Failed Bank:

FDIC Documentation of CrossLand Savings, FSB, Decision Was Inadequate

GGD-92-92: Published: Jul 7, 1992. Publicly Released: Jul 7, 1992.

Additional Materials:


James L. Bothwell
(202) 512-8678


Office of Public Affairs
(202) 512-4800

Pursuant to a legislative requirement, GAO reviewed the Federal Deposit Insurance Corporation's (FDIC) resolution actions regarding a failed bank, focusing on whether the FDIC decision to delay the resolution met the requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).

GAO found that: (1) FDIC violated FDICIA requirements by failing to document its resolution on the failed bank; (2) it could not determine the FDIC basis for assuming interim control of the bank; (3) FDIC made several assumptions in its cost evaluation for interim control of the bank that made the cost estimate for the interim control option more uncertain than those for other options; (4) the FDIC assumption that recoveries on some assets would be greater by placing those assets under conservatorship raised questions about FDIC ability and capacity to efficiently manage and dispose of such assets; (5) FDIC did not have adequate empirical data to back up many of its cost assumptions; and (6) FDIC did no analysis to determine the uncertainty inherent in its cost evaluation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The policy guidance has been completed and issued.

    Recommendation: The Chairman, FDIC, should ensure prompt development and implementation of policies governing the complete and consistent documentation of the agency's resolution actions. As required by section 13(c)(4) of the Federal Deposit Insurance Act, the FDIC Board should document the alternatives considered and the evaluation of each alternative, including the cost that the Board attributes to each alternative and the assumptions on which its cost evaluations are based. The record should also include appropriate documentation to support the assumptions underlying the Board's cost estimates and evaluations.

    Agency Affected: Federal Deposit Insurance Corporation

  2. Status: Closed - Implemented

    Comments: FDIC completed its study which showed current information available in the agency cannot be readily used to identify FDIC's actual experience in disposing of assets during or after a resolution transaction. IMTEC and FDIC's IG have identified problems with FDIC's asset information system. FDIC is evaluating information needs and how to collect data to improve data to be collected on asset sales results.

    Recommendation: The Chairman, FDIC, should assess and report on FDIC policies, practices, and historical experiences, as well as those of open banks, in disposing of troubled assets that are not readily marketable. The study should determine whether, and under what circumstances, FDIC operations create a cost difference in expected recoveries on such assets. If recoveries are found to be less under FDIC control or contract, FDIC should develop methods to minimize or avoid such added losses.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Implemented

    Comments: FDIC addressed the issue in its operations manual, according to FDIC.

    Recommendation: The Chairman, FDIC, should develop policies for determining when and how uncertainty should be incorporated into the cost evaluations.

    Agency Affected: Federal Deposit Insurance Corporation


Explore the full database of GAO's Open Recommendations »