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&PENCER BACHUS. N. RANKING MEMBER 

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FDIC 

July 10, 2008 

Honorable Sheila C. Bair JUL J O 2008" 

Chairman 

Federal Deposit Insurance Corporation 

3501 N. Fairfax Drive 

Arlington. VA 22226 

OFFICE OF LEGISLATIVE AFFAIRS 

The House Financial Services Committee has jurisdiction over the Equal Credit 

Opportunity Act (ECOA) which the Federal Reserve implements tbro-q.gh Regulation B. 

The Committee, therefore, closely monitors the use of Regulation B and its effectiveness 

as a tool to ensure c.ompliancc with fair lending laws. 

The Overnight and lnvestigations (O&I) Subcommittee of the House Financial 

Scnices Committee bas scheduled a hearing on July 17, 2008 at which a United States 

Govemmcrit" Accountability Office (GAO) Report entitled "Fair Lending: Race and 

Gender Data are Limited for Nomnortgage Lending" (GAQ-08-898) will be officially 

released. An advance copy of the report is attached for your review, which I ~Y 

request you not to share because the report is embargoed until. ·the day of the hearing. 

. In preparation fur this hearing, I request that your agency provide written 

responses to the following questions by July 15, 2008 in order that your responses may 

be made part of the hearing record: 

. . (1) Should personal characteristic data be collected on applicants for and 

borrowers ·of nomnortgage credit? 

(2) What types of npmnortgage· loans should be included if personal characteristic 

data is collected ( e.g. small business loans, automobile loans, or other 

catcg~ries)? 

(3) Should the collection of such data be mandatory or voluntary?· 

( 4) Should personal characteristic data be collected by the lenders and publicly 

reported, collected but not publicly reported, or collected but only reported to 

the appropriate federal banking regulator? 

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e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Melvin L. Watt 

Chairman 

Subcommittee on Oversight and Investigations· 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chairman: 

July 16, 2008 

Thank you for the opportupity to respond to the questions you submitted in advance of a 

hearing before the Subcommittee on Oversight and Investigations on July 17, 2008. 

Enclosed is my response to those questions. 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 
Response to questions fro~ the Honorable Melvin L. Watt 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

QI. Should personal characteristic data be collected on applicants for and borrowers of 

nonmortgage credit? 

Al. The FDIC would defer to the Federal Reserve Board regarding the collection of personal 

characteristic data as they have the rulemaking under the Equal Credit Opportunity Act. 

Deciding whether to collect personal characteristic data of nonmortgage loan applicants and 

borrowers presents difficult issues, as articulated in the recent report by the Government 

Accountability Office. On the one hand, such information could be useful for detecting lending 

discrimination. On the other hand, collection of the information could be costly, and 

highlighting an applicants race and ethnicity could have unintended or counterproductive effects. 

Before such collection is undertaken, these difficult issues must be thoroughly considered and 

addressed, for example through notice and comment rulemaking, by the Federal Reserve Board. 

Q2. What types of nonmortgage loans should be included if personal characteristics data 

is collected (e.g. small business loans, automobile Joans, or other categories)? 

A2. Determining whether it is appropriate to collect personal characteristic data for particular 

types of loans requires determining whether the potential value of the data for detecting 

discrimination is outweighed by the potential harm to applicants as described in the response to 

Question 1. 

Q3. Should the collection of such data be mandatory or voluntary? 

A3. If a decision is made to collect personal characteristic data, voluntary collection is 

unlikely to yield meaningful information that would allow the detection or prevention of 

discrimination. Mandatory collection of personal characteristic data, on the other hand, is 

potentially costly to the lender and ultimately the borrower. Reaching a decision on this question 

is illustrative of the types of difficult issues that must be weighed in deciding whether to collect 

such information. 

Q4. Should personal characteristic data be col1ected by the lenders and publicly 

reported, collected but not publicly reported, or collected but only reported to the 

appropriate federal banking regulator? 

A4. If it is determined that collection of personal characteristic should be required, then at a 

minimum it should be collected and maintained by institutions for the use of relevant regulatory 

agencies. While public access to the data yields benefits from broad research and analysis, 

constraints to protect individual applicants' privacy and address institutions' competitive 

concerns would need to be developed and implemented. 
DENNIS A. CARDOZA 1 B'TH DISlRICT, CI.UFOANl.6. 

COMMITT£E ON RULES 

COMMITTl:E ON AGRICULTURE 

CMA-,c.Su•~DN 

Holma.LTUIOE Al«D OolGANIC AGRICU.T'UIIE 

Sheila C. Bair 

Chairman· 

<tongrc.ss of tfJc fflnittb ~tatcs 

1'oust of 3&.tprtstntatibts 

~ington.18«: 2051.5--0518 

July 17, 2008 

Federal Deposit Insurance Corporation 

550 Seventeenth Street, NW, Room 6076 

Washington, D.C. 20429 

Dear Chairman Bair, 

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WASHINGTON OFFICE 

435 c..,,NON Houn Om<:£ llua.o<NG 

W-.m>N. DC 20515 

(2021~31 

DISTRICT OFFICES: 

2222 M s,-,-, ~ 305 

ME11Ca>,CA!IS340 

12D91 383--4l55 

101D 11hN SnEFr, Sum 5800 

Mcxano,CA953!:,4 

121191521-1914 

I am writing to request a meeting with you or someone appropriate from your agency to 

discuss the state of the banking industry in California's 18th congressional district Given 

the recent collapse oflndyMac and the escalating foreclosure crisis, I am concerned 

about the challenges facing financial institutions in California's Central Valley. I would 

like to discuss these issues with you or someone from your office before the financial 

crisis burdening my district's banks and residents worsens. 

The ·f~i~· of fudyM~ last *~k demcms~led th~ widespread and startling vulnerability 

of financial institutions across the countr:yr As the third largest bank failure in U.S. 

history, IndyMac' s collapse also underscores how deep the housing crisis has penetrated 

the overall lending industry. Unfortunately my district consistently ranks among the 

worst hit by the housing crisis. The cities _of Stockton, Modesto, and Merced, in 

particular, have the greatest share of homes in foreclosure in the country. It is precisely 

these exorbitant rates of foreclosure~, combined with shaky i,nvestor confidence, that 

make ~~ ,~~mely .. 1FOubled ,$>ut,~ mumciai stabilitf _p.f. C~~-a~ ~ :Ce1!tral Valley. 

f am parti.cul~~y worried about the future of the community banks in the region. These 

institutions play a central role in neighborhoods across the state, and their collapse would 

be disastrous for my constituents. That j.s why it is important for me to discuss with your 

office the overall financial risks in my district and the process followed by the FDIC in 

the· unfortunate event iμiy b~s in the C~ntral Valley collapse. 

I look forward to your expeqitious response to my m~ting.request. Please do not,, . ·. 

hesitate to c~ntact me ifyou·~v_e'any .qμestion~ in this ~attc;r. · .:· · : . ·,: ..... ~: · · ·- · 

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Federal~ msuran"Con>onltion 

550171h Street NW, Washington, OC 20429 

Honorable Joe Sestak 

Representative, U.S. Congress 

600 North Jackson Street, Suite 203 

Media, Pennsylvania 19063 

Dear Congressman Sestak: 

Office cl legislative Affairs 

July 21, 2008 

Thank you for your Jetter on behalf of your constituent concerning the security measures that 

Wachovia Bank, National Association may have in place to protect customers' accounts. 

Wachovia Bank is regulated by the Office of the Comptroller of the Currency. Consequently, we 

have taken the liberty of forwarding your inquiry to the OCC for consideration. 

The Federal Deposit Insurance Cozporation insures deposits at most of the nation's banks and 

savings associations and promotes the safety and soundness of these institutions by identifying, 

monitoring, and addressing risks to which they arc exposed. The FDIC also is the primary federal 

regulator of state chartered banks that are n~t members of the Federal Reserve System. 

cc: Congressional Liaison 

Office of the Comptroller 

of the Currency 

250 E Street, S.W. 

Washington, D.C. 20219 

Sincerely, 

Lali Crampton 

Congressional Information Specialist 

OfficeofLegislativeAffairs 
CONGRESS OF THE UNITED STATES 

HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515 

(202) 225-2011 

July 1, 2008 

Ms. Alice C. Goodman 

Director, Office of Legislative Affairs 

Federal Deposit Insurance Corporation 

550 Seventeenth Street, NW, Room 6076 

Washington, DC 20429-0002 

Dear Ms. Goodman, 

fflMMmfS• 

ARMED SERVICES 

EDUCATION AND LABOR 

SMALL BU51NESS YaCMAIIMAN 

"-"C!NIDTAX 

ColmlAc11Na AN0 TECHNa.OGY 

Rm\JI.ATION, Hu.I. nt CAiie AND TIWII< 

I am writing in regards to a phone call that I recently received from one 

of my constituents regarding her account with Wachovia. She was curious about 

the security measures in place that protect her account. 

I would appreciate it if you would provide me with whatever information 

you feel may help address my constituent's inquiry. Please address your 

response to my office at 600 North Jackson Street, Suite 203, Media, PA 19063. 

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

from you. 

JS/av 

600 Noimt .IACU0N Snl&T, SUm ZD3 

MDA.PA.19063 

ll'IDll92-ali23 

Sestak 

Member of Congress 

U122 ~ HouSI! Oma BUil.DiNG 

WASH1>1G1'0N, DC 211515 

12021~2011 
: 

-. FEDERAL DEPOSIT INSURANCE CORPORATION, Waahngton, oc 20429 

SHEi~ C. BAIR 

CHAIRMAN 

Honorable Spencer Bachus 

'Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Bachus: 

July 24, 2008 

Thank you for your letter regarding the request by the owners of GMAC Bank to 

waive the two-year disposition agreement related to the Bank. As noted in Your letter. 

the request was pursuant to an· agreement executed in connection with the owners• 2006 

acquisition of GMAC, LLC, and the Bank. At the July FDIC Board of Directors 

meeting. the Board voted to address the request through the execution of an Extended 

Disposition Agreement that will lengthen the disposition period until November 30, 

2018. . 

If you have questions, please contact me at (202) 898-6974 or Eric Spitler, 

Director, Office of Legislative Affilirs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
LA0%-2c/o 

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. July 11, 2008 

The Honorable Sheila Bair 

ChairwolD81lt Federal Deposit Insurance Corporation 

550 17th Str.eet NW 

Washington, DC 20429-0002 

FDIC .,. 

JUL 1 8 2008 

Dear Chairwoman Bair, · OFFICE ·oF LEGISLATIVE AFFAIRS 

I understand the FDIC is currently reviewing the request to waive the two-year 

disposition agreement with respect to the GMAC BanJc. As a Member of the House Financial 

Services Committee, I would like to clarify how pending industrial loan company (ILC) 

legislation would affect this transaction. 

The House on May 21, 2007, overwhelmingly passed H.R,. 698, which would curtail new 

ILC charters held by commercial firms. I was a leader in getting thi~ legislation passed and I 

strongly support its limitation on new ILCs. As part ofth~ legislative process, moreover, the 

House examined the circumstances of existing iLCS and SJ)C(:ifical]y grandfather commercially 

owned ILCs such as the GMAC Banlc to permit them to continue their current operations. 

Indeed, during the debate Cbainnan Frank engaged in a colloquy stating his intent to have the 

bill's grandfather rule override any disposition agreement 

I am aware that the pending Senate Il,C bill, like the House bill, would grandfather the 

existing ownership of the GMAC Bank. In my judgment, if an ll.C bill ultimately enacted it is 

very likely to grandfather institutions like GMAC Bank, and thus the FDIC need not delay 

consideration of the pending application while it awaits Congressional action. 

Thank you for your consideration of my views, an4 please do not hesitate to contact me if 

you have any questions. 

· Spene achus 

• I 

· Member of Congress .. · ·. ·' • !.., • ; , •• • ': .. , - : .:·· _ .. 

' . cc:·· The Hoo.orablcdobii·c. Dugan. ComptrolJcr ofthe cun-£cy . . The Honorable John M. Reich, Director, Office ofThrift sup;,~sion· . . . . . . . ., .. ', . 

·. ·: 
GI) FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEJLA C. BAIR 

CHAIRMAN 

Honorable·Russell D. Feingold 

United States Senator 

Washington, D.C. 20510 

Dear Senator Feingold: 

August 15, 2008 

Thank you for your letter regarding the Buy American Report the Federal Deposit 

Insurance Corporation is required to submit in accordance with Title vm, Subtitle C, 

Section 8306 of the U.S. Troop ~diness, Veterans' Care, Katrina Recovery, and Iraq 

Accountability Appropriations Act of 2007, Public Law 110-28. 

The FD IC has provided the required reports to Congress and copies of these 

reports have been provided to your staff. As you noted in your letter, the new reporting 

requirement requires more specific information than in past years. After reviewing our 

most recent Report, the FDIC has dctcrmined that we should supplement our response to · 

include the specific exceptions required by the statute. I am enclosing a copy of this 

supplemented response for your records. 

If you pave questions, please contact me at (202) 898-697 4 or Eric Spitler, 

Pirector, Office of Legislative Affairs at (202) 89e-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
PLACE OF MANUFACTURE REPORT 

Required by PL.110-28, Section 8306 

1) Dollar value of any articles, materials or supplies purchased that were manufactured 

outside of the United States: $ 934.971.00. 

2) There were no waivers granted with respect to such articles, materials or supplies 

under the Buy American Act (41 U.S.C 10a et seq.). 

3) The articles, materials, or supplies were acquired under a contract subject to the Trade 

Agreements Act of 1979, as amended (TAA)- 19 USCA §2501 et seq., and were 

therefore not subject to the Buy American Act 

4) Summary of the total procurement funds spent on goods manufactured in the United 

States versus funds spent on g~ods manufactured outside of the United States: 

Total Procurement Funds Spend on Goods: $ 2,688,269.69. 

Dollars and Percent Spent on Goods Manufactured in the U.S.: $1,753,298.69. 

(65.2 percent) 

Dollars and Percent Spent on Goods Manufactured Outside of the U.S.: 

$934,971.00. (34.8 percent) 
RUSSELL D. FEINGOLD 

WISCONSIN 

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DEMoalATIC P0lJcy CoMMmeE 

WASHINGTON, DC 20510-4904 

July 29, 2008 

Chairwoman Sheila C. Bair 

Federal Deposit Insurance Corporation 

550 17th Street NW 

Washington, D.C. 20429-9990 

Dear Chairwoman Bair: 

FDIC 

AUG 1 3 2008 

OFFICE OF LEGISLATIVE AFFAIRS 

I write to inquire about the status of the Buy American Report that you were required to 

submit to Congress by March 31, 2008, as required by Title VIII, Subtitle C, Sec. 8306, 

of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accolllltability 

Appropriations Act of2007 (Public Law 110-28). Congress has not, as of yet, received a 

copy of this report In addition, Congress has not yet received reports from the FDIC for 

fiscal years 2004-2007 as required, which I hope you will submit at this time. 

I would appreciate it if you would forward a copy of this report to the Senate Committee 

on Homeland Security and Governmental Affairs and the House Committee on Oversight 

and Government Reform and to me at the earliest possible date. 

In addition, I would like to remind you that the reporting requirement in Public Law 110-

28 extends the Buy American reporting requirement from fiscal year 2007 through fiscal 

year 2011. The new language requires more specific information than in past years. I 

have enclosed a copy of Title VIII, Subtitle C, Sec. 8306 of Public Law 110-28 to assist 

you in preparing the report for the FDIC. If you have questions, please feel free to 

contact Amanda Beaumont in my office at (202) 224-5323. 

Sincerely, 

U.S. Senator 

0 11100 ,._ C01A1DHS 

lloaM 100 Mm1UtoN. WI 53562 

1•1as-1200 

(lilll 112&-1215 (Tt>DJ 

0 5l7EASTWIBC0'0SINAvaNUE 

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MLWAIJICD. WI 5320Z 1414) 271-7212 

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I.A CNlssE, WI 54601 11111111 7112-6516 
PUBLIC LAW 110-28-MAY 25, 2007 121 STAT. 211 

SEC. 8308. REPORTS ON ACQUJSmONB OF All'nCLES, MATERIALS, AND 

SUPPLIES MANUPACI'ORED OUTSIDE THE UNITED 

STATES. 

Section. 2 of the Buy American Act (41 U.S.C. 10a) is amended--

Cl) by striking "'Notwithstanding" and inserting the following: 

"(a) IN GENERAL.-Notwithsta.nding"; and 

(2) by adding at the end the foliowing: 

"(b) REPoRTS.-

"(l) IN GENERAL.-Nat later than 180 days after the end 

of each of fiscal years 2007 through 2011, the head of each 

Federal agency shall submit 'to the Committ.ee on Homeland 

Security and Governmental Affairs of the Senate and the Committ.ee on Oversight and Government Reform of the House 

of Representatives a report on the amount of the acquisitions 

made by the agency in that fiscal year of articles, materials, or supplies purchased from entities that manufacture the articles, materials, or supplies outside oftbe United States. 

"(2) CONTENTS OF REPORT.-The reQort required by paragraph (1) shall separately include, for the fiscal year mvered 

by such report-

"(A) the dollar value of any articles, materials, or supplies that were manufactured outside the Unite<1 States; 

"(B) an itemized list of all waivers Jl"Bllted with respect 

to such articles, materials, or supplies under this Act, 

and a citation to the treaty, international . agreement, or other law under which each waiver was granted; 

"(C) if any articles, materials, or supplies were acquired 

from entities that manufacture articles, materials, or supplies outside the United States, the specific exce:ption under 

this section that was useci to purchase such articles, materials, or supplies; and 

"(D) a summary of-

"(i) the total procurement funds expended on articles, materials, and supplies manufactured inside the 

UmtedStates;and . •(ii) the total procurement funds expended on articles, materials, and supplies manufactured outside the 

United States. · "(3) PuBLic AVAILABILlTY.-The head of each Federal 

agency submitting a i:.eport under paragraph (1) shall make 

the report publicly available to the maximum anent practicable. 

"{4) EicEPl'ION FOR INTELLIGENCE COMMUNITY.-This subsection shall not apply to acquisitions made by an agency, or component thereof, that is an element of the intelligence 

community as specified in, or designated under, section 3(4) 

of the National Security Act of 1947 (50 U.S.C. 401a(4)).". 

TITLE lX-AGRICULTURAL ASSISTANCE 

SEC. 900L CROP DISASrER ASSISTANCE. 

{a) .AssISTANCB AVAILABLE.-There are hereby appropriated to 

the Secretary of Agriculture such sums as are necessary, to remain 

available until expended, to make emergency financial assistance 

available to producers on a ~ that incurred qualifying quantity or quality losses for the 2005, 2006, or 2007 crop, due to damaging 
FDII 

Federal Deposit Insurance Corporation 

Honorable Ben S. Bemanke 

Chairman 

August 27, 2008 

Board of Governors of the Federal Reserve System 

20th Street & Constitution Avenue, N.W. 

Washington, D.C. 20551 

Re: Request for Comments on the Proposed Rule on Unfair or Deceptive Acts or Practices 

under Section 5(a) of the Federal Trade Commission Act (Docket No. R-1314); 1 

,, 

Request for Comment on the Proposed Amendments to the Open-End Credit Provisions 

of Regulation Z (Docket No. R-1286);2 and 

Request for Comment on the Proposed Amendments to the Overdraft Provisions of 

Regulation DD (Docket No. R-1315). 3 

Dear Chaimian Bernanke: 

The Federal Deposit Insurance Corporation (FDIC) is pleased to comment in support of the 

proposals of the Board of Governors of the Federal Reserve System (Board) to address 

problematic practices in consumer credit card lending and overdraft services. 4 The FDIC shares 

the Board's concerns (and those of the National Credit Union Administration and the Office of 

Thrift Supervision) because credit cards have become an important component of everyday life 

for consumers, and the FDIC strongly supports the goal of preventing practices that are unfair or 

deceptive. We appreciate the opportunity to comment in support of the proposals and to offer 

our suggestions for enhancements tha,t we believe would further the Board's goals. 

From both a consumer protection and credit risk supervisory perspective, the FDIC believes it is 

important to address unfair or deceptive credit card and overdraft practices using all available 

tools. Particularly egregious practices warrant enforcement actions; however, taking action on a 

case-by-case basis is a difficult and resource-intensive challenge, and should be supplemented by 

clear minimum standards for consumers and the industry. While providing disclosures to 

consumers is important, credit card practices and disclosures have become more and more 

complex. As the Board's own testing indicates, disclosures are not always enough to protect 

1 73 Fed.~- 28904 (May 19, 2008). 2 73 Fed. &,g. 28866 (May 19, 2008). 3 73 mi~- 28739 (May 19, 2008). 4 Two of the three proposals. which would amend Regulation Zand Regulation DD, respectively, are being 

proposed by the Board under its exclusive rulemaking authority, while the proposed amendments to Regulation AA 

arc being proposed by the Board, with counterpart proposals by the National Credit Union Administration and the 

Office of Thrift Supervision pursuant to their parallel rulemaking authority. 
consumers from abusive practices that may be hard to avoid by even the most informed 

consumer. 5 Therefore, the FDIC believes that the most effective remedy for addressing certain 

unfair or deceptive credit card practices is a broader approach using regulatory standards, as the 

Board is proposing. The promulgation of regulations with targeted measures to restrict certain 

practices will help ensure that all financial institutions operate an a level playing field. 

In particular, the FDIC supports the Board's efforts to set standards that allow consumers a 

reasonable amount of time within which ta make credit card payments, as well as to prolnbit the 

practice of setting a cut-off time earlier than 5:00 p.m. for credit card payments. The FDIC also 

supports permitting financial institutions to apply consumer payments to different credit card 

account balances, using a choice of reasonable methods in a manner that is easier for consumers 

to understand. The FDIC strongly supports prohibiting double-cycle billing. Moreover, we 

think it is appropriate to require issuers to disclose selection criteria used in firm offers of credit 

that advertise a range of credit limits and interest rates. 

With respect to overdraft services, the FDIC supports requiring all institutions to disclose on 

periodic statements the aggregate dollar amounts charged for paid overdraft and returned item 

_fees. Finally, the FDIC supports the proposal to require institutions that provide balance 

information through an automated system to disclose the amount of funds available for the 

consumer's immediate use or withdrawal without including additional funds the institution may 

provide to cover overdrafts. 

Based on our experience, the FDIC proposes enhancements to three areas of the Board's 

proposal: I) subprime credit cards; 2) application of rate increases to credit card balances; and 3) 

overdraft services. 

Background 

Credit cards and overdraft services can be useful tools for consumers when provided responsibly 

and used carefully. Credit cards have given consumers unprecedented access to credit, and are 

widely used by households across all demographic and socioeconomic groups. By recent 

estimates, three-fourths of American households have at least one credit card, and 46% of 

households carry a credit card balance. 6 Revolving consumer credit outstanding, which is 

comprised primarily of credit card debt, continues to grow. Revolving credit outstanding 

climbed to $962 billion in May 2008, a 7% increase from the previous year and a 15% increase 

from May 2006. 7 

Because credit cards are accessible and convenient, many consumers have substituted credit card 

debt for other kinds of consumer debt However, there are concerns that American families are 

growing more reliant on short-term, high-interest credit card debt for financing of daily 

5 See Remarks of Governor Randall S. K.ros2J1cr, Federal ReseTVe Bank of Cleveland Community Development 

Policy Summit (June 11, 2008). · 

'See Federal Reserve 2004 Study of Consumer Finances. 7 See Federal Reserve Statistical Release G.19 Consumer Credit (July 8, 2008). 

2 
necessities. Thirty six percent of credit card users who carry balances owe more than $10,000, 

and 13% maintain balances of more than $25,000.8 

Additionally, a substantial portion of the growth in credit card ownership and usage has been 

achieved by marketing cards to new classes of borrowers who would not have qualified for credit 

in the past. These include low-income borrowers, borrowers with little or no credit history, and: 

borrowers with blemished credit histories who exhibit more than a normal risk ofloss. ~ 

Debt accumulated by lower-income families, who already arc facing challenges making ends 

meet, is of particular concern. These borrowers are most at risk of quickly becoming 

overextended. Nearly 30% of households in the lowest income quintile held credit card debt in 

2004, up from 15% in 1989.~ Almost one-third ofhouseholds in the lowest income quintile 

report that they hardly ever pay their entire balance in full. 10 

Another important change affecting consumers is the growth of automated overdraft services that 

has turned overdraft coverage from an occasional, discretionary accommodation to a widely 

available, automatically provided service used in lieu of other forms of short-term credit by some 

bank customers. 11 Moreover, a recent GAO study found that average overdraft fees have risen to 

$26 per transaction. 12 Given that overdraft fees can be charged on purchases multiple times 

during a month under most deposit account agreements, the costs can quickly add up to a 

significant debt, particularly for lower income customers who tend to have smaller deposit 

account balances. 

Increases in credit card borrowing and high overdraft service charges each can increase 

consumer debt burdens. Excessive consumer debt levels are a concern at any time, but are 

especially worrisome in the current economic environment when rising costs, housing market 

turmoil, job concerns and other negative economic conditions are pushing more consumers, 

particularly lower income consumers, to the limits of their ability to meet their obligations. 

The FDIC supervises state-chartered, non-member banks, and more than 1,000 have credit card 

portfolios. Many also offer automated overdraft services. As a result, the FDIC has a 

heightened interest in ensuring the best practices for credit card transactions and overdraft 

services. Our comments are informed by our examination and supervisory experiences, 

including what we have learned through our consumer complaint process. During the past five 

years, our Consumer Response Center has received thousands of complaints about credit cards 

on a wide range of issues, including the calculation of finance charges and annual percentage 

rates (APR); high or inappropriate fees; failure to credit payments promptly; absent or 

• See Stephanie Jupiter, "Credit Card Debt - What Do Americans Really Owe?" CardTraclc, May 31, 2007. 

http://www.cardtrak.com/press/2007 .05.31. 

'Supra note 6. 

io Id. 11 Overdraft services are offered by many banks as an alternative to traditional lines of credit or linked account 

arrangements, which permit transfers from savings or other accounts to cover deposit acco1mt overdrafts. 12 See Ban'/c Fees: Federal Banking Regulators Could Better Insure That Consumers Have Required Disclosure 

Documents Before Opening Checking or Savings Accounts, GAO Report 08-281, at 13-14 (January 2008). 

3 
inadequate disclosures; lack of advance notices for changes in terms; double-cycle billing; and 

universal default-triggered increases in the APR. We also have received a number of complaints 

regarding overdraft service charges from consumers who were unaware of how quickly these 

fees can add up. 

Recommendations 

Subprime Credit Cards 

Some credit card products, particularly those marketed to subprime borrowers, require high 

opening and other fees but offer little to no credit The FDIC has seen an increase in some credit 

card issuers marketing credit cards with a primary goal of collecting significant fees. For 

example, one business model for these cards bas been to offer·a line of credit that immediately is 

exhausted by a "refundable acceptance fee," along with a monthly participation fee. 13 Before the 

cardholder could use the card for actual purchases, he or she might owe nearly the total amount 

of credit offered in fees and, as a result. would be more likely to exceed bis or her credit limit 

Toe combination of these fees - initial and over limit - charged in consecutive or multiple 

months, particularly iflate fees also are incurred, could cause a consumer to be mired in a cycle 

of debt with virtually no ability to keep pace with the multiple fees charged on a monthly basis. 

Given the nature of these card products, the FDIC recommends several enhancements to the 

Board's UDAP. proposal to further protect consumers and promote transparency. At the outset, 

issuers of liigh fee credit cards should be required to prominently disclose all fees up front as a 

total amount in any solicitation and subsequent disclosures. 14 This is an important step in 

highlighting the impact of the fees on the credit that at-risk consumers are seeking. 

In addition, because the high fees currently charged by some issuers often are deducted from a 

consumer's available credit limit at the outset, it is inherently deceptive to advertise and offer a 

line of credit to which the consumer lacks meaningful access. Since 2004, the FDIC and the 

Board have encouraged institutions to accurately and completely represent the amount of 

"useable credit" a consumer will receive. 15 The FDIC recommends that the Board now require 

that the credit limit advertised and offered by an issuer be the amount available at the outset to 

13 The refundability of such membership fees, which most cardholders cannot pay in full up front, was highly 

conditional under this model. 14 We note with support that the Board already has proposed several changes to Regulation Z, which are aimed at 

improving the disclosures consumers receive for credit cards that impose high fees at account opening. The Board's 

May 2008 proposal would require creditors assessing fees at account opening that comprise 25% or more of the 

minimmn credit limit to provide a notice of the consumer's right to reject the plan after receiving the disclosures if 

the cardholder has not used the account or paid the fee. Currently and under the Board's June 2007 proposal, 

creditors may collect or obtain a promise to·pay a membership fee before required initial disclosures are provided if 

the consumer can reject the plan. The Board's Jlllle 2007 proposal would clarify that assessment of the membership 

fee is not an activity indicating acceptance of the fee. Finally, the Board is proposing an additional model disclosure 

form that would highlight, but would not total, fees and interest charges at account opening. 73 Fed. &ru:. at 28868-

28869; 28894. 15 See, e.g., Unfair or Deceptive Acts or Practices by State-Chanered Banks, FDIC FIL-26-2004 (March l l, 2004). 

4 
the consumer for purchases and cash advances. Fees should not be permitted to be deducted 

from the credit limit. 

The FDIC also is concerned that high fee credit cards often are deceptively marketed to subprime 

borrowers as a way to repair their credit histories by, for example, making regular timely 

payments and not exceeding the credit limit. There is minimal crechble evidence to support this_... 

claim. As the Board notes, high fee credit cardholders often derive little effective benefit from 

use of the cards while incurring the substantial fees that exhaust their credit limit. In addition, 

the consumer's overall debt level increases. Because high fee credit cards can worsen, not 

improve, a consumer's credit history, the FDIC recommends that the Board restrict marketing of 

such credit cards as credit repair products. 

The FDIC also recommends that the Board prohibit issuers from assessing multiple fees based on 

a single event, such as a late payment or a charge that exceeds the credit limit. The piling on or 

pyramiding of late fees already is prohibited for closed-end credit under Regulation AA and we 

believe the same protection should be afforded users of open-end credit. 

An additional issue is the financing of fees on subprime credit cards. While the FDIC supports 

the Board's efforts in the UDAP proposal to limit the harmful impact of subprime credit card 

fees by restricting the financing of high initial security deposits and other fees during the first 12 

months, the FDIC recommends that card issuers be prohibited from financing initial fees, 

security deposits and other costs that exceed 25% of the initial credit limit, rather than 50% as 

proposed by the Board. Significantly restricting the amount of initial fees that can be financed 

on the subprime credit card will force issuers of high fee credit cards to be more transparent in 

their pricing of credit This change is important because some issuers of high fee credit cards 

often claim that significant initial fees are necessary to compensate the issuer for the borrower's 

higher than normal risk. Yet, rather than charging a higher and fully disclosed APR to 

compensate for increased risk, issuers of these cards instead impose fees that significantly 

exhaust the amount ofuseable credit and may not accurately reflect the issuer's actual costs. 

Because most of the targeted cardholders cannot and do not pay the· initial fees in full up front. 

many of these fees arc financed on the credit card, often without the cardholder's full 

understanding of the impact Charging and financing high initial fees can be viewed as deceptive 

because it misleads the cardholder about both the amount of useable credit being offered and its 

true cost Limiting financing of initial fees to 25% will improve transparency in the prjcing of 

credit and better equip the consumer with the necessary information to compare the cost of high 

fee credit cards with any other available options. 

Applying Rate Increases to Credit Card Balances 

Toe FDIC supports the Board's proposed general rule that lenders should not be able to increase 

the APR on existing credit card balances, with limited exceptions. The Board's new rule will 

help protect consumers from unexpected increases in the cost of transactions that already have 

been completed. 

5 
To further protect consumers, the FDIC encourages the Board to consider extending the 

proposed limitations on APR increases to cover future card balances that are incurred through the 

expiration date of the current card issued to cardholders who are meeting their payment 

obligations to an issuer, and are not exceeding the credit limit Today, credit card agreements 

often do not have expiration dates, while the credit cards do. Because credit card agreements are 

open-ended, issuers can change credit card contract terms at any time. Continued use by the ~ 

cardholder typically indicates his or her acceptance of any subsequent change in terms. Thus, 

credit card holders do not have a cleat and regularly timed opportunity to consider changes in 

terms, or shop around for other credit cards with lower tenns. For cardholders meeting their 

obligations on the account. and to give both the issuer and the cardholder an opportunity to 

reevaluate how much the card.bolder will pay for credit going forward, the FDIC recommends 

that the Board consider a provision that would restrict issuers from raising the APR on a 

cardholder in good standing for future balances through the expiration of the current credit 

card. 16 

Overdraft Services 

The FDIC supports the Board's proposal to prohibit banks from assessing fees for overdraft 

services unless the deposit account customer is given notice and the opportunity to opt out It 

also would prohibit using debit holds as a basis for assessing an overdraft fee. The FDIC also 

supports the Board's proposal amendments to Regulation DD that would require all institutions 

that offer overdraft services to provide additional disclosures. 17 

The FDIC recommends that the Board consider the following two additional changes, which 

would make transparent that overdraft services involve the extension of credit, better prevent 

unfarr or deceptive practices, and help consumers av~id overuse of overdraft services, which 

may lead to a cycle of debt 

TILA Coverage: Coverage under the Truth in Lending Act (DLA) would firoperly define 

overdraft services as a form of credit with an accompanying finance charge. 8 This would 

trigger required initial disclosures about the cost of overdraft services, which would better enable 

consumers to compare these costs with the costs of competing forms of credit. 

To date, the Board bas declined to include as a form of credit under TILA automatic advances 

covering overdrafts, and has concluded that the fees associated with paying overdrafts are not a 

16 In establishing limits on changes in credit card agreement terms, S. 3252, the Credit Card Accountability 

Responsibility and Disclosure A.ct of 2008, which was introduced by Sen. Christopher J. Dodd (D-CI), makes a 

similar distinction between the credit card and the governing agreement, and would prohibit unilateral changes in the 

tenns of a credit card contract or agreement unnl the date after the current credit card expires. 17 Supra, note 3. 11 "Credit" under TILA is the "right granted by a creditor to a debtor to defer payment of debt or to incur debt and 

defer its payment" TILA section 103(e), 15 U.S.C. § t602(e). Consumer credit is used primarily for personal, 

fannly or householdpmposes. TILA section 103(h), 15 U.S.C. § t602(h). A "finance charge" is the cost of credit in 

dollars and includes any charge payable directly or indirectly by the consumer, and imposed directly or indirectly by 

the creditor, "as an incident to the extension of crcdit.n TILA section 106(a), 15 U.S.C. § 1605(a). The APR is 

. measured as the cost of credit expressed as a yearly rate. TILA section 107, 15 U.S.C. § l 606; 12 C.F.R. § 226.14. 

6 
finance charge under TILA in the absence of a written agreement between the borrower and the 

institution to pay an overdraft and impose a fee. 19 Historically, overdraft advance charges on 

deposit accounts could easily be distinguished from regular finance charges on credit accounts 

. because, unlike a mutual agreement between a lender and a borrower, the bank unilaterally 

elected to pay the overdraft and impose a fee as an accommodation. 

The overdraft landscape has significantly changed since 1969, when the Board first considered 

whether fees for overdrafts should be covered under TILA. Unlike occasional, discretionary 

overdraft accommodation in the past. today's automated overdraft programs often are marlceted 

and :function as a regularly used, short-term type of credit. While the agreement governing these 

services may retain the bank's discretion to pay an overdraft, overdrafts generally are paid 

automatically and, as a result. the programs are indistinguishable to the consumer from 

competing overdraft lines of credit ·or linked accounts, except for the cost. Chronic use of 

overdraft services is quite expensive and may be inappropriate for many customers who could 

benefit from more affordable, small-dollar credit 

Coverage under TILA is important to properly characterize these products and to inform 

consumers about the costs. When the Board amended Regulation DD in 2005 to provide for 

additiona1 disclosures for promoted overdraft services, it stated that the "adoption of final rules 

under Regulation DD docs not preclude a future determination that Til.A disclosures would also 

benefit consumers. The Board expressly stated in its proposal that further consideration of the 

need for coverage under Regulation Z may be appropriate in the future. "

20 The FDIC believes 

the widespread growth and use of automated overdraft services strengthens the case for the 

Board to bring these products within the coverage of TILA. 

Consumer Consent: The FDIC recognizes, as does the Board, that some benefits may accrue to 

consumers when an occasional overdraft is paid. On the other hand, repeated usage of overdraft 

services can lead to recurring high cost fees, create significant debt problems, and cause 

consumers to fall into a cycle of debt. 

Therefore, the FDIC recommends that banks be permitted to offer automated overdraft services 

to consumers on an opt-out basis up to a limited number, such as five, overdraft transactions per 

consumer per year. Once a consumer reaches this number of automated overdrafts in a given 

year, the bank should be required to inform the consumer about possibly less costly alternatives 

to automatic overdraft programs for which they may qualify, such as linked accounts and 

overdraft lines of credit. Consumers should have the opportunity at that time to affirmatively 

select such alternatives for which they qualify, or to choose to continue to receive automatic 

overdraft coverage. If a consumer docs not select an overdraft service (i.e., opt-in), automatic 

coverage would be discontinued. Consumers are best served by understanding the costs of 

repetitive use of automatic overdrafts and being informed of and having the opportunity to 

choose alternatives to managing their personal finances. 

19 UDAP Proposal, 73 Es!;l. ,Ba. at 28927; Regulation DD Proposal, 73 Fed.~- 28739. 20 70 Fed. Reg. 29582, 29585 (May 24, 2005). 

7 
Conclusion 

The FDIC supports the Board's proposals under its rulernaking authority pursuant to the Federal 

Trade Commission Act as an important means of protecting consumers from abusive credit card 

and overdraft practices. The FDIC also supports the proposed amendments to Regulation Z 

(Truth in Lending). Each of the proposed rules will provide additional protections for consume!B 

and offer banks better guidance on bow to provide these products and services responsibly. 

The FDIC appreciates the opportunity to comment on this proposed rulemaking. We commend 

the Board and the other agencies for your leadership in moving to protect consumers and 

promote the informed, prudent use of these credit products and services. 

cc: Jennifer J. Johnson, Secretary, 

Sincerely, 

Martin J. Gruenberg 

Vice Chairman 

Board of Governors of the Federal Reserve System 

Mary F. Rupp, Secretary, National Credit Union Administration 

John E. Bowman, Chief Counsel, Office of Thrift Supervisio_n 

8 
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~-
Tha Honorable Sheila C. Bair 

Chairman 

1inittd ,StDta iiUu.ar of 'Rtprr.amtatiora 

©nnmitttt on ,:financial :Oeroicm 

2129 l\apban ~,uic f>uru j!hr(fbfn11 

~.D~2om 

SCJptember 12, 2008 

Federal Deposit !nsurance Corpotation 

650 17u. Street, NW 

Washington, DC 20429 

Dear Chairman Bair: 

SP&ICER BACKUS, Al. lW«ING MEMBER 

FDIC 

BEP i 2 r.:~ 

OFFICE OF , ~l'":I"! .... , ·-;:-/, . 

· ---~···.: rFf.lRS 

The Committee on Financial Services will hold a hearing entitled °The Implementation 

of the HOPE for Homeowners Program and a Review of Foreclosure Mitigation Efforb" at 10 

a.m. on Wednesday, September 17, 2008, in room 2128 Rayborn House Office Bmlding. I am 

writing to confirm your invitation. to testify at this hearing. 

This hearing will review ex:periencea to date with foreclosnre mitigation and 

preparationa to use the HOPE Progrmn. on Oct.ober L Your testimony should addreS11 the 

following~ issues or questions: 

• The atate of the U.S. housing market; . 

• Success oflo1m serviceTS at malci:ng mellJlingful loan modifications sufficient to avoid 

foreclosures; · 

• FD1C's experience aa servicer for IndyMac's loan portfolio and your expectations for 

using the HOPE for Homeowners Program on October 1; and 

• Any additional views you may have on HOPE for Homeowners Program. 

For the second panel, we ask that the oversight board's testimony address the following 

specific issues or questions: 

• What yolll' company is doing to prepare for the HOPE program? 

• What progress baa been made? 

• Do you anticipate using the program? 

• Please deamoe with specificity what loan modifications you are doing. Are you making 

principal reductions? Do J'OU anticipata making the reductions necessary for t'he HOPE 

Program? 

• What, if anyt.bing, do you believe is preventing more meaningful modifications? 

Please l'8ad the following material carefully. It ia intended as a guide t.o your righb and 

obligations u a wiimu under the rules of the Committee on Financ:ial Services. 

The Form of ,OU,- Tutimony. Under rule 8(d)(2) of the Rules of the Committee on 

Financial Services, each 'Witness who is to testify before the Committee or its subcommittees 

must file with the Clerk of tbs Committee a written statement of proposed testimony of any 

reasonable length. Please alao include with the testimony a corren.t resume summa:,;mng 

ed.aca.fion, experience and affiliations pertinent to·the subject matter oft.be hearing. This m12St 

be filed at least two business days before your appearance. Please note that changes to tlie 

written statement will not be permitted after the hearing begins. Fail;are to com.ply with this 
The Honorable Sheila C. Bair 

Pa~e2 

requiremBnt may reault in the exclusion of YfJU! written teatimony from the hearing record. 

Your oral testimony should not exceed five minut.es and. shoald summariza your written 

remarks. The Chair reserves tbs right to exclude from tbs printed hearing record any 

supplemental materials aubmitted with a written statement due t.o space limitations or 

printing expense. . 

Sulmd.srion. of~ Testtmon.,,. Pleue submit at least 100 copies of your proposed 

written stat.ement t.o the Clerk of the Committee not leaa than two business daya in advance of 

yoar appearance. 'J;.'heae copies should be delivered to: Clerk, Committee on Financ:iaJ Services, 

2129 Rayburn House Office Building, Wuhington, D.C. 20615. 

Due to beighumed aecw:ity restrictions, many common fonna of delivery experience 

aignilicant delaya in delivery to the Committ.ee. 'llrls inclades packages sent via the U.S. 

Postal Service, Federal Express, UPS, and other ,rimilar carriers, whlch typically arrive 3 t.o 

6 days later than normal. The United Stat.es Capit.al Police have specffical)y requested that 

the Committee refuse deliveries by comier. The best method for delivery of yoDr testimony 

is t.o have an employee from your organization deliver your testimony in an unsealed 

paclcaga to the address above. If you are unable to comply with this procedure, please 

contact the Committee to diaCDBa alternative methods for delivery of your testimony. 

The R:alaa of th.a Committee require, to the extent practicabls, that you also 111bmit 

your written tastimony in electronic form. The preferred method of mmnjsidon of tmJtjmpny 

in electronic fotm is to emd it yia electronic mm1 to ucwt:imppy@mgO.hopss.goy. The 

electromc copy of your testimony may be in ,my major file format, mclacling WordPerfect, 

Microaoft Word. or ASCII taxt for either W'mdowa or Macintosh. YO'llr electronic mail 

mesaaga should specify in the sw,ject lina the date and the Committee or subcommittee 

before which you_ara scheduled to testify. You may also submit testimony in electronic ibrm 

on _a dialc or CD-ROM- at tJia time of delivery of the copies of your written testimony. 

Submission of testimony in electronic form facilitates the production of the printed hearing 

record and posting of your testimony on the Committee's Intemat site. 

Your Rights en a Wilnen. Under clause 2(k) of role XI of the Roles of the House,· 

witnesses at bearings may be accompanied by their own counsel to advise them concerning 

their constitutional rights. I reserve the right to place any witness nnder oath. Finally, a 

witneaa may obtain a transcripJ copy of his testimony given in open. public session, or in a 

closed aesaion only when authorized by the Committee or subcommittee. However, by 

appearing before the Committee or ita subcommittees, you authorize the Committee to· 

make technfoal, grammatical, and typographical corrections to the triμiacr:ipt in accordance 

with the rules of the Committee and the House. 

The Rule1 of the Committee on Financial Services, and the applicable rules of the 

House, are available on the Committee's website at bttp;//fi:n,m,μaJservices.hDUBe.gov. 

Copies can also be sent to you upon request. 

The Committee on Financial Services endeavors t.o make ita facilities acceB111'ble to 

persona with disabilities •. If you are in need of special accommodations, or have any 

questions regarding special accommodations generally, please contact the Committee in 

advance of the scheduled svent (4 business days notice is requested) at {202) 226-4247; 

TIT: 202-226-1691; or writs to the Committee at the address above. · 
The Honorable Sheila C. Bair 

Page3 

Pleaas ~ota that space in the Committee's hearing room is extrem.aly limited. 

'Iherefore, the Committee will only reserve 1 seat for sta:fl' accompanying you during your 

appaara.nce. In order to maintain our obligation under the Rules of th.a House to ensure 

that Committee hearings are open t.o the public, we cannot deviate from this policy._ 

Should you or your staff have any questiona•or need additional information, please 

contact Rick Delfin at (.202) 225-4.247. 

BF/rd 

cc: The Honorable Spencer Bachus 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Nancy E. Boyda 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Boyda: 

September 24, 2008 

Thank you for your letter and your kind words. The closing of a financial 

institution is unfortunate, and we regret any inconvenience or hardship that any 

customers have experienced as a result of the bank's failure. Enclosed arc responses to 

the questions you posed regarding the former Columbian Bank and Trust. We appreciate 

the opportunity to provide some clarification regarding the bank resolution process. 

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 Nancy E. Boyda 

Q1: In every bank failure this year in which the FDIC bas made a dividend 

payment, the initial payment has been fifty percent or more. In addition to the two 

cases noted above where large dividends were paid within two weeks, the FDIC paid,., 

a 59.5% dividend on the uninsured deposits of Hume Bank almost four months " 

after the bank failed. Is the FDIC pursuing a policy of not paying dividends on 

uninS11red deposit claims until it can pay a dividend of at least 50 percent? If so, 

what is the justification for not paying smaller, earlier initial dividends? 

Al: The Federal Deposit Insurance Act outlines the priorities for paying claimants of the 

receivership of a failed insured institution. As the receiver liquidates assets in a 

receivership, it distributes the proceeds in the form of dividends paid to claimants in 

order of their priority. After first paying the secured and preferred claimants, the FDIC 

sets aside funds to cover the administrative expenses of running the receivership. As the 

insurer.of deposits, the FDIC represents the largest and senior most claimant of the 

receivership. Uninsured depositors share pro rata with the FDIC in its claim on th~ 

receivership. The amount and timing of dividend payments depend on the speed with 

which the assets are liquidated. 

Occasionally, the FDIC pays an immediate dividend to the uninsured depositors within a 

day or two of the failure, based on a number of factors that include the availability of 

liquid assets in the receivership, the amount of uninsured deposits, and economic 

conditions at the time of failure. If an immediate dividend is paid, the uninsured 

depositors do not get another dividend Wltil the FDIC recoups a pro rata amount from the 

receivership. As an example, if the FDIC pays a 30 percent immediate dividend to 

uninsured depositors at the time of failure, another dividend will not be paid until the 

FDIC recoups its own 30 percent dividend on its claim with the receivership estate. 

The initial dividend paid by the receiver may be large, as some failed banks have 

marketab]c assets that can be sold at the time of failure. Receiverships typically declare 

dividends when cash available for distribution exceeds the greater of $500,000 or 2 

percent of proven claims. 

Columbian Bank was closed quickly due to its inability to maintain sufficient liquidity 

necessary to operate and because of concerns about its solvency. Columbian's largest 

depositor was quickly withdrawing funds and the Kansas State Banking Commissioner 

and the FDIC were concerned that the bank would not be able to meet the ordinary 

withdrawals of its depositors. As a result, the bank was closed by the Commissioner and 

the FDIC was appointed receiver. Because of the rapidity of this closing, neither the 

FDIC nor prospective bidders were able to conduct due diligence on Columbian 's asset 

portfolio. As a result, the cost of the failμrc and the related lo~s that the uninsured might 

bear and the amount of premium that a bidder would. need to offer to cover that loss was 
unknown. Therefore, the bidders did not have the opportunity to bid on a transaction for 

all of the institution's deposits. 

As failed bank assets are sold, dividends are paid from the failed bank receivership both 

to the uninsured depositors and to the FDIC on a pro rata basis. It is to the FDIC's best 

interest that these dividends are paid quickly to tininsurcd deposjtors and the FDIC as 

they arc used to replenish the Deposit Insurance Fund. 

At First Priority Bank, located in Bradenton, Florida, enough assets were sold at closing 

and the amount of uninsured deposits was so small that the receiver could quickly pay a 

dividend. At Hmne Bmk, no dividend was paid at resolution, but some assets were sold 

to the acquiring bank and enough additional asset sales soon followed to allow the 

receiver to pay a dividend of over 50 percent both fo the uninsured depositors four 

months after the bank's closure. At IndyMac Bank, F.S.B., located in Pasadena, 

California, the receiver paid an advance dividend due to IndyMac's size, operational 

issues, and the FDIC's objective to facilitate a least costly resolution through preserving 

the bank's franchise value in conservatorship. 

.-.-

Prior to the failure of the bank, Columbian Bank had arranged for surety bonds and other 

financial instruments to cover as much as $41 million of the uninsured deposits. This is a 

very unusual situation for a failing bank. It did, however, quickly get a significant 

amount of money back into the hands of participating uninsured depositors and fully 

covered the amount of uninsured funds for many Columbian depositors. 

Q2: The FDIC announced on August 22 that Citizens Bank had purchased $85.5 

million in assets from Columbian. This transaction liquidated over ten percent of 

Columbian's assets. How much of Columbian's asset base has been liquidated to 

date? What has the FDIC done with these fundsr What portion of the assets needs 

to be liquidated before the FDIC anticipates paying a dividend to the uninsured 

depositors? 

A2: The $85.5 million figure was a pre-failure estimate based on Columbian Bank's 

balance sheet as of June 30, 2008. The actual assets that conveyed to Citizens at closing 

were $56.4 milJion. The types of assets that conveyed were in conjunction with the 

transfer of insured deposits and included liquid assets such as cash (e.g. vault cash) and 

cash equivalents. The FDIC did not receive a distribution as part of this transaction. As 

mentioned in the response above, the priority of claims in a receivership requires that 

FDIC first pay secured collateralized claimants, and then the operational expenses of the 

receiver, before d.istn'buting dividends to the uninsured depositors and the FDIC on a pro 

rata basis. 

The FDIC, as receiver, is currently valuing the remaining assets of Columbian Bank and 

preparing them for sale. Approximately $280 million of the bank's assets will soon be 

offered for sale. The receiver's objective is to market 80 percent of Columbian 's assets 
within 90 days of its failure. Proceeds from those sales will be available to pay dividends 

to uninsured depositors and to the FDIC Deposit Insurance Fund. 

QJ: In its position as receiver for at least nine banks, the FDIC must have 

considerable knowledee of the market for distressed bank assets. What can the 

FDIC share about that market that would give uninsured depositors a sense of how ,. 

soon and bow much they might recover in dividends? -

AJ: The FDIC is working aggressively to market and sell the assets of Columbian Bank 

as soon as possible to get dividends into the hands of the uninsured depositors and 

replenish the Deposit Insurance Fund. Market conditions have deteriorated and the value 

of many types of assets is uncertain. Further, as the market downturn continues and more 

assets become available for sale, values decline because of uncertainty and the investor's 

inability to accurately value assets. Nevertheless, the FDIC operates under a statutory 

mandate to maximize its recoveries. 

Q4: The FDIC provides an estimate of the loss to the deposit insurance fund for 

almost every bank.failure. For failures that aren't resolved by a whol~bank 

acquisition, this calculation must be based upon the FDIC,s estimates of what the 

asset portfolio can be sold for. Isn't it possible to use that same calculation to 

estimate the amount that can be returned to the uninsured depositors? 

A4: lfthc FDIC does not have time to conduct due diligence on an institution's asset 

portfolio prior to failure, the initial loss estimate is based on an internal FDIC model that 

relies on historical loss rates. As more information on asset values becomes available 

post failure, and as the assets are marketed and sold, that figure is updated The final loss 

on a receivership does not necessarily match the initial estimate, as it may take three 

years or more to fully liquidate a receivership and settle all of the claims, including 

lawsuits and claims brought against management and directors. 

QS: In the two cases this year where the FDIC paid out advance dividends of fifty 

percent or more within two weeks of failure (First Priority and indyMac), the losses 

to the FDIC deposit in~urance fund were estimated ilt 27.8% and 12.5- 25% of the 

banks' assets respectively. In the case of Columbian, the losses were estimated at 

Just 8.0% of the bank's assets. Does the smaller loss ratio on the assets indicate that 

the eventual recovery for the uninsured depositors will be more than fifty percent? 

AS: The 8 percent loss estimate is derived from an FDIC model based on historical ·data 

for failed banks similar to Columbian, not from a review of Columbian's asset portfolios. 

The historic recovery for all recent bank failures has averaged approximately 75 percent 

Some bank failures have smaller losses and others, typically those involving fraud, incur 

much greater loss rates. The assets of Columbian Bank are currently being valued and 

marketed for sale. 
Q6: The FDIC is rightly pressuring banks to shore up their capital ratios, and this 

often means shrinking their balance sheets. Obviously, this makes it more difficult 

to sell the assets of a failed bank piecemeal. Yet news reports indicate that the FDIC 

did not solicit any bids for the· purchase of Columbian in its entirety. Does the FDIC 

take market conditions into account when evaluating whether it is less costly to sell _ 

· off the whole bank or to break off the insured deposits and conduct asset sales over -· 

the following months? Did the FDIC solicit bids for a whole-bank purchase of 

Columbian? Did it receive any bids? What loss to the deposit fund did the FDIC 

estimate for whole-bank bids? 

A6: Given sufficient time, the FDIC offers a whole bank option in all resolutions. In 

order to offer ari institution on a whole bank basis, the FDIC and potential acquiring 

institutions require time to conduct due diligence and value assets. As explained above, 

in the case of Columbian Bank, there was insufficient time for this resolution option. 

Even when a whole bank option is marketed, we do not always receive bids to acquire the 

whole bank. 

Q7: After FDIC took over IndyMac, the FDIC announced a plan to renegotiate 

IndyMac mortgages in order to help the borrowers stay in their homes. When 

Columbian failed, some small businesses lost all b,at $100,000 of their working 

capital and were forced to lay off workers because the businesses were unable to 

make payroJL Why was the FDIC willing to take losses to help California 

homeowners but not to help Kansas businesses? 

A7: The program announced by the FDIC to modify troubled Joans at IndyMac Federal 

is designed to reduce the loss the FDIC would otherwise incur from the sale ofloans in 

default. Our experience has been that turning troubled Joans into performing Joans 

enhances ovei-a.11 value. 1n recent years, we have seen troubled loan portfolios yield about 

32 percent of book value compared to our sales of performing loans, which have yielded 

over 87 percent. Where it will improve the value of the loan, IndyMac Federal is offering 

Joan modifications to eligible borrowers. Covering all deposits in the case of Columbian· 

would have increased the FDIC's loss and would not have met our statutory obligation to 

select the least costly resolution of the failed bank. ,. 

Q8: Many small businesses have working capital of $100,000 or more. What advice 

does the FDIC have for small businesses trying to protect themselves from bank 

failures? Spreading accounts across multiple banks is very intensive. Sweep 

accounts take the money out of the community and away from FDIC's guarantee. 

In times of financial turmoil like these, is there any way for responsible, communityminded small business ownen to keep their money at work in deposit accounts at 

local banks? 
AB: Many banks offer cash management services to the commercial business customers 

to stay within the deposit insurance limits. These services either transfer money into the 

account to cover checks when presented, or they sweep out the funds that are above the 

deposit insurance limit. The failure of Co]umbian Bank was very unique in that the bank 

had arranged for nearly $41 million in financial instruments to help cover the uninsured 

deposits for many of its business customers. 

Q9: The financial obligations of a business often cluster near the end of the month. 

In order to make payment, checking account balances may temporarily swell over 

$100,000. What precautions can the FDIC take to make sure that a bank failure 

near month's end doesn't punish prudently-run small businesses that exceed 

insurance limits for only a day or two? 

A9: Again. many banks offer .cash management services to the commercial business 

customers to stay within the deposit insurance limits. While the bank's primary regulator 

detennines what day a bank will fail based on the bank's financial condition, it usually 

occurs on or near the end of a week so that FDIC can complete an orderly transaction or 

transition over the weekend-while in most cases also giving depositors access to their 

insured funds over the weekend or at the opening of business on the follo9:'lllg Monday. 

QlO: Does the FDIC recommend any special precautions for individuals to take 

during the purchase or sale of a home in order to remain protected by insurance? 

Does the FDIC conduct any outreach to realtors or the general public to help make 

these recommendations known? 

AlO: The FDIC has a significant outreach effort regarding FDIC deposit insurance. This 

year, for example. in connection with the observation of the FDIC's 75th anniversary, the 

FDIC conducted a major advertising campaign that has encompassed print ads about 

federal deposit insurance limits in national newspapers and magazines, public service 

announcements about FDIC deposit insurance and its limits for television, radio, and 

print media, a national seminar series to train bank personne] on the FDIC's insurance 

coverage rules, and distribution of FDIC literature and videos for bank lobbies and 

offices regarding how deposit insurance works. In addition, the FDIC recently upgraded 

its Electronic Deposit Insurance Estimator (EDIE), which allows bankers and depositors 

to calculate insurance coverage for groups of deposit accounts. This information is 

available on the FDIC's website at http://www.myfdicinsurance.gov. The FDIC a]so 

operates a toll free customer assistance line (1-~77-275-3342) for anyone to call with 

questions about deposit insurance. 
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@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN September 25, 2008 

Honorable Hillary Rodham Clinton 

United States Senate 

Washington, D.C. 20510 

Dear Senator Clinton: 

.•· ~-

Thank you for copying me on your letter to Chairman Bemanke expressing your 

concerns about reports of members of the Armed Services being subjected to foreclosure 

proceedings that may be in violation of the Servicemembers Civil ReHef Act (SCRA). I 

wanted to assure you that the Federal Deposit Insurance Corporation shares your concern 

for strong enforcement of the SCRA and protection of our service members. 

The SCRA provides a number of protections to service members and their 

dependents. If service members own property purchased before they entered on active 

duty, mortgage lenders may not foreclose on it while a service member is on active duty, 

or within 90 days after military service, without court approval. As you are aware, this 

90-day time period was recently extended to rune months by Title 11 of the.Housing and 

Economic Recovery Act of 2008 (HERA). 

In April 2007, the FDIC, along with the other federal financial institution 

regulatory agencies, issued the enclosed interagency statement, "Statement on Working 

with Mortgage Borrowers," encouraging lenders to restructure mortgage loans to assist 

troubled borrowers. In that statement, the agencies specifically advised ]enders of the 

foreclosure provisions of the SCRA. Moreover, the agencies stated that "[w]hi]e the 

SCRA requirements apply only to obligations that were originated prior to the member's 

military service, the agencies encourage institutions to work with service members and 

their families who are unable to meet any of their contractual obligations." 

. . 

Because of the FDIC's commitment to enforcing laws that protect service 

members and their families, we have adopted examination procedures that specifically 

address the SCRA and apply to FDIC supervised financial institutions. When FDIC 

examiners conduct consumer compliance examinations of FDIC supervised banks, they 

review for compliance with requirements that institutions provide service personnel with 

notice about their rights. Specifically, to educate service personnel about the law, 

Congress included in the National Defense Authorization Act for Fiscal Year 2006 (2006 

Defense Authorization) an amendment to the content of homeownership counseling 

notices required by the Housing and Urban Development Act The 2006 Defense 

Authorization directed the Department of Housing and Urban Development {HUD) ·to 
develop a revised notice in consultation with the Departments of Defense and Treasury 

advising service members of the SCRA's foreclosure protections and providing a 

telephone number for service members or their families to call for further assistance. The 

notice took effect June 5, 2006. 1 • 

The FDIC is committed to ensuring that the institutions we supervise comply with 

all consumer protection laws; service personnel and their families should not be subj cct _. 

to foreclosure proceedings in violation of the law. The FDIC examines for compliance " 

with the SCRA and will take appropriate supervisory action to ensure adherence to. its 

requirements, 

Thank you for the opportunity to respond to your concerns. 

Sincerely, 

Sheila C. Bair 

1 U.S. Department of Housing and Urban Development, Mortgage and Foreclosure Rights of 

Scrviccmcmbc:rs under the Servicemembcn Civil Relief Act (SCRA), Mortgagee Letter 2006-28 

(November 20, 2006) (http://www.hud.gov/offices/adm'budclips/letters/mortgagee/files/06-28ML.doc). 
FDIC: Press Releases - PR-32-2007 4/17/2007 

t:!l2!Dll > News & Events > Press Ralaasas 

Press Releases 

Statement on Working with Mortgage Borrowers 

The federal financial institutions regulatory agencies! encourage financial instiMions to work 

constructively witn residential borrowers who are financially unable to make their contractual payment 

obligations on their home loans. Prudent workout arrangements that are consistent with safe and sound 

lending practices are generally in the long-term best interest of both the financial institution and the 

borrower. 

Many residential borrowers may face significant payment increases when their adjustable rate mortgage 

(ARM) loans reset in the coming months. These borrowers may not have sufficient financial capacity to 

service a higher debt load, especially if they were qualified based on a low introductory payment The 

agencies have long encouraged borrowers who are unable to meet their contractual obligations to 

contact their lender or servicer to discuss possible payment alternatives at the earliest indication of such 

problems. 

The agencies encourage financial institutions to consider prudent workout arrangements that increase 

the potential for financially stressed residential borrowers to keep their hom~s. However, there may be 

instances when workout arrangements are not economically feasible or appropriate. 

Financial institutions should follow prudent underwriting practices in determining whether to consider a 

workout arrangement Such arrangements can vary widely based on the borrowets financial capacity. 

For example, an institution might consider modifying loan terms, including converting loans with variable 

rates Into fixed-rate products to provide financially stressed bonowers with predictable payment 

requirements. 

Toe agencies will continue to examine and supervise financial institutions according to existing 

standards. The agencies will not penartze financial institutions that pursue reasonable workout 

arrangements with borrowers who have encountered financial problems. Further, existing supervisory 

guidance and applicable accounting standards do not require institutions to immediately foreclose on 

the collateral underlying a loan when the bo.rrower exhibits repayment difficulties. Institutions should · 

identify and report credit risk, mi.iintain an adequate allowance for loan losses, and recognize credit 

losses in a timely manner. 

Financial institutions may receive favorable Community Reinvestment Act (CRA) consideration for 

programs that transition low and moderate income borrowers from higher cost loans to lower cost loans, 

provided the loans are made in a safe a·nd sound rnanner.Z Financial institutions, working alone or in 

· conjunction with reputable organizations such as the Center for Foreclosure Solutions sponsored by 

NeighborWorks, can assist borrowers in avoiding foreclosure through credit counseling.3 Such programs 

also help financially stressed borrowers avoid predatory foreclosure rescue scams. 

Under the Homeownership Counseling Aa., financial institutions should inform certain borrowers who 

are delinquent on their mortgage loans (home loans secured by a single family dwelling that is the 

borrower's prtncipal residence) about the availabiHty of homeownership counsefing. The Department of 

Housing and Urban Development (HUD) maintains a list of approved counselors.i 

• If a service member defaults on a mortgage, the Servicemembers Civil Relief Act (SCRA) prohibits the 

sale, foreclosure, or seizure of service member property secured by the mortgage during the period of 

military service, or within 90 days thereafter. Institutions ljlre required to notify service members of their 

rights under the SCRA.~ While the.SCRA requirements apply only to obligations that were originated 

prior to the service member's mHitary service, the agencies encourage institutions to work with service 

http-J/www .fdic.gov/news/news/pressfl007 /pr07032a.html 

Page 1 of2 

9/11/2008 
FDIC: Press Releases - PR-32-2007 4/17/2007 

members and their families who are unable to meet any of their contractual mortgage obfigations. 

1 The federal financial institutions regulatory agencies consist of the Board of Governors of the Federal 

Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, 

the Office of the Comptroffer of the Currency, and the Office of Thrift Supervision (collectively, the 

agencies). 

2 Consideration as a CRA flexible lending practice may be granted in instances where such action helps! 

to meet the credit needs of low- and moderate-income incfividuals or geographies within the institution's 

assessment area, and is consistent with safe and sound lending practices. Also see Q&A § _.22{a)- 1 

(2001 lnteragency Questions and Answers Regarding Community Reinvestment). Federal credit unions 

are not subject to CRA requirements. 

3 Consideration as a CRA community development service may be granted in instances where such 

activities help to meet the credit needs of low- and mode~te-income individuals or geographies within 

the institution's assessment area. Also see Q&A § _.120)- 3 (2001 lnteragency Questions and 

Answers Regarding Community Reinvestment). Federal credit unions are not subject to CRA 

requirements. 

4 Information on HUD's counseling services is available at 

http://www.ht.id.gov/gffi~s/hsg/sfh/hcc/hcs.cfm or (BOO) 569-4287. 

5 HUD's service member notice is available at 

http://www.hud.gov/offices/adm/hudclips/forms/files/92..Q7~ - 27k (PDF Help). 

Lui Updalad 4117/2007 CDCDrounicaHonsQtiic gpv 

Home Contact Us ~earch Help SitaMap Forms 

Freedom of lnformatiqn Act CFOIA) Service Center Website Policies !JSA.goy 

FDIC Office of ID~Qf. Cieneral 

http:/ /www.fdic.gov/news/news/press/2007 /pr07032a.btml 

Page2 of2 

9/11/200"8 
HILLARY RODHAM CUNTON 

SENATOR -~ IIUSSEL ssu.n OFRC£ IIULmlG 

SUT!OI 

WASMNGTilN, DC -•o-i»e 

--· tlnittd ~tatts ~rnatt 

The Honorable Ben S. Bemankc 

Chairman 

Federal Reserve Board 

WASHINGTON, DC 20510-3204 

August 20, 2008 

20th Street and Constitution Avenues, NW 

Washin~n, D.C. 20551 

Dear Chainnan Bemanke: 

COMMITTEES: 

HEAl.llf.l!DI.C\TJON. ~-l'l.a.lC- --L.UIIII.AN>- 5PKIALIXMIIIT1!£ 011 AGINII 

FDIC 

AUG 2 6 ·ID08 

OFFICE OF LEGISLATIVE AFFI. 

I am troubled by recent reports of members of our Armed Forces subjected to foreclosure 

proceedings that may be in violation of the Servicemembers Civil Relief Act (SCRA). As you 

know, the SCRA provides protections for servicemembers in the event that their military service 

impedes their ability to meet financial obligations incurred before entry into active military 

service. Included in those protections arc rules that prevent banks or other lenders from entering 

into foreclosure proceedings in certain circumstances against active duty service members. 

Recent news reports indicate that some servicemembers have returned home from duty 

only to find a foreclosure notice waiting for them, an apparent violation of the SCRA. As a 

result, many arc forced into costly litigation to contest the foreclosures while others are 

distracted from their duty while their families are left to fight with their lenders, I am 

particularly concerned that many lenders may not even be famiJiar with their obligations under 

the SCRA which is troubling at a time when we are in the midst of a housing crisis that has 

resulted in a record number of foreclosure proceedings and we have· more than 200,000 

scrviccmcmbers that are directly supporting our combat operations overseas. Indeed, according 

to one recent news report, the main tJ;ade association for banks indicated that the banks 

themselves "may be a little rusty and have to go back and check on the provisions". It is 

unconscionable that servicemen and women who have risked their lives to defend their cotmtry 

are returning home to foreclosure notices or costly and time conswning litigation brought by 

lenders who are either unaware of, or ignore the rules of the SCRA. 

In light of these developm~ts, I believe it is imperative that all of the Federal banking 

regulators take steps to educate and fully inform the institutions under their oversight of their 

obligations and the rights of scrviccmcmbcrs under the SCRA. To be sure, the protections under 

the SCRA could be strengthened such as ensuring that any member of the Anned Forces 

deployed to combat duty would have an ironclad protection against foreclosure regardless of 

when their loan was originated, :md I have introduced legislation, the Anned Forces Hou.ring 

Security Act to ensure that. Nevertheless, while Congress continues to debate these issues, it is 

necessary for yo1,1 and the other oversight agencies to take all steps to remind and inform lenders 

of their obligations under the SCRA. I stand ready to ~rk with you to ensure that this initiative 
Pagc2 

is successful in order to support the men and women in uniform who have already sacrificed so 

much for their Nation. 

Thank you for your attention to my concerns, and I look forward to your reply. 

Hillary Rodham Clinton 

cc: John Reich, Director of the Office of Thrift Supervision 

Sheil~ C. Bair, Chairman of Board of Directors, Federal Deposit Insurance Corporation ✓ 

The Honorable John C. Dugan. Director o_fthe Office of the Comptroller of the Currency 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher J. Dodd 

Chairman 

Committee on Banking, Housing, 

and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

July 21, 2008 

Thank you for your letter enclosing questions from Senator Dole and Senator Bunning 

subsequent to my testimony on "The State of the Banking Industry: Part If' before the 

Committee on June 5, 2008. 

Enclosed are responses to those questions. 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 
Response to questions from the Honorable Jim Bunning 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

There was an article in the June 4, 2008, Financial Times that said banks could be forced to 

bring up to 5 trillion of assets currently held off their books onto their balance sheets. This 

raises many questions, but I will start with three. 

QI: First, in the current markets can the banks raise the capital they need to bold 

against these assets? 

Al: The June 4, 2008 Financial Times article addresses lingering concerns with off-balance 

sheet exposures. Firms have used loopholes in off-balance sheet accounting for years in order to 

enhance their financial statements without shedding risk. Capital and accounting rules need to 

reflect the economic reality of the transactions that our large financial institutions engage in on a 

daily basis. 

Financial institutions have shown a remarkable ability to raise capital even in this 

stressed market, which I view as a positive reflection on the long-term prospects for the U.S. 

banking system. Bloomberg reports that the ten U.S. bank holding companies with the largest 

write-downs and credit losses since second quarter 2007 raised $114.5 billion in capital during 

this same time period. This amount more than offsets th~ $100.2 billion in write-downs and 

losses that these institutions reported. To shore up their capital bases, institutions have reduced 

and in some cases eliminated cash dividends and have raised common stock and preferred shares 

from a wide range of sources. 

While their ability to continue to access the capital markets for funding is not assured, 

institutions have taken the right steps to adequately plan for their capital needs. However, 

several market participants have indicated that continued losses are expected as we work through 

the credit market turmoil, which could place additional pressure on bank capital levels. 

We are continuing to evaluate the potential impact of any F ASB action on off-balance 

sheet accounting on regulatory capital and on the securitization business in general, and will be 

in a better position to consider changes once the F ASB proposals are issued for public comment 

Q2: Second, since you are their regulators, do you know and have you known all along 

what those assets are? 

A2: U.S. regulators have three important tools at our disposal for identifying and evaluating 

the risk present in bank operations: on-site examination, off-site surveillance, and public 

disclosures. While these tools provide us with a significant amount of information necessary to 

assess the safety and soundness of our banks, the financial innovations that have transpired over 

the past several years have made it more difficult to fully understand the risks present in offbalance sheet structures such as securitized investment vehicles (SIVs) and collateralized debt 
obligations (CDOs). These vehicles were used to transfer a wide variety of exposures to 

investors without a sufficient degree of transparency and disclosures. However, the opacity in 

these structures served to exacerbate problems since investors and, in some instances, regulators 

were not able to quickly identify the assets placed in these vehicles. 

The work underway in the Basel Committee to improve the disclosures governing offbalance sheet vehicles should address many of these concerns. In addition, I have been a strong 

advocate of requiring banks that invest and manage securitization exposures to fully understand 

the risk characteristics present in the securitization vehicles and the underlying collateral 

supporting these structures before they can take any capital relief from external ratings. These 

are bare minimum due diligence standards that serve as the foundation of prudent investment 

management. 

Q3: And third, why were they allowed to move trillions of dollars of what turned out to 

be the riskiest assets off their books to avoid capital charges? 

A3: The accounting and capital rules have provided banks with the ability and incentive to 

remove assets from their balance sheet. I believe that the accounting standards and the capital 

rules need to be reassessed in order to ensure that they provide the right incentives for managing 

risks at our largest .financial institutions. Securitization in general has provided several benefits 

to the financial markets-it has enhanced credit availability and has provided market participants 

with another asset class in which to invest At the same time, the off-balance sheet rules were 

abused in some cases. I am pleased to see that the Financial Accounting Standards Board is 

reviewing their off-balance sheet accounting standards with an eye towards eliminating any 

loopholes. The Basel Committee and U.S. regulators need to consider these issues as well in 

conjunction with any revisions to our capital rules. 
Response to questions from the Honorable Elizabeth Dole 

from Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Q: . In March, the Attorney Genera) of New York, OFHEO, and the GSE's entered into 

an agreement creating new appraiser requirements that are inconsistent with existing 

practices. Last month, I introduced an amendment to the Federal Housing Finance 

Regulatory Reform Act of 2008 that would require the Director of OFHEO to issue a 

regulation establishing appraisal standards for mortgages purchased or guaranteed by 

Fannie and Freddie. It would establish a common set of appraisal standards governing 

mortgage lenders that are federally supervised and regulated. In your opinion, would this 

amendment strengthen the appraisal standards of federally regulated mortgages? 

A- The New York Attorney General, Fannie Mae, Freddie Mac, and the Office of Federal 

Housing Enterprise Oversight (OFHEO) have proposed a Home Valuation Code of Conduct that 

would overlay the Jong-standing set of federal banking agency appraisal regulations and Uniform 

Standards of Professional Appraisal Practice (USPAP) guidelines. The FDIC provided a 

comment to OFHEO on the proposal on June 20, 2008, which is attached. Our comment letter 

strongly supports the concept of appraiser independence and USP AP standards, but articulates 

our belief that the use of in-house or affiliated appraisers may be appropriate if managed 

prudently. 

The Dole amendment would direct OFHEO to devise appraisal rules for mortgages 

purchased or guaranteed by government-sponsored enterprises in a way that is consistent with 

appraisal regulations issued by the federal banking agencies. This would have the advantage of 

establishing a common set of appraisal standards for insured depository institutions and other 

mortgage lenders nationwide. As indicated in our comment letter, the FDIC supports an 

interagency ru1emaking process to establish comprehensive appraisal and appraiser standards. 

Attachment