6
 

Bank Resolutions and Receiverships 

One important way that the FDIC fulfills its mission “to maintain stability and public 

confidence in the nation’s financial system” is by carrying out all the tasks that are triggered 

by the closure of failed FDIC-insured depository institutions, including the liquidation 

of the assets held by the failed banks.1

 The FDIC learned important lessons from its 

experience during the bank and thrift crisis of the 1980s and early 1990s, which generated 

an enormous volume of failed-bank assets. Many of these assets were retained and managed 

by the FDIC, and this proved to be operationally complex as well as costly. As a result, after 

the first crisis ended, the FDIC adopted a resolution strategy2 that centered on selling assets 

back into the marketplace promptly, either at the time of failure or shortly thereafter. In 

the recent crisis, this strategy had the collateral benefit of conserving cash for the FDIC, a 

benefit that proved to be important as events unfolded (see chapter 5). 

The nature of the 2008–2013 crisis, including both its size and the speed of the upsurge 

in bank failures, made it challenging for the FDIC to sell failed banks and their assets, and 

it required creativity and adaptability to design sales-contract features that would attract 

buyers. Early on, as the crisis intensified and the appetite for purchasing failed institutions 

dwindled in the marketplace, the FDIC responded by including an option to share credit 

losses with acquirers as a feature of its failed-bank offerings.3

 This proved to be quite 

helpful. As market conditions evolved during the crisis, the FDIC responded by modifying 

the contract terms in loss-sharing agreements and adjusting its other asset sales strategies. 

The next section of this chapter provides background information: the definitions of the 

terms “resolutions” and “receiverships” and a summary of the FDIC’s responsibilities for 

resolutions and receiverships; an account of the FDIC’s past strategy with respect to those 

responsibilities; and an overview of the FDIC’s readiness planning in the years preceding 

the outbreak of the recent crisis. The background information is followed by an account 

1 For the FDIC’s mission, vision and values, see https://www.fdic.gov/about/strategic/strategic/mission.html. 

Throughout the chapter, the term “banks” refers to all FDIC-insured depository institutions. 

2 Key terms, such as resolution and receivership, are defined below. 

3 Loss sharing is a sales method where the FDIC sells assets to an acquirer and agrees to pay the acquirer for a 

pre-specified percentage of the future losses on selected failed-bank assets to make the sale more attractive. 

For additional discussion, see the section titled “Loss-Share Purchase and Assumption.” 
176 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

of the dimensions of the crisis the FDIC had to face in 2008. This is followed by two 

sections on the main task of resolutions (the main task is the marketing of failed-bank 

franchises to potential acquirers) and then by two sections on receiverships (whose main 

task is managing and selling the assets that were not acquired at resolution). In each of 

those two subject areas, the first section presents general considerations, preparing the 

way for the second section, which is a narrative and analysis of the decisions the FDIC 

made in fulfilling its resolution and receivership responsibilities during the 2008–2013 

crisis. The chapter ends with a listing and discussion of lessons learned, areas for future 

research and a short conclusion. 

Background: Definitions and Responsibilities, Past Strategy, 

and Readiness Planning 

The background necessary to an understanding of resolution and receivership 

activity during the 2008–2013 crisis covers three areas: basic definitions of terms and 

responsibilities; strategies the FDIC used during and after the previous crisis (1980– 

1994); and the readiness planning that the FDIC engaged in during the period between 

the two crises, when failure activity was minimal. 

Definitions and Summary of FDIC Responsibilities 

When a bank fails, a receivership is established at the moment the bank is closed. Similar 

to bankruptcy proceedings for companies other than banks,4

 a receivership is the legal 

entity where all the affairs of the failed bank are handled. The receivership does not end 

until all the bank’s assets are sold and all the claims against the bank are addressed. The 

term “resolution” is used in multiple ways: often it refers just to the initial phase of the 

receivership, but it is also used for the entire receivership process. In the second sense, 

therefore, a bank is not truly resolved until the receivership itself is terminated. In this 

chapter, however, “resolution” is used in the first sense: the initial phase of the receivership. 

Resolving a failed bank takes place on a date that is established, within statutory 

bounds, through consultation between the bank’s chartering authority and the FDIC.5 

4 For a discussion of the similarities and differences between the receiverships used by the FDIC to resolve 

failed banks and bankruptcy proceedings used for nonbank firms, see Robert R. Bliss and George G. 

Kaufman, “U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation,” 

Federal Reserve Bank of Chicago Working Paper, 2006, https://www.chicagofed.org/publications/workingpapers/2006/wp-01. 

5 Generally, banks must be closed within 90 days after becoming critically undercapitalized. See 12 U.S.C. 

§ 1831(o)(h)(3)(A). If a state chartering authority is unable or unwilling to close a failing bank, then the 

FDIC or, for members of the Federal Reserve System, the Federal Reserve Board can use its authority to 

close the bank and appoint the FDIC as receiver. See 12 U.S.C. §§ 1821(c) (4) and (9). The FDIC used this 

authority to close a state-chartered bank only once during the 2008–2013 crisis, and the Federal Reserve 
CHAPTER 6: Bank Resolutions and Receiverships 177 

On the date the bank fails, these steps are taken in this order: the chartering authority 

revokes the bank’s charter, closes the bank, and appoints the FDIC as receiver;6

 the entire 

failed bank is placed into receivership; and if the FDIC—in preparing for the resolution— 

has succeeded in finding an acquirer for some or all of the failed bank’s assets or liabilities 

or both, those assets and liabilities are removed from the receivership and transferred 

to the acquirer.7

 The date when these events occur is called the resolution date, and it is 

the culmination of a process that has involved much preparation.8

 One major focus of 

the preparation—the FDIC’s attempt to find a buyer for some or all of the failing bank’s 

assets and liabilities—is called franchise marketing.9 

But franchise marketing, important as it is, is just the first step in the receivership 

process that winds up the affairs of failed banks, for after the resolution date, the FDIC’s 

responsibilities as receiver continue.10 The FDIC must service and sell the assets the acquirer 

does not buy; take care of the necessary bookkeeping, accounting, and reporting; identify 

and verify all claims, determine who should get what amount of money, and pay claims as 

funds become available; decide whether to sue anyone for actions that contributed to the 

failure (and follow through if advisable); monitor any ongoing agreements with acquirers 

or the purchasers of assets; and so forth. The receivership is terminated only when all the 

bank’s assets and liabilities have been sold or liquidated or transferred or have otherwise 

passed beyond the FDIC’s responsibility to care for them.11 

The activities of marketing a failed bank’s franchise and managing a receivership 

are distinct from each other but are also closely related. Of the two activities, franchise 

Board also used it only once. 

6 Theoretically, state chartering authorities could appoint an entity other than the FDIC. In practice, this is 

rare and it did not occur during the 2008–2013 crisis. 

7 A lengthy settlement process occurs later to address all the details and matters that are discovered 

subsequently. Note that the FDIC can also separate the last step of this process (the sale to an acquirer) 

from the preceding steps of the resolution process. In that case, the bank fails on that date, but resolution 

occurs later. This option, which does not occur often, is described in the introduction to the section titled 

“Franchise Marketing: The Bidding Process and Resolution Options.” 

8 Not until that date, however, will anything have been set in stone. Sometimes a failing bank manages to 

figure out a way to survive, and its planned closing does not occur. Also, note that in some cases banks must 

be closed with very little preparation, usually because of fraud or liquidity problems (liquidity problems 

occur when the bank lacks the cash needed to pay depositors or other creditors). 

9 Franchise marketing is the process of packaging, marketing, and selling the operating units of an insured 

depository institution. In cases where the operating value of the institution exceeds the liquidation value, 

franchise marketing attempts to retain the incremental value of the operating units of the failing institution 

and allow its viable operations to continue functioning after the failure. 

10 See FDIC, Resolutions Handbook (2014), https://www.fdic.gov/bank/historical/reshandbook/resolutions_ 

handbook.pdf, for a more complete description of the FDIC’s responsibilities and tasks associated with 

resolving failed banks. 

11 To facilitate the conclusion of receiverships, the FDIC, in its corporate capacity, may purchase and assume de 

minimis amounts of receivership assets and liabilities. 
178 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

marketing has a much bigger effect on the FDIC’s cost,12 on the cash requirements of the 

Deposit Insurance Fund (DIF), and on the potential harm that bank failures may do to 

local economies. And franchise marketing shapes many of the receivership management 

activities, from the resolution date through termination of the receivership. For example, 

if the acquirer assumes only the insured deposits, the FDIC must determine the insurance 

status for each depositor and must then pay the uninsured depositors to the extent that 

funds become available. Compared with franchise marketing, however, the receivership 

management process involves a wider range of activities and requires substantially more 

staff and operational resources. 

Although there are unique aspects to each activity, there are also some commonalities. 

Perhaps the strongest commonalities have to do with the sales process in the two activities. 

Franchise marketing involves the selling of part or all of a bank, and receivership sales 

involve the selling of retained assets. Table 6.1 compares these two activities. The FDIC’s 

decisions regarding each of the two key areas reflect both the similar and the dissimilar 

considerations. For both activities, minimizing costs is a major goal, and that goal must 

be considered in light of market realities and the natural trade-off between risk and 

return for assets. 

Table 6.1. Comparison of Franchise Sales and Retained Asset Sales 

Sale Process Characteristic Franchise Sale Retained Asset Sales 

Risk/return trade-offs and other market dynamics The same for both 

Number of possible sale methods Relatively few Many 

Effects on DIF, FDIC cash flow, FDIC operational capacity Very large Present but smaller 

Effects on deposits and depositors Yes No 

Potential effects on local (and sometimes regional or Larger Smaller national) economy 

Number of potential buyers Smallera Larger 

No. Sale must be Flexibility on timing Yes arranged quickly.
 

A mix of general and Only general 
 Statutory constraints specific requirements requirements 

a Theoretically, companies other than banks could purchase assets (but not deposits). There are, however, 

significant challenges to marketing to companies other than banks, especially the short time frame available 

for marketing. The limited marketing time frame is discussed briefly in the section titled “The Bidding 

Process.” To date, only FDIC-insured banks that meet several qualifying criteria, or investors that meet the 

criteria necessary to open a bank and are vetted ahead of time, have been permitted to bid. 

12 Note, however, that the FDIC’s losses are influenced more by the bank’s condition and the quality of its assets 

than by the franchise marketing process or the receivership activities. If there is no acquirer, or if the acquirer 

purchases only a few assets, then the receivership activities have a stronger influence on costs than franchise 

marketing does. 
CHAPTER 6: Bank Resolutions and Receiverships 179 

Past Strategy 

The FDIC’s strategies for handling its resolution and receivership responsibilities in the 

2008–2013 crisis were shaped by its experiences managing the crisis of the 1980s and early 

1990s. During those years, the FDIC managed more than 1,600 bank failures and it also 

initially managed the Resolution Trust Corporation (RTC), which resolved nearly 750 

thrift failures after its creation in 1989.13 In particular, that crisis generated an enormous 

volume of failed-bank assets. The FDIC retained and managed a large share of the assets 

and found the experience to be both costly and operationally complex. As a result, in the 

years after that earlier crisis, the FDIC adopted a resolution strategy that focused on selling 

the assets back into the private sector promptly, either at resolution or shortly thereafter. 

This strategy was chosen because for senior FDIC staff, an important lesson of the 1980– 

1994 crisis was that prompt sales of failed-bank assets were advantageous to the FDIC, for 

four reasons. First, in the early years of the RTC, and to a lesser extent at the FDIC during 

the 1980s, there was an increasingly large inventory of assets—especially troubled assets— 

in receiverships. With such a large build-up of assets that eventually would be sold (also 

known as an “asset overhang”), private investors were concerned that the eventual sale of 

these assets might harm future asset prices; thus they were less willing to purchase the 

assets.14 Senior management believed that, by selling failed banks and failed-bank assets 

through mechanisms like loss-share agreements into the market at whatever terms the 

13 The RTC was a temporary government agency charged with resolving failed thrifts from August 1989 

through year-end 1995. The FDIC’s role in the management of the RTC changed over time. From the 

inception of the RTC through the passage of the RTC Refinancing, Restructuring and Improvement Act 

in December 1991, the FDIC was the exclusive manager. The FDIC had a lesser role in the management 

of the RTC after that, but the FDIC Chairman continued to serve in an oversight role. In addition, the 

RTC Completion Act of 1993, passed in December 1993, required that the FDIC and the RTC create a 

task force to support the transition of the outstanding RTC tasks to the FDIC; it identified and analyzed 

differences in business practices and made recommendations about RTC practices that should be adopted 

by the FDIC. See FDIC, “Final Report on the FDIC/RTC Transition” submitted to the Committee on 

Banking and Financial Services, U.S. House of Representatives and the Committee on Banking, Housing 

and Urban Affairs, U.S. Senate, December 29, 1995. Lastly, the remaining workload and the RTC 

employees were absorbed by the FDIC when the RTC was terminated at the end of 1995. For additional 

discussion on the FDIC authority, see Lee K. Davison, “The Resolution Trust Corporation and Congress, 

1989–1993: Part I,” FDIC Banking Review 18, no. 2 (2006): 38–60, https://www.fdic.gov/bank/analytical/ 

banking/2006sep/article2/article2.pdf, and Lee K. Davison, “The Resolution Trust Corporation and 

Congress, 1989–1993: Part II,” FDIC Banking Review 18, no. 3 (2006): 1–30, https://www.fdic.gov/bank/ 

analytical/banking/2007apr/br18n3full.pdf. For information about the FDIC and RTC resolution and 

receivership activity during this period, see FDIC, Managing the Crisis: The FDIC and RTC Experience 

(1998), https://www.fdic.gov/bank/historical/managing, and RTC, RTC Statistical Abstract (1995). 

14 For additional discussion of asset overhangs, see Jeffrey D. Sachs, “Conditionality, Debt Relief, and the 

Developing Country Debt Crisis,” in Developing Country Debt and Economic Performance, ed. Jeffrey D. 

Sachs, vol. 1, The International Financial System (1989), 255–96; Kent Cherny and O. Emre Ergungor, 

“Effective Practices in Crisis Resolution and the Case of Sweden,” Economic Commentary (February 2009): 

1–4, https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economiccommentary-archives/2009-economic-commentaries/ec-20090209-effective-practices-in-crisis-resolutionand-the-case-of-sweden.aspx and FDIC, Resolutions Handbook (1998). 
180 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

market would bear, the sales would establish market prices, which in turn would foster 

the recovery of asset markets by providing transparent market prices to other market 

participants. Second, prompt sales helped reduce asset inventories and thus reduced 

receivership expenses. Third, removing the FDIC as the primary custodian of a large 

volume of banking assets is operationally simpler for the Corporation, requiring a smaller 

infrastructure and reducing the potential political pressures that the asset management 

function may elicit.15 Fourth, this strategy conserved the FDIC’s cash (a consideration that 

was important after the 2008–2013 crisis broke, as described in chapter 5). 

A second lesson learned from the crisis of 1980 through 1994 was to avoid hiring 

permanent staff to do temporary work. After that crisis ended, the process of downsizing 

the permanent resolution and receivership staff that had been hired in the 1980s was 

lengthy, disruptive, hard to manage, and harmful to employee morale.16 

Staffing was reduced during the period between 1994 and 2008, when bank failures 

were rare and the need for resolution activities at the FDIC was limited. Seeking to be a 

responsible steward of the DIF, the FDIC controlled its operating expenses to reflect its 

reduced workload. It sought to achieve a balance between maintaining readiness for a 

future economic downturn, on the one hand, and minimizing costs (by maintaining a 

smaller staff and a slimmer infrastructure during a period of few failures), on the other 

hand. By reducing the number of employees, the FDIC recognized the risk that it might be 

initially understaffed if a large number of institutions failed during a short period, but it 

accepted this risk because the probability of such an event seemed remote. 

Readiness Planning 

Nevertheless, the FDIC remained aware that a potential banking crisis always lay on the 

horizon, however distant. Starting in 1999, in response to increasing concentration in the 

banking industry, the FDIC took several actions that focused on readiness for large-bank 

failures. Starting in the early 2000s, in response to its shrinking resolutions workload and 

staff, the FDIC began focusing on resolution readiness planning more generally, taking 

several initiatives to improve its readiness for an increasing volume of failures. 

The actions that focused on readiness for large-bank failures included (a) analyzing 

numerous topics related to large-bank failures in order to become more familiar with the 

problems that could arise; (b) becoming familiar with relevant statutes and regulations to 

identify changes needed to improve the Corporation’s readiness; (c) identifying the likely 

operating challenges and potential responses to them; and (d) conducting simulation 

exercises where staff attempted to respond to scenarios involving hypothetical large-bank 

15 For example, during the 1980–1994 crisis, the FDIC received complaints or requests for more generous 

treatment of borrowers. For additional discussion, see L. William Seidman, Full Faith and Credit: The Great 

S&L Debacle and Other Washington Sagas (1993); and FDIC, Resolutions Handbook (1998). 

16 For additional discussion, see John F. Bovenzi, Inside the FDIC: Thirty Years of Bank Failures, Bailouts, and 

Regulatory Battles (2015). 
CHAPTER 6: Bank Resolutions and Receiverships 181 

failures. To ensure strong communication with other banking regulators and a common 

understanding of the related issues, the FDIC discussed its findings with other regulators, 

and in some cases included other regulators in the simulation exercises. These exercises 

led the FDIC to promulgate several regulations that would improve its readiness for 

large-bank failures: the new regulations clarified the standing of bank creditors in the 

event of failure;17 increased the Corporation’s capacity to provide insured depositors with 

prompt access to their funds after failure;18 and increased the Corporation’s capacity to 

quickly acquire critical information on qualified financial contracts.19 The exercises also 

led to improvements in the Corporation’s processes for management reporting and for 

determining the insurance status of deposit accounts. 

Among the initiatives that focused on readiness for a large volume of failures was 

the Corporate Employee Program (CEP), whose purpose was to train both new and 

experienced FDIC employees in a variety of functions within the organization, with the 

goal of creating a flexible workforce that could be redistributed depending on economic 

conditions and levels of resolution activity. If a significant increase in resolution 

activity occurred, the Division of Resolutions and Receiverships (DRR) would have first 

priority in using employees trained under the CEP.20 A second initiative, taken in 2005, 

was to sign a Memorandum of Understanding with the federal government’s Office 

of Personnel Management that authorized the FDIC, during crisis periods, to waive 

certain restrictions on rehiring retirees. 

The events in the fall of 2008, however, were more severe than the FDIC’s planning efforts 

had envisioned, and—of particular importance—unfolded more quickly than envisioned. 

The Dimensions of the Banking Crisis of 2008–2013 

After more than a decade of modest failure activity and no failures at all from mid-2004 

to February 2007, the banking industry was gripped by crisis from 2008 through 2013. 

During those years, 489 banks were closed and the FDIC, the Treasury, and the Federal 

Reserve used systemic risk exceptions to mitigate the serious adverse effects associated 

17 12 C.F.R. § 360.8. See also 74 Fed. Reg. 5797–5807 (Feb. 2, 2009). Most, but not all, of this rule addressed 

processing complexities associated with sweep accounts. This clarification provided certainty to banks and 

creditors about how these accounts would be treated if a bank failed. 

18 The complexity of the FDIC’s deposit insurance rules can make it hard for the Corporation simultaneously 

to provide quick access to insured funds and deny immediate access to uninsured funds. See 12 C.F.R. § 

360.9. See also 73 Fed. Reg. 41180-41211 (Jul. 17, 2008). 

19 A qualified financial contract is a financial instrument that qualifies for special treatment if a bank fails. 

See 12 C.F.R. § 360.5 for a detailed definition. See 12 C.F.R. pt. 371 for the rule made to improve the FDIC’s 

access to information. See also 73 Fed. Reg. 78162-78173 (Dec. 22, 2008). 

20 For additional discussion, see U.S. Government Accountability Office, “Human Capital and Risk Assessment 

Programs Report,” GAO-07-255, 2007, https://www.gao.gov/assets/260/256532.pdf. 
182 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

with the potential failure of a few large, systemically important banks (see chapter 3).21 The 

489 failed banks held $686 billion in assets and, according to the most recent estimates, 

cost the FDIC $72.5 billion to resolve. Although in the first year of the crisis (2008) only 24 

banks were resolved, one of them was IndyMac, a large California thrift that failed suddenly 

on July 8 and proved to be the most expensive failure in FDIC history (that is, at a cost of 

$12.4 billion, it cost the FDIC the most to resolve); and another of the 2008 failures was 

Washington Mutual, the largest thrift (and the sixth-largest FDIC-insured institution) in 

the country at the time, which failed on September 25 and, with $307 billion in assets, was 

the largest bank failure in the history of the FDIC. In the years following 2008, the dollar 

amount of failed-bank assets declined but the number of resolutions increased, going to 

139 in 2009 and peaking at 159 in 2010. Figure 6.1 provides the number of bank resolutions 

by year, and Figure 6.2 provides failed-bank assets by year of resolution. (Note that, for a 

few banks, the resolution occurred sometime after the bank failed.)22 

Figure 6.1. Number of FDIC Bank Resolutions by Year 

24 

139 

159 

92 

51 

24 

0 

20 

40 

60 

80 

100 

120 

140 

160 

180 

2008 2009 2010 2011 2012 2013 

21 For details about the origins of the global financial crisis that erupted in 2007, see chapter 1. 

22 In these cases, a bridge bank was formed when the bank failed. (Bridge banks are explained in note 24 and 

in the associated text.) As shown in Table 4.1 (in chapter 4), the number of failures matched the number of 

resolutions from 2011 through 2013. There were 25 failures but 24 resolutions in 2008, 140 failures but 139 

resolutions in 2009, and 157 failures but 159 resolutions in 2010. IndyMac failed in 2008 and was resolved in 

2009. Silverton Bank and Independent Banker’s Bank failed in 2009 and were resolved in 2010. 
CHAPTER 6: Bank Resolutions and Receiverships 183 

Figure 6.2. Total Assets of Failed Banks by Year of Resolution 

Billions of Dollars 

400 

350 $341.2 

300 

250 

$195.7 200 

150 

$96.8 100 

50 $34.9 

$11.6 $6.0 

0 

2008 2009 2010 2011 2012 2013 

Note: Assets are as of the quarter before failure. 

Five of the seven largest banks that failed between 2008 and 2013 had invested heavily 

in riskier forms of single-family mortgages, whereas many of the smaller failed banks 

held significant portfolios of commercial real estate (CRE) loans, especially acquisition, 

development, and construction (ADC) loans.23 The two states with the most failures 

were Georgia (87 bank failures, or 24.6 percent of Georgia banks as of year-end 2007) 

and Florida (70 bank failures, or 21.8 percent). Puerto Rico was also hit hard, for the 

three banks that failed in Puerto Rico, though a small number, constituted 30 percent of 

the banks in that territory. 

Meeting the challenge of resolving 489 banks in six years began with franchise 

marketing. The next section explains franchise marketing: the bidding process and the 

several resolution options available. The subsequent section tells the story of the FDIC’s 

franchise marketing efforts during the six crisis years, highlighting the necessary tradeoffs and constraints. 

23 As of the quarter-end date before failure, single-family loans constituted 74 percent of total loans at the 

seven largest closed banks, but only 22 percent for the remaining 482 banks. For additional information on 

the lending practices that contributed to bank failures, see chapter 4 and U.S. Government Accountability 

Office, “Causes and Consequences of Recent Bank Failures,” GAO-13-71, 2013, https://www.gao.gov/ 

assets/660/651154.pdf. 
184 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Franchise Marketing: The Bidding Process and Resolution Options 

As noted above, when a bank approaches failure, the FDIC prepares to resolve the bank 

by seeking an acquirer so that as many of the bank’s assets and liabilities as possible can 

be sold to the acquirer instead of remaining in the receivership created on the failure 

date. In seeking an acquirer—that is, in marketing and selling a failing-bank franchise— 

the FDIC uses a bidding process that is expected to lead to one of the following 

outcomes, although the expectation is not always fulfilled: a basic purchase of assets 

and an assumption of liabilities (P&A), a whole-bank P&A, a loss-share P&A, or various 

combinations of the P&A options, including a P&A with loan pools. (These options are 

described in the next section.) If there are no bids, or if all the bids are more costly than 

a payout, the FDIC does a payout (also called a liquidation); in a payout, the FDIC pays 

all insured depositors at failure and then receives funds from asset sales gradually over 

time. (For the advantages and disadvantages of using a payout, see the box on page 185.) 

In addition, there are two other alternatives that are permitted by the Federal 

Deposit Insurance Act and were occasionally, though infrequently, used. One is to 

resolve a failed institution by organizing a new insured depository institution called a 

“bridge bank.”24 A bridge bank is typically used when the FDIC does not have enough 

time to effectively market the institution to a third party before failure. The assets and 

liabilities are placed in receivership, a bridge bank is established, and then selected 

assets and liabilities are moved into the bridge bank. The bridge bank is allowed to 

continue normal operations before the final resolution.25 The other infrequently used 

alternative granted to the FDIC by the FDI Act is to organize a Deposit Insurance 

National Bank (DINB). A DINB is a form of payout where the deposit accounts are 

transferred to a newly chartered temporary bank operated by the FDIC. It is similar 

to a bridge bank, but its operations are more limited,26 and its purpose is to ensure 

that depositors have continued access to their insured deposits as they transfer their 

deposit accounts to other financial institutions. 

In seeking potential buyers for failed-bank franchises, the FDIC must take financing 

into consideration. As noted below in the discussion of the bidding process, either the 

FDIC or the acquirer may contribute cash at resolution, depending on whether an 

24 A bridge bank is a temporary national bank operated by the FDIC to facilitate the resolution of an insured 

institution. Certain requirements for private-sector banks are waived for bridge banks (such as capital 

requirements). The life of a bridge bank is normally limited to two years. Although extensions are permitted, 

the FDIC has never pursued one. 

25 The FDIC routinely replaces the failed bank’s senior management and may curtail or shut down any segment 

of the bank’s operations that it chooses (for example, lending operations that contributed to the bank’s 

failure). 

26 For example, loans cannot be originated. Loans are not transferred into the DINB but are retained in 

receivership for disposition. 
CHAPTER 6: Bank Resolutions and Receiverships 185 

acquirer buys more assets than liabilities, more liabilities than assets, or equal amounts 

of both. As a result, resolution choices have a large influence on the FDIC’s cash 

position, which was under pressure during the early stages of the crisis. (See chapter 5 

for additional discussion.) 

Advantages and Disadvantages of Using a Payout 

A payout requires extensive resources for managing and selling all the assets after 

the bank fails. The up-front cash needs for the payout are greater than for any of the 

P&A options and include both capital and working capital. In addition, a payout is 

the resolution method that causes the most disruption to the bank’s customers and 

the local economy: all relationships are lost, and depositors abruptly (but only briefly) 

lose access to their funds.a 

In terms of pricing, the payout has both advantages and disadvantages for the 

FDIC. Advantages include additional time for due diligence (that is, evaluating the 

assets, legal questions, and so forth) and marketing; the ability to publicly announce 

sales initiatives; and a more extensive bidder pool for asset sales that is not limited 

to FDIC-insured institutions. On the other hand, the bank’s franchise value (if any) 

is lost and, in addition, transaction costs are higher, not only because the assets 

and liabilities undergo at least two transfers of ownership (from the failed bank to 

the FDIC, and from the FDIC to the ultimate buyer) but also because receivership 

management costs are greater. 

If the FDIC had used this transaction extensively during the recent crisis, two 

additional problems could have arisen. First, the resulting strains on the FDIC’s 

operating capacity could well have harmed prices because of deteriorating assetservicing quality. Second, the volume of assets held by the FDIC could have been 

large enough to affect market prices. 

From an overall perspective, the payout option is always available but is often the 

more costly approach. 

a Unless a DINB or a paying agent is established, both insured and uninsured depositors lose access 

to funds briefly. The FDIC almost always mails checks to most of the insured depositors by Monday 

or Tuesday (following a Friday failure). Checks that were written by depositors shortly before 

failure, but that had not cleared as of the failure date, are returned. All automated transactions 

scheduled for after the failure date are not executed. 

The Bidding Process 

In the franchise marketing bidding process, the FDIC offers one or more options to 

potential acquirers, and under each option, potential acquirers are invited to take either 

insured deposits only or all deposits. In some cases, the FDIC excludes from its offerings 

some or all of the brokered deposits (that is, deposits provided to the bank by a deposit 
 

186 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

broker). (For a discussion of the role of brokered deposits in resolutions, see the box on 

noncore funding and franchise value in the section below titled “Resolution Options.”) 

In addition, potential acquirers can submit bids that do not conform to the FDIC’s 

offerings. The FDIC considers all bids, even those that do not conform to its offerings. 

The FDIC is required by law to accept the least-cost bid (see box on page 188 for details, 

including conditions under which there may be an exception to the least-cost requirement). 

The FDIC is also required by law to observe certain time periods for appointing a 

receiver for a failing bank, which has implications for the timeline for marketing a failing 

bank. If a bank is failing because it becomes critically undercapitalized, the Prompt 

Corrective Action provision of the Federal Deposit Insurance Corporation Improvement 

Act of 1991 (FDICIA) mandates a hard stop of 90 days before the bank is closed—90 days 

after the bank’s capital breaches the threshold.27 Theoretically the FDIC can prepare for 

a failure before that clock starts running, but in practice it rarely collects the detailed 

data needed for a thorough evaluation of the assets that supports the marketing 

process until after the bank becomes critically undercapitalized. And if the bank fails 

for some other reason, such as fraud or liquidity problems,28 the FDIC has far fewer 

than 90 days to prepare. These timing restrictions may make it difficult for the FDIC to 

collect good-quality information when it sells failed banks and for potential bidders to 

perform comprehensive due diligence. Researchers have found that sellers who provide 

better information about their products receive better prices,29 and therefore the timing 

restrictions may affect the prices that acquirers are willing to pay. In comparison, almost 

no private-sector mergers and acquisitions are performed with that speed. They usually 

take much more time, and in almost all cases the parties have the option of deciding not 

to sell if they do not like the price. 

27 FDIC, Resolutions Handbook (2014), figure 2 (on page 9) provides a typical resolution timeline. The FDIC 

is permitted to extend the time frame by up to 180 days if it determines, in writing, that a brief delay would 

reduce the loss to the DIF. See Section 38 of the FDI Act. This exception has been used occasionally to 

facilitate a private-sector rescue of a bank, but not to facilitate the closing of a bank. 

28 Liquidity problems occur when a bank lacks the cash needed to pay depositors or other creditors. 

29 For examples related to the importance of information in bank resolution, see Larry Benveniste et al, 

“Contract Design for Problem Asset Disposition,” Journal of the American Real Estate and Urban Economics 

Association 22, no. 1 (1994): 149–67; and Stephan Madaus, “Bank Failure and Pre-Emptive Planning: The 

Special Requirements of a Bank Resolution and a ‘Default Resolution Option,’” Working Paper, 2013, https:// 

papers.ssrn.com/sol3/papers.cfm?abstract_id=2277452. For examples that relate the value of information to 

asset sale prices, see Sudhir Nanda, James E. Owens, and Ronald C. Rogers, “An Analysis of Resolution Trust 

Corporation Transactions: Auction Market Process and Pricing,” Real Estate Economics 25, no. 2 (1997): 

271–94; Joao Granja, “The Relation between Bank Resolution and Information Environment: Evidence from 

the Auctions for Failed Banks,” Journal of Accounting Research 51, no. 5 (December 2013): 1031–70; and 

James A. Berkovec, John J. Mingo, and Xeuchun Zhang, “Premiums in Private versus Public Bank Branch 

Sales,” Federal Reserve Board’s Finance and Economic Discussion Series Working Paper, 1997, https://www. 

federalreserve.gov/pubs/feds/1997/199733/199733pap.pdf. 
CHAPTER 6: Bank Resolutions and Receiverships 187 

As for the bidding process itself, the details have changed over time but the basic idea 

is always that an acquirer tells the FDIC what assets and liabilities from the failed bank 

it is willing to take,30 as well as what (if any) money will change hands. Each acquirer 

essentially asks for the amount of additional cash that it wants. If, for example, the value 

of the assets bought by an acquirer exactly offsets the liabilities assumed, the bidder may 

not ask for any FDIC payment. But if the value of the liabilities exceeds the value of the 

assets (if, in other words, there is a capital shortfall), the acquirer will usually want cash. 

Sometimes the acquirer is willing to take less cash—perhaps because it believes it will 

be able to manage the bank in a way that gives it a high return at that price, or because 

the failed bank fits its business strategy well and the acquirer is afraid someone else will 

offer a lower bid. At other times, an offeror may demand more cash—perhaps because it 

wants a higher profit margin. And if the value of the assets purchased exceeds the value 

of the liabilities assumed, the acquirer will generally pay the FDIC.31 (See box on page 

194 for a discussion of financing for the aquirer.) 

Once the FDIC receives all the bids, it performs the least-cost test analysis and 

determines which acquirer—and which transaction—is the winner, and that is the 

transaction that the FDIC executes. As noted above, if there are no bids that cost less 

than a liquidation, the FDIC chooses the liquidation. Bids usually do not come in until 

about a week before the resolution date, and it is only after the FDIC receives the bids 

and estimates the related costs that the Corporation knows which is the winning bid or 

discovers that it will be liquidating the bank. 

As a result of the marketing process, the FDIC knows who is likely to bid, but 

sometimes a bidder that showed strong interest may back out at the end, or a bidder who 

showed only lukewarm interest may end up submitting the winning bid. Furthermore, 

there is a vetting process, so the winning bidder is always on a pre-approved list of 

banks that are permitted to bid.32 

30 This is usually accomplished by bidding on an FDIC offering that stipulates the liabilities to be assumed and 

the assets to be purchased. As mentioned above, however, the bidder can submit bids that do not conform to 

the FDIC’s offerings. 

31 For example, this might occur if the acquirer takes all the bank’s assets but does not take the brokered 

deposits. In this case, the FDIC will pay the brokered deposits directly. Note that the FDIC’s funding 

requirements for a failed bank are not necessarily the same as the amount of funds provided to the acquirer 

at resolution (there are often funding requirements related to those assets and liabilities that remain in the 

receivership). 

32 As discussed below (in the section titled “Private Equity Acquirers”), some firms were allowed to create a 

new bank charter to acquire a failed bank. These firms also underwent a vetting process. 
188 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

The Least-Cost Test 

The least-cost requirement is a statutory standard applied to the resolution of failing 

banks under the FDI Act, as amended in 1991 by FDICIA.a As a general rule, it requires 

that the FDIC determine, after any bids for a failing bank are received, whether any 

of those bids would impose a lesser cost on the DIF than a payout of insured deposits 

and associated liquidation of the failed bank's assets. If more than one bid qualifies, 

then the bid presenting the least cost to the DIF is accepted. The least-cost test is 

applied separately to every bank failure.b

 In addition, the FDIC is legally permitted to 

liquidate a bank even if liquidation is not the least-cost alternative. 

The FDIC uses its experience to determine what the market will bear and its 

knowledge of the bank to design offerings for the failed-bank auction. Qualified 

acquirers can submit bids that do not conform to the FDIC’s offerings. All bids 

must be analyzed for the least-cost test, including those that do not conform 

to the FDIC’s offerings. A bid can be rejected if the cost of the bid cannot be 

estimated. Furthermore, a bid can be rejected even if it meets the least-cost test if 

(a) the transaction is impossible to execute, or (b) the bid failed to meet various 

regulatory requirements, or (c) the FDIC believes the resulting institution would 

be unsafe and unsound. 

a See https://www.fdic.gov/regulations/laws/rules/1000-1500.html for details. An exception is permitted 

for systemic risk. For the banks discussed in this chapter, however, the systemic risk exception was 

not used. (On use of the systemic risk exception during the crisis of 2008 to 2013, see chapters 2 

and 3.) 

b The FDIC faces additional statutory constraints related to its funding options and receivership 

operations. For a complete list of these constraints, see https://www.fdic.gov/regulations/laws/rules/. 

Resolution Options 

As noted above, the franchise marketing process is expected to lead to some form or 

variant of a purchase and assumption (P&A) transaction, although in fact there may be 

no bidder, or no viable bid, and in either of those cases, the FDIC will liquidate the bank, 

as explained above. The four forms of a P&A transaction are the basic P&A, the wholebank P&A, the loss-share P&A, and the P&A with loan pools. Table 6.2 defines each of 

these options, which are discussed in more detail below. 
CHAPTER 6: Bank Resolutions and Receiverships 189 

Table 6.2. Common P&A Transactions 

Basic P&A The acquiring institution assumes deposits and generally purchases only the failed 

institution’s cash, cash equivalents, and marketable securities. 

Whole-Bank 

P&A 

The acquiring institution assumes deposits and purchases all—or almost all—of the 

assets of the failed institution on an “as is” discounted basis (with no guarantees). 

Loss-Share P&A The acquiring institution assumes deposits and purchases assets of the failed institution 

beyond those acquired in a basic P&A, and the FDIC as receiver agrees to share losses 

on certain types of assets (up to an established limit) with the acquiring institution. In 

most cases, this agreement is very similar to the whole-bank P&A except for the losssharing provision on some of the assets purchased. 

P&A with Loan 

Pools (and Other 

Combinations) 

For loan pools, the acquiring institution assumes deposits and purchases the failed 

institution’s cash, cash equivalents, marketable securities, and pools (groups) of loans 

or other assets. Bids are submitted and evaluated separately for each loan pool. 

Alternatively, the FDIC may effectively combine these options. For example, the FDIC 

may offer deposits, cash, securities, and single-family mortgages, plus a separate loan 

pool for all other consumer loans (thus, ORE [other real estate]a

 and commercial loans 

are excluded). Two other examples of frequently used combinations are (1) a wholebank offering, except with pools for ORE and ADC loans; and (2) a mix of options 

across multiple banks that are all scheduled to fail on the same date. 

a ORE is real estate that is not used by the bank for its normal operations, and comprises primarily real
 

estate that the bank owns because of a foreclosure on loan collateral.
 

Basic Purchase and Assumption. In a basic P&A, the deposits,33 cash, and low-risk 

securities of the failed bank are passed to an acquirer, and the remaining assets are 

retained in the receivership. The FDIC provides cash in accordance with the winning 

bid; the amount of the cash roughly equals the difference between the deposits and the 

market value of the assets of the failed bank that were purchased by the acquirer. This 

resolution method offers two benefits compared with a liquidation. First, it allows at least 

some of the bank’s deposit franchise value to be retained (on franchise value, see box on 

page 190). Second, there is less disruption because depositors receive continuous deposit 

processing services. During the crisis, many potential acquirers were not interested in a 

basic P&A because consumer demand for insured deposits was high (thus they could 

readily find deposits by other means) and they saw few opportunities to invest the cash 

promptly and meet their required return. 

33 This can be either all deposits or only insured deposits. Some or all brokered deposits may be excluded as 

well. 
190 

c 

CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Noncore Funding and Franchise Value 

Many banks that failed funded their operations by using brokered deposits, Internet 

deposits, repurchase agreements, and Federal Home Loan Bank (FHLB) advances— 

collectively, noncore funding— but these funds rarely contributed to franchise value. 

In all, the banks that failed between 2008 and 2013 held higher levels of brokered 

deposits and FHLB advances than healthier banks. In terms of dollars, failed banks 

held $44.6 billion in brokered deposits (9.8% of all failed-bank deposits) and $14.5 

billion in Internet deposits (3.2%) at failure. In terms of number of banks, 386 failed 

banks (79%) held brokered deposits, 279 (57%) held Internet deposits, and 248 (51%) 

held both brokered and Internet deposits. Acquiring banks usually had no interest in 

these deposits: whereas 97% of nonbrokered deposits were assumed by other banks 

at failure, only 20% of brokered deposits were assumed.a 

As of the quarter before failure, 337 failed banks (69%) held FHLB advances. 

Excluding Washington Mutual, FHLB advances constituted 13.3% of failed-bank 

liabilities.b

 FHLB advances sometimes reduced the value of the failed banks even more 

than brokered deposits did because of prepayment fees, high overcollateralization 

rates,c

 and concerns that the FHLB advances did not fit into the acquirers’ asset 

liability management plans. 

a Starting in April 2009, the FDIC generally did not include in its resolution offerings the brokered 

deposits that were processed by the Depository Trust and Clearing Corporation (a clearing and 

settlement company). The FDIC usually did include other types of brokered deposits. 

b Including Washington Mutual, the percentage increases to 16.5%. 

Overcollateralization occurs when the assets that are pledged to secure the debt exceed the amount 

of debt issued. FHLBs sometimes increase the required levels of overcollateralization as bank health 

declines, and in some cases, FHLBs required a “blanket” lien that encompassed all the bank’s assets. 

Whole-Bank Purchase and Assumption. The whole-bank P&A is what its name implies: 

essentially all the bank’s assets and all its liabilities are bought by the acquirer. This 

transaction minimizes market disruption and requires fewer staff to execute than 

transactions where the FDIC retains more assets. It also conserves cash for the FDIC, 

because although the FDIC provides cash up front to address the capital shortfall, the 

assets and deposits are sold together and therefore there are minimal ongoing working 

capital needs. Because of uncertainty about the value of the failed-bank assets, the wholebank option was rarely cost-effective at the height of the crisis: the risk premiums 

demanded by potential acquirers were simply too great. As the crisis abated and asset risk 

premiums fell, the whole-bank option became more attractive. Even during good times, 

however, one implication of this option is that the pool of bidders is limited to healthy 

FDIC-insured institutions (deposits can be sold only to FDIC-insured banks). Nonbank 

bidders are unable to bid on the assets even if they want to purchase them (the restricted 
CHAPTER 6: Bank Resolutions and Receiverships 191 

competition could reduce prices) and even though nonbank bidders frequently offer the 

highest bids for retained asset sales. In addition, bidders are expected to take almost all the 

assets even if they would prefer to take only a subset.34 Some studies have argued that the 

whole-bank option may not be cost-effective because the best acquirer for the troubled 

assets may not be the same party as the best acquirer for the performing assets.35 In 

addition, the lack of adequate time to perform due diligence (because of the brevity of the 

marketing period) may increase an acquirer’s perception of asset risk and thus reduce the 

price that the acquirer is willing to pay. 

Loss-Share Purchase and Assumption. A loss-share P&A is very similar to the wholebank P&A except that the FDIC, as receiver, agrees to share losses on certain types of assets 

(up to an established limit).36 See the box on page 192 for an example. Like the wholebank transaction, the loss-share P&A minimizes disruptions to the bank’s customers and 

the local community, and conserves cash for the FDIC. In terms of staffing, the loss-share 

option requires more resources than the whole-bank option (in order to monitor the lossshare agreements after the bank fails) but substantially fewer resources than a basic P&A 

(or, for that matter, than a payout). Depending on circumstances, the effects of loss share 

on the pricing of the failed-bank franchise may vary. During periods of distress when asset 

values become highly uncertain, loss share offers clear advantages: the FDIC retains much 

of the risk exposure and therefore loss share may improve franchise sale prices; it allows 

the FDIC to tap the government’s comparative advantage in absorbing large risks;37 and it 

enables the FDIC to participate in asset price improvements after banks fail (by reducing 

loss share payments).38 However, loss share is like whole-bank P&A in two respects: it 

34 In this situation, the bids may incorporate low estimates of asset value for the unwanted assets. 

35 Roger Kormendi et al., Crisis Resolution in the Thrift Industry (1989), and FDIC, “FDIC Policies for the 

Resolution Trust Corporation,” Draft White Paper, S&L Study Group, 1989, recommend that good assets 

and troubled assets be sold separately. 

36 The FDIC in its corporate capacity acts as a backstop as well. 

37 This comparative advantage has been explored in insurance markets. Insurance companies in the private 

sector must hold capital (which is costly) to protect themselves from bankruptcy if large adverse events (such 

as major hurricanes) occur. To protect themselves from bankruptcy, the companies sometimes purchase 

re-insurance or catastrophe insurance. The price for insuring against large but unlikely risks is substantially 

higher than expected losses. As the size of the loss exposure increases and the likelihood of occurrence 

decreases, the ratio of insurance cost (for re-insurance or catastrophe insurance) to expected losses tends 

to increase exponentially. On the other hand, the federal government is a much larger entity and can more 

easily go into debt or increase taxes to cover large unexpected risks. For additional discussion, see Kenneth 

A. Froot, “The Market for Catastrophe Risk: A Clinical Examination,” Journal of Financial Economics 60 

(2001): 529–71, and Morton Lane and Olivier Mahul, “Catastrophe Risk Pricing,” World Bank Policy 

Research Working Paper 4765, 2008, https://openknowledge.worldbank.org/bitstream/handle/10986/6900/ 

WPS4765.pdf?sequence=1&isAllowed=y. 

38 In addition, it could increase “true-up” payments, which are described later in the section titled “Evolution 

of FDIC Franchise Sale Offerings.” 
192 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

limits the pool of potential bidders to healthy banks, with the result that the restricted 

competition could reduce prices, and it asks bidders to purchase almost all the assets and 

deposits, even if their preference is to purchase only a subset of the failed bank’s assets. 

Some researchers have recommended loss share because the government is better 

positioned to absorb large risks than the private sector and because it helps address the 

lack of comprehensive information at resolution (on the part of both the FDIC and the 

acquirer) caused by the short duration of the marketing period.39 In addition, the FDIC’s 

experience with loss share in the early 1990s was positive.40 

Example of Loss-Share Purchase and Assumption 

Assume a failing bank that holds $100 in assets and $100 in liabilities. All liabilities 

are insured deposits. The FDIC offers a whole-bank resolution with 80 percent 

loss-share coverage on the loan portfolio, which makes up 70 percent of the assets. 

The loss-share coverage is based on the book value of the loans ($70), and it covers 

some—but not all—of the expenses associated with managing the loans. 

The acquirer submits a $7 discount bid. The FDIC pays the acquirer $7 at resolution. 

The acquirer collects $50 on the loans (net of expenses covered under the agreement) 

over time, so that $20 in asset losses ($70 book value minus $50 net asset recovery) are 

incurred and covered by the agreement. The FDIC pays the acquirer $16 (80 percent 

of $20) to cover its share of the loss. The acquirer pays the other $4 (20 percent of $20), 

plus any other costs that are not covered by the loss-share agreement. 

Note that, in the bidding process, the acquirer with the smallest discount bid 

wins (assuming that all other aspects of the bid are the same). The discount does 

not influence the calculation of the loss-share payments.a 

a This is a simplified example. See https://www.fdic.gov/bank/individual/failed/lossshare/ for 

additional discussion and https://www.fdic.gov/bank/individual/failed/bankofmiami-p-and-a.pdf 

for an example of an agreement that includes details about the loss-share coverage. 

39 See the section below titled “The Bidding Process” for additional discussion of the marketing period. 

Larry Benveniste et al., “Contract Design for Problem Asset Disposition,” Journal of the American Real 

Estate and Urban Economics Association 22, no. 1(1994): 149–67, suggested—as support for the use of 

risk-sharing choices for failed-bank resolutions—that governments were better placed to absorb large 

risks than the private sector. Mark Speigel, “The Disposition of Failed Japanese Bank Assets: Lessons from 

the U.S. Savings and Loan Crisis,” FRBSF Economic Review (2002): 1–15, https://www.frbsf.org/economicresearch/files/article1-2.pdf, suggests loss share as a way to overcome information shortages at resolution. 

FDIC, “Study of Purchase and Assumption Transactions,” Unpublished Manuscript, Office of Corporate 

Planning, 1977, recommends risk-sharing as a response to inadequate information at resolution. FDIC, 

“FDIC Policies for the Resolution Trust Corporation,” Draft White Paper, S&L Study Group, 1989, suggests 

gain-sharing for both reasons. 

40 FDIC, Managing the Crisis: The FDIC and RTC Experience (1998), 193–205, https://www.fdic.gov/bank/ 

historical/managing. 
CHAPTER 6: Bank Resolutions and Receiverships 193 

Loan Pools and Other Combinations of the Basic Options. The FDIC can also offer 

numerous combinations of the basic options. One commonly used option, called “loan 

pools,” is to group the assets of the failed bank into homogeneous pools at resolution, 

ask bidders to submit separate bids for each pool (and for deposits), and allow bidders 

to “link” bids, that is, allow them to set requirements for the minimum combination 

of assets and deposits that they will accept. Another combination is to simply exclude 

certain assets or liabilities from the initial franchise offering and sell them later. For 

example, distressed assets could be retained in the receivership so that they could be 

offered later to both bank and nonbank bidders. 

A key benefit of these options is that they more easily attract bidders that are interested 

in some—but not all—of the assets. In addition, bidders that are willing to bid for the 

whole bank but that place very little value on certain types of assets held by the failed 

bank might offer better prices. However, compared with whole-bank offerings (with and 

without loss share), these options are harder to execute, especially if the FDIC’s operational 

capacity is poorly positioned to manage the tasks needed to execute the transaction. In 

addition, these options often require more cash and may be more disruptive to bank 

customers and the local economy than the whole-bank options.41 

Theoretically, these options could be extended to allow asset workout companies (that 

is, companies that specialize in managing and selling delinquent loans and/or troubled 

real estate) or other nonbank firms to bid on the assets—but not the deposits—of 

the failed bank at resolution. Although this approach offers significant advantages by 

enlarging the pool of potential bidders for failed-bank assets, it also entails substantial 

operational challenges because of the very brief marketing period for failed banks and 

concerns about confidentiality. 

Yet another variation is to market assets and deposits from multiple banks at the 

same time. Some analysts have recommended this approach as a way to improve bidder 

interest and, potentially, prices.42 Both theory and the FDIC’s experience indicate that 

the use of linked bids across multiple failed banks is effective and should be considered 

when circumstances allow. 

In summary, the various options for combining types of resolution offer the potential 

for lower costs because the number of potential bidders is greater and bidders can more 

easily limit their purchases to the types of assets they most desire. However, these options 

generally require more FDIC resources (both staff and time) and are harder to execute 

41 FDIC, “FDIC Policies for the RTC,” recommended holding back troubled assets from the initial resolution 

offering to improve prices. Offering troubled assets as a separate loan pool accomplishes the same objective. 

Roger Kormendi et al., Crisis Resolution, also suggested that troubled loans be sold separately. The principles 

espoused in Edward J. Kane, “Principal-Agent Problems in S&L Salvage,” Journal of Finance 45, no. 3 (1990): 

57–61, also support this approach (although Kane does not specifically recommend it). 

42 FDIC, “FDIC Policies for the RTC,” recommends linked bids. Donald R. Fraser and Hag Zhang, “Package 

Bidding in Thrift Resolutions,” Journal of Financial Services Research 11, no. 3 (1997): 283–94, and Office of 

Management and Budget, “Resolving the Thrift Crisis,” 1993, xiv, suggest combining thrifts for sale. 
194 

c 

CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

than the whole-bank options. In addition, the extent of working capital requirements is 

less predictable, as are the need for staff and the possibility of market disruption. 

Financing for the Acquirer (Seller Financing) 

In some cases, acquirers owed the FDIC money at resolution. This situation arose 

whenever the acquirer purchased assets from the failed bank that were worth more 

than the liabilities that they assumed from the failed bank.a

 In this case, it might be 

beneficial for the FDIC to offer to finance some or all of the acquirer’s contribution, 

potentially improving the bid price, the availability of bidders, or both. 

The FDIC provided seller financing to failed-bank acquirers several times in the 

1970s as a way to improve demand and expand the bidder pool for failed banks.b 

The FDIC also used seller financing for three resolutions during the recent crisis: 

the Puerto Rico banks that failed in April 2010. Only a few potential acquirers 

had expressed an interest in acquiring the Puerto Rico banks, and the FDIC was 

concerned that some of the acquirers lacked the liquidity necessary for a successful 

acquisition. In all three cases, the acquirers purchased substantially more assets 

than the deposits they assumed.c

 Without seller financing, the acquirers would 

have needed to bring substantial amounts of cash to close the deals. 

a This usually occurred when the acquirer purchased most or all of the assets but did not assume all 

the deposits—frequently in cases where a substantial amount of brokered deposits were retained 

in the receivership, or where the acquirer purchased only asset pools. For example, if the acquirer 

purchased $100 in assets and assumed $60 in liabilities, it would owe the FDIC $40 at resolution. 

Note that asset values incorporate the bid price demanded by the acquirer. 

b FDIC, “Study of Purchase and Assumption Transactions,” Unpublished Manuscript, Office of 

Corporate Planning, 1977. 

All three failed banks had large amounts of brokered deposits that were, for the most part, not 

assumed by the acquirers. For example, Banco Popular purchased $9.2 billion in assets from 

Westernbank but assumed only $2.4 billion in liabilities, so assets exceeded liabilities by $6.7 

billion. The FDIC provided $5.8 billion in seller financing to close the transaction. 

Franchise Marketing during the Crisis 

From 2008 through 2013, the franchise marketing process evolved as conditions 

changed. Resolution staff were operating under constant pressure amid great 

uncertainty, and they had to consider multiple trade-offs in the light of competing 

goals and objectives. Discussed in this section are the options they chose and the 

changes they made over time; the role played by bridge banks; the role played by 

the opportunity to involve private equity acquirers; and the aggregate results for 

resolutions during the crisis. At the end of the process, the winning bids affected the 
CHAPTER 6: Bank Resolutions and Receiverships 195 

FDIC’s overall financial position, risk exposure, and staffing requirements, and may 

also have influenced the local economies where bank failures were concentrated. 

Evolution of FDIC Franchise Sale Offerings 

At the outset of the financial crisis, the primary resolution tools in use at the FDIC were 

whole-bank P&A and P&A with optional loan pools. The use of these two options was 

in keeping with the objective of moving failed-bank assets back into the marketplace 

promptly and minimizing costs. Early in the crisis, however, investors’ appetite for risk 

plummeted, so that the FDIC faced not only a lack of buyers for loan pools but also little 

interest in standard whole-bank purchases; moreover, buyers also showed little interest in 

buying the assets that were retained in receivership. In response to the evolving crisis, the 

FDIC sought to adapt its offerings to include sales-contract features that would attract 

buyers. This situation led the Corporation to rely increasingly on loss sharing as a feature 

of its failed-bank offerings in order to resolve the growing number of bank failures.43 

Many acquirers preferred the loss-share option, and by the middle of 2009, whole bank 

with loss share became the dominant FDIC franchise marketing option, and often the 

only one offered to potential acquirers. As the crisis continued and conditions in the 

marketplace changed, the FDIC modified the contract terms in loss-sharing agreements. 

The starting point, though, was the experience the FDIC had had with its loss-share 

program in the early 1990s. 

The original (2008) agreements offered 80 percent loss-share coverage for capital 

losses and selected expenses. For single-family assets, coverage was provided for ten 

years. For other assets, coverage was provided for five years, and in addition the acquirer 

was required to share recoveries with the FDIC for another three years. If losses exceeded 

a pre-specified level, loss-share coverage increased to 95 percent. 

In October 2009, the FDIC added a “true-up” feature that was designed to claw back 

some of the extra profits from acquiring banks in cases where the asset losses were lower 

than anticipated at the time of failure. There were true-up provisions for 215 transactions, 

or 71 percent of the loss-share transactions. 

In April 2010, in response to improving markets, the FDIC stopped offering the 

increase to 95 percent coverage. In June 2010, the FDIC dropped loss-share coverage 

for consumer loans44 and began soliciting bids for the loss coverage rate of up to 80 

percent for all other types of loans and for other real eastate (ORE). In September 2010, 

the FDIC introduced a tiered loss-sharing structure that was designed to improve the 

43 For additional discussion, see the section above titled “Loss-Share Purchase and Assumption” and https:// 

www.fdic.gov/bank/individual/failed/lossshare/. 

44 Consumer loans are smaller than other types of loans and therefore administrative costs are relatively high, 

but for most banks during the crisis, anticipated losses on consumer loans were modest. Thus it seemed less 

likely that loss share yielded a net benefit for these loans. 
196 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

acquirer’s incentives to minimize asset losses.45 But because of the complexity of that 

structure, it was used only 27 times. In all, the FDIC provided 95 percent coverage for 97 

transactions, or 32 percent of the loss-share transactions. 

In early 2011 the FDIC began to expand its regular offerings, typically offering three 

versions of a whole-bank resolution: no loss-share coverage; loss share for commercial 

assets only; or loss-share coverage for single-family and commercial assets. In April 

2012 the FDIC began to limit its offerings of loss-share coverage for single-family assets 

to those failed banks that had extensive amounts of troubled single-family loans. As 

conditions continued to improve, loss sharing was gradually phased out. In the fourth 

quarter of 2013, the FDIC dropped loss share altogether from its regular offerings and 

started offering loan pools (in addition to whole-bank transactions) whenever the loans 

could be pooled logically and potential bidders expressed an interest in them. 

Throughout the crisis, in considering how to structure its resolution offerings, the 

FDIC regularly reached out to potential acquirers, listened to them, and, if appropriate, 

adjusted its offerings accordingly. When potential acquirers showed little interest in the 

FDIC’s whole-bank offerings for a particular failing bank, the FDIC considered ways to 

address the potential acquirers’ concerns, usually by expanding its offerings. The most 

typical additions were “modified” whole bank (where certain troubled assets, such as 

ORE, delinquent loans, or ADC loans, would be retained in receivership but all other 

assets were included in the offering) or loan pools. In some cases, the FDIC would 

develop unique proposals to address unique situations. 

In cases where the FDIC lacked enough time to market banks effectively before they 

failed, the FDIC used bridge banks. (See note 24 and the associated text.) 

Bridge Banks 

Following the 1980–1994 crisis, senior FDIC staff anticipated that bridge banks would be 

an important option for resolving the failures of large insured depository institutions.46 

During the 2008–2013 crisis, however, the FDIC used bridge banks for bank failures only 

three times. 

45 The agreement provided relatively high FDIC coverage for losses that fell below a pre-set threshold (where 

it was likely that losses would be incurred, regardless of asset servicing quality) and above a higher pre-set 

threshold (where losses were unlikely to occur unless servicing quality was poor or markets deteriorated). In 

the middle tier, the FDIC’s coverage rate was low. For an example of this kind of agreement, see https://www. 

fdic.gov/bank/individual/failed/horizonfl-p-and-a.pdf. 

46 For example, see Arthur J. Murton, “Resolving a Large Bank: The FDIC’s Perspective,” speech given at 

the Seventh Annual Banking Conference at the Federal Reserve Bank of Chicago, October 1, 2004; and 

James A. Marino and Lynn Shibut, “Resolution Strategies for Large U.S. Commercial Banks,” Unpublished 

Manuscript, 2006. 
CHAPTER 6: Bank Resolutions and Receiverships 197 

The first time was when IndyMac, a $30 billion thrift, failed suddenly in July 2008.47 

IndyMac’s size alone would have made its resolution difficult; however, its size was only 

one of several complicating factors. After the long period of almost no bank failures, the 

level of media interest in IndyMac’s failure was unusually high; and a large number of 

depositors—roughly 30,000—held potentially uninsured deposits and therefore did not 

immediately gain access to all the deposits held in their accounts.48 During the first two 

weeks after IndyMac’s failure, a run on deposits led to the withdrawal of almost $3 billion 

from the newly chartered bridge institution, IndyMac Federal.49 The unprecedented 

deposit withdrawals likely reduced IndyMac Federal’s franchise value and clearly signaled 

to the FDIC that a much deeper issue was lack of trust in the financial system. The FDIC 

quickly took action and began a campaign to educate the public on deposit insurance 

and the FDIC. After a few weeks, the withdrawal rate at IndyMac Federal slowed and the 

deposit base stabilized, but the IndyMac experience highlighted the risks and challenges 

of deploying the bridge bank structure. 

In 2009, the FDIC used bridge banks to resolve two bankers’ banks.50 Bankers’ banks 

provide a variety of banking services to other depository institutions. They are harder to 

resolve than traditional depository institutions for two main reasons. First, only depository 

institutions are permitted to be shareholders of bankers’ banks, and very few banks are 

interested in entering this specialized business area. Second, they present resolution 

difficulties because of their interconnectedness with other depository institutions. One of 

the banks was sold to another bankers’ bank shortly after the failure; the other one was paid 

out after the customers were given time to move their deposits to other banks. 

Private Equity Acquirers 

Another consideration for the FDIC in marketing failed banks was the possibility of 

expanding the number of acquirers by working with private equity investors. Private 

equity investors are wealthy individuals (or groups of individuals) who are seeking highyield investments, and as the crisis unfolded, several private equity investors expressed 

an interest in purchasing failed banks. The FDIC wanted to ensure that any purchase of 

failed banks by private equity investors was consistent with, and in the best long-term 

47 Because IndyMac was a thrift institution, the bridge bank was technically a conservatorship due to a gap in 

the law that was since addressed. 

48 Many of these depositors were later found to be fully insured, but over the closing weekend the FDIC lacked 

full information, so funds were held back until the insurance status of these deposits could be determined. 

What made the deposit insurance determinations at IndyMac so challenging was the volume of deposit 

accounts, including brokered deposits and a large number of trust accounts (the latter are governed by 

complex deposit insurance provisions). 

49 John F. Bovenzi, Inside the FDIC: Thirty Years of Bank Failures, Bailouts, and Regulatory Battles (2015), 16. 

50 Silverton National Bank failed on May 1, 2009, and Independent Banker’s Bank failed on December 18, 2009. 
198 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

interests of, the banking industry. The FDIC also sought open discussion and transparency 

surrounding the participation of private equity firms in the banking industry. 

The FDIC was well aware of the associated risks, but it was also cognizant of the 

potential benefits. The risks derive from the nature of banking, which is a unique business 

that requires specialized management skills—skills that many private equity investors may 

not fully appreciate. Newly chartered banks have historically failed at much higher rates 

than well-established banks,51 and the takeover of a failed bank and its troubled assets 

introduces additional complications that most de novo banks do not have to face. In 

addition, private equity investors generally prefer short-term investments (often seeking to 

cash out in three to five years), a preference that could prove problematic in running and 

managing a bank. At the same time, however, new investors might increase the number of 

bidders for failed banks and infuse capital into the industry, thus potentially increasing the 

availability of credit to businesses, consumers, and the overall economy. 

On November 21, 2008, the Office of Comptroller of the Currency (OCC) announced 

the availability of a “shelf ” charter that would facilitate the purchase of failed banks 

by private equity investors.52 A shelf charter allows investors to seek conditional and 

preliminary approval of a bank charter that will become active only if the investor 

purchases a failed bank. On July 9, 2009, to address the risks posed by private equity 

investment, the FDIC published a proposed Statement of Policy on qualifications for 

failed-bank acquisitions,53 and on September 2, 2009, the Corporation released a final 

Statement of Policy.54 The Statement of Policy addressed requirements related to capital, 

source of strength,55 time restrictions on selling the depository institution, ownership 

51 Robert DeYoung, “De Novo Bank Exit,” Journal of Money, Banking and Credit 35, no. 5 (2003): 711–28, found 

that de novo banks that were established between 1980 and 1985 failed at much higher rates than other banks 

during the period after they consumed their start-up capital but before they became mature. In addition, he 

found that de novo banks that were established during a period of stress were more likely to fail than other 

de novo banks. Yan Lee and Chiwon Yom, “The Entry, Performance, and Risk Profile of De Novo Banks,” 

FDIC Center for Financial Research Working Paper 2016-03, 2016, https://www.fdic.gov/bank/analytical/ 

cfr/2016/wp2016/2016-03.pdf, found similar results for de novo banks chartered between 2000 and 2008. 

52 See Office of the Comptroller of the Currency, “OCC Conditionally Approves First National Bank Shelf 

Charter to Expand Pool of Qualified Bidders for Troubled Institutions,” NR 2008-137, November 21, 2008, 

https://www.occ.gov/news-issuances/news-releases/2008/nr-occ-2008-137.html. The Office of Thrift 

Supervision (supervisor of thrifts until 2010, when it was abolished by Dodd-Frank) later announced a 

program as well. 

53 FDIC, “Proposed Statement of Policy on Qualifications of Failed Bank Acquisitions,” 74 Fed. Reg. 32931– 

32934 (Jul. 9, 2009), https://www.fdic.gov/regulations/laws/federal/2009/09policyJuly9.pdf. 

54 FDIC, “Final Statement of Policy on Qualifications of Failed Bank Acquisitions,” 74 Fed. Reg. 45440-45449 

(Sept. 2, 2009), https://www.fdic.gov/regulations/laws/federal/2009/09FinalSOP92.pdf. For additional 

discussion, see also Frank Righeimer Martin, “Private Equity Investments in Failed Banks: Appropriate 

Investors Welcome,” North Carolina Banking Institute 14, no. 1 (2010), http://scholarship.law.unc.edu/ncbi/ 

vol14/iss1/17. 

55 Under a source-of-strength requirement, the owner is required to provide additional capital to the depository 

institution if its capital falls below specified thresholds. 
CHAPTER 6: Bank Resolutions and Receiverships 199 

structure, and disclosure. On November 26, 2008, the FDIC announced that it had 

established a modified bidder qualification process that allowed interested parties that 

did not have a bank charter, such as private equity investors, to bid for failed banks.56 

From 2008 to 2013, 18 private equity investor groups purchased 60 failed banks (or 

12 percent of the banks that failed in those years). These failed banks held $84 billion 

in assets (12 percent of all failed-bank assets over the same period), and the investors 

purchased $75 billion in assets held by these banks. (Excluding Washington Mutual, 

the private equity investor groups purchased 22 percent of all failed-bank assets.) The 

investors brought $5.6 billion in capital to the industry. 

Aggregate Results for Resolutions during the Crisis 

Table 6.3 summarizes the use of the different strategies deployed by the FDIC from 2008 

to 2013. The failed banks are grouped into five categories: (1) Washington Mutual Bank 

(WaMu), (2) other whole-bank P&A,57 (3) loss-share P&A,58 (4) other P&A,59 and (5) 

payout and DINB.60 For failed banks that were placed into bridge banks before resolution, 

the final resolution method was used for categorization. 

Of the $686 billion in assets resolved over the course of the crisis, $307 billion (45 

percent) were the assets of WaMu. The second-largest bank that failed was IndyMac ($30 

billion, or 4.5 percent). 

Early in the crisis, loss-share transactions increased quickly, going from 2 in 2008 to 91 

in 2009, and from 2009 to 2011 they made up a larger number of resolutions than all other 

strategies combined. The number of loss-share resolutions peaked in 2010 and dropped 

substantially in 2012 and 2013. In every year of the crisis except 2008 and 2012, however, 

loss share was used to resolve the majority of failed-bank assets. In all, excluding WaMu, 

loss-share transactions were used for 62 percent of the failed banks and 82 percent of failedbank assets. The heaviest use of other P&A and payout/DINB resolutions was made during 

2009 and 2010, the most challenging years of the banking crisis. 

56 See FDIC, “FDIC Expands Bidder List for Troubled Institutions,” Press Release PR-127-2008, November 26, 

2008, https://www.fdic.gov/news/news/press/2008/pr08127.html. 

57 WaMu was a whole-bank P&A but is reported separately because of its size and unique characteristics. 

“Other whole-bank P&A” is all P&As (WaMu excluded) where 90 percent or more of assets were passed to 

the acquirer and no loss-share coverage was provided. 

58 P&A where loss share was provided on any assets at resolution, regardless of the share of assets passed to 

the acquirer. 

59 P&A that was not loss share or whole bank. It includes basic P&As, loan pools, and other combinations. 

60 DINBs are described above in the introduction to the section titled “Franchise Marketing: The Bidding 

Process and Resolution Options.” 
200 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Table 6.3. FDIC Bank Resolutions by Resolution Type, 2008–2013 

(Dollars in Billions) 

Resolution Type 2008 2009 2010 2011 2012 2013 Total 

WaMu 

Number 1 1 

Assets $307.0 $307.0 

Other Whole Number 1 13 14 23 15 12 78 

Bank P&A Assets $0.1 $1.7 $2.0 $5.4 $2.3 $1.4 $12.9 

Number 2 91 130 58 20 3 304 

Loss Share P&A 

Assets $16.5 $174.2 $86.8 $26.4 $4.8 $3.4 $312.1 

Number 20 25 6 9 12 8 80 

Other P&A 

Assets $17.7 $12.9 $1.0 $2.3 $3.4 $1.2 $38.4 

Number 10 9 2 4 1 26 

Payout/DINB Assets $6.8 $7.1 $0.9 $1.1 $0.0 $15.9 

Number 24 139 159 92 51 24 489 

Total 

Assets $341.2 $195.7 $96.8 $34.9 $11.6 $6.0 $686.3 

In terms of resolution costs, the several resolution strategies fared very differently. 

Table 6.4 summarizes FDIC losses by resolution type.61 

Table 6.4. FDIC Losses by Resolution Type, 2008–2013 

Number Total Total Cost Loss Rate (Cost/Assets) 

of Assets to FDIC Weighted 

Resolution Type Failures ($ Billions) ($ Billions) Mean Mean Median 

P&A 

Washington Mutual 1 307.0 0.0 0.0% 0.0% 0.0%

 Other Whole Bank 78 12.9 2.2 16.8% 23.0% 23.4%

 Loss Share 304 312.1 56.8 18.2% 22.3% 21.6%

 Other 80 38.4 9.3 24.3% 33.9% 34.1% 

Total P&A 463 670.4 68.3 10.2% 24.4% 23.3% 

Payout/DINB 26 15.9 4.4 27.4% 33.2% 34.7% 

Total 489 686.3 72.7 10.6% 24.9% 23.6% 

Note: Assets are as of the final Call Report filed by the failed bank. Loss estimates are as of year-end 2016. 

The weighted mean loss rate is weighted by assets. Systemic failures are excluded. 

61 The resolution costs reported here are as of year-end 2016. These estimates include undiscounted activity 

through year-end 2016 plus estimated future activity discounted to year-end 2016. For additional discussion,

see Rosalind Bennett and Haluk Ünal, “Understanding the Components of Bank Failure Resolution Costs,” 

Financial Markets, Institutions and Instruments 24, no. 5 (2015): 349–89. 
CHAPTER 6: Bank Resolutions and Receiverships 201 

WaMu resulted in no loss to the DIF. Total resolution costs over the crisis were 

$72.7 billion and represented 10.6 percent of total assets at failure (including WaMu); 

excluding WaMu, losses represented 19.2 percent of total assets.62 Also excluding WaMu, 

loss-share P&A had the lowest mean and median loss rates, and whole bank had the 

lowest weighted average loss rate. The loss rates for other P&A were similar to those for 

payouts and DINBs. Note that studies have found that the relative condition of the failed 

bank influences the resolution type that is used at failure. This phenomenon, called 

“selection bias,” was documented during earlier periods but has not been estimated for 

the 2008–2013 crisis.63 One should therefore interpret the results in Table 6.4 carefully 

because some (or possibly all) of these cost differences may be attributable to differences 

in financial condition. To gain additional insight, see Table 6.5, which provides selected 

financial condition indicators by resolution type. 

Table 6.5. Selected Condition Indicators by Resolution Type 

(Averages as of Final Call Report Filed before Failure) 

Resolution Type 

Number of 

Banks 

Noncurrent 

Loan Ratea Brokered to Total ADC Loans to 

Domestic Deposits Total Loansb 

Equity to 

Assets 

P&A 

Washington Mutual 1 4.1% 18.1% 1.8% 7.9%

 Other Whole Bank 78 12.7% 3.8% 10.3% 1.3%

 Loss Share 304 16.8% 9.6% 21.0% 1.2%

 Other 80 19.4% 16.0% 25.7% 1.8% 

Total 463 16.6% 9.8% 20.0% 1.3% 

Payout/DINB 26 15.1% 25.7% 23.9% 1.8% 

a The sum of nonaccrual loans plus loans 90+ days delinquent, divided by total loans. 

b ADC stands for Acquisition, Development, and Construction. 

WaMu had a capital ratio (that is, the ratio of equity to assets) of 7.9% and a noncurrent 

loan rate of 4.1%. For the other groups, capital ratios were lower and noncurrent rates 

62 If IndyMac were also excluded, the loss rate drops to 17.3 percent. This compares with a loss rate of 12.7 

percent for FDIC resolutions from 1980 to 1994, and 25.2 percent for thrift resolutions (by the FSLIC and the 

RTC) from 1980 to 1994. Because (1) failed thrifts held more real estate loans than did failed banks during 

the 1980–1994 period, and (2) real estate loans were the primary driver of losses during the 2008–2013 crisis, 

one might conclude it would be likely that losses during the recent crisis would be similar to thrift losses 

during the earlier one. However, this was not the case: the thrift losses in the earlier period were exacerbated 

by closure delays on the part of the FSLIC and by the inadequate financial resources of both the FSLIC and 

the RTC. 

63 See Rosalind Bennett and Haluk Ünal, “The Effects of Resolution Methods and Industry Stress on the 

Loss on Assets from Bank Failures,” Journal of Financial Stability 15 (December 2014): 18–31; and James 

A. Berkovec and Nellie J. Liang, “Selection in Failed Bank Auction Prices: An Econometric Model of FDIC 

Resolutions,” Federal Reserve Board Finance and Economics Discussion Series 93-40, 1993. 
 

202 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

were higher. The whole-bank P&A without loss share had a noncurrent rate of 12.7%, 

and brokered deposits constituted 3.8% of deposits. The payout/DINB group had the 

highest level of brokered deposits (25.7%), and other P&A had the worst noncurrent rate 

(19.4%) and the highest concentration of ADC loans (25.7%). It seems likely, then, that the 

condition of the banks within each category contributed to the differences in the FDIC loss 

rates shown in Table 6.4. Even so, the FDIC estimated that the loss-share transactions saved 

$42 billion, or 13.6 percent of total assets, compared with the estimated cost of a payout.64 

As shown in Table 6.4, the loss-share bank failures cost the FDIC an estimated total of 

$56.8 billion. As of year-end 2016, the FDIC had paid $29.5 billion in loss-share payments, 

and total loss-share payments were expected to be $31.4 billion, or 55 percent of the total 

loss. Most of the remaining costs were related to the asset discounts that were part of the 

bids submitted by acquirers. Although the total asset discount for the loss-share bank 

failures amounted to $30.1 billion (which represents the sum of all acquirers’ bids for 

their transactions), the FDIC’s related losses were somewhat lower than that.65 Unlike 

the loss share payments, the losses related to the asset discount were insensitive to future 

asset price changes. As of year-end 2016, no true-up payments had been made on the 215 

transactions with true-up provisions, but the FDIC anticipated receiving $837 million in 

true-up payments to offset these losses.66 

Receiverships: Staffing and Infrastructure, Interactions and Trade-Offs 

Although franchise marketing is a key component of the FDIC’s resolution activities, it is 

just the first step in the receivership process that winds up the affairs of failed banks. A few 

of the main receivership tasks undertaken during the crisis are the subject of this section 

of the chapter. Those activities (plus other activities that are not discussed here) 67 require 

64 The cost savings estimate was calculated as the difference between the resolution cost and the payout cost, 

divided by the payout cost, based on the least-cost test estimates for the loss-share resolutions at the time of 

resolution. Therefore, the estimate does not consider subsequent asset price movements or other changes 

that may influence the cost of the loss-share transactions or payouts. It also does not consider the possibility 

that the FDIC could have resolved the banks using methods other than loss share or a payout. 

65 In many cases, the acquirer would receive cash or would purchase more assets than the liabilities that it 

assumed, or both. In other cases, including some of the largest loss-share transactions, the relationship 

between the asset discount and the FDIC’s loss was more complicated, but the FDIC’s loss generally 

amounted to 80 to 100 percent of the asset discount. 

66 There were additional expenses and recoveries as well, but these were small in comparison with the lossshare payments and the asset discounts. On true-up payments, see the beginning of the section above titled 

“Evolution of FDIC Franchise Sale Offerings.” Some early termination payments were probably influenced 

by anticipated future true-up payments. As of year-end 2016, true-up payments were expected from 64 

percent of the outstanding loss-share agreements that included true-up provisions. 

67 Among the important tasks not discussed are accounting, reporting, deposit insurance determination, 

receivership liability management, contract management, legal claims, and enforcement. 
CHAPTER 6: Bank Resolutions and Receiverships 203 

substantial staffing and infrastructure to execute well, and so this section begins with a 

discussion of the FDIC’s staff at the onset of the crisis and the process that was followed to 

develop the necessary resolution and receivership infrastructure to manage the workload. 

The section goes on to discuss strategic considerations: interactions and trade-offs. 

Staffing and Infrastructure 

As noted above, the events in the last half of 2008 and the corresponding rise in 

resolution activity were more severe and—importantly—unfolded more quickly than 

the FDIC’s planning efforts had envisioned. The plans anticipated that individual large 

banks would fail quickly but did not anticipate either the number of large-bank failures 

or the increased speed of small-bank failures. Figure 6.3 compares the 1980–1994 crisis 

with the 2008–2013 crisis in terms of the speed and extent of failures. 

Figure 6.3. Failed Banks as a Percentage of All Banks by Year from Start of Each Crisis 

Percent 

4 

3.5 

0 

0.5 

1 

1.5 

2 

2.5 

3 

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

Years from Start of Crisis 

1980–1994 2008–2013 

Failure rates increased much faster during the 2008–2013 crisis: by 2009, the second year 

of the recent crisis, almost 2 percent of banks had failed—a rate that was not reached until 

the previous crisis was past its eighth year. The difficulty of keeping pace with the speed 

at which the recent crisis unfolded imposed costs on the FDIC. In some cases the costs 

were relatively minor, such as when the accounts payable function fell behind in paying 

bills, which it did for several receiverships. In other cases, the costs were potentially more 

substantial. For example, some assets might have lost value because asset management 
204 

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4 

CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

resources were overtaxed. In addition, the FDIC’s staffing challenges were always kept 

in mind when decisions were being made about resolution offerings to potential bidders. 

In June 2008, the FDIC increased its authorized staff for the Division of Resolutions and 

Receiverships (DRR) from 227 to 339. By September 2008, the total authorized DRR staff 

stood at 825, but the actual on-board DRR staff was only 259. The hiring of additional staff 

became a priority, and the FDIC dedicated resources to building its staff.68 Even so, it took 

time to search for, hire, and train new staff while also abiding by the various procedures 

and mandates related to hiring federal employees. Looking ahead to the “Lessons Learned” 

section, one can see that more-robust pre-crisis readiness planning may help reduce such 

delays in the future.69 Figure 6.4 represents total authorized and on-board DRR staff 

during the first four years of the crisis. 

Figure 6.4. Total DRR Authorized and On-Board Full-Time Staff, 2008−2011 

Number of Staff 

2,750 

2,500 

2,250 

2,000 

1,750 

1,500 

1,250 

1,000 

750 

500 

250 

0 

Authorized On-Board 

The FDIC eventually reviewed more than 25,000 applications for DRR positions, 

and in 2011, when DRR staffing was at its peak, the Division had more than 2,100 

employees—an almost tenfold increase from the number at year-end 2007. To reduce 

the kind of staff disruption and layoffs that had occurred during and after the 1980– 

1994 crisis, the FDIC hired mostly temporary employees. Of the total DRR staff at its 

peak, over 80 percent were temporary employees. 

68 Note that DRR received critical support from other divisions, especially in the legal and administrative areas. 

These other areas, as well as the bank supervision area, were also stretched thin as the crisis ramped up, and 

thus the staffing efforts extended beyond DRR. 

69 For example, new organization charts and position descriptions could be drafted and approved ahead of 

time as part of a readiness plan. 
CHAPTER 6: Bank Resolutions and Receiverships 205 

More than 60 of the employees were rehired annuitants. The plan to rehire annuitants 

was one part of the FDIC’s readiness planning that proved to be particularly beneficial 

because these highly seasoned retirees were able to immediately begin contributing to 

receivership activities. In contrast, the Corporate Employment Program did not work as 

designed. The CEP assumed that many of the employees who would be shifted to resolution 

tasks would come from the supervision area. However, as resolution activity began to 

increase, the workload of other divisions—including supervision—also increased, so that 

the realignment of resources was inhibited. (See chapter 4 for additional discussion.) 

Much like the consolidated offices established during the 1980–1994 crisis, regional 

temporary satellite offices (TSOs) were established in the 2008–2013 crisis. Their primary 

tasks were managing resolution and receivership activities and selling any retained 

assets related to failed financial institutions in their geographic area of responsibility.70 

The opening of the first TSO was authorized by the FDIC in November 2008, and took 

place three months later, in California. Two additional TSOs were subsequently opened: a 

Florida office in August 2009, and an Illinois office in May 2010. 

The use of TSOs allowed for easier coordination during bank failures: they improved 

FDIC communication with the staff of the failed institution and with acquirers, borrowers, 

and creditors; and they reduced travel costs. They also improved the FDIC’s hiring options 

because they were located in areas with large numbers of finance professionals seeking 

work. In contrast to what had happened during the 1980–1994 crisis, the TSOs were closed 

as planned. The temporary staff began to decline in 2011. The California TSO closed in 

January 2012, the Illinois TSO in September 2012, and the Florida TSO in April 2014. 

Staffing was one concern, and infrastructure was another. Infrastructure here refers to 

two things: enhanced information technology (IT) capability, and the use of contractors. 

The FDIC’s readiness planning had included building an enhanced IT infrastructure, 

and the Corporation improved its ability to market failing depository institutions by 

establishing virtual data rooms (VDRs) that streamlined the process of providing 

information to potential acquirers of failed banks.71 This change proved to be 

instrumental in the effective marketing of failed institutions, and without such a precrisis investment it would have been much harder to successfully sell as many failed 

institutions. A new general ledger was introduced in 2005, and in 2007 the FDIC 

implemented a new franchise marketing and asset management tool and began 

developing a new insurance determination system. Some of these IT investments were 

more successful than others. The unexpected size and speed of the 2008–2013 crisis 

challenged the design and capacity of some of the updated IT infrastructure, which had 

70 FDIC Board Resolution 11-08 No 077274. 

71 VDRs are electronically accessed data repositories that provide potential bidders with access to financial 

data on the failing institution, legal documents, information on the due diligence process and on bidding 

procedures, and descriptions of the resolution transactions being offered. 
206 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

been built for a slower-developing and smaller crisis.72 These experiences emphasized 

the importance of scalability in the designing of IT systems and the associated business 

processes related to resolutions and receiverships. 

Another key component of the FDIC’s resolution infrastructure was the extensive 

use of contractors throughout the 2008–2013 crisis. Early in the crisis, when staffing 

was especially thin, the use of contractors was an essential part of the FDIC’s failureresolution process. However, the contract review process was overtaxed, and it quickly 

became apparent that the contracting arrangements in place as of year-end 2007 were 

insufficient for the volume and type of work required. In addition, the time frame to 

approve new contracts or to modify existing contracts under FDIC’s delegations of 

authority was not conducive to supporting the volume of failures that the FDIC faced 

early in the crisis. (Delegations of authority define the levels of FDIC management that 

are authorized to approve various actions. For example, contracts above $10 million 

might require approval by the FDIC Board of Directors.) Thus, several adjustments were 

made to provide timely contractor services that could keep pace with the number of 

failures. These adjustments included entering into many more contracts, expanding the 

sizes of contracts, and adjusting the delegations of authority. 

In addition, the FDIC built up its contract oversight process. To manage the rapidly 

expanding workload, it was necessary to hire and train Contract Oversight Managers 

at a very fast pace. The FDIC developed and implemented new contractor evaluation 

metrics, established contractor performance evaluations to assess current contactors 

or to award future contract tasks, created automated systems for compiling contractor 

metrics, and streamlined the process of getting contractors on board. In 2010, the FDIC 

established a central contract oversight group that supervised most of the Corporation’s 

receivership contracts. 

Once an adequate set of contracts was in place and capacity was increased, the FDIC’s 

overall experience with the use of contractors was positive. The contracts supported a wide 

variety of tasks, including accounting, financial reporting, investigations, loan servicing, 

real estate management, asset sales, specialized asset sales, information technology services, 

data analysis, reviews of compliance with loss-share agreements, and asset valuation. Over 

the course of the crisis, however, the need for contractors diminished. In 2008, contractor 

expenses made up 60 percent of total receivership expenses, but as the FDIC staff was 

built up, expenditures on contractors gradually fell. In 2013, contracting costs made up 32 

percent of total receivership expenses. 

The staffing, IT, and contracting resources that were developed during the crisis 

supported numerous resolution and receivership activities, some of the most important 

of which were related to the management and disposition of the assets that were 

retained in receivership. 

72 In addition, there were delays in developing the insurance determination system; it was completed in 2010. 
CHAPTER 6: Bank Resolutions and Receiverships 207 

Strategic Considerations: Interactions and Trade-Offs 

All assets that are retained in a receivership have to be liquidated (sold) according to the 

principles stipulated in FDICIA: 

[T]he Corporation shall conduct its operations in a manner which— 

(i)	 maximizes the net present value return from the sale or disposition of such 

assets; 

(ii)	 minimizes the amount of any loss realized in the resolution of cases; 

(iii) ensures adequate competition and fair and consistent treatment of offerors; 

(iv) prohibits discrimination on the basis of race, sex, or ethnic groups in the 

solicitation and consideration of offers; and 

(v)	 maximizes the preservation of the availability and affordability of residential 

real property for low- and moderate-income individuals.73 

Within this broad mandate, the FDIC has considerable flexibility in formulating asset 

liquidation strategies, but it also must consider a number of inherently contradictory goals 

and make a number of trade-offs. These trade-offs are discussed below. They are always 

considered in the context of the need to make the three basic choices that influence the 

returns from receivership sales: how quickly to sell; what sales method to use; and how 

to service the assets before they are sold. And these decisions are interdependent. For 

example, if the FDIC chooses sales methods that require a long preparation time before 

the assets are sold, then the FDIC must stand ready to manage a large portfolio of assets 

during crisis periods (because as existing assets are prepared for sale, others will come in 

and the total number and value of assets in receiverships will build up). Therefore, the 

FDIC must consider all three aspects of its asset sale process—how quickly, what method, 

and how to service—as it makes decisions about retained asset sales and management 

and how best to meet the statutory requirements. 

As noted in the “Background” section early in the chapter (in the subsection titled “Past 

Strategy”), after its experience in the crisis of 1980 to 1994, the FDIC sought to return retained 

assets to the private sector quickly. However, the economic environment in 2008 through 

2013 made this hard to do without incurring significant losses. This difficulty highlights an 

inherent trade-off when it comes to speed in asset sales. On the one hand, quick sales avoid 

potential inefficiencies and costs associated with government asset management; these 

inefficiencies could include weaker incentives to maximize asset recoveries (compared 

with incentives in the private sector),74 additional loan servicing transfer costs,75 and more73 12 USC § 1821(d)(13)(E). See also 12USC § 1823(d)(3)(D). 

74 Researchers have suggested several reasons for weakened incentives if the government manages assets. For 

additional discussion, see William L. Megginson et al., “The Choice of Private versus Public Capital Markets: 

Evidence from Privatizations,” Journal of Finance 59, no. 6 (2004): 2835–70. 

75 A loan servicing transfer is a change in the company that processes loan payments. These companies 
208 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

costly audit and review processes (compared with the private sector).76 Further, as noted 

above, the accumulation by the government of a substantial share of assets may cause an 

asset overhang problem that could cause private investors to defer asset purchases in the 

belief that prices will drop in the future.77 On the other hand, if a liquidating entity like the 

FDIC sells assets quickly in a downturn, it may obtain poor prices for even high-quality 

assets, as competition for asset sales is weak and potential buyers with the best ability to 

maximize asset values might lack the resources needed to bid on the assets.78 Thus, buyers 

would be likely to expect to get bargains and would bid accordingly. Moreover, when asset 

markets are experiencing fire sales,79 the quick sale of significant amounts of retained assets 

by a large entity like the government may worsen market conditions. Because the effects 

of quick asset sales vary substantially with market conditions and because the FDIC sells 

assets during periods of both good and bad market conditions (but mostly when markets 

are weak), the FDIC’s best strategic choices may change as market conditions shift. 

In addition to questions about the timing of asset sales, the FDIC must consider the 

best method of selling assets. The FDIC relied heavily on competitive auctions for its 

sales of retained assets.80 Researchers have found that the best choice of auction format 

depends on the situation (e.g., market conditions, asset characteristics) in which the 

collect loan payments, maintain loan records, collect and pay insurance and taxes related to loans, and 

follow up on loan delinquencies. They charge fees to take on new assets. In addition to the fees, loan 

servicing transfers may impose indirect costs, such as lost information or delays or miscommunications in 

addressing delinquencies. The number of loan servicing transfers is reduced if assets are sold at or shortly 

after resolution. 

76 Governments inevitably face more public scrutiny than private companies. For additional discussion, see 

Seidman, Full Faith and Credit. 

77 See the subsection “Past Strategy” for a description of an asset overhang, and see note 14 for related literature. 

78 See Andrei Shleifer and Robert W. Vishny, “Liquidation Values and Debt Capacity: A Market Equilibrium 

Approach,” Journal of Finance 47, no. 6 (1992): 1343–66; also Joao Granja, Gregor Matvos, and Amit Seru, 

“Selling Failed Banks,” Journal of Finance 72, no. 4 (2017): 1723–84. 

79 A fire sale is a sale in which a financially constrained asset holder sells an asset for less than its true 

value because the holder needs cash right away. During the 2008–2013 crisis, the prevalence of fire 

sales led several types of assets to lose value very quickly. Fire sales were also exacerbated by a lack of 

financing options for potential buyers. For more details, see Andrei Shleifer and Robert W. Vishny, 

“Fire Sales in Finance and Macroeconomics,” Journal of Economic Perspectives 25, no. 1 (2011): 29– 

48; Markus K. Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007–2008,” Journal of 

Economic Perspectives 23, no. 1 (2009): 77–100; Turmoil in U.S. Credit Markets: Recent Actions Regarding 

Government Sponsored Entities, Investment Banks and Other Financial Institutions, Before the Senate 

Banking, Housing, and Urban Affairs Committee, 110th Cong. (September 23, 2008) (testimony by Henry 

M. Paulson Jr., Secretary of the Treasury), https://www.gpo.gov/fdsys/pkg/CHRG-110shrg50400/html/ 

CHRG-110shrg50400.htm; and Timothy F. Geithner, Stress Test: Reflections on Financial Crises (2014). 

80 Other options include selling assets at a fixed price, negotiating with borrowers to recover funds, 

negotiating sales with potential buyers, or, for performing loans, holding assets and collecting the 

payments. 
CHAPTER 6: Bank Resolutions and Receiverships 209 

auction will be held. 81 In practice, it can be hard to identify the ideal auction format, but 

the FDIC used a variety of auction formats in response to the circumstances it faced. 

The FDIC also faces decisions and trade-offs associated with the terms of the sale. A 

basic question is whether to sell the asset outright or retain some risk in hopes of higher 

prices. For some of its sales of retained assets, the FDIC set terms that shared risks with the 

buyer (that is, where the FDIC and the buyer shared future asset losses and recoveries). 

More specifically, the FDIC’s securitizations82 and limited liability companies83 included 

risk-sharing provisions. Like the use of P&A agreements with loss share for franchise 

sales, these risk-sharing sale methods have the potential to improve prices—but the FDIC 

could lose money after the sale if asset values drop or if the assets are not well managed. 

In addition, these risk-sharing options require oversight after the sale is complete, and 

the costs associated with the oversight function are large enough that asset sales with 

risk-sharing are not cost-effective for small amounts of assets. In contrast, selling assets 

outright is simpler to execute and reduces the FDIC’s risk exposure immediately, thereby 

eliminating the need for oversight. 

Several characteristics of the economic environment during the crisis made the risksharing of assets attractive to buyers: the sudden and steep deterioration in some asset 

markets at the beginning of the 2008–2013 crisis, the accompanying uncertainty about asset 

values,84 and the lack of good information about some failed-bank assets. But if the terms 

of these transactions are not properly designed, risk-sharing can weaken the incentive for 

buyers to manage assets well. Good contract design and monitoring processes are therefore 

vital to the success of this strategy. 

The question of how to service assets is primarily focused on loans because most 

retained assets are loans and, as described below, the servicing of loans is a complex 

task. On the servicing question, the FDIC chose not to hire contractors to do both the 

loan servicing and the loan sales (which is a method that was used in the 1980–1994 

81 Numerous authors have found connections between asset sale processes (and especially auction formats) 

used by sellers of assets and the resulting sales revenue. See, for example, Paul Klemperer, “Auction Theory: 

A Guide to the Literature,” Journal of Economic Surveys 13, no. 3 (1999): 227–86; Vijay Krishna, Auction 

Theory (2009); and Guhan Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive 

Marketplace (2010). However, much of the research involves theoretical analyses that do not fully capture 

the circumstances faced by the FDIC as it makes decisions about auction formats. 

82 Securitization is the process of creating one or more securities that are collateralized by a pool of 

other financial assets and are then sold to investors. The sections below titled “Sales of Securities” and 

“Securitizations” describe the FDIC’s securitization activities during the crisis. 

83 A limited liability company (LLC) is a hybrid type of legal structure that provides the limited liability features 

of a corporation and the tax efficiencies and operational flexibility of a partnership. The section below titled 

“Limited Liability Companies” describes the FDIC’s LLC activities during the crisis. 

84 Nicholas Bloom, “The Impact of Uncertainty Shocks,” Econometrica 77, no. 3 (2009): 623–85, found that 

increases in uncertainty have been accompanied by decreases in investment, while Bloom et al., “Really 

Uncertain Business Cycles,” NBER Working Paper Series 18245, 2012, found that uncertainty rises during 

recessions and could be an important driver of business cycles. 
 

210 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

crisis) because of the challenges of designing good contract incentives.85 The other 

options for servicing retained loans are discussed in more detail below (in the section 

titled “Asset Servicing”). 

Receivership Tasks during the Crisis 

Any discussion of receivership tasks during the 2008–2013 crisis must begin with the 

dimensions of the FDIC’s receivership responsibilities during that period and then with 

the particulars of what was entailed in servicing assets at that time. The environment 

and the particulars of what had to be done lead directly to the methods the FDIC used 

for selling retained assets and to decisions about which methods would be best for which 

asset type: the trade-offs discussed above can be seen influencing the FDIC as it decided 

on the best way to manage and sell the assets it held in receivership. Finally, this section 

discusses one important receivership task that did not have to do with selling retained 

assets but, instead, followed directly from decisions made during franchise marketing: 

the administration and oversight of loss-share P&As.86 

The Dimensions of the FDIC’s Receivership Responsibilities during the Crisis 

As of year-end 2007, the FDIC was managing only $800 million of assets that were 

retained in receiverships, but by year-end 2008 that number had risen to $15.1 billion. 

Figure 6.5 shows certain key types of assets held for liquidation for the years 2008 through 

2013. During that period, the FDIC managed a total of $87.5 billion in assets from 492 

failed depository institutions.87 

The volume of receivership assets peaked in 2009 and then steadily decreased. The 

reduction in receivership assets was the result of several factors. The failure rate stabilized 

and then fell after 2010, and compared with 2009, the volume of new assets that were 

retained in receivership at resolution dropped somewhat in 2010 and substantially after 

2010, as the asset size of the failed banks fell. As the failure rate stabilized, the FDIC 

continued to liquidate its previously acquired assets, reducing the total number of assets 

in liquidation. Moreover, in more than 60 percent of failures during the 2008–2013 crisis, 

85 See FDIC, Managing the Crisis, 333–71, for additional discussion of the importance of incentives in these 

types of contracts and the related challenges. See also Resolution Trust Corporation, “Hard to Sell Asset 

Review Project,” 1992. 

86 As noted previously, a number of important tasks are not discussed in this chapter, including accounting, 

reporting, deposit insurance determination, receivership liability management, contract management, legal 

claims, and enforcement. 

87 In addition to the 489 bank failures during the crisis period, there were a few receiverships from pre-crisis 

bank failures that were still open when the crisis began. 
211 

25 

20 

CHAPTER 6: Bank Resolutions and Receiverships 

the receiver did not retain any loans from the failed institution.88 From 2008 to 2016, the 

FDIC liquidated almost 95 percent of the assets that were retained in the 489 receiverships 

created during the crisis, and only $3.2 billion of the assets remained unsold. In addition, 

the FDIC had terminated 145 (30 percent) of the receiverships. 

Figure 6.5. Loans, ORE, and Subsidiaries in Liquidation, 2008−2013 

Billions of Dollars 

15 

10 

5 

0
 

2008 2009 2010 2011 2012 2013
 

Year
 

Multifamily Residential Loans Consumer Loans Other Real Estate 1-4 Family Residential Loans 

Subsidiariesa ADC Loans Commercial & Industrial Loans Other CRE Loans 

a Defined as companies held as subsidiaries of failed banks. 

Asset Servicing 

Most of the assets that were retained in receiverships during the crisis were loans, and for 

retained loans the FDIC as receiver undertook the associated servicing responsibilities 

previously held by the failed institution. Loan servicing included general loan 

administration tasks such as collecting payments and managing escrow accounts, but it 

also included more resource-intensive responsibilities such as monitoring delinquencies, 

managing defaulted loans, and approving loan or line of credit disbursements. Like 

private-sector institutions, the FDIC was subject to a large number of statutory and 

88 In other words, the acquirer purchased all the loans. 
212 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

regulatory requirements that set standards for loan servicing tasks.89 For foreclosed 

properties, servicing involved property management tasks such as maintaining the 

property, collecting rents, paying local taxes, and so forth. 

As part of receivership planning, the FDIC began analyzing loans that required special 

attention, such as unfunded and partially funded lines of credit, and ADC loans.90 In 

some cases, decisions to extend additional credit were a matter of policy. For example, 

the FDIC advanced additional credit to a wilderness farm that would otherwise have 

lacked the necessary funds to provide food for its animals. Many funding decisions 

were time sensitive, and it was important for the FDIC to have the capabilities to 

make prompt decisions about extensions of credit. To that end, the FDIC had explicit 

delegated authority for determining whether to extend additional funds under a failed 

institution’s credit facility. 

In the years between the 1980–1994 crisis and the most recent crisis, the FDIC had 

established the internal goal of placing 90 percent of the marketable loans retained in 

receivership in a sales initiative within 90 days of the failure date (and another internal 

goal of terminating receiverships [in the absence of specific impediments] within three 

years).91 In those interim years, when an institution failed, the FDIC generally managed 

and sold the loans from a field receivership site that was established at the failed bank’s 

location. The FDIC was usually able to sell all, or almost all, of the retained loans from 

the receivership site at reasonable prices within three months. The FDIC would continue 

to operate the necessary IT systems that had been used by the failed institution and 

would retain enough staff members from the failed institution to service the assets 

until they were sold. This strategy was economical, and it allowed the FDIC to close the 

receivership field site promptly and avoid costly loan servicing transfers.92 

As the crisis began to unfold, however, the FDIC no longer received bids that met 

its price expectations on its bulk loan sales that occurred immediately after failure. For 

example, bidders were offering 30 to 50 cents on the dollar for performing loans that, 

in better times, had sold at or close to par. Consequently loans were not sold and field 

receiverships remained open for an extended time—upward of a year or even longer. 

The accumulation of assets at different receivership sites was expensive, and it became 

89 Relevant statutes include (but are not limited to) the Equal Credit Opportunity Act, the Truth in Lending 

Act, the Small Business Regulatory Enforcement Fairness Act, the Service Member’s Civil Relief Act, the Fair 

Debt Collections Practices Act, and the Fair Credit Reporting Act. 

90 FDIC, “A Borrower’s Guide to an FDIC Insured Bank Failure,” https://www.fdic.gov/bank/individual/ 

failed/borrowers/. 

91 See FDIC, “Annual Performance Goals,” 2008. (“Percentage of failed institution’s assets marketed: 90 

percent of the book value of a failed institution’s marketable assets is marketed within 90 days of failure.”) 

For details on the FDIC’s current strategic goals, see FDIC, “Strategic Plans,” https://www.fdic.gov/about/ 

strategic/. 

92 See note 75 for a definition of a loan servicing transfer and a discussion of the related costs. 
CHAPTER 6: Bank Resolutions and Receiverships 213 

increasingly difficult to manage the overall portfolio or to take advantage of opportunities 

to coordinate sales of assets across receiverships.93 Therefore, the FDIC shifted to a policy 

of transferring retained loans to national servicers94 within 90 days of an institution’s failure 

(at least for loans that were not expected to sell quickly from the receivership field site at 

reasonable prices).95 The national servicers collected information on the receivership loans 

on-site, which reduced costs and improved data quality. After 2010, the FDIC began to 

rely heavily on national servicers as its primary asset managers. As a result of the switch to 

national servicers, the average time the FDIC remained on-site at a failure decreased from 

more than a year to about 115 days. 

Asset Sales by Type of Asset 

Because the types of assets that needed to be sold influenced both the FDIC’s decisions 

about sale methods and the markets into which the retained assets were sold, the FDIC 

generally organized its sales efforts by asset type. The three asset types whose sales are 

discussed here are securities, loans, and ORE. 

Sales of Securities. In most cases, the acquiring institution assumed the failed institution’s 

holdings of U.S. Treasuries, municipal securities, and similar investment-grade securities. 

The FDIC usually offered the other securities from the failed institution to potential 

acquirers as part of the franchise sale at resolution, but often potential acquirers were not 

interested in purchasing risky, illiquid securities and priced them accordingly. Thus the 

FDIC retained many illiquid, hard to price, and complex securities in its receiverships. 

For disposal of the more liquid securities, competitive auctions to qualified bidders 

were conducted by in-house staff, sometimes with the assistance of a financial advisor 

under contract to the FDIC. This method was typically used for agency debt, agencyissued mortgage-backed securities, and municipal securities—all of them where 

potential bidders could use prices paid for other recent sales to inform their bids.96 

93 The average cost of maintaining an open receivership site, including rent, receivership assistance contracts, 

and payroll services contracts, was about $500,000 per month. Many of the costs did not decline even as 

the number of outstanding assets declined. In addition, failed-bank staff members or general-purpose 

receivership contractors were not always highly skilled in asset management. Moreover, it was hard to 

develop and maintain accurate, up-to-date asset listings for all the assets in receivership when assets were 

being serviced at a large number of open receivership sites. 

94 National servicers are servicers and private firms that specialize in loan servicing and have a national (rather 

than local) scope. 

95 Currently the decision as to whether the loan portfolio can be sold quickly on-site or whether it is moved to 

a national servicer for a structured transaction is made on a case-by-case basis. If the FDIC can obtain about 

the same price for a loan sale made on-site right after failure as it can with later sales from a national servicer 

(possibly using a structured transaction), it is advisable to sell from the receivership site, which—when a 

quick sale at a market price is feasible—has lower management costs compared with the cost of using a loan 

servicer. 

96 Likewise, the FDIC could use recent asset prices to set reserve prices (that is, the minimum price that the 
 

214 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

In situations where the FDIC liquidated securities with transfer restrictions, or in 

cases where there was a limited number of candidate purchasers for a specific asset, a 

negotiated sale was arranged.97 

The FDIC retained a substantial volume of private label mortgage-backed securities 

(PLMBS) that acquirers rejected. Because few investors were purchasing these types of 

assets at the time, the FDIC believed that the prices it could obtain in an auction would 

fall below the long-term value of the securities. Therefore, the FDIC used the PLMBS 

that were retained in receiverships to collateralize eight PLMBS securitizations that 

it issued in 2010.98 Seven were residential MBS and one was a commercial MBS. This 

strategy improved pricing and marketability because the FDIC provided a guarantee, 

backed by the full faith and credit of the U.S. government, for the senior tranche of each 

securitization.99 The securitizations had two features to help reduce the FDIC’s potential 

exposure under the guarantee. First, the senior tranche was overcollateralized, allowing 

the securitization to absorb substantial losses without triggering the FDIC guarantee. 

Second, the FDIC used interest earned on the underlying MBS to make payments toward 

the principal balance in the senior tranche. 

The PLMBS securitizations were considered a successful alternative to auctioning the 

securities in 2010. The principal balance of the PLMBS that were used to collateralize the 

FDIC securities was $6.35 billion. The FDIC estimated it would net $3.46 billion if it sold 

the PLMBS in 2010 through an auction. Providing a guarantee improved the securities’ 

marketability, and the face value of the securitizations sold was $4.2 billion. Additional 

proceeds from the securitizations, such as guarantee fees and increases in the value of 

retained interests, resulted in a projected recovery of $5.12 billion,100 which was 48 percent 

more than the estimated recovery from an auction at the time. As of year-end 2016, the 

outstanding face value of the FDIC securities was $1.06 billion, but the outstanding face 

value of the underlying securities was $2.82 billion. Any payments made on the underlying 

securities that were not needed to satisfy the FDIC securities would go to the receiverships. 

It is impossible to determine with certainty whether the securitizations were more 

advantageous than a strategy of holding the PLMBS for future auction would have been. 

The securitizations provided a substantial cash recovery in 2010, thus improving the 

FDIC’s cash position compared with what it would have been if a holding strategy had 

been used, and enabled the FDIC to receive much better prices than the prices that would 

FDIC would accept). These securities had low loss rates. 

97 For example, negotiated sales could be used for limited partnership interests, closely held securities, and 

securities with a “right of first refusal” restriction. 

98 After 2010, the FDIC did not acquire enough mortgage-backed securities to warrant further securitizations. 

A senior tranche is the least risky tranche in a securitization and takes losses only when all the other tranches 

have lost their full value. For a detailed explanation of securitization and tranches, see chapter 1. 

100 This figure includes the transaction cost associated with securitizations. 

99 
CHAPTER 6: Bank Resolutions and Receiverships 215 

have been achieved with a cash sale. Both approaches (securitization with a guarantee, 

and holding) required that the FDIC bear the full risk of further price deterioration, but 

holding the MBS might have allowed the FDIC to more fully participate in potential price 

improvements, receive slightly higher interest income, and avoid certain transaction costs. 

Sales of Loans. The FDIC retained over $50 billion in loans in its receiverships, and therefore 

the task of selling them was daunting. Moreover, there were many types of loans (ranging 

from small consumer loans to large commercial loans), and the quality of the loans varied 

(ranging from loans where the borrowers were routinely paying the loans on time, to loans 

that were in foreclosure proceedings). The FDIC used bulk sales to sell loans outright; 

in addition, it used two kinds of structured sales. Outright sales are when all aspects of 

ownership, including risk, are transferred from one party to another party. Structured sales 

are a form of joint ownership where multiple parties share not only the asset management 

responsibilities but also the benefits and costs of a pool of assets.101 The two kinds of 

structured sales the FDIC used were securitizations (defined in note 82 as “the process of 

creating one or more securities that are collateralized by a pool of other financial assets and 

are then sold to investors”) and limited liability companies (LLCs), which were the legal 

entities used to execute a type of joint venture that was used heavily during the crisis. 

—Bulk Sales. The FDIC routinely offered loans for bulk sale, in pools grouped by loan 

type, loan performance status, and/or geography; these types of sales are often called 

“bulk loan sales” or “whole loan sales.”102 The FDIC used third-party contractors to sell 

the loans, usually at an on-line sealed-bid auction.103 The contractor would provide 

Internet marketing, due diligence, imaging and indexing of files, pooling, an on-line 

bidding platform, and closing services for the sales. To encourage wide participation in 

the auctions, the FDIC sought potential buyers through many venues, and assets were 

marketed both through the FDIC’s public website and through the loan sale contractor’s 

website. Because of the challenges associated with estimating the value of many of these 

loans, the FDIC did not usually set reserve prices (that is, the minimum price that 

the FDIC would accept). Instead, it would monitor the extent of interest expressed by 

bidders (measured by the number of bids or the number of bidders who performed due 

diligence) to determine whether the winning bid constituted a true market price. 

101 Contracts enumerate the responsibilities, benefits, and costs for each party. Clearly, these sales are more 

complex than straightforward asset sales, called here “outright sales.” 

102 In locations where there were many loans for sale at the same time, the groups were more homogeneous. 

When the FDIC had fewer loans available for sale, the loan pools were more diverse. 

103 The FDIC’s sealed-bid process is a form of a “first price sealed bid auction,” where bidders submit bids to the 

auctioneer in such a manner that no other bidders know one’s bid—for example, in a sealed envelope. The 

bidder submitting the highest bid wins the object and pays what he or she bid. 
216 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

The FDIC sold $10.6 billion in retained assets using bulk loan sales; the loss rate for 

these loans was 49 percent.104 Bulk loan sales carried no retained risk for the FDIC and 

provided quick cash infusions at a time when the DIF’s cash balance was under pressure. 

Seller financing was never offered. Prompt loan sales limited the time during which the 

FDIC was required to service the retained loans. However, early in the crisis, relatively 

few buyers were interested in these loans (which were often viewed as high risk because 

they had been originated by failed banks), and the buyers who were interested often 

suffered funding constraints or were seeking bargains. Given the loss rates for cash loan 

sales of assets related to real estate, the FDIC found structured instruments (such as loan 

securitizations and LLCs, discussed below) to be an appealing alternative. 

—Securitizations. As the volume of unsold loans held in receiverships increased during 

the 2008–2013 crisis, the FDIC explored alternative disposition options, including loan 

securitizations. With the securitization market remaining largely frozen at the start of the 

2008–2013 crisis, the FDIC began to securitize loans with an FDIC guarantee, backed by 

the full faith and credit of the U.S. government, to increase the marketability and prices 

of its securitizations. From 2010 through 2013, the FDIC issued eight securitizations 

backed by $3.0 billion in loans; six transactions had an FDIC guarantee on the senior 

tranches. The total face value of the Class A securities (see next paragraph) was $2.2 

billion, or 73.9 percent of the collateral book value. 

After the FDIC identified and assembled loans for securitization, an underwriter 

recommended a securitization structure. For example, the first securitization issued was 

structured with three classes (the senior “A” tranche, the mezzanine “M” tranche, and 

the first loss “OC” tranche) as well as with residual certificates. For the securitizations of 

performing loans, the senior class (that is, the “A” tranche) typically accounted for 80 to 

85 percent of the overall capital structure and carried an FDIC corporate guarantee.105 

Generally, subordinate interests on the residential securitizations (all junior classes 

below the guaranteed senior tranches) were held by FDIC receiverships, with the 

option of marketing them at a later date. Subordinate-class certificates on commercial 

property transactions were sold to private investors at issuance. For both residential and 

commercial transactions, all residual certificates were retained by the FDIC. 

The FDIC Board of Directors approved each securitization before it was marketed. 

The FDIC drafted clauses in its securitization trust documents that were designed to 

reduce operational risk. Third-party contractors facilitated all aspects of the securitization 

transaction, including pricing, marketing, and settlement. Consistent with the improving 

asset markets, all of the transactions performed above original expectations. As of the end 

104 For additional details, see https://www.fdic.gov/buying/historical. 

105 For the two securitizations where most of the collateral was nonperforming loans (that is, loans where the 

borrowers were delinquent), the size of the senior tranche was less than half of the collateral balance and no 

guarantees were provided. 
CHAPTER 6: Bank Resolutions and Receiverships 217 

of 2016, one transaction had been unwound; 106 the outstanding face value of the class “A” 

securities had decreased by over 80 percent, to $395 million; and, $928.3 million in collateral 

remained outstanding, with payments due to the receiverships. Therefore, it appears highly 

unlikely that the FDIC will be required to make payments on any guarantees. 

The FDIC’s securitization program, in which a significant volume of loans were sold 

quickly, enabled the Corporation to improve its cash position. The FDIC was able to sell 

at reasonable prices, even when markets were in disarray, because it used its guarantee 

authority and retained the residuals; however, this also meant that the FDIC retained 

almost all of the risk exposure. The improving asset markets, as well as careful attention 

to contract design, contributed to the recoveries from these instruments and allowed the 

FDIC to avoid having to make guarantee payments. 

—Limited Liability Companies. As an alternative to bulk sales or securitizations, the 

FDIC used what are referred to as equity partnerships, Structured Transaction Sales, or 

LLC transactions.107 Whereas most of the loans that were securitized were of relatively 

high quality, most of the loans sold into Structured Transaction Sales were subperforming 

or nonperforming (that is, borrowers were delinquent or the loans had other problems). 

In a Structured Transaction Sale, the FDIC as receiver for one or more failed banks 

created a separate entity (the LLC) and then assigned assets to the LLC from one or more 

receiverships in exchange for all of the equity interest in the LLC. The FDIC then sold 

a portion of the LLC equity interest to a third-party investor that became the managing 

member of the LLC. Proceeds from the assets were paid to a custodian/paying agent, which 

distributed the proceeds to the FDIC and the investor according to the terms of the specific 

LLC agreement. When a large share of the assets had been liquidated, the LLC usually 

terminated with a bulk sale or the managing member’s buyout of the FDIC’s LLC interest. 

During the 2008–2013 crisis the FDIC entered into 35 Structured Transaction 

Sales, disposing of 43,315 assets with a book value of $26.2 billion. These Structured 

Transaction Sales disposed of approximately 30 percent of all assets unsold at bank 

resolution. The terms of each of the transactions were published by the FDIC.108 Of 

the Structured Transaction Sales, 20 (57 percent) held ADC loans, 8 (23 percent) held 

other CRE loans, and 7 (20 percent) held single-family mortgage loans.109 The average 

106 A transaction is unwound when the buyers of the FDIC securities have been paid in full and the security is 

extinguished. If, at that point, any of the loans that collateralized the securities have outstanding balances, 

then all the remaining payments made on the loans belong to the residual certificate holders—in this case 

the FDIC receiverships. 

107 As stated in note 83, an LLC is a hybrid type of legal structure that provides the limited liability features of a 

corporation and the tax efficiencies and operational flexibility of a partnership. The private-sector “owners” 

of an LLC are referred to as “members.” 

108 See FDIC, “Structured Transaction Sales,” https://fdic.gov/buying/historical/structured/index.html. 

109 Note that about $1 billion of the assets were ORE rather than loans. Almost all of the ORE related to 

foreclosed ADC loans. 
218 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

size of the ADC transactions was larger than the average size of the other types: ADC 

transactions constituted 65 percent of total LLC assets. 

In September 2009, after six sales, the FDIC revised the form of the LLCs to offer 

financing as an option. By providing seller financing when such financing was not 

generally available from private sources, the FDIC hoped to attract more investor interest 

and improve prices. On the basis of feedback from potential acquirers and a preliminary 

analysis of bids received, the strategy seemed to be successful. 

Table 6.6 provides information about the performance of these transactions. For each 

group of LLCs, four estimates of value are compared. The middle two columns aggregate 

estimates that were prepared by financial advisors shortly before the LLCs were created: 

they estimated the value of the assets if a cash sale were to be conducted or if an LLC were 

to be created. The last two columns aggregate estimates prepared by the LLC managing 

members (the companies that managed the LLCs). The “Initial” column reports the 

estimates that the managing members prepared shortly after each LLC was created, and 

the “June 2016” column reports the most recent estimates. 

Table 6.6. LLC Recovery Rates 

Number 

Initial Book 

Value 

Pre-Close Financial 

Adviser Estimate (%) 

LLC Managing Member 

Estimate (%)a 

Category of LLCs ($ Millions) Bulk Sale LLC Initial June 2016b 

FDIC Financing 

No 12 5,868.5 23.4 34.5 34.1 33.4 

Yes 23 20,306.6 31.9 42.5 42.2 51.5 

Asset Type 

ADC 20 17,001.3 24.4 36.1 33.5 43.7 

Other CRE 8 4,708.0 38.0 47.0 54.6 54.2 

SFR 7 4,465.8 42.8 51.5 51.2 54.7 

Overall LLC Program 35 26,175.1 30.0 40.7 40.3 47.4 

Median 490.7 33.5 41.6 42.0 42.5 

Mean 857.6 34.4 42.2 43.8 44.9 

Standard Deviation 828.6 14.5 13.8 14.8 15.5 

a Net present value of projected or actual cash flows as of the LLC sale date, divided by the initial asset 

balance. The discount rate is adjusted for risk using a method similar to the one used in the FDIC’s 

financial statements. Note proceeds are discounted at lower rates than equity distributions. b For the June 2016 estimate, over 90 percent of the cash flows are actuals rather than estimates. 

The aggregate across all LLCs showed that, on a program-wide basis, the estimated 

recovery from a bulk sale of the assets was 30 percent and the estimated recovery from 

an LLC sale was 40.7 percent. The managing members initially estimated a 40.3 percent 

recovery. The most recent estimates anticipate a 47.4 percent recovery. For 71 percent 
CHAPTER 6: Bank Resolutions and Receiverships 219 

of the transactions, the current estimates are higher than the original estimates.110 

On the basis of the pre-close estimates, the use of LLCs would have saved the FDIC 

an estimated $2.8 billion dollars (compared with bulk sale estimates); on the basis of 

the most recent estimates, the savings increased to $4.6 billion. Improvements in the 

asset markets probably contributed to the increased return. On the basis of this simple 

comparison, seller financing did not appear to influence the difference between the 

two pre-close estimates (one for whole-loan sales and one for the LLCs); after the sale, 

however, the transactions with seller financing showed stronger improvements. ADC 

assets provided much lower returns (43.7 percent) than either other CRE (54.2 percent) 

or single-family residential assets (54.7 percent). ADC assets also showed the strongest 

improvements compared with the initial projections; this may be because of value added 

through effective servicing or because ADC loan values are more heavily influenced 

by improvements in the real estate market, or both.111 In terms of the number of bids 

received or differences in the basic structure of the risk-sharing agreements, no clear 

trends in recoveries were readily discernible. 

Sales of Other Real Estate (ORE). As with most types of assets in receivership, the number 

of ORE assets (that is, foreclosed properties) increased rapidly at the start of the 2008–2013 

crisis, and by the end of the crisis more than 13,500 ORE assets had been acquired. To 

dispose of its ORE, the FDIC relied primarily on direct sales of the assets by real estate 

brokers. If the assets did not sell within established FDIC timelines, the properties were 

sold at public auction. One advantage of this strategy was that the brokers aggressively 

marketed the property during the listing period, since properties placed in public auctions 

were subject to a reduced commission. In addition, the FDIC found that disclosing that a 

property was to be included in a scheduled auction often caused a hesitant buyer, fearful of 

becoming involved in competitive bidding, to make an offer. 

The FDIC’s ORE auctions were held in a location near the properties being sold. In 

addition, often there were options that allowed bidders to submit bids by phone or online 

as well. The auctions included dozens, and sometimes even hundreds, of properties for 

sale from multiple receiverships. The FDIC sought to include a mix of attractive and 

less-appealing properties in each auction to increase interest and encourage competitive 

bidding. The properties were listed both on the FDIC’s website and on the auctioneer’s 

110 Note that more than 90 percent of the most recent estimate has already been realized. All recovery estimates 

are discounted to the LLC sale date. 

111 The servicing of ADC loans is more complicated than the servicing of other real estate loans. See OCC, “The 

Conptroller’s Handbook,” 2013, for a discussion. For evidence that land prices are more volatile than other 

real estate prices, see Joseph B. Nichols, Stephen D. Oliner, and Michal R. Mulhall, “Swings in Commercial 

and Residential Land Prices,” Journal of Urban Economics 73 (2013): 57–76, and Raphael W. Bostic, Stanley 

D. Longhofer, and Christian L. Redfearn, “Land Leverage: Decomposing Home Price Dynamics,” Real 

Estate Economics 35, no 2 (2007): 183–208. Land makes up a larger share of the collateral value for ADC 

loans than for other types of real estate lending. 
220 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

website before the sale. The FDIC set reserves for the properties at these auctions, 

based on its assessment of marketability and the length of time the property had been 

previously marketed. At least a few absolute auctions112 were included to strengthen 

investor interest; these were typically used for the least desirable properties. 

The types of ORE sold included bank premises, commercial properties, undeveloped 

land, multifamily properties, and single-family residences. The highest recovery rate 

(70.4 percent of book value) was for bank premises. These properties tended to be well 

maintained and located in well-trafficked areas. Other commercial properties had a 

recovery rate of 57.4 percent. The real estate class suffering the lowest total recovery rate 

was unimproved land, at 36.4 percent. This class of real estate, with no immediate use 

and sometimes located in areas that were overbuilt, often had very little value. The largest 

class by number of units of properties auctioned was single-family residential properties, 

constituting nearly 50 percent of the number of properties that were auctioned. The 

recovery rate for these properties was also higher, at 63.4 percent, than the overall 

recovery rate (59.4 percent) for all ORE sales.113 

Loss-Share Administration and Oversight 

One important task of receiverships does not have to do with selling retained assets 

but with following up on a critical decision made during franchise marketing. When 

the FDIC entered into loss-share agreements at resolution, the P&A contracts included 

a section that laid out the acquirers’ and the FDIC’s responsibilities associated with 

the assets that were to receive loss-share coverage. Because the FDIC retained a large 

share of the risk exposure from the portfolio of assets under loss-share agreements and 

because the FDIC’s loss-share coverage might weaken the acquirers’ incentives to work 

aggressively to minimize losses, it was important for the FDIC to protect its interests by 

carefully monitoring the acquirers’ performance under those agreements.114 

The portfolio of assets under loss-share agreements was dominated by real estate loans. 

CRE loans (which included both ADC loans and other types of CRE loans) constituted 

45% of portfolio assets ($98 billion), and single-family mortgages constituted 35% ($74 

billion). Another 3% ($6.5 billion) was ORE. A total of 1.1 million assets were placed in 

the program. On the basis of asset counts, most of the assets were consumer loans: singlefamily mortgages constituted 43% of the assets, and other consumer loans constituted 

26%. Figure 6.6 provides details. 

112 An absolute auction is an auction where the seller does not set a reserve price (minimum required price). 

Buyers are attracted to absolute auctions because they sometimes result in bargain prices. 

113 Source: https://sales.fdic.gov/closedrealestate/. These figures include most, but not necessarily all, sales of 

retained ORE from 2008 to 2013. 

114 For additional information about the loss-share program, see the section above titled “Loss-Share Purchase 

and Assumption.” See also FDIC, “Loss Share Questions and Answers,” https://www.fdic.gov/bank/ 

individual/failed/lossshare. 
CHAPTER 6: Bank Resolutions and Receiverships 221 

Figure 6.6. Loss-Share Asset Portfolio at Resolution, Number and Dollar Amount 

Number of Assets (000s) Asset Balance ($ Billions) 

39 

94 

482 

16 

290 

108 

0 81 

$31.5 

$66.5 

$74.2 

$6.5 

$4.7 

$19.8 

$1.7 $10.7 

ADC Loans Consumer Loans 1-4 Family Loans Securities 

Other CRE Loans Commercial & Industrial Loans ORE at Resolution Others 

Total Number of Assets: 1,109 Total Asset Balance: $215.6 

About 32% of the asset value of CRE loans came from ADC loans that were especially 

problematic.115 At resolution, 35% of the ADC loans were in default, whereas 11% of 

the other CRE loans were in default. About 9% of the single-family mortgages were in 

default at resolution.116 

The primary goals of the review program were to minimize the FDIC’s losses and ensure 

that the acquirer complied with the terms of the loss-share agreement. If an acquirer had 

asset management weaknesses, inaccurate loss reporting, or other compliance problems, 

the FDIC could mitigate its losses by quickly identifying problems, asking the acquirer to 

address them, and following up with the acquirer appropriately. Two key components of the 

monitoring program were regular on-site reviews and the review of standard information 

reported by the acquiring banks. The FDIC undertook on-site reviews for most acquirers 

annually, although acquirers of the largest portfolios were reviewed semiannually. 

The FDIC also required that acquirers with single-family loss-share coverage pursue 

a loan modification program. Under this program, the loan terms for delinquent owneroccupied single-family mortgages were modified (to make the loan affordable to the 

115 Many failed banks had large ADC exposures. For additional discussion, see chapter 4 and U.S. General 

Accountability Office, “Causes and Consequences of Recent Bank Failures,” GAO-13-71, 2013. 

116 Calculations are based on asset balances rather than counts. 
222 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

borrower)117 if the estimated net present value of the modified loan was higher than the 

net present value of foreclosure.118 Acquirers had several options for assisting troubled 

borrowers in managing their mortgages, thereby minimizing FDIC costs: the acquirer 

could adopt the loan modification program described in the agreement, or other 

programs approved by the U.S. Treasury (such as its Home Affordable Modification 

Program [HAMP]), or other programs that met the same purpose.119 As of March 2017, 

acquiring banks had modified 25,736 owner-occupied first-lien single-family mortgages, 

and two-thirds of the loans were still active and under the loss-share program. Almost 

80 percent of the modified loans that were active in the loss-share program were current, 

and another 6.6 percent were 30 to 59 days delinquent. Compared with other loan 

modification programs, these results appear generally favorable. For example, Fitch 

reported cumulative-to-date default rates of 30 percent or more for modified loans.120 

Because loss share imposes administrative costs on both the acquirers and the FDIC, 

it was often beneficial to terminate agreements once the value of the FDIC’s loss-share 

coverage fell below the loss-share agreements’ administrative costs. As of year-end 

2016, the FDIC had terminated 151 single-family agreements and 156 non-single-family 

agreements. In sum, all the agreements at 159 failed banks had terminated.121 In 2017, 

early termination activity continued to be brisk. 

117 Loans were modified so that the monthly mortgage payment fell below a predetermined percentage of the 

borrower’s income. This was achieved by reducing the interest rate, lengthening the term of the loan, and/ 

or deferring principal and interest payments on part of the loan balance. For a sample agreement, see pages 

58-93, and especially pages 92–93, of https://www.fdic.gov/bank/individual/failed/firstfederal-ca-p-and-a. 

pdf. Also, note that the FDIC provided loss-share coverage for modifications of noncurrent loans as well as 

performing loans with high risk of imminent default—that is, where there was a strong chance that the loan 

would default soon because of the loan characteristics. 

118 In estimating the net present value of modifications, acquirers were expected to consider the redefault 

probability (that is, the probability that the loan might default again) after modification. 

119 The FDIC had to approve alternative programs (except the U.S. Treasury programs) to ensure that they met 

the program goals. 

120 Fitch, “Risk Growing in Mortgage Loan Modifications: Historical Modification Data Review,” Feb. 9, 

2017, 5, https://www.loansafe.org/wp-content/uploads/2017/02/Risk-Growing-in-Mortgage-LoanModifications.pdf. These rates were reported nearly six years after modifications, and some of the loan 

modifications under the loss-share program are not this mature. However, Fitch also reported that 75 

percent of redefaults occurred in the first two years after modification (p. 1). 

121 At some banks, loss-share coverage was provided only for single-family assets or only for non-single-family 

assets. 
CHAPTER 6: Bank Resolutions and Receiverships 223 

Lessons Learned for Resolutions and Receiverships 

As the crisis unfolded, the FDIC learned a great deal and kept making adjustments to 

improve its results. Some of the most important lessons learned from that experience are 

discussed here. 

Lesson 1: Readiness Planning Is Essential 

Early in the crisis, as the speed and size of failures exceeded expectations, the FDIC’s 

infrastructure was challenged (despite the FDIC’s efforts to improve infrastructure 

before the crisis), and the Corporation was forced to devote resources to the expansion of 

its capacity on a largely ad hoc basis. In hindsight, it might have been more effective if the 

FDIC, as part of its readiness planning, had built a larger and more agile infrastructure— 

including staff, contracts, and IT systems—during the lull between the end of the 

previous crisis and the start of this new one. 

The FDIC now has the opportunity to explore options for maintaining readiness in a 

low-failure environment with that environment’s concomitant pressures on the FDIC to 

streamline its operations.122 The difficulty is that trade-offs are necessary between two 

of the FDIC’s responsibilities: to be a steward of the DIF and to maintain preparedness 

for a crisis. In other words, budgetary pressures must be balanced against the reality that 

the magnitude and speed of banking crises are unpredictable. In its readiness planning 

since the end of the crisis, the FDIC has increased its baseline staffing for resolution and 

receivership activities and it continues to enhance its systems and processes to bolster 

its receivership capabilities. Developing scalable and up-to-date receivership IT systems 

is an important aspect of readiness planning because deploying the right technology 

contributes to the FDIC’s ability to manage a crisis successfully. 

But since crises can occur quickly, it is also helpful to have a roadmap for increasing 

key resources and infrastructure when needed. Whether through the use of contractors, 

reallocated employees, rehired annuitants, or new employees, the roadmap can make it 

easier for the FDIC to build its capacity quickly. Plans to build capacity should remain 

broad and focus on scalability and flexibility, but they should also include the technical 

and operational details necessary to implement quick capacity-building. 

Finally, although the 2008–2013 crisis began quickly, especially in comparison with 

the 1980–1994 crisis, the FDIC noticed underlying currents of weakness in depository 

institutions well before the failures accelerated. For example, the FDIC’s 2007 Annual 

Report stated that “The year posed major challenges to financial institutions and to the 

economy as a whole. Slumping housing markets and escalating problems, particularly 

related to subprime mortgage lending, were among the chief contributors to increased 

122 Maintaining readiness in this kind of environment may include exploring how other agencies or private 

companies with highly variable resource demands address their resource challenges. For example, the 

Federal Emergency Management Agency has developed readiness capabilities despite the unpredictable 

need for disaster relief. The Department of Defense has addressed its need to quickly expand capacity by 

using reservists. 
224 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

uncertainty in the financial markets.”123 The FDIC also noticed weaknesses through its 

monitoring of the condition of institutions between examinations: the FDIC’s Statistical 

CAMELS Off-Site Rating (SCOR) system began to flag an increasing number of 

potentially troubled depository institutions in early 2007.124 Going forward, it will be 

helpful to examine the possibility of building resolution capacity earlier—that is, when 

standard indicators of industry condition (including, for example, the SCOR system), 

financial and market indicators, or other signals draw attention to substantial weaknesses 

in the banking industry, even if failure projections are uncertain. The risk of possibly 

becoming temporarily overstaffed (if bank failures should not materialize) might be a 

cost that is justified by the highly cyclical and uncertain workload, but research is needed 

to identify which triggers are likely to be most helpful in initiating the build-up of staff. 

Lesson 2: Consider Offering More Resolution and Financing Options to Acquirers 

As noted above, the loss-share transaction was the FDIC’s dominant resolution offering from 

mid-2009 through 2010. In early 2011, the FDIC expanded its regular resolution offerings 

to include whole bank without loss share, and the FDIC subsequently supplemented its 

regular offerings with other options (especially loan pools) more frequently before it began 

to phase out loss share in 2012. The loss-share option was attractive early in the crisis and, 

especially, at the height of the crisis. Loss share leveraged the FDIC’s natural advantage 

over private parties in absorbing large risks during a period when the market’s appetite for 

risk was low. It reduced disruption to bank customers and communities during a period 

when the cost of disruption was high,125 and it minimized staff and cash needs during a 

period when both were in short supply and future needs were uncertain but potentially 

very large. It might, however, have been advantageous for the FDIC to have broadened its 

offerings more quickly as its resources improved and as its programs for selling retained 

assets became more established.126 For example, the FDIC might have offered loan pools 

with and without loss share as well as whole-bank transactions. 

123 FDIC, 2007 Annual Report, 4, https://www.fdic.gov/about/strategic/report/2008annualreport/index_pdf. 

html. 

124 SCOR uses quarterly Consolidated Reports of Condition and Income (Call Report) data to help the 

FDIC identify institutions that have worsening financial conditions between examination cycles. For 

details, see Charles Collier et al., “The SCOR System of Off-Site Monitoring: Its Objectives, Functioning, 

and Performance,” FDIC Banking Review 15, no. 1 (2003): 17–32, https://www.fdic.gov/bank/analytical/ 

banking/2003sep/2_15n3.pdf. 

125 GAO, “Causes and Consequences.” The GAO studied the disruption caused by failures from 2008 to 2011 

and stated that “our results suggest that bank failures in a state were more likely to affect its real estate sector 

than its labor market or overall economy” (p. 146). Thus, the FDIC’s resolution methods appear to have 

resulted in less severe disruption than what had been documented from earlier bank failures. 

126 Economic theory and research point to benefits for the FDIC from offering a wide variety of options so that 

the markets can determine the most cost-effective option. See Edward J. Kane, “Principal-Agent Problems 

in S&L Salvage,” Journal of Finance 45, no. 3 (1990): 755–64; Kormendi et al., Crisis Resolution; and FDIC, 

“FDIC Policies for the RTC.” 
CHAPTER 6: Bank Resolutions and Receiverships 225 

In addition, the FDIC might consider broadening its options for funding resolutions. 

During the crisis, the FDIC avoided borrowing from the U.S. Treasury or the Federal 

Financing Bank (FFB) by imposing prepaid deposit insurance assessments.127 With the 

infusion of cash from the industry, resolution and receivership methods that required 

working cash became relatively more attractive to the FDIC than they had been before 

the prepaid assessment. Another way to improve the cash position of the DIF (and thus 

provide more freedom to adopt resolution methods that require working cash) might 

have been to offer notes to acquirers instead of, or as an alternative to, cash. This option 

raises serious policy questions that would need to be considered, including questions 

about the appropriate note terms, when and how to offer notes to acquirers, the risks 

associated with this option, and what controls should be put into place. 

Lesson 3: Include Use of National Servicers for Large-Scale Crises in Readiness 

Plans 

Before the recent crisis, the FDIC had been able to sell assets quickly at field sites that 

were open for only a few months at each failed-bank location. When the crisis struck 

and markets for such assets suddenly dried up, the FDIC retained more assets, its scope 

of operations suddenly widened, and its previous strategy became less cost-effective. 

Thus the FDIC benefited by shifting to a reliance on national loan servicers. National 

servicers made possible stronger and more consistent loan servicing and supported a 

more comprehensive asset sales strategy—one that often improved prices by grouping 

assets from multiple receiverships into various sales initiatives. However, executing such 

a large shift in operations in the middle of a crisis was not optimal, and the FDIC might 

have avoided some of the associated disruption had there been an opportunity to make 

the change earlier. This experience suggests that readiness plans should include either 

the ongoing maintenance of national servicing contracts—even during periods when the 

FDIC’s receivership activity levels are modest—or an ability to switch to national servicing 

contracts promptly without having to expend scarce resources to set up the program. 

Although the cost of retaining national servicers during periods of low activity may seem 

high, these costs must be balanced against the value of being able to seamlessly scale up 

this key component of receivership operations when activity levels increase, especially with 

little lead time. 

127 For additional discussion, see chapter 5 as well as FDIC, Prepaid Assessments, 74 Fed. Reg. 59056–59066 

(Nov. 17, 2009), https://www.fdic.gov/regulations/laws/federal/2009/09finalad51nov17.pdf. As discussed 

in chapter 5, prepaid assessments had benefits beyond the improved liquidity of the DIF. The DIF cash 

position was also improved by increased assessment rates, a special assessment in 2009, and the FDIC’s 

heavy use of whole-bank resolutions, including loss-share resolutions. 
226 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Lesson 4: Structured Sales Worked Well 

The FDIC used two types of structured transactions to sell retained assets during the 

crisis: LLCs and securitizations. Both of these asset sale methods allowed the FDIC to 

pool similar assets to attract more bidder interest; they were also designed so that the 

FDIC retained a significant share of the financial risks associated with the assets (thus 

potentially improving the FDIC’s recoveries but leaving the FDIC exposed to additional 

losses if markets declined). 

Although recoveries varied across individual LLC transactions, the overall recoveries 

for the LLC program were materially higher than estimated bulk loan sale recoveries and 

original estimates. The strong recoveries were probably influenced by the combination 

of well-aligned incentives and the market and asset management expertise of the 

managing members. Recoveries for securitized loans were also higher than estimated 

recoveries from bulk loan sales. Market improvements probably contributed to the 

higher recoveries for both programs. 

Lesson 5: Effective Loss-Share Administration Requires Adequate Infrastructure 

For three reasons, FDIC oversight of the loss-share agreements was critical to the success 

of the loss-share program. First, the risk exposure that the FDIC retained was in this 

instance substantial. Second, the program had the potential to weaken the incentive 

of acquirers to manage the portfolios in ways that minimized the FDIC’s costs. Third, 

some acquirers were unfamiliar with the program requirements. Four elements proved 

to be most important for administering the oversight process. The FDIC and the 

acquirer needed to move quickly to ensure a mutual understanding of expectations; 

the FDIC had to conduct regular on-site reviews to ensure compliance with the lossshare agreements; the FDIC needed to follow up on any areas of disagreement or 

noncompliance; and the automated data collection and reporting system, together 

with the associated requirements for standardized data reporting, made it possible 

to apply FDIC procedures more consistently, and supported effective program-wide 

management. To mitigate program losses effectively in the future, it is critical that the 

FDIC implement the necessary back-office operations and infrastructure to oversee 

the program promptly and effectively. 

Postscript: Areas for Future Research and Conclusion 

A well-informed staff is invaluable when a crisis erupts. A staff that has a strong 

knowledge of the FDIC’s historical resolution experience and a deep understanding 

of its options and the legal requirements, operational requirements, costs, and policy 

trade-offs for each option improves the FDIC’s ability to make good decisions. During 

the 2008–2013 crisis, however, the FDIC made numerous choices based on incomplete 
CHAPTER 6: Bank Resolutions and Receiverships 227 

information. Although incomplete information is inevitable during periods with heavy 

bank-failure activity, there may be opportunities to reduce the FDIC’s future uncertainties 

by using information from the recent crisis (both from the FDIC and elsewhere) and 

the available academic research to analyze questions likely to arise the next time bank 

failures increase. The next time may be either another crisis or a period of more-moderate 

increases in failure activity. 

Examples of areas in which additional research may prove helpful are the trade-offs in 

resolving failed banks, costs and benefits of prompt asset sales, early-warning tools, the 

use of risk-sharing transactions and the incentives embedded in risk-sharing agreements, 

the market power of asset buyers, and seller financing options. 

Trade-Offs in Resolving Failed Banks. Study the trade-offs among minimizing costs, 

minimizing disruption from failures, minimizing operational and financial risk, 

minimizing liquidity needs, and encouraging market discipline when failed banks are 

sold. How should the FDIC balance these trade-offs as it considers what resolution 

strategies to pursue? Should the balance shift in response to industry conditions and 

general economic conditions, and, if so, how?128 

Costs and Benefits of Prompt Asset Sales. The FDIC’s strategic shift toward swift 

liquidation was implemented consistently through all its asset sale programs and was 

embodied in Annual Performance Goals for prompt marketing of assets and termination 

of receiverships.129 This was a fundamental policy choice with broad effect. It yielded 

notable benefits, such as minimizing asset servicing costs, reducing the FDIC’s need for 

receivership infrastructure, and reducing potential market distortions from excessive 

government holdings of assets. There were also costs. Because assets were sold promptly 

during a serious downturn, high risk premiums (and possibly discounts demanded by 

asset buyers with market power) were embedded in many of the sale prices.130 Receivership 

interest earnings were lower.131 The importance of asset liquidation speed to the resolution 

process and the importance of the associated costs to the FDIC—and to society—call for 

careful analysis of the effects that follow from this fundamental policy choice. 

128 The FDIC’s statutory mandates preclude some potential shifts but allow others. 

129 As noted above, the FDIC sought to market all assets within 90 days and to terminate receiverships 

(without specific impediments) within three years. The FDIC currently has very similar goals in place. 

For details on the FDIC’s current strategic goals, see FDIC, “Strategic Plans,” https://www.fdic.gov/about/ 

strategic/. 

130 The FDIC mitigated the costs by marketing widely and including risk-sharing provisions. 

131 This occurred because the earning assets were sold quickly. Had they remained in receiverships, the 

receiverships would have collected more interest payments. 
228 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Early-Warning Tools. Investigate the possibility of devising early-warning tools that 

could trigger timely increases in resolution staff yet would be relatively unlikely to yield 

“false positives” that would lead to excessively high staff levels. 

Risk-Sharing. Consider how much risk-sharing is appropriate for the FDIC. How should 

factors such as industry condition influence the FDIC’s use of risk-sharing strategies? 

In addition, explore how the incentives embedded in the various loss-share, LLC, and 

securitization contracts influenced (a) the performance of the underlying assets; (b) the 

servicer’s/asset manager’s behavior; and (c) the FDIC’s losses. What are the implications 

for future resolution and receivership choices (choice of tools, design for the sharing 

percentages, thresholds, true-up, and so forth)? 

Market Power of Asset Buyers. Consider how the small number of interested and 

qualified buyers influences franchise and asset sales, and thus how the market power 

of asset buyers affected the FDIC’s losses. How effective were the FDIC’s strategies for 

counteracting the downward pressure on asset prices because of the market power held 

by asset buyers? What resolution policies, methods, or practices might reduce the extent 

of that market power and therefore reduce the FDIC’s losses? 

Seller Financing Options. Consider additional seller financing options for franchise sales, 

bulk loan sales and ORE sales. The available evidence shows that asset buyers found it 

difficult to obtain financing early in the 2008–2013 crisis and that asset prices drop 

materially when financing options are not readily available.132 The FDIC never offered 

seller financing for bulk loan sales or ORE sales, and rarely offered it for franchise sales.133 

Some analysts have advocated a broader use of seller financing for retained asset sales.134 

132 See Andrei Shleifer and Robert W. Vishny, “Liquidation Values and Debt Capacity: A Market Equilibrium 

Approach,” Journal of Finance 47, no. 6 (1992): 1343–66; Joao Granja, Gregor Matvos, and Amit Seru, 

“Selling Failed Banks,” Journal of Finance 72, no. 4 (2017): 1723–84; Viral Acharya, Sreedhar T. Bharath, 

and Anand Srinivansan, “Does Industry-wide Distress Affect Defaulted Firms? Evidence from Creditor 

Recoveries,” Journal of Financial Economics 85, no. 3 (2007): 787–821; and Viral Acharya, Hyun Song Shin, 

and Tanju Yorulmazer, “Crisis Resolution and Bank Liquidity,” Review of Financial Studies 21, no. 6 (2011): 

2166–205. 

133 Seller financing was offered only for the three franchise sales where it was used. Seller financing is irrelevant 

for many commonly used franchise sale structures because acquirers do not need cash to close the transaction. 

It may be helpful for whole-bank structures where brokered deposits are retained in receivership, for loan 

pools, and for other combination structures. 

134 See Michael Lea and Kenneth Thygerson, “A Model of the Asset Disposition Decision of the RTC,” Journal 

of the American Real Estate and Urban Economics Association 22, no. 1 (1994): 117–33; FDIC, Final Report of 

the FDIC/RTC Transition (1995); and FDIC “FDIC Policies for the RTC.” None of these documents suggests 

universal use of seller financing; instead, they all recommend it in certain circumstances or for certain 

types of assets (such as for commercial ORE or for troubled assets). In contrast, Office of Management and 

Budget, “Resolving the Thrift Crisis,” 1993, discusses trade-offs associated with seller financing but does not 

advocate its use. 
CHAPTER 6: Bank Resolutions and Receiverships 229 

Despite the credit risk associated with seller financing, it may be worthwhile to consider 

whether there might be additional situations where seller financing could yield net benefits, 

and, if so, how to manage risk exposure, set appropriate loan terms and borrower vetting 

processes, and minimize market distortions. 

* * * 

Because every crisis—and every failing bank—is unique, crisis resolution necessarily 

involves making judgments in a difficult environment and with a high degree of 

uncertainty. During the 2008–2013 crisis, the FDIC successfully resolved 489 bank 

failures representing $686 billion in assets. Insured deposit balances were protected 

and receivership assets were liquidated, with the net proceeds used to pay creditors as 

required by law. The FDIC benefited from (a) a robust set of resolution tools provided 

by Congress, (b) its previous experience in applying those tools, and (c) its willingness 

to wield those tools in new ways to respond to new challenges. Moreover, the FDIC 

considered the various trade-offs in light of the constraints it was operating under and 

took decisive actions that proved to be quite successful overall. Particularly important 

examples of such actions were offering loss share early in the crisis and switching to 

national loan servicing contracts. Nonetheless, there are also lessons to be learned from 

the FDIC’s experience in the crisis of 2008 through 2013, as this section has indicated. 

Following up on these lessons will further strengthen the FDIC’s crisis preparedness, 

enhancing its ongoing contribution to maintaining the nation’s financial stability. 
230 CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013 

Bibliography 

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