Failed Banks:

FDIC's Asset Liquidation Operations

GGD-88-132: Published: Sep 28, 1988. Publicly Released: Sep 28, 1988.

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Pursuant to a congressional request, GAO reviewed the Federal Deposit Insurance Corporation's (FDIC) Division of Liquidation's management and liquidation of assets acquired from failed and assisted banks, specifically: (1) how FDIC adjusted its liquidation operations to an environment of increasingly high numbers of bank failures; (2) how FDIC managed liquidations; and (3) how much FDIC expected to recover on liquidated assets.

GAO found that: (1) since 1981, the Division has become large and decentralized in order to meet the increasing number of bank failures and the resulting increase in the liquidation work load; (2) from year-end 1981 to March 1988, Division staff increased from 429 to 4,118; (3) since 1981, the Division has created 6 regional offices overseeing 18 subregional offices; (4) the Division significantly increased the use of temporary employees for flexibility in expanding and contracting according to the volume and geographic distribution of the work load; and (5) the Division gave regions and consolidated offices increasingly greater authority. GAO also found that: (1) FDIC is implementing a national asset management system, which has fallen behind the original schedule and exceeded initial cost estimates, but should be partially operational by the end of 1988; (2) in 1985, FDIC began to use loan compromises, which permit a borrower to pay less then the full amount if present value analysis shows this to be more cost-effective; (3) from 1985 to 1987, compromises increased from 737 to 6,310 nationwide; (4) proposals for large-dollar-value compromises in 1986 showed that the gross recovery was about 50 percent of book value; (5) in 1985, FDIC began selling packages of loans in order to accelerate and improve asset liquidation; (6) during the first half of 1988, FDIC completed 228 bulk sales, involving about 39,000 assets, for $169 million, which was 34 percent of the assets' book value; and (7) the combined actual and projected recovery from assets of 63 banks which failed in the first half of 1986 averaged about 62 percent of the book value when FDIC liquidated all of the bank's assets and about 43 percent when it liquidated only those assets not purchased by an assuming bank. In addition, GAO found that, for 1987: (1) cash collections totalled $2.4 billion; (2) Division staff totalled 4,400 at year-end; (3) the estimated book value of assets in liquidation was $8.3 billion; and (4) estimated operating expenses were 11.2 percent of collections.

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