its uncanny knack for identifying emerging 

policy issues, this conference series is also remarkable 

for the way it brings together three groups of people—

academics, bankers, and regulators—who sometimes 

speak different languages, but who must work together 

to resolve those difficult issues. And what keeps you 

coming back to this conference year after year, I 

suspect, is a shared commitment to some common goals.

All of us have a vital stake in financial stability. And 

we all want to see a financial system that consistently 

supports the real economy by efficiently allocating capital and credit to its highest and best use.

Balancing the Government’s Role

Because banking and finance are so critical to our economy, and because they are prone to bouts of instability, 

we have long recognized a vital—but limited—role for 

government in our financial system. Public confidence, 

market liquidity, and financial stability are all inherently public goods. Only government has the capacity 

to carry out prudential supervision, serve as lender of 

last resort, provide iron-clad guarantees that can forestall runs, and promptly and efficiently resolve banking 

institutions when they fail.

Under the guidance of statute, the FDIC, the Federal 

Reserve, and the other banking authorities have long 

sought to achieve a delicate balance in the role that 

government plays in the banking industry. One important task is to promote confidence and stability through 

the deposit insurance guarantee and the lender-of-lastresort function. But it is equally important that we 

uphold regulatory discipline through prudential supervision and promote market discipline by clearly limiting 

the extent of the government backstop.

In the wake of the recent crisis, we are working to 

implement an updated statutory mandate under the 

Dodd-Frank Act. As we do so, there is once again much 

debate over the lessons of the crisis and the proper role 

of government in the financial sector.

On one hand, there is concern that new regulations 

could impose onerous costs on banks and our economy, 

stifling financial innovation and economic growth. On 

the other, there is genuine alarm about the immense 

scale and seemingly indiscriminate nature of the 

government assistance provided to large banks and 

nonbank financial companies during the crisis, and 

what effects these actions will have on the competitive 

landscape in banking.

These bailouts were necessary because these institutions 

had been permitted to become so large, complex, and 

interconnected that the prospect of their failure was a 

threat to overall financial stability. They were Too Big 

to Fail. Richmond Federal Reserve Bank President 

Jeffrey Lacker recently reminded us of the drawbacks of 

a federal safety net policy of constructive ambiguity that 

allows regulators to talk tough during good times, but 

keep their options open during a crisis. But if there ever 

was a constructive ambiguity about the scope of the 

federal safety net and the existence of Too Big to Fail, 

Feature Article:

“We Must Resolve to End Too Big to Fail”
FDIC Quarterly 26 2011, Volume 5, No. 2

Lehman’s failure, the process has cost over $1.2 billion 

in legal and other professional fees, and many creditors 

still don’t know what their claims will be worth.

Anticipating the complications of this process, counterparties across the financial system reacted to the 

Lehman failure by running for the safety of cash and 

other government obligations. Subsequent days and 

weeks saw the collapse of interbank lending and 

commercial paper issuance, and a near complete disintermediation of the shadow banking system. The only 

remedy was massive intervention on the part of governments around the world, which pumped equity capital 

into banks and other financial companies, guaranteed 

certain nondeposit liabilities, and extended credit 

backed by a wide range of illiquid assets to banks and 

nonbank firms alike. Even with these emergency 

measures, the economic consequences of the crisis 

have been enormous.

Competitive Implications of Too Big to Fail

The dilemma policymakers faced in the failure of large, 

complex financial institutions resembles a classic 

hostage drama, where the imperative of saving lives in 

the short run comes at the expense of encouraging more 

hostage-taking in the future. And so it is with the largest U.S. banks and other financial companies, which 

have every incentive to render themselves so large, so 

complex, and so opaque that no policymaker would 

dare risk letting them fail in a crisis. With the benefit of 

this implicit safety net, these institutions are insulated 

from the normal discipline of the marketplace that 

applies to smaller banks and practically every other 

private company.

Understanding the game, and having recently seen the 

nation’s largest financial institutions receive hundreds 

of billions of dollars in taxpayer assistance, the market 

appears to expect more of the same going forward. In 

February, Moody’s reported that its ratings on the senior 

unsecured debt of eight large U.S. banking organizations received an average “uplift” of 2.2 ratings notches 

because of the expectation of future government 

support. Meanwhile, the largest banks continue to 

enjoy a large competitive advantage over community 

banks in funding markets. In the fourth quarter of last 

year, the average interest cost of funding earning assets 

for banks with more than $100 billion in assets was 

about half the average for community banks with less 

than $1 billion in assets. Indeed, I would also argue that 

well-managed large banks are disadvantaged. Too Big to 

it was surely made obsolete by the events of late 2008 

and early 2009.

In the wake of that experience, all of us in this room 

have a vital interest and a collective responsibility to do 

what it takes to restore the balance between a safety net 

that ensures stability and public confidence, and the 

need to place clear and credible limits on that safety net. 

In short, we must restore market discipline in the financial sector. That will be the focus of my remarks today.

The Roots of the Problem

The financial crisis of 2008 centered on the so-called 

shadow banking system—a network of large-bank affiliates, special-purpose vehicles, and nonbank financial 

companies that existed largely outside of the prudential 

supervision and capital requirements that apply to 

federally insured depository institutions in the U.S. In 

addition, the shadow banking system also fell largely 

outside of the FDIC’s process for resolving failed insured 

financial institutions through receivership.

Several large, complex U.S. financial companies at 

the center of the 2008 crisis could not be wound down 

in an orderly manner when they became nonviable. 

Major segments of their operations were subject to the 

commercial bankruptcy code, as opposed to bank receivership laws, or they were located abroad and therefore 

outside of U.S. jurisdiction. The size and complexity of 

these institutions, and the inadequacy of the bankruptcy 

process as a means to preserve value after their failure, 

rendered these companies Too Big to Fail.

In the heat of the crisis, policymakers frequently 

resorted to bailouts instead of letting these firms 

collapse into bankruptcy. The fear was that the losses 

generated in a failure would cascade through the financial system, freezing financial markets and stopping the 

economy in its tracks. The worst fears of policymakers 

were realized when Lehman Brothers—a large, complex 

nonbank financial company—filed for bankruptcy on 

September 15, 2008.

The long-term outcome for Lehman creditors clearly 

demonstrates the shortcomings of bankruptcy as a 

means to resolve failed financial companies. The firm 

managing the Lehman bankruptcy reports that more 

than $75 billion in value was destroyed by the bankruptcy process itself, including tens of billions of dollars 

from the inability to roll over valuable derivatives 

contracts. More than two-and-a-half years after 
FDIC Quarterly 27 2011, Volume 5, No. 2

Chairman’s Remarks

would be a faster resolution of claims against the failed 

institution, smaller losses for creditors, reduced impact 

on the wider financial system, and an end to the cycle 

of bailouts.

The history of the recent crisis is replete with examples 

of missed opportunities to sell or recapitalize troubled 

institutions before they failed. But with bailout off the 

table, management will have a greater incentive to 

bring in an acquirer or new investors before failure, and 

shareholders and creditors will have more incentive to 

go along with such a plan in order to salvage the value 

of their claims. These new incentives to be more proactive in dealing with problem SIFIs will reduce their 

incidence of outright failure and also lessen the risk of 

systemic effects arising from such failures.

Doubts and Misconceptions about the 

New Resolution Framework

The problem is that, even as we put this game plan into 

action, some still don’t believe that policymakers have 

the means or the will to take the difficult steps needed 

to close down the SIFIs in a crisis, and will ultimately 

back down and just bail them out again. Part of the 

problem is a misunderstanding of the process. And part 

of it is a low opinion of the political will in Washington 

to make hard and unpopular decisions.

For example, we have heard some say that being designated as a SIFI will confer a competitive advantage by 

anointing an institution as Too Big to Fail. But the 

reality is that SIFIs will be subject to heightened supervision and higher capital requirements. They will also 

be required to maintain resolution plans and could be 

required to restructure their operations if they cannot 

demonstrate that they are resolvable.

Needless to say, nobody is signing up in advance to be a 

SIFI. In fact, it is just the opposite. It might be far 

better to fall just short of SIFI status in terms of size, 

complexity, and interconnectedness. In that case, your 

institution would be spared all of the additional regulatory burdens, but policymakers could still face significant challenges in effecting an orderly resolution in a 

crisis. That’s why it is important that the FSOC move 

forward and develop some hard metrics to guide the 

SIFI designation process. We need to be able to gather 

information on a broad range of potential SIFIs in order 

to develop a sense of the difficulties that might arise in 

resolving them.

Fail narrows the funding advantage they would otherwise enjoy over weaker competitors.

This situation can only be regarded as a new and 

dangerous form of state capitalism, where the market 

assumes large, complex, and powerful financial companies are in line to receive generous government subsidies in times of financial distress. Unless reversed, we 

can expect to see more concentration of market power 

in the hands of the largest institutions, more complexity 

in financial structures and relationships, more risktaking at the expense of the public, and, in due time, 

another financial crisis.

The New SIFI Resolution Framework

At the core of the reform legislation passed last summer 

are measures that create a new resolution framework 

that will apply to the so-called systemically important 

financial institutions, or SIFIs, that are associated with 

the problem of Too Big to Fail.

This new SIFI resolution framework has three basic 

elements. First, the new Financial Stability Oversight 

Council, chaired by Treasury and made up of the other 

financial regulatory agencies, is responsible for designating SIFIs based on criteria that are now being established by regulation. Once designated, the SIFIs will be 

subject to heightened supervision by the Federal 

Reserve and required to maintain detailed resolution 

plans that demonstrate that they are resolvable under 

bankruptcy—not bailout—if they should run into 

severe financial distress.

Not only will these plans provide valuable advance 

information that will assist in implementing an orderly 

resolution, but the law also authorizes the FDIC and the 

Federal Reserve to require, if necessary, changes in the 

structure or activities of these institutions to ensure that 

they meet the standard of being “resolvable” in a crisis.

Finally, the law provides for a third alternative to bankruptcy or bailout—an Orderly Liquidation Authority, or 

OLA, that gives the FDIC many of the same trustee 

powers over SIFIs that we have long used to manage 

failed-bank receiverships. While this authority strictly 

prohibits bailouts, the FDIC could use it to conduct 

advance planning, to temporarily operate and fund the 

institution under government control to preserve its 

value as a going concern, and to quickly pay partial 

recoveries to creditors through advance dividends, as we 

have long done in failed-bank receiverships. The result 
FDIC Quarterly 28 2011, Volume 5, No. 2

When a large, complex financial institution gets into 

trouble, time is the enemy. The larger, more complex, 

and more interconnected a financial company is, the 

longer it takes to assemble a full and accurate picture of 

its operations and develop a resolution strategy. By 

requiring detailed resolution plans in advance, and 

authorizing an on-site FDIC team to conduct pre-resolution planning, the SIFI resolution framework regains 

the informational advantage that was lacking in the 

crisis of 2008.

The FDIC recently released a paper detailing how the 

filing of resolution plans, the ability to conduct advance 

planning, and other elements of the framework could 

have dramatically changed the outcome if they had 

been available in the case of Lehman. Under the new 

SIFI resolution framework, the FDIC should have a 

continuous presence at all designated SIFIs, working 

with the firms and reviewing their resolution plans as 

part of their normal course of business. So our presence 

will in no way be seen as a signal of distress. Instead, it 

is much more likely to provide a stabilizing influence 

that encourages management to more fully consider the 

downside consequences of its actions, to the benefit of 

the institution and the stability of the system as a whole.

As far-reaching as these changes are, their ultimate 

effectiveness will still depend on the willingness of the 

FDIC and the Federal Reserve to actively use their 

authority to require organizational changes that 

promote the ability to resolve SIFIs. As currently structured, many large banks and nonbank SIFIs maintain 

thousands of subsidiaries and manage their activities 

within business lines that cross many different organizational structures and regulatory jurisdictions. This can 

make it very difficult to implement an orderly resolution of one part of the company without triggering a 

costly collapse of the entire company.

To solve this problem, the FDIC and the Fed must be 

willing to insist on organizational changes that better 

align business lines and legal entities well before a crisis 

occurs. Unless these structures are rationalized and 

simplified in advance, there is a real danger that their 

complexity could make a SIFI resolution far more costly 

and more difficult than it needs to be.

Such changes are also likely to have collateral benefits 

for the firm’s management in the short run. A simplified organizational structure will put management in a 

better position to understand and monitor risks and the 

Ultimately, the “resolvability” of an institution should 

determine if it is designated as a SIFI. Upholding this 

standard will be essential if we are to avoid the “deathbed designation” of SIFIs that would put the resolution 

authority in the worst possible position in a crisis.

Misunderstandings also abound as to the nature of the 

Orderly Liquidation Authority. Some have called it a 

bailout mechanism, while others see it as a fire sale 

that will destroy the value of receivership assets. 

Neither is true.

While it is positioned as a backup plan in cases where 

bankruptcy would threaten to result in wider financial 

disorder, the OLA is actually a better-suited framework 

for resolving claims against failed financial institutions. 

It is a transparent process that operates under fixed rules 

that prohibit any bailout of shareholders and creditors 

or any other type of political favoritism, which is a 

legitimate concern in the case of an ad-hoc emergency 

rescue program. Not only would the OLA work faster 

and preserve value better than bankruptcy, but the 

regulatory authorities who will administer the OLA are 

in a far better position to coordinate with foreign regulators in the failure of an institution with significant 

international operations.

The FDIC has made considerable progress in forging 

bilateral agreements with other countries that will facilitate orderly cross-border resolutions. And we currently 

co-chair the Cross Border Resolutions Group of the 

Basel Committee.

It is worth noting that not a single other advanced 

country plans to rely on bankruptcy to resolve large, 

international financial companies. Most are implementing special resolution regimes similar to the OLA. 

Under the OLA, we can buy time, if necessary, and 

preserve franchise value by running the institution as a 

bridge bank, and then eventually sell it in parts or as a 

whole. It is a game-changer in terms of the ability to 

provide continuity and minimize losses in financial 

institution failures.

Resolution Plans Must Be Credible and Actionable

A major improvement in the SIFI resolution process is 

also one that, in my opinion, has been somewhat 

underestimated by the skeptics. And that is the requirement for SIFI resolution plans.
FDIC Quarterly 29 2011, Volume 5, No. 2

Chairman’s Remarks

But, knowing this group as I do now, after almost five 

years as FDIC Chairman, I think you have a far more 

productive role to play in shaping the outcome of this 

critical policy debate. I urge you to actively use your 

influence to ensure that the new SIFI resolution framework will be equal to the great task that is before us. 

Conduct your own analysis of the regulations as they 

are proposed, and engage the process in comment 

letters, op-eds, blog posts, and research papers. Ask the 

hard questions that need asking:

Are regulators carrying out the intent of the reforms?

Are all the right firms designated as SIFIs?

Are they developing credible resolution plans?

Are the largest financial companies structured in a way 

that renders them resolvable in a crisis?

Is progress being made in coordinating resolution 

regimes on the international front?

And, most important, are we meeting the market test of 

credibility? The answer to this question will be evident 

in credit spreads, funding costs, and other market 

indicators.

Conclusion

While it is important that you critique the actions of all 

parties to this debate—including regulators, financial 

companies, and other market participants—it is equally 

important that you use your knowledge and your influence to help explain the parameters of this debate and 

the stakes involved to the American people. These 

issues are complex and are generally not well-understood by the public. But the people in this room are 

among the world’s leading experts on these issues. With 

your active engagement, I am confident that we can 

build the broad-based political support that will be 

needed to change the status quo and build the foundation for a stronger and more competitive financial 

sector in the years ahead.

inter-relationships among business lines, addressing 

what many see as a major challenge that contributed to 

the crisis. That is why—well before the test of another 

major crisis—we must define high informational standards for resolution plans and be willing to insist on 

organizational changes where necessary in order to 

ensure that SIFIs meet the standard of resolvability.

What You Can Do to Shape the Outcome

In the wake of a crisis, there is a natural tendency for 

memories to fade. The economic pain caused by the 

financial crisis will subside in time, and even the Bank 

Structure Conference will eventually move on to 

consider other topics and other challenges. In an everchanging financial landscape, it can be difficult to 

maintain a long-term focus on the lessons of the last 

crisis and the imperatives of preparing to deal with the 

next one. Most of all, it is extremely difficult to overcome the political resistance that comes from large, 

powerful financial organizations when they are asked to 

make potentially costly changes at a time when the 

danger of a financial crisis appears remote.

As I mentioned at the outset, everyone in this room has 

a vital stake in the outcome of these reforms. And, 

because this is such a knowledgeable and influential 

group, all of you have a role to play in their failure or 

their success. Given the challenges before us, one 

response that many seem to have is a certain cynicism 

and detachment about the process. It’s easy to be a 

doubter and simply resign yourself to the idea that it is 

just too difficult, and that we will never be able to 

really put an end to Too Big to Fail.

If enough of us do that, then the ratings agencies will 

end up being right in terms of their expectation of 

future government support. Open-ended state subsidies 

to large financial companies in times of crisis could 

become a permanent part of the landscape, with all of 

the attendant implications that has for risk-taking and 

the competitive structure in banking.

FDIC Quarterly 31 2011, Volume 5, No. 2

Investigation Report of the Attorneys for James W. 

Giddens, Trustee for the Securities Investors Protection 

Act (SIPA) Liquidation of Lehman Brothers, Inc. The 

analysis in this paper assumes that the events leading up 

to Lehman’s bankruptcy filing took place roughly as 

described in these two reports.

Prior to 2006, Lehman had been described as being in 

the “moving business,” primarily originating or purchasing loans and then selling them through securitizations.2

Beginning in 2006, the firm shifted to an aggressivegrowth business strategy, making “principal” investments in long-term, high-risk areas such as commercial 

real estate, leveraged lending and private equity. Even 

as the sub-prime crisis grew, the firm continued its rapid 

growth strategy throughout 2007.

At the beginning of 2008, with no end of the sub-prime 

crisis in sight, Lehman again revised its business strategy 

and began the process of deleveraging. However, by the 

end of the first quarter of 2008, the firm had made no 

substantial progress in either selling assets or in raising 

large amounts of equity. Richard S. Fuld, Jr., Lehman’s 

CEO, told the Examiner that he had decided that 

Lehman would not raise equity unless it was at a 

premium above book value.3

After Bear Stearns failed and was purchased by 

JPMorgan Chase on March 15, 2008, Lehman was seen 

by many as the next most vulnerable investment bank.4

At this time, Lehman began raising equity and seeking 

investment partners. In late March, Lehman contacted 

Warren E. Buffett, unsuccessfully seeking an investment 

from either Mr. Buffett or one of Berkshire Hathaway’s 

subsidiaries. At the beginning of April, Lehman 

completed a $4 billion convertible preferred stock issuance. In late May, Lehman began talks with a consortium of Korean banks, but no deal was reached. On June 

7, Lehman announced a $2.8 billion loss for the second 

2

 Anton R. Valukas, Examiner’s Report: Bankruptcy of Lehman Brothers Holdings Inc., Vol. 2, 43, (Mar. 11, 2010) (hereinafter, Examiner’s 

Report).

3 Id. at 150–52. Lehman did raise capital at a later date. Presumably 

more could have been raised at this time if Lehman had been willing to 

consider less favorable terms to the then-current shareholders.

4 Id.

 at 612–13.

Introduction

The bankruptcy filing of Lehman Brothers Holdings 

Inc. (Lehman or LBHI) on September 15, 2008, was 

one of the signal events of the financial crisis. The 

disorderly and costly nature of the LBHI bankruptcy—

the largest, and still ongoing, financial bankruptcy in 

U.S. history—contributed to the massive financial 

disruption of late 2008. This paper examines how the 

government could have structured a resolution of 

Lehman under the orderly liquidation authority of 

Title II of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act) and how 

the outcome could have differed from the outcome 

under bankruptcy.

The Dodd-Frank Act grants the Federal Deposit Insurance Corporation (FDIC) the powers and authorities 

necessary to effect an orderly liquidation of systemically 

important financial institutions. These authorities are 

analogous to those the FDIC uses to resolve failed 

insured depository institutions under the Federal 

Deposit Insurance Act (FDI Act).1 The keys to an 

orderly resolution of a systemically important financial 

company that preserves financial stability are the ability 

to plan for the resolution and liquidation, provide 

liquidity to maintain key assets and operations, and 

conduct an open bidding process to sell the company 

and its assets and operations to the private sector as 

quickly as practicable. The FDIC has developed procedures that have allowed it to efficiently use its powers 

and authorities to resolve failed insured institutions for 

over 75 years. The FDIC expects to adapt many of these 

procedures, modified as necessary, to the liquidation of 

failed systemically important financial institutions.

The Events Leading to the Lehman Bankruptcy

Background

The events leading up to Lehman’s bankruptcy are 

documented in a number of books and articles; but 

perhaps most extensively in two documents: the Report 

of Anton R. Valukas, Examiner, Bankruptcy of Lehman 

Brothers Holdings Inc., and the Trustee’s Preliminary 

1 12 U.S.C. § 1811 et seq.

Feature Article:

The Orderly Liquidation of Lehman Brothers 

Holdings Inc. under the Dodd-Frank Act
FDIC Quarterly 32 2011, Volume 5, No. 2

financial markets following the two largest players in 

the U.S. mortgage market, Fannie Mae and Freddie 

Mac, being placed into conservatorship on September 

7, 2008, and the ensuing devaluation of those institutions’ common and preferred stock. On September 9, 

Treasury Secretary Henry M. Paulson, Jr. contacted 

Bank of America and asked it to look into purchasing 

Lehman.8 During that conversation on September 9, 

Secretary Paulson informed Bank of America that the 

government would not provide any assistance.9 Bank of 

America began due diligence, and on September 11 

told Secretary Paulson that there were so many problems with the assets on Lehman’s balance sheet that 

Bank of America was unwilling to pursue a privately 

negotiated acquisition. Secretary Paulson then told 

Bank of America that, although the government would 

not provide any assistance, he believed a consortium of 

banks could be encouraged by the government to assist 

Bank of America in an acquisition of Lehman by taking 

the bad assets in a transaction similar in certain respects 

to the 1998 rescue of Long-Term Capital Management.10 Bank of America then agreed to continue to 

consider the purchase of Lehman. At various times in 

the following two days, Bank of America discussed its 

analysis of Lehman with the Treasury Department and 

concluded that Lehman had approximately $65-67 

billion in commercial real estate and residential mortgage-related assets and private equity investments that 

it was unwilling to purchase in any acquisition without 

the government providing loss protection. Independently, on September 13, Merrill Lynch approached 

Bank of America and shortly thereafter Bank of America agreed to acquire Merrill Lynch.11

Lehman reported further losses on September 10, and 

announced plans to restructure the firm.12 The panic 

also affected Lehman’s trading counterparties, which 

began to lose confidence in the firm. Many of these 

counterparties withdrew short-term funding, demanded 

increasingly greater overcollateralization on borrowings 

or clearing exposures, demanded more collateral to 

cover their derivatives positions and subsequently began 

to move their business away from Lehman. Lehman’s 

clearing banks also began to demand billions of dollars 

of additional collateral.

8

 Henry M. Paulson, Jr., On the Brink: Inside the Race to Stop the 

Collapse of the Global Financial System, 177 (2010) (hereinafter, On 

the Brink). 9 Id. at 177, 184–85. 10 Id. at 199–206. 11 Examiner’s Report at 696–703.

12 Lehman Brothers Holdings Inc., Periodic Report on Form 8-K, Sept. 

10, 2008.

quarter and on June 12 it raised $6 billion in preferred 

and common stock, resulting in $10 billion in the aggregate of new capital for the second quarter of 2008.

By mid-June, Lehman recognized that its commercial 

real estate portfolio was a major problem and began to 

develop a “good bank-bad bank” plan to spin off the 

portfolio. It identified $31.6 billion in assets that would 

be placed in a so-called bad bank to be named SpinCo, 

which would reduce Lehman’s balance sheet and shed 

risky assets. For a number of reasons, the plan never 

came to fruition.5

Although the consortium of Korean banks withdrew 

from negotiations, one of the consortium’s banks, the 

government-owned Korean Development Bank (KDB), 

continued to express an interest in buying or making a 

substantial investment in Lehman. The talks between 

Lehman and KDB went through a number of iterations, 

with KDB becoming increasingly concerned about 

Lehman’s risky assets. In August, KDB proposed an 

investment in a “Clean Lehman,” where all risk of 

future losses (risky assets) would be spun off from 

Lehman. By late August, KDB decided that the deteriorating global financial situation and the declining 

value of Korea’s currency made that transaction too 

problematic and withdrew from further negotiations.6

In July 2008, Lehman contacted Bank of America with 

a proposal whereby Bank of America would buy a 30 

percent interest in LBHI, but the discussions never 

culminated in a transaction. In late August, Lehman 

again contacted Bank of America, this time about helping finance SpinCo. Lehman subsequently asked Bank 

of America to consider buying the entire firm, but Bank 

of America did not pursue a transaction.

MetLife had also been in contact with Lehman about a 

possible purchase. MetLife began due diligence in early 

August, but decided within a few days that Lehman’s 

commercial real estate and residential real estate assets 

were too risky. Also in August, the Investment Corporation of Dubai explored a potential investment principally 

in Lehman’s Neuberger Berman wealth and asset management business. Discussions ceased in early September.7

By the late summer of 2008, Lehman’s liquidity problems were becoming acute. Lehman’s urgent need to 

find a buyer was precipitated in part by panic in the 

5 Id. at 640–62. 6 Id.

 at 668–81. 7 Id.

 at 687–94.
FDIC Quarterly 33 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

be a disorderly, time-consuming, and expensive 

process.18 Of Lehman’s creditors, the one that experienced the most disruption was the Reserve Primary 

Fund, a $62 billion money market fund. On the day of 

the filing, the fund held $785 million of Lehman’s 

commercial paper, representing 13.8 percent of the 

amount outstanding as of May 31, 2008.19 The fund 

immediately suffered a run, facing redemptions of 

approximately $40 billion over the following two days. 

With depleted cash reserves, the fund was forced to sell 

securities in order to meet redemption requests, which 

further depressed valuations. The fund’s parent company 

announced it would “break the buck” when it re-priced 

its shares at $0.97 on September 16, 2008. During the 

remainder of the week, U.S. domestic money market 

funds experienced approximately $310 billion in withdrawals, representing 15 percent of their total assets and 

eventually prompting the U.S. Treasury to announce a 

temporary guarantee of money market funds.20

LBHI’s default also caused disruptions in the swaps and 

derivatives markets and a rapid, market-wide unwinding 

of trading positions for those financial markets contracts 

not subject to the automatic stay in bankruptcy. For 

example, LBHI’s bankruptcy filing affected LBI’s exposure in the commodities markets via its positions that 

settled on markets operated by CME Group. LBI’s assets 

on CME Group markets were largely contracts to hedge 

risk for the energy business conducted in its other entities. LBHI typically was guarantor of the swap contracts 

of its subsidiaries and affiliates. For those derivative 

financial instruments for which LBHI acted as guarantor, the Chapter 11 filing of LBHI constituted a default 

under the International Swaps and Derivatives Association agreements governing the swaps, which had the 

effect of allowing termination of those trades. This left 

naked hedges and exposed LBI to considerable pricing 

risk since it was not able to offer both sides of the hedge 

when liquidating the portfolio.21 Similarly, the Options 

Clearing Corporation (OCC) threatened to invoke its 

emergency clearing house rules which would allow it to 

18 After more than two years in bankruptcy proceedings, total fees paid 

to advisers involved in the Lehman bankruptcy have exceeded $1 

billion. See Liz Moyer, Lehman Fees Hit $1 Billion and Counting, Wall 

Street Journal, Nov. 23, 2010, available at http://online.wsj.com/article/

SB20001424052748704243904575630653803513816.html. 19 Lehman used November 30 as its year end for financial reporting 

purposes. Accordingly, May 31, 2008, was the date of the close of its 

second quarter financial period.

20 President’s Working Group on Financial Markets: Money Market 

Fund Reform Options (Oct. 2010), available at http://www.treasury.

gov/press-center/press-releases/Documents/10.21%20PWG%20

Report%20Final.pdf. 21 SIPA Trustee Report Section V.B., p. 66.

A final attempt at a sale of Lehman occurred on 

September 11, 2008, when Lehman was contacted by 

Barclays, a large U.K. commercial and investment 

bank.13 Barclays commenced due diligence of Lehman 

on September 12 and soon identified $52 billion in 

assets that it believed Lehman had overvalued and that 

Barclays would not purchase as part of the transaction. 

As in the case of Bank of America, these assets were 

concentrated in commercial real estate, residential real 

estate, and private equity investments. For a variety of 

reasons, Barclays could not get immediate regulatory 

approval from the U.K. authorities and the transaction 

was abandoned on September 14.14

LBHI started work on a plan for an “orderly” winddown. The plan estimated it would take six months to 

unwind Lehman’s positions and made the assumption 

that the Federal Reserve Bank of New York would assist 

Lehman during the wind-down process.15 On September 14, 2008, the Federal Reserve Bank of New York 

told LBHI that, without the Barclay’s transaction, it 

would not fund Lehman.

Chapter 11 Filing

With no firm willing to acquire LBHI and without 

funding from the central bank, LBHI filed for Chapter 

11 bankruptcy on September 15, 2008.16 On that date, 

a number of LBHI affiliates also filed for bankruptcy 

protection and Lehman’s U.K. broker-dealer, Lehman 

Brothers International (Europe) (LBIE), filed for 

administration in the United Kingdom. These events 

adversely affected the ability of Lehman’s U.S. brokerdealer, Lehman Brothers Inc. (LBI), to obtain adequate 

funding and settle trades. LBI remained in operation 

until September 19, when it was placed into a SIPA 

liquidation.17

The Lehman bankruptcy had an immediate and negative effect on U.S. financial stability and has proven to 

13 Similar to the case of Bank of America, Barclays contacted Lehman 

at Treasury’s encouragement. Barclays and Bank of America were 

proceeding under similar expectations that there would not be any 

government assistance.

14 Examiner’s Report at 703–11 and On the Brink at 203–11. 15 Examiner’s Report at 720–21.

16 LBHI filed for bankruptcy protection on Monday, September 15, 

2008, at 1:30 am EDT. Id. at 726. 17 LBHI’s demise left LBI unable to obtain adequate financing on an 

unsecured or secured basis. LBI lost customers and experienced both 

an increase in failed transactions and additional demands for collateral 

by clearing banks and others. See Trustee’s Preliminary Investigation 

Report of the Attorneys for James W. Giddens, Trustee for the SIPA 

Liquidation of Lehman Brothers, Inc., 10, 25-26, 56.
FDIC Quarterly 34 2011, Volume 5, No. 2

preserving the going-concern value of the firm, creditors could have been provided with an immediate 

payment on a portion of their claims through either 

an advance dividend or the prompt distribution of 

proceeds from the sale of assets. The panic selling that 

ensued—further precipitating a decline in asset values 

and a decline in the value of collateral underlying the 

firm’s derivatives portfolio—could have been avoided 

and markets would likely have remained more stable.

The Resolution and Receivership Process 

for Failed Banks

Resolution Process

The FDIC has been successful in using its authority 

under the FDI Act to maintain stability and confidence 

in the nation’s banking system, including in the resolution of large, complex insured depository institutions. 

The FDIC, as receiver for an insured depository institution, is given broad powers and flexibility under the 

FDI Act to resolve an insured depository institution in 

a manner that minimizes disruption to the banking 

system and maximizes value. The FDIC is given similar 

tools to those under the Dodd-Frank Act to accomplish 

these goals, including the ability to create one or more 

bridge banks, enforce cross-guarantees among sister 

banks, sell and liquidate assets, and settle claims.

When an insured bank fails, the FDIC is required by 

statute to resolve the failed bank in the least costly way, 

to minimize any loss to the deposit insurance fund, and, 

as receiver, to maximize the return on the assets of the 

failed bank.24 Banks and thrifts are typically closed by 

their chartering authority when they become critically 

undercapitalized and have not been successful in their 

plan to restore capital to the required levels.25 The 

24 The FDIC is required, pursuant to 12 U.S.C. § 1823(c)(4), to resolve 

failed insured depository institutions in the manner that is least costly 

to the deposit insurance fund. The Dodd-Frank Act does not require 

that a least cost determination be made in respect of a covered financial company, though the FDIC is required, to the greatest extent practicable, to maximize returns and minimize losses in the disposition of 

assets. See section 210(a)(9)(E) of the Dodd-Frank Act, 12 U.S.C. § 

5390(a)(9)(E).

25 Some banks, particularly large banks, may also be closed due to a 

liquidity failure (an inability to pay debts as they become due).

liquidate all of LBI’s positions unless a performing third 

party agreed to assume the positions. The Depository 

Trust & Clearing Corporation (DTCC) shared the 

same concerns as the CME Group and the OCC, and 

was unwilling to perform settlement and transfer functions for LBI unless a performing third party assumed 

all potential liability. When Barclays refused to assume 

the potential liability, the DTCC began liquidating 

LBI’s positions as a broker-dealer whose membership 

had been terminated on September 22, 2008. Consequently, account transfer requests from customers that 

were already in process were canceled. The DTCC also 

reversed all account transfers that had taken place on 

September 19, 2008, a Friday. As a result, $468 million 

of customer assets that otherwise would have been 

immune from seizure were seized.22 It was not until 

February 11, 2009, that a court order restored the 

reversed transactions.

Other unsecured creditors of LBHI are projected to 

incur substantial losses. Immediately prior to its bankruptcy filing, LBHI reported equity of approximately 

$20 billion; short-term and long-term indebtedness of 

approximately $100 billion, of which approximately 

$15 billion represented junior and subordinated indebtedness; and other liabilities in the amount of approximately $90 billion, of which approximately $88 billion 

were amounts due to affiliates. The modified Chapter 

11 plan of reorganization filed by the debtors on January 25, 2011, estimates a 21.4 percent recovery for 

senior unsecured creditors. Subordinated debt holders 

and shareholders will receive nothing under the plan of 

reorganization, and other unsecured creditors will 

recover between 11.2 percent and 16.6 percent, 

depending on their status.23

Just prior to Lehman’s bankruptcy filing, the firm had 

identified $31.6 billion in commercial real estate assets 

of questionable value. Potential acquirers of Lehman 

had identified additional problematic assets—for a total 

value between $50 billion and $70 billion. Even if there 

had been a total loss on these assets, which would have 

eliminated any shareholder and subordinated debt 

holder potential for recovery, a quick resolution of 

LBHI that maintained the operational integrity of the 

company including its systems and personnel could 

have left general unsecured creditors with substantially 

more value than projected from the bankruptcy. By 

22 Id. at 73. 23 Joseph Checkler, Lehman’s New Creditor Plan Doesn’t Factor in Key 

Group, Wall Street Journal, Jan. 27, 2011. The plan of reorganization 

is subject to approval by creditors.
FDIC Quarterly 35 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

problematic for an acquiring institution and may need 

to be retained in the receivership for disposition after 

resolution or covered by some level of risk protection. 

Qualified bidders are contacted to perform due diligence, subject to a confidentiality agreement. Due diligence is offered both on-site and off-site through the 

use of secure internet data rooms. Bidders are then 

asked to submit bids on the basis of the transaction 

structures offered by the FDIC. The FDIC analyzes the 

bids received and accepts the bid that resolves the failed 

bank in the least costly manner to the deposit insurance 

fund. The least-cost requirement ensures that the 

deposit insurance fund will not be used to protect creditors other than insured depositors and prevents differentiation between creditors except where necessary to 

achieve the least costly resolution of the failed bank. 

Then, at the point of failure, the institution is placed 

into receivership and immediately sold—with the sale 

resulting in a transfer of deposits and assets that renders 

the process seamless to insured depositors. The FDIC is 

also able to make an immediate payment, or advance 

dividend, to uninsured creditors not assumed by the 

assuming institution based upon estimated recoveries 

from the liquidation.

The Orderly Liquidation of Covered 

Financial Companies

Introduction

Title II of the Dodd-Frank Act defines the framework 

for orderly resolution proceedings and establishes the 

powers and duties of the FDIC when acting as receiver 

for a covered financial company.27 The policy goal of 

the Dodd-Frank Act is succinctly summarized in section 

204(a) as the liquidation of “failing financial companies 

that pose a significant risk to the financial stability of 

the United States in a manner that mitigates such risk 

and minimizes moral hazard.” Creditors and shareholders are to “bear the losses of the financial company” and 

the FDIC is instructed to liquidate the covered financial company in a manner that maximizes the value of 

the company’s assets, minimizes losses, mitigates risk, 

and minimizes moral hazard.28

This section discusses the key provisions of Title II and 

highlights the differences between the resolution of a 

27 A failed systemically important financial institution is deemed a 

covered financial company for purposes of Title II of the Dodd-Frank 

Act once a systemic determination has been made by the Secretary of 

the Treasury pursuant to section 203(b) thereof, 12 U.S.C. § 5383(b). 

See “—Appointment,” infra. 28 See sections 204(a)(1) and 210(a)(9)(E) of the Dodd-Frank Act, 12 

U.S.C. §§ 5384(a)(1) and 5390(a)(9)(E).

FDIC is then appointed receiver.26 When structuring a 

bank resolution, the FDIC can pay off insured depositors and liquidate the bank’s assets, sell the bank in 

whole or in part (a purchase and assumption transaction, or P&A), or establish a bridge institution—a 

temporary national bank or federal thrift—to maintain 

the functions of the failed bank during the process of 

marketing the bank’s franchise. Senior management 

and boards of directors are not retained, and no severance pay or “golden parachutes” are permitted.

Final planning and marketing for a bank resolution 

normally begins 90–100 days prior to the institution 

being placed into receivership, though the process may 

be accelerated in the event of a liquidity failure. It 

begins when a bank’s problems appear to be severe 

enough to potentially cause it to fail. During this period, 

the FDIC coordinates its actions—including the scheduling of the failure—with other regulators. When a bank 

becomes critically undercapitalized, the primary federal 

regulator (PFR) has up to 90 days to close the institution and appoint the FDIC as receiver. The FDIC and 

the PFR require that the bank seek an acquirer or 

merger partner, and insist that top management responsible for the bank’s failing condition leave in order to 

improve the prospects for such, before the FDIC has to 

exercise its powers as receiver. The FDIC’s authority to 

take over a failed or failing institution, thus wiping out 

stockholders and imposing losses on unsecured and 

uninsured creditors, not only provides an incentive for 

management to actively seek an acquirer, but also 

encourages the institution’s board of directors to approve 

(or recommend for approval to shareholders) such transactions to avoid the risk of an FDIC receivership.

During this planning phase, the FDIC collects as much 

information as possible about the bank and structures 

the resolution transaction. This information assists the 

FDIC in determining the best transaction structures to 

offer potential acquirers. The FDIC also values bank 

assets and determines which assets may be particularly 

26 As a receiver, the FDIC succeeds to the rights, powers, and privileges of the failed bank and its stockholders, officers, and directors. It 

may collect all obligations and money due to the institution, preserve 

and liquidate the institution’s assets and property, and perform any 

other function of the institution consistent with its appointment as 

receiver. It has the power to sell a failed bank to another insured 

bank, and to transfer the failed bank’s assets and liabilities without the 

consent or approval of any other agency, court, or party with contractual rights. The FDIC may also, as permitted by statute, repudiate 

contracts such as leases that are burdensome to the receivership and 

may rid the receivership of burdensome obligations. The FDIC operates its receiverships independently of the court or bankruptcy system, 

although certain of the FDIC’s actions are subject to judicial review.
FDIC Quarterly 36 2011, Volume 5, No. 2

default or danger of default.32 The recommendation to 

place a broker or dealer, or a financial company in 

which the largest domestic subsidiary is a broker or 

dealer, into receivership is made by the Federal Reserve 

and the Securities and Exchange Commission (SEC), 

in consultation with the FDIC. Similarly, the recommendation to place an insurance company or a financial company in which the largest domestic subsidiary is 

an insurance company, is made by the Federal Reserve 

and Director of the newly established Federal Insurance 

Office, in consultation with the FDIC.

The Secretary is responsible for making a determination 

as to whether the financial company should be placed 

into receivership, and that determination is based on, 

among other things, the Secretary’s finding that the 

financial company is in default or in danger of default; 

that the failure of the company and its resolution under 

otherwise applicable State or Federal law would have 

serious adverse consequences on the financial stability 

of the United States; and that no viable private sector 

alternative is available to prevent the default of the 

financial company.33

The Dodd-Frank Act provides an expedited judicial 

review process of the Secretary’s determination. Should 

the board of directors of the covered financial company 

object to the appointment of the FDIC as receiver, a 

hearing is held in federal district court, and the court 

must make a decision on the matter within 24 hours. 

Upon a successful petition (or should the court fail to 

act within the time provided), the Secretary is to 

appoint the FDIC receiver of the covered financial 

company.34

Special Powers under Title II

Ability to Preserve Systemic Operations of the Covered 

Financial Company. The Dodd-Frank Act provides an 

efficient mechanism—the bridge financial company—

to quickly preserve the going-concern value of the 

32 Upon a 2/3 vote by the boards of both the FDIC and the Federal 

Reserve, a written recommendation is delivered to the Secretary. The 

recommendation includes: an evaluation of whether the financial 

company is in default or is in danger of default; a description of the 

effect the failure of the financial company would have on U.S. financial 

stability; an evaluation of why a case under the Bankruptcy Code is not 

appropriate; an evaluation of the effect on creditors, counterparties, 

and shareholders of the financial company and other market participants, and certain other evaluations required by statute. See section 

203(a)(2) of the Dodd-Frank Act, 12 U.S.C. § 5383(a)(2).

33 See section 203(b) of the Dodd-Frank Act, 12 U.S.C. § 5383(b). 34 See section 202(a)(1)(A) of the Dodd-Frank Act, 12 U.S.C. § 5382(a)

(1)(A).

systemically important financial institution under Title 

II of the Dodd-Frank Act and a proceeding under the 

Bankruptcy Code.29 What follows is a brief summary of 

the appointment process and five of the most important 

elements of the authority available to the FDIC as 

receiver of a covered financial company. Those five 

elements are: (i) the ability to conduct advance resolution planning for systemically important financial institutions through a variety of mechanisms similar to 

those used for problem banks (these mechanisms will be 

enhanced by the supervisory authority and the resolution plans, or living wills, required under section 165(d) 

of Title I of the Dodd-Frank Act); (ii) an immediate 

source of liquidity for an orderly liquidation, which 

allows continuation of essential functions and maintains asset values; (iii) the ability to make advance dividends and prompt distributions to creditors based upon 

expected recoveries; (iv) the ability to continue key, 

systemically important operations, including through 

the formation of one or more bridge financial companies; and (v) the ability to transfer all qualified financial contracts30 with a given counterparty to another 

entity (such as a bridge financial company) and avoid 

their immediate termination and liquidation to preserve 

value and promote stability.31

Appointment

Under section 203 of the Dodd-Frank Act, at the 

Secretary of the Treasury’s (Secretary) request, or of 

their own initiative, the Board of Governors of the 

Federal Reserve System (Federal Reserve) and the 

FDIC are to make a written recommendation requesting 

that the Secretary appoint the FDIC as receiver for a 

systemically important financial institution that is in 

29 11 U.S.C. § 101 et seq. 30 Generally, qualified financial contracts are financial instruments such 

as securities contracts, commodities contracts, forwards contracts, 

swaps, repurchase agreements, and any similar agreements. See

section 210(c)(8)(D)(i) of the Dodd-Frank Act, 12 U.S.C. § 5390(c)(8)

(D)(i).

31 See generally section 165 of Title I of the Dodd-Frank Act, 12 U.S.C. 

§ 5365 and “The Orderly Resolution of Covered Financial Companies—

Special Powers under Title II—Oversight and Advanced Planning,” 

infra.
FDIC Quarterly 37 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

While the covered financial company’s board of directors and the most senior management responsible for its 

failure will be replaced, as required by section 204(a)(2) 

of the Dodd-Frank Act,38 operations may be continued 

by the covered financial company’s employees under the 

strategic direction of the FDIC, as receiver, and contractors employed by the FDIC to help oversee those operations. These contractors would typically include firms 

with expertise in the sector of the covered financial 

company. In addition, former executives, managers and 

other individuals with experience and expertise in 

running companies similar to the covered financial 

company would be retained to oversee those operations.

A bridge financial company also provides the receiver 

with flexibility in preserving the value of the assets of 

the covered financial company and in effecting an 

orderly liquidation. The receiver can retain certain 

assets and liabilities of the covered financial company 

in the receivership and transfer other assets and liabilities, as well as the viable operations of the covered 

financial company, to the bridge financial company. 

The receiver may also transfer certain qualified financial contracts to the bridge financial company, as 

discussed below. The bridge financial company can 

operate until the receiver is able to stabilize the 

systemic functions of the covered financial company, 

conduct marketing for its assets and find one or more 

appropriate buyers.39

Transfer of Qualified Financial Contracts. Under the 

Bankruptcy Code, counterparties to qualified financial 

contracts with the debtor company are permitted to 

terminate the contract and liquidate and net out their 

position. The debtor company or trustee has no authority to continue these contracts or to transfer the 

contracts to a third party, absent the consent of the 

38 This may be contrasted with a typical Chapter 11 resolution, in 

which the management of the pre-insolvency institution will continue 

to manage the operations of the debtor institution.

39 In 2008, the FDIC implemented a successful resolution of IndyMac 

Bank through a transaction involving a “pass-through conservatorship,” which is similar to the utilization of a bridge financial company. 

The transfer of assets to a de novo institution, named IndyMac Federal 

Bank, and its subsequent sale to a private investor in 2009 enabled the 

FDIC to sell the core business intact. This was more efficient and less 

costly than a liquidation and retained the value of the institution’s 

assets. As of January 31, 2009, IndyMac Federal Bank had total assets 

of $23.5 billion and total deposits of $6.4 billion. The assuming institution agreed to purchase all deposits and approximately $20.7 billion 

in assets at a discount of $4.7 billion. The FDIC retained the remaining 

assets for future disposition. See Press Release, FDIC, FDIC Closes 

Sale of IndyMac Federal Bank, Pasadena, California (March 20, 2009), 

available at http://www.fdic.gov/news/news/press/2009/pr09042.html.

firm’s assets and business lines. There are no specific 

parallel provisions in the Bankruptcy Code,35 and therefore it is more difficult for a debtor company operating 

under Chapter 11 of the Bankruptcy Code to achieve 

the same result as expeditiously, particularly where 

circumstances compel the debtor company to seek 

bankruptcy protection before a wind-down plan can be 

negotiated and implemented. Where maximizing or 

preserving value depends upon a quick separation of 

good assets from bad assets, implementation delays 

could adversely impact a reorganization or liquidation 

proceeding.

The Dodd-Frank Act authorizes the FDIC, as receiver 

of a covered financial company, to establish a bridge 

financial company to which assets and liabilities of the 

covered financial company may be transferred.36 Fundamental to an orderly liquidation of a covered financial 

company is the ability to continue key operations, 

services, and transactions that will maximize the value 

of the firm’s assets and operations and avoid a disorderly 

collapse in the marketplace. To facilitate this continuity of operations, the receivership can utilize one or 

more bridge financial companies. The bridge financial 

company is a newly established, federally chartered 

entity that is owned by the FDIC and includes those 

assets, liabilities, and operations of the covered financial 

company as necessary to achieve the maximum value of 

the firm. Shareholders, debt holders, and other creditors 

whose claims were not transferred to the bridge financial company will remain in the receivership and will 

receive payments on their claims based upon the priority of payments set forth in section 210(b) of the DoddFrank Act. Like the bridge banks used in the resolution 

of large insured depository institutions,37 the bridge 

financial company authority permits the FDIC to stabilize the key operations of the covered financial 

company by continuing valuable, systemically important operations.

35 Similar to the FDIC’s repudiation powers provided by section 210(c)

(1) of the Dodd-Frank Act, 12 U.S.C. § 5390(c)(1), a bankruptcy 

trustee is authorized to reject certain contracts (which may be related 

to certain problem assets) of the debtor.

36 See section 210(h) of the Dodd-Frank Act, 12 U.S.C. § 5390(h). 

There are statutorily imposed limitations upon the transfer of assets 

and liabilities from the receiver to the bridge financial company, 

including a prohibition against a bridge financial company assuming 

any liability that is regulatory capital of the covered financial company. 

See section 210(h)(1)(B)(i) of the Dodd-Frank Act, 12 U.S.C. § 

5390(h)(1)(B)(i). Additionally, the liabilities transferred from a covered 

financial company to a bridge financial company are not permitted to 

exceed the assets so transferred. See section 210(h)(5)(F) of the 

Dodd-Frank Act, 12 U.S.C. § 5390(h)(5)(F).

37 See 12 U.S.C. § 1821(n).
FDIC Quarterly 38 2011, Volume 5, No. 2

transfer of fully collateralized transactions and not 

expose the receiver to risk of loss.43 To the extent the 

derivatives portfolio included qualified financial 

contracts which were under-collateralized or unsecured, 

the FDIC, as receiver of the covered financial company, 

would determine whether to repudiate or to transfer 

those qualified financial contracts to a third party based 

upon the FDIC’s obligation to maximize value and 

minimize losses in the disposition of assets of the entire 

receivership.

Funding. A vital element in preserving continuity of 

systemically important operations is the availability of 

funding for those operations. A Chapter 11 debtor operating under the Bankruptcy Code will typically require 

funds in order to operate its business—referred to as 

debtor-in-possession financing (DIP financing). 

Although the Bankruptcy Code provides for a debtor 

company to obtain DIP financing with court approval, 

there are no assurances that the court will approve the 

DIP financing or that a debtor company will be able to 

obtain sufficient—or any—funding or obtain funding 

on acceptable terms, or what the timing of such funding 

might be. For a systemically important financial institution, the market may be destabilized by any delay associated with negotiating DIP financing or uncertainty as 

to whether the bankruptcy court will approve DIP 

financing. Further, the terms of the DIP financing may 

limit the debtor’s options for reorganizing or liquidating 

and may diminish the franchise value of the company, 

particularly when the DIP financing is secured with 

previously unencumbered assets or when the terms of 

the DIP financing grant the lender oversight approval 

over the use of the DIP financing.

The Dodd-Frank Act provides that the FDIC may 

borrow funds from the Department of the Treasury, 

among other things, to make loans to, or guarantee 

obligations of, a covered financial company or a bridge 

financial company to provide liquidity for the operations of the receivership and the bridge financial 

company. Section 204(d) of the Dodd-Frank Act 

provides that the FDIC may make available to the 

receivership funds for the orderly liquidation of the 

43 Title VII of the Dodd-Frank Act, 15 U.S.C. § 8301 et seq., contemplates requirements for increased initial and variation margin.

counterparty, after the debtor company’s insolvency. 

A complex, systemic financial company can hold very 

large positions in qualified financial contracts, often 

involving numerous counterparties and back-to-back 

trades, some of which may be opaque and incompletely 

documented. A disorderly unwinding of such contracts 

triggered by an event of insolvency, as each counterparty races to unwind and cover unhedged positions, 

can cause a tremendous loss of value, especially if 

lightly traded collateral covering a trade is sold into an 

artificially depressed, unstable market. Such disorderly 

unwinding can have severe negative consequences for 

the financial company, its creditors, its counterparties, 

and the financial stability of the United States.

In contrast, the Dodd-Frank Act expressly permits the 

FDIC to transfer qualified financial contracts to a 

solvent financial institution (an acquiring investor) or 

to a bridge financial company.40 In such a case, counterparties are prohibited from terminating their contracts 

and liquidating and netting out their positions on the 

grounds of an event of insolvency.41 The receiver’s ability to transfer qualified financial contracts to a third 

party in order for the contracts to continue according to 

their terms—notwithstanding the debtor company’s 

insolvency—provides market certainty and stability and 

preserves the value represented by the contracts.42

By the time of the failure of the troubled financial 

company, most if not all of its qualified financial 

contracts would be fully collateralized as counterparties 

sought to protect themselves from its growing credit 

risk. As a result, it is likely that a transfer of qualified 

financial contracts to a third party would involve the 

40 See section 210(c)(9) of the Dodd-Frank Act, 12 U.S.C. § 5390(c)(9). 41 The exemption from the automatic stay under the Bankruptcy Code 

in the case of qualified financial contracts generally works well in most 

cases. However, for systemically important financial institutions, in 

which the sudden termination and netting of a derivatives portfolio 

could have an adverse impact on U.S. financial stability, the nullification of the ipso facto clause is needed. By removing a right of termination based solely upon the failure of the counterparty, the bridge 

financial company structure provides the flexibility to incentivize qualified financial contract counterparties to either maintain their positions 

in such contracts, or exit their positions in a manner which does not 

jeopardize U.S. financial stability.

42 There are implications under the Dodd-Frank Act to transferring all 

of a covered financial company’s qualified financial contracts to a 

bridge financial company in order to avoid such contracts’ termination 

by their counterparties. As such contracts continue, following such 

transfer, to be valid and binding obligations of the bridge financial 

company (before being eventually wound down), the bridge financial 

company is required to perform the obligations thereunder, including 

in respect of meeting collateral requirements, hedging, and being liable 

for gains and losses on the contracts.
FDIC Quarterly 39 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

Advance Dividends and Prompt Distributions. The FDIC, 

as receiver for a covered financial company, satisfies 

unsecured creditor claims in accordance with the relevant order of priorities set forth in section 210(b) of the 

Dodd-Frank Act. To provide creditors with partial satisfaction of their claims as expediently as practicable, the 

FDIC, as receiver, is able—though not required—to 

make advance dividends to unsecured general creditors 

based upon expected recoveries. The FDIC may use 

funds available to the receivership, including amounts 

borrowed as discussed above under “—Funding,” to 

make these advance dividends in partial satisfaction of 

unsecured creditor claims.45 These advance dividends 

would be made at an amount less than the estimated 

value of the receivership assets so as not to leave the 

receivership with a deficit in the event the realized 

value is less than the expected value of the liquidation.

The FDIC, as receiver, also makes periodic distributions 

to unsecured creditors from the sale of assets. Accordingly, an unsecured creditor will not be required to wait 

until all claims are valued, or until all assets are 

disposed of, before receiving one or more substantial 

payments on his claim. The ability promptly to provide 

creditors with partial satisfaction of claims following the 

failure of a covered financial company serves the Title 

II mandate of mitigating systemic impact, particularly in 

the case of key counterparties. The FDIC has successfully provided advance dividends to unsecured creditors 

(including uninsured depositors) and distributions from 

the sale of assets to unsecured creditors in the resolution 

of insured depository institutions under the FDI Act to 

quickly move funds to claimants and to help to stabilize 

local markets.

In large, complex bankruptcy cases such as Lehman, a 

creditor may not receive any payment on his claim for a 

considerable period of time following the commencement of the bankruptcy case. One reason for this is that 

it often takes a great deal of time to establish both the 

size of the pool of assets available for general unsecured 

creditors and the legitimate amounts of the claims held 

by such creditors. Litigation is typically needed to establish both of these numbers, which can require years of 

discovery followed by trial, then more years of appeals 

and remands.

If sufficient certainty can be attained regarding a portion 

of the claims, the Chapter 7 trustee will petition the 

45 Amounts which may be borrowed from the Department of the Treasury are based upon the assets, or assets available for repayment, of 

the covered financial company. See footnote 44, supra.

covered financial company.44 Funds provided by the 

FDIC under section 204(d) of the Dodd-Frank Act are 

to be given a priority as administrative expenses of the 

receiver or as amounts owed to the United States when 

used for the orderly resolution of the covered financial 

company, including, inter alia, to: (i) make loans to or 

purchase debt of the covered financial company or a 

covered subsidiary; (ii) purchase (or guarantee) the 

assets of the covered financial company or a covered 

subsidiary; (iii) assume or guarantee the obligations of a 

covered financial company or a covered subsidiary; and 

(iv) make additional payments or pay additional 

amounts to certain creditors. In the unlikely event that 

recoveries from the disposition of assets are insufficient 

to repay amounts owed to the United States, there will 

be a subsequent assessment on the industry to repay 

those amounts. By law, no taxpayer losses from the 

liquidation process are allowed.

Once the new bridge financial company’s operations 

have stabilized as the market recognizes that it has 

adequate funding and will continue key operations, the 

FDIC would move as expeditiously as possible to sell 

operations and assets back into the private sector. Under 

certain circumstances the establishment of a bridge 

financial company may not be necessary, particularly 

when the FDIC has the ability to pre-plan for the sale of 

a substantial portion of the firm’s assets and liabilities to 

a third party purchaser at the time of failure.

The rapid response, preservation of systemically important operations and immediate funding availability 

under the Dodd-Frank Act may be expected to provide 

certainty to the market, employees, and potential 

buyers. This promotes both financial stability and maximization of value in the sale of the assets of the covered 

financial company.

44 The FDIC may issue or incur obligations pursuant to an approved 

orderly liquidation plan (up to 10 percent of the total consolidated 

assets of the covered financial company) and pursuant to an approved 

mandatory repayment plan (up to 90 percent of the fair value of the 

total consolidated assets of the covered financial company that are 

available for repayment). See section 210(n)(6) and (9) of the DoddFrank Act, 12 U.S.C. § 5390(n)(6) and (9). To the extent that the 

assets in the receivership are insufficient to repay Treasury for any 

borrowed funds, any creditor who received an additional payment in 

excess of what other similarly situated creditors received, which additional payment was not essential to the implementation of the receivership or the bridge financial company, may have the additional payment 

clawed back. See section 210(o)(1)(D)(i) of the Dodd-Frank Act, 12 

U.S.C. § 5390(o)(1)(D)(i). This provision is consistent with Title II’s 

directive to minimize moral hazard. To the extent that the clawbacks of 

additional payments are insufficient to repay Treasury for any 

borrowed funds, the FDIC is required to assess the industry. See 

section 210(o)(1)(B) of the Dodd-Frank Act, 12 U.S.C. § 5390(o)(1)(B).
FDIC Quarterly 40 2011, Volume 5, No. 2

upon the management of such institution for requisite 

information.

Title I of the Dodd-Frank Act significantly enhances 

regulators’ ability to conduct advance resolution planning in respect of systemically important financial institutions through a variety of mechanisms, including 

heightened supervisory authority and the resolution 

plans, or living wills, required under section 165(d) of 

Title I of the Dodd-Frank Act.47 The examination 

authority provided by Title I of the Dodd-Frank Act 

will provide the FDIC with on-site access to systemically important financial institutions, including the 

ability to access real-time data.48 This will enable the 

FDIC, working in tandem with the Federal Reserve and 

other regulators, to collect and analyze information for 

resolution planning purposes in advance of the impending failure of the institution.

An essential part of such plans will be to describe how 

this process can be accomplished without posing 

systemic risk to the public and the financial system. If 

the company does not submit a credible resolution plan, 

the statute permits increasingly stringent requirements 

to be imposed that, ultimately, can lead to divestiture of 

assets or operations identified by the FDIC and the 

Federal Reserve to facilitate an orderly resolution. The 

Dodd-Frank Act requires each designated financial 

company to produce a resolution plan, or living will, 

that maps its business lines to legal entities and provides 

integrated analyses of its corporate structure; credit and 

other exposures; funding, capital, and cash flows; 

domestic and foreign jurisdictions in which it operates; 

its supporting information systems and other essential 

services; and other key components of its business operations, all as part of the plan for its rapid and orderly 

resolution. The credit exposure reports required by the 

statute will also provide important information critical 

to the FDIC’s planning processes by identifying the 

company’s significant credit exposures, its component 

exposures, and other key information across the entity 

and its affiliates. The elements contained in a resolution plan will not only help the FDIC and other domestic regulators to better understand a firm’s business and 

how that entity may be resolved, but the plans will also 

enhance the FDIC’s ability to coordinate with foreign 

47 See generally section 165 of Title I of the Dodd-Frank Act, 12 U.S.C. 

§ 5365.

48 See “Orderly Resolution of Lehman under the Dodd-Frank Act—

March–July, Due Diligence and Structuring the Resolution—Planning 

in the Crisis Environment,” infra.

court for permission to make an interim distribution, 

or the Chapter11 trustee or debtor-in-possession will 

provide in the plan of reorganization or plan of liquidation for interim distributions as various stages of the 

restructuring are reached.46 However, except in the 

case of “prepackaged” plans of reorganization, even an 

interim distribution can take months or years to materialize. In the case of LBHI, there has been no distribution to general unsecured creditors more than two years 

after LBHI’s initial bankruptcy filing.

Oversight and Advanced Planning. An essential prerequisite for any effective resolution is advance planning, a 

well-developed resolution plan, and access to the 

supporting information needed to undertake such 

planning.

Bankruptcy proceedings are typically challenging in the 

case of systemically important financial institutions in 

part because the participants have little notice or 

opportunity for advance preparation or coordination. 

The bankruptcy court, which must approve actions by 

the debtor outside of the ordinary course of business, 

may have little or no knowledge about the systemically 

important financial institution, and would have to rely 

46 In recent years a common practice has developed in bankruptcy 

cases of allowing payments shortly after the filing of a Chapter 11 petition to certain priority creditors (wage claimants (up to $11,725), 

employee benefits claimants (up to $11,725), taxing authorities and 

several less frequently used groups) if sufficient assets are at hand, on 

the theory that such creditors will be paid first anyway at the time final 

distributions are made (thus, no creditor’s rights will be impaired so 

long as the equity in available assets clearly exceeds the total priority 

claims). Permission to make such payments is generally sought as 

part of the debtor-in-possession’s “first day motions,” and such creditors generally receive payment within three to five days of the date of 

filing of the petition. A secondary consideration for paying prepetition 

wages is the desire on the part of management to retain an experienced work force at a time of turmoil. A second practice has developed in large Chapter 11 bankruptcy cases of paying “critical vendors” 

after obtaining a “first day order” shortly after the petition is filed. 

While such vendors have the status of general unsecured creditors, an 

argument is typically made to the Bankruptcy Court that certain trade 

creditors are considered key suppliers to the debtor-in-possession, 

and may refuse to do business with the Chapter 11 debtor unless they 

receive immediate payment on their prepetition claim, thus causing the 

entire reorganization effort to fail through loss of the going concern. 

This practice is more controversial than that of paying priority claimants, since (except in “prepackaged” bankruptcy cases) it is often very 

difficult to predict at the outset of the case what the percentage payout 

to general unsecured creditors will be at the end of the case. The practice has also come under criticism in recent years and has been cut 

back. One reason for the cutback is that there is little formal support in 

the Bankruptcy Code for the practice. See In re Kmart Corp., 359 F. 3d 

866 (7th Cir. 2004) and discussion in Turner, Travis N., “Kmart and 

Beyond: A ‘Critical’ Look at Critical Vendor Orders and the Doctrine of 

Necessity,” 63 Wash. & Lee L.Rev. 431 (2006).
FDIC Quarterly 41 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

ing these plans and any additional information that the 

FDIC and Federal Reserve would have received through 

on-site discussions with the firms during their review of 

the resolution plans would have provided the FDIC 

with valuable information necessary for effective resolution planning, information not available to the FDIC 

prior to the passage of the Dodd-Frank Act. In this 

regard the FDIC’s presence would not be indicative that 

a resolution is imminent, but rather that in a crisis the 

FDIC seeks to assure that all firms’ resolution plans are 

sufficiently robust to allow an orderly liquidation of any 

particular firm that might fail.

For Lehman, if senior management had not found an 

early private sector solution, the FDIC would have 

needed to establish an on-site presence to begin due 

diligence and to plan for a potential Title II resolution. 

Lehman was not the only firm in possible trouble and 

the FDIC would likely have had a heightened presence 

in other subject firms at the time. Thus, the market 

would not necessarily have taken the FDIC’s heightened presence as a signal that a failure was imminent as 

the market already was aware of Lehman’s problems. 

While it is possible in this situation or in other situations that the FDIC’s on site presence could create 

signaling concerns, this argues for the FDIC having a 

continuous on-site presence for resolution planning 

during good times.

Discussions with Lehman: In the various accounts of the 

failure of Lehman it is noteworthy that senior management discounted the possibility of failure until the very 

last moment.51 There was apparently a belief, following 

the government’s actions in respect of Bear Stearns, 

that the government, despite statements to the 

contrary, would step in and provide financial assistance 

and Lehman would be rescued. If Title II of the DoddFrank Act had been in effect, the outcome would have 

been considerably different. Lehman’s senior management would have understood clearly that the government would not and could not extend financial 

assistance outside of a resolution because of the clear 

requirements in the Dodd-Frank Act that losses are to 

be borne by equity holders and unsecured creditors, and 

management and directors responsible for the condition 

of the failed financial company are not to be retained.

51 According to the Examiner’s Report, following the near collapse of 

Bear Stearns in March 2008, “Lehman knew that its survival was in 

question.” Lehman’s management believed, however, that government 

assistance would be forthcoming to prevent a failure. See Examiner’s 

Report at 609, 618.

regulators in an effort to develop a comprehensive and 

coordinated resolution strategy for a cross-border firm.49

Structure and Bidding

Once the structure is developed, the FDIC would seek 

bids from qualified, interested bidders for the business 

lines or units that have going-concern value. The FDIC 

would analyze the bids received and choose the bid or 

bids that would provide the highest recovery to the 

receivership. The winning bidder would be informed 

and would take control of the business lines or units 

concurrent with the closing of the institution. Losses 

would be borne by equity holders, unsecured debt holders, and other unsecured creditors that remain in the 

receivership. These creditors would receive payment on 

their claims in accordance with the priority of payment 

rules set forth in the Dodd-Frank Act.50 The FDIC 

could make advance dividend payments to creditors 

based upon an upfront conservative valuation of total 

recoveries. As recoveries are realized, the FDIC could 

also pay out distributions to creditors as it has done 

successfully with failed insured banks. See “—Special 

Powers under Title II—Advance Dividends and Prompt 

Distributions,” above.

Orderly Resolution of Lehman under the 

Dodd-Frank Act

March–July, Due Diligence and Structuring the 

Resolution

Planning in the Crisis Environment: As the financial crisis 

enveloped Bear Stearns, the FDIC would have worked 

closely with the Federal Reserve and other appropriate 

regulators to gather information about the systemically 

important firms that may fall under the FDIC’s resolution authority. At a minimum, the firms’ resolution 

plans would have been reviewed jointly by the FDIC 

and the Federal Reserve to make sure that the plans 

were credible and up-to-date. The information support49 Domestic and foreign regulators are currently actively involved 

through the Financial Stability Board’s Cross-Border Crisis Management Group to develop essential elements of recovery and resolution 

plans that will aid authorities in understanding subject firms’ global 

operations and planning for the orderly resolution of a firm across 

borders. A number of jurisdictions are currently working to develop 

legislative and regulatory requirements for recovery and resolution 

plans, and domestic U.S. authorities are working to align regulatory 

initiatives in order to have a comprehensive and coordinated approach 

to resolution planning. For example, in January 2010, the FDIC and the 

Bank of England entered into a Memorandum of Understanding 

concerning the consultation, cooperation, and exchange of information 

related to the resolution of insured depository institutions with crossborder operations in the United States and the United Kingdom.

50 See section 210(b)(1) of the Dodd-Frank Act, 12 U.S.C. § 5390(b)(1).
FDIC Quarterly 42 2011, Volume 5, No. 2

The preferred outcome under the Dodd-Frank Act is for 

a troubled financial company to find a strategic investor 

or to recapitalize without direct government involvement or the FDIC being appointed receiver. To that 

end, the recommendation and determination prescribed 

by section 203(a)(2)(E) and (b)(3) of the Dodd-Frank 

Act, respectively, concern the availability of a viable 

private sector alternative. Requiring a troubled financial 

company to aggressively market itself pre-failure helps 

to ensure that exercise of the orderly resolution authority in Title II is a last resort. In this matter, the FDIC’s 

experience with troubled banks is instructive. The 

commencement of the FDIC’s due diligence process has 

frequently provided the motivation senior management 

has needed to pursue sale or recapitalization more 

aggressively. Between 1995 and the end of 2007, the 

FDIC prepared to resolve 150 institutions. Of this 

number, only 56—that is, 37 percent—eventually 

failed. Of course, many fewer problem banks have been 

able to find merger partners or recapitalize since the 

crisis began. However, from 2008 to 2010, of the 432 

banks where the FDIC began the resolution process, 

110—25 percent—avoided failure, either by finding an 

acquirer or recapitalizing.

Due Diligence: Just as when an insured depository institution is a likely candidate for an FDI Act receivership, 

the FDIC will need to gather as much information as 

possible about a systemically important financial institution in advance of any Title II resolution. In the case 

of LBHI, the SEC and the Federal Reserve Bank of 

New York began on-site daily monitoring in March 

2008, following the collapse and sale of Bear Stearns, at 

which point the FDIC would already have been on-site 

at Lehman to facilitate the FDIC’s Title I resolution 

planning and monitoring activities.53 The FDIC would 

have determined, jointly with other supervisors, the 

condition of the company for the purposes of ordering 

corrective actions to avoid failure, and it otherwise 

would have prepared for a Title II orderly resolution.

The FDIC would continue assembling information 

about the condition and value of Lehman’s assets and 

various lines of business. In preparing for a Title II resolution of a company subject to heightened prudential 

standards under Title I, the FDIC will have access to 

the information included in such company’s resolution 

53 See “Orderly Resolution of Lehman under the Dodd-Frank Act—

March–July, Due Diligence and Structuring the Resolution—Planning 

in the Crisis Environment,” supra.

To convey this point to Lehman and its Board of Directors, the FDIC could have participated in a meeting in 

the spring of 2008, together with Lehman’s Board of 

Directors, the Federal Reserve, and the SEC, to outline 

the circumstances that would lead to the appointment 

of the FDIC as receiver for one or more Lehman entities, and what that resolution would entail. The regulators would have emphasized that any open-company 

assistance or “too big to fail” transaction would be 

unavailable,52 and that the alternative to a sale of the 

company or a substantial capital raising would be a 

bankruptcy under the Bankruptcy Code or a resolution 

under Title II with no expectation of any return to 

shareholders.

The regulators could have set a deadline of July to sell 

the company or raise capital. This would have clearly 

focused Lehman’s Board of Directors on the urgency of 

the matter and encouraged the Board to accept the best 

non-government offer it received notwithstanding its 

dilutive nature; virtually any private sale would yield a 

better return for shareholders than the likely negligible 

proceeds shareholders would receive in an FDIC receivership, as equity holders have the lowest priority claims 

in a receivership.

Lehman’s senior management and Board of Directors 

may have been more willing to recommend offers that 

were below the then-current market price if they knew 

with certainty that there would be no extraordinary 

government assistance made available to the company 

and that Lehman would be put into receivership. Such 

avenues may have been available. For instance, KDB is 

reported to have suggested paying $6.40 per share when 

Lehman’s stock was trading at $17.50 on August 31—

just 15 days prior to Lehman’s bankruptcy filing.

Forcing Lehman to more earnestly market itself to a 

potential acquirer or strategic investor well in advance 

of Lehman’s failure would serve several other goals, 

even if such private sector transaction were unsuccessful. The FDIC would be able to use this marketing 

information to identify appropriate bidders who would 

be invited to join in the FDIC-led due diligence and 

bidding process as described in “—Due Diligence” and 

“—Structuring the Transaction,” below. 

52 The Preamble to the Dodd-Frank Act notes that it was enacted, inter 

alia, “to end ‘too big to fail’ [and] to protect the American taxpayer by 

ending bailouts.”
FDIC Quarterly 43 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

iaries. LBI was also the owner and operator of key IT 

systems used throughout the company and provided 

custody and trade execution services for clients of 

foreign Lehman entities, primarily for trades conducted 

by LBIE in the United States. Likewise, LBIE provided 

custody and trade execution services for clients of LBI 

conducting trades outside of the United States. The 

interconnected nature of Lehman’s operations would 

have argued for maintaining maximum franchise value 

by developing a deal structure that would have maintained the continuing uninterrupted operation of the 

major business lines of the firm by transferring those 

assets and operations to an acquirer immediately upon 

the failure of the parent holding company.56

During the FDIC’s investigation of the Lehman group, 

it would have identified subsidiaries which would be 

likely to fail in the event of a failure of LBHI but 

would likely not be systemic and would provide little 

or no value to the consolidated franchise. The FDIC 

would not have recommended a resolution under Title 

II for those subsidiaries, and they would likely have 

been resolved under the Bankruptcy Code or other 

applicable insolvency regime.57 The assets of these 

subsidiaries would not have been part of a Title II 

receivership, other than the receiver’s equity claim; 

the FDIC would have had no expected return on the 

equity for any such non-systemic subsidiary placed into 

bankruptcy. The FDIC also would have identified any 

subsidiary that would be likely to fail in the event of a 

failure of LBHI, and whose failure likely would be 

systemic. The FDIC would have made an evaluation as 

to whether the resolution of any such subsidiary under 

56 By completing a sale at the time of failure of the parent holding 

company, the acquirer would have been able to “step into the shoes” 

of LBHI and provide liquidity, guarantees, or other credit support to 

the newly acquired subsidiaries. Were the FDIC unable to promptly 

complete such a transaction, it could provide any necessary liquidity 

to certain key subsidiaries, such as LBIE, pending a sale of those 

assets. See footnote 58, infra. 57 See section 202(c)(1) of the Dodd-Frank Act, 12 U.S.C. § 5382(c)

(1).

plan, or living will.54 Though that resolution plan is 

designed to provide for the resolution of the systemically important financial institution under the Bankruptcy Code, it would provide regulators with 

invaluable information about the institution’s structure, 

organization, and key operations that could form the 

basis for an orderly liquidation under Title II. It is the 

FDIC’s experience that management of a troubled institution often has an overly optimistic view of the value 

of its franchise and the firm’s prospect for recovery. 

Thus, while the resolution plan would provide key 

financial and other data about the consolidated entity, 

an independent examination of the troubled firm may 

have been necessary. The FDIC will also have access to 

real-time data from on-site monitoring conducted by 

the FDIC and other prudential regulators.

The FDIC’s participation in gathering information and 

in exercising its examination authority would be done 

in coordination with the on-site monitoring activities 

of the SEC and the Federal Reserve Bank of New York. 

The development of additional information to facilitate 

a potential resolution would be done in a manner that 

would not disrupt the business operations or indicate an 

imminent failure of the financial company. As regulated 

entities under the Dodd-Frank Act, heightened supervision by the FDIC, the Federal Reserve, and other 

prudential regulators will be normal. As a result, these 

information-gathering activities should neither signal 

increased distress nor precipitate market reaction.

While conducting due diligence, the FDIC would have 

begun developing the transaction and bid framework by 

analyzing the legal structure of the firm, its operations, 

and its financial data. In this case, LBHI was a large 

holding company with major overseas operations.55 As 

with any large, complex financial company, there were 

many interrelations among the major affiliates of the 

group. LBHI was the guarantor of all obligations of 

LBI and the source of funding for a number of other 

Lehman entities. LBI was the employer of record for 

much of the company, including various foreign subsid54 Had the Dodd-Frank Act been enacted sufficiently far in advance of 

Lehman’s failure, undoubtedly much more supervisory information 

would have been available in March 2008. The Federal Reserve and the 

FDIC would have had the detailed information presented in Leh-man’s 

statutorily required resolution plan under Title I of the Dodd-Frank Act. 

See section 165(d) of Title I of the Dodd-Frank Act, 12 U.S.C. § 

5365(d).

55 The principal operating entities in the holding company were LBI, 

the U.S. broker-dealer, and LBIE, the U.K.-based broker-dealer. 

Lehman also had a smaller Asian trading operation headquartered in 

Japan, and various smaller subsidiaries in other countries.
FDIC Quarterly 44 2011, Volume 5, No. 2

almost 40 percent of the approximately $5.7 billion in 

commercial paper outstanding enterprise wide.

By March 2008, Lehman had recognized that its 

commercial real estate related holdings were a major 

impediment to finding a merger partner. Its SpinCo 

proposal identified $31.7 billion in significantly underperforming commercial real estate related assets. During 

the week leading up to Lehman’s bankruptcy filing, 

Bank of America identified an additional $38.3 billion 

in suspect residential real estate related assets and 

private equity assets that it would not purchase in an 

acquisition. Barclay’s identified $20.3 billion of similar 

potentially additional problem assets in its due diligence. In the FDIC’s resolution process, the FDIC’s 

structuring team as well as prospective bidders would 

have had sufficient time to perform due diligence and 

identify problem asset pools. While Lehman was seeking an investor pre-failure, the FDIC would have identified and valued these problem asset pools in order to set 

a defined bid structure for Lehman. The bid structure 

would have allowed prospective acquirers to bid upon 

options to purchase all of Lehman’s assets in a whole 

financial company P&A with loss sharing on defined 

pools of problem assets, or a purchase which excludes 

those problem asset pools. In the latter bid option, the 

receivership estate would have purchased the problem 

assets out of Lehman’s subsidiaries at their fair market 

value prior to consummating the purchase agreement 

with the acquirer. These problem assets, in addition to 

those directly owned by the holding company, could 

have been retained in the receivership or placed into a 

bridge financial company prior to future disposition. 

Either bid would have allowed a further option for the 

prospective acquirer to pay to assume the commercial 

paper and other critical short-term securities of 

Lehman. The bidding structure is discussed more fully 

in “—August, Begin Marketing Lehman,” below.

Both bid structures are intended to provide comfort to 

not only the potential acquirer, but also to its regulators, concerning the potential down-side exposure to 

problem assets. In excluding pools of identified problem 

assets from a bid, an acquirer is protected directly by 

effectively capping its exposure to such assets—which 

are left with the receivership—at zero. This risk minimization comes at the cost of lost potential upside from 

returns on servicing the troubled assets, higher administrative costs of the receiver, and a less attractive bid. In 

the loss-sharing structure, a potential acquirer receives 

tail-risk protection: the acquirer is able to cap its exposure to an identified pool of problem assets at set levels. 

This comfort is particularly important where a potential 

Title II would have aided in the orderly resolution of 

the parent company.58

As is the case with insured depository institutions that 

have foreign operations, the FDIC would have begun 

contacting key foreign financial authorities on a 

discrete basis to discuss what legal or financial issues 

might arise out of an FDIC receivership, or out of 

foreign resolution regimes in the case of Lehman entities operating outside of the United States, and how 

those resolutions could be coordinated. In addition, 

foreign financial authorities would have been consulted 

when foreign financial companies and investors 

expressed interest in investing in or purchasing 

Lehman. These discussions would have addressed, at a 

minimum, the financial strength of the acquirer, types 

of approvals that would be required to consummate a 

transaction, and any identified impediments to the 

transaction. Regular, ongoing contact would be particularly important after the transaction structure was determined and qualified bidders had been contacted and 

had expressed interest.

Valuation and Identification of Problem Assets: On a 

consolidated basis, LBHI and its subsidiaries had total 

assets of $639 billion, with $26.3 billion in book equity 

and total unsecured long-term and short-term borrowings of $162.8 billion as of May 31, 2008. The parent 

company, LBHI, had $231 billion in assets, with $26.3 

billion in book equity and $114.6 billion in unsecured 

long-term and short-term borrowings. On September 14 

(just prior to bankruptcy), LBHI (unconsolidated) was 

slightly smaller with $209 billion in assets, $20.3 billion 

in book equity, and $99.5 billion in long-term and 

short-term unsecured debt, including $15 billion in 

subordinated debt. In addition, LBHI’s short-term unsecured debt included $2.3 billion in commercial paper—

58 Upon a parent entering a Title II receivership, the FDIC may appoint 

itself receiver over one or more domestic covered subsidiaries of a 

covered financial company in receivership in accordance with the selfappointment process set forth in section 210(a)(1)(E) of the DoddFrank Act, 12 U.S.C. § 5390(a)(1)(E). This appointment process 

requires a joint determination by the FDIC and the Secretary of the 

Treasury that the covered subsidiary is in default or danger of default, 

that putting it into receivership would avoid or mitigate serious 

adverse effects on U.S. financial stability, and that such action would 

facilitate the orderly liquidation of the covered financial company 

parent. Once in receivership, the covered subsidiary would be treated 

in a similar manner to any other covered financial company: its shareholders and unsecured creditors would bear the losses of the 

company, and management and directors responsible for the company’s failure would not be retained. The receiver, to aid in the orderly 

liquidation of the company, could extend liquidity to it in accordance 

with section 204(d) of the Dodd-Frank Act, 12 U.S.C. § 5384(d).
FDIC Quarterly 45 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

those resolutions could be coordinated.61 Specifically, 

the FDIC would address issues of ring-fencing of assets, 

particularly of Lehman’s U.K.-based broker-dealer. See 

“—Due Diligence,” above.

August, Begin Marketing Lehman

Assuming Lehman were unable to sell itself, the FDIC 

would have commenced with marketing Lehman.62

The FDIC would have set a defined bidding structure. 

Prospective acquirers previously identified (as discussed 

in “—March–July, Due Diligence and Structuring the 

Resolution—Structuring the Transaction,” above) would 

have been invited to bid based on the following options:

Option A: Whole financial company purchase and 

assumption with partial loss share (loss-sharing 

P&A). Under this option, the assets and operations 

of Lehman are transferred to the acquirer with no 

government control and no ongoing servicing of 

Lehman assets by the government. Due to the problem assets discussed above, however, it may be 

necessary for the receivership estate to offer a potential acquirer protection from loss in respect of that 

identified pool of problem assets. In this type of 

transaction, the acquirer purchases the assets at their 

gross book value, and assumes, at a minimum, the 

secured liabilities. Depending on the bid, other 

liability classes may be assumed as well. Since the 

book value of assets must always exceed the amount 

of liabilities assumed in this structure, the acquirer, 

after factoring its discount bid for the assets, must 

also provide a combination of cash and a note 

payable to the receivership estate to balance out the 

transaction.63 The receivership estate’s share of loss 

61 For example, in the case of East West Bank’s acquisition of United 

Commercial Bank, San Francisco, California, the FDIC engaged with 

the China Banking Regulatory Commission and the Hong Kong Monetary Authority in advance of the resolution to discuss potential acquirers, regulatory approvals and options for resolving or selling the 

assets and liabilities of United Commercial Bank’s wholly owned 

subsidiary in China and its foreign branch in Hong Kong.

62 Any agreement reached in respect of Lehman would be contingent 

upon its failure, a systemic determination under sections 203(b) or 

210(a)(1)(E) of the Dodd-Frank Act, 12 U.S.C. §§ 5383(b) or 5390(a)

(1)(E), as applicable, and the appointment of the FDIC as receiver 

under section 202 of the Dodd-Frank Act, 12 U.S.C. § 5382. In the 

case of Lehman, and for purposes of our analysis, had there been a 

viable acquirer or strategic investor pre-failure, no Title II resolution 

would be required. As discussed in “The Events Leading to the 

Lehman Bankruptcy,” supra, and in footnote 68, infra, no such private 

sector alternative was available.

63 A simple formula to reflect the amount of the acquirer’s note payable 

is: Book value of assets purchased less the sum of (book value of 

liabilities assumed plus discount bid plus cash payment) is equal to 

note payable.

acquirer is unable to undertake in-depth due diligence 

on such assets, or must do so on an abbreviated time 

table. This down-side protection will also be important 

to regulators, as it mitigates the risk of an acquirer experiencing financial distress due to the problem assets of 

an acquiree.59

Structuring the Resolution: During due diligence, the 

FDIC would have identified certain pools of assets of 

Lehman—including certain commercial real estate, 

residential real estate, and private equity assets—that 

would make a whole financial company P&A transaction difficult. See “—Valuation and Identification of 

Problem Assets,” above. These troubled assets were estimated to be between $50 and $70 billion in book value.

The FDIC would have set up a data room to enable 

potential acquirers to conduct due diligence, and would 

have begun developing a marketing structure for 

Lehman and its assets. The FDIC would have identified 

potential acquirers of Lehman. Criteria would have 

included maximization of value on the sale, the stability 

of the potential acquirer, and the ability of the acquirer 

expediently to consummate an acquisition.60 Having 

identified the potential acquirers, the FDIC would have 

explained the bid structure and invited the firms to 

conduct (or continue) due diligence of Lehman.

During this time, the FDIC would have continued to 

monitor Lehman’s progress in marketing itself. This 

would have encouraged Lehman to consummate a nongovernment transaction, which remained the best 

outcome for all parties. It would also have provided the 

FDIC with key information concerning interested 

acquirers and potential issues and concerns of such 

acquirers in completing a transaction.

Also during this time, as is the case with insured depository institutions that have foreign operations, the FDIC 

would have continued a dialogue with key foreign 

financial authorities to discuss what legal or financial 

issues might arise out of an FDIC receivership, or out of 

foreign resolution regimes in the case of Lehman entities operating outside of the United States, and how 

59 Both Barclays and its U.K. regulators were concerned with exposure 

to problem assets of Lehman following a potential acquisition by 

Barclays. See footnote 68, infra. 60 We also note the impact of section 622 of the Dodd-Frank Act, 12 

U.S.C. § 1852, which could prohibit a large financial company from 

entering into a transaction to acquire another financial company if the 

pro forma liabilities would exceed certain statutory levels.
FDIC Quarterly 46 2011, Volume 5, No. 2

transferred to the acquirer. Identified pools of problem assets would not be included in the transaction, 

but retained for disposition at a later date.65

Liabilities: While the FDIC would transfer the assets 

of Lehman to the acquirer in accordance with 

Option A or Option B described above, most unsecured creditor claims would remain with the receivership, including shareholder claims and claims of 

holders of unsecured, long-term indebtedness. Fully 

secured claims would be transferred, along with the 

collateral, to the acquirer. The bid participants 

would have the opportunity to bid on acquiring 

certain short-term indebtedness of Lehman, particularly Lehman’s outstanding commercial paper. In 

order for this bid structure to be successful, bidders 

would need to bid an amount sufficient to cover the 

loss that the commercial paper and other short-term 

creditors would have otherwise incurred had the 

creditors remained in the receivership.

In comparing bids under Option A and Option B, the 

receivership estate’s cost of managing and disposing of 

the identified problem assets would be taken into 

consideration. Depending on the bid, the acquirer would 

purchase the acquired assets through a combination of 

one or more of cash, notes, and assumed liabilities.

It should be noted that the proposed bid structure 

represented by Option A and Option B represents one 

set of options for disposing of the assets and operations 

of a covered financial company in an efficient manner. 

The FDIC would have the flexibility to restructure 

these bids as the facts and circumstances of a particular 

covered financial company warrant in order to satisfy 

the FDIC’s statutory mandates of promoting financial 

stability, maximizing recoveries, and minimizing losses.

Early September, Closing

Following due diligence, interested parties would have 

submitted closed, or sealed, bids. The FDIC would have 

evaluated the bids based upon the requirement under 

the Dodd-Frank Act to maximize value upon any disposition of assets.66 Bids would have been evaluated on a 

65 As discussed under “—March–July, Due Diligence and Structuring 

the Resolution—Due Diligence,” supra, subsidiaries holding such 

assets would generally be resolved under the Bankruptcy Code. To the 

extent any subsidiary was deemed systemic, it could be put into a 

separate receivership under Title II, its assets liquidated and its claims 

resolved in accordance with the Dodd-Frank Act.

66 See section 210(a)(9)(E) of the Dodd-Frank Act, 12 U.S.C. § 5390(a)

(9)(E).

payments are made through reductions in the 

outstanding balance of the note payable as loss 

claims occur over time.

Transactions offering an option for a sharing of 

potential future losses between the acquirer and the 

FDIC have been frequently used to resolve failed 

banks. Loss-share transactions allow the FDIC to 

obtain better bids from potential assuming institutions by sharing a portion of the risk on a pool of 

assets. This has been particularly important during 

periods of uncertainty about the value of assets. The 

FDIC’s experience has been that these transactions 

result in both better bid prices and improved recoveries for the receivership and receivership creditors.

Another benefit of loss sharing is that the FDIC is 

able to transfer administration of the failed financial 

company’s problem assets to the assuming institution and receive a premium for the failed company’s 

franchise value, thereby maximizing value. By 

having the assuming company absorb a portion of 

the loss, the FDIC induces rational and responsible 

credit management behavior from the assuming 

institution to minimize credit losses. Compared to 

the alternative of retaining problem assets in receivership, the loss-share structure tends to be more efficient, as it limits losses and administrative costs of 

the receivership.

The FDIC would therefore permit bidders to bid on 

a structure based on a sale of the whole financial 

company, with partial but substantial coverage of 

losses on those identified problem assets.64 The lossshare structure encourages bidders to maximize their 

bids by offering downside credit risk protection from 

loss on an identified pool of problem assets. This 

can produce a more efficient outcome as it incentivizes the acquirer to maximize recoveries while reducing administrative costs of the receivership. See 

“The Resolution and Receivership Process for Failed 

Banks—Loss Share,” above.

Option B: Modified purchase and assumption without 

loss share, which excludes certain identified problem 

assets (modified P&A, similar to a good bank–bad 

bank resolution strategy). Under this option, the 

majority of the assets and operations of Lehman are 

64 To the extent problem assets were held directly by LBHI, or LBHI 

experienced significant intercompany exposures to losses in subsidiaries and affiliates, loss sharing would be more likely to be a preferred 

bid structure.
FDIC Quarterly 47 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

the extent assumed by Barclays, commercial paper.71 To 

the extent Barclays’ winning bid had been based upon a 

whole financial company with loss share, it would have 

been responsible for servicing problem assets in accordance with the terms of the loss-sharing P&A 

agreement.

Lehman’s derivatives trading was conducted almost 

exclusively in its broker-dealer, LBI, and in LBI’s 

subsidiaries.72 As a result, Barclays’ acquisition of the 

broker-dealer group would have transferred the derivatives operations, together with the related collateral, to 

Barclays in its entirety as an ongoing operation. At the 

moment of failure, Barclays would have assumed any 

parent guarantee by Lehman outstanding in respect of 

the subsidiaries’ qualified financial contracts. This 

action should have substantially eliminated any 

commercial basis for the subsidiaries’ counterparties to 

engage in termination and close-out netting of qualified 

financial contracts based upon the insolvency of the 

parent guarantor. This would have removed any financial incentive to do so as well, as a financially secure 

acquirer would have assumed the obligations and 

provided guarantees to the same extent as its predecessor, in part to preserve the significant franchise value of 

the derivatives portfolio (including the underlying 

collateral).73 The more limited derivatives operations 

conducted by LBHI would have been subjected to haircuts to the extent that any net amount due to a counterparty was not collateralized or hedged. Particularly in 

the future, it is expected that the vast majority of the 

derivatives transactions of a covered financial company 

will be fully collateralized.

Barclays would have purchased the acquired assets 

through a combination of one or more of the following: 

cash, notes, and the assumption of liabilities. The 

FDIC, as receiver for Lehman, would have disposed of 

any problem assets left behind in the receivership or 

71 Despite paying a premium to assume the commercial paper obligations, an acquirer may have been incentivized to bid on such business 

due to the incremental franchise value of the business line and to 

preserve customer goodwill.

72 LBHI conducted its derivatives activities primarily in subsidiaries of 

LBI (the broker-dealer), including Lehman Brothers Special Financing 

Inc., Lehman Brothers Derivatives Products, Inc., and Lehman Brothers Financial Products, Inc.

73 Under the International Swaps and Derivatives Association master 

agreements (and trades placed thereunder), parties may choose 

whether to be governed by New York or English law. To the extent that 

parties to a particular qualified financial contract are validly governed 

by English law (and a court recognizes and applies such choice of 

law), such contract may not be subject to the Dodd-Frank Act in terms 

of nullification of its ipso facto clause.

present-value basis. The FDIC would have selected the 

winning bid, and the acquirer and the FDIC, as the 

receiver for LBHI, would enter into a conditional P&A 

agreement based upon the agreed upon bid structure.67

We have assumed, for the limited purpose of this discussion, that Barclays would have provided a winning bid 

to complete an acquisition of Lehman.68

We have further assumed that, as LBHI reached a point 

at which it was in default or in danger of default, a 

systemic determination would have been made by the 

Secretary of the Treasury and the FDIC would have 

been appointed receiver of LBHI.69

At the time a determination was made that Lehman 

should be put into receivership and the FDIC named 

receiver, the assets and select liabilities of Lehman 

would have been transferred to Barclays as the acquiring institution based upon the structure of the winning 

bid.70 Barclays would have maintained the key operations of Lehman in a seamless manner, integrating 

those operations over time. Disruptions to the market 

likely would have been minimal. Barclays would have 

continued to make scheduled payments on liabilities 

transferred to it, including secured indebtedness and, to 

67 See footnote 62, supra. 68 We note that this analysis is purely hypothetical in nature, and a bid 

conducted by the FDIC could have produced strong bids by a number 

of potential acquirers. Barclays, however, was close to completing a 

transaction with Lehman in September 2008. It was unable to proceed 

based upon the risk of financial loss due to problem assets it identified 

in its due diligence and the inability to gain an exemption from U.K. 

regulators from the requirement to hold a shareholder vote prior to 

approving a transaction with Lehman based upon the proposed structure. The FDIC believes it would have been able to alleviate Barclays’ 

concerns—and facilitate requisite regulatory approvals—by structuring the transaction as a loss-sharing P&A or as a modified P&A. For 

the purpose of this discussion, therefore, a winning bid from Barclays 

would be one reasonable outcome from the bidding process outlined 

in “—August, Begin Marketing Lehman,” supra. 69 For a detailed discussion of the recommendation, determination, and 

appointment process under sections 203 and 202 of the Dodd-Frank 

Act, 12 U.S.C. §§ 5383 and 5382, see “The Orderly Liquidation of 

Covered Financial Companies—Appointment,” supra. 70 There is a danger of value dissipation—in proportion to the size and 

complexity of the covered financial company—the longer such 

covered financial company stays in receivership prior to a sale being 

consummated. Accordingly, the FDIC would generally prefer, where 

possible, to time a sale of the assets and operations of the covered 

financial company at or near the date of failure. The FDIC may also 

transfer key operations to a bridge financial company, as described 

under “The Orderly Resolution of Covered Financial Companies—

Special Powers under Title II—Ability to Preserve Systemic Operations 

of the Covered Financial Company,” supra. These same challenges are 

faced in the resolution of larger insured depository institutions under 

the FDI Act.
FDIC Quarterly 48 2011, Volume 5, No. 2

receivership.76 These borrowed funds could have been 

made available to creditors immediately in the form of 

advance dividends to satisfy a portion of creditor claims 

based upon the total expected recovery in the resolution. This is in contrast to the actual circumstances of 

the LBHI bankruptcy, in which there has been no 

confirmed plan of reorganization or cash distribution to 

unsecured creditors of LBHI more than two years after 

the failure of Lehman.

Conclusion

Title II of the Dodd-Frank Act provides “the necessary 

authority to liquidate failing financial companies that 

pose a systemic risk to the financial stability of the 

United States in a manner that mitigates such risk and 

minimizes moral hazard.”77 These powers and authorities are analogous to those the FDIC uses to resolve 

failed insured depository institutions under the FDI Act. 

In the case of Lehman, following appointment by the 

Secretary of the Treasury, the FDIC could have used its 

power as receiver and the ability to facilitate a sale 

under Title II of the Dodd-Frank Act to preserve the 

institution’s franchise value and transfer Lehman’s 

assets and operations to an acquirer. The FDIC would 

have imposed losses on equity holders and unsecured 

creditors, terminated senior management responsible for 

the failure of the covered financial company, maintained Lehman’s liquidity, and, most importantly, 

attempted to mitigate and prevent disruption to the 

U.S. financial system, including the commercial paper 

and derivatives markets. The very availability of a 

comprehensive resolution system that sets forth in 

advance the rules under which the government will act 

following the appointment of a receiver could have 

helped to prevent a “run on the bank” and the resulting 

financial instability. By maintaining franchise value and 

mitigating severe disruption in the financial markets, it 

is more likely that debt holders and other general creditors will receive greater recoveries on their claims under 

the Dodd-Frank Act than they would have otherwise 

received in a Chapter 7 liquidation or a Chapter 11 

reorganization.

The key to an orderly resolution and liquidation of a 

systemically important financial institution is the ability 

to plan for its resolution and liquidation, provide liquidity to maintain key assets and operations, and preserve 

financial stability. During the planning phase, the 

FDIC, working in tandem with the Federal Reserve and 

76 See footnote 44 and accompanying discussion, supra. 77 Section 204(a) of the Dodd-Frank Act, 12 U.S.C. § 5384(a).

managed the loss-share agreement with Barclays in 

respect of those assets, and would have settled creditor 

claims in accordance with the priority for repayment set 

forth in the Dodd-Frank Act.74

The Likely Treatment of Creditors

As mentioned earlier, by September of 2008, LBHI’s 

book equity was down to $20 billion and it had $15 

billion of subordinated debt, $85 billion in other 

outstanding short- and long-term debt, and $90 billion 

of other liabilities, most of which represented intracompany funding. The equity and subordinated debt 

represented a buffer of $35 billion to absorb losses 

before other creditors took losses. Of the $210 billion in 

assets, potential acquirers had identified $50 to $70 

billion as impaired or of questionable value. If losses on 

those assets had been $40 billion (which would represent a loss rate in the range of 60 to 80 percent), then 

the entire $35 billion buffer of equity and subordinated 

debt would have been eliminated and losses of $5 

billion would have remained. The distribution of these 

losses would depend on the extent of collateralization 

and other features of the debt instruments.

If losses had been distributed equally among all of 

Lehman’s remaining general unsecured creditors, the $5 

billion in losses would have resulted in a recovery rate 

of approximately $0.97 for every claim of $1.00, assuming that no affiliate guarantee claims would be triggered. This is significantly more than what these 

creditors are expected to receive under the Lehman 

bankruptcy. This benefit to creditors derives primarily 

from the ability to plan, arrange due diligence, and 

conduct a well structured competitive bidding process.

The Dodd-Frank Act provides a further potential benefit to creditors: earlier access to liquidity. As described 

above, the acquirer would have provided a combination 

of cash and a note to the receiver. Under the DoddFrank Act, the FDIC could have promptly distributed 

the cash proceeds from the sale of assets to claimants in 

partial satisfaction of unsecured creditor claims.75 The 

FDIC would also have been able to borrow up to 90 

percent of the fair value of the note available for repayment—together with the fair value of any assets left in 

the receivership available for repayment—from the 

orderly liquidation fund and advance those funds to the 

74 See section 210(b)(1) of the Dodd-Frank Act, 12 U.S.C. § 5390(b)(1). 75 See “The Orderly Resolution of Covered Financial Companies—

Special Powers under Title II—Advance Dividends and Prompt Distributions,” supra, for a discussion of the ability to make both prompt 

distributions and advance dividends in a Title II receivership.
FDIC Quarterly 49 2011, Volume 5, No. 2

Orderly Liquidation of LBHI under Dodd-Frank

We have also stuck closely to the facts in identifying 

the most likely acquirer of Lehman as Barclays, while 

also discussing the potential role played by Bank of 

America and KDB. Lehman, while a complex firm, had 

value primarily as an investment bank. Thus, its resolution was focused on keeping the investment bank’s 

operations intact in order to preserve its going-concern 

value. In other cases, a large financial firm with many 

pieces such as a large commercial bank, an insurance 

company, and a broker-dealer, might represent a financial firm that is no longer too big to fail, but may be too 

big to continue to exist as one entity.78 Over the longer 

term, the development of resolution plans will enable 

the FDIC to prepare to split up such a firm in order to 

facilitate a Title II liquidation. The FDIC could pursue 

a number of alternatives instead of a whole financial 

company purchase-and-assumption transaction, including a spin-off of assets, an initial public offering, a debtto-equity conversion, or some other transaction that 

would satisfy regulatory concerns about concentration 

while minimizing losses to the failed company’s 

creditors.

78 See e.g., Simon Johnson & James Kwak, 13 Bankers: The Wall 

Street Takeover and the Next Financial Meltdown (2010); Michael 

McKee and Scott Lanman, “Greenspan Says U.S. Should Consider 

Breaking Up Large Banks,” Bloomberg, Oct. 15, 2009, available at 

http://www.bloomberg.com/apps/news?pid= newsarchive&sid=

aJ8HPmNUfchg; Lita Epstein, “Breaking up ‘too big to fail’ banks: 

Britain leads, will U.S. follow,” DailyFinance, Nov. 2, 2009, 

available at http://www.dailyfinance.com/story/ investing/breaking-upbanks-too-big-to-fail-britian-leads-but-will-u-s/19220380/. The DoddFrank Act includes provisions intended to prevent the creation of 

ever-larger financial companies, including section 622 thereof, 12 

U.S.C. § 1852. See footnote 60, supra.

the SEC, would have been able to identify problem 

assets; require management to raise capital or find an 

acquirer; gather information about the institution’s 

structure, organization, and key operations; prepare the 

resolution transaction structure and bids; and seek 

potential acquirers. During this phase, the FDIC would 

have contacted the relevant foreign and domestic regulatory authorities and governments to coordinate the 

resolution. Through this process, the FDIC would have 

minimized losses and maximized recoveries in the event 

the systemically important financial institution failed 

and was put into receivership.

Perhaps most importantly, the Dodd-Frank Act 

provides the means to preserve systemically important 

operations and reduce systemic consequences while 

limiting moral hazard by imposing losses on the stockholders and unsecured creditors of the failed systemically important financial institution rather than on the 

U.S. taxpayer. In so doing, the FDIC is able to fulfill its 

statutory mandate to preserve financial stability and 

serve the public interest.

Afterword

This paper has focused on how the government could 

have structured a resolution of Lehman under Title II of 

the Dodd-Frank Act following the failure of such firm. 

In so doing, we have made a number of assumptions 

and caveats to provide a framework for the analysis and 

to maintain consistency with the historical record. That 

is, while we have assumed that the Dodd-Frank Act 

had been enacted pre-failure, and that the FDIC would 

have been able to avail itself of the pre-planning powers 

available under Title I, including having access to key 

data of subject institutions through resolution plans and 

on-site monitoring, we have not assumed-away the failure of Lehman.

The orderly liquidation authority of Title II would be a 

remedy of last resort, to be used only after the remedies 

available under Title I—including the increased informational and supervisory powers—are unable to stave 

off a failure. In particular, it is expected that the mere 

knowledge of the consequences of a Title II resolution, 

including the understanding that financial assistance is 

no longer an option, would encourage a troubled institution to find an acquirer or strategic partner on its own 

well in advance of failure. Likewise, on-site monitoring 

and access to real-time data provided under Title I is 

expected to provide an early-warning system to the 

FDIC and other regulators well in advance of a subject 

institution’s imminent failure.
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