Statement on
Advance Notice of Proposed Rulemaking
on
Large Bank Deposit Insurance
Determination Modernization
April 21, 2015
Thank you, Mr. Chairman. I would like to begin by thanking today's presenters and their
staff for the work in preparing this ANPR. I support issuing today's ANPR as I believe it
is vital that the FDIC seek public comment on this important issue.
Since its creation in 1933, one of the core responsibilities of the FDIC has been the
resolution of failed insured depository institutions.1 Presently, when a bank fails, the
FDIC assumes the role of receiver for the failed bank and must resolve the bank in a
manner that minimizes losses to the Deposit Insurance Fund pursuant to a statutory
least-cost test.2 The FDIC is also under a statutory mandate to pay deposit insurance
(by payout or transfer) "as soon as possible" following the failure of an insured
depository institution.3
Banks perform critical functions for the economy and have unique access to facilities
such as the FDIC Deposit Insurance Fund that could see substantial losses in the event
that a bank or multiple banks fail. Recently, the FDIC took an important step in
addressing the potential challenges and losses arising out of bank failures and
resolutions when the Board of Directors approved guidance to all banks with assets
greater than $50 billion.4 The guidance requires these banks to provide a fully
developed discussion and analysis of a range of realistic resolution strategies that
would allow the FDIC to resolve the institution in an orderly manner that enables prompt
access of insured deposits, maximizes the return from the failed institution's assets, and
minimizes losses realized by the Deposit Insurance Fund.5 Today's ANPR, addressing
issues surrounding performing deposit insurance determinations at banks, represents
another necessary step towards facilitating the resolution of banks in a manner
consistent with the FDIC's statutory mandate.
In 2005, the FDIC attempted to enhance its ability to make prompt deposit insurance
determinations at certain large banks in a rulemaking process beginning with an
Advance Notice of Proposed Rulemaking and culminating in 2008 with a Final Rule.6
The 2008 Final Rule required a certain subset of large banks to have in place an
automated process for placing and removing holds on deposit accounts and to be able
to produce upon request data files that use a standard data format populated by
mapping preexisting data elements regarding deposit accounts.
As noted in today's ANPR, the FDIC's experience during the financial crisis and its
interaction with firms in implementing the 2008 Final Rule suggest that the rule might
not be sufficient to enable the FDIC to complete a timely deposit insurance
Advance Notice of Proposed Rulemaking
on
Large Bank Deposit Insurance
Determination Modernization
April 21, 2015
Thank you, Mr. Chairman. I would like to begin by thanking today's presenters and their
staff for the work in preparing this ANPR. I support issuing today's ANPR as I believe it
is vital that the FDIC seek public comment on this important issue.
Since its creation in 1933, one of the core responsibilities of the FDIC has been the
resolution of failed insured depository institutions.1 Presently, when a bank fails, the
FDIC assumes the role of receiver for the failed bank and must resolve the bank in a
manner that minimizes losses to the Deposit Insurance Fund pursuant to a statutory
least-cost test.2 The FDIC is also under a statutory mandate to pay deposit insurance
(by payout or transfer) "as soon as possible" following the failure of an insured
depository institution.3
Banks perform critical functions for the economy and have unique access to facilities
such as the FDIC Deposit Insurance Fund that could see substantial losses in the event
that a bank or multiple banks fail. Recently, the FDIC took an important step in
addressing the potential challenges and losses arising out of bank failures and
resolutions when the Board of Directors approved guidance to all banks with assets
greater than $50 billion.4 The guidance requires these banks to provide a fully
developed discussion and analysis of a range of realistic resolution strategies that
would allow the FDIC to resolve the institution in an orderly manner that enables prompt
access of insured deposits, maximizes the return from the failed institution's assets, and
minimizes losses realized by the Deposit Insurance Fund.5 Today's ANPR, addressing
issues surrounding performing deposit insurance determinations at banks, represents
another necessary step towards facilitating the resolution of banks in a manner
consistent with the FDIC's statutory mandate.
In 2005, the FDIC attempted to enhance its ability to make prompt deposit insurance
determinations at certain large banks in a rulemaking process beginning with an
Advance Notice of Proposed Rulemaking and culminating in 2008 with a Final Rule.6
The 2008 Final Rule required a certain subset of large banks to have in place an
automated process for placing and removing holds on deposit accounts and to be able
to produce upon request data files that use a standard data format populated by
mapping preexisting data elements regarding deposit accounts.
As noted in today's ANPR, the FDIC's experience during the financial crisis and its
interaction with firms in implementing the 2008 Final Rule suggest that the rule might
not be sufficient to enable the FDIC to complete a timely deposit insurance
determination of "closing night deposits."7 Such inability would frustrate the FDIC's
objective to pay insured depositors accurately and promptly.
The financial crisis also demonstrated that failures can occur rapidly and simultaneously
in times of stress. From 2009-2015, the FDIC was called upon to resolve 47 institutions
within 30 days from the launch of the resolution process to the ultimate closure of the
bank. This problem would have been exacerbated but for substantial government
intervention to prevent additional failures. These experiences during the crisis illustrate
that rendering insurance determinations and making accurate and prompt payments
can be increasingly more difficult when the FDIC is without time to gather necessary
data and prepare for the failure. Requiring the availability of necessary data, including
potentially requiring banks to be able to state each customer's level of insured deposits
would improve accuracy and efficiency in the event of rapid resolutions in the future.
While the potential challenges of resolving a failed bank certainly could increase if a
bank has a larger number of deposit accounts, the concerns about which this ANPR
seeks comment might not necessarily be limited to banks with more than 2 million
accounts.
In addition to causing the possibility of either a delayed payment or overpayment to
insured depositors, the inability to complete a deposit insurance determination might
have other negative consequences. Specifically, the inability to complete a deposit
insurance determination might limit the FDIC's options through which to resolve a failed
bank, potentially increasing the cost of the resolution. Timely and accurate deposit
account information is necessary not only to ensure that the FDIC can fulfill its statutory
mandates but also to foster a sound resolution framework that furthers market
discipline.
Today's rulemaking process serves the important goal of seeking comment on ways to
enhance the FDIC's ability to pay insured depositors accurately and promptly and to
maximize the FDIC's resolution options consistent with the agency's statutory mandate.
I look forward to receiving the public comments. Thank you.
1 Throughout this statement, the term "bank" is used synonymously with "insured
depository institution."
2 12 U.S.C. § 1823(c)(4).
3 12 U.S.C. § 1821(f)(1).
4 See Federal Deposit Insurance Corporation, "FDIC Issues Guidance on the
Resolution Plans of Large Banks" Press Release (December 17, 2014) available at
https://www.fdic.gov/news/news/press/2014/pr14109.html.
5 Additionally, the FDIC, Federal Reserve, and OCC recently stated, in promulgating
regulations implementing the Liquidity Coverage Ratio, that certain larger banks and
bank holding companies should be able to identify applicable insurance coverage for
objective to pay insured depositors accurately and promptly.
The financial crisis also demonstrated that failures can occur rapidly and simultaneously
in times of stress. From 2009-2015, the FDIC was called upon to resolve 47 institutions
within 30 days from the launch of the resolution process to the ultimate closure of the
bank. This problem would have been exacerbated but for substantial government
intervention to prevent additional failures. These experiences during the crisis illustrate
that rendering insurance determinations and making accurate and prompt payments
can be increasingly more difficult when the FDIC is without time to gather necessary
data and prepare for the failure. Requiring the availability of necessary data, including
potentially requiring banks to be able to state each customer's level of insured deposits
would improve accuracy and efficiency in the event of rapid resolutions in the future.
While the potential challenges of resolving a failed bank certainly could increase if a
bank has a larger number of deposit accounts, the concerns about which this ANPR
seeks comment might not necessarily be limited to banks with more than 2 million
accounts.
In addition to causing the possibility of either a delayed payment or overpayment to
insured depositors, the inability to complete a deposit insurance determination might
have other negative consequences. Specifically, the inability to complete a deposit
insurance determination might limit the FDIC's options through which to resolve a failed
bank, potentially increasing the cost of the resolution. Timely and accurate deposit
account information is necessary not only to ensure that the FDIC can fulfill its statutory
mandates but also to foster a sound resolution framework that furthers market
discipline.
Today's rulemaking process serves the important goal of seeking comment on ways to
enhance the FDIC's ability to pay insured depositors accurately and promptly and to
maximize the FDIC's resolution options consistent with the agency's statutory mandate.
I look forward to receiving the public comments. Thank you.
1 Throughout this statement, the term "bank" is used synonymously with "insured
depository institution."
2 12 U.S.C. § 1823(c)(4).
3 12 U.S.C. § 1821(f)(1).
4 See Federal Deposit Insurance Corporation, "FDIC Issues Guidance on the
Resolution Plans of Large Banks" Press Release (December 17, 2014) available at
https://www.fdic.gov/news/news/press/2014/pr14109.html.
5 Additionally, the FDIC, Federal Reserve, and OCC recently stated, in promulgating
regulations implementing the Liquidity Coverage Ratio, that certain larger banks and
bank holding companies should be able to identify applicable insurance coverage for