8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. DC 20429 

SHEILA C. BAJA 

CHAIRMAN July 7, 200~ 

Honorable Bubara Lee 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Lee: 

ThaJlk you for your letter regarding the status oftbe Federal Deposit Insurance Corporation's 

irutiatives related to the participation of Small, Minority, and Women-Owned businesses in 

procurement related to the federal government's efforts to resolve the banking crisis. We are pleased 

to continue the dialogue begun at the Congressional Black Caucus contracting summit in ~ of 

this year. . 

The FDIC's Office of Diversity and Economic Opportunity (ODEO) administers a Minority 

and Women Outreach Program. This Program seeks to ensure, to the maximum extent possi"blc, the 

inclusion of minorities and women in a]) contracts entered into by the FDIC, including entities owned 

by minorities and women such u financial institutions, investment banking firms, underwriters, 

accountants, and providers oflegal services. 

It has been the Corporation• s policy to include Minority and Women Owned Businesses 

(MWOB) and Small Disadvantaged Business (SDB) vendors to the maximum extent practicable in 

its solicitations for services. Our inclusion ofMWOB and SDB enterprises bas oCCWTCd in all 

aspects of FDIC procurement, including participation in the resolution and management of assets 

from failed institutions. 

The FDIC has expanded outreach to MWOBs, SDBs, and Veteran and Disabled VeteranOwned Businesses for assistance m resolving the banking crisis. We arc seeing positive results from 

this outreach, with smaller firms exploring new subcontracting, teaming, and limited joint venture 

relationships. We also have seen the large prime vendors n:achlng·-out to these smaller enterprises 

and adding these firms to their corporate databases as sources for future contracting. 

Enclosed are detailed responses to the questions raised in your letter. I also understand that 

FDIC staff is scheduled to brief your staff on FDIC outreach efforts and to receive any input and 

suggestions they may have. 

Your interest in this matter is appreciated. If you have finthcr questions, please co~tact me at 

-· (202) 898-6974 or Eric Spitler, Director of the Office of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
The Legal Division bas been participating in Outreach activities with the Division of 

Administration and the Office of Diversity and Economic Opportunity at various outreach events 

referred to above and at"reccnt job fairs held in Dallas, Texas, Arlington, Virginia, and Irvine, 

California. In the near future, the Legal Division will conduct an outreach event in New Yolk 

City specifically to identify MWOLFs having experience in finmcial transactions, complex 

financial instruments, and related litigation experience. The Legal Division also is continuing 

outreach through attendance at various minority bar association conferences referred to above. 

Finally, Legal Division staff is endeavoring to increase work assignments made to MWOLFs $at 

are on the LCA, by encouraging both direct retention on new mattera and co-counseling ~-

arrangements as appropriate in particular cases. 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

«;:HAIRMAN July 7, 2009 

Honorable Yvette Clarke 

House of Representatives 

Washington. D.C. 20S15 

Dear Congresswoman Clarke: 

Thank you for your letter regarding the status of the Federal Deposit Insmance Corporation's 

initiatives related to the participation of Small, Minority. and Women-Owned businesses in 

procurement related to the federal government's efforts to resolve the banking crisis. We arc plc;ased 

to continue the dialogue begun at the Congressional Black Caucus contracting summit in Much of 

this year. · 

The FDIC's Office of Diversity and Economic Opportunity (ODEO) _administf:I'S a Minority 

and Women Outreach Program. This Program seeks to ensure, to the maximmn extent poSstole, the 

inclusion of minorities and women in all contracts entered into by th~ FDIC. including entities owned 

by minorities and women such as financial institutions, investment banking firms, underwriters, 

accountants, and providers oflcgal services. 

It has been the Cmporation's policy to include Minority and Women Owned Businesses 

(MWOB) and Small Disadvantaged Business (SDB) vendors to the ~um extent practicable in 

its solicitations for services. Our inclusion of MWOB and SDB enterprises bas occurred in all 

aspects of FDIC procurement, including participation in the resolution and management of assets 

from failed institutions. . 

The FDIC has expanded outreach to MWOBs, SDJ3s, and Veteran and Disabled VeteranOwned Businesses for assistance in resolving the banking crisis. We arc seeing positive results from 

this outreach, v.~th smaller firms exploring new subcontracting. teaming. and limited joint venture 

relationships0 We also have seen the large prime vendors reaching out to these.smaller enterprises 

and adding thcs~ finns to their corporate databases as sources for future contracting. 

Enclosed are detailed responses to the questions raised in your letter. I also understand that 

FDIC staff is scheduled to brief your staff on FDIC outreach efforts and to receive any input and 

suggestions they may have. · 

Your interest in this matter is appreciated. If you have further questions, please contact me at 

.~(202) 898-6974 or Eric Spitler, Director of the Office of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 

·' 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable David Scott 

House of R.q,resentatives 

Washington, D.C. 20515 

Dear Congressman Scott: · 

July 7, 2009 

Thank you for your letter regarding the status of the Federal Deposit Insurance Corporation's 

initiatives related to the participation of Small, Minority, and Women-Owned businesses in 

procurement related to the federal government's efforts to resolve the banking crisis. _We are pleased 

to continue the dialogue begun at the Congressional Black Caucus contracting summit in March of 

this year. 

The FDIC's Office of Diversity and Economic Opportunity (ODED) administers a Minority 

and Women Outreach Program. This Program seeks to ensmc, to the maximum extent posstble, the 

inclusion of minorities and women in all contracts entered into by the FDIC, including entities owned 

by minorities and women such as financial institutions, investment banking firms, underwriters, 

accountants. and providers of legal services. 

It bas been the Corporation's policy to include Minority and Women Owned Businesses 

(MWOB) and Small Disadvantaged Business (SDB) vendors to the maximum extent practicable in 

its solicitations for services. Our inclusion of MWOB and SOB enterprises bas occuxred in all 

aspects of FDIC procurement, including participation in the resolution and management of assets 

from failed institutions. 

The FDIC has expanded outreach to MV/OBs, SDBs, and Veteran and Disal>lcd VeteranOwned Businesses for assistance in resolving the banking crisis. We aU"C seeing positive results from 

this outreach, with smaller firms explorib.g new subcontracting, teaming, and limited.joint venture 

relationships. W c also have seen the large prime vendors reaching out to these smaller enterprises 

and adding these finns to tJ:icir corporate databases as sources for future contracting. 

Enclosed arc detailed responses to the questions raised in your letter. I also understand that 

FDIC staff is scheduled to brief your staff on FDIC outreach efforts and to receive any input and 

suggestions they may have. · 

Your interest in this matter is appreciated. If you have further questions, please contact me at 

'(202) 898-6974 or Eric Spitler, Director of the Office of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheita C. Bair 

Enclosure 
8 FEDERAL DEPOSIT INSURANCE CORPOR,4JlQN, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN July 7, 2009 

Honorable Al Green 

House of Representatives 

Washington, D.C. 20515 

Dear Congrcuman Green: 

Tha,nk you for your letter regarding the status of the Federal Deposit Insurance Coxporation's 

initiatives related to the participation of Small, Minority, and Women-Owned businesses in 

procurement related to the federal government's efforts to resolve the banking crisis. We are pleased 

to continue the dialogue begun at the Con~onal Black Caucus contracting summit in March of 

t1ris year. 

The FDIC's Office of Diversity and Economic Opportunity (ODEO) adrofaristcrs a Minority 

and Women Outreach Program. This Program seeks to ensure, ~ the maximum extent possible, the 

inclusion of minorities and women in all contracts entered into by the FDIC, including entities owned 

by minorities and women such as financial institutions, investment banking firms, underwriters, 

accountants, and providers oflcgal services. 

It has been the Coxporation's policy to include Minority and Women Owned Businesses 

(MWOB) and Small DiS:3dvantagcd Business (SOB) vendors to the maximum extent practicable in 

its solicitations for services. Our inclusion ofMWOB and SDB enterprises has occurred in all 

IISP,CCfs of FDIC procurement, including participation in the resolution and mmagemcnt of assets 

from f.liled institutions. 

The FDIC has expanded outreach to MWOBs, SDBs, and Veteran and Disabled VeteranOwned Businesses for assistance in resolving the banking crisis. We are seeing positive results from 

this outreach, with smaller firms exploring new subcontracting. teaming. and limited joint venture 

relationships. We also have seen the large prime vendors reaching out to these smaller enterprises 

and adding these ~ to their corporate databases as sources for future contracting. 

Enclosed are detailed responses to the questions raised in your letter. I also understand th.at 

FDIC staffis scheduled to brief your staff on FDIC outreach efforts and to receive any input and 

suggestions they may have. 

Your interest in this matter is appreciated. If you have further questions, please contact me at 

·{202) 898-6974 or Eric Spitler, Director of the Office of Legislative Affirirs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions regarding outreach 

to Small, Minority, and Women-owned Businesses 

Provided by the Federal Deposit Insurance Corporation's 

Office ofDivenity and Economic Opportunity 

Ql: How will FDIC ensure Small, Minority and Women owned business access to and 

participation in, FDIC programs designed to assist in the economic recovery? 

Al: The FDIC conducts nationwide outreach events to provide Minority and Women-Owned 

Businesses (MWOBs), Minority and Womcn·Owncd Law Firms (MWOLFs), as well as Small 

Disadvantaged Businesses (SDBs) and Veteran and Disabled Veteran Owned Business, with 

information on the FDIC's contracting activities. We enco~ge their participation as both prime 

and sub-contractors. 

The FDIC has conducted five "Doing Business with the FDIC0 seminars this~ since March 

and expects to schedule three or four additional seminars by the end of August. The seminars 

already completed have drawn more than 1,400 attendees, and these businesses have been added 

to our MWOB, MWOLF, and contracting databases. Additionally, we continue to participate in 

outreach conferences with the Black Enterprise Entrepreneurs, Women in Business, LUI.AC, 

National Council of La Raza, NAACP, National Bar Association, National Urban League, 

Hispanic Chamber of Commerce, the Hispanic Bar Association, the Congressional Black 

Caucus, the Asian Pacific Bar Association, and the National Minority Supplier Development 

Council. 

MWOBs and others also can lean:i about doing business with the FDIC by visiting our website: 

http://www.fdic.gov/buying/goods/index.html, where they will find instructions 9n how to 

provide the FDIC with information about their company, which we will enter into our Contractor 

Resource List This system organizes and maintains corporate capability statements submitted 

by firms seeking future business with the FDIC. Our program managers and contracting officers 

use this system to identify sources for solicitation. The web page also contains points of contact 

and telephone numbers for various FDit prime contractors. These pμmc contractors will 

· provide services in support of failed financial institutions and may have subco~trai;ting 

opportunities for the MWOBs. 

MWOLFs can find information regarding opportunities for representing the FDIC on our website 

at http-Jlwww.fdic.gov/buying/legal/ocbrochurefmdex.htmL 

Q2: Please provide the number of FDIC Requests for Proposals (RFPs) which contain 

incentives for large firms to partner or joint venture with Small Minority and Women 

Owned Businesses. 

Al: Where subcontracting opportunities exist, FDIC RFPs will contain language encouraging 

offerors to subcontTact with MWOBs and SDBs. Current law prolul>its the FDIC from placing 

incentives in RFPs for large fums that partner or join~ venture with MWOBs or SDBs. However, 

many of our prime contractors are participating vohmtarily in the Doing Business with the FDIC 
seminars providing valuable information on how to partner, joint venture, and sub-contract with 

them. 

Q3: Please explain FDIC's weighted evaluation process and criteria to assure Small, 

Minority and Woman Owned Business participation in large business Proposal Responses . 

. AJ: Evaluations of most large dollar acquisitions at the FDIC are based on a best value 

approach, in lieu of a price-only approach. The best value approach typically involves the. 

assigning of points to various factors of the offerer's technical proposal, along with establishing a 

confidence rating based on past performance, as well as an analysis of price. The relative 

importance of the technical proposal's ratings to the ratings for past performance and price may 

vary from one RFP to another. 

After the proposals of all offcrors have been evaluated, the FDIC performs an analysis to 

determine which offeror(s) will provide the overall best value to the FDIC. Offcrors who are 

MWOBs, or those who partner with and subcontract to MWOBs, do not receive any additional 

weight or incentives in the evaluation process. ·· 

Q4: Please provide the number of RFP opportunities specifically designated for Small 

Minority and Women Owned Business. 

A4: The FDIC docs ~ot have the statutory authority to set aside acquisitions fot MWOBS, 

MWOLFs, or SDBs. However, FDIC does have a statutory requirement to engage in outreach 

activities and provide opportunities to MWOBs and MWOLFs to the maximum extent 

practicable, and therefore, members of FDIC acquisition teams are encouraged to include 

MWOBs and SDBs on their solicitation lists whenever posst"ble. Also, for acquisitions with an 

estimated dollar value of $100,000 or more, staff of the Office of Diversity and Economic 

Opportunity may recommend the addition of sources to be included. on the solicitation list 

QS: Please provide the number of contract awards to Small, _Minority and Woman Owned 

Businesses. 

AS: For 2008, 48 of293 (16 percent) of total awards were issued to MWOBs or SDBs. Of the 

$651.83 million awarded in 2008 for the 293 awards, $201. 72 million (31 percent) went to 

MWOB or SDB prime contractors and subcontractors. 

For the first quarter of 2009, 61 of 194 (31 percent) of total awards were issued to MWOBs or · 

.-SDBs. Of the $427.77 million awarded during the first quarter of2009 for the 194 awards, 

$183.58 million (43 percent) went to MWOB or SDB prime contractors and S1,1.bcontractors. 

Regarding law firms having legal services agreements with the FDIC, the Corporation maintains 

a List of Counsel Available (LCA), which includes firms that are eligi"ble and qualified to 

represent the FDIC on a variety of legal matters. As a result of efforts undertaken by the FDIC 

Legal Division over the past six to eight months, there has been a significant increase in the 

number of MWOLFs among the law firms included in the LC.A, and our efforts are ongoing. 
Jun-ZZ-09 D3:51PI Fraa-l«lH.8arbara L11 ZDZ-ZZHIIT I T-452. P. DD2/D03 · F-9D5 . 

June 19, 2009 

Otlntgr£.ss of tlJ211fnihh .§tah:s 

Bu!Jingbm, D« 20515 

The Honorable Sheila Bair 

Federal Deposit Insurance Corporation 

550 11°' Street NW, Room 6028 

Washington, D.C. 20429 

Dear Chairwoman Bair, 

The Federal Deposit Insurance Corporation's (FDIC), Division of Administratio.q and the 

Acquisition Services Branc:h hav~ in the past, been committed ti:) ensuring the broad based 

panicipation of minority and women owned businesses in its procurements. We · believe that 

participation by Small. Minority. and Women Owi)ed business enterprises in the Public Private 

Investment Program (PPIP), the Troubled Asset Relief Program (TARP), the Term Asset Backed 

Secwities Lending Facility (TALF) and other programs at the Trearmy, the Federal Reserve. ~e 

Federal Deposit Insmance Corporation,, and the Federal Housing Finance Agency are essential to 

effectively rebuilding the American economy. 

Ir is our undersranding that the FDIC is preparing to initiate a series of acquisition activities 

which arc specuic to rebuilding the economy and undergirding the DlO$t vulnerable communities 

muchcd by the economic downturn. It is imperative that minority and_ women oWD,ed firms 

participate in the FDIC's economic recovery cffotts, particularly in the accounting operations. 

monitoring and oversight fimctions. as they move forward. 

There is wide spread interest,, on the pan of these minority firms, to participate in the competitive 

acquisitfon proce.s,. Many of the qualified and successful minority and woman owned finns, that 

arc working to econom.iC;&lly empower America"$ diverse communities. inform us that they 

remain outside of the competitive process. for these acquisitions. They also tell ~ that unless the 

Federal agencies provide avenues for panicipation and encourage large financial instimtions to 

partner or enter into joint venrures with these firms, they may continue to be excluded from 

making a valuable contribution and commitment to our economic recovery. 

We respectfully ask that ·your office brief our Members regarding FDIC's plans to etl;hancc 

minority and woman owned business participation in the economic recovery effons at the FDIC. 

We respectfully ask that you ~vide the following infonnation concerning FDIC's acquisition 

efforts going forward, an a monthly basis: 

• flow will the FDIC eruw-~ Small, M"moriry and Women awned businesses access to and 

parricipation in, FDIC programs dt:.Jigrzed ro assis1 in the economic rt:cowry? 
Jun-~Z-09 03:SlPI Fraa-HON.Barbara L11 ZDZ·ZZS-91\T T-,m P.DD3/DD3 F-905 

- Please pravide the number of FDIC Reque~for Proposals (RFPs) which contain ince111ivu 

for large jinns to partner or }ow 11en1Ure with Small Minority and Women OwMd 

Busineues. 

Please explain FDIC '.J weighred ~aluation process and criteria 10 as.nut Small, Minority 

a,,d Woman Owned Business participation in large businl!.rs Proposal Respmun. 

- Please provide che number of RFP oppommi1iu·specifically designaredfor Small Minority 

(1JU:/ Woman Owtied businesses. 

- Plettte provide rhe number of cantracr awards 10 Small; Minm-ity arid Wonum Owned 

Bwinesses. 

We hope that we can continue to work together to meet this economic crisis head on and to 

ensure that the recovery is shared by all Americans.. We look forward to working with you OIJ. 

this important matter. Please contact me or my staff with any questions concemi;ng this letter . 

. Sincerely, 

Barbara 

Congressman David Scott · 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEi~ C. BAIR 

CHAIRMAN July 7, 2009 

Honorable Paul Kanjorski 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Kanjorski: 

Thank you for expressing your concerns about the availability of credit in this 

challenging economic environment, and I appreciate the invitation to particip~te in the 

congressional policy dinner. Although I am unable to attend this event, I look forward to 

participating in your l)Olicy discussions on the future of financial services regulation. 

I agree with. you that credit availability is a critical component of our national 

economic recovery efforts. Banks play an extremely important role in providing loans to 

businesses and consumers on Main Street, and this, in tum, promotes economic growth 

and job creation across the country. Unfortunately, we also have observed that some 

lenders are curtailing lending in an effort to reduce credit concentrations, preserve capital, 

and manage an increasing volume of problem loans. 

I assure you the FDIC and the other bank regulatory agencies understand the 

macroeconomic risks that could arise from a credit crunch. We have encouraged banks 

to continue making loans to creditworthy customers and work with borrowers that are 

having difficulty remaining current on their payments. On November 12, 2008, the 

banking agencies issued the lnteragency Statement on Meeting the Needs of Creditworthy 

Bo"owers (a copy of which is attached), which encourages financial institutions to lend 

prudently and responsibly to creditworthy borrowers and woi;Ic with borrowers to 

preserve homeownership and avoid preventable foreclosures. This Statement presents 

the federal banking supervisors' formal position on credit availability; however, banks 

make their own decisions on extending or modifying credit based on internal 

underwriting standards, risk appetite, and financial operating position. The FDIC 

strongly supports banks that are prudently extending credit at this time as they are the 

lifeblood of credit in our economy. 

If you have further questions, please feel free to contact me at (202) 898-6974 or 

Eric Spitler, Director of Legislative Affairs, at (202) 898-3827. 

Sincerely, 

Sheila C. Bair 
PAUL E. KANJORSKI 

11'1"14 Dls'nllcT, l'sNNSnYANIA. 

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550 l 7th Street, NW, Room 6028 

Washington, DC 20429-9990 

. OFFICE OF LEGISLATIVE AFFAIRS 

Dear Sheila: 

Thanlc you once again for your prom.pt response to the invitation to appear at our 

policy dinnc::r to discuss your thoughts on the future of financial services regulation. 

While you could not attend this particular event, I hope that you can participate at a 

similar dinner with Members of Congress in the near future. With our sponsor, the 

Bipartisan Policy Cmrtcr, Capital Marlcem Subcommittee Rankmg Member Scott Garrett 

and I have hosted some vecy infomlativc and thoughtful convc:nations .with a nmnber of 

highly regarded. financial minds. Your voice would be a welcome complement to the 

views expressed by our previous speakers. 

On.another matter, through recent conversations with business leaders, it has 

come to my attc:n1ion that the decisions ofbimkers to cut back on current credit lines or to 

limit new loans continue to hamper efforts to promote economic growth and create jobs. 

This lack of credit availability has .offccted particular regions of the country especially 

bard. For example, just the other week construction at the Fontainebleau Las Vegas . · 

resort came to a halt because its developer filed for bankruptcy after a group oflendcrs 

ended their support for the multi-billion dollar project. Without access to financing. 

economic development projects like this one are l11lf'ortunaic1y getting suspended or never 

gcttingoffilicground. · 

As you probably rccal.1, we faced similar circumstances during the savings-andloan crisis. At that time, federal banking regulators acted to encourage borrowing and 

lending to businesses as a means of spmring economic growth. For businesses to remain 

operational through the cwrc:o.t economic crisis and for new projeets to get underway, our 

banking regulators must take shnilar action once again to grant forbearance and promote 

credit avuilability. As a result, I urge the Federal Deposit msunm~ Cmporation to 

encourage banks to expand access to credit, in any apptupriate manner, so that big and 

small businesses alike can weather "this economic crisis and so that we can maintain and 

create much-~ecdcd jobs. 

THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS 

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In closing. thank you for ccmsidcring my views on these impodaut matten. I look 

forwmd to your participation at a dinner hosted by the Bipartisan Policy Center in the 

near future and to learning more about what the Federal Dcposjt Insurance Corporation is 

doing to promote growth during these difficolt economic times. 

Paul E. Kanj 

Member of Congress 

. I 

! 
FDII 

Federal Deoosit Insurance Corooration 

550171h Slreel NW, Washingbl, DC 20429 

Honorable Mary Jo Kilroy 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Kilroy: 

Office of l..egisla!ive Alfabs 

July 15, 2009 

Thank you for your comments concerning the Federal Deposit Insurance Coi:poration's Proposed 

Rule on the Transaction Account Guarantee program. I can assure you we will carefully 

consider your concerns and those of the other commenters. 

W c appreciate for your interest in this important issue. If you have :fi.n1her questions, the Office 

of Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
HOUSE OF" REPRESENTATIVES 

WASHINGTON, D.C. 20515 

MARY Jo K1LROY 

15TH 01STIIIC:T, OHIO 

The Honorable Sheila C. Bair 

Chair, Federal Deposit Insurance Corporation 

550 17th Street, NW 

Room6028 

Washington, D.C. 20429 

Comments RIN 3064-AD37 

Dear Chairwoman Bair: 

July 8, 2009 

I am writing to urge you to consider the impact the Federal Depository Insurance Corporation's (FDIC) 

forthcoming decision on the Transaction Account Guarantee (TAG) program will have on community 

banks and the local communities they serve. 

Co~unity banks have been particularly helped by the TAG program, which provides non-interest 

bearing accounts a full guarantee for deposits held at FDIC-insured depository institutions. Local 

businesses use non-interest bearing accounts for large payroll deposits, and during the financial crisis the 

TAG program provided businesses with a guarantee that their assets were safe. Since its inception, the 

TAG program has helped over7,100 institutions secure over $700 billion of assets. 

An abrupt halt to the program could adversely impact loc;:al economies. The TAG program has 

significantly helped local banks and the communities they serve secure their assets. While-the financial 

system is better now than as in.October, community banks continue to fail at an alarming rate .. -~ 

Furthermore, the proposed fee increase, from 10 basis points to 25 basis points assessed against deposits 

insured under the program, is unnecessary and excessive and would add an additional burden on 

community banks struggling to provide lending to help spur their local economies. 

Thank you for talcing the time to hear my concerns and to consider how community banks will be 

impacted by your decision. 

Sincerely, 

Jo 

U.S. House of Representatives 

Ohio's 15th Congressional District 

o---i0;..~ 
14. In what year, and by what means were Superior's mortgage securities moved to 

market through Merrill Lynch? Who were the individuals involved in those 

transactions at Superior and at Merrill? Were third parties or other brokerages or 

investment banks employed to move this paper? If so specify. By year, what 

volume and amount of such mortgage securities were sold to Merrill Lynch? 

Were Fannie Mae and Freddie Mac engaged, and how and when? 

15. In 1986, Congress passed a new Tax Reform Act which created the Real Estate 

Mortgage Investment Conduit to facilitate collateraliz.ed mortgage obligations. 

Knowing everything your agency knows today about the subprime crisis, to what 

extent did this act contribute to the mortgage crisis America is facing today? 

Why? 

16. During its existence, do records indicate Superior, or any of its subsidiaries, 

conducted any major financial transactions through or with the following firms: 

Wasserstein Perella, Dresdner Bank, Carlyle Group? 

Thank you very much for your attention to these issues. If you should need to 

contact my office, please call Julia Andrews of my staff at 202-225-4146 or email her at 

julia.andrews@mail.house.gov. 

Sincerely, 

Member of Congress 
FDII l/t07-ll1 

Federal De0osit Insurance Cornoration 

550 171h Street tNI, Washington, DC 20429 Offic:e ci legislative Alfai's 

Honorable Bill Nelson 

United States Senate 

Washington_ DC 20515 

Dear Senator Nelson: 

July 17, 2009 

· Thank you for your letter regarding requests for federal .financial assistance under the Troubled 

Asset Relief Program's (TARP) ital Purchase Program (CPP) b [j 

AB yoti may know, the Federal Deposit Insurance 

Cozporation is actively engaged wi the U.S. Department of-the Treasury (Treasury) and the 

other federal banking agencies in considering TARP applications filed by banking institutions. 

In our role as primary federal supervisor for state nonmember institutions, the FDIC makes a 

recommendation on each TARP application it receives to the Treasury, which ultimately 

determines if an institution may participate. 

The FDIC received a TARP. CPP application fro 

~Florida on October 28, 2008. The institution was advised of the FDIC's recommendation 

to Treasury concerning the TARP CPP request on June 12, 2009. The Corporation also received 

a TARP Capital Assistance Program (CAP) application from the institution that was filed on 

May 7, 2009. The CAP application is in process of being reviewed.. 

The Office of Thrift Supervision (OTS) is the primary federal regulator f?~ 

Consequently, we have taken the hbcrty of forwarding your mquuy to the 

OTS for consideration. 

Your interest in this matter is appreciated.. If you have further questions, the Office of 

Legislative Affairs can be reached at:.(202) 898-7055. 

cc: Congressional Affairs 

Office of Thrift Supervision 

1700 G Street, N.W. 

Washington, D.C. 20552 

Sincerely, 

Eric I. Spitler 

Director 

Office of Legislative Affairs 
1\11.l :\l'J .. 'il'.).'I; 

t-1J>Rll>A 

Mr. Eric Spitler• . 

Director of Legislative Affairs 

~nitw ~brles * ~:erurle 

\\ ',\SI ll~C.7"C>:'<i. l>C 20.; I o .. mo .:; 

June 26, 2009 

Federal Deposit Insurance Corporation 

55017th Street Northw~ Room 6076 

Washington, District of Columbia 20429-0002 

Dear Mr. Spitler: 

LAoq- Jol'i> 

My constituent would appreciate an update on the status of their application. Please 

respond directly to him and send a copy to me. 

The Honorable Bill Nelson 

United States Senate 

Washington, DC 20510 

Attention: Stephanie Mickle (202-224-1554) 

I thank you for your attention to this matter. 

Sincerely, 
-,; _,.. ~ SOUTK D,LlCDYA 

..!AOCRaO.ll'GIEISlNO 

~r.tlQIIJIEll.lll!W..,_ 

EVAA IIA.'i'II. "'°"""" ----J- 0--.ltl'IUJ(A.IIAWAI 

SHElll'llOlllll)IM(.OICf 

JOH 'll$Rlt MCl'fTAM 

=~~ -~--~ 1111CMAELE!No1'.CO!.QMDQ 

The Honorable Sheila C. Bair 

~aB 

Fcdew ~t ~e Coq,oration 

550 17th ~ N.W. 

Washington, D.C. Z0429 

Dear Ch~an Bair: 

iinittd ~tatts ~matt 

COMMITTEE ON BANKING, HOUSING, AND 

URBAN AFFAIRS 

WASHINGTON, DC 2051~75 

July 17, 2009 

On bdtalf of the Senate Committee on Banking. Housin& and Urban Affairs, I am writing to 

confirm that )'QQ. will t~ be~ the O,OID;littce at.OOJ" ~ entitled. i"E$1ablishing a Fmnework 

for Systemic Risk R.egolatio:n."• The ~is~~ for 'Ibursday7 July 23, 2009 ~ 9:30 a;m in 

R,oom 538 ofthoDttben Senato Office Building. · 

The Banking Carmirlttee is continuing a series o{h~ on the :rnodemization of the financ~ 

re~ry framework, which II1U$t be based OJ) lessons 1-eamcd ii-om the cmrcn.t financiai crisis and 

dcsigru:d to safegttetd ~er$~ fo~ ~~ ~y. 

The~ tequ~ ~-~ ~y~ th~ m!;IJits ofth~ .A<Jnrini$.tratipn's p.ropo$8J f91' 

regulating systemic.risk and for resol'Vltlg systemically iinpoitant financial oomp~cs tl$t Would.: 

• provide n,cw a¢h~rityto ~ F~ k,eS(.J;V~ to identify,_ ~gul.$ ~~all nnanc;ial 

~ 

complmies·(which could i:ntmde nonbanks such a!rsec'ti;rities and. insurance ~cs) 

~y unporlant. while also estahlishmg a council of financial regulators 

~ an _advisory fjmctic;m; aiJ4_~ · 

• create a new resohltion regime to provide a framework fut the orderly resolution of 

systetnically important bank holding companies and other nonbank financial companies. 

If you bdieve 1hat a ij:amework for sw~o risk ~ation com.prised of an ~ced Federal 

Reserve and an advisory council is not appiopriatc or adequ.ate, the ColDilli~ee reqaests YQur i~ony 

on any ~~ativcp approaches. 1n describing 4'11 al~e approach, yaq may want to consider 1hc 

following; 

• How should a systemic risk regulatory authority be structured? Should there be a 

governing board consisting of financial regulators and an independently appointed head? 

Should there be full-time professional .staff? 
July 17. 2009 

Page2 

• What powets would a sy:stelnic risk :re~ry authority n.eed? Shoold it have the power to 

obtain information ot assistance from financial regalators? To direct financial regulators to 

tdre specific actions? To promulgate 1egula1ions to mitigate systemic risk? 

In addition, the Comtnittee asks you to discuss: 

• how systemic risk ~ould be dcpned and to what e~ there is ;,- need for a sy$emic risk _,, .. tr. SIItboritv- ...,.,5-ury .. ·•J, 

• how a systemic risk regulatory authority should intefaci: with financial rogula:tors; 

• how resQhrtion of systemi~y ~ financi.al CQmpallles should be funded; and 

• the need for international coordination, especiatly with regard to a resolutio1;1 regime. 

For ~oses of 1he Committee Record and printi:n& your written staiement must be submitted in 

.electronic form. by either email to Charles Yi@banking,senat.e.gov md. 

dawn .. @tliffi@hanking:senate.gov, or on a CDR,W ip. 'WoroP~ (qr otpet comparable pl'Q~) 

fonnat and tn,ed double spaced. Also, two ORIGINAL copies of the statement must be included for 

th¢ l'Pll~ alopg with 73 CQpie:i for tb.e ~ of Committee;~ and~ Your ~t ahowd 

be sent no later than 24 hours pnor to the hearing. You should e#pect to have approxim$.ely 5 .miriut~ 

to provic1⁄4e ~ testimony at the hearing. YOYI ihli.tatemcnt wi1:} be made part of the hcarmg record. 

I:fyou have any questions regarding this bearing; please CC)bU1tt Charles~ at 202.-224-1564. 

·:, 

Sincere!. . Y~ 

CHlUSTOPHER. J. DODD 

Chaixman' 
fDI• 

· Federal De00sit Insurance Comoration 

550 171h Slreel ftNI, Washington. DC 20429 

Honorable Allyson Y. Schwartz 

Representative, U.S. Congress 

7219 Frankford Avenue 

Philadelphia, Pennsylvania 19135 

· Dear Congresswoman Schwartz: 

July 17, 2009 

Thank you for your most recent letter on behalf ~regarding the status of 

~plication for deposit insurance. · . 

As you know from our previous correspondence, the Federal Deposit Insurance Coxporation met 

with-...;fand other organizers.Btbat meeting. we have received additional 

info~g the application o This information_ along with previously 

submitted materials, is being reviewed an processed.. 

I assure you that our deposit insurance application process is thorough, carefully evaluating the 

seven statutory factors listed in Section 6 of the Federal Deposit Insurance Act These factors 

assess the financial history and condition of the proposed depository institution ~d its_parcnt 

organization, capital sbucturc, proposed oversight and management, earnings prospects, 

activities to be conducted, convenience and needs of the community to bes~ and potential 

risks to the Deposit Insurance Fund. 

Also important to the assessment of the deposit insurance application is the complexity and 

unique nature of the underlying proposal and business plan, including the conditions •mder which 

the proposed institution will operate. This framework helps ensure the viability and long-term 

success of each applicant. · 

Your interest in this matter is appreciated. If you have finther questions. the Office of 

Legislative Affairs can be reached at (202) 898-7055. · 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 

l,,,f"W..,... IP C-•. 
I 

' 

- · . FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN July 21, 2009 

Honorable Conine Brown 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Brown: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's East 

Coast Temporary Satellite Office in Jacksonville, Florida. I appreciate your interest in this 

matter and your offer of assistance. 

• 

The lease for this office was executed on May 6, 2009. In accordance with FDIC Leasing 

Policy, staff ran a competitive process to select a site for the temporary office. The boundaries 

for the lease competition included downtown and suburban Jacksonville. FDIC staff received 

assistmce in this process from our national broker, Grubb and Ellis. Landlords with available 

vacmt space were issued a Request for Proposals (RFP) on March 5, 2009, which set forth 

detailed :financial and qualitative requirements. 

On March 11, 2009, proposals were submitted by four landlords, two from downtown 

and two from suburban Jacksonville. These proposals were evaluated against the criteria in the 

RFP. A detailed :financial and qualitaf:ive analysis was performed on each, which ~ted in the 

selection of the best value offer at 7777 Baymeadows Way. The best value decision considered 

the FDIC's mission, as well as cost and tl,ie qualitative criteria listed μi the solicitation. A 

business case with the resuits of the competition was presented tqthe FDIC Board of Directors 

and approved on April 23, 2009. Plans are now underway to staff the office and occupy the 

space. It is urgent that this site become operational at the earliest posSiole date. 

If you have further questions or comments, please do not hesitate to contact me at (202) 

898-6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. -Bair 
iAo'i-/0t5 ca ,,EEi: Congress of the United St~tes 

House of Representatives 

Washington. DC 20515 

'lllANSPOlrTATION • lNFMS'1111JC'T1 

-------- ------ •------ -IICDtl -..----- CIIIIIZIMll2I ,_,CIIIII..__ 

CORRINE BROWN DISTiliC1'DPl'Ca: 

30 DISTRICT, FLORIDA • 1111-.-- --- __ ...._...._..__ 

ILAmC.UCUO CD: .c.uc:a.,_ .......... 

---- · June 23, 2009 CIDll.,._.aJ ,_..,-.m, 

-c-. ---~c...a. --c.ua. -c..... 

• ~,._- ma.--

.-n- .,,,._c-__ P.uo:.-11112-&JG 

The Honorable Sheila C. Bair 

Chairwoman, Federal Deposit Insurance Corporation 

55017th NW 

Washington, DC 20429-0002 

Dear Chairwoman Bair, 

FDIC 

JUL - 2 2009 

OFFICE OF LEGISLATIVE AFFAIRS 

I am excited that the FDIC is opening an office at 7777 Baymeadows Way in the Jacksonville, 

Florida, area. I am confident that the FDIC will do everything it can to resolve ~ cmrcnt 

banking problems in the Southeastern United States. 

While I am deeply appreciative of the FDIC's decision to create 500 jobs in Jacksonville, I am 

disappointed that a downtown office location was not selected. The leasing of space and the 

focusing of jobs in the downtown Jacksonville area would greatly amplify the economic benefits 

of the FDIC's move into the region. FmthCIIIlorc, the FDIC would benefit from the world class 

transportation infrastructure that serves downtown Jacksonville. 

~-

CID!-

I understand that Executive Orders 13006 and 12072 which recommend locating fcdcral agencies 

on historic and downtown properties is not mandated for the FDIC. However, I would urge you 

to take into account the reasoning within these Executive Orders and reconsider the FDIC's 

cmrent location. The FDIC needs to make the most economically prudent decision and I speak 

for Mayor John Peyton and myself when I say we will assist in any way we can. 

l • •• ~ . . . .. 

Sin~ly, 

Corrine Brown 

Member of Congress 
SHEILA C. BAIR 

CHAIRMAN 

FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

July 21, 2009 

Honorable Nydia M. Velazquez 

House of Representatives 

Washington,_D.C. 20515 

Dear Congresswoman Velazquez: 

Thank you for your letter regarding recent developments in the reform of the over-tbecounter {OTC) derivatives market I have and continue to be a strong proponent for addressing 

the systemic risk inherent in the OTC derivatives marke~ and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through central 

counterparties (CCPs). 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized. and have both greater liquidity 

and greater certainty of timely payment. These attributes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the normal course of business, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

liquidity risks associated with OTC derivatives, while recognizing the risk reduction benefits of 

exchanges and s0μ1.e CCPs. Other needed reforms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections against market manipulation and fraud. including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requitements by their choice ofregu1ator or other creative legal 

structuring of the activity. ·-

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement refonn of the OTC derivatives market. If you have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 89~-3837. 

Sincerely, 

Sheila C. Bair 
- FEOERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR July 21, 2009 

CHAIRMAN 

Honorable Patrick T. McHenry 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman McHenry: 

Thank you for your letter regarding recent developments in the reform of the over-thecounter (OTC) derivatives market I have and continue to be a strong proponent for addressing 

the systemic risk inherent in the OTC derivatives market, and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through central 

counterparties (CCPs). 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized, and have both greater liquidity 

and greater certainty of timely payment These attributes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the normal course of business, and 

to the stability of the financial system as a whole. · 

Needed reforms include strong capital requirements to address the higher cn:dit and 

liquidity risks associated with OTC derivatives, while recognizing the risk re4uction benefits of 

exchanges and some CCPs. Other needed ref~rms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections against market manipulation and fraud, including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requu:ements by their choice ofregulator·or other creative legal 

structuring of the activity. ·• 

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement reform of the OTC derivatives market. lfyou have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affain at (202) 898~3837. 

Sincerely, 

Sheila C. Bair 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR July 21, 2009 

CHAIRMAN 

Honorable Gregory W. Meeks 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Meeks: 

Thank you for your letter regarding recent developments in the reform of the over-thecounter (OTC) derivativ~s market I have and continue to be a strong proponent for addressing · 

the systemic risk inherent in the OTC derivatives market. and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through central 

counterparties (CCPs). 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized,·and have both greater liquidity 

and greater certainty of timely payment. These attributes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the nonnal course of business, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

.liquidity risks associated with OTC derivatives, while recognizing the risk reduction benefits of 

exchanges and some CCPs. Other ~eeded reforms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections agillllSt market manipulation and fraud, including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such reqwr..ements b'y their choice ofregulator or other creative legal 

structuring of the activity. ·-

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement reform of the OTC derivatives market. lfyou have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
SHEILA C. BAIR 

CHAIRMAN 

e FEDBW.. DEPOSIT INSURANCE CORPORAT10N, Washington, oc 20429 

July 21, 2009 

Honorable Leonard Lance 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Lance: 

Thank you for your letter regarding recent developments in the reform of the over-thecountcr (OTC) derivatives market. I have and continue to be a strong proponent for addressing 

the systemic risk inherent in the OTC derivatives marlcet, and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through central 

counterparties (CCPs). · 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized, and have both greater liquidity 

and greater certainty of timely payment. These attnoutes are beneficial to the end users of these 

products who have-a legitimate need to hedge risks arising in the normal course ofbusiness, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

liquidity risks associated with OTC derivatives, while recognizing the risk reduction benefits of 

exchanges and some CCPs. Other needed reforms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections against market manipulation and fraud, including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requifements by their choice of regulator or other creative legal 

structuring of the activity. -~ 

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement refonn of the OTC derivatives market If you have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR July 21, 2009 

CHAIRMAN 

Honorable John Campbell 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Campbell: 

Thank you for your letter regarding recent developments in the reform of the over-thecounter (OTC) derivatives market. I have and continue to be a strong proponent for addressing 

the systemic risk inherent in the OTC derivatives marke~ and I support refonns that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through central 

counterparties (CCPs). 

As compared with OTC derivatives, derivatives traded on exchanges and s~tably 

structured CCPs will tend to be simpler and more standardized, and have both greater liquidity 

and greater certainty of timely payment These attributes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the normal course of business, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

liquidity risks associated with OTC derivatives, while recognizing the risk reduction benefits of 

exchanges and some CCPs. Other needed reforms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections against market manipulation and fraud, including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requitements by their choice of regulator or other creative legal 

. structuring _of the activity. 

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement reform of the OTC derivatives market If you have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
e FEDERAL DEPOSIT INSURANCE CORPORATlON, Washington, oc 20429 

SHEILA C. BAIR July 21, 2009 

CHAIRMAN 

Honorable Michael N. Castle 

House of Representatives 

Washington. D.C. 20515 

Dear Congressman Castle: 

Thank you for your letter regarding recent developments in the reform of the over-thecounter (OTC) derivatives market I have and continue to be a strong proponent for addJ:-essing 

the systemic risk inherent in the OTC derivatives market. and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or clearing through centra1 

counterparties (CCPs). 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized, and have both greater liquidity 

and greater certainty of timely payment. These attnoutes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the normal course of business, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

liquidity risks associated with OTC derivatives, _while recognizing the risk reduction benefits of 

exchanges and some CCPs: Other needed reforms include enhanced market transparency, 

substantially improved data capture so that regulators can better identify and address risk 

concentrations, and strong protections against market manipulation and fraud, including specific 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requirj:ments by their choice of regulator or other creative legal 

structuring of the activity. -~ · 

I appreciate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement reform of the OTC derivatives market. If you have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sheila C. Bair 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR July 21, 2009 

CHAIRMAN 

Honorable Paul W. Hodes 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Hodes: 

Thank you for your letter regarding recent developments in the reform of the over-thecountcr (OTC) derivatives market I have and continue to be a strong proponent for addressing 

the systemic risk inhercn~ in the OTC derivatives market, and I support reforms that would 

encourage the trading of derivatives on federally regulated exchanges or cle~g through central 

counterparties (CCPs ). 

As compared with OTC derivatives, derivatives traded on exchanges and suitably 

structured CCPs will tend to be simpler and more standardized.. and have both greater liquidity . 

and greater certainty of timely payment. These attributes are beneficial to the end users of these 

products who have a legitimate need to hedge risks arising in the nonnal course of business, and 

to the stability of the financial system as a whole. 

Needed reforms include strong capital requirements to address the higher credit and 

liquidity risks associated with OTC derivatives, while recognizing the risk reduction benefits of 

exchanges and some CCPs. Other needed reforms include enhanced market transparency, 

substantially improved data capture so that regulators can bettcr·identify and address risk 

concentrations, and strong protections against market manipulation and fraud, including speci£c 

position limits where necessary. Moreover, market participants involved in derivatives activities 

should not be able to avoid such requirements by their choice of regulator or o.ther creative legal 

structuring of the activity. .~ 

I appr~iate the efforts of the Financial Services Committee to ensure regulators have the 

authority to implement reform of the OTC derivatives market If you have any questions, please 

do not hesitate to call me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
UtS••lJl•• .!UUlt J.:>; ,i)U r.1-L •u"' .,_, ..._._ • ._ 

~ongregs of tbt Wnittb ~tatts 

lllubington. mt: 2O5 lS 

June 2, 2009 

The Honorable Ben S. Bc:manl:e 

Chairman 

Board of Governors of the 

Federal Reserve System 

20th Street ~d Constitution A ,•enue, NW 

Washington, DC 20551 

The Honorable John C. Dug~ 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street SW 

Washington, DC 20219 

The Honorable Sheila Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17th Street, l\."W 

Washington, DC 20429 

Ibe Honorable John E. Bowman 

Acting Director 

Office of Thrift Supcrvision 

1700 G Street, NW 

Washington, DC 20552 

Dear Chairman Bemanke. ChaJrman Bair, Comptroller Dugan, and Acting Director Bowman: 

The Departmc:nt ofTreasUI)' recently announced Regulatory Refonn to OveT-The-Counter 

(OTC) Derivatives. To contain syste:mic risks, Secretary Timothy Geithner stated that 

standardized OTC derivatives should be cleared through regulated central counterpartics (CCPs) 

· and that regula1o~ will need to ensure that CCPs impose ~bust" margin requirements and other 

necessary risk controls. Additionally, he explained that regulated financial institutions should be 

encouragi:d to make greater use of regulated exchange-traded derivatives~ 

As you know. other regulators, including Securities and Exchange Commission Chair Mary 

Schapiro and Commodity Futures Trading Commission Chair-designee Gary Gensler also have 

advocated moving OTC derivatives ta central clearing. Since the recommendations of the · 

Secretary and other regulators have not yet been implemented, we would like to know if any 

barriers exist, legislative, regulatory oi milrket-related, that have delayed the movement toward 

clearing OTC derivatives through an approved CCP and that encourage the use of e."tchangc:-

traded instruments wherever possible. 

In 1999, the President's Working Group ma.de Tecommendations about the need for clearing 

systems for OTC derivatives. However, ten years later, as Chairman Bemanke said in a :March 

10, 2009 speech, the "infrastructure for managing these derivatives is still not as efficient or 

· transparent as that for more mature instruments," despite efforts by the Federal Reserve Bank of 

New York since September 2005 to improve arrangements for clearing and settling credit default 

swaps and OTC derivatives. 

In the United States, in order for a CCP to be approved it must adhere to strict standards applied 

by U.S. regulators regarding its operation, finmcial resources, requirements for participants, and 

other rules, including the maintenance of a guarantee fund. Regulators have acknowledged that 
UD•U.L•~uu;, .,l,J.JU ,..,,.."' .. U' .... ..... 'I.I 

the use of a CCP provides transpa:re-ncy to the market and provides better tools for regulators to 

monitor instib.ltional risk. 

The Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading 

Commission have all licensed and approved clearinghouses for several OTC derivatives products 

within the: last sevenl months. However, simply malcing clearinghouses available will not bring_ 

about any real reduction of risk from derivatives. We believe that there is litt.le dispute that the 

approximately S 160 billion in taxpayer funds that have been paid or committed to prop up AIG 

could have been saved if the credit de.fault swaps written by AIG had been subject to stringent·· 

clearinghouse rules on margin, collateral, ~d risk management. 

As _you are aware. the Financial Services Committee is preparing to develop legislation to 

address the shortc.onungs in regulatory authority that allowed the current financial crisis to take 

place. With this in mind, we would like your insight regarding the following questions: 1) Do 

you believe you ha'1e the necessary regulatory authority to ensure the clearing of standardized 

OTC derivatives; 2) What incentives can you offer the institutions you regulate to encourage 

greater use of exchange-traded instruments; and 3) Will mandating lhe clearing of standardized 

OTC derivatives })a,,-e a detrimental effect on the: bespoke market? · 

We look forward to receiving your respc;mse and working closely with you to ensure the safety 

and soundness of our financial system while maintairung the competitiveness of the U.S . 

.financial mark.els. 

Castle 

Member of Congress 

ell 

Member of Congress 

Leonard Lance 

~ember. of Congress 

Sincerely, 

Paul W. Hodes 

Member of Congress U 
FDII 

Federal DeDOsit Insurance Corooration 

550 17th Street PM, Washington, DC 20429 

Honorable Henry C. ''Hank" Johnson, Jr. 

House ofReprescntatives 

Washington, D.C. 20515 

Dear Congressman Johnson: 

. July 21, 2009 

Thank you for your letter to Chairman Bair on behalf of the Rockdale County Tax Commissioner, 

Mr. Daniel Gray. 

On December 5, 2008, the Georgia Department of Banking and Finance closed First Georgia 

Community Banlc, Jackson, Georgia and named the Federal Deposit Insurance Corporation receiver. 

As receiver, the FDIC has a statutory respoool>ility to the uninsured depositors and creditors of a 

failed bank to minimize losses by obtaining the maximum recovery from the assets of the 

receivership. · 

The Division of Resolutions and Receiverships (DRR) contacted Mr. Gray to discuss Rockdale 

County's claim for unpaid taxes on the twenty-six (26) properties collatcralizing certain loans issued 

by First Georgia Community Bank. In May 2009, after verifying that none of the homes were 

owner-occupied, the FDIC foreclosed 9n twenty-two of these properties. The FDIC recorded deeds 

on the foreclosed properties on June 2, 2009. The four remaining properties are owned by entities 

other than the receiver or the former bank. Currently, the FDIC is processing a payment for 

$72, 76o.19 to cover the property taxes owed and billed to the receiver by the Rockdale County Tax 

Office, and payment should be completed within the next seven business ~ys. 

· In addition to base taxes, interest on the taxes will be paid provided that such payments arc not 

exempted under our statutory guidelines, for example, if the interest is determined to be so 

confiscatory as to be in the nature ofap~alty. The FDIC is exempted. from the payment of penalties 

and fines associated with real property taxes. 

If Mr. Gray has additional questions, he may contact Mr. Victor M. Robert of DRR's ORE and 

Marketing group. Mr. Robert will be pleased to assist him and can be reached at (972) 761-8322. 

Your interest in this matter is appreciated. If you have further questions, the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

_ Director 

Office of Legislative Affairs 
HENRY C. •HANK• JOHNSON, JR. 

-tTMDsnac:r.~ 

SMAll BUSINESS 

Cltongn.ss nf t1Jt 1lhtittb .&tatt.s 

~ 

Jfnna of ~tits 

M ZD515-1Dll4 

June 19, 2009 

eouwrs..,._,.,_, 

INnW!CIWIL l'lla,arr 

c-,u .ua ADIIINISIM1ME I.AW 

C.... T----. AND llaMBNm 

51!:UMTY 

FDIC 

Ms. Sheila C. Bair 

Chairwoman 

Federal Deposit Insmance Corporation 

550 17th St., NW 

JUN 1 7 2009 

Washington, DC 20429 • OFFICE OF LEGISLATIVE AFFAIRS 

Dear Chairwoman Bair: 

According to a March 6

th letter to the Rockdale County, Georgia Tax Commissioner, the 

Federal Deposit Insurance Corporation (FDIC), currently acting as the receiver of First Georgia 

Community Bank, stated that it cannot pay local taxes on 26 properties previously held by the 

bank until the properties have been sold. . These properties account for over $90,000 in 1mpaid 

taxes with 41 percent of this money going to pay for county services and 58 percent going to pay 

for the oounty public school system. The Rockdale Comity Tax Commissioner contacted my 

office regarding FDIC's decision. He is asking that we.research th.is matter. 

In these difficult economic times, th.is decision by FDIC seems especially harsh since 

under the American Recovery and Reinvestment Act (ARRA), the Federal government is 

moving to provide significant ftmding to alleviate state and local budget cuts because the 

President and Congress understand the immediate and drastic impact of such cuts on local 

communities. - .. , . : 

In his letter, the Tax Commissioner stat~ the county is "already suffering from state and 

federal funding budget cuts and unfimdgl mandates in addition to diminishing revenues due to 

the faltering economy. It would be exllemely helpful if the Federal Government, ... would please 

pay any outstanding taxes owed to our local government." 

I am asking that you investigate the FDIC's decision·iil this matter and, ifpossi"ble, 

provide some relief to Rockdale County. I appreciate your taking the time to address this issue 

and look f~ard to your response. With best personal regards, I remain 

WASHN;'TONOFR:E 

,mi.-Ha1JSJo,,.:,r111M.DNG 

WA11• 1amwc. DC 2GS15 

Ptaa12VZ122S--1a 

FAX CZ02I Z2S-Olll1 

Very truly youn, 

~~Jr. 

Member of Congress 

SOUTH lllST1ICI' CIFRCE 

571111 ltl.lAND,oU lllll-, Sumi 11D 

lJIMalM.GA3DD511 

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FAX(77111m-.11&3 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

OFRCE OF THE CHAIRMAN 

Honorable Jim Costa 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Costa: 

July 22, 2009 

Thank you for your support of the Federal Deposit Insurance Corporation's establishment 

of an Advisory Committee on Community Banking. I especially appreciate your referral 

of Dennis R. Woods, President and Chief Executive Officer of United Security Bank, 

Fresno, California. We believe this Advisory Committee will provide the FDIC with 

valuable input on the issues facing community and rural financial institutions. 

Again, thank you for your interest and the referral of Mr. Woods. If you have further 

questions regarding the Advisory Committee-on Community Banking, please feel free to 

contact me at (202) 898-6962. 

Paul Nash 

Deputy for External Affairs 
JIM COS'fA 

20nt Dis!M:T, c.wi-. 

81M: "--·-~-~. • .................. WBI l'AGE: __ .hcua.ga,,,_ 

COMMITTEE ON NATURAL RESOURC£S 

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Ba.slJingtnn, II.I. 211515 

July 9, 2009 

Toe Honorable Sheila C. Bair 

Chairman of the Board 

Federal Deposit Insurance Corporation 

550 17th Street, NW Room # MB-6028 

Washington. D.C. 20429-0002 

Dear Chairman Bair: 

LAD~ ... 1 ,,4 

COMMITTEE ON AGRICULTURE 

s.-m.. 

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COMMITTEE ON FOREIGN 

AfFAIRS 

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FDIC 

JUL 1 5 2009 

OFFICE OF l.EGISlATIVE MFAIRS 

This letter serves to express my recommendation that Dennis R. Woods be 

appointed to a scat on the Advisory .CoIDinittec on Community Banking which was 

recently approved by your Board of Directors. This recnmmeodation is based on my 

· · longstanding professional and personal relationship with Dennis Woods and his extensive 

work in the community hanking arena. 

As president and CEO of th~ United Security Bank in Fresno, CA, he oversees 11 

bank branches, fom loan centers, and one f'mancial services office in Fresno, Madera, 

Kem, and Santa Clara Counties, employing more than 150 people •. In fact, under his 

leadership United Security Bank has consistently received the highest bank ratings for 

safety and soundness. 

On a personal level. I have known Dennis for many years. During this time I have 

found him to be creative and committed. He takes an active role in the community, 

participating in charity endeavors and forging relationships with a broad spectrum of 

individuals throughout the region. His commitment to Fresno's downtown revitalization 

effort and urban renewal goals make him stand out among his peers. He is an active 

participant in the community and a true believer that banks can be more than simple 

financial instruments. 

WASHwt- 0l'1'ICI: 

1314 L.-1>1 Haia 0-Illa.mm 

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Chairman Bair 

July9,2009 

' Page2 

Given the extraordinary demands that face the financial services industry, the 

committee must be comprised ofleadcrs with diverse backgrounds. Dennis Woods would 

bring extensive knowledge, an impeccable work ethic, and a host of unique banking 

perspectives to the table. I appreciate your consideration of my recommendation of Dennis 

Woods. If you have any questi~. please do not hesitate to contact me. 

Member of Congress 

CC: 

Mr. Paul M. Nash 

Deputy Chairman for External Affairs ; 

The Federal Deposit Insurance Commission 

550 17th Street, NW Room#MB-6124 . 

Washington. DC 20429-0002 

., 

,, 
FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher J. Dodd 

Chairman 

July 24, 2009 

Committee on Banking, Housing and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

Thank for your letter about reports of credit card issuers raising interest rates on credit 

card balances without proper justification. I share your concern about such reports given the 

provisions of the Credit Card Accountability Responsibility and Disclosm-e (Credit CARD) 

Act and the economic pressures that continue to mollllt on many financially strained 

consumers. 

Protecting consumers is a top priority for the Federal Deposit Insurance Cmporation, 

and we strongly support the provisions of the Credit CARD Act. The FDIC is working to 

help the institutions we supervise prepare to comply with this critical piece of consumer 

protection legislation, and we have directed our examination staff to ensure institutions 

comply with this law. · · 

To ensure FDIC-supervised institutions understand their responsibilities under this 

law, we are distnbuting the interim Credit CARD regulations that the Federal Reserve issued 

on July 15, 2009, along with guidance highlighting the repricing provisions and other 

important requirements. This guidancC? will remind banks about the requirements relating to 

reviewing accounts on which the 8Ilil1lal percentage rate bas been increased since January 1, 

2009, and that the FDIC will take appropriate action.to address ·repricing or other practices by 

individual institutions when we determine such practices are or may be unfair or deceptive or 

otherwise not in compliance with laws or regulations. 

The FDIC has long focused on preventing abusive credit card practices. Dedicated 

staff investigates all complaints received about FDIC-supervised credit card lenders, and we 

take strong action to remedy any violations oflaw or regulations. During the past several 

years we pursued enforcement actions resulting in major settlements against several credit 

card issuers for deceptive or unfair practices in violation of Section 5 of the Federal Trade 

Commission Act, including unfair practices involving repricing of existing balances. 

I assure you the FDIC is committed to ensuring that individuals and businesses 

dealing with the institutions we supervise are treated fairly, and we will continue to use our 

legal authority to pursue any entity that engages in unfair or deceptive acts or practices. 
Thank you for your leadetship on thia important issue. If you have further questions 

or comments, please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director 

of Legislative Affain, at (202)-898-3837. 

Sincerely, 

Sheila C. Bair 
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Ben S. Bemankc 

Chairman 

Board of the Governors of the 

Federal Reserve System 

20th Street and Constitution A venue, NW 

Washington, DC 20551 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, DC 20219 

Michael E. Fty.lel 

Chairman 

National Credit Union Administration 

1 ns Duke Street 

Alexandria, VA 22314 

linitcd iStatcs $cnatc 

COMMITTEE ON BANKING. HOUSING. ANO 

URBAN AFFAIRS 

WASHINGTON, DC 20510--6075 

July 9, 2009 

FDIC 

JUL 9 ~ 

OFRCE OF LEGISlAf!VE AFFAIRS 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 i 7'h Street, NW 

Washington, DC 20429 

John E. Bowman 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washingto~ DC 20552 

Dear Chairman Bemanke, Chainnan Bair, Comptroller Dugan, Director Bowman, and 

Chairman Fry.tel: 

I am disturbed by recent reports in the press that some credit card companies are allegedly raising 

interest rates on their customers' existing:balances without justification. As you know, the Credit Card 

Accountability Responsibility Disclosure (Credit CARD) Ac! enacted in May will protect cardholders 

t>y curbing such abusive practices. Press reports indicate. however, that some companies are raising 

rates now to get around these consumer protection provisions before they take eITect and before 

regulations can be promu]galcd to enforce them. 

I urge you to do everything in your power to protect cardholders from these abusive practices. In 

particular, as the Fedend Reserve drafts regulations and the agencies enforce them going forward, I 

iD\ite your diligent attention to Section l0l(c) of the Credit CARD Act which will require credit card 

companies to review every six months any account where the interest rate has been raised since 

January 1. 2009. and reduce the rate if the review indicates that the cardholder has become less risky or 

the circumstances that wnrranted the increase arc no longer present. 

In addition to any future interest rate increases, all interest rate increases that have taken place this year 

will become subject to the mandatory 6-month review. T ask you to immediately notify all credit card 

companies under your respective jurisdictions that they will be held accountable for all interest rate 

increases during this time period and will be subject to the review requirement once it takes effect. 
July 9, 2009 

Page2 

This January look-back was designed to address reports of credit card companies arbitrarily raising 

rates after the December 2008 promulgation of the l;1)AP regulations that would have taken effect in 

July 20 I 0, and to deter companies from doing the same before the pro\'isions of the Credit CARD Act 

take effect. · 

However, the look-back provision will serve as a deterrent only if it \\-ill be implemented and cnfort;ed 

effectively. I therefore expect the Federal Reserve to draft regulations that provide clear, robust 

requirements for the review of rate increases, and the agencies enforcing the regulations to hold the 

credit card companies strictly accountable for conducting thorough reviews and decreasing rates where . 

warranted. · 

Congress Viill closely monitor both the development of the implementing regulations and their 

enforcement. 

I understand that not all credit card companies under your respective jurisdictions have engaged in 

abusive practices. Nonetheless, experience has shown we must maintain vigilant watch to protect the 

financial interests of the American people. I hope that you ~ill take seriously the need to protect 

cardholders from abuses by credit card companies. and I look forward to \""Orking with you on this 

important task. 

Sincerely, 

CHRISTOPHER J. DODD 

Chairman 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Steven C. LaTourette 

Representative, U.S. Congress 

1 Victoria Pia.cc, Room 320 

Painesville, Ohio 44077 

Dear Congressman LaTourette: 

July 24, 2009 

Thank you for your Jetter on behalf ofthe-garding the 

Federal Deposit Insurance Corporation's Public Private Investment Fund and the related 

Legacy Loan Program. 

Mr. James R Wigand, Deputy Director, Division of Resolutions and . 

.=_ersmps wrote directly to the company•s principals, Messrs~ 

~ 

If 

A 

you 

copy 

have 

of Mr. 

further 

Wigand's 

questions, 

Jetter 

please 

is enclosed. 

do not hesitate to contact 

~ 

me at (202) 898-

6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
FDlct 

FederaJ Deposit Insurance Corporation 

550 17111 Sbeet NW. WashinglDn. D.C. 20429-9990 Dmsion cl Resolutions and Receiverships 

July 16. 2009 

Thank you for your letter of April 1 o. 2009 providing feedback on the Public-Private Investment 

Fund (PPIF) and the related Legacy Loan Program (LLP). The Federal Deposit Insurance 

Corporation (FDIC) recognizes and appreciates the integral roll tlic private sector plays in the 

valuation and disposition of real estate on a national basis. Your valued feedback bas been 

added to the LLP public comments page on the FDIC website: 

h11p:!/w...,w.fdic.gov!Op/LLPcommentsPa2e3.html 

ln a press release dated June 3, 2009, the FDlC formally announced that the development of the 

Legacy Loans Program would continue, but that a pn:viously planned pilot sale of assets by open 

banks would be postponed. As originally contemplated, the LLP would have primarily involved 

the purchase and management of19ans from participating institutions. Un<ler this structure, the 

private sector teams would assume all aspects of management and disposition responsibility for 

the loans in partnership with the federal govcmmc:nl Since the original announcement of the 

PPIP program,. economic conditions have improved such that many institutions have been able to 

raise capital, reflecting confidence in our banking system, without having to sell bad assets 

through the LLP. As a c;onsequcncc. banks and their supervisors will take additional time to 

assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen 

the banking sector. -~ 

-~ 

The revised program announced June 3rd stiJl contemplates a partnering arrangement,. albeit 

using receivership assets currently under management at the FDIC. In either scenario, however, 

the expertise of the private scctQr will most certainly be employed by the asset management 

teams in the course of their valuati~ and ultimate disposition of the aforementioned asse~. 

The FDIC announced that it will test the funding mechanism contemplated by the LLP in a sale 

of receivership assets this smnmcr. 

We also not backgrotmd in commercial real estate including 

acquisition, i vestment advisory, structu:fcd capital placement/advisory and brokerage of multitenant residential real estate assets and, as a result, we are including the folJowing information on 

purchasing FDIC assets and/or becoming a contractor. 

If you arc interested in purchasing FDIC assets: 
• For loans or real estate more information can be found at 

http:: :w,~,\·. r dic. go,·,buvi m!l'indcx.htm l. 

• For capital market securities and/or structured transactions. you must register as a 

qualified purchaser. To obtain additional infonnation on becoming a qualified purchaser. 

please contac1(1•••• ranchise and Asset Marketing. 

Division of Resolutions and Receiverships). 

If you are interested in becoming a government contractor, you may register as both as a federal 

government contractor and an FDIC contractor. The following arc contractor registration 

websites: · 

• Central Contractor Registration (CCR): the CCR is the primary registrant database for 

the U.S. Federal GovcmmenL CCR collects, validates, stores and disseminates data in 

support of agency acquisition missions. 

http://www.ccr.gov/_ 

• The FDIC Contractor Resource List: the FDIC maintains a Contractor Resource List of 

potential contractors to assist with work related to failing financial institutions and 

associated requirements. The FD IC will use information from the Contractor Resource 

List. as well as other sources. when developing solicitation lists for future contract 

requirements. 

http:l!www.fdic.gowbuyjng/goodstcontractorn:sourcclisLhtml 

We recognize the potential benefit to working in partnership with the private sector and 

appreciate your interest in the FDIC. 

Sincerely, 

Deputy Director -~ 

Division of Resolutions and Recciversnips 
The Honorable Sheila Bair 

Federal Deposit Insurance Corporation 

550 17th Street NW, 

Washington. DC 20429-9990 

Dear Chairman Bair: 

LA-01-/01/ 

FDIC 

JUN 30 aJ09 

OFFICE OF LEGISLATIVE AFFAIRS 

My constituent. has contacted me about the Legacy Loan 

Programs, which is n,o.-;~ Public Private Investment Program. 

I have enclosed a copy of a report-has prepared for the 

FDIC regarding its guaranteed debt progrim-= Programs (Ll..P). My 

constituent" was hopeful in becoming a resource as Congress and the FD IC craft a . 

guaranteed debt program for the Ll.P. 

Thank you for the attention to this matter. I look forward to hearing from you 

soon. 

Very truly yours, 

Congressman Steven LaTourette 

SCI.Jjcy 
1011 ••01ction1r1c~ lht•t 

At this point in this docwaent /5" page(s) have/has been 

withheld totally because of the fol~ 

cXi The information was· withheld pursuant to the following subsection o~ the Freedom of Information Act: 

M 

[ ] 

( ] 

[ ] 

[ ] 

(b) ( 4) 

(b) (5). 

(b) ( 6) 

(b) . (7) 

(b) (8) 

(A) (B) (C) (D) (B) 

The· page(s) being withheld may be referred to as: 

COMMENTS: 

•"h 

(1") 
LN"'t-11 -:ft/ 

e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN July 27, 2009 

Honorable Todd Tiabrt 

House of Representatives 

Washington, D.C. 20515-1604 

Dear Congressman Tiahrt: 

Thank you for sharing your concerns about credit availability during these 

challenging economic times. We agree that community banks are the engine that will 

drive the economic recovery. It is always nice to hear from a fellow Kansan. We also 

acknowledge that credit availability bas become somewhat constrained due to a 

tightening of underwriting standards. The FDIC understands the impact of these issues 

on borrowers and continues to encourage FDIC-supervised institutions to keep credit 

available on prudent terms. 

As you may be aware, the FDIC provides banks with considerable flexibility in 

managing customer relationships and loan portfolios. We do not instruct banks to curtail 

prudent lending activities, restrict lines of credit to strong borrowers, or require appraisals 

on performing loans unless an advance of new funds is being considered. For these 

reasons, the FDIC joined the other federal banking agencies in issuing an interagency 

policy statement on November .12, 2008, /nteragency Statement on Meeting the Needs of 

Creditworthy Borrowers, which encourages banks to fulfill their economic role as credit 

intermediaries to creditworthy businesses and consumers. The Statement encourages 

banks to continue making prudent loans and work with borrowers experiencing 

difficulties. The FDIC strongly endorses the principles of the Statement and issued a 

Financial Institution Letter to that_~ffcct (Copies of these documents are enclosed.) In 

· addition to this formal guidance to the industry and examiners, we have shared this 

message orally with staff on numerous occasions. We believe that through thes~ various 

forms of communication we are sending a clear message that the FDIC encourages banks 

to make prudent loans in their local markets. 

If you have further questions, please do not hesitate to contact me at (202) 898-

697. 4 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
FDII 

Federal Deposit Insurance Corporation 

550171h Slreet NW. W~ D.C. 20429-9990 

Financial Institution Letter 

FIL-128-2008 

November 12, 2008 

INTERAGENCY STATEMENT ON MEETING THE NEEDS OF0 

CREDITWORTHY BORROWERS 

Summary: The FDIC joined the other federal banking agencies In issuing the attached •1nteragency 

Statement on Meeting the Needs of Crecfltworthy Borrowers· on November 12, 2008. 

Distribution: 

FDIC-Supe,vised Institutions 

Suggested Routing: 

Chief Exea,tive Officer 

SenlDr Cr8dlt Offlcer 

Attachment: 

"lnll!ragency Statement on Meeting lhe 

Needs of Ctedltwat1hy Borrowers" 

Contact: 

lnslilullon's mntac:t person (Case Manager 

or Field Supervisor) at applicable FDIC 

Ragior1al Office, °' Assocla1e DndDr 

S11M!n D. Frills In Washlng1Dn at 202-898-

3723 and sfritts@fdjc.qoy 

Note: 

FDIC financial insti\U6an letbn (Fils) may 

be accessed from the FDIC's Web slta at 

wwwJJf,c. govfnewslnewst'finam:llil/2008{11J ~ 

To recewe Fils eleclmnlcally, please visit 

httD:/lwww fd"ic goy/aboyt/subsqiptjons/111: 

.blml, 

Paper copies of FDIC llnandaf instilu1lon 

lellltB may be obtained through lhe 

FDIC's Public lnfonnation Center, 3501 

Fairfax Drive, E-1002, Artlngton, VA 

22226. 

Highlights: 

Several federal programs have recently been instituted to promote 

financial stability and mitigate the effects of current mart<et conditions on 

Insured depository Institutions. These efforts are designed to improve the 

functioning of credit mar1cets and strengthen capital in our financial 

system to improve banks' capacity to engage in prudent lending during 

these times of economic cf1Stress. 

The agencies expect all banlclng organizations to fulfiU their fundamental 

role in the economy as intennediaries of credit to businesses, consumers, 

and other aeclitworthy borrowers. Lending to creditworthy borrowers 

provides sustainable returns for the organization and is constructive for 

the economy as a whole. 

The agencies urge all lenders and servicers to adopt systematic, 

proactive, and streamlined mortgage loan modification protocors and to 

review troubled loans using these protocols. Lenders and servicers 

should first determine whether a loan modification would enhance the net 

present value of the loan before proceeding to foreclosure, and they 

should ensure that loans currently In foreclosure have been subject to 

such analysis. 

In implementing this Statement. the FDIC encourages institutions it 

supervises to: · 

• lend prudently and responsibly to creditworthy borrowers; 

• work with borrowers to preserve homeownership and avoid 

preventable foreclosures; 

• adjust cflVidend policies to preserve capital and lending capacity; 

and 

• employ compensation structures that encourage prudent lending. 

State· nonmember institutions' adherence to these expectations will be 

reflected in examination ratings the FDIC assigns for purposes of 

assessing safety and soundness, their comp6ance with laws and 

regulations, and their perfonnance in meeting the requirements of the 

Community Reinvestment Act (CRA). 
FDIC: Press Releases - PR-I 15-2008 11/12/2008 

Press Releases 

Joint Release 

For Immediate Release 

Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency 

· Office of Thrift Supervision 

November 12, 2008 

lnteragency Statement on Meeting the Needs of Creditworthy Borrowers 

The Department of the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve have 

recently put into place several programs designed to promote financial stability and to mitigate procyclical 

effects of the current market conditions. These programs make new capital widely available to U.S. financial 

institutions, broaden and increase the guarantees on bank deposit accounts and certain liabilities, and provide 

backup 6quidity to U.S. banking organizations. These efforts are designed to strengthen the capital foundation 

of our financial system and improve the overall functioning of credit markets. 

The ongoing financial ·and economic stress has highlighted the crucial role that prudent bank lending practices 

play in promoting the nation's economic welfare. The recent policy actions are designed to help support 

responsible lending activities of banking organizations, enhance their ability to fund such lending, and enable 

banking organizations to better meet the credit needs of households and business. At this critical time, it is 

imperative that all banking organizations and their regulators work together to ensure that the needs of 

creditworthy borrowers are met A!$ discussed below, to sopport this objective, consistent with safety and 

soundness principles and existing supervisory standards, each individual banking organization needs to ensure 

the adequacy of its capital base, engage in appropriate loss mitigation strategies and foreclosure prevention, 

and reassess the incentive implications of its compensation policies. 

Lending to creditworthy borrowers 

The agencies expect all banking organizations)o fulfill their fundamental role in the economy as intermediaries 

of credit to businesses, consumers, and other creditworthy borrowers. Moreover, as a result of problems in 

financial markets, the economy will likely become increasingly reliant on banking organizations to provide credit 

fonner1y provided or facilitated by purchasers of securities. Lending to creditworthy borrowers provides 

sustainable returns for the lending organization_ and is constructive for the economy as a whole. 

It is essential that banking organizations provide credit in a manner consistent with prudent lending practices 

and continue to ensure that they consider new lending opportunities on the basis of realistic asset valuations 

and a balanced assessment of borrowers' repayment capacities. However, if underwriting standards tighten 

excessively or banking organizations retreat from making sound credit decisions, the current market conditions 

may be exacerbated, leading to slower growth and potential damage to the economy as well as the long-term 

interests and profitability of individual banking organizations. Banking organizations should strive to maintain 

healthy credit relationships wi1h busines~es, consumers, and other creditworthy borrowers to enhance their 

own financial well-being as weli as to promote a sound economy. The agencies have directed supervisory 

staffs to be mindful of the procyclical effects of an excessive tightening of credit availability and to encourage 

banking organizations to practice economically viable and appropriate lending activities. 

bttp-Jlw'lrw.~OOl/plOII I S.ldmJ (l af3)7/9f2009 4:29:57 PM 
FDIC: Press Releases - PR-I 15-2008 11/12/2008 

Strengthening capital 

Maintaining a strong capital position complements and facilitates a banking organization's capacity and 

WJ1lingness to lend and bolsters its ability to withstand uncertain market conditions. Banking organizations 

should focus on effective and efficient capital planning and longer-term capital maintenance. An effective 

capital planning process requires a banking organization to·assess both the risks to which it is exposed and the 

risk management processes in place to manage and mitigate those risks; evaluate its capital adequacy relative 

to its risks; and consider the potential impact on earnings and capital from economic downturns. Further, an 

effective capital planning process requires a banking organization to recognize losses on bank assets and 

activities in a timely manner; maintain adequate loan loss provisions; and adhere to prudent dividend policies. 

In particular, in setting dividend levels, a banking organization should consider its ongoing earnings capacity, 

·the adequacy of its loan loss allowance, and the overall effect that a dividend payout would have on its cost of 

ft,lnding, its capital position, and, consequently, its ability to serve the expected needs of creditworthy 

borrowers,. Banking organizations should not maintain a level of cash dividends that is inconsistent with the 

organization's capital position, that could weaken ~e organization's overall financial health, or that could impair 

its ability to meet the needs of creditworthy borrowers. Supervisors will continue to review the dividend policies 

of individual banking organizations and will take action when dividend policies are found to be inconsistent with 

sound capital and lending policies. 

Working with mortgage borrowers 

The agencies expect banking organizations to work with existing borrowers to avoid preventable foreclosures, 

which can be costly to both the organizations and to the communities they serve, and to mitigate other potential 

mortgage-related losses. To this end, banking organizations need to ensure that their mortgage servicing 

operations are sufficiently funded and staffed to work with borrowers while implementing effective riskmitigation measures. 

Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt systematic, 

proactive, and streamlined mortgage loan modification protocols and to review troubled loans using these 

protocols. Lenders and servicers should first determine whether a loan modification would enhance the net 

present value of the loan before proceeding to foreclosure, and they should ensure that loans currently in 

foreclosure have been subject to such analysis. Such practices are not only consistent with sound risk 

management but are also in the long-term interests of lenders and servicers, as well as borrowers. 

·~ . 

Systematic efforts to address delinquent mortgages should seek to achieve modifications that result in 

mortgages that borrowers will be able to sustain over the remaining maturity of their loan. Supervisors will fully 

support banking organizations as they work to implement effective and sound loan modification programs. 

Banking organizations that experience challenges in implementing loss mitigation efforts on their mortgage 

portfolios or in making new loans to borrowers should work with their primary supervisors to address specific 

situations. 

Structuring compensation 

Poor1y-designed management compensation policies can create perverse incentives that can ultimately 

jeopardize the health of the banking organization. Management compensation policies should be aligned with 

the long-tenn prudential interests of the institution, should provide appropriate incentives for safe and sound 

behavior, and should structure compensation to prevent short-tenn payments for transactions with long-term 

horizons. Management compensation practices should balance the ongoing earnings capacity and financial 

resources of the banking organization, such as capital levels and reserves, with the need to retain and provide 

proper incentives for strong management Further, it is important for banking organizations to have 

independent risk management and control functions. 

hllp-//www .fdic.&O"faewslncwsfpressl2008¥)11 I S.btml (2 of 3)7/912009 4:29:S? PM 
FDIC: Press Rdc::ases - Pit-I I S-2008 11/12/2008 

The agencies expect banking organizations to regularly review their management compensation policies to 

ensure they are consistent with the longer-run objectives of the organization and sound lending and risk 

management practices. 

The agencies will continue to take steps to promote programs that foster financial stability and mitigate 

procyclical effects of the current market conditions. However, regardless of their participation in particular 

programs, all banking organizations are expected to adhere to the principles in this statement We will work 

with banking organizations to facilitate their active participation in those programs, consistent with safe and 

sound banking practices, and thus to support their central role in providing credit to support the health of the U. 

S. economy. -

Media Contacts 

FDIC 

Fed 

OTS 

ace 

Andrew (

202) 898-

Gray 6993 

(202) Dave 452_ 

Skidmore 2955 

Bill (202) 

906-

Ruberry 6677 

Bob (202) 

Garsson 874- 5770 

FDIC-PR-115-2008 

### 
TODDTIAHRT 

4TH DISTRICT, KANSAS 

COMMmEEONAPPROPRIAi'loNS 

SIJeCOMUITfflE.S: 

~. HEALnt AND HUMAN ~IMCH, 

AND EDUCATION 

RANKING MEMBEII 

DEFENSE 

Sheila Bair 

Qtnngrt.&s nf t!J.t Jtnit.th ~tat.es 

Jfuust of Etprtstntatiuts 

llasfJington. IJQI 2U51S-15fi4 

July2, 2009 

Chairwoman, Federal Deposit Insurance Corporation 

550 I 7'h Street, NW 

L~oci-JD7£./ WASf«NGTON: 

2441 RAYBURN Hauss OfFICE Bun.DING 

WASHINGTON, DC 2D515 

I2D2) 225-6216 • Fu: I2D2) 225-3489 

WICHITA: 

155 N<111TH MAIU<£1', Sum 400 

WL-...,.., KS 117202 

1316) 262--8!1!12 • FAX: I31612112-!iJO!I 

E-M.u. VIA WH Sm: 

WWW. T1AHRT.H0us1 .Gav 

FDIC 

JUL - 0 :009 

Washington D.C. 20429-9990 OFFICE OF LEGISLATIVE AFFAIRS 

Dear Chairwoman Bair, 

As our nation continues to press forward through this economic downturn, it is essential that our 

nation's lenders be given the ability to work with individual borrowers in ways that will help both 

parties weather the storm. In the past few months~ you have made comments of your willingness to 

work with banks across the nation to ensure their ability to lend and maintain relationships with their 

current customers. 

The reality, however, is different. J have heard from banks all across the_ State of Kansas who are 

finding it frustratingly difficult to wcirk with responsible borrowers becluse of the Federal Deposit 

Insurance Corporation's field supervisors onerous conditions. Bankers tell me they are fearful that 

commercial loans, especially commercial real estate loans, are held to such an unreasonable standard 

that there is no such thing as a -good'' commercial loan. Loans that are performing are required to 

be .. written off·. 

Traditional banks, like we have in Kansas, will he the engine that drives the recovery of our 

economy. But for that to happen, they must be able to make reasonable loans in their communities. 

We all understand that values have dropped considerably in recent months, and loan requests and 

decisions must reflect this new reality. Kt";wever, bankers continually tell me that the lanb,uage they 

hear from Washington, DC, from the President to the leadership of the banking regulatory agencies, 

does not coincide with what happens during an actual ex·amination. 

I ask that you take swift actions to ensure that FDIC's message to work with local banks isn't being 

hindered by your field representatives through onerous and unnecessary requirements. 

Thank you for your attention to this matter. 

Respectfully, 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Robert Menendez 

United States Senate 

Washington. D.C. 20510 

Dear S~nator Menendez: 

July 28, 2009 

Thank you for your letter regarding an application filed on behalf o~under the 

Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program (TLGP). 

~ seeks to participate in the TLGP and issue up to $5 billion of guaranteed debt 

The TWP was implemented last year during a time of unprecedented disruption in the 

credit markets when it was vital to preserve the nation's confiden~ in.its financial institutions 

and in the economy. The preamble to the final Rule implementing the program states clearly that 

the primary purposes of the TLGP arc to provide liquidity to the inter-bank lending market and 

promote stability in the unsecured funding market for banks. The TLGP was designed to enable 

the existing bank holding companies and certain thrift holding companies to rollover expiring · 

unsecured debt The decision to permit bank holding companies to participate in the TLGP was 

extraordinary. Accordingly, the FDIC carefully evaluates the merits of new holding company 

TLGP applications, and approvals have been very rare. 

Although I cannqt comment o~.:..specific TLGP applications, I can assure you that the 

FDIC considers every application in a timely and thorough manner. In appropriate cases, the 

application process is extended to give applicants the opportunity to supplement their application 

or to address issues of concern. This ensures that all applicants receive fair consideration. 

If you have further questions or comments, please do not hesitate to contact me at (202) 

898-6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
ROBERT MENENDEZ 

lll!IA'.81$EY 

9UIJG(T tinittd ~tatts ~matt 

WASHINGTON, DC 2051 D-3005 

July 21, 2009 

The Honorable C'1lainnan Ben S. Brmanke 

The Federal R.esmve Boatd 

20th Street aod Constitution Avenue, NW 

Washington, DC ~0551 

OC8T Chairman "R·cman~ 

i-1-$ Si ,.,.::1 J.f-1.• 0.tt I l,.tc b • • 

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I write tQAs1c 1hc Fcdcral Reserve 1D grant th~ attached application c f 

• }j ~ acq • •••• ,and given 1he circumstarices surrounding this 

request. I urge you to CXJliedife this review. as they nccd,a d~sion before this coming Friday, 

July2411t. . . 

The d.tuation is mg=t because of the detmoming financial condition o-

....-.11 

~p 

and as I understand it, thcrc•s a strong likelihood that the FDIC-will put the 

by next Friday. July 241h unless the merger receives Federal~ 

approval by then. The application was submitted to the Federal Reserve in May. 

Both of these financial institutions are minority-owned and important to New Jc:rscy and 

tho lDJdor-baoltcd BDpamc ?f!. unity in~ I hope that there is a way to resolve the . 

difficnlt finarr;ia) situation o !)_witbolt having 1D use taxpayer money. To 

that end. I mge )'QU to support c pioposed acquisition O rm 

...........im 

~ 

order to avoid an action by the FDIC. Putting . lilinto 

send yet another negative message to consumers and investors and aer 

impact our fragile cc:onomy. 

Tban1c you for your consideration. and I look forward to your response. 
Cc: 

The Hooorablc Ch.airman Sheila Bair 

Federal Deposit lnsmance Co~on. 

550 17th St. NW . 

Washington, DC 20429 
LA~ ,_-1 H :S 

- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, ~ 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Albio Sires 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Sires: 

Ju]y 28, 2009 

Thank you for your letter regarding an application filed on behalf o~under the 

Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program (TLGP). 

[~seeks to participate in the TLGP and issue up to $5 billion of guaranteed debt· 

The TLGP was implemented last year during a time of unprecedented disruption in the 

credit markets when it was vital to preserve the nation's confidence in its financial institutions 

and in the economy. The preamble to the final Rule implementing the program states clearly that 

the primary pwposes of the TLGP are to provide liquidity to the inter-bank lending market and 

promote stability in the unsecured funding market for banks. The TLGP was designed to enable 

the existing bank holding companies and certain thrift holding companies to rollover expiring 

unsecured debt. The decision to permit bank holding companies to participate in the TLGP was 

extraordinary. Accordingly, the FDIC carefully evaluates the merits of new holding company 

TLGP applications, and approvals have been very rare. 

Although I cannot comment on specific TLGP applications, I can assure you that the 

FDIC considers every application in a timely and thorough manner. In appropriate cases, the 

application process is extended to give applicants the opportunity to supplement their application 

or to address issues of concern. This ensures that all applicants receive fair consideration. 

If you have further questions or comments, please do not hesitate to contact me at (202) 

898-6974 or Eric Spitler, Director of~gisl_ative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
07/14/2009. 14: 39 FAX 

ALBIO SIRES . 1 lnc Dtmolcr, Ntw ..laarY 

COMMITTEE ON FOREIGN AFFAIRS 

SUICDIGIITTE!S: 

WBTPN~e 

AslA, -r.- f'ACl'IC,, -THI! 

Gun..i. &wlo~ 

EUIUIPE 

COMMITTEE ON TRANSPORTATION 

ANO INFRASTRUCTUftE 

~= 

1Z02Z260792 

HIGHwAYS AND TIWISIT 

IIAua.t.as. l'ftuNES, AND 

Ht.ZAAD0US MATEIILUS Congressman Albio Sires 

New Jersey-13 

1024 Longworth HOB 

Washington, D.C. 20515 

Ph: 202-225-7919 Fax: 202-226-0792 

FAX COVER SHEET 

DATE: Jul,{ \4 • 2009 No. of pages (including cover): 3 

TO:Cro..,cmM \ba.·,r 

FROM: 

«) 

.( ) 

( ) 

( ) 

( ) 

Congressman Sires 

Judi Wolford 

Kate Fink 

Jessica Lawrence 

Arielle Botter 

Remarks: . 

Fax# r2oo>-'5'.9X -3Jy5 

( ) Gene Martorony 

( ) Devon Barnhart 

( ) Hannah Brown 

( ) Kaylan Koszela 

hard toPy be, n~ t'hll i led a I.so 

lg) 001/00J 

1024 LD-IITN HDUSl OA'la Bun.1>1'111 

W~DC20515 1202l 22S-791!1 

JS JDUIIIW. SauoUIE, SUn! 906 

.JEIISET CITY, NJ 07JOB 

. 12011222-2112& 

5500 PALISADE AVDIUf. .SUITI! A Wl!ST NM\"~, NJ 07093 

12011 S&B-41100 

11.t.,-f CITY H.4l1 

63D AVEWE C. Racll,\ 9 

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1201 I llZJ-2900 

100 COOCl A.VDIU£. 2ND Fl.DOIi 

CA.llllllEr,NJ07008 

{732J 969-9160 

l'!lnll~CmHAl.1. 

2&0 HIGH STlllfT, 1 irr Ft.ooll 

Pemt ,.__ NJ 08861 

l732J 442-0111 D 

*lfthcre are problems with this transmission, please call 202-225-7919 
07/14/2009 14:39 FAX 

ALBIO SIRES 

131>1 0ISnllCT. N!w JEl!SE'I' 

COMMITTEE ON FORBGN AFFAJRS 

SUKDMMm!U: 

WISTPN Hb111Pll£JIE 

EUN>!'£ 

CDMUITTEE ON TRANSPORTATION 

A/11D INFRASTIIUCTURE 

SWcoM11rrnu: 

~A"tl AND TMIISIT 

/tPJIJm.l.as, ~. AND 

HAz.umous MATUIW.S 

12022260792 

July 14, 2009 

The Honorable C~ Sheila Bair 

Federal Deposit Insurance Corporation 

5S017'h St NW 

Washington, DC 20429 

Dear Chairman Bair. 

L/}(J'/-/J 13 ~uuuuu~ 

1 024 i.-c:wDIITH HOUst: DFF1CE !lull.DING 

WASMNliTDN, DC 20515 

12D21225-'1919 

35 .l0uNIAL SIIUAlll, SUIT! 9D& 

JslsET em,, N..I 07308 

12011 222-2828 

S5DO P.AI.ISADE AVBM.. SIX!E A 

WEST Ntw Y~. NJ 07013 

12D11 li58.QIOO 

a,.-,- On HAu. 

630 AVUU C, Aoau !f 

IIAYOIINf. NJ 0700,2 

12011123-2900 

100 C-A-. 2M1 F~ 

CAlmllET, NJ 07DOa 

(7321969-9160 

l'eml AIDDY Cm' HAu 

280 HIGH STl&T. 1ST Ft.Doll 

PtKnt,._,NJO&a&1 

1732)442-0610 

I am writing to inquire about the status o'fm January 2009 application to participate 

in the Temporary Liquidity Guarantee P~(TLGP). I understand that applications 

. for TLGP by newly eligible institutions arc considered on a case by case basis and 

according to the parameters established in the final rule released_ on November 26. 2008. 

According to that rule. you will consider "the extent of the financial activity of the bank 

holding company; the strength. from a ratings perspective of the issuer of the obligations 

that will be guaranteed; and the size and extent of the activities of the organization ... 

~is headquartered inl•lll·•-•I 1 md bas provided needed capita.I to the 

~unications, health~ finance manufa.c ~tail, tcchnoloY, and transportation 

indus1ries fo!Bcarly 100 cars:faiicmploys ncarl~~t).S-based 

employees · Wi~ly $70 billion in assc offers a comprehensive 

set of financi products and services to small- and mcdi - · businesses and 

entrepreneurs in the "middle market". ~ you arc likely aware, small- and medium-sized 

businesses account for more than $6 trillion in sales annually across the nation and 

employ 32 million Amcricans.(jai was the number one Small Business Administration 

7(a) volume leader for nine co~e years. and the number one Small Business 

Administration 7(a) volume lender to women-, veteran-. and ~-- rity-owncd business for 

five consecutive years. [ilrlJ>ccamc a bank holding company · in order 

to qualify for federal ass1~c in order to continue its lcn~~1~c-mar 

businesses. The Treasury Department provided $2.3 billion ~Wluugh the TARP 

program as a result of this change in charter. 

Without access to the TLGP ~ay fail, representing the largest bank collapse ~cc 

regulators seized Washingto:ti""~al in September 2008. This would have a significant 

impact on the CCOllOOIY of New Jersey, N~w Ymk, Beul, Massachusetts, and 

Virginia. where they have a large presence. Failure o would cut off capita.I to many 

important businesses across the c:ounty at a time whe onomy can bear JlO ~ob 

losses. If allowed to fail. American taxpayers would lose the $2.3 billion given t~ in 

the TARP program. 
07/14/2009 14:39 FAX 12022260792 

In ~o~~vc~meets the criteria ro!E· ·cipation in TI.GP. I urge you to 

consid ~ application and to notify jilt as quickly as possible with your decision. 

As you very aware. the program is set xpirc at the end of October so time is of the 

essence. Additionally. I would like to better understand the process and timcframc in 

which you consider such applications. Thank you for your consideration of my request. 

cc: Secretary Geithncr 

Rahm Emanuel 

Sincerely. 

lg!OOJ/003 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Earl Blumenauer 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Blumenauer: 

June 29, 2009 

Thank you for your support of the Federal De,Osit Insurance Corporation's 

establishment of an Advisory Committee on Community Banking. I agree that this 

Advisory Committee will provide the FDIC with valuable input on the· issues facing 

community and rural financial institutions. I especially appreciate your referral of 

Ms. Patricia Moss of Cascade Bancorp in Oregon. 

As you know, the FDIC advised interested parties in a recent Federal Register 

notice to submit information to the FDIC by July 3. Enclosed is a copy of the Federal 

Register notice. If she has not already done so, we encourage Ms. Moss to contact us at 

CommunityBanking@fdic.gov. 

Again. thank you for your interest and the referral of Ms. Moss. If you have 

further questions regarding the Advisory Committee on Community Banking, please feel 

free to contact me at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at (202) 

898-6962. 

Sincerely, 

Sheila C. Bair 

~- ; 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable JeffMerkley 

United States Senate 

Washington. D.C. 20510 

Dear Senator Merkley: 

Jtme 29, 2009 

Thank you for your support of the Federal-Deposit Insurance Corporation's 

establishment of an Advisory Committee on Community Banking. I agree th.at this 

Advisory Committee will provide the FDIC with valuable input on the issues facing 

community and rural financial institutions. I especially appreciate your referral of 

Ms. Patricia Moss of Cascade Bancorp in Oregon. 

As you know, the FDIC advised interested parties in a recent Federal Register 

notice to submit information to the FDIC by July 3. Enclosed is a copy of the Federal 

Register notice. If she has not already done so, we encourage Ms. Moss to contact us at 

CommunityBanking@fdic.gov. 

Again, thank you for your interest and the referral of Ms. Moss. If you have 

further questions regarding the Advisory Committee on Community Banking, please feel 

free to contact me at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at (202) 

898-6962. 

Sincerely, 

Sheila C. Bair 
e FEDERAL DEPOS~ INSURANCE CORPORATION, Washington, ~c 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Kurt Schrader 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Schrader: 

June 29, 2009 

Thank you for your support of the Federal:Ocposit Insurance Corporation's 

establishment of an Advisory Committee on Community Banking. I agree that this 

Advisory Committee will provide the FDIC with valuable input on the issues facing 

community and rural finapcial institutions. I especially appreciate your referral of 

Ms. Patricia Moss of Cascade Bancorp in Oregon. 

As you know, the FDIC advised interested parties in a recent Federal R~gister 

notice to submit information to the FDIC by July 3. Enclosed is a copy of the Federal 

Register notice. If she has not already done so, we encourage Ms. Moss to contact us at 

CommunityBanking@fdic.gov. 

Again, thank you for your interest and the referral of Ms. Moss. If you have 

further questions regarding the Advisory Committee on Community Banking, please feel 

free to contact me at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at (202) 

898-6962. 

Sincerely, 

Sheila C. Bair 
BARNEY FRANK 

4TH OtsTRICT, MAssAorusms 

2252 RAVBUIIN HouS£ OFFICE 8UILJ)ING 

WASHINGTQN, DC 20515-2104 

{2D2) 225-5931 

29 CRAFTS STIIEET 

S!RTE375 

NEWTON, MA 02458 

,(617) 332-3920 

<ltongrtss of tbt Wnitcb ~tatts 

11,oust of l\eprcsrntatibt.s 

~bington, jg({ 

Chairwoman Sheila Bair 

Federal Deposit Insurance Corporation 

550 17th Street. N.W. 

Washington, D.C. 20429 

Dear Madam Chair, 

July 29. 2009 

l/+0'1-IZ-17 

558 PLU.SANT STREET 

R00111309 

New 8EDFDIID, MA 02740 

l508)99~ 

THE JDNES BUILDING 

29 8ROADWA.Y 

SUITE 310 

TAUNTON, MA 02780 

(5081 822--4796 

As I mentioned to you at our last hearing. when I was in Las Vegas and met with a group of 

bankers convened by my colleague Shelley Berkley, I heard disturbing reports that there appears 

to be a disconnect in some important areas between the policies you have set at the national 

level, with which I am in strong agreement on the whole, and the way in which they are carried 

out at the regional and local levels. I understand that for those who are in the examination field 

that this is a difficult time, and many of them have been unfairly criticized for not having been 

able to foresee what no one foresaw. But the consequence of all this is that I believe special 

efforts are needed to bring the practices of the FDIC into full compliance with the approaches 

you have outlin~ which are important both to protect safety and soundness and to help us get 

the economy back to a situation in whicli credit flows freely. 

Given the depths of these issues, my strong recommendation is that you try to find time to go to 

Las Vegas and meet with the banking community of Nevada because I don't think this can 

adequately be do~e in any other way. I realized that there are great demands on your time and I 

can assure you that I have deflected many other requests that I have received to try to persuade 

you to appear somewhere, but this one does seem to me very important in terms of preserving ·the 

credibility of the federal regulatory struc{W'e, and of helping the economy in an area where it is 

very much needed. The best way to do this, if you are able to do it, would be for your office to 

coordinate with Congresswoman Berkley and I am sending her a copy of this letter. I'm also 

enclosing a copy of the letter I received from the banking community in Las Vegas, which gives 

an explanation of the issues that concern them. 

ENCLOSURES 

BF/la 

BARNE-riRANK 

. :•. 

TI-IIS STA.TIONERY PRINTED ON PAPEII MADE OF RECYClEO FIBcllS 
Au1-D4-Di D1:03p1 Fram-Rip Birn•r Frank 

July 20. 2009 

The Honorable Barney frank 

2252 Rayburn House Office Building 

Washington, DC 20515 

The Ho11orable Shelley Berlcley 

405 Cannon House Office Building 

Washington, DC 20S15 

2DZ-ZZS-DIS2 

Dear Congressman Frank and Congresswomm Berkley: 

T-676 P DDZ/004 F-174 

Thank you both for the time that you spent with us on Monday, July 6. We appreciate 

your interest in the issaes that Nevada bankers are having with the FDIC. 

At the meeting you asked for more details of the various events that we referred to. They 

arc set out below. 

October I., 2008., meeting with FDIC concerning closure of Silver State Bank abd 

First National Bank ofNev:ada. The published meeting agenda was" ... to discuss the 

orderly wsposal oftbe bank's assets, how to minimize the impact on other banks 

involved in panicipations and the impact on the market in general." 

FDIC personnel involved: 

Robert Schwarlose, Manager, Resolutions and Closings was handling First National Bank 

'.' of Nevada {FNB) 

Donna LaRue, Franchise and Asset Marketing Specialist was handling Silver State Bank 

(SSB) 

At the meeting, both of the above parties c~ned that participation loans with local 

banks would be handled on a '"business as usual basis" to not jeopardize other 

participating banks. As Jackie Delaney of Sun West Bank explained. this was not the 

case. The FDIC would not make its pro--rata share of scheduled construction loan 

adt•mces so thar a nearly comp!cted co1rnnerci:a! offi.c~ development, which bad office 

buildings sold and in escrow, could be finjshed.. By not funding the corresponding 

cdnsttuction draws, the project was liened for non-payment and the sale/escrow could not 

close, ca.using the buyers to wallc away. the collapse of the development and greater 

losses for all concerned. In this mmsaction. Sun WeS1 Bank would have been 

substantially paid off. Instead, Sun West Bank has a large non-perfomi:ing loan and l 0 

months later they arc no further along on a resolution of this loan with the FDIC. 

This is just one example of the difficulty panicipating banks arc facing whrn an 

institution is taken over. It is not the only example of participation Joans with locaJ ban.ks 

in Nevada that have been challenged by the FDIC receivership of two banks (SSB & 

FNB). There are others that have had similar difficulties and treatment. 
Au1-D4-D9 01:D3p• From-Rap Barner Frank ZDZ-ZZS-D182 T-676 P.COl/O04 F-174 

Clearly the regulations in these situations need to be looked at and bener defined with a 

different set of roles and mandates so~ not to damage other FDIC insured participating 

instirutions. These issues may in:.fact be given consideration by the FDIC going forward 

and we ask that our congressional leadership take a hard look at changes to prevent 

unnecessary hatm to other banks, borrowers, participaring parties, like the contractors in 

the above case, and che commn.oity as a whole. 

CDARS trcaoncnt by ex.aminen. In establishing a new premium assessment structure 

last February. the FDIC Board of Directors acknowledged that CDARS Reciprocal 

depoSlts differed from traditional brokered deposits. In effect. the FDIC exempted 

CDARS deposits from the adjusted brokered deposit ratio for firumcia.lly healthy banks. 

At the time, it said it did so in part because CDARS Reciprocal deposits, •~ay be a more 

stable source of funding for healthy banks than other types of brokered deposits ... " Toe 

agency cited more than 3,000 comment letters, most noting that CDARS reciprocal 

deposits were a stable source of funding because the deposits were local, not out of 

market. Many also noted that interest rates on CDARS CDs reflect local market rates 

because the rates are set by a bank, not by a third- party broker. With CDARS deposits 

there is no deposit broker. bankers act as their own broker. In faa. the firm that offers 

the CDARS service to banks has told us that 80 percent of CDA.RS customers are located 

within 25 miles of the bank with which they do business, that CDARS cUStOmers rollover their deposits 83 percent of the time, and that the average interest rates on CDARS 

·cos nationally are virtually the same as interf$t rates on all CDs. by maturity. They are 

nor ''h~t money" seeking the highest interest rates in a national mmet. They exhibit 

volatility similar to that of core deposits. Because CDARS Reciprocal may be a more 

stable source of funding, the FDIC in February established a separate line on the call 

repon to break out CDARS Reciprocal deposits from traditional core deposits. 

While the FDIC Board of Directors and staff at headquarters has drawn an official 

distinction between stable CDARS and volatile traditional brokered deposits, the 

distinction is often ignored in the field. For example. as Pete Atkinson of Black 

Mountain Community Bank told you, the examiner in his May 2009 examination 

classified the banlc's CDA.R.S Reciprocal as '"'volatile deposits." Pete supplied the EIC 

with a breakdown of the $26 million in CDARS deposits: 35 depositors, all Nevada 

residents, 34 ofv.hom res;ide in the Las Vegas crea. Some have been depositors since 

2000, 6 have only CDARS accounts while the othtr 29 have other deposit accounts with 

the bank, some with 10- 13 accounts with the bank. 12 have loans with the bank. Many 

were customers who moved money from money market accounts and CDs to CDARS to 

keep FDIC coverage. These are not the characteristics of traditional brokered deposits. 

These are established local customer relationships. Even so. the EIC concurred in the 

downgraded liquidity rating assigned by the examiner - ignoring the actual 

circumstances. Citing excessive reliance on CDARS rociprocal deposits as a contributing 

factor, the EIC further do~11.graded the bank's liquidity rating. 

Examiner attitude toward examinations. A number of bankers are recounting recent 

examination experiences in which the level of harshness, the non-negotiable nature of 

examiner decisions and even a high degree of distrust of bankers has been exhibited... The 
>.111-04-09 01 :D3p11 Fram-Ra_p Barnu Frink. 202-ZZS-DISZ T-676 P.004/D04 F-174 

bankers hear from Washington that banks should be working with borrowers in this 

difficult time but examiners have no appreciation or regard for the bankers' role: in the 

comzmmity and the importmce ofrelations with customers. To say the banlc:ing 

community is receiving mixed messages is an understatemenL 

As we discussed when you were in Las Vegas, you ca.n't fix these problems retroactively. 

However, we think that t:hey arc endemic, the field su.lI is deciding how things will be 

either disregarding directives from Washington. DC or interpreting them as they believe. 

For instance, Ms. Bair was quoted in the New York Times as saying that "during the 

golden age- ofbanlcing it seems as if we all lost our compass.. But we have seen the errors 

of our ways.,. Examiners take this to mean, leave no opening for criticism at a later date. 

At the same time, leadership i.s telling Congress what they think you want to hear. 

Withou\ corrf:Ctive acti~ the problems will continue. 

instead of the agency maxfmizing the return for investono of failed banks by talcing a 

prudent approach to the sale of assets they will depress land and commercial real estate 

values funher through fire sale pricing. forcing more banks to fail. It"s as if they have 

decided that the impact on the FDIC insurance fund from the failure of community banks 

will not be so sevc:rc as to worry them - they will just continue to focus on the "too big to 

fail" banks and let the others whither on the vine. This. approach is not good for the 

economy and Main Street America and steps need to be taken to change the course. 

You suggested that you will ask Sheila Bair to visit bankers in Las Vegas earlythjs fall to 

hear first hand what is going on. Nevada Bankers look forward to that opponunity. 

Thank you for your rime and consideration. 

Sincerely, 

William R. Uffelman 

President & CEO 

Nevada Bankers Association 
FDl8 · ---Federal Deoosit Insurance Corooratlon 

550 171h Slreel t/N, Washingloo, DC 20429 

Honorable Walt Minnick 

House of Representatives 

Washingto~ D.C. 20515 

Dear Congressman Mimμck: 

LA o '1- 11 7.. 'I 

July 30, 2009 

Thank you for your letter to San Francisco Regional Director Stan Ivie concerning the recent 

visitation ofJI•• Idaho. The Federal Deposit Insurance Corporation 

understands c importmce of community banks to local economies 7, and we appreciate the 

opportunity to respond to your concerns. 

As you note, the economic conditions in Idah~trade area have deteriorated 

significantly. During a period of rapid deterio~ identification of bank problems is 

critical to the correction of deficiencies and, ultimately, the protcctipn of depositors, which is the 

FDIC's primary mission. A proactive supervisory approach also helps ensure the long:.term 

health of community banks that spur economic growth by continuing to make credit available in 

communities across the country. 

Although we cannot discuss details of our supervisory communications with the B~ I can 

assure you that during the visitation o(I l§l examiners considered the most recent 

financial information provided by the :i:f=anlc. In &ct, tlic visitation was extended to ensure 

additional information provided by the Bank could be reviewed and assess~ particularly with 

respect to the loan portfolio. We believe the results of the visitation, which have been 

communicated. to the Bank, accurately reflect the Bank's condition. 

Your interest in this matter is apprcciat-&:l. If you have further qu(:Stions, the OJ.lice of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Lcgisiativc Affairs 
I . . 

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8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Carolyn B. Maloney 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Maloney: 

August 3, 2009 

Thank you for your interest in the Federal Deposit Insurance Corporation's 

Legacy Loans Program (LLP), and for sharing your suggestions and analysis promoting 

the inclusion of Real Estate Owned properties (REO) in the program. 

Since the LLP was announced in March, we have been encouraged to see that 

banks have been able to raise capital without having to sell distressed assets through the 

LLP. As a result of this renewed investor confidence in the banking system, we have . 

postponed the planned pilot sale of assets by open banks. However, the FDIC is 

continuing to worlc on the LLP. The first test using the LLP funding mechanism 

commenced last week through a sale of receivership assets. The FDIC will analyze the 

results of this sale to see how the LLP can best further the removal of troubled assets 

from bank balance sheets, and in tum spur lending to further support the credit needs of 

the economy. 

No decisions have been made regarding specific asset classes that would be 

eligil>le for sale through the LLP by open banks. However, REO remains under 

consideration for inclusion as an eligil>le assel 

Thank you again for sharing your counsel on this issue. I look forward to 

continuing to work with Congress toward solving problems in the markets, to stabilize 

our communities and improve our econ~my. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director.of 

Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
ctoU!;1fl'!.ili nf fl1.c l!lnitci'J ~tutcu 

lttuslJinttton, D<!' 20515 

The Honomble Sheila C. J3oir 

Chaimwrn 

FcdcmJ Depnsil Jnsurnncc Corporation 

550 17th Street, NW 

· Washington, DC 20429 

Dear Ch4irn,at\ Bair: 

July 13, 2009 FDIC 

JUL 1 3 2009 

OFFICE OF LEGISLATIVE AFFAIRS 

As Members of thc.Pinancinl S~vicc:s Commitlcc. we i\rc writing to c:nconrilgc yo1· to 

include Re;,I Esratc Owned Pmpcrtie." (RF.fli;) as" priority assct in the Public Private hwcsht-enl 

Funds (rPJF} I.cg;scy Loan Program (LLP). We bdievc that reccgniimg JU:() propcrtit:.'- .u nn 

as:'-CI class will help stabili7..c not only bnnlc pc,rlfolios. but also Joe.ti tll!i!thborhood,; facing. lhe 

effects: of ever lncrea.111:ing fort:c:Josun:s. Including REO propcrtic,- .is nn asset cl:m: wiJJ I dp 

.1chicvc dunl goal!I of imI'mving the hnlancc l'hccts of b.Jnks, and hc:lp c:::tablish n much-nee led 

flnor on horn.: prices. 

· "ll1ough the incrca.,;e in home forcclosurc.s had been tcmpon-.rily abated. ii h:is b·:cn 

ctc:-c[>ing back up r~ccn1ly. While improperly utilized mortgage in.,trutncnts were the main driver 

of 1hc fim wnvc or incrca:scd fon:closun:s, we fear that in the nr;ar future:, forcclo!llll"t:' 1 \itl 

.cnntinuc to occ,1r hecau.-.c: of the deep rcccs.-1ion and his}l unemployment ralt:. which con.-.pin to 

ni:iJcc it increasingly diffi~all fur mnny homeowners -tu continue to meet thtdr mortg tgc 

pa.ymcnls. Ai; forc:closurc.ot inetcalic, banks will be even harder-ptc.~"ed to m:m:ig.e ::md disposi of 

I heir growing inventory of properties.. To date, most b:inlcs h.,ve been unable or unwilling. to :~II 

foreclosed properties in _any quantity 1I1at will meaningfully reduce their balance sheets, ~ich 

kaves them with an c\ler-gmwing ihvcnlory th.11 they mu,t nuirui~. Milny l1:inlts nre :"tot 

equipped to manage nod m:iinfilir1 lltcSc ofleo-uninh.,hited hi,,mc.~ leavmg them In Cl dilapid;?tecl 

st.1k uml cmising· a gem:r:il blight on ct>mmunitic acms.-; liic country. 

Many companies ,m: aucmpting.lo rehabilitue thcsc forgotten prupe:r1ir:. iJnd rt.-vcrsc :he: 

effects on lhc:...c home~ ilnd stabili~c lhe:,-c communitit:-". TilCSC effort.<: will incrcil..~e the uvc ·Jll 

v;:1luc or olhcr homes in these neighborhood..,;~ and. ii,c~sc the s.ifoty of the conmmnity. WI .1lc 

1hi-; ill.c;nc wn,; brol.lght lo our allention liy ii New York.~t,:iscd cornp,my, the .iddition r,f R.·.O 

prnpct1ic.c; 10 rhc J.I.P wo11ld ro:dcr ,m<l promote: .a nation-wide m:1rlcc11:-11u wu11IJ :;labili:r.c ho-nc 

v:-1l11cs nnd n:juvcnatc neighborhoods. Ukewisc-, we unclc:nlnml lh."ll. lhc Amcd0111 Hank~ 

A~oci1iliun supports inclusion of Rl!Os in the J..LI'. ns :doled in their conimcnls :ml:,millcd to 

the fcdcrnJ Dcpo.-:it Insurance Corporation (FPIC) on April CJ, 2009. 

C111:rcnt ;.:ovcmment cJTorts Cor addrc:t.c;ing. lhc incre:i.sinu numbt.-r or rort.-,,.losctl hoar~, 

such a,; the Neighborhood Stabilizalion J>rogrum (NSP) have nor sh()\YI\ \hc1nsclvcs lo he 

a<lc:qualc lo clcnf with the gm.wing supply of Rt-:0 properties, i;n the pru:iri\•c cflccr.:-. h1wc 1c,~ 

hccn re11 ns fully il.-t they coultl otherwise have ba:n wirh heller sut>porf :incl funding. 1 he 

omo,mt of privnlc inve.-ilmenl that can come through PPIF could h,r,1c a ~rc:.it ,mpacl C\ll rcduc ng 

rhc supply of REO properties, i!nd bringinJl Rboul :ill of lhc.~e po~iliYC .i.nrl ::111hili.ling cflccL-t :~r 
bolh communities· and banking b::ilnoc~ i.hcc[s. Clearly, thi~ will hcl1, achieve the £Ml of the 

PPIF while also positively at.ldn:ssini,: some of the ctiJi~I housing i:..-;.ucs .faced by h •;al 

governments nat.ion-wide. 

ln conclusion, in light of olJ of the positive effects lhnl- now from investing in ~ EC1 

properties, we urge you lo add REO properties M un MSCt r;:fo.'lS 1111clcr lhc }'f'Jf LLP r-1lol 

program and 1c, support the reh:ihilimti~n of not only bank bal,mcc- sheets, but also ur .,ur 

neighborhoods :md comnnmitie.o:. 

Si nccrcl y, · 

.. 

/ · Membc~ of Congreo/ 

CA.1'9L YN R. M AT.JJNEY / 

Mem~erofCongrc_qs ' 

(JI\. Y £_ J\CKF.RMAN . 

~c1 ll'!t of Coni;.ri::.">-"' . 
~,-11,,, 

I) FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN August 3, 2009 

Honorable Barney Frank 

Chainnan 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chairman: 

Thank you for your recent letter concerning efforts to help people save their homes from 

foreclosure. As you know,·the Federal Deposit Insurance Corporation has actively participated 

in initiatives to promote loan modifications that will provide at-risk borrowers the opportunity to 

keep their homes if they are willing and able to continue making their mortgage payments at a 

lower interest rate. For borrowers with both fim and junior lien mortgages on their homes, your 

letter cites the unwillingness of junior Iienholders to accept reasonable compensation for the 

extinguishment of their liens as a significant impediment to the success of the HOPE for 

Homeowners Program. You are concerned this unwillingness maybe the result of inadequate 

· loan loss allowances on the books of large mortgage servicers who hold junior lien mortgages as 

assets on their balance sheets. 

The FDIC has long emphasized in policy guidance to banks and through its examination 

process that each institution is responsible for maintaining an allowance for loan and lease losses 

at a level that is appropriate and determined in accordance with generally accepted accounting 

principles. When estimating the appropriate level for the allowance, each institution's 

management is expected to consider al] significant factors that affect the collectibility of the loan 

portfolio as of the evaluation date. These factors may vary over time and from one type of loan, 

such as junior lien residential mortgages, to another. 

We recognize that proper financial reporting by depository institutions in their financial 

statements and regulatory reports is essential to sound decision-making by investors, creditors, 

regulators, and the public, as well as by the institutions themselves.- Establishing an appropriate 

amount for the allowance for loan and lease losses requires significant judgment and is one of the 

most critical accounting estimates for an institution, particularly in the current economic 

environment. Accordingly, to supplement existing supervisory policies, the FDIC has issued the 

enclosed guidance to the institutions it supervises. The guidance reminds institutions about 

certain key Joan loss allowance concepts and requirements. In addition, it addresses more 

specificalJy allowances for junior lien residential mortgages, including qualitative or 

environmental factors to be considered in determining an appropriate allowance level for such 

loans. We believe this guidance should reinforce our ongoing efforts to ensure institutions 
maintain loan Joss allowances at levels that appropriately reflect the impact of relevant current 

trends and conditions on loan collectibility. 

This guidance cautions banks that failure to timely recognize estimated credit losses 

could delay appropriate Joss mitigation activity, such as restructuring junior lien loans to more 

affordable payments or reducing principal on such loans to facilitate refinancings. Please be 

assured that my examiners will continue to evaluate the effectiveness of an institution's loss 

mitigation strategies for loans as part of their assessment of the institution's overall financial 

co~ti~ · 

Again, thank you for sharing your concerns, and I hope this information is helpful. If you 

have further questions or comments, please do not hesitate to contact me at (202) 898-6974 or 

Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
FDII 

Federal Deposit Insurance Corporation 

550171h Street NW W D.C. 204~ 

Financial Institution Letter 

FIL-43-2009 

August 3, 2009 

ALLOWANCE FOR LOAN AND LEASE LOSSES 

Residential" Mortgages Secured by Junior Liens 

Summary: When estimating credit losses on each group of loans with similar risk 

characteristics, an instit!Jtion should consider Its historical loss experience on the group, adjusted 

for changes in trends, conditions, and other relevant factors in the current economic environment 

that affect repayment of the loans in the group as of the allowance evaluation date. The need to 

consider all significant factors that affect collectibifrty is especially Important for loans secured by 

junior liens on 1-4 family residential properties Ounior lien loans) in areas where there have been 

decfliles in the value of such properties. See the attached •Allowances for Loan and Lease 

Losses in the Current Economic Environment loans Secured by Junior Liens on 1-4 FamRy 

Residential Properties: 

Disbibutlon: 

FDfC.Supervlsed Institutions 

Suggested Routing: 

Chief Executive Officer 

Chief Flnanclal Officer 

01iaf Cradit Officer 

Related Topics: 

• lnte,agency Statement on the AlcMance far Lean 

and Lease Losses 

• Pelley Statement on Allowance for Loan and 

Lease Losses Methodologies and eoa.nentatlon 

for Banks and Savings lnstllullons 

Attachment: 

Allowances far Loan and Lease losses In the 

Cment Economic Envircnnent loans Secured by 

Junior Uens on 1-4 F111'!1"Y ResldentMI Properties 

Contact: 

FDIC Regional Accountant or Robert S1orch, Chier 

Acccuntant. Division ol Supervision and Cansumer 

Protection, on 202-898-8906 or rs1crt:h@fdLqoy. 

Note: 

FDIC financial institution letters (Fils) may be 

accessed frcm the FDIC'"a Web slla at 

www.fdlc.gov/news/news/flnanclallhtml 

To receive Als eledronlcally, please visit 

bttP:llwww.fdic.gov/about/sub§g iQlla ,s/'JiJ.html. 

Paper copies cf FDIC ftnandal Institution letters 

may be obtained through the FDJC's Public 

~ 

Information Center, 3501 Fairfax Drive, E-1002, 

VA 22226 (1-Sn-275-3342 or703-562-

2200). 

Highlights: 

• At least quarterly, each institution must analyze 

the coDectibllity of its loans held for investment 

and mairtain an allowance for loan and lease 

losses (ALLL) at a level that is appropriate and 

determined in accordance with generally accepted 

accounting principles .. 

• An appropriate Alll covers estimated credit 

l~es on individuany evaluated loans that are 

determined to be unpaired and on groups of loans 

with similar risk characteristics that are collectively 

evaluated for impainnent 

• After determining the appropriate historical loss 

rate for each group of junior lien loans with similar 

risk characteristics, management should consider 

those current qual~tive or environmental factors 

that are likely to cause the estimated credit losses 

on these loans as of the ALU evaluation date to 

differ from the group's historical loss experience: 

• Failure to timely recognize estima1ed credit losses 

could delay appropriate lc;>ss mitigation activity, 

such as restructuring junior Den loans to more 

affordable payments or red_ucing prlnclpal on such 

loans to facilitate refinancings. Examiners wm 

continue to evaluate the effectiveness of an · 

Institution's loss mitigation strategies for loans as 

part of their assessment of the lnstitufion's overall 

financial condition. 
Allowances for Loan and Lease Losses in the Current Economic Environment: 

Loans Secured by Junior Liens on 1-4 Family Residential Properties 

Allowance Concepts and Requirements 

The Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued by the 

federal :financial i,nstitution regulatory agencies in December 2006, 1 states that the allowance for 

loan and lease losses (ALLL) 

represents one of the most significant estimates in an institution's financial statements 

and regulatory reports. Because of its significance, each institution has a responsibility 

for developing, maintaining, and documenting a comprehensive, systematic, and 

consistently applied process for determining the amounts of the AUL and the provision 

· for loan and lease losses (PLLL). To fulfill this responsibility, each institution should 

ensure controls are in place to consistently determine the ALLL in accordance with 

GAAP [i.e., generally accepted accounting principles], the institution's stated policies 

and procedures, management's best judgment, and relevant supervisory guidance. 

As of the end of each quarter, or more frequently if warranted, each institution must 

analyze the colleciloility of its loans and leas~ helc;i for investment (hereafter referred to 

as "loans") and maintain an ~ at a level that is appropriate and detenilined in 

accordance with GAAP. [Footnote omitted.] 

An appropriate ALLL covers estimated credit losses on: 

• Loans that an institution individually evaluates and determines to be impaired under 

Statement of Financial Accounting Standards No. 114, Accounting by Creditors for 

Impairment of a Loan;2 and • 

• Groups of loans with similar risk characteristics that the institution evaluates collectively for 

impairment under Statement of Financial Accounting Standards No. 5, Accounting for 

Contingencies (FAS 5). 3 . . 

., 

According to the Jnteragency Policy Statement, the term "estimated credit losses" means an 

estimate of the ~nt amount ofloans that it is.probable the institution will be llllable to collect 

given facts and circumstances as of the evaluation date. Estimates of credit losses should reflect 

consideration of all significant factors that affect the collectibility of the portfolio as of the 

·. evaluation date. 4 

The Interagency Policy Statement further notes that changes in the level of the ALLL should be 

directionally consistent with changes in the factors, taken ~ a whole, that evidence credit losses, 

1 http://www.f dic. gov/news/news/financial/2006/fil061 OSa.pdf. 1 In the Financial Accounting Standards Board's Accounting Standards Codific:ationTM, sec Section 310-10-3S, 

Receivables - Overall - Subsequent Measurement. 

3 In the Accounting Standards CodificationTM, see Subtopic 450-20, Contingencies - Loss Contingencies. 

4 Thus. under GAAP, the purpose of the ALLL is not to absorb all of the risk in the loan portfolio, but to cover 

probable-credit losses that have already been incurred. 
keeping in mind the characteristics of an institution• s loan portfolio. In this regard. if declining 

credit quality trends relevant to the types ofloans in an institution's portfolio are evident, which 

is generally the case in the current economic environment, the ALLL level as a percentage of the 

portfolio should generally increase, barring exceptionally high charge-off activity. 

In particular, institutions are reminded that, when estimating credit losses on each group of loans 

with similar risk characteristics under FAS 5, they should consider their historical loss 

experience on tbe group, adjusted for changes in trends, conditions, and other relevant /actors 

that affect repayment of the loans in the group as of the ALLL evaluation date. ,, 

Considerations Related to Loans Secured by Junior Liens on 1-4 Family Residential Properties 

The need to consider all significant factors that affect the col}ectibility ofloans is especially 

important for loans secured by junior liens on 1-4 family residential properties, both cJosed-end 

and open-end, in areas where there have been declines in the value of such properties. Thus, 

consistent with the Interagency Policy Statement, after determining the appropriate historical loss 

rate for each group of junior lien loans with similar risk characteristics, an institution •s 

management should consider those current qualitative or ~vironmental factors that are likely to 

cause the estimated credit losses on these loans as of the ALLL evaluation date to differ from the 

group's historical loss experience. 

As noted in·the Interagency Policy Statement, these qualitative or environmental factors include, 

but are not limited to, changes in the volume and severity of past due lo~ in each group of 

junior lien loans and changes in economic and business conditions and other developments that 

affect the collecti'bility of the junior lien loans. Furthermore, given the unique nature ofjuniQr 

lien Joans, other factors that an institution should take into account would include, for example: 

• Changes in the repayment status of the junior lien borrowers' loans secured by first (and any 

other more senior) liens on the same 1-4 family residential properties, including the extent 

and severity of delinquencies and the volume of senior lien loan modifications that represent 

troubled debt restructurings, .regardless of whether the junior lien loans themselves are 

current or past due; . , . 

• Changes in the value of the junior lien borrowers' underlying real estate collateral, including 

the extent to which these borrowers• more senior lien loan balances, or the combined 

balances of the more senior lien loans and the institution's junior lien loan, currently exceed 

the value of the underlying real estate; and 

• Toe institution's policies regarding the initiation of foreclosure action on junior lien loans 

and the submission of bids on foreclosure sales initiated by more senior lienholders when the 

value of the underlying real estate colJateral is insufficient to adequately protect the 

institution's junior lien position. 

The FDIC recognizes that determining the appropriate level for the ALLL for each group of 

loans with similar risk characteristics under FAS 5 is inevitably imprecise and requires a high 

degree of management judgment. Nevertheless, delaying the recognition of estimated credit 

losses on junior lien loans secured by 1-4 family residential properties by failing to properly 

consider the current effect of more senior liens on the collectibility of an institution's existing 
-3-

junior lien loans is an inappropriate application of GAAP. Additional supervisory action may 

also be warranted based on the magnitude of the deficiencies in this aspect of the institution's 

ALLL process. Furthermore, the failure to timely recognize estimated credit losses could delay 

appropri~te loss mitigation activity. such as restructuring junior lien loans to more affordable 

payments or reducing principal on such loans to facilitate rcfinancings. Examiners will continue 

to evaluate the effectiveness of an institution's loss mitigation strategies for loans as part of their 

assessment of the institution's overall financial condition. 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Peter T. King 

House of Representatives. 

Washington, D.C. 20515 

Dear Congressman King: 

August 3, 2009 

Thank you for your interest in the Federal Deposit Insurance Corporation's 

Legacy Loans Program {LLP). and for sharing your suggestions and analysis promoting 

the inclusion of Real Estate Owned properties (REO) in the program. 

Since the LLP was announced in March, we have been encouraged to see that 

banks have been ab]e to raise capital without having to sell distressed assets through the 

LLP. As a result of this renewed investor confidence in the banking system, we have 

postponed the planned pilot sale of assets by open banks. However, the FDIC is 

continuing to work on the LLP. The first test using the LLP funding mechanism 

commenced last week through a sale of receivership assets. The FDIC will analyze the 

results of this sale to sec how the LLP can best further the removal of troubled assets 

from bank balan~e sheets, and in turn spur lending to· further support the credit needs of 

the economy. 

No decisions have been made regarding specific asset classes that would be 

eligible for sale through the LLP by open banks. However, REO remains under 

consideration for inclusion as an elig_ible asset. 

Thank you again for sharing your counsel on this issue. I look forward to 

continuing to work with Coagress toward solving problems in the markets, to stabilize 

our communities and improve our economy. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of 

Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
~on~lrtss of fl1,c i'TnH£i'I ~tntc!l 

UlusfJingtou, tJ(! 2Ll515 

The 1-fonomble Sheila C. Bair 

Chaim'l3n 

Fcdcml Deposil Insurance Corporalion 

S50 17th Strcct, NW 

· Washington, DC 20429 

Dc.ir Chnirnuu\ Bair: 

Jtdy 13, 2009 FDIC 

JUL 1 3 2000 

OFFICE OF LEGISLATIVE AFFAIRS 

As Members of the:. l'inancinl ~ica Committct; we arc writing lo encourage yo,· to 

includ~ R.ci\l Estalc Owned Propcrtie.,; (RP.Ir.-) as n prinrily nsscl in lhc Puhlic f>riwtc lnveshr-cnl 

Funds (PPJF) T.cg;icy I.oan .Progrnm (LLP). We bdi!M:: that n:cogni~n,; I<EO propcrtic.t as nn 

as$CI class will help :stabili7..c not anly bnnk J)(Jrtfvlios. but also Ice.ii aeighborhood.c; facing the 

effects of ever lncl'C8.~ing {orcclosurc:s. Including REO propcrti~ i\:S l\n asset d.iss will I .::Ip 

:1chicvc dun( goal1 of im!"rnvins rhe hnlancc Meets of ~nlcs, and help i::;lablish a much-nee led 

floor on home prices. · 

·11u,ug.h the iucrcase in home forcelosUfC.'1 had been lcinpomrily ab~ted. ii Im b·:cn 

ctcc(ling back u1> reccnlly. While improperly utilized mortitage in.,;tn.nncnts were the main dri\'Cr 

of rhc tir3t wnvc of incn:.ascd forcclosun:s, we fc:nr th.1l in the llQT future, foreclo!;Ul't."t • i.ill 

· continue 10 OCc\lr l>ee1lL'lc of the deep ~ion and high lmemploymcnl rnlt:, which con.'i})in to 

m:ilcc it incrcasintlY difficult fur many homeowners -tu continue lo meel their mattg ige 

pttyn,cnls. A'$ forcclasurc.<t inCtcalic, banks will be iwcn hardcr-prcs.o:ed to m::10:Jge :ind di.${)0SI of 

their gmwins inventory of pn>pcrtics. To date, most o:inks b.,ve been unable or unwilling lo ;~JI 

foreclol!Cd properties in any quantity tl'!Ql will mainingfulJy reduce their balonce she~ts, wiich 

kaves them with an ever-growing ih'lcntory rh.,l they must nuu111~. Milny b:ink.s nre :-,ot 

equipped 10 manage nnd rt1:'linmir1 1hcse oftco-uninh,,hitcd home..;. leavrng thi:n, In II dilapid:~ed 

:slut1: unt.l r.,uasing :i g.cnc:r:il blight Oil ct>mmunitic:i: ~ems.,; the cou1\lry. 

?-.-!any comptmic:s t\t"C attcmplingJo rchabiJir.m: lhe$e forgotten prupertif-:- and rt.'Vet"SC :he 

effects on t~ic.~ home~ ;md siahili~ lb~-e communitid. 'Ou:se c0-01u will incrcn..c;e the o\'c ·JI! 

value of 01hcr homes in these ncigllborl1oocl~, and ii,c~sc the s.if~ty ·of the community. WI JJc 

1hi .. i,<t,':IIC wa.~ brought lo our attention hy .t New York.~b:ucd comp.ill}', lhc ;,ddi1io11 ('If R.-,n 

prnpcrtic.o; to 1hc J .t.r woulJ foslc:r and promote: a nation-wide m:irlccl trt11t would :;1:ibilizc hn-nc 

v;-,htcs nnd rejuvenalc neighborhoods. lJkewisc-, we undc:Blrnul thnl the American fi,mk.;~ 

Assochiliun supports inclu~ion of Rl!Os in the LU'. as ~toted in thci1 comn1c111s ~ubmillcd lo 

the .Fcdoml Dcpm;it fnsurance Corporation (FDIC) on April 9, 2009. 

Cutrcnl i,:ovcmmenl clToru for .Jddrc.~,;ine the incte:isinu numba r,r lon.i.:l<>sctl horr c.,, 

such n~ the Ncighoorhood St.1bilizntion J>rognun (NSP) Imvc nor shc:w11, 1hcrnsc!Vt:S I<> he 

adcquRtc fo dcnl with the gl'('lwing supply or REC rropcrties, so the ('IO.i:ilivc ·cni::c1:; h:wi; lO~ 

hc~n felt il!I fully ;is -they coultl otherwise have: been with better su~,porl aml funding. 1 he 

umouut of privi1IC invi:.s;tmcnl that can come tl11'ough PPJI:-' could have a ~n:.it m1p.,cl on rcduc: ng, 

the supply ur REO. properties. and bringin~ Alioul all of 1hc:tc po!ihi'Ye ;rncf :;t.-1hHi1.in~ cffccL~ :01· 

ri••,=-·,,·•! 1-i.a , .... , r111-,.,.,. 
both cornm.uniries and banking b:ilnnc~ ~h...--cts. Clearly, thi~ will hc:11, achieve the. go..,I of the 

PP!F while also positively :uJtlressing some of the critical hom~ing i:.:mcs .faced by Jr,,:;al 

govenμnents n:ilion-wide. 

In cMctusion. in light of oil of the positive cffec1s lhnt. Oow from inv<:sling in P. EO 

properties. we \1rge you to add REO properties ns 11n Msct clmts 1111dcr the l'f>lF LLP ~dd 

program and to .!!Upport the reh:ihiliratil"!ll of not only hank baluncc- shccis, bur cilso uf iJUr 

neighborhoods ,rnd communities. 

Sincerely,· 

---

/ Member of Congres✓ 

CA.~9L YN n. MAT .• t~EY .o• 

Mem1Ser of Congre.qs 

.-.:-

(JAi Y L ACKF.RMAN 

:1\.101 be:t of Coni;res.-: 

Member of Congress 
8 FEDERAL DEPOSIT INSURANCE CORPORAJlON, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Carolyn McCarthy 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman McCarthy: 

August 3, 2009 

Thank you for your interest in the Federal Deposit Insurance Corporation's 

Legacy Loans Program (LLP), and for sharing your suggestions and analysis promoting 

the inclusion of Rea) Estate Owned properties (REO) in the program. 

Since the LLP was announced in March, we have been encouraged to see that 

banks have been able to raise capital without having to sell distressed assets through the 

LLP. As a result of this renewed investor confidence in the banking system, we have 

postponed the planned pilot sale of assets by open banks. However, the FDIC is 

continuing to work on the LLP and will be prepared to offer it in the future, if needed, to 

cleanse bank balance sheets and bolster their ability to support the credit needs of the 

economy. Our next step is to test the funding mechanism contemplated by the LLP in a 

sale ofreceivership assets this summer. 

No decisions have been made regarding specific asset classes that will be eligible 

for sale through the LLP. However, REO remains under consideration for inclusion as an 

eligible asset 

Thank you again for sharing-your counsel on this issue. I look forward to 

continuing to work with Congress toward solving problems in the markets, to stabilize 

our communities and improve our economy. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of 

Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
C!ton~1rr!is nf tl1c l.ftni-t.ci'I ~tutcu 

lOusf7inoton, DC! 2L1515 

The Honomble Sheila C. Bair 

Chaim1an 

Fcdcml Deposil lnsurnncc C'.orporalion 

550 17th Stn:ct, NW 

· Washington, DC 20429 

De.ir Ch.airn,ftt\ Bair: 

July J 3, 2009 FDIC 

JUL 1 3 2009 

OFFICE OF LEGISLATIVE AFFAIRS 

As Members of thc.Pinancinl S~icc:3 Committee. we an: writing to encourage yo1· lo 

include R.e:,J Esralc Owned Pmpcrtie.c; {RF.fr.-) as n priority .issct in Lhc Public Private lnvcstn-cn1 

Funds (PPJF) T.cg,1cy l.oan Program (LLP). We bdii.vc that recogni~ms J<EO propcrtic.~ ~ nn 

asi;cl t:loss will help :stabili7.c not only bnnk ))(>rtfc.11ios. but also loc.tl ocighborhoodc; facing lhe 

effects of ever lncrct'l.o:ing foreclosures. Including REO propcrtic:J n:s Hn as~l cl.iss will I .:Ip 

:1chicvc dunf go.,'\l.!I of inirirnvins the hnlancc i1hccts of Emnks. and help c::;t:ibl ish a much-nee led 

floor on home prices. 

·1110ush the increase in home foreclosure.\ had been lcinpon:irily nb.lted. ii ruts b·:-cn 

ctecping bnck u1> recently. While improperly ulilized 1nort~agc in.o;tru,nc"ts were the main dri •,•er 

of the first wnvc or increased foreclosures, we fcnr thnt in the ~ar future, forcclo!!\1rc.-c • ~;u 

conti1\ue to occur t>eeau.-.e of the deep rcccs.-1ion and high unemployment r.:rlc, which cott."])in lo 

mmcc it increasinily difficult for many hon1eowncrs -tu continue to meeL 1htrir moi-tg tg.c 

pitym ... -nls. A, foreclosurc.'t inctca1>c, banks will be even harder·pr'c.o;.~ed to m:111:Jg_e ::ind dispos1 or 

their gmwins inventory of prop!:rtics. To date, most banks h.,ve been Urulble or unwilling to ;~II 

foreclollr:d properties in any quantity dtal will meaningfully reduce their balonce sheets, wl!ich 

IL-aves !hem with an ever-growing ihvcntory th.it they must mn1mc;:c. Mnny b:inks nrc :·mt 

equipped 10 maruiJc ond m:iintai,1 1hcsc ofteo-uninh.,hited home.~ leavmg them In .s dilapidi! tetl 

stulc: uni.I cmising n generul blight Oil communities .icros.,; the country. 

Many COll1J.'1611ics ,m; attempting lo rchabilitnte lhC$e forgotten prup~T1ii'·:. and reverse :he 

effects on lbc.-.c home~ and stabilitc lhQie communitic.'I. ·nu:se erfo11.o; will incrca.c:e the ovc ·..ill 

value or other hon\e..s in these ncighborhocids, and. iitcl"Cilsc the s;1fcty ·of the communily. WI.lie 

1hi') i,"t.c;nc wni: brought to our allenlion hy" New York.,b:iscd comp,111}', the addition rif R.·.O 

prnpc11ic.c; lo the J.I.P would rosier ,tnd promote: a nation-wide m:1rke1 lni,t \'1>11ld :;t.ibilizi: ho-nc 

v;-,l11cs nnd rejuvenalt: neighborhoods. Llkcwisr:, we unclcr~ll!nd lhal the Arncric.an Hnnk .;:~ 

/\ssui:ic1liun :mpporls inclusion of Rl!Os in the 1..LI'. ns iitotcd in thei1 commcnls :itubmitlcd to 

the .Fcdcml Dcp<>.'lit Tnsurance Corporation (FDIC) on April 9, 200<>. 

Current ;:ovcmmenl clTorts for oddrc:t!-ine, the incrc.'l$inu numl)t,.T r,I' fon.,;loscd horr ~. 

such a~ the Neighborhood Stabilizntion l

1

rogrnm (NSP) havo nor shown 1hctnsc!V1.:s lo he 

atlcquRlc lo clc.,f wilh the gm.wing supply or Rf-:O pmpc11ics, !i:O lhc j'M'IJ:itivc ·clli:cr.-. hnvc 1e>~ 

been felt n.s fully a." -they toukl otherwise have been with belter su~>porl and funding. 1 he 

umounl of privale inv~lmenl 1h.1t can come through PPJF could have a l;!rc.Jt 1mpncl Nl rcduc n~ 

the supply uf REO properties, i!nd bringinJl Al'>oul :Ill of lhc:;c po~ilivc on<I :;1,1hili.l!ing effect~ :or 
both con11nuni1ies and ban.kin~ b:ilnnci.: i;hccls. Clearly, thi:; will hcl1, achieve the g.onl of the 

PPIF while ;,!so positively a<l<lressing some of the c1·itiC.1I housing is:mcs .faced by Ir ~::al 

t!overnments nation-wide. 

In conclusion, in li,tZht of oil of the positive effects th::it. now frc,m invc.i.Ling in I~ HO 

properties, we \1{1;C you lo add REO properties tl5 un r1!;SCt clmis 1111clcr lhc J'f'lf LLP r.dol 

program and to support 1hc reh:ibiliratiC'!tl of not only bank balilncc- sheets, bu1 c1lsu or ,)ur 

neighborhoods and comnmnilie.c:. 

Sincerely,· 

--~ •, 

/ 

PET~R T. KJlj{; / 

Member of Congreo/ 

CA,l~/yL YN n. M AT.hNEY ·U' 

Mem'6cr of Cong..re.qs 

~~~--~f~'.Alffl-1 Y 

Membt:r of Congress 
i.M'J-/O'f.l 

SHEILA C, BAIR 

CHAIRMAN 

FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

August 3, 2009 

Honorable Christopher J. Dodd 

Chairman 

Committee on Banking. Housing, and 

Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

Thank you for your recent letter concerning efforts to help peop]e save their homes from 

foreclosure. As you know, the Federal Deposit Insurance Corporation has actively participated 

in initiatives to promote loan modifications that will provide at-risk borrowers the opportunity to 

keep their homes if they are willing and able to continue making their mortgage payments at a 

lower interest rate. For borrowers with both first arid junior lien mortgages on their homes, your 

letter cites the unwillingness of junior lienholders to accept reasonable compensation for the 

cxtinguishment of their liens as a significant impediment to the success of the HOPE for 

Homeowners Program. You are concerned this unwillingness may be the result of inadequate 

loan loss allowances on the books of large mortgage servicers who hold junior lien mortgages as 

assets on their balance sheets. 

Toe FDIC has long emphasized in policy guidance to banks and through its examination 

process that each institution is responsible for maintaining an allowance for loan and lease losses 

at a level that is appropriate and determined in accordance with general]y accepted accounting 

principles. When estimating the appropriate level for the allowance, each institution's 

Illanagement is expected to consider al] significant factors that affect the collectibility of the loan 

portfolio as of the evaluation date. TJwse factors may vary over time and from one type ofloan, 

such as junior lien residentia] mortgages, to another. ' 

We recognize that proper financial reporting by depository institutions in their financial 

statements and regulatory reports is essential to sound decision-making by investors, creditors, 

regulators, and the public, as weH as by the institutions themselves. Establishing an appropriate 

amount for the allowance for loan and lease losses requires significant judgment and is one pf the 

most critical accounting estimates for an institution, particularly in the current economic 

environment. Accordingly, to supplement existing supervisory policies, the FDIC has issued the 

enclosed guidance to the institutions it supervises. The guidance reminds institutions about 

certain key loan loss allowance concepts and requirements. In addition, it addresses more 

specifically a1lowances for junior lien residential mortgages, including qualitative or 

environmental factors to be considered in determining an appropriate allowance level for such 

loans. We believe this guidance should reinforce our ongoing efforts to ensure institutions 
maintain Ioai:i loss allowances at levels that appropriately reflect the impact of relevant current 

trends and conditions on loan collectibility. 

This guidance cautions banks that failure to timely recognize estimated credit losses 

could delay appropriate loss mitigation activity, such as restructuring junior lien loans to more 

affordable payments or reducing principal on such loans to facilitate refinancings. Please be 

assured that my examiners will continue to evaluate the effectiveness of an institution's los.s 

mitigation strategies for loans as part of their assessment of the institution'~ overall financial 

condition. · 

Agmn, thank you for sharing your concerns, and I hope this information is helpful. If you 

have further questions or comments, please do not hesitate to contact me at (202) 898-6974 or 

Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
FDII 

Federal Deposit Insurance Corporation 

55017th Slreet. NW Washinmon D.C. 20429-9990 

Financial Institution Letter 

FIL-43-2009 

Augustl,2009 

ALLOWANCE FOR LOAN AND LEASE LOSSES 

Residential Mortgages Secured by Junior Liens 

Summary: When estimating credit losses on each group of loans with similar risk 

characteristics, an institution should consider its historical loss experience on the group, adjusted 

for changes In trends, conditions, and other relevant factors in the current economic environment 

that affect repayment of the loans in the group as of the allowance evaluation date. The need to 

consider all significant factors that affect collectibility is especiafty important for loans secured by 

junior liens on 1-4 family residential properties Qunior lien loans) in areas where there have been 

declines in the value of such properties. See the attached ~Allowances for Loan and Lease 

Losses in the Current Economic Environment Loans Secured by Junior liens on 1-4 Family 

Residential Properties.• 

Distribution: 

FOIC-Super,,ised lnstilutlons 

Suggested Routing: 

Chief Executtva Ofllcer 

Chief F"nanclal Officer 

Chief Credit Officer 

Related Topics: 

• lnteragency Statement on the Allowance for Loan 

and Lease Losses 

• Polley Statement on ADaNance for Loan and 

Lease Losses Methodologies and Documentation 

for Banks and Savings Institutions 

Attachment: 

Allowances for Loan and Lease Losses In the 

Current Economic Envirorment Loans Secured by 

Junior Liens on 1-4 Family Residential Properties. 

Contact: 

FDIC Regional Aa:ountant or Robert Storch, Chief 

Acccuntant, Division of Super,,ision and Consumer 

Protedlon, on 202-898-8906 or rmrch@fdlc.gov. 

Note: 

FDIC financial Institution letters (Fils) may be 

accessed fram the FDIC's Web site at 

www.fdlc.govfnews/newsJTlnanclal/200911ndex.html. 

To receive Fils electronically, please visit 

http:J/www.fdlc,govlabouVsubsc:riptions/fil.html. 

Paper copies of FDIC flnaridal lns11tution letters 

may be obtained through the FOIC's Public 

Information Center, 3501 Fairfax Drive, E-1002, 

Arlington. VA 22225 (1-Bn-215-3342 or 703-562-

2200). 

Highlights: 

• At least quarterly, each institution must analyze 

the collectibility of its loans held for investment 

and maintain an allowance for loan and lease 

losses (Al.LL) at a level that is appropriate and 

determined in accordance with generally accepted 

accounting principles .. 

• An appropriate ALLL covers estimated credit 

losses on individually evaluated loans that are 

determined to be impaired and on groups of loans 

with similar risk characteristics that are collectively 

evaluated for impairment 

• After determining the appropriate historical loss 

rate for each group of junior lien loans with similar 

risk characteristics, management should consider 

those current ttualitative or environmental factors 

that are likely to cause the estimated credit losses 

on these loans as of the ALLL evaluation date to 

differ from the group's historical loss experience. 

• Failure to timely recognize estimated credit losses 

could delay appropriate loss mitigation activity, 

such as restructuring junior lien loans to more 

affordable payments or reducing principal on such 

loans to facilitate refinancings. Examiners will 

continue to evaluate the effectiveness of an 

Institution's loss mitigation strategies for loans as 

part of their assessment of the Institution's overall 

financial condition. 
Congress of tbt ltnittb ~tatts 

Rl.ut,inifon. »£ 20510 FDIC 

lbe I lonorable Ben Bcmanke 

Chainnan 

Board of Governors of the 

Federal Reserve System 

20th and Constitution A venue, NW 

Washington. DC 20551 

"lbe Honorable John Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

Administrator of National Banks 

Washington, DC 20219 

The Honorable Michael E. Fry.1.cl 

Chairman 

National Credit Union Administration 

l TI5 Duke Street 

Alexandria. VA 22314-3428 · 

Dear Sirs/Madam: 

July I 0, 2009 JUL 1 0 2009 

"lbe _I lono~ila,G...llaj,. •-• lt'rAIM 

Chamnan UI' Lt\,~[AJIVt Nrl"IIKil 

Federal Deposit Insurance 

Corporation 

550 It" Street, NW 

Washington, DC 20429 

Mr. Jcihn E. Bowman 

Acting Director 

Office of Thrift Supervision 

1 700 G Street. NW 

Washington. DC 20552 

One of our highest priorities as Chairmen. respectively. of the Senate Committee on 

Banking, i lousing. and Urban Affairs and the I louse of Representatives Financial Services 

Committee has been to help people save their homes from foreclosure. To do so, we have sought 

to create adequate tools to address the foreclosure crisis created by the bubble in housing prices, 

aggressive marketing of ~sky mortgages, weak underwriting standards, and inadequate regulation. 

A key part of this effort W<'S the creation of the If OPE for Homeovmers (1141 l) program. 

enacted as part of the Housing and Economic Recovery Act of2008 (HERA). and the 

improvements made to the program in the Helping Families Save Their Homes Act of 2009. The 

program is premised on the view, ex.pressed by Federal Reserve Board Chairman Bemank.e and 

others. that the creation of equity for troubled homeowners is likely to be an effective tool for 

helping families keep their home~ and avoid foreclosure. 

In recent discussions with servicers, investors in mortgage backed securities. and 

Administration officials, it has become clear that one of the most significant im~dimcnts to the 

success of 114H is the unwillingness of subordinate lien holders to extinguish their liens as 

required for_ participation in this program, even in return for offers of reasonable compensation. 

This is true despite the fact that these subordinate liens ~ay have minimal economic value. 

We understand that the nation's largest mortgage servicers carry on their balance sheets 

significant volumes of these subordinate liens in the form of closed-end second mortgages or 

home equity lines of credit. We arc concerned that the loss allowances associated with these 

subordinated liens may be insufficient to realistically and accurately reflect their value. especially 

in light of the historically poor performance of first lien mortgages and seriously 
diminished values ofthe underlying collateral. As you know, the nation has experienced sharp 

declines in home prices. with funher declines expected in many markets. This has resulted in as 

many as 20 percent of all homeowners having mortgages that exceed the value of the home. 

These numbers are likely lo be much higher in the case of option AR Ms and subprime loans. 

Many subordinatc liens stand behind these mortgages. Carrying these Joans at potentially 

innated values may contribute to resistance on the part of scrvicers to negotiate the disposition of _ 

these liens. and thus may stand in the way of increasing participatio11 in the 1-1411 program. 

]nadequate reserving would also overstate lhe capjtal position of these institutions at a time when 

an accurate picture of the capital adequacy of the banking system is crucial. 

We urge you and your staff to look into this issue as expeditiously a.s pos.'>ihle 10 ensure 

that we can achieve the vital goal of the 114H to hdp American families build equity and keep 

th~ir homes. -Please he in c<.intacl with us or our staff to review your findings in this area as soon 

as possible. · 

Thank you for your prompt attention to this matter. 

Sincerely. 

CHRISTOPHER DODD 

Chairman 

Senate Committcc on Banking. Housing and 

Urban AITairs 

Chairman 

J louse of Representative~ Committee 

on Financial Services 
Allowances for Loan and Lease Losses in the Current Economic Environment: 

Loans Secured by Junior Liens on 1-4 Family Resf dential Properties 

AlJowance Concepts and Requirements 

The Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued by the 

federal financial institution regulatory agencies in December 2006, 1 states that the allowance for 

loan and lease losses (ALLL) · 

represents one of the most significant estimates in an institution's financial statements 

and regulatory reports. Because of its significance, each institution has a responsibility 

for developing, maintaining, and documenting a comprehensive, systematic, and 

consistently applied process for determining the amounts of the ALLL and the provision 

for loan and lease losses (PLLL). To fulfill this responsibility, each institution should 

ensure controls are in place to consistently determine the ALLL in accordance with 

GAAP [i.e., generally accepted accounting principles], the institution's stated policies 

and procedures, management's best judgment, and relevant supervisory guidance. 

As of the end of each quarter, or more frequently if warranted, each institution must 

analyze the collectibility of its loans and leases held for investment (hereafter referred to 

as "loans") and maintain an ALLL at a level that is appropriate and determined in 

accordance with GAAP. [Footnote omitted.] 

An appropriate ALLL covers estimated ~redit losses on: 

• Loans that an institution individually evaluates and determines to be impaired under 

Statement of Financial Accounting Standards No. 114, Accounting by Creditors for . 2 

Impairment of a Loan; and • 

• Groups of loans with similar risk characteristics that the institution evaluates collectively for 

impairment under Statement of Financial Accounting Standards No. S, Accounting for 

Contingencies (FAS 5).3 

According to the Interagency Policy Statement, the term "estimated credit losses" means an 

estimate of the current amount of loans that it is probable the institution will be unable to collect 

given facts and circumstances as of the evaluation date. Estimates of credit losses should reflect 

consideration of all significant factors that affect the collectibility of the portfolio as of the 

evaluation date.4 

The Interagency Policy Statement further notes that changes in the level of the ALLL should be 

directionaUy consistent with changes in the factors, taken as a whole, that evidence credit losses, 

1 http://www.fdic.gov/ncws/ncws/financial/2006/fil061 OSa.pdf. 

1 In the Financial Accounting Standards Board's Accounting Standards Codification"TM, sec Section 310-10-35, 

Receivables - Overall - Subsequent Measuremcnl 

J In the Accounting Standards Codification"TM, see Subtopic 450-20, Contingencies - Loss Contingencies. 4 Thus, under GAAP, the purpose of the ALLL is not to absorb all of the risk in the loan portfolio, but to cover 

probable credit losses that have already been incurred. · 
".' 2 -

keeping in mind the characteristics of an institution's loan portfolio. In this regard, if declining. 

credit quality trends relevant to the types of1oans in an institution's portfolio_ are evident, which 

is generally the case in the current economic environment, the ALLL level as a percentage of the 

portfolio should generally increase, barring exceptionally high charge-off activity. 

In particular, institutions are reminded that, when estimating credit losses on each group of loans 

with similar risk characteristics under FASS, they should consider their historical loss 

experience on the group, adjusted for changes in trends, conditions, and other relevant factors 

that affect repayment of the loans in the group as of the ALLL evaluation date. 

Considerations Related to Loans Secured by Junior Liens on 1-4 Family Residential Properties 

Toe need to consider all significant factors that affect the collectibility of loans is especially 

important for loans secured by junior liens on 1-4 family residential properties, both closed-end 

and open-end, in areas where there have been declines in the value of such properties. Thus, 

consistent with the Interagency Policy Statement, after determining the appropriate historical loss 

rate for each group of junior lien loans with similar risk characteristics, an institution's · 

management should consider those current qualitative or environmental factors that are likely to 

cause the estimated credit losses on these loans as of the ALLL evaluation date to differ from the 

group's historical loss experience. 

As noted in the Interagency Policy Statement, these qualitative or environmental factors include, 

but are not limited to, changes in the volume and severity of past due loans in each group of 

junior lien loans and changes in economic and business conditions and other developments that 

affect the collectibility of the junior lien loans. Furthermore, given the unique nature of junior 

lien loans, other factors that an institution should ta.lee mto account would include, for example: 

• Changes in tl).c repayment status of the junior lien borrowers' loans secured by first (and any 

other more senior) liens on the same 1-4 family residential properties, including the extent 

and severity of delinquencies and the volume of senior lien loan modifications that represent 

troubled debt restructurings, regardless of whether the junior lien loans themselves are 

current or past due; ·~ 

• Changes in the value of the junior lien borrowers' underlying real estate collateral, including 

the extent to which these borrowers' more senior lien loan balances, cir the combined 

balances of the more senior lien loans and the institution's junior lien loan, currently exceed . 

the value of the underlying real estate; and 

• The institution's policies regarding the initiation of foreclosure action on junior lien loans 

and the submission of bids on foreclosure sales initiated by more senior lienholders when the 

value of the underlying real estate collateral is insufficient to adequately protect the 

institution's junior lien position. 

The FDIC recognizes that determining the appropriate level for the ALLL for each group of 

loans with similar risk characteristics under FAS S is inevitably imprecise and requires a high 

degree of management judgment Nevertheless, delaying the recognition of estimated credit 

losses on junior lien loans secured by 1-4 family residential properties by failing to properly 

consider the current effect of more senior liens on the collectibility of an institution's existing 
-3-

junior lien loans is an inappropriate application of GAA.P. Additional supervisory action may 

also be warranted based on the magnitude of the deficiencies in this aspect of the institution's 

ALLL process. Furthermore, the failure to timely recognize estimated credit losses could delay 

appropriate loss mitigation activity, such as restructuring junior lien loans to more affordable 

payments or reducing principal on such loans to facilitate refinancings. Examiners will continue 

to evaluate the effectiveness of an institution's loss mitigation strategies for loans as part of their 

assessment of the institution's overall financial condition. 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAJA 

CHAIRMAN 

Honorable Gary L. Ackerman 

House of Representatives 

Washington, D.C. 2051S 

Dear Congressman Ackerman: 

August 3, 2009 

Thank you for your interest in the Federal Deposit Insurance Coiporation's 

Legacy Loans Program (LLP), and for sharing your suggestions and analysis promoting 

the inclusion of Real Estate Owned properties (REO) in the program. 

Since the LLP was announced in March, we have been encouraged to see that 

banks have been able to raise capital without having to sell distressed assets through the 

LLP. As a result of this renewed investor confidence in the banking system, we have 

postponed the planned pilot sale of assets by open banks. However, the FDIC is 

continuing to work on the LLP. The first test using the LLP funding mechanism 

commenced last week through a sale of receivership assets. The FDIC will analyze the 

results of this sale to see how the LLP can best further the removal of troubled assets 

from bank balance sheets, and in tum spur lending to further support the credit needs of 

the economy. 

No decisions have been made regarding specific asset classes that would be 

eligible for sale through the LLP by open banks. However, REO remains under 

consideration for inclusion as an eli&ible asset 

Thank you again for sharing your counsel on this issue. I look forward to 

continuing to work with Congress toward solving problems in the markets, to stabilize 

our communities and improve our economy. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of 

Legislative Affairs, at (202) 898-3837. 

S~cerely, 

Sheila C. Bair 
ctllUllfl'!i!i of tlpc itnittll ~tlliC!l 

Wusl7in!)hm, DC!' 2L1515 

The Honornble Sheila C. Bair 

Chairman 

Fcdcml Depnsil lnsumncc Corporation 

550 17th Street, N\V 

· Washington, DC 20429 

Dc.ir Chnirm111\ Bair: 

July J 3, 2009 FDIC 

JUL 1 3 2009 

OFFlCE OF LEGISLATIVE AFFAIRS 

As Men,bers of thc:JlinancinJ S!="'iccs Commiucc., we an: wriling lo encourage yo1· to 

include R.e:il .!!stale Owned Propcrtie.~ {RFJr..) as n priorily nssct in Lim Public Private hwcsht-ent 

Funds (PPJF) T.cg;icy Loan Program (IiP). We bditvc that n:cagni~<ng HEO propcrtic..~ as nn 

as.sci class will help :stabili7.c not only bnnk pcu1folios. but also loc.tl cciEthborhood.~ facin~ the 

effects of ever lncrct'l.01ting forccJosun:s. Including REO properties ns nn as.,g:t cli1SS will I .:Ip 

.ichicvc dunl goo!~ of impmvini; the hnlancc !lhccts of b.mks. nnd hc:lp c:itablish i1 much-nee led 

flnnr on home prices. 

·1110ugh lhc increase in home foreclosures had be~ lcinpororily ab.lted. ii h:is b~n 

crc-cping b.iek u1> recently. While improperly utilized tnortgage in.~tru1nc:nts were: the main driYCr 

of the first wnvc of increased foreclosures, we fear th.it in the 11Cilr future, forcclO!iUrc." • ~;11 

cnntinue to occ\lr hecatr.c;c of the deep ~ion and high unemployment rate. which con.,>in 10 

mrucc it increasingly difficult for 11U1ny hon1e:0w11crs -tu continue lo meet tht!ir mortg ie.c 

p11.yn11:n1s. As _rorcclosun:.ot incCC35c, banks wm be e\'en harder-ptc.~ed to m:i.n:Jtr-e :ind dispoSI of 

their growins inventory of properties. To date. most txmlcs h:tve ~ Un.lbfc or unwilling to :~II 

foreclosed properties in any quantity ,tnll wilt meaningfully reduce their balance sheets, wl!ich 

leaves them with ;:m ever-growing ihvcntory lh.it they mu.<rt rruiM~. Milny b:mks nrc =101 

equipped 10 manage and ml'inrairi these onco-uninh,,hi1ed hl.)l'l1C."t, lcavm,g them In II dilapid;? Ietl 

swh: uml c:ausing :i gcnernl blitrht on C(lmmuniti~ aems.11 the country. 

M;u1y comptmic:s ,m: allt:mpting ~o rehabitituc these forgotten prupertii-:. ;ind n..-ver..c :he 

effects on lbe.'ie home~ ,md sia1:ilitc lhdie communitie;. TilCSe efforts will incre:t..<::c the u't'c ·.111 

value or 01hcr homes in these ncighborboo<fa, and. inc~sc the s."tfc'ty ·of the: community. Wl.ilc: 

thi') illc;nc wn.q brttl.lght lo our allcntion t,y a New York.-..t,ascd com~n.y, the .tddition of R.·.O 

r,rnpertic.._ to the J.I .P would fo:dcr anti promote: a nation-wide ni:1rlcc1 1n111 wuulc.l :;labilizc ho-nc 

vr1l11cs and rejuvcnalc neighborhoods. l.ikcwisc-. we unclct~lnm.l lhaL the A mi:ri~in Hank.;~ 

/\ssoci:diun supports inclusion of Rl!Os in the tLI'. as :dated in thciJ commcnl$ imbmitlcd lo 

the fcdcrnl Dcp9Sit I~uri1nce Coll)oration (FDlC) on April 9, 2009. 

Current J:OYcrnmenl c:ITorts for addrc.~c;ing lhc incrc:1sinu numbt."T ur f On.""Closctl holT ~ • 

.i.uch M the Neighborhood S141bilization Progrum (NSP) h:ivo nor shown thc1nsc!Vt:s to he 

atlcquAtc 10 dc:ill with the growing supply or REO pmpcrtie.c;1 sn the ~,ni;itivc cllccr!". htivc ,c,~ 

been rctt as fully ;is they couh.l otherwise have: been with heller sut,pnrt anti funding. 1 he 

umounl of priv;1tc inv~lmcnl 1h.,t can come th1'0ugh PPIJ.-' could have it ~n:::it 1mprn:I ()11 rccluc ny. 

the supply of REO properties. and bringin~ 111;,c,ul :di or lhc.~e po~iliw and ::1,.,hili.dni:, cffccl~ :or 

,,.., ..... ,i.~ ltr1,,1 1"1Jr11 .-... , ,. 
both communi1ie.s and banking b:il.tnci: iiht.--cls. Clearly, thii; will hcl1, achieve the gosil of the 

PPIF while i>lso positively audressini; some of the ctilical hot1.~ing is.-;ucs .faced by h •::al 

governments nation-wide. 

ln conclusion, in light of oil of the positive efTects lhnL. now fmm investing in r. EO 

properties, we \lrgc yon io add REO properties M un nssct clir~ undL-r the l'PIF LLP r- ,fol 

program and 10 ituppc,rt the reh::ibilirn1i~11 <'>f not only bank bafoncc- sheet$, bur ~lso uf iJUr ;; 

neighborhoods :ind con,nnmiric.i:. 

· .. 

Sincerely; 

(]A Y L ACKERMAN . 

~ he:t ofConi;~i;$ 

OOC~l~ARTI-IY 

Membt:r or Congress 
August 4, 2008 

Honorable Tom Feeney 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Feeney: 

Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency 

Office of Thrift Supervision 

Tbanlc you for your letter concerning the effect enforcement of the USA PATRIOT Act and 

the Bank Secrecy Act (BSA) has had upon the banking industry. The federal banking and thrift 

regulatory agencies (collective)y referred to as the Federal Banking Agencies) have various 

statutory authorities and obligations for regulation, supervision, and enforcement with respect to 

money laut1dering and terrorist financing. and we continue to work diligently to fulfi)I our duties 

within the existing framework. The Federal Banking Agencies recognize the industry's 

compliance efforts and remain committed to maintaining a high level of compliance while 

working to eliminate any unnecessary regulatory burden. We coordinate closely on these issues 

with other authorities as appropriate, including the Treasury Department's Financial Crimes 

Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC); state banking 

supervisors; federal and state regulatory agencies; and law enforcement. To that end, the Federal 

Banking Agencies have issued significant guidance to improve consistency and transparency in 

BSA supervision and enforcement 

In 2005, the Federal Banking Agencies created the Federal Financial Institutions 

Examination Council (FFIEC) BSA/Anti~Money Laundering (AML) Working Group, which 

includes FinCEN and state banking supervisor representation. to enhance coordination and 

consistency in BSA/ AML examination and training functions. Additionally, we participate 

extensively in the BSA Advisory Group (BSAAG), an entity created by statute arid led by 

FinCEN, which serves as a venue for discussion of BSA/AML issues among regulators, 

representatives from industries subject to the BSA, and law enforcement. 

Also in 2005, the Federal Banking Agencies issued the FF/EC BSAJAML Examination 

Manual (Manual) which has been updated twice. The release of this interagency Manual marked 

an important step to ensure the consistent application of the BSA and its implementing regulations 

to all banking organizations. 

Regarding your concerns relating to enforcement activity, we note that 12 U.S.C. I 8 l 8{s)(3) 

requires the Federal Banking Agencies to impose formal enforcement actions for BSA/AML 

program violations. Last year, to ensure better consistency in BSA/ AML enforcement decisions, 

the Federal Banking Agencies released an lnteragency Statement on Enforcement of BSA/A.ML 

Requirements (Statement). The Statement dcscnbes specific circumstances, provides examples 

under which the Federal Banking Agencies will issue a formal enforcement action, and offers 

insight into the consideration of those decisions. This Statement reinforced existing enforcement 

practices regarding BSA/AML compliance as determined by federal statutes and fosters 

interagency consistency and transparency. 
Pertinent to your concerns regarding the impact of cllmpliance upon banking operations, we 

regularly communicate with supervised institutions through the examination process and in other 

venues. This ongoing dialogue serves to promote an understanding of supervisory expectations 

and of current compliance practices and standards as they apply to evolving banking operations. 

We rccogniz.c the considerable challenges institutions have faced in recent years in their ongoing 

efforts to combat money laundering and terrorist financing and to ensure compliance with 

requirements imposed by BSA/ AML statutes and regulations. We a1so recognize that supervised 

institutions have dedicated considerable resources to these compliance efforts and that many 

banking organizations' senior management and directorates.have made BS.A/AML compliance 

efforts a priority. 

As you point out. it is necessary to have an appropriate balance between the prevention of 

misuse of U.S. financial institutions and the maintenance of a strong. competitive U.S. financial 

system. lo instances where the: Federal Banking Agencies play a regulatory role. we endeavor to 

strike such a balance, utilizing input from industry received through the administrative rulemaking 

process. In discharging our supcrvisozy obligations with respect to individual institutions, we seek 

to tallor our examination efforts to take into account each institution's risk profile and risk 

management efforts. 

Finally, with regard to the concerns you raise about account closures, it is not a practice for 

the Federal Banking Agencies to instruct institutions to deny or discontinue offering products and 

services to banks in foreign nations or to international customers, nor is it our aim to discourage 

lawful business. Decisions regarding the operations of banking organizations and the customers 

served, either international or domestic, remain and have always been at the discretion of bank 

management. 

The Federal Banking Agencies take very seriously their responsibility to ensure that banking 

organizations arc effective in their efforts against money laundering and terrorist financing, while 

reducing or eliminating unnecessary regulatory burden. We hope that this response addresses your 

concerns. 

Sincerely, 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency 

M. Reich, Direct r 

ce of Thrift Supervision 
1/lo~-202-

TOM FEENEY 

MEMBER OF CONGRESS 

24TH lllsT111CT, Ft.all'°" 

ASSISTANT WHQt 

·-Offlet, 323 c-- Hou~ o..a a....-a W..-MGTON, DC 20515 

qtongres~ of tbt Wnittb ~tates 

11,ouse of l\tpre.stntatibe.s 

mialbingtan, 1Dct 20515 

COMMITTEE ON 

RNANCIAL SERVICES 

CArrtALMAllars,'-iowoa,AHO 

Govl<-Nf·SroHsOftED EHn111•t1SES 

1202) 22>-2701 

f,uc 1202) 22&-Q99 

www..hause.gwneeney COMMITTEE ON THE JUDICIARY 

Cou«Ts, ,,. INTDINET ""D 

IHTEUICTUIIAI. ""°""'"" 08'\J'TY......_MEMIER 

June 23, 2008 

Federal Deposit Insurance Corporation 

Chairman Sheila Bair 

Federal Reserve Board 

Chairman Ben Bernanke 

Board of Governors 

COMMITTEE ON 

SCIENCE AND ncHNOLOGY 

550 - 17th Street, NW 

Washington, DC 20429 

Office of the Comptroller of the 

Currency 

John Dugan 

Comptroller 

250 E. Street, SW 

Washington, DC 20219 

Financial Crimes Enforcement 

Network 

Director James H. Freis 

P.O. Box39 

Vienna, VA 22183 

Ladies and Gentlemen: 

20th Street& Constitution Ave., NW 

Washington, DC 20551 

Office of Thrift Supervision 

Director John Reich 

1700 G Street, NW 

Washington, DC 20552 

This letter is to bring to your attention our concern regarding the effect that 

current enforcement policies of the Patriot Act and the Bank Secrecy Act are 

having on our financial community and our economy. We understand and 

appreciate your efforts to make sure those for whom you have regulatory 

responsibility are in compliance with the law. Striking the proper balance 

between national security and criminal activity on the one hand and an efficient 

and competitive financial system on the other is not easy but it must be done. 

These are difficult times. Our country and our economy face challenges from 

terrorism, crime, abusive mortgage lending and international competition to 

name but a few. Many of these challenges have lines of intersection with our 

financial institutions. The traditional function of financial institutions has been 

to serve as the conduit for circulation of capital. They now have been given the 

additional role of an arm of law enforcement. Bankers are now in effect the 

policemen and their failure to perform that role to the satisfaction of the 

regulators will subject them to serious punishment. 

We do not think there has been sufficient consideration of the consequences of 

malting the financial services industry an arm of enforcement of non-financial 

12424 RisEAACH PAIIKWAY, Su,n 135 

Cllot.ANDo, Fl 3211211 

14071 20&-i 101 

1000 Orv ~NT!R OIOO.!, 2ND FLOOII 

POIIT Ot,,,u,,ca, FL 32129 

138&1751-9798 

400 SOUTH STNET, SUJTE 4-A 

TmJnlll.!, FL 32780 

132112114-6113 

F,uc 1407) 2011-1108 FA>C 1:JN) 75&-9903 FAJC 1321 I 264-6217 
policies. While each of the mandates may make sense to those who are focused 

on the goal of dealing with drugs, or terrorism, we do not believe that anyone has 

stopped to analyze the cumulative effect of all these initiatives on the health of 

the nation's banking system and its ability to carry out its fundamental functions. 

We know for a fact that many banks have ceased to do busines.s with banks in 

foreign nations. The requirement of having to vouch for the systems of banks in 

other countries, and the requirement to know the political and personal 

background of foreign customers impose expensive burdens on banks and make 

them unattractive to legitimate customers. The reputational, financial and 

regulatory risk of being found wanting in the expectations of regulators and the 

cost of compliance has driven many banks out of the international markets in the 

United States. 

We understand that there are cases where financial institutions have not lived up 

to their obligations to comply with the laws and regulation. These cases, 

however, should not lead to an environment that results in high technical 

compliance at the expense of achieving the original goal of these laws. 

Our laws do not spell out all the detail of regulation. We rely on you to provide 

that and to carry it out with good judgment and common sense, no easy task. 

It is clearly not the purpose of the Patriot Act or the Bank Secrecy Act to lead to 

the closing of the accounts of legitimate businesses, nor is it their purpose to 

discourage lawful business. The administration of these acts should not lead to 

counterproductive results such as defensive compliance'. We urge you to make 

sure that your enforcement policies do not produce consequences never intended 

by these laws and which are contrary to existing policies and the public interest. 

We would appreciate hearing from you what steps are being taken to address 

these concerns. 

Sincerely, 

Crampton, Lall 

From: Parker, Lindsey pJndsey.parker@mail.house.gov] 

Sent Wednesday. ~uly 02. 2008 9:52 AM 

To: Crampton, Lali 

Subject: Signature list 

Lall, 

Here you gol 

Tom Feeney 

Robert Wexler 

Mario Diaz-Balart 

Ileana Ros-Lehtinen 

Cliff Steams · 

Tim Mahoney 

Allen Boyd 

Ron Paul 

Ginny Brown-Waite 

Scott Garrett 

Lincoln Diaz-Balart 

Jeff Miller 

Connie Mack 

Adam Putnam 

Ander Crenshaw 

Vern Buchanan 

Spencer Bachus 

Randy Neugebauer 

Thanks! 

Lindsey A. Parker 

Office of Representative Tom Feeney (FL-24) 

7/l/2008 

Page 1 of 1 
FR I. AUG. U'/; :UU9 IJ4: 4: YM P.ep. Jeb Hensar Ii ng 

JES HENSARLING 

T= S.Tit Dl:TluCT 

DEf>UTY REPUBLICAN WHIP 

COlll/1,tfTTEES: 

BUDGET 

FINANCIAL SERVICES 

~q.,o MEIOEft. 

Sv•a»a1,,.._ °" Fit,,_..t:IA.L 

fN.nnrJIOl'S ANO ~Vt C..Eorr 

~ongre.s.s of tf)e fflniteb ~tatrn 

~au.st of llcprtsmtatibrs 

1!iH.u1Jingfnn,. ?BC 20515 

August 7, 2009 

The Honorable Shelia Bair, Chairman 

Federal Deposit Insurance Corporation 

550 Seventeenth Street, NW, Room 6076 

Washington, DC 20429 

Dear Chairman Bair: 

r. uu.:. !JU j 

05T111CT OFFICES: 

8510 AtAA~ Ro,,.i:, 

SI.JITE2"3 

D.t.w-s, TX 75231 

/2 l.lJ) :kS-99911 

702 EA.c-r Ca,u;,r,uu. STilaT 

Anu~ TX 767•1 

(~lS7~2SII 

IIVEIOl=FJCE: 

www.hl:n..'-arll119.hl:uec.9ov 

Please find enclosed a copy of a letter I sent to Treasury Secretary Timothy Gcithner 

earlier this week ~ot your reference. Please let me lmow if you have any questions. 

Yours respectfully, 

FDlC 

AUG 7 2009 

OFFICE OF LEGISLATIVE AFFAIRS 

1211 c,.,,,,.o,., Houa OFF>c:E But.D<l'«Ji, W.UHWGTt>N, DC 2051S * l202l 225-.34ae 
Ht,. AUi,, u·1niJU!J IJ4: 4:: YM Hep.· Jeb Hensar Ii ng P. 003·003 

Qr.nng1'2.as nf tfp~ 31Inife.o §tat2:s 

Eif 1151Jin¢-on1 130! 2.D515 

The Honorable Timothy Gcithner 

Secretary ofthe Treasury 

1500 Pennsylvania Avenue, NW 

Washington, D.C. 20220 

Dear Mr. Secretary: 

August 4, 2009 FDIC 

AUG 7 2009 

OFFICE OF LEGISLATIVE AFFAJRS 

We were·alarmed at allegations !.hat surfaced today regarding your purporu:d intimidalion 

of federal financial regulators, including federal Reserve Board Chainnan Ben Bemanke. who 

bad e)..-yressed their concerns about aspects of the President's regulatory reform proposal In 

addition 10 Chairman Bernanke, 1h~ group of reguls.1.ots reporf.edJy also included FDIC 

Chairman Shelia Bair, Comptroller of rhe Currency John Dugan, Office of Thrift S\1per,1ision 

Acting Director John Bowman. SEC Chairman Mary Schapiro. CFTC Chairman Gary Gensler, 

·and Fed Governor Danie.I Tarullo. 

As reported in Wall Street Journal today, and apparently confirmed by several regulators 

during their. tl!$limony before the Senate Banking Committee this morning, last wec:k you 

sununaned these independent regulators 10 your offices and c:xco:riated them for havi11g voiced 

their concerns over the Administration's restrucmrlng plans. During the meeting, the Wall Street 

Jcumal reprutc:d that you "blasred'' those present in an "e:r:pleti,,e-laced critiqu~" .featuring the 

~rl!!peaied we of ob1cenilie..1" and an '"aggrt!ssive pa.rlure" designed to tell those re.gu)l5.tors thin 

"enough Is enough." Such attempted suppression of che judgment of fodependent regulators hil.S 

no pla.c.e in our or any other finnncial system, and is directly contrary lo thi, Adminislration'I 

stated goals ofinczusing transparency and crCS1ting ~ safer, more stable economy. 

Jf these allegations are correct, we are gravely conccmc:cl lhar yol.1 would attempt t6 abuse 

your position 10 sih:nce the ~ opinions of the very pub!ic servai,ts who are charged ·with 

ensuring the safety and soundne~ of our financial system. Federal regulators 8.1 the Fed, FDlC, 

SEC; OCC. CFTC. and OTS are staturorily designated as· independent for .i specific reoson - so 

I.hat they can provide unbiased assessmcnis to Members of Congress and the public regarding the 

health of our financ.il\l system. Any al1empt to intimidate these offici.ils from. speaking their 

minds or to suppress their concerns on issues affecting 1heir agencies because it does not fit into 

yo\1r Administration's _political agenda would be a significant. abrogation of th~ public's trust ond 

a substantial deviation from the Administrntion's commitment to transparency. Thus, we request 

that you provide an explanation of the nature. of lhis meeting, including \.'rnat if any limits you 

attempted to place on these officfals as well es a written explanation of Treasury's inlemal 

policies and procedures with rcspec{ to itS interaction with these independent agencies. 

Sincerel)•, 

~RBACHUS 

Member of Congress 
FDII 

Federal Decosit Insurance Corooration 

550 17th Street NW, Washington, DC 20429 

Honorable Susan M. Collins 

United States Senate 

Washington, D.C. 20510 

Dear Senator Collins: 

Office of Legislative Affairs 

August 11, 2009 

Thank you for your comments concerning the Federal Deposit Insurance Corporation's Proposed 

Rule on Acquisition Policy. I can assure you we will carefully consider your concerns and those 

of the other commenters. 

We appreciate for your interest in this important issue. If you have further questions, the Office 

of Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
WASHlNGTON, D..C. 20510 

August 6, 2009 

Sent \ia email to CommOJ.ts@.FDlC.gov 

The Honorable Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17'11 Street. N.W. 

Washington. D.C. 20429 . 

RE: RIN 3064-AD47: Proposed Statement of Policy 

on Qualifications for Failed Bank Acquisitions 

Dear Madame Chairman: 

LIJ0?-12'f=,-

Co//:115 

The purpose of this letter is lo offer strong support for the proposed statement of policy 

issued by the Fedeml Deposit Insurance Corporation (FDIC) clarifying the qualifications tbaI 

must be met by priva1e capital investors wishing to acquire or invest in a fitlled United States 

bank or thrift. While supportive of the provis.ions as currently drafted, we also recommend 

strengthening the proposed policy stat~ent related to seci:ecy law jurisdictions. 

Stable and prosperous banks arc key to a thriving U.S. economy. Baoics provide the 

credit and firumcing that is the lifeblood of businesses, communities, and families. They offer 

critical financial services, such as money transfers. checking accounts, and credit cards. that 

enable modem society to function. 'J1lcy play a lyncbpin role in the housing and real estate 

markets. They protect savings and retirement nest eggs. 

When banks collapse. they disrupt the local economy. impose economic hardships on 

clients, hurt surrounding communities, and impair other fin:ncial institutions and businesses. In 

addition, a failed bank can undermine confidence in the U.S. financial system as a whole and 

even precipitate more failures and economic problems. 

We have witnessed many bank and thrift failtm:s, from the $150 billion savings & loan 

crisis during the 1980s, to the wa_ve of bank failure.s during the early 1 ~Os, to the thrift and bank 

failures over the last year associated v.ith the current financial crisis. We have seen howihose 

failures, despite government intervention, have? disrupted communities and required htn1dreds of 

billions of doUars to resolve. This receμt history amply dcmonstralcs the importance of the 

precautions taken by the FDIC to ensure that those wishing to purchase a failed institution 

understand and ~t the public trust involved in owning a U.S. bank or thrift, and have the 

means, expertise, and commitment needed to ensure a safe and sound banking institution. 

Traditionally, banks and thrift.sJ1avc been O'\\ned by holding companies whose investors 

have included individuals, corporations, and limited liability companies. In recent years, 
2 

however. additior.:al classes of investors. such as pri\'a~ equity funds and hedge funds. have 

sought to acquire ownership interests in failed U.S. banks and thrifts. These prospective 

invc. .. iors, ref erred to as "private capital investors" in the proposed guidance. have raised 

concerns due to perceptions that some may favor short-tenn investment returns over long-term 

commitments, and pref er secrecy to the transparency that has traditionally characterized bank 

ov.'llership in the United States. To allay these concerns. provide notice of the expectations and 

standards related tc, U.S. bank ownership, and afford private capital investors the opportunity to 

acquire ownership interests in a failed U.S. bank or thrift on terms that protect the public, the 

FDIC has developed needed guidance on some of the qualifications required to become an O\\-'Iler 

of a failed U.S. insured depository institution. 

The proposed guidance presents nine common-sens~ policies, derived from FDIC 

standard banking practice and experience, that must be adopted by private capital investors 

seeking lo acquire or invest in :i failt:d U.S. bank or thrift. All are important, but one in 

particular, re.garding secrecy law jurisdictions. should be further strengthened. 

Capital Commitment, Source of Strength, and Continuity of Ownership. First and 

most importantly, Lhc proposed guidance makes it clear that those wishing to take o,vncrship of a 

failed U.S. bllllk or thrift must stand ready lo make a sustained cornmitm~nt of capital over a 

period of years. The proposed policy statement on capital commitment makes it clear Lliat 

investors must be willing to provide adcqua.1e capita! at I.he time of acquisition 1.o ensure an 

ongoing t:oncem. The f ollo,ving source of strcnglh policy statement makes it plain that, after 

providing nn initial capital outlay, investors must be -y,illing lo raise additional capilal or borrow 

funds if m .. -etled to ensure an institution's ongoing viability. The proposed policy on continuity of 

ownership would prohibit investors in a failed U.S. bank or thrift from selling their securities in 

the institution or its holding company for a minimum of~c years, absent FDIC approval. 

Together, these three safeguards make it ·c1ear that acquiring a U.S. ban.k or th.rift should not be 

viewed as a short-tenn investment _opportwlity to tum a quick pro.fit. but must be treated as a 

long-term commitment requiring steady and significant investment over several years. Only. 

investors willing to meet each of these commitments should be eligible to take ovmership of a 

failed U.S. b3Ilk or thrift. 

The proposed guidance requests comment on whether three years is the correct period of 

time to prohibit the sale ofrclcvant securities after acquisition of a failed institution. From our 

perspective, three years is the minimal acceptable period and may even be too brief. Failed 

financial institutions typically require several years to regain their footing. and require dedicated 

funding and support during that period. Since it is not uncommon for private equity .funds and 

hedge funds to make investment commitments of three lo five years in other endeavors, this 

requirement is both reasonable and prudent. Any shoner period would invite investors with 

shorter time horizons, whose primary goal may be to tum a profit rather than contribute to a 

stable banking inslitution wiJling and able to provide the lending and financial services our 

communities nee<l. A shorter time period might also encourage more rapid turnover in bank 

llwnership, which would be an unhealthy and undesirable development. 
3 

Cross Guarantees. The: proposed guidance also contains a policy statement that would 

require investors seeking to gam an ownership il)terest in more than one U.S. bank or thrift to 

pledge !heir proportionate interests in each such institution to pay for ill"!Y FD[C in.-.urance loss. 

This cross guarantee commitment is not only prudent, but would help ensure that private capital 

investors understand that it is not possible to game the system by segregating .or hiding assets 

from the FDIC in the event of a bank or thrift failure. 

Transactions with Affiliates. Nc>.."t, the proposed guidance contains a policy statement 

making it clear that a bank or thrift ovmed hy private capital jnvestors may not offer any credit to 

those iov~stors. their investment funds, investment companies. or affiliates. This prohibition 

n:Oects standard practice within the banking industry aimed at preventing insiders from taking 

advantage of the banks they own. It is a response to a sordid history of some bank insiders who 

have obtained large loans, failed to repay them. depleted bank capital, and contributed lo 11 

weakened bank. This prohibition on insider loans is a.'1 essenti~ safeguard to make it clear to 

private capital investors that they cannot c.-..pcct their ownership interest in a U.S. bank or thrift to 

tr-.mslate into a financial institution available to provide loans lo their affiliates. 

Secrecy Law Jurisdictions. The nc>.."t safeguard, which proposes restrictions related to 

secrecy law jurisdiction.~ is particularly significant lt is a rei;ponse lo the attempt of some 

private capital investors to usc offshore structures injuristlictions with secrecy laws to establish 

their ov,1m:rship interests in a U.S. bank or thrift. Apparently, some private equity funds or hedge 

funds seeking to acquLr-e a failed institution proposed cloal-ing their ownership interests bchbd 

offshore shell entitic..-., making it difficult for the FDJC lo determine the identity of the 

prospective o"W11ers. · Some apparently even proposed setting up an offshore ownership structure 

with the intent, afl:er acquisition ofa failed institution. of quiddy transferring or "flipping" that 

o\\-11ership to a new strUclure. Such efforts are a direct affront to U.S. traditions of transparent. 

stable. and prudent bank ownership. 

There is simply no justification for the FDIC or any other U.S. regulator lo allow a 

prospective! m,.,11er of a U.S. bank or thrift to use an off.c;hore ownership structure instead of an 

O\l,ncrship structure established right here in the United States. Offshore structures, by their 

nature, arc outside of U.S. regulatory control, invite disputes over secrecy Jaws and practices, and 

raise concerns about how to resolve conflicting laws between the United States and the offshore 

jurisdiction. Offshore structures also have a history of association with financial fraud, money 

laundering, tax evasion, and other misconduct and, due to secrecy lav.'S, have posed obstacles lo 

investigative efforts by U.S. law enforcement and regulators. 

1n one investigation conducted by the U.S. Senate Permanent Subcommittee on 

Investigations, several hedge funds and private equity fwrls established by t\.vo U.S. citizens, 

S2.m and Charles Wyly, used offshore structures to secretly funnel millions of dollars in offshor¢ 

funds into the United States. The owners of those offshor~ funds were hidden behind layers of 

offshore corporations and trusts, and were difficult to identify. Subcommittee im•cstigations 

have often found that offshore structures have been used lo dodge payment of U.S. ta.-..es, 
4 

including by hedge funds avoiding truces owed on U.S. dividends and by nonprofit entities 

avoiding payment of unrelated business income taxes. · 

A policy allowing offshore owners of U.S. banks and thrifts would open the door to a 

wide range of transparency problems, questionable arnmgements, and potential abuses, with no 

countervailing benefit to the United S~tes. U.S. bank ownership has traditionally been founderl 

on U.S. ownership structures; there is no reason to start moving U.S. bank ownership offshore 

_ and a multitude ofreasons against allowing offshore arrangemcnLc; that could undermine effective 

u.S. regulatory oversight and control of U.S. financinl institutions. 

The proposed policy statement, as currently worded. seeks to place a variety of conditions 

and resuictions on the use of offshore o·.ii.rnersbip structures, but fails lo take the necessary step of 

simply prohibiting their use as an ownership vehicle for U.S. banks and thrifis. The statement 

should be strengthened to establish a clear policy against allowing offshore ownership structures 

for U.S. banks and thrifts. To establish this prohibition., the current policy statement could be 

reworded as follows: '·Investors employing ownership structures utilizing entities that are 

domiciled in bl!nk secrecy jurisdictions are not eligible to own a direct or indirect .interest in an 

insured depository institution.'~ 

If the proposed policy statement does not cstabli~ a clear prohibition, it should at least he 

clruified. As currently drafted. the proposed provision would allow offshore ownership 

structures if the .. Investors are subsidiaries of companies that arc subject to comprehensive 

consolidated supervision ('CCS') as recognized by the Federal Reserve Board." Jt is not clear 

what subsidiaries would be covered by this language. Stand-alone private equity funds and 

hedge funds arc not typically subject to comprehensive consolidated supervision, so presumably 

their subsidiaries would not be cov~red. On the other hand, the provision could perhaps be 

interpreted to allow offshore structures established by subsidiaries of hedge funds registered wilh 

the Securities and Ex-change Commission under the Investment Advisers Act Alternatively, the 

provision could be interpreted to ailow only offshore structw-es set up by a subsidiary of a bank 

or hmkcr-dealer. If that is _the intent of the provision - to allow only those offshore structures 

own~d by a subsidiary of a bank or broker-dealer already subject to U.S. regulation- that 

restriction needs to be spelled out. The question would remain, of course, why the guidance 

would allow a regulated entity to hold its ownership interesl through an offshore structure rather 

than a structure fonned right here in the United States. It should not, as urged above. 

'lbc remaining portion of the provision. ns currently drafted, essentially tries to force an 

·allowable off.c;hore entity lo keep its books and records in the United States, to accept service of 

process in the United States, to disclose information to U.S. regulators, to coopcr,dc with FDIC 

information requests, and to car.sent to be bound by U.S. laws and regulations. Instead of 

creating this thicket of requirements to try to require an offshore entity to operate as if it were a 

U.S. entity, the more straightforward, sensible, and prudent approach would be to require 

prospective o1⁄4ners of U.S. banks and thrifts to use U.S. ownership structures in the first place. 
5 

Special Owner Bid I.imitation. The next proposed policy statement is also important 

rt would make investors who directly or indirectly own l O percent or more of a U.S. bank or 

thrift in receivership ineligible to sc:c:.L: ownership of that failed institution's liabilities or assets. 

·tbis safeguard would remove any incentive fur an e.x.isting bank or thrift owner to place the 

instit.ntion in receivership so that it could Lhen bid on the failed iru.'titution's assets BJ1d liabilities. 

Since some private equity funds and hedge funds specialize in taking over failed businesses, 

clisman1ling thciT operations, and selling their assets and debt instruments, this precaution is 

necessary to inform private capital investors that such an approach is not pcnnitted in the case of 

an insured depository institution. 

Disclosure. The ne>..i policy statement in the proposed guidance states that private capital 

invei.wrs wishing to acquire or invest in a U.S. bank or thrift"must he prepared lo submit to the 

FDIC info::mation ahout all entities in its o·wnership chain. the volume and nature of its assetc;, 

the returns earned on its investment activities, its management ~ and its business model. 

This policy statement is essential lo ensure that privn.le capital investors understand that 

ownership of a U.S. bank or thrift requirc:s thl!Itl to provide full disclosure to the FDIC of their 

ownership, operations, profitability, and stability. Such transpnrcacy is essential to ensure 

c.ffective and prudent oversight and regulation by U.S. regulators. Private equity funds and hedge 

funds that want to keep such information confidential from the FDIC must understand that I.hey 

arc ineligible to take ownership of a failc:d U.S. bank or thrift 

Limitdions. Finally, the proposed guidance would make it plain that nothing in its 

policy statements would restrict or supcrcede any other statutory or regulatory requirement 

rdat!!d to owning or operating a U.S. bank. including requirements related to a prospective 

ovmcr · s general character. fitness, expertise, and employment of competent management. 

More banks an~ 1hrift:s have failed in 2009 than in the prior decacle, and mon: failures arc 

to come. Each ofthc:se failed institutions undergoes analysis by theFDlC to detennine \\'hether 

it should ;,,e closed or sold. We cannot aITord to have those failed financial institutions sold to 

new ovmers without the.means, commitment, and expertise to operate them as going concerns. 

The proposed FDIC guidance ,viii help ensure that only those private: capital investors who are 

willing to make a sustained commitment \\:ith full transparency can acquire ownership of our 

hanks and thrifis, and that those investors seeking to make a quick profit at the expense of our 

communities and our financial system are turned a,\--ay. 

Thank you for this opportunity to comment on the proposed rulemaking. 

Sincerely, 

Susan M. Collins Qaniel K. Akalca 
FDII 

Federal Deoosit Insurance Comoratlon 

550171h S1rae1 ~. Washington, DC 20429 

Honorable Jerry Costello 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Costello: 

Office of Legislative Affairs 

August 11, 2009 

Thank you for your letter regarding a constituent's concerns about loans to residential real estate 

developers and re-appraisals that resulted in a significant devaluation of the mortgaged properties. 

We agree with your constituent that real estate developers are contending with extremely challenging 

market conditions, exacerbated by the turmoil in the capital markets. As. a result, credit availability 

has suffered. Banlcs also have taken reasonable steps to re-value collateral as property values have 

declined during the past several years. Despite these economic changes, we can assure you that the 

Federal Deposit Insurance Corporation has not changed its expectations for prudent commercial real 

estate loan underwriting and admiilistration or for obtaining updated appraisals on collateral. We 

strongly encourage banks to continue lending and to work with their financially distressed borrowers 

(see enclosed Statement). 

Further, the FDIC provides banks with considerable flexibility in dealing with customer relationships 

and managing loan portfolios. We do not instruct banks to curtail prudently managed ~ending 

activities, restrict lines of credit to strong borrowers, or require appraisals on performing loans unless 

an advance of new funds is being contemplated. Rather, we encourage financial institutions to strive 

to maintain healthy credit relationships with businesses and other creditworthy borrowers to enhance 

their own financial well-being, as we~- as to promote a sound _economy. 

Your interest in this matter is appreciated. If you have further questions. the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

Sincerely. 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
FDII 

Federal Deposit lnsuranc• Corporation 

550 171h Slralll NW, Washington, 0.C. 20429-9990 

Financial Institution Letter 

FIL-128-20O8 

November 12, 2008 

INTERAGENCY STATEMENT ON MEETING THE-NEEDS OF/ 

CREDITWORTHY BORROWERS 

Summary: The FDIC joined the other federal banking agencies in Issuing the attached '"Jnteragency 

Statement on Meeting the Needs of Creditworthy Borrowers• on November 12, 2008. 

Distribution: 

FDIC-Supervisedlnstllullans 

Suggested Routing: 

ChW Execuliw Ollie.er 

Senior Cn:dit Officer 

Attachment: 

"lnlllragency Slatamenl on Meelillg lhe 

NNds of Credllworlhy Borrowen" 

Contact: 

lnstllullon's conlad persan (Casa Manager 

or Field Supervisor) at applic:abllt FDIC 

Regional Office. or Associate Direclor 

S111Y11n D. Frill$ ir, washington at 202-898• 

3723 and sfrills(i)fdic;.qov 

Nola: 

FDIC linandal inslilution letters (Fils) may 

be accessed from lhe FOIC"s Web sllll al 

www fcfrc qov/newsmewslllnanclal/2008[,n 

HIQhllghts: 

Several federal programs have recently been instituted to promote 

financial stability and mitigate the effects of current market conditions on 

insured depository institutions. These efforts are designed to improve the 

functioning of credit marlcets and ~nglhen capital in our financial 

system to improve banks" capacity to engage in prudent lending during 

these times of economic cfistress. 

The agencies expect an banking organizations to fulfill their fundamental 

role in the ea;,nomy as intenned"iaries of credit to businesses, consumers, 

and other creditworthy borrowers. lending to creditworthy borrowers 

provides sustainable returns for the organization and is constructive for 

the economy as a whole. 

The agencies urge all lenders .,d servicers to adopl systematic, 

proactive, and streamlined mortgage loan modification protocols and to 

review lroUbled loans using these protocols. Lendera and servicers 

should first determine whether a loan modification would enhance lhe net 

present value of the loan before proceeding to foreclosure, and !hey 

should ensure that loans currently in foreclosure have been subject to 

such analysls. 

~ · In Implementing lhis Statement, the FDIC encourages inslitulil)fls ii 

To receive FILs eledronlc:ally, pl.au visit supervises to: 

h11P:t,_w fdic aovJabouJ{subscriptions.lJj) • lend prudently and responsibly to creditworthy borrowers; · 

lll!!l!- • work with borrowers to preserve homeownership and avoid 

Paper copies of FDIC financial inslilulion 

letters may be oblalned lhrough lhe 

FDIC"s Public lnrormalion Center. 3501 

Failfax Drive, E-1002, Arrington. VA 

22225. 

preventable foreclosures; · 

• adjust dividend policies lo preserv!l capital and lending capacity: 

and 

• employ compensation structures that encourage prudent lending. 

State nonmember institutions' adherence to these expectations will be 

reflected in examination ratings the FDIC assigns for purposes of 

assessing safety and soundness. their compliance with laws and 

regulations, and their performance in meeting lhe requirements of the 

Community Reinveslment Act (CRA). 
FDIC: Press Releases - PR-115-2008 11/12/2008 

~ ;. News l Everu > Press RelaPress Releases 

Joint Release 

For lnvnediate Release 

Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the ComptroDer of the Currency 

Office of Thrift Suparvislon 

November 12, 2008 

lnteragency Statement on Meeting the Needs of Creditworthy Borrowers 

The Department of the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve 

have recently put into place several programs designed to promote financial stability and to mitigate 

procyclical effects of the current market conditions. These programs make new capital widely available 

lo U.S. financial institutions, broaden and increase the guarantees on bank deposit accounts and certain 

fiabffities, and provide baclcup liquidity to U.S. banking organizations. These efforts are designed to 

strengthen the capital foundation of our financial system and improve the overall functioning of aedit 

markets. 

The ongoing financial and economic stress has highlighted the crucial role that prudent bank lending 

practices play in promoting the naUon's economic welfare. The recent poficy actions are designed to 

help support responsible lending activities of banking organizations, enhance their ability to fund such 

lending, and enable banking C>rDanizations to better meet the credit needs of households and business. 

At !his critical time, It Is Imperative that all banking 0JDanizations and their regulators work together to 

ensure that the needs of creditworthy borrowers are mel As discussed below, to support this objective, 

consistent with safety and soundness principles and existing supervisory standards, each individual 

banking organization needs to ensure the adequacy of its capital base, engage In appropriate loss 

mitigation strategies and foreclosure prevention, and reassess the incentive lmpl'ications of its 

compensation policies. 

Lenaing to crttditworlhy borrowe~ 

The agencies expect all banking organizations to Mfill the.- fundamental role In the economy as 

intermediaries of aedit to businesses, consumers, and other creditworthy borrowers. Moreover, as a 

result of problems In financial markets, the economy will likely become inaeaslngly reliant on banking 

organizallons to provide credit former1y provided or facilitated by purchasers of securities. Lending to 

aeditworthy borrowers provides sustainable returns fur the lending organization and Is constructive for 

the economy as a whole. ' 

It is essential that banking organizations provide credit in a manner consistent with prudent lending 

practices and conlinue to ensure that they consider new lending opportunities on the basis of reaRstic 

asset valuations and a balanced assessment of borrowers' repayment capacities. However, if 

underwriting standards tighten excessively or banking organizations retreat from making sound credit 

decisions, the current market conditions may be exacerbated, leading to slower growth and potential 

damage to the economy as weU as the long-tenn interests and profitability of individual banking 

organizations. Banking organizations should strive to maintain healthy credit relaUonships with 

businesses, consumers, and other cntditworthy borrowers to enhance their own financial wen-being as 

well as to promote a sound economy. The agencies have directed supervisory staffs to be mindful of the 

procyclical effects of an excessive tightening of aedit availabl&ty and to encourage banking ·. 

orvanizalions to practice economically viable and appropriate lending activities. 

Strengt/11,ning capital 

Maintaining a strong capital position complements arid facilitales a banking organization's capacity and 

wiJfingness to lend and bolsters its ability to withstand uncertain markel conditions. Banking 

organizations should focus on effective and efficient capital planning and longer-term capital 

maintenance. An effective capital planning process requires a banking organization to assess both the 

risks to which it is exposed and the risk management processes In place to manage and mitigate those 

risks; evaluate its capital adequacy relative to its risks; and consider the potential impact on earnings 

http://www.fdic.gov/news/news/press/2008/pr081 l 5.html 

Page 1 of) 

-,· 

6/3/2009 
FDIC: Press Releases - PR-115-2008 11/12/2008 

and capital from economic downturns. Further, an effective capital planning process requires a banking 

organization to recognize losses on bank assets and activities in a timely manner; maintain adequate 

loan loss provisions; and adhere to prudent dividend poficies. 

In particular, in setting cfrvidend levels, a banking organization should consider its ongoing earnings 

capacity. the adequacy of its loan loss allowance, and the overal effect that a cflVldend payout would 

have on its cost of funding, its capital position, and, consequenUy, its abUity to serve the expected needs 

of creditworthy borrowers,. Banking organizations shoukf not maintain a level of cash dividends that is 

Inconsistent with the organization's capital position, that could weaken the organization's overall 

financial health, or that could impair its ability to meet the needs of creditworthy borrowers. Supervisors 

wiU a>nUnue ta review the dividend poncies of individual banking organizations and will take action when 

dividend poricies are found to be inconsistent with sound capital and lending policies. 

Worlcing with mortgage borrowers 

The agencies expect banking organizaUons to work with existing borrowers to avoid preventable 

foreclosures, which can be cosUy lo both the organizations and to the communities they serve, and to 

mitigate other potential mortgage-related losses. To this end, banking organizations need to ensure that 

their mortgage servicing operations are sufficiently funded and staffed to work with borrowers while 

implementing effective risk-mitigation measures. 

Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt 

systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled 

loans using lhese protocols. Lenders and servicers should first determine whether a loan modification 

would enhance the net present value of the loan before proceeding lo foreclosure, and they should 

ensure that loans currently In foreclosure have been subject to such analysis. Such practices are not 

only consistent with sound risk management but are also in the long-term interests of lenders and 

servicers, as well as borrowers. 

Systematic efforts to address delinquent mortgages should seek lo achieve mod'dications that result In 

mortgages that borrowers will be able to sustain over the remaining maturity of their loan. Supervisors 

wiQ fully support banking organizations as they work lo implement effective and sound loan modification 

programs. Banking organizations that experience chanenges in Implementing loss mitigation efforts on 

their mortgage portfolios or in making new loans to borrowers should work with their primary supmvisors 

to address specific situations. 

Structuring compensation 

Poorly-designed management compensation policies can create perverse Incentives that can ultimately 

jeopardize the health of the banking organization. Management compensation policies should be 

a6gned with the long-term prudential Interests of the institution, should provide appropriate incentives for 

safe and sound behavior, and should structure compensation to prevent short-term payments for 

transactions with long-term horizons. Management compensation practices should balance the ongoing 

earnings capac''Y and financial resources of the banking organization, such as capital levels and 

reserves, with the need to retain and provide proper incentives for strong management Further, It is 

important for banking organizations to have independent risk management and control functions. 

The agencies expect banlclng organizations to regularly review their management compensation policies 

to ensure they are consistent with the longer-run objectives of the organizatia_n and sound lending and 

risk management practices. 

The agencies wiU continue to take steps to promote programs that foster financial stability and mitigate 

procyclical effects of the current market conditions. However, regardless of their participation in 

particular programs, aD banking organizations are expected to adhere to the principles in this statement 

We will work with banking organizations to facilitate 1heir active participation in those programs, 

consistent with safe and sound banking practices, and thus lo support their central role in providing 

aedil to support the health of the U.S. economy. 

### 

Media Contacts 

FDIC Andrew Gray (202) 898-6993 

http://www.fdic.gov/ncws/ncws/prcss/2008/pr08 l l 5.html 

Page 2 of3 

6/3/2009 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Robert Menendez 

United States Senate 

Washington, D.C. 20510 

Dear Senator Menendez: 

August 12, 2009 

Thank you for your letter on behalf of CIT requesting an expedited review of the 

company's request for an exemption from the requirements of Section 23A of the Federal 

Reserve Act (Section 23A). I assure you the Federal Deposit Insurance Corporation 

shares your views about the importance of keeping credit available during these 

challenging economic times. 

Section 23A contains restrictive provisions relating to transactions between banks 

and their affiliates to safeguard bank resources and limit their exposure to the affiliate 's 

operations. As you know, CIT has requested an exemption from these restrictions to 

transfer certain assets to affiliate CIT Bank, Salt Lake City, Utah that exceed regulatory 

limits. Section 23A and Federal Reserve Board Regulation Ware implemented by the 

Board of Governors of the Federal Reserve System (FRB). Exemptions from the 

requirements of Section 23 and its companion regulation can only be granted by the FRB. 

However, the FRB does consult with the FDIC when Section 23A exemptions are 

requested. 

The FDIC and FRB have been in regular contact with representatives from CIT 

regarding the company's strategic reorganization which contained a variety of funding 

requests, including exemptions from the requirements of Section 23A. As part of the 

reorganization, in December 2008, CIT transitioned to a bank holding company regulated 

by the FRB under the Bank Holding Company Act of 1956. Any decision on pending 

requests under the FDIC's authority will be made based on statutory requirements and the 

overall potential risk to the Deposit Insurance Fund. 

If you have further questions or comments, please contact me at (202) 898-6974 

or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sheila C. Bair 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Robert Menendez 

United States Senate 

Washington, D.C. 20510 

Dear Senator Menendez: 

August 12, 2009 

Thank you for your letter on behalf orlarequesting an expedited review of the 

company's request for an exemption from the~ments of Section 23A of the Federal 

Reserve Act (Section 23A). I assure you the F~eral Deposit Insurance Corporation 

shares your views about the importance of keeping ·credit available during these 

challenging economic times. 

Section 23A contains restrictive provisions relating to transactions between banks 

and their affiliates to safii!d bank resources and limit their exposure to the affiliate's 

operations. As you kno has ucstcd an cxcm · m these restrictions to 

transfer certain assets to · ate t ex~d regulatory 

limits. Section 23A and Federal Reserve Board Regulation W are implemented by the 

Board of Governors of the Federal Reserve System (FRB). Exemptions from the 

requirements of Section 23 and its companion regulation can only be granted by the FRB. 

However, the FRB does consult with the FDIC when Section 23A exemptions are 

requested. 

The FDIC and FRB have been in regular contact with representatives fro~ 

regarding the company's strategic rei5rganization which contain~d a variety of~~ 

requests, including exemptions from the requirements of Section 23 A. As part of the 

reorganization, in December 2008~itioned to a bank holding company regulated 

by the FRB under the Bank Holdingeilmpany Act of 1956. Any decision on pending 

requests under the FDIC's authority will be made based on statutory requirements and the 

overall potential risk to the Deposit Insurance Fund. 

If you have further questions or comments, please contact me at (202) 898-6974 

or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sheila C. Bair 
ROBERT MENENDEZ 

--- linitnl ~tatts ~matt 

WASHINGTON, DC 20510-3005 

JuJy 21, 2009 

The Honorable Chairman Bea S. Benumb 

The Federal Rescm: Boan! 

20th Street and Constitution Avenue, NW 

Washington. DC 20551 

The Honorable Chairman Sheila Bair 

Fcdcral Deposit Insarancc Corporation 

SSOl"t41StNW 

Washington, DC 20429 

Dear Cbamnan Brmankc and Chairman Bair: 

S7I sr.u.,. '1.urT OPrr-:1. BJ.-..,.... WAS>t1.,,nui, DC2051~ 

'211;'1~~ ... · 

o .. I",,_ •• h;._, C1 .. -r:r; t '·~ c:.. l(,C 

.... ,lJIUW' 1U (I' •• :. 

:,nG.t!,XL•t 

~w • ..,..,.~ .. ;., • .,. &.i,rL II-:, e-.,,,,...NJ()IOO; 

,.sr,, /Sl ·:al:,J 

FDIC 

JUL 'l 1 I•":}) 

. OFFICE OF LEGISL/iTIVE AFFAIRS 

J write to urge the federal government. partiC: tbe Federal Reserve and the FDIC, to 

cnft a well-thought-om respomc to the problems a[~ 

. As you arc ~~ a large lc::ndcr to small_ and medium-sized businesses across the 

nation. Its failure would po~ to the economy and would greatly hmt thousands of 

husrncsses. especially in the retail sector. In the cum:nt economic environment, furthcc f.ailurcs 

ofbusinesscs would not serve the nation•s best interests. 

· f .alRast obtained private bridge financing and long ~ ~lied for a 23( a) exemption 

from~ fedmal govrmm~ to transfi:r tmCllCUIIlbcrcd assets ~Bank I have been told that 

this was part of the original pl.ml for capitalizing tlie bank tbat ~ ai4Proved last Decc:mbcr. 

~: significance and timeliness o~ .. ~s ~• I urge you to expedite your review o~ 

Thank you for your considerati011i 

ROBERTMENEND 

Unihxi States Senator 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR August 12, 2009 

CHAIRMAN 

Honorable Diane E. Watson 

Chairman 

Subcommittee on Government Management, Organization, and Procurement 

Committee on Oversight and Government Reform 

House of Representatives 

Washington, D.C. 20515 

Dear Madam Chainnan: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation 

procurement for owned real estate (ORE) management, marketing, and disposition services 

under Request for Proposal (RFP) RRV-000186. The FDIC shares your interest in a transparent, 

fair, and competitive procurement process. Although the selection of contractors is made by 

FDIC professional staff, the Board of Directors oversees policies and procedures applicable to 

these decisions. 

This procurement was conducted in accordance with our FDIC Acquisition Policy 

Manual. The source list for the solicitation was compiled after reviewing responses received to 

advertisements posted in the Wail Street Journal, New York Times, and the Fed.BizOps website. 

Thirty~seven firms were invited to submit proposals and 18 responded. An evaluation panel 

comprised of technical experts within the FDIC followed a thorough rating and review process to 

determine successful offerers. 

In November 2008, the FDIC CQJilpetitively awarded contracts to two firms, C.B. Richard 

Ellis and Prescient, Incorporated, to manage and market owned real estate assets. These offerors 

submitted proposals that were determined by FDIC staff to be the "best value" for the FDIC 

considering their price, technical capabilities, and other qualitative factors listed in the RFP. I 

am enclosing responses prepared by the staff of the FDIC Division of Administration to your 

specific questions regarding FDIC contracting policies. 

lfyou have further questions or comments, please do not hesitate to contact me at (202) 

898-6974, or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
· Response to Questions 

Provided by the Federal Deposit Insurance Corpo_ration's 

Division of Administration 

Ql. The current value of owned real estate held by FDIC banks requiring disposition 

services: 

Al. Owned real estate (ORE) in FDIC receiverships currently has an appraised value of $1.3 

billion. 

Q2. The methods used by FDIC in developing requirements for the procurement: 

A2. The requirements were developed by experienced FDIC staff who have successfully 

managed and sold similar ORE portfolios in the past. 

Q3. The FDIC's rationale for non-competitive procedures in its solicitation process to 

procure the r~quired services: 

AJ. The FDIC did not use nan-competitive procedures for this procurement. The requirement 

was competitively solicited after extensive market research ta develop the source list The FDIC 

publicly sought sources that had interest in competing through advertisements in the Wall Street 

Journal, New York Times and Fedbizops.gov. Our Office of Diversity and Economic 

Opportunity provided minority and women-owned business sources. Toe solicitation was issued 

to 37 firms. Proposals were received from 18 firms. The proposals were evaluated against 

technical criteria in the solicitation. Eight firms that scored the highest were required to make 

oral presentations further descnoing their capabilities. These eight firms submitted best and final 

offers that were evaluated to determine the final selections. Award was made to the two firms 

that offered the best value to FDIC, considering both technical qualifications and pricing. 

Q4. The rationale for including firms_!hat are not licensed to acquire, manage or sell real 

estate for the solicitation: -~ 

A4. The solicitation required a range of asset management services, including: assisting at bank 

closings when a failed fi~cial institution's ORE portfolio must be compiled and analyzed; 

perfonning property management; resolving litigation; managing participation relationships; and 

the marketing/disposing of assets. Simply possessing a license to sell real estate does not 

indicate an ability to satisfy the full range of services needed by the FDIC. In order to meet the 

contract requirements, offerors were allowed to augment their core capabilities by forming 

teaming arrangements, creating joint ventures, or subcontracting. This approach maximizes 

competition and encourages the use of multiple firms to satisfy the requirements under contract 

QS. The rational for combining distinct and differentiated services into a single contract, 

rather than procuring these services through more narrowly focused separate contracts: 

AS. Management and disposition of property is a complex process, particularly when the real 

estate market and overall economy are unsettled. Oversight efficiency and effectiveness can be 
better achieved if one firm has responsibility and accountability for the entire process. Through 

teaming arrangements, joint ventures, or subcontracts, all contract requirements can be 

effectively addressed. Our prime contractors subcontract much of the required work, including 

brokerage and property management services, to local vendors. 

Also, procuring the full range of services needed under one master contract requires fewer FD IC 

personnel to monitor the contract. Contracting separately for management and disposition 

services with multiple firms for the same asset makes it difficult to determine responsibility 

when problems arise. Using prime contractors to provide all management and disposition 

services proved to be highly successful for the Resolution Trust Corporation when it disposed of 

ORE during the savings and loan crisis in the early 1990s. The FDIC adopted this methodology 

as a proven best practice. 

Q6. The FDIC's rationale for offering a compensation scale that may exceed industry 

standards or common market rates: 

A6. This was a competitive solicitation. The offerers competitively provided the rates included 

in the awarded contract. The FDIC established a categorically structured price schedule in the 

solicitation. It was the responsibility of the competing firms to complete the schedule and 

propose prices. The prices offered were market rates. 

Q7. The FDJC's plans and time table for issuing additfonal requests for proposals 

involving the disposition of owned real estate: 

A 7. The FDIC posted a new request for proposals, open to all interested parties, on 

FedBizOps.gov in May 2009. Proposals were received June 17, 2009, and are currently being 

evaluated. The award of additional contracts is expected by the end of September 2009. 

QB. The FDIC's plans for ensuring that the best-qualified contractors or subcontractors 

from the commercial real estate sector are able to participate in future procurements: 

AS. The solicitation released in May 2009 was posted on FedBizOps.gov to ensure the 

procurement was open to all firms interested in bidding on the contract. The solicitation 

contained both technical and price evaluation factors. The evaluation will focus on the prime 

contractor's entire team, including their proposed subcontractors. The FDIC will select the 

· contractor(s) that offer the best value based on our assessment of the proposal responses to all 

criteria contained in the solicitation. 

The FDIC also has held seminars around the country to inform potential vendors about our 

requirements and contracting process. These seminars have been particularly targeted to 

minority and women-owned businesses. Contractors register their capabilities with the FDIC 

and are informed about potential contracting and teaming opportunities. Over 1,500 contractors 

have attended six seminars so far this year. Two more seminars are planned for August. 

Q9. The process, criteria, and time tab]e the FDIC will use to select additional vendors for 

the disposition of owned real estate: · · 
A9. As mentioned previously, a competition is now underway for additional contractors to 

provide ORE management arid marketing services. The due date for proposals was June 17, 

2009. An in-house Technical Evaluation Panel is currently evaluating proposals. We anticipate 

making multiple awards in September 2009 to those firms that offer the best value for the FDIC. 

In addition to price, the technical criteria used for evaluation include: the contractor's · 

understanding of the requirement; management approach; experience of key personnel; 

acceptable automated systems to support inventory management/ reporting; and past experience 

providing similar services. 

Solicitations for additional services will depend on how many banks fail in the future and the 

amount of assets from failed institutions retained for disposition by the FDIC. 
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FDIC 

JUL 9 2009 

The Honorable Sheila Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17th Street, N. W. 

OFFICE OF LEGISlATIVE AFFAIRS 

Washington, D.C. 20429 

Dear Chainnan Bair: 

I write to make you aware of concerns that recently have been raised regarding the 

Federal Deposit Insurance Corporation's (f-DIC) recent procurement, Request for 

Proposal Number RR V-0000186, for owned real estate management, marketing and 

disposition services. Following your agency's recent selection process, a number of 

concerns regarding the lack of transparency and competition in the procurement process 

have been raised, with specific concerns raised about the following issues: the de facto 

sole-source nature of the contracts; the extensive scope of the contracts; and the legal 

qualifications of firms who are unlicensed or unqualified to provide, marketing, 

disposition, and management services procured through the contract in multiple states or 

jurisdictions. 

As you are aware, the effectiveness of this program is vital to limiting the financial 

exposure of both the FDrC and taxpayers during this challenging economic period. 

While 1 therefore applaud and endorse your goals of accurately valuing and timely 

disposing of owned real estate assets at the highest possible rate of return, I am concerned 

that the manner in which the Agency's procurement was developed and conducted does 

not serve - and indeed may undermine - this critically important public objective. 

In addition to these concerns, recent media reports about procurement have raised 

questions about the terms of compensation in the Agency's contracts. According to an 

April 21, 2009 article in the Washington Time.r, the two contractors selected by the 

Agency will receive commissions ranging from eight percent of the sales price to 30 

percent on properties worth less than $25,000, which is considered excessive according to 

industry standards and market rates. 
Lastly, I understand that questions have arisen over whether Prescient, Inc. is a 

licensed real estate broker. If it is not, this raises the most serious concerns about both 

the process used by the FDIC to identify the most qualified contractors to carry out this 

important task, and the legal capacity and institutional ability of Prescient, inc. to perform 

this work on behalf of the FDIC and, ultimately, the American taxpayer. 

In order to further understand both the procurement selection process and the agency's 

plans for satisfying its obligations to efficiently dispose of owned real estate going 

forward, I ask that you provide my office with the following information: 

• The current value of owned real estate held by FDIC banks requiring disposition 

servicesi 

• The methods used by FDIC in developing requirements for the procurement; 

• The FDICs rationale for noncompetitive procedures in its solicitatlon process to 

procure the required services; 

• The rational for including firms that are not licensed to acquire, manage, or sell 

real estate in the solicitation; 

• The rational for combining distinct and differentiated services into a single 

contract, rather than procuring these services through more narrowly focused 

separate contracts; 

• · The FDIC's rationale for offering a compensation scale that may exceed industry 

standards or common market rates; 

• The FDIC's plans and Lime table for issuing additional requests for proposals 

involving the disposition of owned real estate; 

• The FDlC's plans for ensuring that the best-qualified contractors or 

subcontractors from the commercial real estate sector are able to participate in 

future procurements; and 

• The process, criteria, and time table the FDIC will use to select additional vendors 

for the disposition of owned real estate. 

In the interim, I would welcome the chance to discuss with you these aforementioned 

issues in order to develop a better understanding of your long-tcnn management 

challenges and strategic objectives for the disposing of owned real estate. I look forward 

to your response at your earliest opportunity. Please feel free to contact Adam C. Bordes 

ofmy staff at (202) 225-3741 if you have any questions. 

Sincerely, 

Diane E. Watson 

Chairwoman 

Subcommittee on Government Management, 

Organization, and Procurement 
I) FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Spencer Bachus 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Bachus: 

August 12, 2009 

Thank you for soliciting the Federal Deposit Insurance Corporation's input on the 

proposed Consumer Financial Protection Agency (CFP A). Enclosed are responses to the 

questions you posed. · 

We appreciate the opportunity to comment. Ifwe can provide further information, please 

do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions from 

The Honorable Spencer Bachus 

Qt. What problem would be addressed by the creation of a CFP A that is not or cannot be 

addressed by the current system of financial institution and product regulation? 

Al. The proposal addresses one of the principal limitations of the current regulatory system. It 

would eliminate the remaining regulatory gaps between insured depository institutions and nonbank providers of financial products and services by establishing strong, consistent consumer 

protection standards. It also would address another gap by giving the CFP A authority to examine 

non-bank financial service providers that are not currently examined by a federal, or in many 

cases, state agency. In adcf.ition, the Administration's proposal would eliminate the potential for 

regulatory arbitrage that exists because of federal preemption of certain state laws. 

Q2. How would the new consumer protection standards established in H.R. 3126 impact 

the availability of credit for consumen? Would any particular category of consumers be 

affected more than othen? 

A2. Properly defined standards should not impede the availability of credit to any category of 

consumers. H.R. 3126 does not prohibit the offering of consumer financial products and 

services. Rather, it seeks to protect consumers against abusive products and practices that strip 

individual and family wealth. The standards could lower risks to consumers of such financial 

products by enhancing transparency oftenns and features, and facilitating comparison of 

alternative products or services. The standards also could bring greater protection to consumers 

of non-bank financial products and services, which are not subject to the examination and 

supervision for consumer protection and safety and soundness compliance that currently benefits 

insured institution customers. 

- . 

Q3. One of the directives given to the·proposed agency is to co~rdinate with a variety of 

other agencies, both state and federal, to "promote consistent regulatory treatment of 

consumer and investment products." However, the legislation would permit individual 

states to pass laws that will differ from federal law. What would be the impact on 

consumers and the institutions you regulate if individ~al states can impose additional and 

different standards? 

AJ. To a great extent, the current patchwork regulatory situation is the result of a lack of 

coordination of national consumer protection laws and regulations. Creating a federal floor for 

consumer protection will provide standardization for institution and product regulation. While 

the proposal allows states to apply more protective state consumer laws, a strong federal floor 

should make additional state standards unnec~sary. It should be noted that state-chartered banks 

operating in multiple jurisdictions currently comply with those jurisdiction's consumer laws with 

no problems. 
Q4. The legislation envisions the separation of safety and soundness regulation from 

consumer protection regulation. How would this separation impact the safety and 

soundness of banking institutions? Would it enhance or undermine safety and soundness, 

in your view? 

A4. Separating the examinatiqn and supervision of insured depository institution consumer 

protection compliance from that of safety and soundness could undennine the effectiveness of 

both. As the banking regulators' experience during the past few years has shown, consumer 

protection issues and the safety and soundness of insured depository institutions go hand-in-hand. 

Examination and supervision for safety and soundness and consumer protection must be closely 

coordinated and reflect a comprehensive understanding of an institution's management, 

operations, policies, and practices. Consmner protection and risk supervision benefit from the 

synergies created by this holistic approach and by ready and timely access to expertise and 

critical information. Separating consumer protection examination and supervision from other 

supervisory efforts could weaken both and result in weakened financial institutions." 

By contrast, if the CFPA has sole rule-writing authority over consumer financial products and 

services, this will ensure appropriate focus on protecting consumers and a level playing field 

between insured depository institutions and other types of entities that offer similar financial 

products. In addition. the FDIC would support providing the CFP A with back up enforcement 

and examination authority to ensure that the federal regulators are providing effective supervision 

ofthese standards. Freeing the CFPA from direct supervision and enforcement of depository 

institutions would allow this entity to focus its examination and enforcement resources on the 

non-bank entities that provide financial products and services that have not previously been 

subject to federal examination or enforcement. 

QS. Does your agency have a separate consumer protection compliance examination force? 

lfnot, bow could the consumer compliance examination function be transferred to a new 

agency and what would be the i~pac~~of the transfer on your safety and soundness 

supervision? -~ 

AS. The FDIC has a dedicated force of consumer protection compliance examiners. As 

discussed above, consumer protection and risk supervisi~n benefit from the synergies created by 

ready and timely access to expertise and critical information in both areas. For example, 

violations of consumer regulations by an institution frequently signal management problems 

related to safety and soundness issues as well. Preserving the current regulatory framework, and 

the ability of the examiners to work together to evaluate institutions, will ensure that fin~cial 

institutions will be continue to be viewed holistically. 

Q6. H.R. 3126 requires coordination and consultation between the CFPA and the Federal 

banking agencies. However, it does not offer a framework or mechanism in the event that 

there is not a consensus. Please comment on any practical or legal problems or chaJlenges 

that would be presented by this proposal 
A6. In our answer to Question 7, we descnoe the many ways that consumer protection 

compliance and safety and soundness examination and supervision are intertwined. Separating 

the functions into two agencies inevitably wou]d create issues. For example, it would constrain 

the ability of examination staff to deve]op a comprehensive view of the institutions they 

supervise. It also would be more difficult to easily coordinate, share information, and bring joint 

actions on consumer protection and safety and soundness issues. In addition, the flow of i 

information would slow, thus reducing opportunitjes to quickly identify ~d resolve problems. 

As indicated above, one way to address this issue would be for the banking agencies to retain the 

authority to examine and supervise insured institutions for consumer protection compliance and 

safety and soundness. The CFP A should be given the authority to examine and supervise non-

-bank consumer product and service providers and back-up enforcement authority over insured 

depository institutions. Giving the CFP A authority to write rules for all consumer product and 

service providers would ensure strong and uniform consumer protection standards for all 

consumer product and service providers. 

Another means of ensuring coordination and consultation would be to have federal financial 

institution regulators represented on the CFP A Board, which could be the final arbiter of any 

problems that could not be resolved at the staff level. We believe it is particularly important that 

the FDIC be represented. As ultimate insurer of over $6 trillion in deposits, the FDIC-has both 

the responsibility and vital need to ensure that consumer compliance and safety and soundness 

are appropriately integrated. The FDIC also is the primary federal supervisor for the largest 

number of banks (including many larger ones) and maintains an active examination staff on-site 

in the largest major banks as back-up supervisor. The FDIC's direct supervision of the majority 

of the nation's community banks provides it with a unique '"Main Street" perspective that enabled 

it to be an early proponent of affordable and sustainable mortgage loan modifications, improved 

economic inclusion, and the prevention of abusive lending practices. Moreover, the FD I C's 

deposit insurance function involves a significant consumer protection role with regard to 

consumer deposits that affects all institutions, but is unique to the FDIC. 

Q7. H.R. 3126 provides for each of the Federal banking agencies to transfer consumer 

financial protection functions to the new agency. Such functions are defined to mean 

"research, rulemaking, issuance of orders or guidance, supervision, examinatjon, and 

enforcement activities, powers, and duties relating to the provision of consumer financial 

products or services." Please identify all of the functions within your agency that would be 

transferred under this new provision? Does it affect underwriting standards for mortgage 

loans? Insider lending rules? Lending limits? Anti-money laundering compliance? If so, 

what would be the impact of the transfer on safety and soundness? 

A 7. Staff in three different FDIC Divisions h1cely would have to be transferred if the new agency 

is created as proposed: the Division of Supervision and Consumer Protection (DSC), the Legal 

Division, and the Division of Insurance and Research (DIR). In particular: 
1) DSC: GeneralJy speaking, staff in this Division performs research, rulemaking, guidanc~. 

supervision, examination and enforcement functions, and coordinates extensively with the 

Legal Division and DIR in connection with all of these functions. 

• Examinations: Consumer protection compliance examiners and examination 

management and staff in FDIC field offices, regions, and at headquarters in 

Washington, D.C. examine banks for compliance with consumer protection and ; 

CRA regulations and coordinate with legal staff to bring informal and formal 

enforcement actions when banks fail to comply with laws or regulations. 

Consumer protection staff also coordinates with DSC' s risk management/safety 

and soundness function on applications and other regulatory requests from 

institutions that have less than satisfactory consumer compliance or CRA 

programs. 

• Policy: Consumer protection compliance policy analysts conduct outreach to 

industry and consumer groups, monitor legislative and regulatory developments, 

develop policy and guidance for examiners and institutions, participate in 

interagency war.king groups to issue regulations and examination procedures, and 

develop and provide training for consumer protection compliance examiners. 

• Consumer Protection Outreach: Consumer affairs staff receives, investigates, and 

responds to consumer complaints and inquiries involving FDIC•supervised 

institutions, along with other data requests concerning consumer protection laws 

and banking practices. In addition to assisting individual consumers, the 

consumer complaint resolution function provides infonnation used in individual 

bank compliance examinations and to detect emerging consumer protection issues. 

As part of its deposit insurance function, FDIC consumer affairs staff provides 

consumer education and assistance with regard to deposit insurance coverage 

matters. This function would necessarily remain with the FDIC. 

• Community Affairs: DSC also has a Community Affairs program that provides 

technical support to financial institutions to help them identify and respond to the 

credit and banking needs of the communities they serve. Program staff conducts 

the FDIC's financial educ;:jltion and consumer protection outreach, except for 

deposit insurance. Community affairs staff facilitates the Alliance for Economic 

Inclusion -· the FDIC's national initiative to establish broad.based coalitions of 

financial institutions, community•based organizations, and other partners to bring 

unbanked and underserved populations into the financial mainstream. The FDIC 

developed and distributes the award-winning Money Smart financial education 

program, which is available in several formats and languages. In addition, the 

Small Dollar Loan pilot project is reviewing affordable and responsible smalldollar loan programs in financial institutions to identify effective and replicable 

business practices that banks can incorporate into their mainstream services. 

Community Affairs staff also leads the FDIC's ongoing outreach efforts to 

mitigate foreclosures and help consumers avoid scam artists. 

2) Legal Division: Legal Division attorneys from headquarters and regional offices support 

the research, supervision, examination, legislative, rulemaking, policymaking and 
enforcement functions. Enforcement attorneys work closely with examination staff in 

bringing formal and informa1 enforcement actions against institutions. 

3) DIR: Economists and statisticians support the consumer protection compliance 

examination and policy programs and Legal Division staff by conducting research and 

analyzing quantitative and qualitative data. Staff pursues original research exploring 

consumer financial products, behaviors, and trends. :: 

On balance, transferring consumer protection compliance examination and enforcement to the 

new consumer protection agency would cause disruption to agency operations during a critical 

time, complicating safety and soundness functions and enforcement efforts. A number of 

mission-critical regulatory functions exist in which consumer protection and safety and 

soundness issues are intertwined. Consumer protection weaknesses may affect the safety and 

soundness of an institution, or they may reflect an overall weakness, particularly of management. 

Unsafe or unsound practices, or the resulting financial weakness of an institution, can impact a 

bank's customers, the community, and even the financial markets. 

Significant expex:tise, lines of communication, and cooperative efforts among safety and 

soundness and consumer protection compliance staff would be hampered by moving these 

functions to the new consumer protection agency. Particular areas of supervision, examination, 

and enforcement that would be impacted include: 

• Non-Traditional Mortgage Lending 

• Subprime Lending 

• Payday Lending 

• Credit Card Lending 

• Predatory Lending 

• Loan Modifications 

• Flood Insurance 

• Third-Party Risk 

• Retail Securities and Insurance S.iiles and Referrals, under the Gramm-Leach-Bliley Act 

of 1999 (GLBA) and Regulation R 

• New Bank Applicati~n Investigations and Community Reinvestment Act (CRA) Analysis 

• Bank Branch and Merger Applications, which require consideration of compliance 

ratings, fair lending and CRA ratings 

• Privacy (GLBA) 

• Identity Theft Red Flags and the Fair and Accurate Credit Transactions Act of 2003 

(FACT Act) 

• The Secure and Fair Enforcement for Mortgage Licensing Act of2008 (S.A.F.E. Act) 

Because the FDIC and other regulators must continue to consider consumer protection issues in 

evaluating banks - even if a new agency is established - separating these functions will 

necessarily create a duplication of effort. 

The new agency also would impose incremental burden on financial institutions as they would be 

examined and evaluated by another federal agency. Separating the compliance examination 
function from the safety and soundness program also will del~y action on applications or other 

requests requiring federal approval. 

Q8. Does the proposed CFPA get at the heart of what caused the mortgage crisis? 

A8. If a CFP A-type agency had been in place, it could have taken the long view of both the 

banking sector and the non-bank financial sector. A strong focus on consumer protection could 

have called into question the underlying rationale for many of the more abusive mortgage 

products. Further, rules and guidelines could have been developed that would have slowed or 

halted the worst practices. 

.•· 

,, 

However, the CFPA, as currently proposed, does not get at one of the fundamental causes of the 

mortgage crisis: the lack of effective supervision and enforcement of non-bank entities that offer 

mortgages and other financial products. While these entities are subject to many of the same 

laws and regulations as federally supervised banks and thrifts, they are not subject to the same 

regular examinations or supervision, o:r the resulting potential for enforcement actions if they 

break the law. State and federal enforcement agencies (state consumer protection agencies and 

the Federal Trade Commission for civil matters, state Attorneys General and the Department of 

Justice for criminal) have limited resources and must make constant choices about whether 

situations are egregious enough to warrant bringing an action to stop a particular practice. 

To the extent possible, legislation should specifically define the components of an effective 

enforcement and examination regime focused on non-banks. For example, rather than diluting 

resources by aiming them at all financial products and entities, the CFPA's primary supervisory 

resources should be targeted on non-bank entities. The federal bank and thrift supervisors should 

continue to have examinatio•n and enforcement authority over banks; however, they would 

enforce the consumer protection standards set by the CFP A. Under such a regime, overall 

consumer protection would be greatly strengthened because the CFP A would have back up 

authority to enforce all consumer protection laws regarding banks, and there would be several 

supervisory entities, including the CFP A_,and the bank regulators, targeting their resources on 

enforcing consumer protection laws acrdss the country. 

Q9. H.R 3126 provides for the agency to approve "standard" financial products and 

services. What would be the impact of this proposal on product innovation, especially when 

you consider the risks, expenses, and compliance requirements (e.g., disclosure and opt-out 

requirements) associated with the creation or sale of other than standard products? 

A9. At this time, it is difficult to determine the impact on product innovation. However, it has 

become clear from the current economic crisis that when innovative products arc not well 

understood by investors and consumers, product innovation does not always benefit consumers, 

tl:ie economy, 9r society as a whole. Inappropriate promotion of interest-only and other nontraditional mortgage products contnouted to the current economic crisis. Therefore, it could be 

argued that non-standard products should receive stronger attention from regulators to ensure 

they are being used appropriately. 
QlO. What will be the impact on consumers if banking and some insurance products are 

subject to regulation by the new agency, but economically similar investment products are 

subject to a different form of regulation by the SEC? 

Al 0. In creating the CFP A, Congress should provide a clear and effective mechanism for 

ensuring comparable consumer protections regardless of the entity froin which a consumer 

purchases economically or ftmctionally equivalent products. The CFP A should have the 

authority to set comparable standards for comparable products and to ensure that there is no 

loophole in consumer protection for products that are economically similar. Prudential 

supervisors would enforce the standards established by the CFP A for products and institutions 

under their jurisdiction. The ability to establish comparable protections will strengthen 

coordination and cooperation among the banking agencies, the new consumer agency, and federal 

and state securities and insurance regulators, and should prevent practical and operational gaps in 

regulations and supervision. 
FDICI 

Federal DeDosit Insurance Corooration 

55017th Street NW, Washington, DC 20429 

Honorable Jack Reed 

United States Senate 

Washington, D.C. 20510 

Dear Senator Reed: 

Office of Legislative Affairs 

August 13, 2009 

Thank you for your comments concerning the Federal Deposit Insurance Corporation•s Proposed 

Rule on Acquisition Policy. I can assure you we will carefully consider your concerns and those 

of the other commenters. 

We appreciate for your interest in this important issue. If you have further questions, the Office 

of Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
.JN:t..l\E.Ell 

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Robert E. Felciman 

Executive Se.cretary 

Attention: Comments 

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WASHINGTON, DC 20610-3903" 

August 13, 2009 

Fedcnl ~sit Insumnce Corporation 

550 17th Street, NW 

Washington, DC 20429-

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I am writing to cnmrnend the Fcck:ml ~ Insurance Cotporation for pmposing a 

clear policy on the acqnimm1S of failed banks by-private cqJlity fhms w other investors. la a 

letter date May 22, 2009, I Ulgt(:l yeu and odicr regulator:s to take necessary steps in this area. 

Your recent "Propesed Sta.r.imlen1 of Polley on Qu,1mcatums for Failed Bank Acquisitions" is an 

important dlbrt w cnsurc that failed hank ac;quisitions arc conducted in a way tbat ·proted:s 

taxpayers. 

As financial institutions seek new capital to help regain their ~ private equity and 

other firms offer a potentially valuable sourca of imdiEJ that would also take the pressure off of 

~- But such acquisitions only protect~ if they have app1opriatc and _tailored 

safeguards to minknhc 1tlc risks to tb: saj;1y -and soundness of the institutions imd the deposit 

insuaice fund:. Before lettiJ;)g ~ :6nD.s is-vest in 'l!tanks. they must first ~11$lrale that they 

have adequate capital and~ 1hey ~ .a sourec of financW and managerial strength foi: 

the depository instituti011.. 

I support your efforts to implement strong capital, source of stamg1h, and other 

requirements. I also commend you ti:,r considering comments from all interested parties on 

whether your proposal strikes the right balance of creating effeeti've standuds while also 

@.OiliW;tjng inv~u jn fa.ilecl ~ an4 thrifts. I look forward to cantinui.Qg to work with 

yon-lo address this-~. 

Cc: Sheila C. Bair; Cbaimum 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN August 14, 2009 

Honorable Robert F. Bennett 

United States Senate 

Washington, D.C. 20510 

Dear Senator Bennett: 

Thank you for your letter expressing your concerns regarding facilitating private 

investment in banks and thrifts. The Federal Deposit Insurance Corporation is aware of 

the need for additional capital in the ban.king system and the contnoution that private 

equity capital could make to meeting this need, provided this contribution is consistent 

with protection of the Deposit Insurance Fund and the safety and soundness of insured 

institutions. 

In 2009, the FDIC has completed three resolution transactions involving new 

private capital investors. In March 2009, the FDIC completed the sale of IndyMac 

Federa1 Bank, FSB, Pasadena, California, to One West Bank, FSB, a newly formed 

federal savings bank controlled by 1MB Management Holding LP, which was funded by 

a consortium of private equity investors that invested over $1 billion in the.capital of the 

new thrift. In May 2009, the FDIC as receiver for BankUnited, FSB, Coral Gables, 

Florida, sold its banking operations to a newly chartered federal savings bank owned by a 

group of private equity investors that invested $900 million in this thrift. In July 2009, 

the FDIC entered into an agreement with State Bank and Trust Company, Pinehurst, 

Georgia, to assume all of the deposits and purchase assets from the FDIC as receiver of 

the six bank subsidiaries of Security Bank Corporation, Macon, Georgia after State Bank 

and Trust Company received a $300 million capital infusion from a group of26 

investors, Jed by Georgia banker Joseph Evans, who will own about 1 percent of the 

equity of the bank and be responsible for its management As required by law, the 

winning bids by these investors were the least costly to the Deposit Insurance Fund (DIF) 

of all competing bids. 

As is the case of all investors approved by the FDIC for investment in insured 

depository institutions, these bidders are vetted far reputation and integrity among other 

considerations. In light afthe increased number of bank and thrift failures ~d the 

consequent increase in interest by potential private capital investors, the FDIC published 

for comment on July 9, 2009, a Proposed Statement of Policy on Qualifications far Failed 

Barne Acquisitions (Proposed Policy Statement) to provide guidance ta private capital 

investors interested in acquiring the deposit liabilities, or the liabilities and assets, of 

failed insured depository institutions. 

,, •' 
The Proposed Policy Statement provides the terms and conditions for such 

investments or acquisitions and is aimed at establishing the proper balance in a number of 

important areas of keen interest to investors. These areas include the level of capital 

required for these de novo banks and whether these owners can be a source of strength to 

the banks in which they have invested. Thus, we are especially int~ested in public 

comments on the issues. We currently are reviewing public comments and will carefully 

consider your views as we work to finalize our policies. As I indicated when we 

proposed this statement for comment, I remain open-minded on each of its elements. 

If you have further questions, please contact me at 202-898-6974 or Paul Nash, 

Deputy for External Affairs, at 202-898-6962. 

Sincerely, 

Sheila C. Bair 
ROBERT F. BENNETT UTAH 

ax.u.nrres: 

,109-117/p 

IITAltOl'flCU: 

• WAI.LACli ll&NNiTT ~Dl:114L DUI.DING 

125 SOUTH ST A TE. SU'TE •:r2s SALT L,UE CITY, UT M13&-11U APl'R~llONS 

IANICING. HOUSING, AND 

UIIIIAH AFFAIIIS tiilitrd ~tatts ~rnatt 11011 &a4-5133 

• JAMES V. HANSEN FEDEIIAI. IIUILDIHG 

32C 2511i STREET. SUITE 1&1D fNEll(;Y ANO NATUIIAI. JliSOUIICES 

RULES AND ADMINISTllA TION 

JOINT ECDHOMIC 

WASHINGTON, DC 20510-4403 

(2D2) 224-5444 

OGDEN, UTM&01-231D 

1101) IIZ5-5171 

The Honorable Ben Bemanke 

Chairman, 

Board of Governors of the 

Federal Reserve System 

20th Street & Constitution A venue, NW 

Washington, DC 20551 

The Honorable Sheila Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 l 7t1t S~ NW 

Washington,D.C.20429 

July 23, 2009 

• OLD COURT HOUSE Bua.DING 

5' SOUTH UNIVERSITY AVENUE. SUITE 310 

1'110110, UT IMIOl-"124 ,f 

II011 151-2525 

• FEDERAL IILIILDING 

1111 EAST TABERNACLE. SUITE Zl 

ST. GEORGE, UT ~74 

14J511121M514 

• 71 NOll'1H MAIN, SUITI: 113 

l'.0. BOX 132& 

CEDAR CITY. UT IMTil 

IQSJ 1&5--1335 

The Honorable John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, D.C. 20219 

Mr. John E. Bowman 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

W~gton. D.C. 20552 

Dear Chairman Bernank.e, Chairman Bair, Comptroller Dugan, and Acting Director Bowman: 

Federal actions over the past several months have helped to stabilize the financial 

mm'lcets and to inject liquidity into the system. Although recent govcmmcnl interventions have 

been critical. I believe that our markets will not fully recover until private capital returns. 

Putting aside the regulatory restri.lcturing debdte in Congress. I believe that the federal banking 

regulators should use their existing authority and act now to encourage new soUTCCS of private 

capital such as private equity to enter the banking system. This would reduce the need for 

additional TARP dollars and further stabili7.e the financial system. This increased stabilization in 

the system brought by willing private capital would also increase the likelihood that the taxpayer 

will sc:e a return on their current commitments under TARP. We must look seriously at the 

significant obstacles that exist in current regulatory interpretations that deter additional sources 

of private capital from fully participating in the recapitalization of the banking system. 

As each of you bas previously noted, it is clear that the banking system requires 

significant amounts of new capital to offset current and future losses. According to the results of 

the Supervisory Capital Assessment Program. losses at the largest l 9 firms during 2009 and 

2010 could total $600 billion under the adverse scenario. The International Monetary Fund 

recently estimated that the global financial sector can expect to realize an additional $2 trillion in 

losses. It would appear that few banks are currently in a position to sustain these losses and· at 

the same time remain well capitalized. While close to 60 insured depository institutions have 

already failed in 2009, this number is expected to grow significantly throughout the next 18-24 

months. 
It is my understanding that private investors are prepared to invest in banks. restoring 

lending and recapitalizing the banking system. Each dollar of private investment reduces the 

potential exposure of the U.S. taxpayer to future losses in the banking sector. Each of your 

agencies should act quickly to remove the regulatory obstacles to private capital. I would ask 

each of you to send me a letter detailing the recent actions you have taken to encourage private 

~~ ~ 

RFB:ncb 

Sincerely, 

Robert F. Bennett 

United States Senator 
FDl8 

Federal Deoosit Insurance Corooration 

550 17lh Street HW, Washington, DC 20429 

Honorable Jesse L. Jackson, Jr. 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Jackson: 

August 18, 2009 

Thank you for your letter on behalf o~ Illinois. 

Office of Legislative Affairs 

As a matter of policy, the Federal Deposit Insurance Corporation does not comment on the 

supervision of operating insured depository institutions and, therefore, we cannot discuss the 

facts presented in your letter. The FDIC is in contact with Bank management and is continuing 

to assess the circumstances relating to the Bank's current situation. 

The FDIC believes community banks play a key role in providing critica] banking products and 

services in loca1 communities across the country. We will implement a supervisory strategy that 

is consistent with this belief ancl supports our mission to maintain stability and public confidence 

in the nation's financial system. 

We encourage the Bank's Board of Directors to contact FDIC Chicago Regional Director 

M. Anthony Lowe at (312) 382-3837 to discuss their capital raising efforts and other outstanding 

issues. 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

r 

Office of Legislative Affairs 
L,A-o'1-I~ 

JESSE L JACKSON, JR. 

bloDin1111:t.lWNDII 

COMMITTEE ON APPROPRIATIONS 

August 3. 2009 

The HODOrable Philip F. Mangano 

RTC/FDIC 

55017th S1rcctNW 

Washington, DC 20429·9990 

Dear Mr. Mmgano: 

I write to suppo~uc$t fpr an a,JditiDQfl sixty days, after August 21st, to secure 

additional capi~~ivcrship by the FDIC. 

6:: j a priY*ly held communlty bank Ja<alcd ~ ; j if 

ois, SCIVCS over 4,500 loan IP.ld depggi cusw,nc:rs. Founded in !]has worked 

~ provide individu izcd and customized SCIVicc to the nl&idcnts ana ffl!IIJ buszsscs of 

L• and south submbs. Employing sixty five JocaJ staffl=-- • -!!!fhU been 

one of the most nmfih.bl1c financial institutions in Illinois for the past fifteen years. 

However, in 2007~ J ~ stress with troubled loans. spccifi~y in their · 

construction Joan portfolio. A$ their borrowers in commcrcia.1 rcaJ estate and the industrial 

loan sectors struggled to ~the~ loans and began to dcfaul~ forced to 

rcstructurc and classify these 1oans·as ~on-j,crfomiing. ~---

Aftc~ the FDIC and State rcgulalory CQJll in April & Jwas advised by regulators, that it 

needed to incrcuc its capital by August 21, 20()9 . receivership by the FDIC. The 

~~~~=i::~~t jj to rcsoJi the w~~=i=~: t;;.;.;;.... ............ that an additional sixty days i~ need~ to secure the appropriate capital and 

~ding issues. . . 

A~"n, I rcspcctfuUy request that the FDIC extend this deadline to October 29009 ·~ order 

for avoid receivership and to preserve jobs and banking sciviccs i and 

the so suburbs. Thank you in advance for your consideration of this request an oo_k 

forward to huring from you on this matter. 

Sincerely, 

Jesse L. Jaclcson. Jr. 

Member of Congress 

2419 I\A VSURII KDUSE OFFICE Wlll>ll,IG 

'NI-SIIIMGTON. DC 20515-1102 

1:zn21 221 on:r 

2120 EASl >ll.J STIIEET 

CHICA!iO, I. 110648 

17721 241-8500 

TK1S NAIUHG W"5 l"!leP""6>, P'IIBI.ISHe), ~ IU.II.ED -.TTAAr.r.Yfl! ElCl'ENSE 

-· 

17926 SOI.T01 IW.STE!) 

KONEW000,1.&oellO 

1708! 711MDOD 
W-Dn,a;: 

nDt!kftUUl ....... °""29.,._ 

W..-,-DC211Slli 12112tUMIOI • 

"'°' w......-1moar ,.,...__ l'A 111114 

IZ1'1~ 

IIDZ6-MIINUE ..........,,.._rA 11111 u,s>_ 

<!on{JrtUU of tfJt llnfttb &tatt~ 

~oU.Ut of ltq,r~tntatibtf 

Sheila C. Bair 

Chairman 

Fedezal Deposit Jnsurancc Corporation 

550 Seventeenth Street. NW. Room 6076 

Washington, DC 20429 

Dear Chairman Bair, 

August 19, 2009 

· L!JO'l-/3(}3 c:ommt1U, 

CDMMTTEE ON APl'ROl'RIATIONS 

C-.Juma!.CaiM:ir,~ ----~ --w-~ s.-,a 

~s-vr:c--

I would like to personally invite you or a repnscntam'e from your organization to participate in "Tapping 

into the Stimulus, .. an opportunity for individuals and smaD ~ seeking to access stimuhrs md 

othcc govcmn1cnt funding. The event, which will be held dtning the Congressional Black Cancos Annual 

Legislative Weekend. will be an integral part of the wc~d's activities, and your participation as a key 

procureDlCDt prpfessional is vitaJ. 

.. Tapping into rJ,e Stimubu .. takes place at the Washington Convention Center, Room (207B) on 

Thursday. Scptr:mbc:r25• from 2 p.m. to 5:00 p.m. We arc c:xpccting 200 to 300 attendees.. Below please 

find specific insbuctions for participating agencies. 

Arrival: 

Each presenter &honld be 8CCOD1panicd by an assistant. Presenters and assistants should arrive by 1pm for 

set up. Presenters should bring materials for 200 to 300 attcndccs. 

Set Up/Break Do:wni 

Yau will be provided with a six foot slcirtcd table and two chairs. You arc not n:spoDSI"blc for setting up or 

TCD1oying tho table cloth. skirt, or chahs. Y 011 will have one hour to set up your signage and/or printed 

materials beginning at 1pm, and one hour to break down, beginning at 5:00. 

Event Day; 

Doors will open at 2 p.m. CBC staff will man the rcgi.straticm tables, located in the :front of the room. You 

will be asked to staff your table, answer questions, and provide printed materials to attendees. You will 

not be asked to do • scpanm, presentation. 

Thank you for considctjng this invitatio:n to participate in "Tapping into the Sllmului. " Please email your 

response to <Brcndcn.chaincy@mail.housc.gov or SolomonJones@maiJ.bouse.gov). If you hav~ any 

questions, please call Brenden Chamey_at 202.225.4001 or Solomon Jones at 215.266.0548. . 

Member of Congress 
Page 1 of 1 

Deloose, Michael 

From: Chainey, Brenden [Brenden.Chainey@maH.house.gov] 

Sent Thursday, AuQ!.!Sl 20, 2009 11-.37 AM 

To: Deloose, Michael 

Attachments: FDIC.pdf 

Hello, 

Congressman Fattah is organizing an event during the Congressional Black Caucus Annual Legislative Weekend 

called '"Tapping into the Stimulus•. The event is designed to enable individuals and small bu~inesses to come 

and speak with a representative from your organization about the range of pro~ms that you offer (grants, 

loans, contracting t;>pportunities, etc). I have attached a copy_ of the fo""!al invitation to this email. Please email 

your response to (Brenden.chainey@mail.house.gov or SolomonJones@mail.house.gov). If you have any 

questions, please call Brenden Chainey at 202.225.4001 or Solomon Jones at 215.266.0548. 

Thanks 

Brenden Chainey 

legislative Counsel 

U.S. House of Representatives 

Congressman Chaka Fattah (PA-02) 

202-225-4001 (p) 

202-225-5392 (f) 

Brenden.chainey@mail.house.gov 

8/Z0/2009 
JACK REED 

RHODE ISi.AN!> 

COMMJTTEES 

Al'PROl'RII\ TIONS 

ARMEi> SI-JIVIC'l:S 11.nittd ~tarts ~man~ 

7211 1-t.rt Senoia OltlCI! Buildin!I 

Wuhlr,glan. DC 20510-J',0.1 

(2!)21 224-4&42 

BANKING. I IOlSNG. AND l.lU!J\N AA'ADU; WASHINGTON. DC 20510-3903 1oooo..,..iv--~5u11e290 Cr--.Rl~3074 

14011943-3100 I If.AL TI I. EDUChllON. I.ABOR. I\ND l"t->ISIONS 

August 19, 2009 

The Honorable Shelia Bair 

Federal Deposit Insurance Coworation 

550 17th St., NW, 

Washington; DC 20429 

Dear Chairwoman Bair: 

FDIC 

AUG 2 6 ~- ... 

L---------~~ 

OFFICE OF THE CHA!P.t·.~f.~!: 

I write to invite you to speak at the 2009 Rhode Island Business Leaders Day 

which will be held on Wednesday, September 16, 2009. 

Each year, I invite more than l00_business and community leaders from Rhode 

· Island to participate in a one day issues conference held on Capitol Hill. Attendees have 

an opportunity to discuss matters of critical importance with elected officials, 

Administration representatives, -and indu_sf,ly_ e_~e~ on a variety of domestic and foreign 

policy issues. . __ ... · · ' · 

Rhode Island has been hit especially hard in the current economic downturn, with 

an unemployment rate that is among the highest in the country. Like many states, Rhode 

Island families are coping with stagnant wages and a decline in housing values, all the 

while energy, health care, and education costs continue to soar. As a result of this 

economic uncertainty, I anticipate this year's event will be especially valuable to Rhode 

Island's business and community leaders who choose to attend. 

I hope you are able to participate, and I look forward to discussing this invitation 

with you. Please do not hesitate to call me, or have· your staff contact Neil Campbell 

regarding this invitation. · 

Warm regards. 

l'RINTI:D ON RECYctED PAPEII 
Aug. 28. 20~9 11:50AM Nl'J. 11097 

Chairman Sheila Bair 

Office of the Chairman 

August 26, 2009 

Federal Deposit Insurance Corporation 

SSO Seventeenth Street, NW 

,.,. · ~ Washlagton, DC 20429 ~~ •.·»-"';.~•-·:·:-=~ l"li1ll~~-~....:.. 

~ 

.;~ 

Dear Chairman Bair, 

Each year the Congress:ional Black Caucus Foundation produces: its Annual 

_. ~ .. ~~. '.(.: ... :·.:~Y'-, ,, ·,.::;;; Legislative Confcrenc:.e, a four-day ~enl held in September al the Walter E. f.~-,,,,-,.:j._,i~.(k !t. Washington Convention Center jn Washington, D.C. During lhis event, 

F":t-i .. ~........ · · thousands of elected officials, business and indusll'y leaders, celebrities, media f .... and everyday Amerioanc come together to discuss issues •affecting the AfiicanAmeric.an community.-

Members of the Congressional Blad:: Caucus assist ,vith lhis exchange of ideas 

by chairing policy forums and general sessioll.!. {t is my hope that you, along 

with Treasury Secretary Geitbner and Federal Reserve Boa.rd Chairman 

Bcmanlc.e. will join me in a public ·discussion of how the Administration's 

regUlatory refonn proposals will impact the African-American community. 

This forum is scheduled for Friday, Scplcmber 25, 2009 md \I.ill take place 

between 9:00 a.m. and J 1:50 a.m. Th~ session wiU focus on the role.! that 

minority partners have played in federal f11UU1Cial recovery progrmns such as !he 

Term Asset-Backed Securities Loan FaciJity and the Public-l'rivatc Inw:stmenr 

Ptograrn. We will also spend some time pubJicly discussing how to.ch agency 

or regulator involves minority-owned finns in i\S day-to-day financial 

operations, such as the FDIC'.s use ef outside cont:rectors in its' bank resolution 

cfforu, 

I wm arrange a phone call lo personally discuss the forum and thank. you in 

advance for your anendance. In the meantime, please do nol hesitare to con1acr 

Mi.kaol Moore &l (202) 225-8246 or Matthew Janiga at (202) 226-3503 with any 

questions. 

Maxine Waters 

Chai1woma.n 

Financial Services CommiUcc 

Subcoriunittet: on Housing and Comrounity Opportunity 

P. 2 1A (Jr ... ,~-:, 1 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Harry Reid 

Majority Leader 

United States Senate 

Washington, D.C. 20510 

Dear Senator Reid: 

August 31, 2009 

Thank you for your letter concerning Federal Deposit Insurance Corporation 

travel policies. 

I understand your concern regarding recent press coverage of government 

agencies prolu"biting staff from attending conferences in Las V cgas and Reno, Nevada. 

The FDIC does not have any travel or conference policy that discriminates against 

specific U.S. cities. In conducting our own internal conferences, we are fortunate to have 

a large FDIC conference facility in Arlington, Virginia, where most of our FDIC 

conferences are held. We also require that conference planners take into consideration 

other factors including the adequacy of rooms and facilities, security and safety, and 

public perception. If conference planners proposed going to Las Vegas for a conference, 

the over-riding factor in the decision-making process would be cost, not location. 

If you have further questions or-comments, please contact me at 202-898-697 4 or 

Paul Nash, Deputy for External Affairs, at 202-898-6962. 

Sincerely, 

Sheila C. Bair 
Ju I. 30. 2009 6: 43PM SENATOR HARRY REID N~. 2857 P. 2 

HARRY REID l 4dl-lZtJl( MAJORITY LEADER 

NEVA!l4 

The Honorable Sheila C. Bair 

Chairwoman 

~nittd oStatrs ~matt 

WASHINGTON. DC 2051~7012 

July 28, 2009 

FDIC -· ,1111 ~ 1 """'\ 

Federal Deposit Insurance Coxporation 

1700 G. Street, NW 

Washington,D.C.20552 

OFFICE OF LEGISLATIVE AFFPJRS 

Dear Madam Chairwoman: 

I am writing to request that you reject or reverse any agency policy regarding official 

travel for your employees that discriminates against specific U.S. cities. particularly Las Vegas 

and Reno. It has come to my attention that some agencies have adopted guidelines that identify 

cities also known as resort or vacation destinations as inappropriate venues for official agency 

travel and meetings. I was glad to learn recently that the White House shares my strong view 

that decisions concerning government travel, or where to locate official meetings1 should be 

determined by a cost-benefit analysis as opposed to perceptions about a particular location. A 

letter explaining White House policy is included with this correspondence. 

While I am proud of the allure Las Vegas and Reno possess for vacationers, 

organizations of all sizes and purposes have chosen our state as a destination for their officiai 

meetings because it offers them value and convenience. It's therefore no surprise that over the 

last two decades Nevada has become a world-class destination for business conventions. Room 

rates are relatively low (hovering around $90 per room on average in Las Vegas), convention and 

meeting space is plentiful, travel in and out of Nevada is convenient, and amenities are 

unmatched by any other location in the U.S. 

These arc the factors that should drive decisions on travel by the federal government; if 

taken into proper account, I am confident they would bring official government meetings to 

Nevada. Now more than ever, taxpayer dollars need ta be spent wisely and should maximize 

benefit to the government. By following these principles - and ignoring ill-conceived biases or 

perceptions about resort destinations - our government decision makers will serve the interests 

of all taxpayers, and Nevada will rccejve its deserved share of meeting-md~convention business 

from federal agencies. . ...... 

I respectfully request that you respond to this letter and confirm that your agency has 

adopted a travel policy consistent with the one articulated by the President's chief of staff .in the: 

attached letter. 
Jul. 30. 2009 6:43PM SENATOR HARRY REID 

My best wishes to you. 

Encl 

S~cerely, 

HARRY REID . United States Senator 

Nevada 

No. 2857 P. 4 
Jul.30. 2009 6:43PM SENATOR HARRY REID 

The Honorable Harry Reid 

Majority ~er 

· United States Senate 

Washington. DC 20510 

Dear Mr. Leader: 

THE WHITE HOUSE 

WASHINGTON 

July 14, 2009 

No. 2857 P. 3 

Thank you for conveying your ooncan about any suggestion that federul policy, explicitly or 

implicitly, proh.Ioit government meetings and conferen~ in prominent American cities such as 

Las Vegas or other communities known for attracting va.c:ationers. I agree lhat federal policy 

should not dictate the location where such government events are held. 

You arc as aware as any~ne of the toll that the current economic down tum is having on working 

families md communities nationwide. Your leadership in passing t.hc Economic Recovery Act 

earlier this year spew to your commitme;nt to, and effectiveness in. helping commumtiC! like 

Las Vegas and industries like tourism reboUDd.. 

Our view on the issue of government travel is not focused on specific destinations, but nther on 

the justification for and the cost/benefit ratio of the individual exc:rcisc. There is no doubt in my 

mind that the Federal government should lead by example in tightening its belt and justifying its 

expenditures as we meet the priority challenge of reducing the national deficit and the debt. For 

me, the test of government travel is what will be accomplished by that travel and whether the 

cost to the government is reasonable as opposed to other options. 

Again. thank you for .nusing this i.mp;ortant issue. I hope this letter helps clarify our view of il 

Rahm Emanuel 
e · FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Paul W. Hodes 

House of Representatives 

Washington, D.C. 20515 · 

Deel! Congressman Hodes: 

August 31, 2009 

Thank you for your letter regarding your constituents' concerns about bank lending to 

small businesses in New Hampshire. 

We agree with your constituents that small businesses are contending_with very 

challenging economic conditions and a contraction in credit availability. I assure you the Federal 

Deposit Insurance Coi:poration has not changed its expectations for bank lending or prudent loan 

underwriting. Toe FDIC provides banks with considerable flexioility in dealing with customer 

relationships and managing loan portfolios. We do not instruct banks to curtail prudently 

managed lending activities, restrict lines of credit to strong bouowers, or require. appraisals on 

performing loans unless an advance of new funds is being contemplated. 

Further, the FDIC believes the banking industry is in a position to provide critical 

banking services and the credit needed to help small businesses prosper in New Hampshire and 

across the country. Therefore, we strongly encourage banks to continue lending and to work 

with :financially distressed borrowers, and we joined with the other federal banking agencies in 

issuing the enclosed Interagency Statement on Meeting the Needs of Creditworthy Borrowers. 

We appreciate the opportunity to address your concerns on this important issue. lfyou 

have further questions or comments, please do not hesitate to contact me at. (202) 898-6974 or 

Paul Nash, Deputy for External Affairs, at (202) 898-6962. 

Sincerely, 

Sheila C. Bair 

Enclosures 
FDII 

Federal Deposit lnsunnca Corporation 

550 17lh Street NW, Wastqtan, D.C. 20(~ 

Financial Institution Letter 

FIL-128-2008 

November 12, 2008 

INTERAGENCY STATEMENT ON MEETING THE NEEDS OF 

CREDITWORTHY BORROWERS 

Summary: The FDIC joined the other federal b~g agencies in Issuing the attached •1nteragency 

Statement.on Meeting the Needs of Creditworthy Borrowers• on November 12, 2008. 

Distribution: 

FDIC-Supervised Institutions 

Suggested Routing: 

Chief Exacutlvll Officer 

Senior Credit Officer 

Attachment: 

"'lnteragency Statement on Meeting Iha 

Needs al Cledlwo,!hy BolJ'DWel'S" 

Contact 

lnslllutlcn's contac:t person (Caw Manager 

or Fleld Supervisor) at aJlllllcabla FDIC 

Regional Offlce, or AAoclata Dlred0r 

~ D. Fritts In Washington at 202-398-

3723 and sfrttls@fdlc.gov 

Note: 

FDIC financial Institution lelters (Ala) may 

be accassed from the FDIC's Web site at 

wwwJdJc aov/newsinewsfflnandal/2008/ln 

dex.hlml 

To receive Fils eledronlcally, please vlsll 

hlfp:/lwww. fdic.ooy/abouV,,.• lbgrlptlonslljl. 

!!l!D!.-

Paper copies of FDIC llnandal Institution 

lellen mrJ be ob\alned tmugh the 

FDIC's Pl.tile lnfarmatlon CelW, l501 

Fairfax Drive, E-1002. Arington. VA 

22225. 

Hlghllghts: 

Several federal programs have recently been Instituted to promote 

financial stability and mitigate the effects of current market conditions on 

Insured depository Institutions. These efforts are designed to Improve the 

functioning of aedit markets and strengthen capital in our financial 

system to Improve banks' capacity to engage In prudent lending during 

these times of economic cflStress. 

The agencies expect aD banking organizations to fulfiD their fundamental 

role In the economy as intermediaries of aedit to businesses, consumers, 

and other creditworthy borrowers. Lending to creditworthy borrowers 

provides sustainable returns for the organization and is construcilve for 

the economy as a whole. 

The agencies urge all lenders and servicers to adopt systematic, 

proactive, and streamlined mortgage loan modification protocols and to 

review troubled loans using these protocols. Lenders and servicers 

should first determine whether a loan modification would enhance the net 

present value of the loan before proceeding to foreclosure, and they 

should ensure that loans currently In foreclosure have been subject to 

such analysis. 

In Implementing this Statement, the FDIC encourages institutions it 

supervises to: 

• lend prudently and responsibly to aeditworthy borrowers; 

• work with borrowers to preserve homeownership and avoid 

preventable foreclosures; 

• adjust dividend policies to preserve capital and lending capacity; 

and· 

• employ compensation structures that encourage prudent lending. 

State nonmember lnsti1utlons' adherence to these expectations will be 

reflected In examination ratings the FDIC assigns for purposes of 

· assessing safety and soundness, their compliance with Jaws and 

regulations, and their performance in meeting the requirements of the 

Community Reinvestment Act. (CRA). 

I 
Printer Version - Board of Governors_ of the Federal Reserve System Page 1 of3 

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J oirit Press Release 

For release at 10:00 LID. EST 

Board of Governors or lhc Federal Rescr.c System 

Federal Deposit lnsurimcc Curpuration 

Office or the Cu01ptruller or tbto Currency 

Office ofTbrut Supen·is\on 

November 12, 1008 

Interagency Statement on Meeting the Needs of Creditworthy Borrowers 

The Department of the Trcasmy, the Federal Deposit Insurance Corporation, and the Federal Reserve 

have recently put into place several programs designed to promote financial stability and to mitigate 

procyclical effects of the current mari::et conditions. These programs make new capital widely · 

available to U.S. :financial institutions, broaden and increase the guarantees on bank deposit accounts 

and certain liabilities, and provide backup liquidity to U.S. banking organizations. These efforts arc 

designed to strengthen the capital foundation of our financial system and improve the overall 

functioning of credit markets. 

The ongoing financial and economic stress has highlighted the crucial role that prudent bank lending 

practices play in promoting the nation's ~nomic welfare. The recent policy actions are designed to 

help support responsible lending activities of banking organizations, enhance: their ability to fund 

such lending. and enable banking organizations to better meet the credit needs of households and 

business. At this critical time, it is imperative that all banking organizations and their regulators work 

together to ensure that the needs of creditworthy borrowers are met As discussed below, to support 

this objective, consistent with safety and soundness principles and existing supervisory standards, 

each individual banking organization needs to ensure the adequacy of its capital base, engage in 

appropriate loss mitigation strategics and foreclosure prevention, and reassess the incentive 

implications of its compensation policies. 

Lending to creditworthy borrowers 

The agencies expect all banking organizations to fulfill their fundamental role in the economy as 

intermediaries of credit to businesses, consumers, and other creditworthy boIJOwers. Moreover, as a 

result of problems in financial markets, the economy will likely become increasingly reliant on 

banking organizations to provide credit formerly provided or facilitated by purchasers of 

securities. Lending to creditworthy borrowers provides sustainable returns for the lending 

organization and is constructive for the economy as a whole. 

It is essential that banking organi7.ations provide credit in a manner consistent with prudent lending 

practices and continue to ensure that they consider new lending opportunities on the basis of realistic 

asset valuations and a balanced assessment ofborrowers' repayment capacities. However, if 

underwriting standards tighten excessively or banking organizations retreat from making sound 

credit decisions, the current market co~tions may be exacerbated, leading to slower growth and 

potential damage to the economy as well as the long-term interests and profitability of individual 

banking organizations. Banking organizations should strive to maintain healthy credit relationships 

with businesses, conswncrs, and other creditworthy borrowers to enhance their own financial wellbeing as well as to promote a sound economy. The agencies have directed supervisory staffs to be · 

mindful of the procyclical effects of an excessive tightening of credit availability and to encourage 

banking organizations to practice economically viable and appropriate lending activities. 

Strengthening capital 

http://www.federa1reserve.gov/newsevents/press/bcregf.20081 l 12a.htm 8/'20/2009 
Printer Version - Board of Governors of the Federal Reserve System 

Maintaining a strong capital position complements and facilitates a banking organization's capacity 

and willingness to lend and bolsters its ability to withstand uncertain market conditions. Banking 

organizations should focus on effective and efficient capital planning and Jongcr-tenn capital 

maintenance. An effective capital planning process requires a banking organization to assess both the 

risks to which it is exposed and the risk management processes in place to manage and mitigate those 

risks; evaluate its capital adequacy relative to its risks; and consider the potential impact on earnings 

and capital from economic downturns. Further, an effective capital planning process requircs a 

banking organization to recognize losses on bank assets and activities in a timely manner, maintain 

adequate loan loss provisions; and adhere to prudent dividend policies. 

In particular, in setting dividend levels, a banking organization should consider its ongoing earnings 

capacity, the adequacy of its loan loss allowance, and the overall effect that a dividend payout would 

have on its cost of funding, its capital position, and, consequently, its ability to serve the expected 

needs of creditworthy borrowers. Banking organizations should not maintain a level of cash 

dividends that is inconsistent with the organi:zation's capital position, that could weaken the 

organization's overall financial health. or that could impair its ability to meet the needs of 

creditworthy borrowers. Supervisors will continue to review the dividend policies of individual 

banking organizations and will take action when dividend policies are fowid to be inconsistent with 

sound capital and lending policies. . 

Working with mortgage borrowers 

The agencies expect banking organizations to work with existing borrowers to avoid preventable 

foreclosum1, which can be costly to both the organizations and to the communities they serve, and to 

mitigate other potential mortgage-related losses. To this end, banking organizations need to ensure 

that their mortgage servicing operations are sufficiently funded and staffed to wOik with borrowers 

while implementing effective risk-mitigation measures. 

Given escalating mortgage foreclosures, the agencies urge all lenders and scrviccrs to adopt 

systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled 

loans using these protocols. Lenders and serviccrs should first detennine whether a loan modification 

would enhance the net present value of the loan before proceeding to foreclosure, and they should 

ensure that loans currently in foreclosure have been subject to such analysis. Such practices are not 

only _consistent with sound risk management but are also in the long-term interests oflendcrs and 

servicers, as well as borrowers. 

Systematic efforts to address delinquent mortgages should seek to achieve modifications that result 

in mortgages that borrowers will be able to sustain over the remaining maturity of their 

loan. Supervisors will fully support banking organizations as they work to implement effective and 

sound loan modification programs. Banking organizations that experience challenges in 

implementing loss mitigation efforts on their mortgage portfolios or in making new loans to 

borrowers should work with their primary supervisors to address specific situations. 

Structuring compensation 

Poorly-designed management compensation policies can create perverse incentives that can 

ultimately jeopardize the health of the banking organization. Management compensation policies 

should be aligned with the long-term prudential interests of the institution, should provide 

appropriate incentives for safe and solllld behavior, and should structure compensation to prevent 

short-term payments for transactions with long-term horizons. Management compensation practices 

should balance the ongoing earnings capacity and financial resources of the banking organization, 

such as capital levels and reserves, with the need to retain and provide proper incentives for strong 

management Further, it is important for banking organizations to have independent risk management 

and control functions. 

The agencies expect banking organuations to regularly review their management compensation 

policies to ensure they are consistent with the longer-run objectives of the organization and sound 

lending and risk management practices. 

http://www.federalreserve.gov/newsevents/press/bcreg/2008 l l l2a.htm. 

Page 2of3 

8/20/2009 
Printer Version-Board ofGov~ors of the Federal Reserve System 

The agencies will continue to take steps to promote programs that foster financial stability and 

mitigate procyclical effects of the current IIJaJXCt conditions. However, regardless of their 

participation in particular programs, all banking organizations are expected to adhere to the 

principl~ in this statrmcnL We will work with banking organizations to facilitate their active 

participation in those programs, consistent with safe and sound banking practices, and thus to support 

their central role in providing credit to support the health of the U.S. economy. 

Media Contacts: 

Federal Rcsczve Board 

FDIC 

ace 

OTS 

Dave Skidmore 

Andrew Gray 

BobGmson 

Bill Rubeny 

202-452-2955 

202-898-6993 

202-874-5770 

202-906-6677 

http://www.federalreserve.gov/newsevents/press/bcreg/20081112a.htm. 

Page3 of3 

8170/2009 
PAUL W. HODES C0MllrTTFIS: 

2ND DISTIIICT, NEW HAW'SHIAE FINANCIAL SERVICES 

CONGRESS OF THE UNITED STATES 

HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-2902 

OVERSIGHT AHO 

GOVERNMENT REFORM 

Timothy Geithner 

Secretary 

August 4, 2009 

Ben Bernanke 

Chairman 

U.S. Department of Treasury Federal Reserve 

1500 Pennsylvania Ave, N.W. 

Washington, D.C. 20220 

20th Street and Constitution Avenue, N.W. 

Washington, DC 20551 

John Dugan 

Comptroller of the Currency 

Administrator of National Banks 

Washington, DC 20219 

Sheila Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17th St, NW, MB-6028 

Washington, DC 20429 

Dear Secretary Geithner, Chairman Bemanke, Comptroller Dugan, and Chairman Bair, 

I am writing today to urge your agencies to take more action in helping small 

businesses get the loans they need,during these difficult economic times. In my home 

state of New Hampshire, small business is big business. There are about 142.400 small 

businesses in New Hampshire, and over 85,000 Granite Staters are self-employed. 

Many financial institutions have come before the Financial Services Committee 

and claimed that their lending rates have increased to individuals and small businesses. 

My constituents and small businesses owners have repeatedly told me otherwise for 

months now. · 

Additionally, nearly 4 in 10 small-business owners polled said they are not able to 

get the financing they need to run their businesses in a July 22, 2009 National Small 

Business Association report. Bank of America. a recipient of billions of taxpayer dollars 

from TARP, has cut small business loans by 89.7 percent made through the Small 

Business Administration (SBA) 7(a) program in the past calendar year, according to a 

Service Employees International Union (SEIU) report. 

It is critical that your agencies encourage small business lending because families 

and communities rely on these small businesses. Small businesses must get the loans they 

need. 

It is unacceptable that these struggling small businesses cannot get the help they 

need from the federal government. SBA's lending initiatives are most needed during 

economic downturns, when private capital markets fail to provide small businesses the 

1317 LONC;woimt HOB 

WASHINGTON, DC 20515 

F'HoNE: 12021 225-5206 

FAX: 1202, 225-2946 

18 NORTH MArN Sr. 

Surn400 

CONCORD, NH 03301 

f'HoNE:(603)223-9814 

Fu: !6031223-9819 

151 Mur STMET 

Bu11.1to1, NH 03570 

f>HoN(; (603) 752-4680 

32 MAIN STREET 

RooM 110 

UTTUTON, NH 03561 

PHcNE: 1603) 444-8967 

HTTP://HOOES.HOUSE.GOV 11--t:,.:.~ _,, 

221 MAIN 5T!IHT 

SUITE 201 

NASHUA, NH 03060 

f'HoHE: 16031579-6913 

Fu: (6031579-6916 

29 CENTER STIIEET 

KEEN£, NH 03431 

f'HoNE: 16031 358- 1023 

FAX: (603) 358-1025 
financing options they need. The SBA 's capital access program has not performed this 

vital function during the current economic crisis. 

According to an article in The Washington Post. "Breaking SBA Lending 

Logjam". the Obama Administration is deciding whether to increase the amount 

businesses can borrow from the SBA, with the possibility of using TARP funds. I 

encourage this use of the TARP funds to help with small business loans. 

The Obama Administration has stated that it is important that small businesses. 

can continue to thrive. Small businesses are not getting the loans to keep their doors 

open. I urge your agencies to take action to help our small businesses. 

cc: Karen Mills 

Administrator 

US Small Business Administration 

409 3rd Street, SW 

Washington, DC 20416 

Sincerely, 

Paul W. Hodes 

Member of Congress 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR September 9, 2009 

CHAIRMAN 

Honorable Barney Frank 

Chairman 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chainnan: 

Thank you for sharing a copy of your letter to the Treasury Secretary concerning a 

proposal by Congressman Jim Costa to use funds from Troubled Asset Relief Program 

(TARP) redemptions to augment capital at smaller institutions. The Federal Deposit 

Insurance Corporation agrees with Congressman Costa that TARP funds could be 

redistributed to strengthen community banks. 

As you maybe aware, community banks continue to perceive the TARP program 

as a financial stability initiative targeted for large institutions. All qualifying 

domestically owned banks among the 25 largest institutions have received TARP 

subscriptions, while a comparative handful of smaller institutions have participated. 

Only 667 institutions of the 7,257 holding companies and small independent banks in the 

United States have received TARP subscriptions. Approximately 90 percent of U.S. 

banking institutions did not participate in the TARP program, and only 8 percent of 

institutions with risk-weighted assets less than $5 billion participated. 

We have heard a variety of other concerns voiced about the program, such as the 

high cost of TARP capital for Su6chapter S corporations, the tier 1 capital ineligibility of 

TARP subscription for mutual institutions, the high closing costs on TARP subscriptions 

for smaller institutions, and the opacity of the approval process. We believe a more 

streamlined approval process predicated on the primary federal regulator's extensive 

knowledge of the applicant and a more consistent cost structure would substantially 

improve community banks' perception of this program. 

The FDIC agrees with Congressman Costa's proposal to stabilize certain 

community banks by redistributing TARP funds. These funds could help to fuel an 

economic recovery by taking advantage o~ several key opportunities: 

• bolstering the capital of existing banking institutions that acquire troubled banks 

and thrifts, 
• providing additional capital for minority-owned and -operated institutions to 

assist their community lending efforts, and 

• supporting the capital needs of institutions with favorable lending records that 

operate in underserved ru:ral or urban markets . 

. Again, we believe TARP program enhancements should be focused on 

community banks and more specifically on those institutions with assets less than $5 

billion. Enhancements should include more attractive pricing and terms. For institutions 

with assets less than $100 million, consideration also should be given to reducing or 

eliminating the cost of closing on TARP subscriptions. 

The FDIC has a number of eligible bidders for failing institutions that could be 

strengthened by an infusion of TARP capital to provide a cushion for losses arising from 

the failed bank acquisition and intermediate new loans. At this critical juncture in the 

banking crisis, we believe banks and their communities would greatly benefit from the 

reinvestment of TARP funds in markets affected by bank closings as well as traditionally 

underserved communities. The community institutions described above can positively 

influence our country's financial stability and economic recovery and are especially 

deserving of access to the TARP Program. 

If the program is enhanced as Congressman Costa pi:oposes; a more robust 

outreach effort must be undertaken with community banks and their trade organizations 

to overcome existing skepticism. The FDIC would welcome the opportunity to assist 

Treasury with such outreach efforts if the program is enhanced for community 

institutions. 

Thank you again for allowing the FDIC to provide input on this matter. If you 

have further questions, please contact me at 202-898-6974 or Paul Nash, Deputy for 

External Affairs, at 202-898-6962. 

Sincerely, 

Sheila C. Bair · 

cc: Honorable Jim Costa 
BARNEY FRANK 'TM lltsTiuCT, MASSACHUSETTS 

2252 RAVSUIIIN HOUSE OFFICE BUILDING 

WASHINGTON, 0C 20515-21°' 

(2021 22S--5931 

29CIIAFTSSTREET 

SUIT£ 375 

NEWTON, MA 02'5B 

1s,r1 332-3920 

({ongrtss of tbt ltnittb ~tatts 

~oust of Iteprtstntatibts 

Basbington, Jl«: 

The Honorable Timothy Geithner 

Department of the Treasury 

1500 Pennsylvania A venue 

Washington, D.C. 20004 

Dear Mr. Secretary, 

July 29, 2009 

L AD"'l-I ZZIJ 

558 f>LEAsANT STREET 

ROOM309 

NEW BEDFORD, MA 021,0 

(5081~ 

THE JONES Bull.DING 

29 BltoAcwAY 

Sum31D 

TAUOlTON, MA 02780 

15081 822--096 

I'm enclosing a copy ofa very thoughtful letter I received from one ofmy colleagues who is 

very much engaged in trying to help us get back to full economic strength in an area of the 

country which very much needs it As you know. I have myself been in favor of taking 

advantage of some of the TARP repayments to deal with the problems that led us to pass the 

TARP in the first place. I am very impressed with the thought behind Congressman Costa's idea 

and I send it to you in the hope that you and others in the administration will study it and be 

willing to work with us in implementing it. It does not seem to me to require a legislative action, 

but if you thought it did, I wotild try to provide it. But if it is something you can do on your own, 

I strongly recommend it 

I am sending a copy of this correspondence, both my letter to you and Congressman Costa's 

letter to me, to Chairwoman Bair of the FDIC as well. 

ENCLOSURE 

BF/la 

-----

BARNEYF1lANJ<. 

THIS STAllONERY PRINTED ON rAPER MADE OF RECYCLEO ABER$ 
JIM COSTA 

20nl OISTIIICT, CEMAIL: congrusmanjlmco11a@malLhousa.gov 

WEB PAGE: -w.hausa.gav/cDStl 

COMMITTEE ON NATURAL RESOURCES 

S.........nu"" 

&.ulaY AND M .. ._.. RtsoUIICts 

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5'.ec:DMMmnON w.,.,..,..Pawta 

atnngres.s nf fqe llfnifeh §fates 

i;nu.s.e of itepr.e.s.entatiuts 

lla.sfringtnn; I.«. 211515 

July 27m, 2009 

Chainnan Barney Frank 

House Financial Services Committee 

2129 Rayburn House Office Building 

Washington, DC 20515 

Dear Chainnan Frank: 

COMMITTEE ON AGRICULTURE 

~lUCIN 

C-•"""• C....,,, ENooc-t - R"""'°' 

S.-nu"" 

Holmcu.TUIOI - 0....-F-

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LNfsroa, o,,,., AND Pou.""' 

COMMITTEE ON FOREIGN 

AFFAIRS 

~IIU.DN 

EUJIOP'I 

As you know, earlier this month the Treasury announced that $70 Billion in 

funds issued through the Capitol Purchase Program under TARP were returned by 

many of the larger banking institutions. This letter serves to urge you to investigate 

the possibility of reinvesting a portion of the returned TARP funds in order to assist 

our community banks and provide for an expeditious exit of our nationwide financial 

crisis. 

When the FDIC takes over a failed bank, like it did with County Banlc of 

Merced earlier this year, it usually settles on a 20% success rate and then turns these 

losses over to all surviving banks in the form of new fees. Instead, perhaps the 

regulators should put these failing banks with well managed banks that admittedly 

have their share of troubled loans and invest some capital into the acquiring bank so 

that they can effect the 80+ % success versus the current 20% success. We now have 

funds left in the TARP program that weren't used to buy toxic assets nor to 

recapitalize community banks that could be used for this purpose. Perhaps the 

repayments of TARP money could be used to put two struggling banks together with 

a little capital which could make one very strong bank. 

Reinforcing lending at the local level is something that will help the small 

businesses throughout the country, including those in the housing sector, and stop this 

recession from dragging on year after year. The answer to the current fiscal crisis is 

creating jobs and that means lending to small businesses and builders which is the 

domain of the all too often ignored community banks. 

WASHINGTON OFFICE. 

1314 L0NGW011m HOUSI 0111a Bu~"""' w-""'· oc 2os1s Ptto,,r: 1202) 225-3341 

FA%! 12021 225-930B 

DISTRICT OFFIC£: 

855 M StlOlll, S...11 940 

F,.SNO. CA 93721 

"'""'"'' 1559) 495-1620 fAJC 1559) 495-1027 

'l·-9-•• 

DISTIUCT OFFICE: 

. 2700 M Snortt, Sum 22!"1 

11.urllSNID, CA 93301 

l'Hooc:: 1661) 8159-1820 

FAS: 11161) 1189-1027 
Page2 

The Honorable Barney Frank 

July 22, 2009 

The recent hearing your committee held on reinvesting TARP earnings, 

discussing HR 3068, the TARP for Main Street Act of 2009 was certainly _ 

worthwhile. However, I urge you to broaden your consideration of the reinvestment 

of these TARP earnings, and include Community Banlcs as part of the proposed 

solutions. Chairman, I realize that you face an entire host of pressing concerns in the 

financial services arena; however, I appreciate your consideration of this request and 

look forward to hearing from you on this issue. 

Member of Congress 

cc: 

The Honorable Timothy Geithner, Secretary of the Treasury 

The Honorable Sheila Bair, Chairwoman, Federal Deposit Insurance Corporation 
I) . FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Spencer Bachus 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Bachus: 

September 9, 2009 

· Thank you for the opportunity to respond to the questions you submitted 

subsequent to my testimony at the hearing on "Regulatory Perspectives on the Obama 

Administration's Financial Regulatory Reform Proposals-Part II," before the House 

Financial Services Committee on July 24, 2009. 

Enclosed are my responses. If you have further questions or comments, please do 

not hesitate to contact me at {202) 898-6974 or Paul Nash, Deputy for External Affairs, at 

{202) 898-6962. 

Sincerely, 

Sheila C. Bair 

Enclosure 

;.: 
Response to questions from the Honorable Spencer Bachus 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

UDAP Questions __ 

Qt. Under the Federal Trade Commission Act, only the Board of Governors of the .., 

Federal Reserve System (Fed) has the authority to issue rules or regulations defining 

what acts or practices are unfair or deceptive with respect to all banks, including 

those for which the FDIC or the OCC is the primary federal regulator. Neither the 

FDIC nor the OCC bas authority to adopt such rules or regulations for the banks 

they re~late. The Fed, FDIC and OCC, however, have taken the position that the 

FDIC and the OCC may define what acts or practices they think are unfair or 

deceptive on a case-by-case basis in the context of administrative enforcement 

proceedings, and the FDIC has done just that, as reflected in a series of Consent 

Cease and Desist Orders recently issued by the FDIC including those regarding 

Advanta Bank Corporation; American Express Centurion Bank of Salt Lake City, 

Utah; and the CompuCredit-_related cease and desist orders against Columbus Bank 

and Trust, Columbus, Georgia, First Bank of Delaware, Wilmington, Delaware, and 

First Bank & Trust, Brookings, South Dakota. 

Qla. The FfC Act explicitly confers upon the Federal Reserve Board, the Federal 

Home Loan Bank Board, and the National Credit Union Administration Board the 

authority to "define with specificity'' unfair and deceptive acts and practices. While 

the FTC Act grants enforcement authority to the FDIC and OCC, the Act does not 

explicitly grant the FDIC and OCC the authority to define unfair or deceptive acts 

and practices. In other words, under the express language of the FrC Act, the 

FDIC and the OCC do not have the statutory authority to decide for the banks they 

regulate that a particular act or practice is unsafe or unsound, either by adopting a 

regulation or on a case-by-case ~asis in enforcement proceedings. 

Qla(i). Have the FDIC and the OCC each analyzed this legal issue and prepared 

written l~gal opinions which conclude that they each do have the authority to define 

unfair or deceptive acts or practices·on a case by case basis? 

Ala(i): The FDIC General Counsel has not issued a formal legal opinion, but the FDIC 

has issu~ two Financial Institution Letters (FILs) addressing this issue, "Guidance on 

Unfair or Deceptive Acts," FIL-57-2002 (May_30, 2002), and "Unfair or Deceptive Acts 

or Practices by State-Chartered Banks," FIL-26-2004 (March 11, 2004). Copies of the 

two FILS are attached. 

The ITC Act contains a broad prohibition on the use of unfair or deceptive acts or 

practices that does not depend on specific regulations. The FTC Act also grants authority 

to the FTC and to certain financial regulators including the Fed (for banks), the Office of 

Th.rift Supervision (for thrifts), and the National Credit Union Administration (for credit 
unions) to issue regulations with respect to specific practices. Insured financial 

institutions must comply with both the general protul>ition on the use of unfair or 

deceptive practices and any regulations issued by tp.e appropriate financial regulator. If 

an insured :financial institution violates the FTC Act or an implementing regulation, the 

banking agencies can pursue corrective actions including enforcement actions such as 

cease and desist orders and the imposition of civil money penalties under Section 8 of the 

Federal Deposit Insurance Act (FDI Act). For example, in the Compucredit cases listed 

above, the FDIC brought actions against the three banks, and the FDIC and FTC brought 

parallel actions against Compucredit 

Qla(ii). Have these opinions been reviewed and approved by the General Counsel 

of each agency? 

Al a(ii). The FDIC General Counsel reviewed the issue and approved the two FILS 

before their issuance. 

Qla{iii). Has the Fed General Counsel's office reviewed these opinions or 

performed its own analysis and prepared its own written opinion? 

Ala(iii). While the FDIC is not aware of a formal written opinion by the Fed's General 

Counsel addressing the FDIC and the OCC's authority to cite banks for violations of 

Section 5 and take appropriate enforcement action, the Fed has publicly stated this 

position. Then Chairman Greenspan in his May 30, 2002 letter to Honorable John J. 

LaFalce, Ranking Member, Committee on Financial Services, noted that '"the banking 

agencies also may take fonnal enforcement actions under the FDI Act to prevent unfair or 

deceptive practices that violate the FrC Act." Further, the Fed and the FDIC jointly 

issued FIL-26-2004, "Unfair or Deceptive Acts or Practices by State-Chartered Banks," 

which explicitly stated the authority to take enforcement actions under Section 8 of the 

FDI Act against banks that commi! unfair or deceptive trade practices, as provided in 

Section 5. The Fed, along with the OTS and the NCUA, recently reaffirmed the authority 

to enforce Section 5 on a case-by-case basis in the Preamble to the January 29, 2009, 

Amendments to Regulation AA, 74 FR 5498. 

Qla{iv). Have any of the opinions that may have been prepared by the FDIC, OCC, 

and/or the Fed regarding this issue been reviewed by any independent third party, 

such as the relevant Inspectors General or the Justice Department? 

Ala(iv). We are not aware that either FIL has been reviewed by the FDiC Inspector 

General or the Justice Department. In Roberts v. Fleet Bank CR.I.). 342 F. 3d 260, 269-

70 (3rd Cir. 2003), the Court of Appeals recognized that the OCC has the authority under 

Section 8 to address proscribed conduct under Section 5. 
Qb. What, if any procedures have been established to assure that the Fed, OCC, 

and the FDIC are all in agreement as to what acts or practices are unfair or 

deceptive? 

Ab: When the FDIC first considered whether it would be appropriate to enforce the FTC 

Act's Section 5 prohibition against unfair and deceptive acts and practices on a case-bycase basis, it consulted with the Fed. The two agencies determined that such enforcement _. 

would be appropriate under Section 8 of the FDI AcL As a means to ensure consistency, " 

they also agreed to follow the standards developed by the FfC and tested through the 

courts. In FIL 26-2004, the FDIC and the Fed jointly explained that they would follow 

those standards, which were described in the FIL, and that they would "also consider 

factually similar cases brought by the FTC and other agencies to ensure that these 

standards are applied consistently." 

The FDIC subjects all potential UDAP cases to a thorough internal review, by both 

examination and legal staff at multiple levels, which considers the unique facts and 

circumstances of that case. Each case is considered individually, because a change in a 

single fact can make the difference between finding a UDAP violation or not. 

The FDIC staff regularly consults with FTC staff to obtain informal views in particular 

situations. The FDIC and Fed staffs are in regular contact through mechanisms such as 

the FFIEC Consumer Compliance Task Force and other less formal means of 

communication. A Consumer Compliance Task Force working group has been drafting 

UDAP examination procedures, for example. 

Qb(i). How do the regulators ensure that the OCC and/or the FDIC do not adopt a 

UDAP rule in a case through their respective adjudicatory processes that has not 

been, or is not, also adopted by the other banking agencies? Do you see a problem 

with the possibility of inconsistent rulings or positions between or among the federal 

banking agencies regarding what acts or practices are unfair or deceptive? 

Ab(i). When the FDIC brings an enforcement action against a bank for unfair or 

deceptive· practices on a case-by case basis, the agency has not promulgated a UDAP rule 

under the FTC Act. As the agencies follow the standards established by the FTC and 

consult with that agency, we do not believe the agencies will enforce Section 5 in an 

inconsistent manner. In addition, final decisions by the FDIC in enforcement cases are 

subject to review by United States Courts of Appeal. 

Qb(ii). Are you aware of any inconsistent positions that exist as of today, i.e. 

situations where the FDIC or OCC or Fed bas determined in the context of an 

administrative enforcement proceeding that a particular act or practice is unfair or 

deceptive, while one or both of the other agencies have not and do not regard the 

conduct at issue as a violation of the FfC Act? How would you fmd out if that was 

the case? 
Ab(ii): We are unaware of any inconsistent positions taken by the agencies in 

administrative enforcement proceedings addressing unfair or deceptive acts or practices. 

Further before the FDIC brings a significant formal enforcement action against an 

institution in a UDAP matter~ such as to impose a cease and desist order, restitution order, 

or a civil money penalty, in most instances the action is approved by the FDIC Case 

Review Committee, which includes OCC and OTS representatives as voting members. 

Agency staff routinely discusses matters such as these at Consumer Compliance Task 

Force meetings. 

-Questions on FAS 166 and FAS 167 

Ql. What will be the impact of this "consolidation" on bond investors who are 

critical to the extension of credit and the future of our securitized credit markets? 

Al. The securitization market involves the complex interaction of originators, borrowers, 

servicers, and investors. While securitization has helped to extend credit and increase 

~nding of housing and other important markets, the recent crisis has exposed some 

deficiencies that are in the process of being addressed. The impact of the Financial 

Accounting Standards Board's (FASB) new accounting standards that will require the 

consolidation of certain off-balance sheet structures along with other recent reform 

efforts, such as the requirement for securitizers to retain· a percentage of the credit risk on 

any asset that is transferred through a securitization, is difficult to predict. The various 

initiatives change the incentives, risks, and rewards for the various securitization market 

participants in different ways that make it difficult to predict the overall market impact. 

The FDIC along with the other banking agencies bas just issued a Notice of Proposed 

Rulemalcing (NPR) related to the FASB's adoption of FAS 166 and FAS 167. The NPR 

seeks to better align regulatory capital requirements with the actual risks of certain 

exposures and seeks comment and supporting data on the impact of the accounting 

changes on securitization activity,)ending, and financial markets generally. It also seeks 

comment and supporting data on the features and characteristics of transactions that, 

although consolidated under the new accounting standards, might merit an alternative 

capital treatment, as well as on the potential impact of the new accounting standards on 

lending, provisioning, and other activities. 

Q2(a) Does the FDIC consult with the other federal banking agencies in an effort to 

achieve uniformity with respect to the factors that will be evaluated and the 

standards that will be applied in arriving at such individual capital requirements 

for lnstitutions? 

A2(a): The federal banking agencies work together to achieve uniformity in the 

development, interpretation, and implementation of the risk-based capital requirements. 

An interagency capital policy group from Qie supervision and legal divisions of the 

respective agencies meets regularly to discuss and reach consensus on capital policy 

.-

--
issues involving new interpretations of the agencies capital rules. We note, for example, 

that the FDIC and the other federal banking agencies have just developed a uniform joint 

NPR for a regulatory capital rule to address FAS 166 and FAS 167. 

Q2(b): Should the federal_ banking agencies apply the same criteria to determine 

the capital ratios for a regulated institution? 

A2(b): Insured depository institutions are subject to regulatory capital standards that are, ;; 

with rare and very minor exceptions, identical across the federal banking agencies. 

Supervisors generally expect banks to hold capital in excess of regulatory minimums 

commensurate with their risk profiles. It is appropriate for the agencies to look to a 

common set of factors in determining capital adequacy, including the individual risk 

profile of the institution, the level and severity of adversely classified assets, and the 

institution's interest rate risk. 

Q2(c): Is there consistency between and among the federal banking agencies 

regarding the criteria they use to determine whether to establish individual capital 

requirements? 

Al(c): As provided in the response to question 2(b) above, the agencies generally 

evaluate a common set of factors in determining whether, and to what extent, an 

institution should be required to hold capital in excess of the regulatory minimums. 

However, this determination is dictated largely by the circumstances of the individual 

institution and supervisory judgment by the respective agencies, including under the 

specific delegations of authority under the capital rules involving the appropriate 

classification of capital instruments and the proper risk-weighting of assets under the 

risk-based capital rules. 

Q2(d): Does your agency use an.economic model to determine the capital ratios a 

given institution should maintain in light of its particular risk profile in 

order to be considered adequately capitalized or well-capitalized? 

ii. If you do use a model, whose model is it? 

1. Was it constructed by your agency alone? 

2. Did you discuss it with the other banking agencies, or consult 

with them regarding what, if any, models they use for such 

purposes? 

3. To the extent you know what differences there are between any 

model that your agency uses and any model used by any other 

banking agency, bow do you go about resolving hose 

differences, if at all? 
4. Do you have a set of standards you use in evaluating capital 

adequacy models that are employed by the institutions you 

regulate and, if so, what are they and were they developed in 

consultation with any other agencies? 

A2(d): No, the FDIC does not use an economic model in determining the capital ratios 

an institution should maintain. In December 2007, the banking agencies promulgated a 

regulation mandating the use of certain "advanced approaches" from Basel II to calculate 

regulatory capital for large, complex banks. These approaches draw heavily from banks' 

own internal risk models. No U.S. bank is ctnTently calculating its capital requirements 

under these approaches. 

The agencies expect the internal capital adequacy assessment of any institution to go 

beyond the assumptions underlying the minimum risk-based capital requirements. 

Although the assessment process may vary on an institution-by-institution basis, banks 

may use economic capital measures for certain elements of risk management, such as 

limit setting or for evaluating performance and aggregate capital needs. However, 

notwithstanding the particular metrics or analytical paradigm used for any given process, 

the fundamental objectives of the internal assessment must remain the same: to identify 

and measure material risks; set and assess internal capital adequacy objectives that relate 

directly to risk; and ensure the integrity of internal capital adequacy assessments. The 

interagency guidance document discusses the agencies' expectations with respect to each 

of these objectives, with a specific emphasis on the various risk types that should be 

identified and measured as part of the internal capital adequacy assessment process (i.e., 

credit, market, operational, interest rate, and liquidity risk). 

.-· 

.-
FDIC: FIL-57-2002: Guidance on Unfair or Deceptive Acts or Practices 

Home > News & EYllnts .. F"tnancial Institution Letters 

Financial Institution Letters 

GUIDANCE ON UNFAIR OR DECEPTIVE ACTS OR PRACTICES 

TO: CHIEF EXECUTIVE OFFICER 

SUBJECT: Unfair or Deceptive Acts or Practices: 

Applicability of the Federal Trade Commission Act 

FIL-57-2002 

May 30, 2002 

The Federal Trade Commission Act (FTC Act) declares that unfair or deceptive trade practices are 

illegal. See 15 USC § 45(a) (FTC Act Section 5). This letter confirms that the Federal Deposit 

Insurance Corporation (FDIC) intends to cite state nonmember banks and their institution-affiliated 

parties for violations of FTC Act Section 5 and will take appropriate action pursuant to its authority 

under Section 8 of the Federal Deposit Insurance Act (FOi Act) when unfair or deceptive trade 

practices are discovered. FDIC enforcement action against entities other than banks will be 

coordinated with the Federal Trade Commission, which also has authority to take action against 

nonbank parties that engage in unfair or deceptive trade practices. 

In order to determine whether a practice is "unfair," the FDIC will consider whether the practice 

"causes or is likely to cause substantial injury to consume!'$ which Is not reasonably avoided by 

consumers themselves and not outweighed by countervailing benefits to consumers or to competition." 

15 U.S.C. § 45(n). By adhering to this tenet. the FDIC will take action to address condud that falls well 

below the high standards of business practice expected of most banks and· the parties affiliated with 

them. 

In addition, to correct deceptive trade practices, the FDIC will take action against representations, 

omissions, or practices that are likely to mislead consumers acting reasonably under the 

circumstances, and are likely to cause such consumers harm. The FDIC wiU focus on material 

misrepresentations, i.e., those that affed choices made by consumers because such 

misrepresentations are most likely to cause consumers financial harm. 

The FDIC recognizes that the institutions that it $Upervises generally adhere to high standards of 

conduct. The agency, therefore, anticipates thafit will not be required to take ac::tion to correct unfair or 

deceptive practices on a frequent basis. However, to avoid misunderstanding about the appHcability of 

the FTC Act. this letter is intended to clarify that the FTC Acfs prohibition against unfair and deceptive 

trade practices does apply to your Institution, and to its subsidiaries and third-party contractors. 

Vv'hile the Federal Trade Commission has adopted policy statements on unfairness (FTC Policy 

Statement on Unfairness, December 17, 1980) and deception (FTC Policy Statement on Deception, 

October 14, 1983), most unfair and deceptive trade practices have been defined in fact-specific, caseby~se adjudications. The FDIC anticipates that additional guidance will be provided in similar fashion 

going foiward. 

Please contact Division of Compliance and Consumer Affairs (DCA) staff in your regional office for 

more infonnation. to ob~in Federal Trade Commission business guidance on unfair and deceptive 

practices and other topics, please link to: www.ftc.gov/ftc/buslriess.htm. For assistance from the DCA 

Washington Office, please call April Breslaw, Senior Policy Analyst. at (202) 942-3061, Louise 

Kotoshirodo Kramer, Policy Analyst, at (202) 942-3599, or David LaFleur, Policy Analyst, at (202) 942-

3466. 

Michael J. Zamorski 

Director 

Distribution: FDIC-Supervised Banks (Cofn!11ercial and Savings) 

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Page 1 of2 

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FDIC: FIL-57-2002: Guidance on Unfair or Deceptive Acts or Practices 

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public 

Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 

562-2200). 

Last Updated 05/3012002 

Home Contact Us Search Help SiteMap Forms 

Freedom of Information Act {FOIA} Service Center Website Poncies USA.gov 

FDIC Office of Inspector General 

http://www.fdic.goy/news/ncws/financial/2002/fil0257.h~ 

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Page 2 of2 

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9/11/2009 
FDIC: FIL-26-2004: Unfair or Deceptive Acts or Practices Under Section 5 of the Federal... Page 1 of 2 

Home> News &.Events> Financial lnstHutlon Letters 

Financial Institution Letters 

Unfair or Deceptive Acts or Practices by State-Chartered Banks 

,: 

FIL-26-2004 

March 11, 2004 

TO: 

SUBJECT: 

Summary: 

CHIEF EXEClJTIVE OFFICER (also of interest to Compliance Officer} 

Unfair or Deceptive Acts or Practices Under Section 5 of the Federal 

Trade Commission Act 

The FDIC and the Board of Governors of the Federal Reserve System 

are issuing guidance to state-chartered banks to outline the standards 

that the agencies will consider when applying the prohibitions against 

unfair or deceptive acts or practices found in section 5 of the Federal 

Trade Commission Act. The guidance also provides information about 

managing risks relating to unfair or deceptive acts or practices, including 

best practices. 

The Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve 

System are jointly issuing the attached guidance to state-chartered banks regarding unfair or deceptive 

acts or practices prohibited by section 5 of the Federal Trade Commission (FTC) Act 

In FIL-57-2002, issued May 30, 2002, the FDIC informed state nonmember banks that these 

prohibitions apply to their activities, and that the FDIC would issue guidance about how institutions could 

avoid engaging in practice~ that might be viewed as unfair or deceptive. In its corresponding release, 

the Federal Reserve Board indicated that it would work with the FDIC to prepare additional guidance for 

state member banks on this subject. The attached guidance fulfills these commitments. 

Specifically, the guidance explains: 

• the standards used to assess whether an act or practice is unfair or deceptive; 

• the interplay between the FTC Act !'lnd other consumer protection statutes; and 

• guidelines for managing risk~ related to unfair and deceptive practices. 

Although most insured banks adhere to high levels of professional conduc~ managers of all banks must 

remain vigilant against possible unfair or deceptive acts or practices to protect consumers and to 

minimize their own risk. 

For more information atx?ut the guidance, please contact April P. Breslaw, Section Chief (202- 898-

6609}; Deirdre Foley, Senior Policy Analyst (202-898-6612); or Mira N. Marshall, Senior Policy Analyst 

(202-898-3912), in the Division of Supervision and Consumer Protection. 

For your reference, FDIC Financial Institution Letters (Fils) may be accessed from the FDIC's Web site 

at www.fdic.gov/news/news/financial/2004/index.html. 

Michael J. Zamorski 

Director 

Division of Supervision and Consumer Protection 

### 

Attachment Unfair or Deceptive Acts or Practices by State-Chartered Banks March 11, 2004 

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Distribution: FDIC-Supervised Banks (Commercial and Savings) 

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public 

Information Center, 80117 th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or 

(703) 562-2200). · 

Last Updated 3111/2004 communlcalions@fdlc.gov 

Home Contact Us Search Help SlteMap Forms 

Freedom of Information Act (FOIA) Service Center Website Poficies USA.gov 

FDIC Office of Inspector General 

http-J/www.fdic.gov/rtews/news/financial/2004/fil2604.html 

..-

" 

9/11/2009 
FDIC: FIL-26-2004: Unfair or Deceptive Acts or Practices by State-Charterea Banks Mar... Page 1 of 6 

Home > News & Events > Flnanclal Institution Letters 

Financial Institution Letters 

Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Unfair or Deceptive Acts or Practices by State-Chartered Banks 

March 11, 20·04 

Purpose 

.. 

., 

The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation 

{the "Board" and the "FDIC,· or collectively, the "Agencies") are issuing this statement to outline the 

standards that will be considered by the Agencies as they carry out their responsibility to enforce the 

prohibitions against unfair or deceptive trade practices found in section 5 of the Federal Trade 

Commission Act rFTc Act") as they apply to acts and practices of state-chartered banks. The Agencies 

will apply these standards when weighing the need to take supervisory and enforcement actions and 

when seeking to ensure that unfair or deceptive practices do not recur. 

This statement also contains a section on managing risks relating to unfair or deceptive acts or 

practices, which includes best practices as well as general guidance on measures that state-chartered 

banks can take to avoid engaging in such acts or practices. 

Although the majority of insured banks adhere to a high level of professional conduct, banks must 

remain vigilant against possible unfair or deceptive acts or practices both to protect consumers and to 

minimize their own risks. 

Coordination of Enforcement Efforts 

Section 5(a) of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce.• 

and applies to all persons engaged in commerce, including banks. The Agencies each have affirmed 

their authority under section 8 of the Federal Deposit Insurance Act to take appropriate action when 

unfair or deceptive acts or practices are discovered. 

A number of agencies have authority to combat unfair or deceptive acts or practices. For example, the 

FTC has broad authority to enforce the requlre..,ments of section 5 of the FTC Act against many nonbank entities. In addition, state authorities have primary responsibility for enforcing state statutes against 

unfair or deceptive acts. or practices. The Agencies intend to work with these other regulators as 

appropriate in investigating and responding to allegations of unfair or deceptive acts or practices that 

involve state banks and other entities supervised by the Agencies. 

Standards for Determining What Is Unfair or Deceptive 

The FTC Act prohibits unfair or deceptive acts or practices. Congress drafted this provision broadly in 

order to provide sufficient flexibility in the law to address changes in the market and unfair or deceptive 

practices that may emerge. 

An act or practice may be found to be unfair where it "causes or is likely to cause substantial injury to 

consumers which Is not reasonably avoidable by consumers themselves and not outweighed by 

countervailing benefits to consumers or to competition." A representation, omission, or practice is 

deceptive if it is likely to mislead a consumer acting reasonably under the circumstances.and is likely to 

affect a consumer's conduct_or decision regarding a product or service. 

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The standards for unfairness and deception are independent of each other. While a specific act or 

practice may be both unfair and deceptive, an act or practice is prohibited by the FTC Act if it is either 

unfair or deceptive. VVhether an act or practice is unfair or deceptive will in each instance depend upon 

a careful analysis of the facts and circumstances. In analyzing a particular act or practice, the Agencies 

will be guided by the body of law and official interpretations for defining unfair or deceptive acts or 

practices developed by the courts and the FTC. The Agencies will also consider factually similar cases 

brought by the FTC and other agencies to ensure that these standards are applied consistently. 

Unfair Acts or Practices 

Assessing whether an act or practice Is unfair 

An act or practice is unfair where it (1) causes or is likely to cause substantial injury to consumers, (2) 

cannot be reasonably avoided by consumers, and (3) is not outweighed by countervailing benefits to 

consumers or to competition. Public policy may also be considered in the analysis of whether a 

particular act or practice is unfair. Each of these elements is discussed further below. 

• The act or practice must cause or be likely to cause substantial injury to consumers. 

To be unfair, an act or practice must cause or be likely to cause substantial injury to consumers. 

Substantial injury usually involves monetary harm. An act or practice that causes a small amount of 

harm to a large number of people may be deemed to cause substantial injury. An injury may be 

substantial if it raises a significant risk of concrete harm. Trivial or merely speculative harms are typically 

insufficient for a finding of substantial injury. Emotional impact and other more subjective types of harm 

will not ordinarily make a practice unfair. 

• Consumers must not reasonably be able to avoid the injury. 

A practice is not considered unfair if consumers may reasonably avoid injury. Consumers cannot 

reasonably avoid injury from an act or practice if it interferes with their ability to effectively make 

decisions. Withholding material price information until after the consum~r has committed to purchase 

the product or se.rvice would be an example of preventing a consumer from making an informed 

decision. A practice may also be unfair where consumers are subject to undue influence or are coerced 

into purchasing unwanted products or services. 

The Agencies will not second-guess the wisdom of particular consumer decisions. Instead, the Agencies 

will consider whether a bank's behavior u11reasonably creates or takes advantage of an obstacle to the 

free exercise of consumer decision-makirtg. 

• The injury must not be outweighed by countervailing benefits to consumers or to competition. 

To be unfair, the act or practice must be injurious in its net effects -that is, the injury must not be 

outweighed by any offsetting consumer or competitive benefits that are also produced by the act or 

practice. Offsetting benefits may include lower prices or a wider availability of products and services. 

Costs that would be incurred for remedies or measures to prevent the injury are also taken into account 

in determining whether an act or practice is unfair. These costs may include the costs to the bank in 

taking preventive measures and the costs to society as a whole of any increased burden and similar 

matters. 

• Public policy may be considered. 

Public policy, as established by statute, regulation, or judicial decisions may be considered with all other 

evidence in determining whether an act or practice is unfair. For example, the fact that a particular 

lending practice violates a state law or a banking regulation may be considered as evidence in 

detem,ining whether the act or practice is unfair. Conversely, the fact that a particular practice is 

affirmatively allowed by statute may be considered as evidence that the practice is not unfair. Public 

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policy considerations by themselves, however, will not serve as the primary basis for determining that 

an act or practice is unfair. 

Deceptive Acts and Practices 

Assessing whether an act or practice is deceptive 

A three-part test is used to detennine whether a representation, omission, or practice is "deceptive." 

First, the representation, omission, or practice must mislead or be likely to mislead the consumer. ..· 

Second, the consumer's interpretation of the representation, ·omission, or practice must be reasonable ,,.. 

under the circumstances. Lastly, the misleading representation, omission, or practice must be material. 

. Each of these elements is discussed below in greater detail. 

• There must be a representation, omission, or practice that misleads or is likely to mislead the 

consumer. 

An act or practice may be found to be deceptive if there is a representation, omission, or practice that 

misleads or is likely to mislead the consumer. Deception is not limited to situations in which a consumer 

has already been misled. Instead, an act or practice may be found to be deceptive if it is likely to 

mislead consumers. A representation may be in the form of express or implied claims or promises and 

may be written or oral. Omission of information may be deceptive if disclosure of the omitted information 

is necessary to prevent a consumer from being misled. 

In determining whether an individual statement, representation, or omission is misleading, the 

statement, representation, or omission will not be evaluated in isolation. The Agencies will evaluate it in 

the context of the entire advertisement, transaction, or course of dealing to determine whether it 

constitutes deception. Acts or practices that have the potential to be deceptive include: making 

misleading cost or price claims; using bait-and-switch techniques; offering to provide a product or 

service that is not in fact available; omitting material limitations or conditions from an offer; selling a 

product unfit for the purposes for which it is sold; and failing to provide promised services. 

• The act or practice must be considered from the perspective of the reasonable consumer. 

In determining whether an act or practice is misleading, the consumer's interpretation of or reaction to 

the representation, omission, or practice must be reasonable under the circumstances. The test is 

whether the consumer's expectations or interpretation are reasonable in light of the claims made. When 

representations or marketing practices are targeted to a specific audience, such as the elderly or the 

financially unsophisticated, the sta. ,dard rs based upon the effects of the act or practice on a reasonable 

member of that group. · 

If a representation conveys two or more meanings to reasonable consumers and one meaning is 

misleading, the representation may be deceptive. MoreQver, a consumer's interpretation or reaction may 

indicate that an act or practice is deceptive under the circumstances, even if the consumer's 

interpretation is not shared by a majority of the consumers in the relevant class, so long as a significant 

minority of such consumers is misled. 

In evaluating whether a representation, omission or practice is deceptive, the Agencies will look at the 

entire advertisement, transaction, or course of dealing to determine how a reasonable consumer would 

respond. Written disclosures may be insufficient to correct a misleading statement or representation, 

particularly where the consumer is directed away from qualifying limitations in the text or is counseled 

that reading the disclosures is unnecessary. Likewise, oral disclosures or fine print may be insufficient to 

cure a misleading headline or prominent written representation. 

• The representation, omission, or practice must be material. 

A representation, omission, or practice is materiaf if it is likely ·to affect a consumer's decision regarding 

a product or se,vice. In general, information about costs, benefits, or restrictions on the use or 

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availability of a product or service is material. VVhen express claims are made with respect to a financial 

product or service, the claims will be presumed to be material. Similarly, the materiality of an implied 

claim will be presumed when it is demonstrated that the institution intended that the consumer draw 

certain conclusions based upon the claim 

Claims made with the knowledge that they are false will also be presumed to be material. Omissions will 

be presumed to be material when the financial institution knew or should have known that the consumer 

needed the omitted infonnation to evaluate the product or service. 

Relationship to Other Laws ,.-

. 

Acts or practices that are unfair or deceptive within the meaning of section 5 of the FTC Act may also 

violate other federal or state s~tutes. On the other hand, there may be circumstances in which an act or 

practice violates section 5 of the FTC Act ev~n though the institution is in technical compliance with 

other applicable laws, such as consumer protection and fair lending laws. Banks should be mindful of 

both possibilities. The following laws warrant particular attention in this regard: 

Truth in Lending and Truth in Savings Acts 

Pursuant to the Truth in Lending Act (TILA), creditors must "clearly and conspicuously" disclose the 

costs and terms of credit The Truth in Savings Act (TISA) requires depository institutions to provide 

interest and fee disclosures for deposit accounts so that consumers may compare deposit products. 

TISA also provides that advertisements shall not be misleading or inaccurate, and cannot misrepresent 

an institution's deposit contract An act or practice that does not comply with these provisions ofllLA or 

TISA may also violate the FTC Act On the other hand, a transaction that is in technical compliance with 

TILA or TISA may nevertheless violate the FTG Act For example, consumers could be misled by 

advertisements of •guaranteed• or "lifetime• interest rates when the creditor or depository institution 

intends to change the rates, whether or not the disclosures satisfy the technical requirements of TILA or 

TISA. 

Equal Credit Opportunity and Fair Housing Acts 

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction 

· against persons on the basis of race, color, religion, national origin, sex, marital status, age (provided 

the applicant has the capacity to contract), the fact that an applicant's Income derives from any public 

assistance program, and the fact that the applicant has in good faith exercised any right under the 

Consumer Credit Protection Act. Similarly, the Fair Housing Act (FHA) prohibits creditors involved in 

residential real estate transactions from discriminating against any person on the basis of race, color, 

religion, sex, handicap, familial status, or national origin.· Unfair or ~e-:eptive practices that target or 

have a disparate impact on consumers who are members of these protected classes may violate the 

ECOA or the FHA, as well as the FTC Act. 

Fair Debt Collection Practices Act 

The Fair Debt Collection Practices Act prohibits unfair, deceptive, and abusive practices related to the 

collection of consumer debts. Although this statute does not by its terms apply to banks that collect their 

own debts, failure to adhere to the standards set by this Act may support a claim of unfair or deceptive 

practices in violation of the FTC Act Moreover, banks that either affirmatively or through lack of 

oversight, permit a third-party debt collector acting on their behalf to engage in deception, harassment. 

or threats in the collection of monies due may be exposed to liability for approving or assisting in an 

unfair or deceptive act or practice. 

Managing Risks Related to Unfair or Deceptive Acts or Practices 

Since the release of the FDIC's statement and the Board's letter on unfair and deceptive practices in 

May 2002, bankers have asked for guidance on strategies for managing risk in this area. This section 

outlines guidance on best practices to address some areas with the greatest potential for unfair or 

deceptive acts and practices, including: advertising and solicitation; servicing and collections; and the 

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management and monitoring of employees and third:-party service providers. Banks also should monitor 

compliance with their own policies in these areas, and should have procedures for receiving and 

addressing consumer complaints and monitoring activities perfonned by third parties on behalf of the 

bank. · 

To avoid engaging in unfair or deceptive activity, the Agencies encourage use of the following practices, 

which have already been adopted by many institutions: 

Review all promotional materials, marketing scripts, and customer agreements and disclosures to .•· 

ensure that they fairly and adequately describe the terms, benefits, and material limitations of the .,,, 

product or service being offered, Including any related or optional products or services, and that they do 

not misrepresent such terms either affirmatively or by omission. Ensure that these materials do not use 

fine print, separate statements or Inconspicuous disclosures to correct potentially misleading headlines, 

and ensure that there is a reasonable factual basis for all representations made. 

Draw the attention of customers to key terms, including limitations and conditions, that are important in 

enabling the customer to make an informed decision regarding whether the product or service meets the 

customer's needs. 

Clear1y disclose all material limitations or conditions on the terms or availability of products or services, 

such as a limitation that applies a special interest rate only to balance transfers; the expiration date for 

terms that apply only during an introductory period; material prerequisites for obtaining particular 

products, services or terms (e.g., minimum transaction amounts, introductory or other fees, or other 

qualifications); or conditions for canceling a service without charge when the service is offered on a free 

trial basis. 

Inform consumers in a clear and timely manner about any fees, penalties, or other charges (including 

charges for any force-placed products) that have been imposed, and the reasons for their imposition. 

Clearly inform customers of contract provisions that permit a change in the terms and conditions of an 

agreement 

When using terms such as "pre-approved· or "guaranteed," clearly disclose any limitations, conditions, 

or restrictions on the offer. 

Clearly inform consumers when the account terms approved by the bank for the consumer are less 

favorable than the advertised terms or terms previously disclosed. 

Tailor advertisements, promotional materials, disclosures and scripts to take account of the 

sophistication and experience of the target audience. Do not make claims, representations or 

statements that mislead members of the target audience about the cos~ value, availability, cost savings, 

benefits, or terms of the product or setvice. 

Avoid advertising that a particular service will be provided in connection with an account if the bank 

does not intend or is not able to provide the service to accountholders. Clearly disclose when optional 

products and services - such as insurance, travel services, credit protection, and consumer report 

update services that are offered simultaneously with credit - are not required to obtain credit or 

considered in decisions to grant credit 

Ensure that costs and benefits of optional or related products and services are not misrepresented or 

presented in- an incomplete manner. 

When making claims about amounts of credit available to consumers, accurately and completely 

represent the amount of potential, approved, or useable credit that the consumer will receive. 

Avoid advertising terms that are not available to most customers and using unrepresentative examples 

in advertising, marketing, and promotional materials. 

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Avoid making representations to consumers that they may pay less than the minimum amount due 

required by the account tenns without adequately disclosing any late fees, overlimit fees, or other 

account fees that will result from the consumer paying such reduced amount 

Clearfy disclose a telephone number or mailing address (and, as an addition, an email or website 

address if available) that consumers may use to contact the bank or its third-party servicers regarding 

any complaints they may have, and maintain appropriate procedures for resolving complaints. 

Consumer complaints should also be reviewed by banks to identify practices that have the potential to 

be misleading to customers. 

Implement and maintain effective risk and supervisory controls to select and manage third-party 

servicers. 

Ensure that employees and third parties who market or promote bank products, or service loans, are 

adequately trained to avoid making statements or taking actions that might be unfair or deceptive. 

Review compensation arrangements for bank employees as well as third-party vendors and servicers to 

ensure that they do not create unintended incentives to engage in unfair or deceptive practices. 

Ensure that the institution and its third party servicers have and follow procedures to credit consumer 

payments in a timely manner. Consumers should be clearly told when and if monthly payments are 

applied to fees, penalties, or other charges before being applied to regular principal and interest 

The need for clear and accurate disclosures that are sensitive to the sophistication of the target 

audience is heightened for products and services that have been associated with abusive practices. 

Accordingly, banks should take particular care in marketing credit and other products and services to 

the elderly, the financially vulnerable, and customers who are not financially sophisticated. In addition, 

creditors should pay particular attention to ensure that disclosures are clear and accurate with respect 

to: the points and other charges that will be financed as part of home-secured loans; the terms and 

conditions related to insurance offered in connection with loans; loans covered by the Home Ownership 

and Equity Protection Act; reverse mortgages; credit cards designed to rehabilitate the credit position of 

the cardholder; and loans with pre-payment penalties, temporary introductory terms, or terms that are 

not available as advertised to all consumers. 

Conclusion 

The development and implementation of policies and procedures in these areas and the other steps 

outlined above will help banks assure that products and services are provided in a manner that is fair, 

allows informed customer choice, and is consistent with the FTC Act 

Las! Updaled 3/11/200'4 communicatlons@fdic.gov 

Home Contact Us Search Help SiteMap Forms 

Freedom of Information Act (FOIA} Service Center Website Policies USA.gov 

FDIC Office of Inspector General 

http://www.fdic.gov/news/news/financiain004/fil2604a.html 9/11/2009 
FDIC 

ADDITIONAL QUESTIONS FOR CHAIRWOMAN BAIR 

JULY 24, 2009 HEARING: 

AUG 1 7 2009 

"REGULATORY PERSPECTIVES ON THE OBAMAADMINISTRATI . 

UDAP Questions: 

REGULATORY REFORM PROPOSALS-PART II" 

Representative Spencer Bachus 

Response Requested by Sep~mber 7, 2009 

1. Under the Federal Trade Commission Act, only the Board of Governors of the Federal 

Reserve System ('Fed") has the authority tD issue rules or regulations defining what 

acts or practices are unfair or deceptive with respect tD all banks, including those for 

which the FDIC or the OCC is the primary federal regulatDr. Neither the FDIC nor the 

OCC has the authority tD adopt such rules or regulations for the banks they regulate. 

The Fed, FDIC and OCC, however, have taken the position that the FDIC and the OCC 

may define what acts or practices they think are unfan- or deceptive on a case-by-case 

basis in the context of administrative enforcement proceedings, and the FDIC has done 

just that, as reflected in a series of Consent Cease and Desist Orders recently issued by 

the FDIC, including those regarding Advanta Bank Corporation; American Express 

Centurion Bank of Salt Lake City, Utah; and the CompuCredit-related cease and desist 

orders against Columbus Bank and Trust, Columbus, Georgia, First Bank of Delaware, 

Wilmingt.on, Delaware, and First Bank & Trust, Brookings, South J:?akota. 

a. The FTC Act explicitly confers upon the Federal Reserve Board, the Federal 

Home Loan Bank Board, and the National Credit Union Administration 

Board the authority tD •define with specificity" unfair and deceptive acts and 

practices. While the FTC Act grants enforcement authority tD the FDIC and 

OCC, the Act does not explicitly grant the FDIC and OCC the authority tD 

define unfair or deceptive acts and practi~s. In other words, under the 

express language of the FTC Act, the FDIC and the OCC do not have the 

statutory authority to decide fur the bank.a they regulate that a particular act 

or practice is unsafe or unsound, either by adopting a regulation or on a caseby-case basis in enforcement proceedings. 

i. Have the FDIC and the OCC each analyzed this legal issue and 

prepared written legal opinions which conclude that they each do have 

the authority to define unfair or deceptive acts or practices on a case--

by-case basis? 

ii Have these opinions ~en reviewed and approved by the General 

Counsel of each agency? 

iii Has the Fed General Counsel's office reviewed these opinions or 

performed its own an~ysis and prepared its own written opinion? 

iv. Have any of the opinions that may have been prepared by the FDIC, 

OCC and/or the Fed regarding this issue been reviewed by any 
independent third party, such as the relevant Inspect.ors General or 

the Justu:e Department? 

b. What. :μ any, procedures have been est.ablished to assure that the Fed. OCC 

and the FDIC are all in agreement as to what acts or practices are unfair or 

deceptive? .., 

L How do the regulators ensure that the OCC and/or the FDIC do not 

adopt a UDAP rule in a case through their respective adjudicatory 

processes that has not been. or is not, also adopted by the other 

banking agencies? Do you see a problem with the possibility of 

inconsistent rulings or positions between or among the federal 

banking agencies regarding what acts or practices are unfair or 

deceptive? 

ii Are you aware of any inconsistent positions that exist as of today, i.e., 

situations where the FDIC or OCC or Fed has determined in the 

context of an administrative enforcement proceeding that a particular 

act or practice is unfair or deceptive, while one or both of the other 

agencies have not and do not regard the conduct at issue as a violation 

of the Fl'C Act? How would you find out jf that were the case? 

QUESTIONS ON FAS 166 AND 167 

1. Treasury Secret.ary Geithner bas warned that •no financial recovery plan will be 

successful unless it helps restart securitiza.tion markets .... • At the same time, the 

Financial•Accounting Standards Board (FASB) has recently finalized significant and 

retroactive changes to securitization accounting that will have a tremendous impact 

on existing assets and future lending. These changes.:.. which bea>me effective 

January 1 2010-could seriously complicate effi>rts to repair financial markets. 

The Administration has made the securitized crec"!it markets the centerpiece of the 

Financial Stability Plan (through T.ALF, PPIP, etc). However, in promulgating FAS 

166 and 167, FASB has sought to retroactively eliminate the securitization 

accounting_vehicle known as the •Qualified Special Purpose Entity,• which will 

require some bond invest.ors to •consolidate• an entire pool ofloans on their balance 

sheet; despite only owning 2-3% of the transaction. What will be the impact of this 

•consolida ti.on• on bond investors who are critical to the extension of credit and the 

future of our securitized credit markets? 

2. The same st.atutory capit.al ratios apply to every federally insured depository 

institution fur purposes of determining what their ievel of capital adequacy is, e.g., 

well capitalli.ed, adequately capitalized, undercapitalized, et.c. However, each of the 

federal banking agencies also has the authority t.o require a given institution it 

regulates t.o achieve and maintain capital ratios (e.g., for total risk-based capital, 

core c·apital, et.c.) at specific levels set by the agency, which may be even higher than 
the st.a.tut.cry ratios used to define a •well-capitalized• institution. In connection. 

with these individual capital .requirements: 

a. Does your agency consult with the other federal banking agencies in an effurt 

t.o achieve uniformity with respect t.o the factors that will be evaluated and 

the standards that will be applied in arriving at such individual capital 

requirements for institutions? 

b. Should the federal banking agencies apply the same criteria to determine the 

capital :ratios for a regulated institution? 

c. Is there oonsistency between and among the federal banking agencies 

regarding the criteria they use to determine whether to establish individual 

capital requirements? 

d_ Does your agency use an economic model to determine the capital ratios a 

given institution should maintain in light of its particular risk profile in order 

to be considered adequately capitalized or well-capitalized? 

1. If you don't use a modeL how do you make that determination? 

ii If you do use a model, whose model is it? 

1. Was it constructed by your agency alone? 

2. Did you discuss it with the other banking agencies, or consult 

with them regarding what, if any, models they use for such 

purposes? 

3. To the extent you know wb.at differences there are between any 

model that your agency use~ and any model used by any other 

banking.agency, how do you go about resolving those 

differences, if at all? 

4. Do you have a set of standards you use in evaluating capital 

adequacy models that are employed by the institutions you 

regulate and, if so, what are they and were they developed in 

consultation with any other agencies? 

.-· 

,, 
FDII 

Federal Oeoosit Insurance Corcoration 

550 17th Street NW, Washington, DC 20429 

Honorable Jean Schmidt 

Representative, U.S. Congress 

8044 Montgomery Road, Suite 170 

Cincinnati, Ohio 45236 

Dear Congresswoman Schmidt: 

Office of Legislative Affairs 

September 15, 2009 

Thank you for your letter on behalf of a constituent concerned with the interest rate paid on his 

certificate of deposit purchased from People's Community Bank of West Chester, Ohio. 

On July 31, 2009, the Office of Thrift Supervision closed the Peoples Community Banlc. West 

Chester, Ohio, and appointed the Federal Deposit Insurance Corporation receiver. To protect the 

depositors, the FDIC entered into a purchase and assumption agreement with First Financial 

Bank, National Association, Hamilton, Ohio, to assume all of the deposits of Peoples 

Community Bank. All insured depositors and customers automatically became customers of 

First Financial Banlc and depositors continued to have access to their funds. 

When a bank fails and the FDIC transfers the insured deposits to another financial institution, the 

assuming institution is not legally bound by the same terms agreed to by the failed institution and 

may choose to pay a different interest rate. The assuming institution is required to notify the 

accountholders of the new rate and terms immediately after the transfer of deposits. Depositors 

are not required to maintain their deposit accounts at the new institution and have the right to 

withdraw their deposits, without penalty, after being advised of the new interest rate and terms. 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

<;'"ly, . 

Paul Nash 

Deputy to the Chairman for External Affairs 
Jean Schmidt 

2nd District or Ohio 

• • ~ r.-Heu. om~" lull<l"'C 

W11.ia.-.;tr,l'I. 1111; ~.tr. 1:>fr.ll l21h111W 

• 

Congress of tf)t Wniteb ~tatts 

'Jllolllt of .3&.rprcitntatibts 

FAX COVER SHEET 

Di.citrict Office 

8044 Montgomery Road, Suite 170 

Cincinnati, OH 45236 

Phone: 513.791.0381 

Fax: 513. 791.1696 

linda.long@mail.house.gov 

DATE: Auguli.t 17, 2009 

TO: 

!-'ROM: 

RE: 

FDTC AITN: Mr. Michael DeLoose 

Linda Long for Congresswoman Jean Schmidt 

People's Community Bank Ohio 

Number of Pages: 2 

Michael, thank you for your call this morning. 

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Jean Schmidt 

2nd DlstrJct or Ohio 

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r•o-.u 2:.IS--S lit 

August l 7. 2009 

Mr. Eric Spitler 

<ttongrtss of tbe 'itnittb ~tatts 

~oue of l\tpresentatibts 

Director, Office of Legislative Affairs 

550 Seventeenth Street, NW, Room 6076 

Washington, DC 20429-0001 

Dear .Eric: 

ComaaJttee an Apiculture s..i.. ........ _ 

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I received a telephone call from a con.c;tituent who expressed concern about his 

Certificates of Deposit that bad been opened at the People's Community BanJc of West 

Chester, Ohio. 

l will not use his name, 1;ince T do not have his signature on a privacy release form. He 

indicated. that be has received a letter from First Financial Bank saying that he must 

wilhdrdw his funds by November IR. He is concerned that be will not find anolhe:rr 

savings institution that providtS the higher interest rate he was supposed to have earned 

on the CDs at Peoples. The constituent asked ifhe had a "contract'' for a certain interest 

rate when_ he opened the CDs with Peoples.· 

My caseworker, Linda Long. spoke with Michael Deloose thic; morning; and he 

· suggested that your office would be able to send a written response that would shed some 

light on the situation for the constituent. Your assistance in responding to the 

com-titutmf s concerns, in accordance with all applicable laws and regulations, is greatly 

appreciated. 

Please direct your response and any questions to my cai.ewurk~, Linda Long, at my 

district office: 8044 Montgomery Road, Suite 170, Cincinnal~ OH 45236, or via e-mail 

at linda.long(a).mail.house.gov or via telephone at 513.791.0381. Thank you. 

Sincerely, 

Jean Schmidt 

MF.MRER OF CONGRESS 

JS/ll 

11()44 Mnilll!ftlM'J ...,._..,,t Sullc 170 

Clnc.um.:au. Ohln '62M 

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-t-utn. Ohio 
® FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR September 21, 2009 

CHAIRMAN 

Honorable Joe Wilson 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Wilson: 

Thank you for your letter expressing concern about the availability of bank 

lending to the home building industry. This sector is critical to an economic recovery, 

and we appreciate the opportunity to respond. 

We agree with your constituents that home builders are contending with 

extremely chalJenging market conditions, which have been exacerbated by turmoil in the 

credit markets. As a result, credit availability has suffered. Banks also have taken 

reasonable steps to re-value collateral as property values have declined during the past 

several years. I assure you the FDIC has not changed its expectations for prudent 

commercial real estate loan underwriting and administration or for obtaining updated 

appraisals on collateral. We strongly encourage banks to continue lending and work with 

their financially distressed borrowers as evidenced by the enclosed Interagency Statement 

on Meeting the Needs of Creditworthy Borrowers. Moreover, for institutions that 

received capital subscriptions as part of the Troubled Asset Relief Program's Capital 

Purchase Program, the FDIC expects these institutions to use those funds to enhance the 

availability of p~dently underwritten loans. 

The FDIC provides banks with considerable flexibility in dealing with customer 

relationships and managing loan portfolios. I assure you we do not instruct banks to 

curtail prudently managed lending activities, restrict lines of credit to strong borrowers, 

or require appraisals on performing loans unless an advance of new funds is being 

contemplated. Home builders and other small businesses are an important component of 

our economy, and we share your concern for making credit available to these enterprises 

in South Carolina and across the nation. 

If you have further questions or comments, please contact me at 202-898-6974 or 

Paul Nash, Deputy for External Affairs, at 202-898-6962. 

Sheila C. Bair 

Enclosure 
FDII 

Federal Deposit Insurance Corporation 

550 17th Street NW, Washington, D.C. 20429-9990 

Financial Institution Letter 

FIL-128-2008 

November 12, 2008 

INTERAGENCY STATEMENT ON MEETING THE NEEDS OF 

CREDITWORTHY BORROWERS 

Summary: The FDIC joined the other federal banking agencies in issuing the attached "lnteragency 

Statement on Meeting the Needs of Creditworthy Borrowers• on November 12, 2008. 

Distribution: 

FDIC-Supervised Institutions 

Suggested Routing: 

Chief ExeaJtive Officer 

Senior Credit Officer 

Attachment: 

interagency Statement_ on Meeting the 

Needs of Creditworthy Borrowers" 

Contact: 

Institution's contad person (Case Manager 

or Field Supervisor) at appficable FDIC 

Regional Office, or Assoclala Director 

Steven D. Fritts In Washington at 202-898-

3723 and sfritts@fdic.oov 

Note: 

FDIC financial institution letters (Fils) may 

be accessed from the FDIC's Web site at 

www.fdlc.gov/news/newsmnancia(l200B/in 

dex.html. 

To receive Fils electronicaDy, please visit 

http:/Jwww.fdic.gov/about/subscription&ffil, 

Paper copies of FDIC financial Institution 

letters may be obtained through the 

FDIC's Public Information Center, 3501 

Fairfax Drive, E-1002, Arllngton, VA 

22226. 

Highlights: 

Several federal programs. have recently been instituted to promote 

financial stability and mitigate the effects of current market conditions on 

insured depository institutions. These efforts are designed to improve the 

functioning of credit markets and strengthen capital in our financial 

system to improve banks' capacity to engage in prudent lending during 

these times of economic distress. 

The agencies expect all banking organizations to fulfill their fundamental 

role in the economy as intermediaries of credit to businesses, consumers, 

and other creditworthy borrowers. Lending to creditworthy borrowers 

provides sustainable retums for the organization and is constructive for 

the economy as a whole. 

The agencies urge all lenders and servicers to adopt systematic, 

proactive, and streamlined mortgage loan modification protocols and to 

review troubled loans using these protocols. Lenders and servicers 

should first determine whether a loan modification would enhance the net 

present value of the loan before proceeding to foreclosure, and they 

should ensure that loans currently in foreclosure have been subject to 

such analysis. 

In implementing this Statement. the FDIC encourages institutions it 

supervises to: · 

• lend prudently and responsibly to creditworthy borrowers; 

• work with borrowers to preserve homeownership and avoid 

preventable foreclosures: 

• adjust dividend policies to preserve capital and lending capacity; 

and 

• employ compensation structures that encourage prudent lending. 

State nonmember institutions' adherence to these expectations will be 

reflected in examination ratings the FDIC assigns for purposes of 

assessing safety and soundness, their compliance with laws and 

regulations, and their performance in meeting the requirements of the 

Community Reinvestment Act {CRA). 
Joint Release 

Board of Goveniors of the Federal Reserve System 

Federal Deposit Insurance Corpor-ation 

Office of the Comptroller of the Currency 

Office of Thrift Supervision 

EMBARGOED for release at 10 a.m. EST November 12, 2008 

Interagency Statement on Meeting the Needs of Creditworthy Borrowers 

The Department of the Treasury, the Federal Deposit Insurance Corporation, and 

the Federal Reserve have recently put into place several programs designed to promote 

financial stability and to mitigate procyclical effects of the current market conditions. 

These programs make new capital widely available to U.S. :financial institutions, broaden 

and increase the guarantees on bank deposit accounts and certain liabilities, and provide 

backup liquidity to U.S. banking organizations. These efforts are designed to strengthen 

the capital foundation of our financial system and improve the overall functioning of 

credit markets. 

The ongoing :financial and economic stress has highlighted the crucial role that 

prudent bank lending practices play in promoting the nation's economic welfare. The 

recent policy actions ·are designed to help support responsible lending activities of 

banking organizations, enhance their ability to fund such lending, and enable banking 

_ organizations to better meet the credit needs of households and business. At this critical 

time, it is imperative that all banking organizations and their regulators work together to 

ensure that the needs of creditworthy borrowers are met. As discussed below, to support 

this objective, consistent with safety and.soundness principles and existing supervisory 

standards, each individual banking organization needs to ensure the adequacy of its 

capital base, engage in appropriate loss mitigation strategies and foreclosure prevention, 

and reassess the incentive implications of its compensation policies. 

Lending to creditworthy borrowers 

The agencies expect aU banlcing organizations to fulfill their fundamental role in 

the economy as intermediaries of credit to businesses, consumers, and other creditworthy 

borrowers. Moreover, as a result of problems in financial markets, the economy will 

likely become increasingly reliant on banking organizations to provide credit formerly 

provided or facilitated by purchasers of securities. Lending to creditworthy borrowers 

provides sustainable returns for the lending organization and is constructive for the 

economy as a whole. 

It is essential that banking organizations provide credit in a manner consistent 

with prudent lending practices and continue to ensure that they consider new lending 

opportunities on the basis ofrealistic asset 

(more) 
-.2- . 

valuations and a balanced assessment of borrowers' repayment capacities. However, if 

underwriting standards tighten excessively or banking organizations retreat from making 

sound credit decisions, the current market conditions may be exacerbated, leading to 

slower growth and potential damage to the economy as well as the long-term interests 

and profitability of individual banking organizations. Banking organizations should 

strive to maintain healthy credit relationships with businesses, consumers, and other 

creditworthy borrowers to enhance their own :financial well-being as well as to promote a 

sound economy. The agencies have directed supervisory staffs to be mindful of the 

procyclical effects of an excessive tightening of credit availability and to encourage 

banking organizations to practice economically viable and appropriate lending activities. 

Strengthening capital 

Maintaining a strong capital position complements and facilitates a banking 

organization• s capacity and willingness to lend and bolsters its ability to with.stand 

uncertain market conditions. Banking organizations should focus on effective and 

efficient capital planning and longer-term Gapital maintenance. An effective capital 

planning process requires a banking organization to assess both the risks to which it is 

exposed and the risk management processes in place to manage and mitigate those risks; 

evaluate its capital adequacy relative to its risks; and consider the potential impact on 

earnings and capital from economic downturns. Further, an effective capital planning 

process requires a banking organization to recognize losses on bank assets and activities 

in a timely manner; maintain adequate loan loss provisions; and adhere to prudent 

dividend policies. 

In°particular, in setting dividend levels, a banking organization should consider its 

ongoing earnings capacity, the adequacy of its loan loss allowance, and the overall effect 

that a dividend payout would have on its cost of funding, its capital position, and, · 

consequently, its ability to serve the expected needs of creditworthy borrowers,. Banking 

organizations should not maintain a level of cash dividends that is inconsistent with the 

organization• s capital position, that could weaken the organization• s overall financial 

health, or that could impair its ability to meet the needs of creditworthy borrowers. 

Supervisors will continue to review the dividend policies of individual banking 

organizations and will take action when dividend policies are found to be inconsistent 

with sound capital and lending policies. 

Working with morlgage borrowers 

The agencies expect banking organizations to work with existing borrowers to 

avoid preventable foreclosures, which can be costly to both the organizations and to the 

communities they serve, and to mitigate other potential mortgage-related losses. To this 

end, banking organizations need to ensure that their mortgage servicing operations are 

sufficiently funded and staffed to work with borrowers while implementing effective 

risk-mitigation measures. 

(more) 
-3-

Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to 

adopt systematic, proactive, and streamlined mortgage loan.modification protocols and to 

review troubled loans using these protocols. Lenders and servicers should first determine 

whether a loan modification would enhance the net present value of the loan before 

proceeding to foreclosure, and they should ensure that loans currently in foreclosure have 

been subject to such analysis. Such practices are not only consistent with sound risk 

management but are also in the long-term interests oflenders and servicers, as well as 

borrowers. 

Systematic efforts to address delinquent mortgages should seek to achieve 

modifications that result in mortgages that borrowers ~11 be able to sustain over the 

remaining maturity of their loan. Supervisors will fully support banking organizations as 

they work to implement effective and sound loan modification programs. Banking 

organizations that experience challenges in implementing loss mitigation efforts on their 

mortgage portfolios or in making new loans to borrowers should work with their primary 

supervisors to address specific situations. 

Structuring compensation 

Poorly-designed management compensation policies can create perverse 

incentives that can ultimately jeopardize the health of the banking organization. 

Managemen"t compensation policies should be aligned with the long-term prudential 

interests of the institution, should provide appropriate incentives for safe and sound 

behavior, and should structure compensation to prevent short-term payments for 

transactions with long-term horizons.. Management compensation practices should 

balance the ongoing earnings capacity and financial resources of the banking 

organization, such as capital levels and reserves, with the need to retain and provide 

proper incentives for strong management. Further, it is important for banking 

organizations to have independent risk management and control functions. 

Toe agencies expect banking organizations to regularly review their management 

compensation policies to ensure they are consistent with the longer-nm objectives of the 

organization and sound lending and risk management practices. 

Toe agencies will continue to take steps to promote programs that foster financial 

stability and mitigate procyclical effects of the current market conditions. However, 

regard.less of their participation in particular programs, all banking organizations are 

expected to adhere to the principles in this statement We will work with banking 

organizations to facilitate their active participation in those programs, consistent with safe 

and sound banking practices, and thus to support their central role in providing credit to 

support the health of the U.S. economy. FDIC-115-2007 

Media Contacts: 

FDIC Andrew Gray (2-02) 898-6993 

Fed Dave Skidmore (202) 452-2955 

OTS Bill Ruberry (202) 906-6677 

OCC Bob Garsson (202) 874-5770 
JOE WILSON 

LIJ09-I .3:2-3 2ND DrSTIIICT. SOUTH CAIIDL""A 

AsS!ST ANT REPUBLICAN WHJr 

COUMITIEl!S: 

ARMED SERVICES 

FOREIGN AFFAIRS 

EDUCATION AND LABOR 

HOUSE POLICY 

Qto1n1ress of tbe Wnittb ~tates 

11,oust of illtprt.stntatibes 

. August 20, 2009 

The Honorable Sheila Bair 

Chainnan 

FD.'C 

2 ~ ?Mr. J c.v~ 

Federal Deposit Insurance Corporation 

550-17th Street, NW 

Washington, D.C. 20429· 

OFFICE oc·L r~. 

-·-..:.._·' . ' 'ulSLATIVE AFFAIRS 

Dear Chainnan Bair, 

Turmoil in the housing credit and broader financial markets has spilled over into 

financing for housing production. Home builders are experiencing a significant adverse shift in 

tenns and availability on land acquisition, land development and home construction (AD&C) 

loans, and builders with outstanding loans are facing mounting challenges. This rapidly spreading 

freeze in home building credit is causing severe hann to the small businesses that comprise the 

majority of the home building industry, and to a growing number of local economies already 

suffering job and revenue loss. 

Portfolio lenders - commercial banks and thrifts - remain the predominant source of 

residential AD&C financing, accounting for over 90 percent of originations. There are no 

alternative sources of housing production credit for most firms in the home building industry. 

Thus, smaller builders have borne the brunt of the credit retraction. 

J am hearing from my constituents in the home building industry that banks and thrifts 

are increasingly refusing to extend new AD&C credit or to modify outstanding AD&C loans in 

order to provide builders more time to complete their projects and pay off these loans. Lenders 

often cite regulatory requirements or examiner pressure that banks shrink their AD&C loan 

portfolios as the reasons for their actions. On outstanding loans, examiners are requiring banks to 

obtain new appraisals on properties for fully perfonning loans, which can result in the banks 

having to downgrade those loans, turning them into troubled "non-performing.perfonning loans." 

As a result, an increasing number of builders are being required to put up additional 

equity or collateral due to reappraisal of collateral or revaluation of their loan. Since most home 

building companies are small businesses and do not have the capacity to meet significant equity 

calls, the results are often foreclosure on a loan that had been perfonning and, in some cases, 

forcing builders into insolvency. 

In many instances, banks that have received TARP funds are letting projects fail rather 

than pursuing workouts with the original developer and builders. This questionable action, which 

imposes serious hardship on home builders, often putting them out of business, should not be 

condoned or subsidized by the federal government. 

As the nation's chief federal financial institution regulators, you are charged with 

ensuring sound lending practices are followed by regulated financial institutions. While J support 

prudent financial regulatory oversight, it seems that lenders are making demands on existing 

Alk£N' 

ALUNDIJI 

8-Ll 

llfAUl'DIIT 

CAltlOUN' 

H.ulrTON 

UXINGTDN 

0AANE",HURG' 

"'°'1.ANU • 

('r,uns Ot) 

MD.ANOS Ol'fa: 

1700 SUNSET Ill.VD. IUS 3711). Su,ff 1 

WEn Co,.UM..._ SC 29169 

181131 93f.0041 

FN<: !B03) 939-0078 

212 CANNON HOUSI! OFFICE 8UIU)IINQ 

WASHINGTI>N, DC 20515-4002 

12021 22~452 

FAX: fZOZI 225-2455 

~-io•wHaon.houaa.gov 

lowcou,m,v 0•FIC£: 

9DJ l'ORr ll!l'UIII IC StMET 

P.O. Box 1531 

Buu,o,n. SC Z9901 

11143) 521-2530 

FAl<: lll<l31 521-2535 

Tou l'Rft 1-tll.,381-1442 
loans that are unrelated to sensible regulatory requirements. It is not in anyone's interest- not 

lenders, not builders, not the economy as a whole - to force sound and viable borrowers into 

insolvency. 

Generally, a lender wbuld be better off working with the borrower to extend the loan, 

rather than shutting off credit. Rather than calling loans, banks would be acting in their own self 

interest by extending loans for borrowers who are not in default or who have projects that arc 

worthy of completion. This would allow borrowers to adjust their finances or to find other 

funding sources _until they arc able to complete and sell their homes. 

As the home building industry is a major contributor to the economic vibrancy of the 

nation and its communities, I urge you to put a halt to these shortsighted practices that arc 

adversely affecting the financial condition of the banking industry, as well as having devastating 

impacts on home building companies. Financial institutions should be encouraged to fund viable 

new projects and to take steps to avoid foreclosure on AD&C loans by accommodating loan 

modification·s and workouts. 

Further, banks that have received TARP funds should be required to account for how 

these funds arc being used in lending on new AD&C projects. These banks must demonstrate 

how the institution is working out the restructuring of existing loans and providing more flexible 

tenns to facilitate continued funding and eventual repayment of performing AD&C loans. 

These actions would provide relief for a major sector of the economy that has suffered 

because of the inability of banks to provide the necessary funding and flexibility that would 

otherwise keep loans performing as schequled. While it is not clear if lender demands are the 

result of regulatory excess, I hope that you, the nation's top federal financial institution 

regulators, recognize the effect that overly conservative lending standards have on credit 

availability. Americans benefit from a strong and fair financial regulatory system that balances 

prudent lending standards with the need for credit availability. I thank you in advance for your 

consideration of this matter. 

It is an honor to represent the people of the Second Congressional District of South 

Carolina. and I value your input. · 

JW:jb 

If I may be of further assistance to you, please do not hesitate to contact me. 

Very truly yours, 

JOE WILSON 

Member of Congress 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR September 21, 2009 

CHAIRMAN 

Honorable Gregory W. Meeks 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Meeks: 

Thank you for your letter of August 26, 2009, in which you express concern that the Federal 

Deposit Insurance Corporation not unduly discourage private investment in depository institutions 

nor take any actions that may discourage minority-owned or minority-run investment funds. As 

you may be aware, the FDIC Board of Directors approved the final Statement of Policy on the 

Acquisition of Failed Insured Depository Institutions (Statement of Policy) on August 26, 2009. 

The FDIC received 61 comment letters on its proposed Statement of Policy. After careful 

consideration of those comments, the FDIC has incorporated a number of significant changes such 

as the following: refining the description of the types of investors covered, modifying the capital 

standard to what we believe is a better measure of capital available to absorb losses, and clarifying 

the circumstances in which the cross-support obligation would apply. 

As you describe in your letter, the FDIC Board's goal was to "ensure [the] proper 

capitalization of depository institutions and the need to ensure that responsible management be 

encouraged at financial institutions across the country." With this intent in mind, the FDIC Board 

approved a 10 percent tier 1 common equity ratio that a bank must maintain for three years. We 

believe this capital level will provide a sufficient buffer against losses. The need to balance the 

potential for fewer qualifying bidders for a troubled bank with the desire to ensure the long-term 

viability of the acquiring bank was weighed carefully, and we believe the 10 percent common 

equity ratio will accomplish this objective. The FDIC Board will revisit this issue in six months to 

determine if any adjustments to the ratio are needed. 

Please be assured that the FDIC recognizes the importance of minority depository 

institutions (MDis) to the nation's economy, particularly in areas underserved by traditional 

banking services. We recently completed our fourth annual MDI National Conference in Chicago, 

with almost 200 bankers in attendance. The FDIC devotes considerable resources to support MDis, 

sustaining a robust outreach program that provides valuable technical assistance. 

Thank you again for sharing your concerns. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at 

(202) 898-6962. 

Sincerely, 

Sheila C. Bair 
P1,EAS E RESPOND TO: 

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FAX: (711) 327~ 

Congrt.ss of tf.Jt llnittb ~tatts 

J,oust of lupresmtatibes 

GREGORY W. MEEKS 

6TH DISTRICT, NEW YORK 

August 26, 2009 

The Honorable Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17th Street, N. W. 

W asbington, D.C 20429 

Dear Chairman Bair: 

FINANCIAL ~ SERVICES 

SU--. c..,n-..._ ~ bulMANCI. - GOVE......-rSPONSOIW>E..,_,cu 

0oMunc ANO -'IIONM. MQHn..,.y l'ouc:V, T,...,. AND TU><OiOU)GT 

FOREIGN AFFAIRS 

IUICDMIIITTEU: 

WEsftllNIIE-...s 

NTU""''TIONM.OllaANIZA,._., Hu-,. ,._ ,_ 0vaimot<T 

I am writing you to follow-up on the status of the FDIC's Statement of Policy on Qualifications 

for Failed Bank Acquisitions, and to express some concern that this policy be drafted carefully so 

as to stnlce an appropriate balance to encourage responsible investing in the financial sector 

without being overly burdensome or onerous, and tab: into account previous discussions on 

ensuring increased participation of minori~-owned and minority-run investment funds. 

Press reports indicate that the FDIC is going to issue final guidelines this week. One area of key 

concern is the FDICs position on Tier 1 Leverage Ratio requirements, with press reports 

suggesting it will be fixed at 10%. The co.ncem is that a :fixed nwnber of that magnitude could 

hamper the ongoing recovery of our financial institutions and communities, particularly minority 

depository institutions (MDls), the communities those MDls serve, and the private investors who 

invest in MDis. 

I understand the need to ensure proper capitalization of depository institutions, and the need to 

ensure that responsible management be encouraged at financial institutions across the country. 

Yet i.n doing so, we also want to ensure that we do not discourage minority participation in the 

economic recovery, particularly in predominantly minority areas which have often been hardest 

hit by the economic crisis, and that the requirements we set do not slow a possible recovery by 

slowing the pace of new investments or unduly limiting participation. 
I very much appreciate any feedback that you can provide on these issues, and look forward to 

continuing to work with you in the future. 

With best regards, I am 

Sincerely, 

GREGORY : MEEKS . . 

Member of Congress 

GWM/sl 
. 8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN September 29. 2009 

Hpnorable John J. Duncan Jr. 

House of Representatives 

Washington. D.C. 20515 

Dear Congressman Duncan: 

Thank you for your letter expressing your constituents• concerns about banks• 

reluctance to lend because of unreasonable examiner demands. I appreciate the 

opportunity to respond. 

The Federal Deposit Insurance Corporation recognizes that many small 

businesses, especially in the real estate sector. are contending with extremely difficult 

market conditions which are further exacerbated by a contraction in credit availability. I 

assure you the FDIC has not changed its expectations for prudent real estate loan 

underwriting and administration. We strongly encourage banks to continue lending and 

to work closely with their financially distressed borrowers. and we joined with the other 

federal banking agencies in issuing the lnteragency Statement on Meeting the Needs of 

Creditworthy Borrow(frs (copy enclosed} 

Further, the FDIC provides banks with considerable flexibility in dealing with 

customer relationships and managing loan portfolios. We do not instruct banks to curtail 

prudently managed lending activities. restrict lines of credit to creditworthy borrowers. or 

require appraisals on performing loans unless an advance of new funds is expected. 

We appreciate the opportunity to address your concerns on this important issue. 

If you have further questions or comments. please do not.hesitate to contact me at (202) 

898-6974 or Paul Nash, Deputy for External Affairs, at (202) 898-6962. 

Sincerely. 

Sheila C. Bair 

Enclosure 
FDl8 

Federal Depostt Insurance Corporation 

550 171h Shit NW, Washilglon. D.C. 20(29-9990 

Financial Institution Letter 

AL-128-2008 

November 12, 2008 

INTERAGENCY STATEMENT ON MEETING THE NEEDS OF 

CREDITWORTHY BORROWERS · 

Summary: The FDIC joined the other federal ban!dng agencies in issuing the attached ·1nteragency 

Statement on Meeting !he Needs of Cred"rtwof1hy Borrowers• on November 12, 2008. 

Distribution: 

FDIC-Supervised lnslllulions 

Suggested Routing: 

Chief Execulive Olllcer 

Senior Crelfll Officer 

Attachment: 

•1ntaragency Statement on Meeting 1he 

Needs of Cladilwol1hy Bormwers• 

Contact: 

lnslilullon's ainlacl person (Casa Manager 

ar Field SUpervlsor) al applcabla FDIC 

Regional Ollica, « Anodat.e Dlredor 

Steven D. Frllls in Vlashlnglon al 202-B!IS3723 IB1CI sfriU&@fdic,goy 

Note: 

FDIC financial institution letttn (F1ls) may 

be accessed J7Dm lhe FOIC'a Web slle •I 

WWW,fdic.ggv/11ewslnews/f,nantjaV200Mn 

s!wl!mlTo recelY9 Fils elttctn>nlcally, please visit 

hllp:/{www.fcf1t:.CJOY/abp1Nsubsc:rlptlons/lll. 

l:!lmlPaper c:cples ol FDIC financial lnstilullon 

lelleB may be obtained through the 

FDIC's Public lnfotrnatlcn Center, 3501 

Fallfax Drive, E-1002, Mlnglon. VA 

22226. 

Highlights: 

Several federal programs have recently been Instituted to promote 

financial stabifrty and mitigate tha effects of current market conditions on 

insured depository institutions. These efforts are designed to improve the 

functioning of cred"rt markets and strengthen capital In our financial 

system to improve banks' capacity to engage in prudent lending during 

these times of economic distress. 

The agencies expect an banking organizations to fulfill their fundamental 

role in the ea:>nomy as Intermediaries of crecflt to businesses, consumers, 

and other creditworthy bonowers. Lending to crecfrtworthy borrowers 

provides sustainable re1ums for the organization and is constructive for 

the economy as a whole. 

The agencies urge au lenders and servicers to adopt systef!latic, 

proactive, and streamlined mortgage loan modification protocols and to 

review troubled loans using these protocols. Lenders and servicers 

should ~ determine whether a loan modification would enhance the net 

present value of the loan before proceeding to foreclosure, and they 

should ensure that loans currenfly in foreclosure have been subject to 

such analysis. 

In Implementing this Statement, the FDIC encourages institutions it 

supervises to: 

• lend prudenUy and responsibly to creditworthy borrowers; 

• work with borrowers lo preserve homecmnership and avoid 

preventable foreclosures; 

• ad'JUst dMdend policies to preserve capital and lending capacity; 

and 

• employ compensation structures that encourage prudent lending. 

State nonmember institutions' adherence to these expectations wm be 

reffected in examination ratings the FDIC assigns for purposes of 

assessing safety and soundness, their compliance with laws and 

regulations, and their perfonnance In meeting the requirements of the 

Community Reinvestment Ad. (CRA). 
JFDIC: Press Releases - PR-115-2008 11/1212008 

Home > News & Evenls > Press Releases: 

Press Releases 

Joint Release 

For Immediate Release 

Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency 

Office of Thrift Supervision 

November 12. 2008 

lnteragency Statement on Meeting the Needs of Creditworthy Borrowers 

The Department of the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve 

have recently put into place several programs designed to promote financial stability and to mitigate 

procyclical effects of ·the current market conditions. These programs make new capital widely available 

to U.S. financial institutions, broaden and increase the guarantees on bank deposit accounts and certain 

liabilities, and provide backup liquidity to U.S. banking organizations. These efforts are designed to 

strengthen the capital foundation of our financial system and improv~ the overall functioning of credit 

markets. 

The ongoing financial and economic stress has highlighted the crucial role that prudent bank lending 

practices play in promoting the nation's economic welfare. The recent policy actions are designed to 

help support responsible lending activities of banking organizations, enhance their ability to fund such 

lending, and enable banking organizations to better meet the credit needs of households and busine~s. 

At. this critical time, it is imperative that all banking organizations and their regulators work together to 

ensure that the needs of aeditworthy borrowers are mel As discussed below, to support this objective, 

consistent with safety and soundness principles and existing supervisory standards, each individual 

banking organization needs to ensure the adequacy of its capi1al base, engage in appropriate loss 

mitigation strategies and foreclosure prevention, and reassess the incentive implications of its 

compensation policies. 

Lending to creditworthy borrowers 

The agencies expect an banking organizations to fulfill their fundamental role in the economy as 

intermediaries of credit to businesses, consumers. and other creditworthy borrowers. Moreover, as a 

result of problems in financial markets, the economy will likely become increasingly reliant on banking 

organizations to provide credit formerly provided or facilitated by purchasers of securities. Lending to 

creditworthy borrowers provides sustainable returns for the lending organization and is constructive for 

the economy as a whole. 

It Is essential that banking organizations provide credit In a manner consistent with prudent lending 

pracUces and continue to ensure that they consider new lending opportunities on the basis of realistic 

asset valuations and a balanced assessment of borrowers' repayment cap~cities. However, if 

underwriting standards tighten excessively or banking organizations retreat from making sound credit 

decisions, the current market conditions may be exacerbated, leading to slower growth and potential 

damage to the economy as weU as the long-term interests and profitability of individual banking 

organizations. Banking organizations should strive to maintain healthy credit relationships with 

businesses, consumers, and other creditworthy borrowers to enhance their own financial well-being as 

well as to promote a· sound economy. The agencies have directed supervisory staffs to be mindful of the 

procycfical effects of an excessive tightening of creart availability and to encourage banking 

organizations to practice economically viable and appropriate lending activities. 

Strengthening capital . 

Maintaining a strong capital position complements and facilitates a banf<jng organization's capacity and 

willingness to lend and bolsters its ability to withstand uncertain market conditions. Banking 

organizations should focus on effective and efficient capital planning and longer-term capital 

maintenance. An effective capital planning process requires a banking organization to assess both the 

risks to which it is exposed and the risk management processes In place to manage and mitigate those 

risks; evaluate its capital adequacy relative to its risks; and consider the potential impact on earnings 

http://www.fdic.gov/news/news/press/2008/pr08 l l 5 .html 

Page 1 of3 

9/8/20{ 
FDIC: Press Releases - PR-115-2008 l l/12/2008 

and capital from economic downtl.Jms. Further, an effective capital planning process requires a banking 

organization to recognize losses on bank assets and activities in a timely manner; maintain adequate 

loan loss provisions; and adhere to prudent dividend policies. 

In particular, In setting dividend levels, a banking organization should consider its ongoing earnings 

capacity, the adequacy of its loan loss allowance, and the overall effect that a dividend payout would 

have on its cost of funding, its capital position, and, consequently, its ability to serve the·expected needs 

of aeditworthy borrowers,. Banking organizations should not maintain a level of cash dividends that is 

inconsistent with the organization's capital position, that could weaken the organization's overall 

financial health, or that could impair its ability to rrieet the needs of aeditworthy borrowers. Supervisors 

will continue to review the dividend policies of individual banking organizations and will take action when 

dividend policies are found to be inconsistent with sound capital and lending policies. 

Working with morlgage borrowers 

The agencies expect banking organizations lo work with existing borrowers to avoid preventable 

foreclosures, which can be costly to both the organizations and to the communities they serve, and to 

mitigate other potential mortgage-related losses. To this end, banking organizations need to ensure that 

their mortgage servicing operations are sufficiently funded and staffed to work with borrowers while 

implementing effective risk-mitigation measures. 

Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt 

systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled 

loans using these protocols. Lenders and servicers should first determine whether a loan modification 

would enhance the net present value of the loan before proceeding to foreclosure, and they should 

ensure that loans currently in foreclosure have been subject to such analysis. Such practices are not 

only consistent with sound risk management but are also in the long-tenn interests of lenders and 

servicers, as well as borrowers. 

Systematic efforts to address delinquent mortgages should seek to achieve modifications that result in 

mortgages that borrowers will be able to sustain over the remaining maturity of their loan. Supervisors 

wiU fuUy support banking organizations as they work to implement effective and sound loan modification 

programs. Banking organizations that experience challenges in implementing loss mitigation efforts on 

their mortgage portfolios or in making new loans to borrowers should work with their primary supervisors 

to address specific situations. 

Structuring compensation 

Poorly-designed management compensation policies can create perverse Incentives that can ultimately 

jeopardize the health of the banking organization. Management compensation policies should be 

aligned with the long-term prudential interests of the institution, should provide appropriate incentives for 

safe and sound behavior, and should structure compensation to prevent short-term payments for 

transactions with long-term horizons. Management compensation practices should balance the ongoing 

earnings capacity and financial resources of the banking organization, such as capital levels and 

reserves, with the need to retain and provide proper incentives for sti:ong management Further, it is 

important for banking organizations to have independent risk management and control functions. 

The agencies expect banking organizations to regularly review their management compensation policies 

to ensure they are consistent with the longer-run objectives of the organization and sound lending and 

risk management practices. 

The agencies will continue to take steps to promote programs that foster financial stability and mitigate 

procyclical effects of the current market conditions. However, regardless of their participation in 

particular programs, all banking organizations are expected to adhe~ to the principles in this statement 

We will work with banking organizations to facilitate their active participation in those programs, 

consistent with safe and sound banking practices, and thus to support their central role in providing 

credit to support the health of the U.S. economy. 

### 

Media Contacts 

FDIC Andrew Gray (202) 898-6993 

httpJ/www .fdic.gov/news/news/press/2008/pr08 l l 5.html 

Page 2 of 3 

9/8/21 
JOHN J. DUNCAN, JR. . 211D Clls"nUCr, TnP? RA-HaulEOPPa ........... w...-mo,, DCllll5'lli,..4202 

P.-:(21121221-6435 

F..x:12112l225-4440 

Ms. Shelia Blair 

Chairman 

FDIC 

·3501 Fairfax Dr. 

©lngttSs of tbt i\nittd ~tatts 

ftao.st of Rqnmntatinm 

Uasbinjtlm, ll~ 2051H2D2 _ August 24, 2009· 

Arlington, Virginia 22226 

Dear Ms. Blair: 

I h b ontacted by two of my constituents 

who had a real estate business in 

TRANSPORT,t.llON 

l/JOC,-;3,5() ~ 

AND INFRAS114UCTIJRE 

WWWWIIEII: 

........,...s,.,_T...-,~WWA.'IBI"--~- A_,.,.. 

~ MaNaemn-. OIIIIANRA~ 

NII> Pimcum•rr 

Tenne ee h was worth at least three and a hal million two 

and a half years ago. Now they tell me that they are going to 

have to file bankruptcy. They say that banks in this area are 

not lending because·examiners are making totaliy unreasonable 

demands on the banks while those at the top, as the President 

and Secretary of the Treasury, are telling banks to make loans 

and examiners are saying no,no,no. 

It is not just these constitue~ts that met with me on August 10, 

2009, but everybody in East Tennessee are telling me the same 

thing. Will you give us some help? 

With kindest regards, I am 

Yours truly, 

• DUNCAN, JR. 

Member of Congress 

JJD:vf 60 
FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Joe Sestak 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Sestak: 

September 30, 2009 

Thank you for contacting me about the availability of business credit and the bank 

examination process. I share your concern about the need to reinvigorate business 

activity arid stimulate the economy. As you point out, banks play a critical role in 

extending credit to commercial enterprises and can help businesses fuel growth. 

I agree with you that large and small businesses are contending with extremely 

challenging market conditions that have been exacerbated by turmoil in the credit 

markets. As a result, credit availability has suffered. We strongly encourage banks to 

continue lending and working with their financially distressed borrowers through 

mutually advantageous loan modifications or other cooperative arrangements. Moreover, 

for institutions that received capital subscriptions as part of the Troubled Asset Relief 

Program's Capital Purchase Program, the Federal Deposit Insurance-Corporation expects 

these:; institutions to use those funds to enhance the availability of prudently underwritten 

loans. 

Further, the FDIC provides banks with considerable flexibility in dealing with 

customer relationships and managing loan portfolios. I assure you we do not instruct 

banks to curtail prudently managed lending activities, restrict lines of credit to strong 

borrowers, or require appraisals on performing loans unless an advance of new funds is 

being contemplated. Commercial loans are the lifeblood of our economy, and we share 

your concern for making credit available to these enterprises in Pennsylvania and across 

the nation. 

If you have further questions or comments, please contact me at 202-898-6974 or 

Paul Nash, Deputy for External Affairs, at 202-898-6962. 

Sincerely, 

Sheila C. Bair 
__ 09/18/2009 10:55 FAX 12022260792 

JOE SESTAK 

7 IJ4 0..TIIICT • ~SY\.YANI-. 

. lcZI002/003 

LA o:f- l~;z1 

CQU¥fD'ffS• 

ARMED SERVICES 

M....O'-"'aFolta5 

CONGRESS OF THE UNITED STATtmlC 

HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515 

(202) 225-2011 

September 17, 2009 

SEP 1 8 -:,.n .,,.. EDUCA TlON AND LABOR 

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IIEGl.0>1'10N. tftALn< CAAi AND TIIADI! 

The Honorable Timothy F. Geithncr 

Secretary of the Treasury 

United States Department of the Treasury 

Room 330 

The Honorable Benjamin S. Bcmanke 

Chairman of the Federal Reserve 

Board of Governors 

1500 Pennsylvania Avenue, NW 

Washington, D.C. 20220 

Twentieth St. and Constitution Ave. 

Washington, D.C. 20551 · 

The Honorable Sheila C. Blair 

Cbainnan of the Federal Deposit Insurance Corporation 

Board of Directors 

Federal Deposit Insurance Corporation 

55017th Street, NW 

Washington, D.C. 20429 

Dear Chairmm Bemanke, Secretary Geithner and Chairman Blair, 

Because of the continuing challenges in the commercial real estate marlcet, I am writing 

to urge the Federal Reserve, United States Treasury, and Federal Deposit Insurance 

Corporation to give all possible consideration to actions -- including the responsible use 

of remaining TARP funds - to restore appropriate soJDd business activity in new 

commercial loan origination. It is clear that this market, which accounts for more than $6 

trillion, has not fully benefittcd from earlier actions. 

I was in favor of the previous actions taken by the Federal Reserve and Treasury 

Department to try to head off the overall economic crisis, as well as the impending crisis 

in commercial real estate. I applauded the Federal Reserve's decision to make "high 

quality" Commercial-Mortgage Backed Securities eligible as collateral under the TermAsset Backed Securities Loan Facility. Clearly, however, more needs to be done to 

ensure that there are funds for high-quality commercial loans to be continued - so 

necessary if the economic momentum which is just starting is not to be shut down and a 

second wave of bank crisis is to be averted. 

I was encouraged by the Internal Revenue Service's announcement that it would 

reconsider the provision in the Internal Revenue Code which prohibits modification of 

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09/18/2009 10:56 FAX 12022260792 

loans within Real Estate Mortgage Investment Conduits (REMICs). I also urge policy 

makers to consider changes to our current system, such as not reclassifying modified 

loans if they have been performing well. Allowing borrowers and lenders to renegotiate 

terms has proven extremely useful in mitigating the worst of the housing crisis. Similar 

allowances could lessen the blow of the impending crisis with commercial real estate. 

Performing loans should not be reclassified and higher loan reserves required solely 

because of lower property valuations. Failure to act on these measures could deepen our 

current credit crisis and cause significant delay in overall economic recovery. 

In recent years, we have seen the dangers of lenders being extended too far 

into questionable investments with poor cash flow prospects and too much leverage. The 

same bad practices that led to the housing crisis also wreaked havoc on commercial real 

estate. The market had swung too far in the direction of reckless lending, and I commend 

the Federal Reserve, Treasury, and FDIC for its action to reign in such practices. Now, I 

implore you to take action to ensure that the pendulum does not swing too far in the 

opposite direction. I urge you to take all necessary steps to ensure that good commercial 

loans are able to be made. Failure to act could stall the critical economic momentum we 

have built through recent actions, such as TARP and the Economic Stimulus Bill. 

Thank you for your consideration and your service in these difficult times. I look forward 

to hearing from you on this matter. 

Member of Congress 

IQUU;J/UUJ 
09/18/2D09 1D: 55 J:o"il U02ZZ6U"/92 

Washington Office: 

1022 Longworth HOB 

Washington D.C. 20515 

(202) 225-2011 

(202) 226-0280 [fax] 

District Office: 

600 N. Jackson Street 

Suite 203 

Media, PA 19063 

(610) 892-8623 

(61 0) 892-8628 [fax] 

lt!!lfVV.L' vvw 

www.house.gov/sestak FDIC 

Office of 

Joe Sestak 

~C:J 1 8 'lt"l!''·'1 '~· '-. . 

Member of Congress • 7th Congressional District, Pennsylv.efiilCE OF LEGiSlATIVE AFFAIRS 

FAX 

I DATE: 

To: 

f Fax: 

!From: K-2-f· Ste:~ (§:PA 

fCi.•""' -~--~. 

~~ u+--~ 1~~ ( 26 2 - 2..1. '=> - 2.0 ~ \ ,, 

"-- ~~v• ..... _______ C_O_N_FI_D_E_NTI_A_L_A_N_D_P_R_I_V_IL_E_G_E_D_IN_FO_R_M_A_:Tt_O_N __ _ 

The information contained In this transmission is confidential and privileged. It is intended only 

for the use of the individual or entity named above. If you are not the intended recipient, you are 

hereby notified that any aisclasure, copying, distribution or the intentional taking of these 

documents and the Information contained herein Is strictly prohibited. If you receive this fax in 

error, please notify us by telephone. Thank you. 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher Dodd 

Chairman 

September 30, 2009 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

Thank you for the opportunity to testify before the Committee at the August 4 

hearing "Strengthening and Streamlining Prudential Bank Supervision." 

Enclosed are my responses to the foliow up questions you provided from Senator 

Bunning. If you have further questions or comments, ple~ do not hesitate to contact me 

at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at (202) 898-6962. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions from the Honorable Jim Bunning 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

QI. What is the best way to decrease concentration in the banking industry? Is it 

size limitations, rolling back state pre-emption, higher capital requirements, or 

something else? 

Al. We must find ways to impose greater market discipline on systemicaUy important 

institutions. We believe there are several ways to decrease concentration levels in the 

banking industry without the federal government setting size limits on ban.ks. For 

example, certain requirements, such as higher capital and liquidity levels, could be 

established to mirror the heightened risk they pose to the financial system. Assessments 

also could be used as incentives to contain growth and complexity, as well as to limit 

concentrations of risk and risk taking. 

However, one of the lessons of the past few years is that regulation alone is not enough to 

control imprudent risk-taking within our dynamic and complex financial system. You 

need robust and credible mechanisms to ensure that market players will actively monitor 

and keep a handle on risk-taking. In short, we need to enforce market discipline for 

systemically important institutions. To end too big to fail, we need an orderly and highly 

credible mechanism that is similar to the process we use to resolve FDIC-insured banks. 

In such a process, losses would be borne by the stockholders and bondholders of a 

holding company, and senior managers would be replaced. There would be an orderly 

resolution of the institution, but no bail-out. Open bank assistance should not be used to 

prop up any individual firm. 

Q2. Treasury bas proposed making the new banking regulator a bureau of the 

Treasury Department Putting ~side whether we should merge the current 

regulators, does placing the new regulator in Treasury rather than as a separate 

agency provide enough independence from political influence? 

A2. We believe independence is an essential element of a sound supervisory program. 

Supervisors must have the authority and reso\lfces to gather and evaluate sufficient 

information to make sound supervisory decisions without undue pressures from outside 

influences. The FDIC and state banking supervisors, who often provide a different and 

unique perspective on the operations of community banks, have worked cooperatively to 

make sound supervisory decisions without compromising their independence. 

As currently structured, two of the federal banking agencies, the Office of the 

Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are 

bureaus within the U.S. Department of the Treasury. Although subject to general 

Treasury oversight, the OCC and OTS have a considerable amount of autonomy within 

the Treasury with regarc! to examination and enforcement matters. Unlike Treasury, the 
OCC and OTS are funded by examination and other fees assessed on regulated entities, 

and_ they have independent litigating authority. The other three federal banking agenciesthe Federal Deposit Insurance Corporation, the Board of Governors of the Federal 

Reserve, and the National Credit Union Association are-fully independent agencies, selffunded though assessments or other fees, and have independent litigating authority. To 

the extent the OTS and OCC would be merged into a single regulator under Treasury, 

continued independence could be maintained through non-appropriated funding sources, 

independent litigating authority, and independent decision making authority, such as 

currently afforded to the OCC and OTS. 

Q3. Given the damage caused by widespread use of subprime and non-traditional 

mortgages-particularly low documentation mortgages-it seems that products that 

are harmful to the consumer are also harmful to the banks that sell them. If bank 

regulators do their job and stop banks from selJing products that are dangerous to 

the banks themselves, other than to set standards for currently unregulated firms, 

why do we need a separate consumer protection agency? 

A3. As currently proposed, the new Consumer Financial Protection Agency (CFP A) 

would be given sole rulemaking authority for consumer financial protection statutes over 

all providers of consumer credit, including those outside the banking industry. The 

CFPA would set a floor on consumer regulation and guarantee the states' ability to adopt 

and enforce stricter (more protective) laws for institutions of all types, regardless of 

charter. It also is proposed that the CFPA would have consumer protection examination 

and enforcement authority over all providers of consumer credit and other consumer · 

products and services-banks and nonbanks. 

Giving the CFPA the regulatory and supervisory authority over nonbanks would fill in 

the existing regulatory and supervisory gaps between nonbanks and insured depository 

institutions and is key to addressing most of the abusive lending practices that occurred 

during the current crisis. In additi~m. the provision to give the CFPA sole rule-writing 

authority over conrumer financial products and services would establish strong, 

· consistent consumer protection standards among all providers of financial products and 

services and eliminate potential regulatory arbitrage that exists because of federal 

preemption of certain state laws. 

However, the Treasury proposal could be made even more effective with a few targeted 

changes. As recent experience bas shown, consumer protection issues and the safety and 

soundness of insured institutions go hand-in-hand and require a comprehensive, 

coordinated approach for effective examination and supervision. Separating federal 

banking agency examination and supervision (including enforcement) from consumer 

protection examination and supervision could undermine the effectiveness of each with 

the unintended consequence of weakening bank oversight. 

As a federal banking st,tpervisor and the ultimate insurer of $6 trillion in deposits, the 

FDIC has the responsibility and the need to ensure consumer protection and safety and 
soundness are properly integrated. The FDIC and other federaJ banking agencies should 

retain their authority to examine and supervise insured depository institutions for 

consumer protection standards established by the CFPA The CFPA should focus its 

examination and enforcement resources on nonbank providers of products and services 

that have not been previously subject to federal examinations and standards. The CFP A 

also should have back-up examination and enforcement authority to address situations 

where it determines the federal banking agency supervision is deficient. 

Q4. Since the two most recent banking meltdowns were caused by mortgage 

lending, do you think it is wise to have a charter focused on mortgage lending? In 

other words, why should we have a thrift charter? 

A4. Over several decades financial institutions with thrift charters have provided 

financing for home loans for many Americans. In recent years, federaJ and state banking 

charters have expanded into more diversified, full service banking operations that include 

commercial and residential mortgage lending. However, it is understandable that the lack 

of diversification and exposure to the housing market could raise concerns about the thrift 

charter. Market forces have reduce4 the demand for thrift charters. Given the dwindling 

size of the federal thrift industry, it makes sense to consider merging the federal thrift 

charter into a single federal depository institution charter. 

QS. Should banking regulators continue to be funded by fees on the regulated 

firms, or is there a better way? 

AS. We believe the banking industry should pay for its supervision, but the federal bank 

supervision funding process should not disadvantage state-chartered depository 

institutions and the dual banking system. State-chartered banks pay examination fees to 

state banking agencies. The federal banking agencies are self-funded through 

assessments, exam fees, and other sources. This arrangement helps them remain 

independent of the political process and separates them from the federal budget 

appropriations. 

Q6. Why should we have a different regulator for holding companies than for the 

banks themselves? 

A6. We do not believe it is always necessary to have a different regulator for the holding 

company and the bank. Numerous one bank holding companies exist where the bank is 

essentially the only asset owned by the holding company. In these cases, there is no 

reason why bank regulators could not also serve as holding company regulators as it is 

generally more efficient and prudent for one regulator to evaluate both entities. 

In the case of more complex multi-bank holding companies, one can argue it is more 

effective for the primary federal regulators to examine the insured depository institutions 
while the Federal Reserve evaluates the parent (as a source of strength) and the financial 

condition of the non-bank subsidiaries. Yet even for a separate holding company 

regulator, the prudential standards it applies should be at least as strong as the standards 

applied to insured banks. 

Q7. Assuming we keep thrifts and thrift holding companies, should thrift holding 

companies be regulated by the same regulator as bank holding companies? 

A 7. Similar to the answer to Question 6, it may not be necessary for small thrifts that are 

owned by what are essentially shell holding companies to have a separate holding 

company regulator. While one can argue that more complex organizations merit a 

separate holding company regulator, even in this structure we believe prudential 

standards applied to a holding company should be at least as strong as those applied to an 

insured entity. 

Q8. The proposed risk council is separate from the normal safety and soundness 

regulator of banks and other firms. The idea is that the council will set rules that 

the other regulators wiJJ enforce. That sounds a lot like the current system we have 

today, where different regulators read and enforce the same rules different ways. 

Under such a council, how would you make sure the rules were being enforced the 

same across the board? 

AS. The proposed risk council would oversee systemic risk issues, develop needed 

prudential policies, and mitigate developing systemic risks. A primary responsibility of 

the council should be to harmonize prudential regulatory standards for financial 

institutions, products, and practices to assure market participants cannot arbitrage 

regulatory standards in ways that pose systemic risk. The council should evaluate 

different capital standards that apply to commercial banks, investment banks, investment 

funds, and others to determine the extent to which these standards circumvent regulatory 

efforts to contain excess leverage iri the system. The council should ensure that prompt 

corrective action and capital standards are harmonized across firms. For example, large 

financial holding companies should be subject to tougher prompt corrective action 

standards under U.S. law and be subject to holding company capital requirements that are 

no less stringent than those for insured banks. The council also should undertake the 

harmonization of capital and margin requirements applicable to all OTC derivatives 

activities and facilitate interagency efforts to encourage greater standardization and 

transparency of derivatives activities and the migration of these activities onto exchanges 

or central counterparties. To be successful, the council must have sufficient authority to 

require some uniformity and standardization in those areas where appropriate. 
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COMMITTEE. 0,-..0ANKl~G. HOUSING AND 

URBAN AfJ:AI~!: 

WASHJNGiON, OC-2061(H;()75 

August 28, 2009 --=-----::--..... _-_-_-_ 7_1 

FDIC 

---

SEP - I 2009 

The Honorable Sheila Bair 

Chafrman 

Federal Deposit Insurance Corporation 

550 17th S~ NW . 

Washington, DC 20429 

Dear Chairman Bair: 

· · lf)f~CE Of LEG:SLAT1VE AFFAii\S 

Thank you for testif yin.g before the. 9oIJUJU1.1ee on Banking, Housing, and Urban Affairs 

on August 4, 2009. In order to complete the bearing record. we would appreciate your answers 

to the enclosed questions as soon as possible. 

Please repeat the question. then your answer, single spacing both question and answer. 

Please do not use all capitals. 

Send your reply to Ms. Dav.n L. Rat!iff, the Committec•s Chief Clerk. She will transmit 

copies to the appropriate offices, includi~ the committee's publications office. Due to ClllTellt 

proccuures regarding Senate mail, it is tc<:Onunended that you send replies via e-mail in a MS 

Word, WordPerfect or .pdf~tachme.atto Dal'<TI Ratlifl@bankin!!.st::nate.gov. 

CJD/d:r 

lfyou have any questions about.this letter, please contact Ms. Ratliff at (202)224-3043. 

Sincerely, 

CHRISTOPHER J. DODD 

Chairman 
Qnestions for the Hearing on "Strengthening and Streamlining Prudential Bank 

Supervision" 

August 4, 2009 

Questions for The Honorable Sheila BaJr, Chairman, Federal Deposit lnsurance 

Corporation, front Senator Bunning; 

I. What is the best way to decrease concentration in the banking industry? 1s·it size 

limitations, rolling back state pre:.Cmption, higher capital_ requirements, or something dsc? 

2. Treasury has proposed making the new hanking regulator a bureau of the Treasury 

Department. Pu.ning aside whether we should merge the current regulators, does placing the new 

regulator in Treasury rather than as 11 separate agency provide ~rtough independence from 

political influence? 

3. Given the damage caused by widespread use of subprime and non-traditional mortgages -

paniculariy low clocume-ntatioo mortgages - it seems that products that arc hannful to the 

consumer are also hannful to the bnnks that seU them. If bank regulators do their job and :::top 

banks from selling products that are dangerous to the banks themselves, other than to set 

standards for currently unregulated firms, why do we need a separate consumer protec:-tion 

agency'! 

4. Since- the two most recent banking meltdowns were caused by mOftbrage lending. do you 

think it is wise to have a charter focused on mortgage lending? In other words, why should we 

havi: a thrift charter? 

5. Should banking regulators continue to be funded by fees on the rl!gulated firms, or is 

there a better way'? 

6. Why should we have a different regulator for holding companies than for the banks 

themselves'? 

7. Assuming we keep thrifts and thrift holding companies, should thrift holding companies 

be regulated by the same regulator as bank holding companies? 

8. The proposed risk council is s~parale from the normal safety and soundness regulator of 

banks and other firms. The jdea is that the council t>.-ill set rules that the other regulators will 

enforce:. Tbat sounds a lot like the current syst¢m we have today, where different regulators read 

and enforce.: th1: same rules difrcrcnt ways. Under such a council. bow would you m:<l<.i: sure the 

mies were being enforced the same across the board? 

l 
VIA FACSIMILE 

I 

The Honorable Sheila: Bair 

Chairman 

11.6. J,om of ~rest:ntatibd 

Conmrttttt 01t .:finandal 6trbit~ 

21291\apflma jtaut •mu •urudn; 

llln1,iqton. ;iac 2osts 

July 13, 2009 

Federal Deposit Insurance Corporation 

550 17th Street, NW 

Washington, DC 20429 

Dear Chairman Bair: 

t. J/OC/-11 o1. 

~ you ere aw8l'8, the Finsnc:iel Services Committee is poised to consider legislation 

(H.R. 3126) that estebliehAs an independent Consumer Financial Protection Agency 

(CFPA). Because the creation of a CFPA would fundamentally change financial institution 

end product regnlation, it is a proposal our Committee must fully understand. Some weeks 

ago, I a.sked-Chairman Frank to hold a hearing on the proposed Consumer Fiuaoc:ial 

Products Agency exclusively devoted to the views of the prudential regulators. However, 

because such a hearing may not occur in time for the Committ.ee to thoroughly consider 

your perspectives befi?re legislating, I respectfully request that you respond to the following 

questions by Monday, July 20, 2009. 

1: What problem would be addressed by the creation of a CFPA that is not or cannot be 

addresaed by the current system of finamnal iustituti.on and product regulation? 

2. How would the new consumer protection standards established in H.R. 3126 impact 

the availability of credit fur consumers? Would any parti.cular category of consumers 

be affected more than others? 

3. · One of the directives given to the propoeed agency is to coordinate with a variety of 

other agencies, both state and federal, to "prom.ow consistent regulatory treatment 

of consumer and investment products.• However, the leg:isla.ti.on would permit 

individual states to pB.BS laws that will differ from federal law. What would be the 

impact on consumers and the institutions you regulate if individual states can 

im.poee additional and different standards? 

4. The legialation envisions the separation of safety and soundness regulation from 

consumer protection regul.atian..How would t1rls separation impact the safety and 

soundness of banking- institutions? Would it enhance CJr undermine sefety and 

soundness, in your view? 

5. Does your agency have a separate consumer protection compliance examine.ti.on 

force? Ifnot. how could the consumer compliaDce examination function be 
The Honorable Sheila Bair 

Page2 

July 13, 2009 

transferred t.o a new agency and what would be the impact of the transfer on your 

safety and soundness supervision? 

6. H.R 3126 requires coordination and consultation between the CFPA anr;l the 

·Federal banking apnciee. However, it does not offer a framework or-mechan:iam in 

the event that there is not a coris~DBUB. PleBBe comment on any practical or legal 

problems or challenges that would be present.ad by this proposal 

7. H.R. 3126 provides for each of the Federal banking agencies to transfer consumer 

financial prot.ection functions to the new agency. Such functions are defined t.o mean 

"research. rulemaking, isauance of orders or &irida»ce. supervision,_ examination, 

and enforcement activities, powers, and duties relating t.o the provision of consumer 

financial products or aervi.ces"'. Please identify all of the functions wi.tlrln your 

agency that would be transferred under this provision? Does it a1fect underwriting 

standards for mortgage loans? Insider lending rules? Lending limits? Anti-money 

laundering compliance? If so, what would be the impact of the transfer on safety and · 

soundness? 

8. Does the proposed CFPA get at the heart of what caueed the mortgage crisis? 

9. H.R. 8126 provides for the agency to approve •standard" financiAl products and 

services. What would be the impact of this proposal on product innovation, especially 

when you consider the risks, expenses, and compliance requirements (e.g., disclosure 

and opt-out requirements) associated with the creation or sale of other 

than standard products? 

10. What will be the impact on consumers if hanJcing and some insurance products are· 

subject to regulation by the new agency, but economically similar investment 

products are subject to a different form of re~tion by the SEC? 

Thank you for your attention to tbia important ma~. 

Sincerely, 

Ranking Member 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Spencer Bachus 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Bachus: 

August 12, 2009 

Thank you for soliciting the Federal Deposit Insurance Corporation's input on the 

proposed Consumer Financial Protection Agency (CFP A). Enclosed are responses to the 

questions you posed. 

We appreciate the opportunity to comment. lfwe can provide further information, please 

do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director, Office of Legislative 

Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions from 

The Honorable Spencer Bachus 

Qt. What problem would be addressed by the creation of a CFPA that is not or cannot be 

addressed by the current system of financial institution and product regulation? 

Al. The proposal addresses one of the principal limitations of the current regulatory system. It 

would eliminate the remaining regulatory gaps between insured depository institutions and nonbank providers of financial products and services by establishing strong, consistent consumer 

protection standards. It also would address another gap by giving the CFPA authority to examine 

non-bank financial service providers that are not currently examined by a federal, or in many 

cases, state agency. In addition, the Administration's proposal would eliminate the potential for 

regulatory arbitrage that exists because of federal preemption of certain state laws. 

Q2. How would the new consumer protection standards established in H.R. 3126 impact 

the availability of credit for consumers? Would any particular category of consumers be 

affected more than others? 

A2. Properly defined standards should not impede the availability of credit to any category of 

consumers. H.R. 3126 does not prohibit the offering of consumer financial products and 

services. Rather, it seeks to protect consumers against abusive products and practices that strip 

individual and family wealth. The standards could lower risks to consumers of such financial 

products by enhancing transparency oftenns and features, and facilitating comparison of 

alternative products or services. The standards also could bring greater protection to consumers 

of non-bank financial products and services, which are not subject to the examination and 

supervision for consumer protection and safety and soundness compliance that currently benefits 

insured institution customers. 

Q3. One of the directives given to the proposed agency is to coordinate with a variety of 

other agencies, both state and federal, to "promote consistent regulatory treatment of 

consumer and investment products." However, the legislation would permit individual 

states to pass laws that will differ from federal law. What would be the impact on 

consumers and the institutions you regulate if individual states can impose additional and 

different standards? 

A3. To a great extent, the current patchwork regulatory situation is the result of a lack of 

coordination of national consumer protection laws and regulations. Creating a federal floor for 

consumer protection will provide standardization for institution and product regulation. While 

the proposal allows states to apply more protective state consumer laws, a strong federal floor 

should make additional state standards unnecessary. It should be noted that state-chartered banks 

operating in multiple jurisdictions currently comply with those jurisdiction's consumer laws with 

no problems. 
Q4. The legislation envisions the separation of safety and soundness regulation from 

consumer protection regulation. How would this separation impact the safety and 

soundness of banking institutions? Would it enhance or undermine safety and soundness, 

in your view? 

A4. Separating the examination and supervision of insured depository institution consumer 

protection compliance from that of safety and soundness could undermine the effectiveness of 

both. As the banking regulators' experience during the past few years has shown, consumer 

protection issues and the safety and soundness of insured depository institutions go band-in-hand. 

Examination and supervision for safety and soundness and consumer protection must be closely 

coordinated and reflect a comprehensive understanding of an institution's management, 

operations, policies, and practices. Consumer protection and risk supervision benefit from the 

synergies created by this holistic approach and by ready and timely access to expertise and 

critical information. Separating consumer protection examination and supervision from other 

supervisory efforts could weaken both and result in weakened financial institutions. 

By contrast~ if the CFPA has sole rule-writing authority over consumer financial products and 

services, this will ensure appropriate focus on protecting consumers and a level playing field 

between insured depository institutions and other types of entities that offer similar financial 

products. In addition, the FDIC would support providing the CFP A with back up enforcement 

and examination authority to ensure that the federal regulators are providing effective supervision 

of these standards. Freeing the CFP A from direct supervision and enforcement of depository 

institutions would allow this entity to focus its examination and enforcement resources on the 

non-bank entities that provide financial products and services that have not previously been 

subject to federal examination or enforcement. 

QS. Does your agency have a separate consumer protection compliance examination force? 

If not, how could the consumer compliance examination function be transferred to a new 

agency and what would be the impact of the transfer on your safety and soundness 

supervision? 

AS. The FDIC has a dedicated force of consumer protection compliance examiners. As 

discussed above, consumer protection and risk supervision benefit from the synergies created by 

ready and timely access to expertise and critical information in both areas. For example, 

violations of consumer regulations by an institution frequently signal management problems 

related to safety and soundness issues as well. Preserving the current regulatory framework, and 

the ability of the examiners to work together to evaluate institutions, will ensure that financial 

institutions will be continue to be viewed holistically. 

Q6. H.R. 3126 requires coordination and consultation between the CFPA and the Federal 

banking agencies. However, it does not offer a framework or mechanism in the event that 

there is not a consensus. Please comment on any practical or legal problems or challenges 

that would be presented by this proposal 
A6. In our answer to Question 7, we describe the many ways that consumer protection 

compliance and safety and soundness examination and supervision are intertwined. Separating 

the functions into two agencies inevitably would create issues. For example, it would constrain 

the ability of examination staff to develop a comprehensive view of the institutions they 

supervise. It also would be more difficult to easily coordinate, share information, and bring joint 

actions on consumer protection and safety and soundness issues. In addition, the flow of 

information would slow, thus reducing opportunities to quickly identify and resolve problems. 

As indicated above, one way to address this issue would be for the banking agencies to retain the 

authority to examine and supervise insured institutions for consumer protection compliance and 

safety and soundness. The CFP A should be given the authority to examine and supervise nonbank consumer product and service providers and back-up enforcement authority over insured 

depository institutions. Giving the CFP A authority to write rules for all consumer product and 

service providers would ensure strong and uniform consumer protection standards for all 

consumer product and service providers. 

Another means of ensuring coordination and consultation would be to have federal financial 

institution regulators represented on the CFP A Board, which could be the final arbiter of any 

problems that could not be resolved at the staff level. We believe it is particularly important that 

the FDIC be represented. As ultimate insurer of over $6 trillion in deposits, the FDIC has both 

the responsibility and vital need to ensure that consumer compliance and safety and soundness 

are appropriately integrated. The FDIC also is the primary federal supervisor for the largest 

number of banks (including many larger ones) and maintains an active examination staff on-site 

in the largest major banks as back-up supervisor. The FDIC's direct supervision of the majority 

of the nation's community banks provides it with a unique "Main Street" perspective that enabled 

it to be an early proponent of affordable and sustainable mortgage loan modifications, improved 

economic inclusion, and the prevention of abusive lending practices. Moreover, the FDIC's 

deposit insurance function involves a significant consumer protection role with regard to 

consumer deposits that affects all institutions, but is unique to the FDIC. 

Q7. H.R. 3126 provides for each of the Federal banking agencies to transfer consumer 

financial protection functions to the new agency. Such functions are defined to mean 

"research, rulemaking, issuance of orders or guidance, supervision, examination, and 

enforcement activities, powers, and duties relating to the provision of consumer financial 

products or services." Please identify all of the functions within your agency that would be 

transferred under this new provision? Does it affect underwriting standards for mortgage 

loans? Insider lending rules? Lending limits? Anti-money laundering compliance? If so, 

what would be the impact of the transfer on safety and soundness? 

A7. Staff in three different FDIC Divisions likely would have to be transferred if the new agency 

is created as proposed: the Division of Supervision and Consumer Protection (DSC), the Legal 

Division, and the Division of Insurance and Research (DIR). In particular: 
1) DSC: Generally speaking, staff in this Division performs research. ru.lemaking, guidance, 

supervision. examination and enforcement functions, and coordinates extensively with the 

Legal Division and DIR in connection with all of these functions. 

• Examinations: Consumer protection compliance examiners and examination 

management and staff in FDIC field offices, regions, and at headquarters in 

Washington, D.C. examine banks for compliance with consumer protection and 

CRA regulations and coordinate with legal staff to bring informal and formal 

enforcement actions when banks fail to comply with laws or regulations. 

Consumer protection staff also coordinates with DSC's risk management/safety 

and soundness function on applications and other regulatory requests from 

institutions that have less than satisfactory consumer compliance or CRA 

programs. 

• Policy: Consumer protection compliance policy analysts conduct outreach to 

industry and consumer groups, monitor legislative and regulatory developments, 

develop policy and guidance for examiners and institutions, participate in 

interagency working groups to issue regulations and examination procedures, and 

develop and provide training for consumer protection compliance examiners. 

• Consumer Protection Outreach: Consumer affairs staff receives, investigates, and 

responds to consumer complaints and inquiries involving FDIC-supervised 

institutions, along with other data requests concerning consumer protection laws 

and banking practices. In addition to assisting individual consumers, the 

consumer complaint resolution function provides information used in individual 

bank compliance examinations and to detect emerging consumer protection issues. 

As part of its deposit insurance function, FDIC consumer affairs staff provides 

consumer education and assistance with regard to deposit insurance coverage 

matters. This function would necessarily remain with the FDIC. 

• Community Affairs: DSC also has a Community Affairs program that provides 

technical support to financial institutions to help them identify and respond to the 

credit and banking needs of the communities they serve. Program staff conducts 

the FDIC's financial education and consumer protection outreach, except for 

deposit insurance. Community affairs staff facilitates the Alliance for Economic 

Inclusion -- the FDIC's national initiative to establish broad-based coalitions of 

financial institutions, community-based organizations, and other partners to bring 

unbanked and underserved populations into the financial mainstream. The FDIC 

developed and distributes the award-winning Money Smart financial education 

program, which is available in several formats and languages. In addition, the 

Small Dollar Loan pilot project is reviewing affordable and responsible smalldollar loan programs in financial institutions to identify effective and replicable 

business practices that banks can incorporate into their mainstream services. 

Community Affairs staff also leads the FDIC's ongoing outreach efforts to 

mitigate foreclosures and help consumers avoid scam artists. 

2) Legal Division: Legal Division attorneys from headquarters and regional offices support 

the research. supervision, examination, legislative, ru]emaking, policymaking and 
enforcement functions. Enforcement attorneys work closely with examination staff in 

bringing formal and informal enforcement actions against institutions. 

3) DIR: Economists and statisticians support the consumer protection compliance 

examination and policy programs and Legal Division staff by conducting research and 

analyzing quantitative and qualitative data. Staff pursues original research exploring 

consumer financial products, behaviors, and trends. 

On balance, transferring consumer protection compliance examination and enforcement to the 

new consumer protection agency would cause disruption to agency operations during a critical 

time, complicating safety and soundness functions and enforcement efforts. A number of 

mission-critical regulatory functions exist in which consumer protection and safety and 

soundness issues are intertwined. Consumer protection weaknesses may affect the safety and 

soundness of an institution, or they may reflect an overall weakness, particularly of management. 

Unsafe or unsound practices, or the resulting financial weakness of an institution, can impact a 

bank's customers, the community, and even the financial markets. 

Significant expertise, lines of communication, and cooperative efforts among safety and 

soundness and consumer protection compliance staff would be hampered by moving these 

functions to the new consumer protection agency. Particular areas of supervision, examination, 

and enforcement that would be impacted include: 

• Non-Traditional Mortgage Lending 

• Subprime Lending 

• Payday Lending 

• Credit Card Lending 

• Predatory Lending 

• Loan Modifications 

• Flood Insurance 

• Third-Party Risk 

• Retail Securities and Insurance Sales and Referrals, under the Gramm-Leach-Bliley Act 

of 1999 (GLBA) and Regulation R 

• New Bank Application Investigations and Community Reinvestment Act (CRA) Analysis 

• Bank Branch and Merger Applications, which require consideration of compliance 

ratings, fair lending and CRA ratings 

• Privacy (GLBA) 

• Identity Theft Red Flags and the Fair and Accurate Credit Transactions Act of 2003 

(FACT Act) 

• The Secure and Fair Enforcement for Mortgage Licensing Act of2008 (S.A.F.E. Act) 

Because the FDIC and other regulators must continue to consider consumer protection issues in 

evaluating banks - even if a new agency is established - separating these functions will 

necessarily create a duplication of effort. 

The new agency also would impose incremental burden on financial institutions as they would be 

examined and evaluated by another federal agency. Separating the compliance examination 
function from the safety and soundness program also will delay action on applications or other 

requests requiring federal approval. 

Q8. Does the proposed CFP A get at the heart of what caused the mortgage crisis? 

AS. If a CFPA-type agency had been in place, it could have taken the long view of both the 

banking sector and the non-bank financial sector. A strong focus on consumer protection could 

have called into question the underlying rationale for many of the more abusive mortgage 

products. Further, rules and guidelines could have been developed that would have slowed or 

halted the worst practices. 

However, the CFP A, as currently proposed, does not get at one of the fundamental causes of the 

mortgage crisis: the lack of effective supervision and enforcement of non-bank entities that offer 

mortgages and other financial products. While these entities are subject to many of the same 

laws and regulations as federally supervised banks and thrifts, they are not subject to the same 

regular examinations or supervision, or the resulting potential for enforcement actions if they 

break the law. State and federal enforcement agencies (state consumer protection agencies and 

the Federal Trade Commission for civil matters, state Attorneys General and the Department of 

Justice for criminal) have limited resources and must make constant choices about whether 

situations are egregious enough to warrant bringing an action to stop a particular practice. 

To the extent possible, legislation should specifically define the components of an effective 

enforcement and examination regime focused on non-banks. For example, rather than diluting 

resources by aiming them at all financial products and entities, the CFP A's primary supervisory 

resources should be targeted on non-bank entities. The federal bank and thrift supervisors should 

continue to have examination and enforcement authority over banks; however, they would 

enforce the consumer protection standards set by the CFP A. Under such a regime, overall 

consumer protection would be greatly strengthened because the CFP A would have back up 

authority to enforce all consumer protection laws regarding banks, and there would be several 

supervisory entities, including the CFP A and the bank regulators, targeting their resources on 

enforcing consumer protection laws across the country. 

Q9. H.R. 3126 provides for the agency to approve "standard" financial products and 

services. What would be the impact of this proposal on product innovation, especially when 

you consider the risks, expenses, and compliance requirements (e.g., disclosure and opt-out 

requirements) associated with the creation or sale of other than standard products? 

A9. At this time, it is difficult to detennine the impact on product innovation. However, it has 

become clear from the current economic crisis that when innovative products are not well 

understood by investors and consumers, product innovation does not always benefit consumers, 

the economy, or society as a whole. Inappropriate promotion of interest-only and other nontraditional mortgage products contributed to the current economic crisis. Therefore, it could be 

argued that non-standard products should receive stronger attention from regulators to ensure 

they are being used appropriately. 
QIO. What will be the impact on consumers if banking and some insurance products are 

subject to regulation by the new agency, but economically similar investment products are 

subject to a different form ~f regulation by the SEC? 

AIO. In creating the CFPA, Congress should provide a clear and effective mechanism for 

ensuring comparable consumer protections regardless of the entity from which a consumer 

purchases economically or functionally equivalent products. The CFP A should have the 

authority to set comparable standards for comparable products and to ensure that there is no 

loophole in consumer protection for products that are economically similar. Prudential 

supervisors would enforce the standards established by the CFP A for products and institutions 

under their jurisdiction. The ability to establish comparable protections will strengthen 

coordination and cooperation among the banking agencies, the new consumer agency, and federal 

and state securities and insurance regulators, and should prevent practical and operational gaps in 

regulations and supervision. 
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\lnittd cStatts ~rnotr 

COMfwlfTTEE ON BANKING, HOUSING At-JO 

()RBAlr.l .6.FF'Al~~ 

WASHINGTON, OC 2Cl610--6075 

August 28, 2009 

FOIC 

---

SEP - I 2009 

The Honorable Sheila Bair 

Cha:im1an 

Federal Deposit Insurance Corporation 

550 l ?1b Street. NW 

Washington, DC 20429 

Dear Chairman Bair: 

0f~CE Of LEG:SLATWE J\frA\'.1S 

Thank you for testifying before the Committee on Ranking, Housing, and Urban Affairs 

on August 4, 2009. In order to complete the hearing record. we would appreciate your answers 

to the enclosed questions as soon as possible. 

Please repeat the question, then your answer, single spacing both question and answer. 

Please do not use all capitals. 

Send your reply tQ Ms. Dawn L. R~iff, the Committee's OtiefCle.rk She will transmit 

copies to the appropriate offices, including the committee's publications office. Due to current 

procedures regarding Senate mail, it is recommended that you send replies via e-mail in a MS 

Wor<l, Word.Perfect ur . pdf attachment to Da'l?r11 Ratliff@bankinl!.s~nate.gov. 

CJD.ldr 

lf you have any questions about this letter, please contact Ms. Ratliff at t202)224-3043. 

Sincerely, 

CHRISTOPHER J. DODD 

Chainnan 
Questions for the Hearing on "Strengthening and Streamlining Prndential Bank 

Supervision° 

August 4, 2009 

Questions for The Honorable Sheila Bair, Chairman. Federal Deposit Insurance 

Corporation, from Senator Bunning: 

l. What is the best ·way to decrease concentration in the banking industry? Is it size 

limitations, rolling back stale pre-emption, higher capital requirements, or something else? 

2. Treasury has proposed making th!! new hanking regulator a bureau of the Treasury 

Dcpanmcm. Putting aside whether we should merge the current regulators, does placing the aew 

regulator i.n Treasury rather than as a separate egency provide enough independence from 

political influence? 

3. Given the damage caused by widespread use of subprime and non-traditionnl mortgages -

particularly low documentation mortgages - it seems that products that arc harmful to the 

consumer are also harmful to the: bnnks that sell them. If bank regulators do their job and stop 

banks from selling products that are dangerous to the banks themselves, other than to scl 

standards for cuITently unregulatec.l tirms, why do we need a separate consumer protection 

agency? 

4. Since the two most recent banking meltdowns were caused by mortgage lending. do you 

thi.Tik it is wise to have a charter focused on mortgage lending? In other words, why should we 

lrnvr: a thrift charter? 

5. Should banking regulators continue to be funded by fees on the r~gulated firms. or is 

there a better way? 

6. Why should we have a different regulator for holding companies than for the banks 

themselves'? 

7. Assuming we keep thrifts and thrift holding companies, should thrift holding companies 

be regulated by the same regulator as bank holding companies? 

8. The proposed risk council is sc:parale from the normal safety and soundm .. -ss regulator of 

banks and other finrn,. The idea is that the coWlcil will set rules that the other regulators v-rill 

enforce:, That sounds a lot like the current system we have today, where difl:erent regulators read 

and cnforct: the sarm: rules different ways. Under such a council. how would you mak~ sure t.hc 

rules were being enforced the same across the board? 

l 
MICHAEL N. CASTlE Da.-.A~-v.llDE 

COMMnTEES: 

FINANCIAL SEJI\IICES 

EDUCATION AND LA80R 

-- filmgrr.ss of tht tlnittd ~tatts 

!\oust of Rtprr.smtatior.s 

DuhingtDn, Ba: 20515-0801 

September 25, 2009 

The Honorable Shiela C. Bair 

Cbainnan 

Federal Deposit Insurance Commission 

550 17th SL, NW 

Washington, DC 20429 

Dear Chairman Bair. 

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Attached, please find a section from the proposed Consumer Financial Protection 

Agency Act of 2009 entitled "Preservation of State Law." R.eccntly, cancans have been 

raised that this particular section would have a negative impact on banks and the credit 

card industry. I would appreciate your comments on this section as soon as possible. 

MNC:CC 

Michael N. Castle 

Member of Congress 

FDlC 

SEP 2 5 2009 

OFFICE OF LEGISLATIVE AFFAIRS 

i 

I , 
F:\JMW\FS l l l\HR3 I 26\MARK_003JCML 

99 

1 tion to the ~oencJ", as required by thic; title, an enn2 me1c1ted consmuer law, or pursuant to the autho1i3 ties t.nmsfer1'ed by subtitles F and H, or a.ny re.gnla4 tion prec;eribed or order i.%ued by the Direetor thic;; 

5 title or pursuant to any $lleh authorit•; or 

6 (3) to kncrningiy or recklec;sJy provide substan7 tial nssi.c;tance to another person in violation of the 

8 p1"0,-isiom; of sec.-tion 131, or any regulation pre9 scnl,ed or order i.c;sued. under such section, and uny 

IO 1,uch person shall be deemed to be in violation of 

11 that section to the same eJ..'tent as the person to 

12 whom such as.c,istanee is provided. I 

13 SEC. 1S9. EFFECTIVE DATE. 

14 This subtitle shall take effect on the dec;ignatecl 

15 tran1->fer date. 

I 

I 

I

! 

16 Subtitle D-Preservation of State 

17 Law 

18 SEC.141. RELATION TO STATE LAW. 

19 (a) J:,,: Gi-=~im.:.u,.-

20 ( 1) Rt;LE OP CONSTRUC"I'IOK.-Thfa title shall 

21 not be const111ed as annulling, altering, or affecting, 

22 or exempting any person subject to the provisions of 

23 this title from complying with, the laws, rei:.aulations, 

24 onJers, or interpretations·, in effect in any State, e.x25 cept to the extent that such statute, regulation, 

1:\VHI...C'09240!Nl92409.281 .xml ( 44987119) 

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100 

1 ordert or intel1>retation is inconsiRtent. with the pro2 visions of thi.c; title and theu only to the a-tent of the 

3 1ncon.c;istency. 

4 (2) GREATER PROTEt'TJOX \:;\.-PEH STATJ:o; 

5 1.,Aw.-For the purposei, of thi.~ ~'1.lbsa.1-iou, a sta.t6 utet regulation, order, or i11te111retation in effect in 

7 any State i.c; not inconsistent 'Y.i.th the provisions of 

8 this title if the protection Emch statute, regulation, 

9 order, or interpretation affords con.o:ru.mers is greater 

10 than the protection prmided nnder tlri.c; title . .A. de11 termination regarding whether a i;t.at.ute, r~l>U.lation, 

12 order, or interpretation in effect in any State is in13 consistent with the prm-isious of tl:ris title may be 

14 made by the Agency on itfi mm motion or in re15 sponse to a nonfrivolons pet.iti011 initinte,1 h~· any in16 terested person. 

17 (b) REI ....\TIO?\ TO 0TII1-~H PHm·1i-.11>Xs OP E~DIJ:o;l{-

18 .:\TED CoNSUMER L.--\.WS Tnxr RJ:o;L.\TJ:o: TO 8T.\TE h\W.-

19 No provision of tbic; title, exl'ept. m; prmidell iu i,;ection 

20 175, shall be coustmed as modi~-ing, lu1l.iting, 01· ~·uper21 sediug the operation of m1y proYi.,.ion of an enumerated 

22 consumer law that relates to the applicatiou nf a law in 

23 effect in any State with respect to ~1.1ch Federal law. 

t\VHLC'092409\092409.281.xml 

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101 

) SEC. 142. PRESERVATION OF ENFORCEMENT POWERS OF 

2 STATES. 

3 (a) I::-; GE'..':'l-~R..\1,.-

4 (1) Ar7IO:'\ HY STATE.-Any State attorney 

5 g-enerAl ma~· bring a cml action in the name of such 

6 · State, as parens patriae on behalf of natural persons 

7 residing in ~-uch State, in any distli.c.,t court of the 

8 U 1rited Stnte.c:. or State court having jurisdiction of 

9 the defendant, to secure monetary or eqnitable relief 

10 for Yiolation of any provisions of tlus title or regula11 tions is.crued thereunder. 

12 (2) Rt:l,E OF CONSTRUCTION.-No provision of 

13 this title shall be construed as modifying, limiting, 

14 or snpel'sediug the o~ration. of any provision of an 

15 . enmnernt.ell consumer law that relates to the author16 ity of H Bhlte attorney general or State regulator to 

17 euforee snd1 Federal law. 

18 (h) Co::-:81'.LTA'flOX RI-;QL'IRl<;D.-

19 (1) NoTll'I-:.-

20 (A) I~ m,:~l-:RAl,.-Before initiating any 

21 c1etiou iu a court or other admini~u--.i.tive or reg22 ulatory proceeding against any covered pen::on 

23 to enforce tlny provision of this title, including 

24 any regulation prescribed by the Director under 

25 this title, a State attorney general or State reg26 ulator shall timely provide a copy of the comf:\VHLC'D92409\092409.281.lm11 

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1 

2 

3 

4 

102 

plete complaint to be filed and mitten notice 

describing sueh at'tion m· proce.eding to the 

Agency, or the Agenc.')-'s desit,ruee. 

(B) EMEH.OEX<:'Y .H'TIOX.-If prior notice 

5 is not practicable, tJ1e State attorney general or 

6 State regulator shall prm-ide a copy of the com7 plete complaint and the notice to the Agency 

8 immediately upon im.-titoting the actiou or pro9 ceeding. 

10 (C) CoNTEN'l'R Ol<' XOTll"$.-The uotifica11 tion required under thi~ sec.-tion shall, ut a min12 imum, describe--

13 {i) the identity of the parties; 

14 (ii) the alleged factc;; underlying the 

I 5 proceeding; and 

16 (iii} whether there may he a need to 

17 coordinate the pt1)Set'11t.1011 of the pro18 cee<ling .so as not to interfere ";t.11 an~- ae19 tion, including an~· mlemaki11g, nndert.akeu 

20 by the Director or Agem':'· 01· another Fed21 eral ag-ency. · 

22 (2) AGENCY RESP0'.:\"8K-ln any nction de23 scribed in paragraph (1), the Agency may24 {A) intervene in the action as a party; 

25 (B) upon interveningt\VHLC\IJ92409l092409.281.xml 

Seplember 24, 2009 (10:00 p.rn.) 

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103 

1 (i) remove the action to the appro2 pl'iate United States disuict court, if the 

3 action was not originally brought there; 

4 and 

5 (ii) be beard on all matters m-i.cring in 

6 the action; and 

7 (C) appeal any order or judgment to the 

8 same extent as any other party in the pro9 ceeding may. 

10 (c) E,BGt'I .. A1'10NS.-The Director shall prescribe reg11 olations to implement the requirements of this section 

12 and, from time to time, p1·ovide guidance in order to fnr13 ther coordinate actions with the State attorneys general 

14 and other regulators. 

15 (d) PR1-;Ht-:R\'ATIOX OJ.' STATE CLAIMS.-Nothing in 

16 thifi section shall he constmed as limiting the authori~· 

17 nf a State att.oruey f..reue111l or State regulator to bring an 

I 8 action or other re.gnlatory proceeding arising solely under 

19 the low of that State. 

20 SEC. 143. STATE LAW PREEMPTION STANDARDS FOR NA21 TIONAL BANKS AND SUBSIDIARIES CLARI22 FIED. 

23 (a) b: G1-;xr:1w ... -Cbapter one of title LXII of the 

24 Revised Statutes of the United States (12 U.S.C. 21 et 

f:\VHLC'l092409'ID!l2409.281.Jll'li (44987119} 

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104 

I seq.) is amended h)r in.c;erting after seL"tiou 5136B the fol2 lowing new section: 

3 "SEC. 51S6C. STATE LAW PREEMPTION STANDARDS FOR NA4 TIONAL BANKS AND SUBSIDIARIES CLABI5 FDID. 

6 "(a) DEFINITJONS.-For purposes of thi.c; sel"tiou, the 

7 following definitions shall apply: 

8 "(l) NATIONAL B....\..,IC-The t.erm 'national 

9 bank' includes10 11 (A) any bank org·,mized under the laws of 

11 the United States; 

12 11 (B) any affiliate of a ru1tional bank; 

13 11 (C) any subsidiary of a national bank; 

14 and 

IS "{D) an~· Fedt-1~dl hranl'h ei-;tabli~hed in ac16 cordm1ce with the Int.emHtimwl Bnukiug Al'f. of 

17 

18 

19 

20 

1978. 

"(2) OTnJ.;R m:1<'I:"\ITIO~K.-'fhe f.eru1H 'affiliate', 'subsidiary', 'inclmlei:.', nm! 'inclmling-' huw the 

same meaning as in sect.ion :l of the Federal De1)osit. 

21 Insurance .A.ct. 

22 "(3) STATE CO::'\::;l:::\IEH L.\W.-The tenn 'State 

23 consumer law' means an~· Imr of a St.lte that24 "(A) accords right<.; to or protec.-t.<. the 

25 rights of its citizens in financial transaction.<, 

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105 

1 t-oneermng negotiation, sales, solicitation, dis2 closore, tenns and eouditions, achic:e, and rem3 edies; or 

4 "(B) pre,-e11ts counterparties, successors, 

5 and assigns of financial contracts from e~l:78.g6 iug in unfair or deceptive acts and practice.c;. 

7 "(b) ST.\TJ.~ O>NSDfER LAWS OP GE11:ERA1, APPl,I8 r:.\'fl0:'\.-Notwith.c.-tm1ding any other provision of Federal 

9 law and except as provided in subsec.-tion (d), any conIO sume1· protection provision in State con.cru:mer laws of gen11 erul u11plicntion, including any law relating to unfair or 

12 deceptn·e acts or practices, any consumer fraud law and 

13 repos.<.es.c;ion, forecloffill'e, and collection law, shall apply to 

14 imy national bank . 

. 15 "(l'} ST,\1'l-~ B.-\SKIXG LAWS ENACTED Pta~HUA..'\?T TO 

16. F1mEH.\L L.\W.-Notwithstanding any other provision of 

17 Fede1·1l1 lnw mul except as provided in subsection {d), an~-

18 State l'o11:-.-ume1· luw tliat--

19 "(1} ii-: Mpplicable to State banks; aud 

20 'Tl) wrn; enucted purb-uant to or in accordance 

21 "ith, and is not. incom,i~:,tent with, an A.et of Con22 gre.xs, including the Gramm-Leach-Bliley Act, the 

23 Consumer Credit Protection Act, and the Real Es24 tate Settlemeut Procedures Act, that a.l}licitly or by 

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106 

I implication, permits States to e-weed or supplement 

2 the reqmrements of any eomparab)e Federal law, 

3 shall apply to any national bank. 

4 "(d) EXCEPTION8.-

5 "(l) IN GE~Jo::RAL.-Subsectionfi (h) ,md (c) 

6 shall not apply with respect to any State com,-umer 

7 law i:f.-

8 "(A) the State cou.rmmer lmv dic;cri.minates 

9 against nation.al banks; or 

10 "(B) the State con.cmmer law is incon11 sistent with provii,-iom; of Federal law · other 

12 than this title, but only to the e>.1.ent of the in13 consistency (as determined in accordance with 

14 the provision of the other Federal law). 

15 "(2) R.UJ~E FOB DETER:\Il:"\IXO l~CO!\~IST16 1rnc~.-For pui1)0ses of parn!,,ri·aph (l)(Il), a State 

17 consumer law is not inennsii,;tent "it.h Federal law if 

18 the protection the State commmer law aftm·ds con19 snmers is greater thc111 the profet'f.ion prmided under 

20 Federal law a.c; determined by the Director. 

21 "(e) No NEGATIVE htPLH'ATIO~!-; F'OH A.PPI,lGA22 BILITY 01,, OTHER STATg LAWS.-No provision of this 

23 section shall be construed ru; alte1i11g or affecting the ap24 plicability, to national banks, of any State law whlch is 

25 not described in this section. 

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107 

1 "(f1 Er'PJox·r 01<' TR.:\.,SPER OF TRAXSACTI0~.-

2 State corummer law applicable to a transaction at the in3 c.eption of the tn1n.c;actio11 mn:v not be preempted under 

4 Federal law soleJr becan1>e a national bank f.."tlbsequently 

5 acquires t.he asset or instrnment tha.t is the subject. of the 

6 tran.<;action. 

7 "(g) Dl-~XL\I, OI•"' PREEMPTION NOT A DEPlUVATIOK 

8 OI•' A Cf\11. RmnT.-The preemption of nny provision of 

9 the Jaw of any State with respect to any national bank 

10 shall not be treated as a right, privilege, or immunity for 

11 purposes of section 1979 of the Revised Statutes of the 

12 United States (42 U.S.C. 1983).". 

13 {b} CLERICAL AliENDMEN'T.-Tbe table of sections 

14 for chapter one of title LXII of the Revised Statutes of 

15 the United States is amended by inserting after the item 

16 relating t-0 E.el'tiou 5136B the following new item: 

··;;1~c;1.•. l-ib1h- lioT 1,1,~•111J1tinn i.-tnml,mlK fur 1111ti11nnl l,,m!OI 111111 i."llh,.;llim;,.,. 

rhirili1'll:·. 

17 SEC. 144. VISITORIAL STANDARDS. 

18 Sectio11 51:36C of the Re1ised Statutes of the United 

19 States (ai-. added b;\· Hect.ion 143) is amended by adding 

20 at the end t.he following new subsections: 

21 "(h} VISJTORL\J, Pmn:RS.-

'12 "(l) Rt:I.E OF COXSTRUCTJO~.-No provi.c;ion 

23 of this title which relates to visitorial powers or oth24 erwise limits or restricts the supervisory, examinat\VHI..C\092409't092409.281.l<ml 

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108 

1 tion, or regulatory· anthori~- to whil'h an:',· national 

2 bank is subject shall be eon.<~tmecl afi . limiting or re-

. 3 stricting the authori~- of aur att.ome:',· ~reueral ( or 

4 other chief law euforc.emeut offic.-er) of an:v State to 

5 bring any action in an~· eourt of appmp1iat.e jmi<;dic6 tion7 "(A) to require a national bank to produee 

8 records relative to the iuveE.1.igation of Yiolatious 

9 of State consumer law, or Federal con.cmmer 

10 laws; 

11 "(B) to enforce any applic:uh)e Federal or 

12 State law, as authorized by i-mch law; or 

13 "(C) on behalf of resident.s of h"Ul!h State, 

14 to enforce any applicahle provision of any Fed15 eral or State law against u national hank, aH 

16 authorized by such law, or f.o ~ee-k relief aud re17 coYer damages for h1.wh 1·esiilent.8 from a11y Yio18 lat.ion of any h1.1eh law h:',· any nationttl hmik. 

19 "(2) Coxst:I,TATm:x.-The .tt:t.01·ue~· l,.'"t'ne1'i1l (ur 

20 other chief law enforcemt>ut offiter) of an~· Stat.e 

21 shall consult with the head of thr a:,.rem':'· 1-espom;ihle 

22 for chartering a.nd ref:_71.llating national hanks hefore 

23 acting under paragraph (1). 

24 "(i) E.NFORCEMEXT Aenox::;.-The 21bility of the 

25 head of the Baaenc.·y respomrible for chart.eiing and reguf:WHI.C\092409\092409.281.xml 

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109 

I latiug national bankF. to bring an enforcement action 

2 nuder thit; title or section 5 of the Federal Trade Commis3 sion ..kt. r<lulll not_ he constmed as precluding privat.e par4 ties from enforc.-u1g right.c; grant.ed under Federal or State 

5 law in the courts.". 

6 SEC. 145. CLARIFICATION OF LAW APPLICABLE TO NON7 DEPOSITORY INSTITUTION SUBSIDIARIES. 

8 Set.-tion 5136C of the Revised Statutes of the United 

9 State.'. is amended by inserting after ~11bsection (i) {as 

10 added h~- section 144) the following new subsection: 

11 11 (j) CI..A.IUl<'IC.ATJON OF LAW APPLICABLE TO NON12 DEPOSITORY I~STITUTION SUBSIDIARIES A~D AFFIJ,I13 ... \TE8 01'' NATTOXAI, B.AXKS.-

14 "{l) D1-;J<'IXl'r1o~s.-For purposes of th.is sec15 tion; the following definitions shall apply: 

16 "(A) D:r;POSITORY IKSTITl~TION, Sl7B17 Hil>I.\RY, .WJ.'IJ,L\TE.-The terms 'depository in18 i-iih1tion', 'f."11bsicliary.,, and 'affiliate' have the 

19 same meanings as iu section 3 of the Federal 

20 Deposit Immrance A.c,1. 

21 "{B) Noxm,:POSITORY lXSTITt:TION.-The 

22 tenn 'nondepository institution' means any enti23 t~• that is not a depository in.~titution. 

24 "(2) I~ GE:--.:.1':RAL.-No provision of this title 

25 shall be c:on.~true<l as annulling, altering, or affecting 

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110 

I the applicabili~· of State law to an~· uoudeposit.01':'· 

2 in.rditution, snbiridiat·y, other affifo1te, or agent of a 

3 national bank.". 

4 SEC. 146. STATE LAW PREEMPTION STANDARDS FOR FED--

5 ERAL SAVINGS ASSOCIATIONS AND SUBSIDI6 ARIES CLARIFJED. 

7 (a} IN GENER.AL.-The Home Owner~,' Loau Act (12 

8 U.S.C. 1461 et seq.) is amended 1>~· inserting after section 

9 5 the following new section: 

10 "SEC. 6. STATE LAW PREEMPTION STANDARDS FOR FED11 ERAL SAVINGS ASSOCIATIONS CLARIFIED. 

12 "(a) DEFINITJON.-For purposes of this section13 "(1) the terms 'includes' and 'including' have 

14 the same meaning as in section 3(t.} of the Fede1-al 

15 Deposit Insurance Aet. 

16 "(2) the term 'State commmer law' mettn.s tmv 

17 law of a State that: 

I 8 "(A) accords right<; to or protect.-.; tl1e 

19 right.,; of it<; citizens in fiuandal transnct.ion.H 

20 concerning negotiation, sales, solicitation, dis21 closure, tenn.c; nurl conditions, ndvice, nnd rem22 edies; or 

23 "(B) prevent.<; count.erparties, ~'llcces.c;ors, 

24 and assigns of financial oontl-uct.c; from engag25 ing in unfair or deceptive acts and practices. 

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111 

l "(b) ST.\TE Co~8DIER LAWS Oli' GE:'l."ER.\.r, APPLl2 l'.\TJO~.-Noh'i.itJu,t.andiug anr otJ1er proric;ion of Federal 

3 law and ext'ept as prmicled in subsection (c), any con4 sumer protection prmision in State cousumer lcl"frn of bren5 eral application, including nuy law relating to unfair or 

6 deceptive act<; or p111.ctice8, an:r con.cromer fraud law and 

7 reposseAAion, foreclosare, and collection law, shall apply to 

8 any Ferle111l saYiut,is association. 

9 "{c) EXCEPTJO~S.-

10 "(1} I~ GE?\J-:RAI •. --Subsection (b) shall not 

11 apply \\-ith respect t.o an~~ State law if12 "(A) the State law discriminates against 

13 Federal &1,n1gs associations; or 

14 "(B) the State consumer law i.c; incon15 i.ihi.ent with prmi<;ion.c:; of Federal law other 

16 t.Jum this Act, hut onJr to· t11e ~-tent of the in17 eonsist.enl:· ( a~ dete1111iued in nccordmIBe with 

18 the prm·ision of the utJ1er Federal lnw). 

19 ''(2) Rru: F'OR DET8R~fJ:N1NU INCO~$IS'f20 8'.\:l'Y.-For pmvoses of paragraph (l)(B), a St.ate 

21 l'Dnh1.nner law is not ineonsistent with Federal law if 

22 the 111-otection the State consumer law affords con23 sumers is greater than the protection prm,jded under 

24 F~era1 la.w, as deteiminerl by the Director. 

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112 

1 "{d) STATE BA:-.lOXG OR TIIRIPT L.\\\"8 EX.\l 'TED 

2 PuRb'L.,\..'\'T TO FEDERAI, L.:\W.-

3 "(l) IN GESER.:\1,.-Noh\i.th.crt.anding any other 

4 p1-o,ision of Federal law and exeept as prmided in 

5 paragraph (2), any State law that6 "(A) i.e. applicable ~ State sirrings as.~ia7 tions (as defined in section 3 of the Ferleral De8 posit Insurance Act); and 

9 "(B) was enacted pur~"t1ant to or in accordIO ance \\-;th, and is not inconsistent with, an' Act 

11 of Congress, including the Gramm-I.iea.ch-Bliley 

12 .Act, the Consumer Credit Protection Act, and 

13 the Real Estate Settlement P1-ocedureR Act, 

14 that explicitly or by implicmtion, perrrriLc; States 

15 to exceed or f.11ppleme11t the requirements of 

16 any comparable Federal law, 

. 17 shall apply to any Federal sm;ng~ as.<.;oeint.ion. 

18 "(2) E..Xt!EPTIOX8.-Pi'\l"il~>111ph (]) shall not 

19 apply with re.<;pect to any Stak lnw if20 "(A) the St.ate lmY dist•1-imi11ate.<. ngninst 

21 Federal savings us.<,;oeintiorn,; or 

22 "(B') the Stnte commmer lnw is incon23 sistent ·with p1-0Yisious of Federal law other 

24 than this Act, but onl)· to the e:\..i.ent of the in25 consistency (as detenuinetl in accordauee with 

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113 

] the prmi.~ion of the other Federal law). For this 

2 pnrpo.~e, a St.ate eonsumer law is not incon3 sv.-tent mth Federal law if the protection the 

4 State eon.cnuner law affords consumers is greats er t!um the protection provided under Federal 

6 Jmr, as determined by the Director. 

7 "(e) No NEOATIVE IMPLICATIONS l<"'OR A.PPLICA8 Bll,ITY rn-· 01'1-u:R STATE J.u\Wt>.-No provi~on of this 

9 section shall be construed as altering or affecting the ap10 plicabilitr, to Federal savings associations, of any State 

11 law which i." not described in this section. 

13 State cou."mner law applicable to n transac..1ion at the in14 ceptiou of tht! transaction may not be preempted under 

15 Fe<lernl law solely hec.ause n Federal savings association 

16 i.·uhsequentJy c1equires the a..__c.;et or instrument that is the 

17 i-mbjeet. of thr tr,mi,a1etion. 

18 "(g) DE:'\L\I. IW PRl·:E!\·IPTIO~ NOT..\ DEPRIVATION 

19 tll-' .\ C1\·11. R1<m-r.-The preemption of any provision of 

20 tbr law of any 8tilt.e "it.h rei--pect to any Federal savings 

21 association f.11all not he treated ac; a right, privilege, or 

22 immunity for pm11oses of section 1979 of the R-evii;ed 

23 St.atute.c. of the Uniterl States (42 U.S.C. 1983).". 

24 (b) CI.BRIC.AL A.,u;~D?i1BXT.-The table of sections 

25 for the Home (hrners' Loan Act (12 U.S.C. 1461 et seq.) 

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114 

1 i.c; amended by stijking the item relating- to ~etiou 6 mid 

2 inserting the following new item: 

w6. State,, !mt- P'""'ll,ptiim .llbtndunb; fnr 1''rtl1'T11l ,;;i,;111!'- """"'-iati11111< 111111 .. -nll!.i1liam darilli!d .... 

3 SEC. 147. VISITORIAL STANDARDS. 

4 Section 6 of the Home Ownel"s' Loun .Act (as added 

5 by section 146 of this title) is amended hy arlcling at the 

6 end the following new E.'11.b~a-t.iom.;: 

7 "{h) VISITORIAL POW"ERS.-

8 "(1) L'I\ GENERAI,.-No proY11;1on of this .Act 

9 shall be con.c;tmed as limiting or resbicting the auIO thority of any attorney general ( or other chief law 

l J enforcem~nt officer) of any State t.o bring any action 

12 in any court of appropriate jmi..dietion13 "(.A) t.o require a Federal sm-in~ as.c:ocia14 tion to produce records 1-elatiw t.o tJ1e iun~~1.iga15 tion of violationi; of State t·onsumer Ian-, or 

16 Federal com,-umer hm-s; 

17 "(B) t.o enforce im~- applil'nhle Ft>tleral or 

18 St.ate law, as authorized hr !•ml'h law; or 

19 "(C) on behalf of resident.._ of r-mch Stat.e, 

20 to enforce an~· applicah]e 11rmisicm of any Fed21 era.l or State la,v aguinst u Federal savings as22 sociation, as a.utb.mi..zed by such law, or to seek 

23 relief and recover damages for such residents 

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115 

I from any ,;o}ation of any such law by any· Fed3 "(2) Coxsn,T.\TIOX.-The attorney general (or 

4 othe1· chief law enforcement offic.er) of any State 

5 shall commit ·with the Director or any successor 

6 agem~· before acting under paragraph ( 1). 

7 "(i) E=--:"l•"()RCEME?-.T AcTio~s.-The ability of the Di8 rector or an~~ i:.ue,-ees.cwr officer or agency to bring an en9 forcement ae,1ion under this Act or section 5 of the Federal 

10 Trade Conunir-;1;ion Act shall not be con.-;trued as pre11 eluding p1n1

ate parties from enforcing right.s granted 

12 under Federal or State law in the court.s. 11 • 

13 SEC. 148. CIA.RIFICATION OF LAW APPLICABLE TO NON14 DEPOSITORY INSTITUTION SUBSIDIARIES. 

I 5 Section 6 of the Home Owners' Loan Act is amended 

16 h~• adding after snh~ection (i) (as added by i::ection 147) 

I 7 the following new !-mhseetion: 

18 "(j) CI ... \Rll-'11'.\TJOX f>I<' LAW Al'Pl,ICABU: TO N0?\-

19 DKPO!-ilTOHY l.~STl1'l:TIOX St'BSII)IAlUES AND .Al"l-'ll,1-

20 ATES ()I,' Fi-:m-:R.Al, Rn·1xc;s AHSOCJATIOXS.-

21 "(1) DJ-:n~rrm~s.-For purposes of this sec22 tion, the follo\\;ug definitions shall apply: 

23 "(A) DEPOSITORY INSTITUTJON, SUB24 SIDIAHY, AJ.'J-'IJ,IATE.-The terms 'depository in-· 

25 stitution', '&-ubsidiary', and 'affiliate' have the 

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llti 

1 sa.me meanings as in sa-tion 3 of the Federal 

2 Deposit Irumrance .A.ct. 

3 "{B) NmmEPOf.iITORY IX~"'l'ITl7TlO~.-The 

4 t,erm 'nondeposit.ory in.c;titntiou• means auy- euti5 ty that is not a depository in.c,-titution. 

6 "(2) IN GENERAL.-No prmisiou of this title 

7 shall be construed a,r.; preempting tlle applicability of 

8 State law to any nondepository iiu;titutiou, f-.•ub9 sidia:ry, other affiliate, or a.gent of u Federal smings 

10 association.". 

11 SEC. 1(9. EFFECTIVE DATE. 

12 This subtitle shall take effect. on the de.t;ignated 

13 transfer date. 

14 Subtitle E-Enforcement Powers 

15 SEC. 151. DEFlNITIONS. 

16 For pUJ1)0ses of this subtitle, the follcmi11g definitions 

17 sbaU apply: 

18 (1) CIYJl, IKVEb"TW.ATI\"H m-::\1 .. \Xn .\~D DE19 MAN'l>.-The terms "t.·fril im·estigafa·e demand" aud 

20 "demand" mean any denumd is.•mecl h.Y the 4reney. 

21 (2) AGEXCY 1:xn;s-rmATIOX.-'l'lie te1111 

22 "Agency investigation" means an~· iuqniry eomluctecl 

23 by an Ae,oency investigator. for the purpose of 

24 ascertaining whether any peroon is or has been en25 gaged in any conduct that violates this title, any 

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:• 

! 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher Dodd 

Chairman 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chainnan: 

September 30, 2009 

Thank you for the opportunity to testify before the Committee at the August 4 

hearing ••strengthening and Streamlining Prudential Bank Supervision." 

Enclosed are my responses to the follow up questions you provided from Senator 

Bunning. If you have further questions or comments, please do not hesitate to contact me 

at (202) 898-6974 or Paul Nash, Deputy for External Affairs, at (202) 898-6962. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions from the Honorable Jim Bunning 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

QI. What is the best way to decrease concentration in the banking industry? Is it 

size limitations, rolling back state pre-emption, higher capital requirements, or 

something else? 

Al. We must find ways to impose greater market discipline on systemically important 

institutions. We believe there are several ways to decrease concentration levels in the 

banking industry without the federal government setting size limits on banks. For 

example, certain requirements, such as higher capital and liquidity levels, could be . 

established to mirror the heightened risk they pose to the financial system. Assessments 

also could be used as incentives to contain growth and complexity, as well as to limit 

concentrations of risk and risk taking. 

However, one of the lessons of the past few years is that regulation alone is not enough to 

control imprudent risk-taking within our dynamic and complex financial system. You 

need robust and credible mechanisms to ensure that market players will actively monitor 

and keep a handle on risk-taking. In short, we need to enforce market discipline for 

systemically important institutions. To end too big to fail, we need an orderly and highly 

credible mechanism that is similar to the process we use to resolve FDIC-insured banks. 

In such a process, losses would be borne by the stockholders and bondholders of a 

holding company, and senior managers would be replaced. There would be an orderly 

resolution of the institution, but no bail-out. Open bank assistance should not be used to 

prop up any individual firm. 

Q2. Treasury has proposed making the new banking regulator a bureau of the 

Treasury Department. Putting aside whether we should merge the current 

regulators, does placing the new regulator in Treasury rather than as a separate 

agency provide enough independence from political influence? 

A2. We believe independence is an essential element of a sound supervisory program. 

Supervisors must have the authority and resources to gather and evaluate sufficient 

information to make sound supervisory decisions without undue pressures from outside 

influences. The FDIC and state banking supervisors, who often provide a different and 

unique perspective on the operations of community banks, have worked cooperatively to 

make sound supervisory decisions without compromising their independence. 

As currently structured, two of the federal banking agencies, the 9ffice of the 

Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are 

bureaus within the U.S. Department of the Treasury. Although subject to general 

Treasury oversight, the OCC and OTS have a considerable amount of autonomy within 

the Treasury with regard to examination and enforcement matters. Unlike Treasury, the 
OCC and OTS are funded by examination and other fees assessed on regulated entities, 

and they have independent litigating authority. The other three federal banking agenciesthe Federal Deposit Insurance Corporation, the Board of Governors of the Federal 

Reserve, and the National Credit Union Association are fully independent agencies, selffunded though assessments or other fees, and have independent litigating authority. To 

the extent the OTS and OCC would be merged into a single regulator under Treasury, 

continued independence could be maintained through non-appropriated funding sources, 

independent litigating authority, and independent decision making authority, such as 

currently afforded to the OCC and OTS. 

Q3. Given the damage caused by widespread use of subprime and non-traditional 

mortgages-particularly low documentation mortgages-it seems that products that 

are harmful to the consumer are also harmful to the banks that sell them. If bank 

regulators do their job and stop banks from selling products that are dangerous to 

the banks themselves, other than to set standards for currently unregulated firms, 

why do we need a separate consumer protection agency? 

A3. As currently proposed, the new Consumer Financial Protection Agency (CFPA) 

would be given sole rulemaking authority for consumer financial protection statutes over 

all providers of consumer credit, including those outside the banking industry. The 

CFPA would set a floor on consumer regulation and guarantee the states' ability to adopt 

and enforce stricter (more protective) laws for institutions of all types, regardless of 

charter. It also is proposed that the CFPA would have conswner protection examination 

and enforcement authority over all providers of consumer credit and other consumer 

products and services-banks and nonbanks. 

Giving the CFPA the regulatory and supervisory authority over nonbanks would fill in 

the existing regulatory and supervisory gaps between nonbanks and insured depository 

institutions and is key to addressing most of the abusive lending practices that occurred 

during the current crisis. In addition, the provision to give the CFPA sole rule-writing 

authority over consumer financial products and services wou]d establish strong, 

consistent consumer protection standards among all providers of financial products and 

services and eliminate potential regulatory arbitrage that exists because of federal 

preemption of certain state laws. 

However, the Treasury proposal could be made even more effective with a few targeted 

changes. As recent experience has shown, conswner protection issues and the safety and 

soundness of insured institutions go hand-in-hand and require a comprehensive, 

coordinated approach for effective examination and supervision. Separating federal 

banking agency examination and supervision (including enforcement) from consumer 

protection examination and supervision could undermine the effectiveness of each with 

the unintended consequence of weakening bank oversight. 

As a federal banking supervisor and the ultimate insurer of $6 trillion in deposits, the 

FDIC has the responsibility and the need to ensure consumer protection and safety and 
soundness are properly integrated. The FDIC and other federal banking agencies should 

retain their authority to examine and supervise insured depository institutions for 

consumer protection standards established by the CFP A. The CFP A should focus its 

examination and enforcement resources on nonbank providers of products and services 

that have not been previously subject to federal examinations and standards. The CFP A 

also should have back-up examination and enforcement authority to address situations 

where it determines the federal banking agency supervision is deficient. 

Q4. Since the two most recent banking meltdowns were caused by mortgage 

lending, do you think it is wise to have a charter focused on mortgage len~ing? In 

other words, why should we have a thrift charter? 

A4. Over several decades financial institutions with thrift charters have provided 

financing for home loans for many Americans. In recent years, federal and state banking 

charters have expanded into more diversified, full service banking operations that include 

commercial and residential mortgage lending. However, it is understandable that the lack 

of diversification and exposure to the housing market could raise concerns about the thrift 

charter. Market forces have reduced the demand for thrift charters. Given the dwindling 

size of the federal thrift industry, it makes sense to consider merging the federal thrift 

charter into a single federal depository institution charter. 

QS. Should banking regulators continue to be funded by fees on the regulated 

firms, or is there a better way? 

AS. We believe the banking industry should pay for its supervision, but the federal bank 

supervision funding process should not disadvantage state-chartered depository 

institutions and the dual banking system. State-chartered banks pay examination fees to 

state banking agencies. The federal banking agencies are self-funded through 

assessments, exam fees, and other sources. This arrangement helps them remain 

independent of the political process and separates them from the federal budget 

appropriations. 

Q6. Why should we have a different regulator for holding companies than for the 

banks themselves? 

A6. We do not believe it is always necessary to have a different regulator for the holding 

company and the bank. Numerous one bank holding companies exist where the bank is 

essentially the only asset owned by the holding company. In these cases, there is no 

reason why bank regulators could not also serve as holding company regulators as it is 

generally more efficient and prudent for one regulator to evaluate both entities. 

In the case of more complex multi-bank holding companies, one can argue it is more 

effective for the primary federal regulators to examine the insured depository institutions 
while the Federal Reserve evaluates the parent (as a source of strength) and the financial 

condition of the non-bank subsidiaries. Yet even for a separate holding company 

regulator, the prudential standards it applies should be at least as strong as the standards 

applied to insured banks. 

Q7. Assuming we keep thrifts and thrift holding companies, should thrift holding 

companies be regulated by the same regulator as bank holding companies? 

A 7. Similar to the answer to Question 6, it may not be necessary for small thrifts that are 

owned by what are essentially shell holding companies to have a separate holding 

company regulator. While one can argue that more complex organizations merit a 

separate holding company regulator, even in this structure we believe prudential 

standards applied to a holding company should be at least as strong as those applied to an 

insured entity. 

Q8. The proposed risk council is separate from the normal safety and soundness 

regulator of banks and other firms. The idea is that the council will set rules that 

the other regulators will enforce. That sounds a lot like the current system we have 

today, where different regulators read and enforce the same rules different ways. 

Under such a council, how would you make sure the rules were being enforced the 

same across the board? 

A8. The proposed risk council would oversee systemic risk issues, develop needed 

prudential policies, and mitigate developing systemic risks. A primary responsibility of 

the council should be to harmonize prudential regulatory standards for financial 

institutions, products, and practices to assure market participants cannot arbitrage 

regulatory standards in ways that pose systemic risk. The council should evaluate 

different capital standards that apply to commercial banks, investment banks, investment 

funds, and others to determine the extent to which these standards circumvent regulatory 

efforts to contain excess leverage in the system. The council should ensure that prompt 

corrective action and capital standards are harmonized across firms. For example, large 

financial holding companies should be subject to tougher prompt corrective action 

standards under U.S. law and be subject to holding company capital requirements that are 

no less stringent than those for insured banks. The council also should undertake the 

harmonization of capital and margin requirements applicable to all OTC derivatives 

activities and facilitate interagency efforts to encourage greater standardization and 

transparency of derivatives activities and the migration of these activities onto exchanges 

or central counterparties. To be successful, the council must have sufficient authority to 

require some uniformity and standardization in those areas where appropriate.