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Contents

Part IV, Symposium Proceedings
The FDIC hosted a 1½-day symposium on April 29 & 30, 1998 to examine the FDIC
and the RTC experience in resolving troubled banks and thrifts during the financial crisis years of 1980–1994. This symposium, “Managing the Crisis: The FDIC and RTC
Experience,” featured current and former FDIC and RTC executives, executives from
the bank and thrift industries, officials from other regulatory agencies, private sector
professionals and scholars who discussed the strategies used by the FDIC and the RTC
to resolve and liquidate the 1,617 banks and 1,295 thrifts that failed during this time
period.
Introduction
Agenda
Day 1: Managing the Crisis: The FDIC and RTC Experience
Panel 1: Resolutions
Luncheon Address
Panel 2: Asset Disposition
Featured Speaker
Day 2: Managing the Crisis: The FDIC and RTC Experience
Panel 3: Managing Bank Crises in Other Countries
Panel 4: Reflections and Looking Ahead

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Appendices
A: Biographies
B: Resolutions Panel
C: Asset Disposition Panel
D: Managing Bank Crises in Other Countries Panel
E: Charts and Graphs
F: Overheads Used by the Panelists
G: Symposium Participant List

Introduction

The FDIC hosted a one-and-a-half day symposium on April 29 and 30, 1998, to examine the FDIC and the RTC experience in resolving troubled banks and thrifts during the
financial crisis years of 1980–1994. This symposium, “Managing the Crisis: The FDIC
and RTC Experience,” featured current and former FDIC and RTC executives, executives from the bank and thrift industries, officials from other regulatory agencies, private
sector professionals and scholars who discussed the strategies used by the FDIC, the
FSLIC, and the RTC to resolve and liquidate the 1,617 banks and 1,295 thrifts that
failed during this time period.
The symposium was the culmination of the FDIC’s effort to review the various
methods used by the FDIC and the RTC to resolve failed institutions and dispose of the
residual assets held by the agencies, and to publish the findings in an historical study.
Symposium moderators and panelists were furnished, in advance, with draft copies of
the relevant chapters of the publication, Managing the Crisis: The FDIC and RTC Experience, for their review and comment. The moderators and panelists all delivered oral
presentations following their review of the materials provided, and their presentations
are organized according to the order of the symposium’s agenda. All speakers were provided the opportunity to review and edit their remarks prior to publication of this book.
All charts and graphs used by the speakers in their presentations are included in the
appendix.
The symposium began on the morning of April 29th with an introduction by John
Bovenzi, the Director of the FDIC’s Division of Resolutions and Receiverships. The
“Resolutions” panel discussed the evolution of the resolution strategies developed by the
FDIC and the RTC during the timeframe under study. The luncheon was highlighted
by an address from FDIC Director Joseph Neely. The “Asset Disposition” Panel examined the innovative techniques used by the FDIC and RTC to dispose of the substantial
volume of failed bank and thrift assets. John Heimann, Chairman of Global Financial

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Institutions for Merrill Lynch & Company, Inc., capped the first day as the featured
speaker.
The symposium program on the second day began with the “Managing Bank Crises
in Other Countries” panel, which examined how other countries either have resolved or
plan to resolve their banking problems. The “Reflections and Looking Ahead” panelists
provided their perspectives on the FDIC and RTC’s accomplishments, as well as their
thoughts on the future. Approximately 220 people attended the symposium on both
days.
The views expressed by the symposium participants are their own, and are not
necessarily those of the FDIC.

AG E N D A

Managing the Crisis:
The FDIC and RTC Experience

Wednesday April 29, 1998
8:00 a.m.–9:15 a.m.

Registration and Continental Breakfast

9:15 a.m.–9:20 a.m.

Greeting and Housekeeping Items

9:20 a.m.–9:30 a.m.

John Bovenzi, Director

Division of Resolutions and Receiverships, FDIC
Welcoming Remarks
9:30 a.m.–11:30 a.m. Resolutions
The large number of bank and thrift failures in the 1980s and
early 1990s created challenges not seen in the U.S. financial system
since the 1930s. The FDIC and the RTC modified basic resolution
strategies with an eye toward maintaining public confidence and
financial stability, without sacrificing other public-policy objectives.
This panel focuses on the issues and strategies that arose in connection with these bank and thrift failures.
Jim Wigand, Deputy Director, Division of
Moderator:
Resolutions and Receiverships, FDIC
Panel Members: Robert Hartheimer, Managing Director:
Investment Banking Division, Friedman,
Billings, Ramsey & Co.
Doyle Mitchell, President, Industrial Bank,
N.A.
Jim Montgomery, Past Chairman, Great
Western Financial
H. Jay Sarles, Vice Chairman, Fleet Financial
Group

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Stan Silverberg, Banking and Economic

Consultant
11:30 a.m.–1:30 p.m. Lunch
Keynote Speaker: Joseph Neely
Director, FDIC
1:30 p.m.–3:30 p.m.

Asset Disposition
The rapid increase of failures in the 1980s and early 1990s resulted
in an unparalleled volume of assets in the hands of the FDIC and
RTC. This panel will focus on the wide variety of techniques used
by the FDIC and RTC to dispose of the substantial volume of assets
once held by both agencies, and will discuss the respective merits of
each of the different strategies used by the agencies.
Sandra Thompson, Assistant Director, DiviModerator:
sion of Resolutions and Receiverships, FDIC
Panel Members: Hubert Bell, Jr., Attorney, Law Office of
Hubert Bell, Jr.
David Cooke, Director, Barents Group,
L.L.C.
Diana Reid, Managing Director/Senior Advisor, Credit Suisse First Boston
Ted Samuel, Former Chairman and Chief
Executive Officer,
Niagara Asset Corporation, Niagara Portfolio
Management Corporation
Lawrence White, Professor of Economics,
Stern Business School, N.Y.U.

3:30 p.m.–4:00 p.m.

Break

4:00 p.m.–5:00 p.m.

Featured Speaker: John G. Heimann
Mr. Heimann is Chairman, Global Financial Institutions, for
Merrill Lynch & Company, Inc., and is a member of the firm’s
Office of the Chairman and Executive Management Committee.
Mr. Heimann, who came to Merrill Lynch in 1984 as Vice Chairman of Merrill Lynch Capital Markets, served as Chairman of the
Executive Committee for Merrill Lynch Europe/Middle East from
1988 to 1990, and became Chairman of Global Financial Institutions in 1991. While serving as U.S. Comptroller of the Currency
from 1977 to 1981, Mr. Heimann was also a member of the
FDIC’s Board of Directors.

5:00 p.m.

Reception

M A NA G I NG T H E C R I S I S : T H E F D I C A N D R TC E X PE R I E NC E

Thursday April 30, 1998
8:00 a.m.–9:00 a.m.

Registration and Continental Breakfast

9:00 a.m.–9:05 a.m.

Greeting and Housekeeping Items

9:05 a.m.–9:15 a.m.

Gail Patelunas, Deputy Director

Division of Resolutions and Receiverships, FDIC
Welcoming Remarks
9:15 a.m–10:45 a.m.

Managing Bank Crises in Other Countries
The rapid rise of private banking in Eastern Europe and around
the world and the emerging financial crises occurring in the Far
East raise issues regarding how other countries deal with banking
failures. This panel will focus on the resolution strategies used by
other countries and how they differ from those typically used in the
United States.
Thomas Rose, Senior Deputy Director, DiviModerator:
sion of Resolutions and Receiverships, FDIC
Panel Members: Arne Berggren, International Banking Consultant
Bill Roelle, Head of Operations, Financial
Services Group, GE Capital
L. William Seidman, Chief Commentator,
CNBC-TV

10:45 a.m.–11:15 a.m. Break
11:15 a.m.–12:45 p.m. Reflections and Looking Ahead
The 1980s and early 1990s were times of great financial upheaval
in the U.S. banking system, which resulted in significant changes in
how bank failures are handled in the U.S. This panel will reflect on
the agencies’ most difficult challenges and accomplishments during
this period, and provide a look ahead at what the future may hold.
Mitchell Glassman, Deputy Director, DiviModerator:
sion of Resolutions and Receiverships, FDIC
Panel Members: Jonathan Fiechter, Director, Special Financial Operations, The World Bank
Paul Horvitz, Professor of Banking and
Finance, University of Houston
Jack Ryan, Acting Executive Director of
Supervision, Office of Thrift Supervision

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D AY 1

Managing the Crisis:
The FDIC and RTC Experience
April 29–30, 1998

Introduction
Kate McDermott
Symposium Hostess
It is my distinct pleasure to introduce to you John Bovenzi, Director of the FDIC’s Division of Resolutions and Receiverships. In this position, John oversees the FDIC’s closing
and receivership management activities for insured banks and savings and loan associations, which includes making payments to insured depositors and disposing of the failed
institutions’ assets. John was appointed to his position in November 1992 by then-Acting Chairman Andrew Hove. Prior to that appointment, Mr. Bovenzi served as the Deputy to FDIC Chairman William Seidman and the late Chairman William Taylor,
assisting them in the day-to-day operations of the FDIC and the Resolution Trust Corporation. John joined the FDIC in 1981 and so his career pretty much matches that of
the banking crisis period. Hopefully, there is no correlation between the two. Ladies and
gentlemen, John Bovenzi.

Welcoming Remarks
John Bovenzi, Director
Division of Resolutions and Receiverships, FDIC
Thank you, Kate, and good morning. It is my pleasure to welcome you to the FDIC’s
symposium “Managing the Crisis: The FDIC and RTC Experience.” This is the second
of three FDIC symposia to be held in 1998. The first symposium on deposit insurance
reform issues was held in January. The third symposium, an international conference on
deposit insurance issues, will be held in September. This symposium is a direct result of

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an initiative begun by former FDIC Chairman Ricki Helfer. She asked the FDIC staff to
conduct a comprehensive review of the banking crisis of the 1980s and early 1990s. The
first part of that review, as mentioned, culminated in a two-volume study that has been
made available to you. That study dealt with the causes of the banking crisis and the
supervisory and regulatory responses to that crisis. In January of last year, the FDIC held
a symposium on those issues and the proceedings are in Volume 2 of the study being
made available to you today. I think you will find it a useful and informative product.
The second part of the FDIC’s review of the crisis of the 1980s and early 1990s
focuses on how the FDIC and the RTC actually handled the banks and S&Ls that
failed. A two-volume study titled “Managing the Crisis: The FDIC and RTC Experience” is in the final stages of editing. The study will provide a detailed review of the various strategies used by the FDIC and the RTC to resolve failures—how they protected
insured depositors and how assets were disposed of. Hopefully, it will be a useful guide
not only for those interested in studying the past, but also for those trying to better
understand the present or prepare for the future.
Everyone here who would like a copy will receive one. In addition, the proceedings
of this symposium will be sent to you as well.
A great many people spent a lot of time on the project. I don’t have time to thank all
of them individually, but they do all have my appreciation and I would like to take a
minute to just mention a couple of people. First, Ricki Helfer for having the foresight to
start the project; next, Craig Rice, for managing the project in its early stages; also, Martha Duncan-Hodge, Kate McDermott, Mike Spaid, Jim Gallagher, Shelby Heyn-Rigg,
Mary Ledwin Bean, Steve Stockton, Hank Abbot, Ann Gay, Frank Willis, Henry Griffin
and Barbara Taft, for their commitment to seeing the project through. I would especially
like to thank Bill Ostermiller who managed the project through to completion without
whom this study would not have been completed. Finally, I would like to thank Acting
Chairman Skip Hove, who showed continued support throughout the life of the project.
Skip is testifying before Congress this morning and will join us later in the day. He’s on
his third tour of duty as Acting Chairman of the FDIC, and while we anxiously await
the confirmation of nominee Donna Tanoue, I think it is important to acknowledge the
important role Skip Hove has played at the FDIC throughout the 1990s, first in helping
to manage the crisis itself, and then in effectively dealing within the FDIC during the
difficult transition period that followed.
As for today’s symposium, it is easy to forget what happened just a few short years
ago. Today, the U.S. economy is booming and the financial sector is stronger than ever.
In 1997, only one bank failed. This symposium will remind us of what it was like. What
steps were taken to handle not one, but nearly 3,000 banks and S&Ls that were closed
or received financial assistance. How were nearly $1 trillion in failed bank and S&L
assets managed? How were hundreds of billions of dollars in insured deposits protected?
What steps were taken to maintain public confidence and financial stability during this
difficult period? These are the subjects that are before us today and tomorrow morning.

M A NA G I NG T H E C R I S I S : T H E F D I C A N D R TC E X PE R I E NC E A P R I L 2 9 – 3 0 , 1 9 9 8

At the time, for those of you actually managing the crisis, it may have seemed like a
thankless task. Nobody likes problems, particularly big ones, particularly when they are
going to cost a lot of money. There are people who are going to look for someone to
blame and those involved in the clean-up were an easy target. They were an easy target
because in an undertaking of that size, some things will go wrong, and some things did
go wrong. Hindsight makes it easier to put things into perspective. History seems to be
judging the clean-up effort as having been better than it was judged to be at the time, and
it is important that we understand the past. Why? Because it can help us now and in the
future. Perhaps there are useful lessons that can help other countries dealing with their
financial sector problems. There may be lessons for the future as we look at our own rapidly evolving financial sector, a financial sector experiencing mega mergers, technological
and product advances, and ongoing globalization. The better we understand the past,
both what went right and what went wrong, the better we can prepare for the future.
Today’s symposium should offer some provocative thoughts on the past, present and
future. I would like to thank our panelists in advance for taking the time to share their
thoughts with us. This morning, we will begin with a panel on the resolutions process.
Jim Wigand, Deputy Director of the Division of Resolutions and Receiverships, is in
charge of resolutions for the FDIC and will serve as moderator of that panel. The five
members of the resolution panel each bring a different and interesting perspective to the
topic. The resolutions panel will be followed by lunch. We are fortunate to have FDIC
Director Joe Neely as our luncheon speaker. Joe Neely joined the FDIC as a member of
the Board of Directors in January of 1996. During the 80s and early 90s, Joe’s vantage
point was as a banker who participated in the FDIC’s resolution process as a bidder. I’m
looking forward to hearing his remarks and I’m sure you’ll find them interesting.
This afternoon, Sandra Thompson, Assistant Director responsible for asset sales,
will moderate the panel on asset disposition. Each of the speakers on this panel was
actively involved in some aspect of the asset disposition process. Wrapping up the first
day, we’re pleased to have John Heimann, Chairman of Global Financial Institutions for
Merrill Lynch, as our featured speaker.
Tomorrow morning we continue with a look at related issues in other countries, and
the final panel will reflect on what happened and look ahead.
As you can see, we have a distinguished group of commentators and participants for
this symposium. I say commentators and participants because I hope all of you will participate over the next day and one-half. Many of you were actively involved in managing
the crisis. In that regard, in addition to some of the names already mentioned, I will note
the attendance of former director of OTS and member of the FDIC Board of Directors
Jonathan Fiechter, and former acting CEO of the RTC, Jack Ryan. We’re pleased that
they will be in attendance with us. Also, in attendance is the person who probably knows
more about managing the crisis than any other single individual, former FDIC and RTC
Chairman, Bill Seidman. There are many other distinguished attendees here today, some
currently or formerly from within the FDIC or the RTC, others were with other government agencies or with the private sector, advising, providing services, purchasing assets,

9

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or acquiring failed institutions. All of you deserve credit for your efforts in managing the
crisis. All of you have a perspective and insights that can be shared. We look forward to
hearing from each of you.
At this point, I would like to introduce the moderator for our first panel. Jim
Wigand is the Deputy Director for Franchise and Asset Marketing in the FDIC’s Division of Resolutions and Receiverships. In this role, Jim oversees the resolution of failing
insured depository institutions and the sale of their assets. Jim worked at the RTC
throughout its existence, holding senior positions primarily in the asset management and
sales area. Jim is a graduate of the University of Maryland with an MBA from the University of Chicago’s Graduate School of Business. Please join me in welcoming Jim Wigand.

PANEL 1

Resolutions

Jim Wigand, Deputy Director, Franchise and Asset Marketing
Division of Resolutions and Receiverships, FDIC
It is like old home week here. Most of you I have run into over a period of time over the
last 10–15 years, and I must admit that it is a real pleasant surprise to see so many familiar faces out here today.
I want to welcome you to our symposium’s first set of panelists who will provide
some perspective and thoughts on how the FDIC and RTC resolved troubled financial
institutions during the 80s and early 90s. Some of you who are not local and those of
you who are local to Washington may have noticed where our symposium is located.
This hotel is right across the street from Arlington National Cemetery which is probably
the most famous cemetery in the United States. Now, many of you also may recall that
in resolving and liquidating failing institutions, we used metaphors and analogies that
were death related. We referred to open institutions having negative capital as the living
dead. We described the role of receiver to the uninitiated as part coroner, part undertaker, and part executor. When you think about it, all of those descriptions actually are
very appropriate.
Well, to wind down and complete this macabre metaphor, maybe we should view
this morning’s panel as a walk through the cemetery of failed banks and thrifts. When
we pass memorials to specific resolution battles, let’s reflect on the strategies that proved
successful and the ones that were less so. We also should pause from time-to-time at
individual tombstones to consider the unique circumstances of an institution’s demise
and its resolution.
Now, joining us for the stroll this morning, we have a very distinguished panel. Bob
Hartheimer, Doyle Mitchell, Jim Montgomery, Jay Sarles, and Stan Silverberg. Bob
Hartheimer, who graciously agreed to be a panelist after Harrison Young found out last

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week that he had to be in South Korea today, is Managing Director at the investment
banking firm of Friedman, Billings, Ramsey & Company, and is a senior member of the
firm’s financial services practice. Formerly, he was the FDIC’s Director of Resolutions and
while at the FDIC, oversaw the sale of over 200 failed banks and the creation of five
bridge banks during the early 1990s. Prior to joining the FDIC, Mr. Hartheimer worked
at Smith Barney and Merrill Lynch as an investment banker, specializing in financial institutions. He earned a BA from Hamilton College, and an MBA from the Wharton School
at the University of Pennsylvania.
Our next panelist is Doyle Mitchell, who is President of Industrial Bank, N.A., the
second largest minority-owned commercial bank and the third largest minority financial
institution in the U.S. Starting in the bookkeeping department of the bank founded by
his grandfather, Mr. Mitchell has held positions in the accounting, loan, audit and operations departments of the bank. By 1989, he had been appointed Assistant Vice President, Commercial Loans and, in 1991, Vice President. In 1993, he succeeded his father
as President of Industrial. Among Mr. Mitchell’s other activities, he serves on the board
and is president of the U Street Theater Foundation, and sits on the boards of several
organizations, including the District of Columbia Chamber of Commerce and the
American Institute of Banking. He received a B.S. in Economics, with a concentration
in finance and accounting, from Rutgers University.
Next to Mr. Mitchell is Jim Montgomery. Mr. Montgomery is Chairman and CEO
of newly-chartered Frontier Bank, and is the former Chairman and Chief Executive
Officer of Great Western Financial Corporation and its principal subsidiary, Great Western Bank. Starting his financial services career over 40 years ago at Price Waterhouse,
Mr. Montgomery initially joined Great Western in 1960 as Assistant to the President.
He left in 1964 to become Director and President of United Financial Corporation, and
then returned to Great Western in 1975 as President. Mr. Montgomery previously has
served on the boards of the Federal Home Loan Bank of San Francisco and the California Chamber of Commerce, and served as Chairman of America’s Community Bankers
of America. He is currently a director of Freddie Mac. Jim holds a bachelors degree in
accounting from UCLA.
Our next panelist is Jay Sarles. Mr. Sarles is Vice Chairman and Chief Administrative Officer of Fleet Financial Group and oversees strategic planning and acquisitions,
Fleet’s administrative functions, and the financial services lines of businesses such as
Fleet Mortgage and Fleet’s credit card operations. Mr. Sarles is also Chairman of Fleet
Bank, N.A. Mr. Sarles is active in several philanthropic and professional endeavors, serving as Chairman of the Metropolitan Boston Housing Partnership, and is on the board
of trustees of Lifespan, a Providence, Rhode Island based health care system. He received
a bachelor of arts degree from Amherst, and attended the program for management
development at the Harvard Business School.
Our last panelist this morning is Stan Silverberg, who has been an independent consultant since he retired from the FDIC 11 years ago as Director of Research and Planning. Mr. Silverberg started his career at the Bank of America, then worked at the OCC

R E S O L UT I O NS

and Office of the Secretary of Treasury. He joined the FDIC in 1967 and worked on
developing FDIC policies for deposit insurance and bank resolutions, and also supervised
liquidation issues. Mr. Silverberg had the lead staff role in the Continental Illinois case.
Stan earned a B.A. from the University of Wisconsin, a Masters and Ph.D. in Economics
from Yale University.
I would like to thank the panelists for taking the time from their busy schedules to
be with us today to share their perspectives on managing the crisis. But, before I turn the
podium over to Mr. Hartheimer, let’s take a few minutes to review resolution activity
and some of the resolution techniques employed during the crisis.
As you can see on the screen to my right, and for those of you who may have trouble
reading the slides, copies can be found in your symposium folder, the crisis period
started out with 22 failures in 1980, of which 11 were banks and 11 were thrifts. The
first jump in failures resulted from thrifts incurring losses arising from having to pay
high interest rates on deposits and holding large portfolios of lower-yielding fixed-rate
mortgages. Over 100 institutions failed in 1982, although these numbers include 40
mutual savings banks that technically did not fail, but received some form of open bank
assistance, such as net worth certificates.
The next wave of failures between 1984 and 1987 was tied to energy and agricultural lending in the commercial banking sector, and real estate lending on speculative
projects, particularly in the energy belt for savings and loans. However, here too the figures do not tell the complete story because included in the figures are 265 banks having
concentrations of 25 percent or more of the loan portfolios in agricultural or energyrelated loan products that survived as a result of forbearance programs.
In 1988, the sharp decline in oil prices, the explosive growth in real estate development, and banks’ increased concentrations in real estate lending caused significant losses
to commercial banks, particularly in the southwest, resulting in 279 failures, the highest
number of bank failures since the Great Depression. However, total financial institution
failures did not peak until 1989 when Congress passed FIRREA with its provision of
funds to resolve the savings and loan crisis. Upon its creation, the RTC assumed responsibility for 262 institutions already placed into conservatorship. Another 56 were added
by year-end, resulting in a total of 533 banks and savings and loans having almost $175
billion in assets failing in 1989.
Failure rates remained high in 1990, 1991 and 1992, as real estate problems spread
across the country, particularly in the northeast and west. In fact, in 1991, 78 percent of
total failed bank assets were from northeast-located institutions. Savings and loans that
failed were more geographically dispersed, but there were concentrations of some large
failures on the west coast.
By 1994, the volume of financial institution failures had dropped off to its lowest
level since the beginning of the crisis. Only 13 banks and 2 savings and loans failed in
that year. The resolution crisis was over, but the asset disposition crisis was still running.
Now, what types of resolution methods did the FDIC and RTC employ to handle
the crisis? By far, the most common method was through a purchase and assumption

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transaction, or what we call a P&A. A P&A is a closed bank transaction in which a
healthy institution, known as the franchise acquirer, purchases some or all of the assets
of the failed bank or thrift, and assumes some or all of the liabilities, including the
insured deposits. The franchise acquirer usually pays a premium for the assumed deposits, thereby decreasing the cost of resolution.
Now, there are many variations of a P&A transaction. For example, in a whole
bank, all-deposit P&A, all the assets and all of the deposits are conveyed at resolution to
the franchise acquirer. In a P&A with loss sharing, the franchise acquirer purchases certain asset pools in which the FDIC has agreed to share generally 80 percent of any losses
from book value. Now, at the other end of the spectrum, a clean bank, insured deposit
only P&A is almost identical to another resolution method known as an insured deposit
transfer or IDT, as we call them. In both instances, only insured deposits and loans
secured by deposits are transferred to the acquiring institution. The substantive difference between these two types of transactions really lies in the duties the acquirer must
perform related to the transaction itself.
The FDIC and RTC used other resolution methods much less often. The RTC
never used open bank assistance, although as mentioned earlier, the FDIC has used this
technique in which a failing bank remains open or is merged, with FDIC assistance, to
resolve problems considered to be transitory in nature. Deposit payoffs occurred infrequently and constitute only 7 percent of all resolutions conducted. In this transaction,
after the institution has been closed, the insured depositors are paid either directly by the
FDIC, or through a bank acting as a paying agent, the full amount of their insured
funds. All assets remained in the receivership estate to be liquidated over time and fund
the claims of the uninsured depositors and other creditors. Now, since the imposition of
what we refer to as least cost, this type of transaction also serves as the baseline from
which the costs of other resolution transactions are measured.
While that is a quick summary and review of resolution activity, I would now like to
turn the podium over to our panelists so we can listen to their perspectives on managing
the crisis. After all panelists have spoken, we will open up the floor to questions and
answers. May I introduce our first panelist, Bob Hartheimer.

Bob Hartheimer
Managing Director: Investment Banking Division
Friedman, Billings, Ramsey & Co.
Thank you, Jim. I am pleased to be here and I think many of us in the audience and
myself consider Harrison Young a friend and have great respect for what he did for the
FDIC. My memories go back to his constant challenging of the structures and the methods of resolution that Harrison pushed us to create and to think about all to the benefit
of the government and us as a whole. It is unfortunate he’s not here. But, I guess he’s in

R E S O L UT I O NS

South Korea and he’s in the middle of raising money for a Thai bank, so he is carrying
his experience internationally.
I’ve had a chance to look at some of the materials that are being prepared for the
upcoming volumes, and I do want to congratulate the group at the agency for the work
they’ve done. I have to say there are a number of things I had forgotten about. It has
only been two years since I left the agency, but the material seems very comprehensive
and I look forward to those publications.
Jim asked me to focus in 10 or 15 minutes here on four items that came into the
work that I did in resolutions at the agency. So, I’m going to kind of dive into those and
just give some of my thoughts. I’m not going to spend a lot of time describing them. I
think everyone really understands what they are. The four areas I’m going to talk about
are bridge banks, cross guarantee authority, least cost, and the FDIC or government
acquiring an ownership interest in failed institutions.
In bridge banks, I guess what I believe about bridge banks is that they were and I
think will continue to be a very important tool for the FDIC to use in certain situations.
It allowed our team to receive higher values for every bank and it’s unfortunate that
Crossland is not technically a bridge bank, but for all of us who worked on Crossland,
we all believe it is a bridge bank, but it has a different structure. It was a conservatorship,
but for all intents and purposes, it was a bridge bank. Every situation we went into
where we created a bridge, where we ran the bank, saved money for the fund, and it also,
I think, assisted the community that the bank was in. In some cases, it avoided decimation of the institution and its employees, but primarily it saved money which was our
first objective. In the case of Crossland, I believe there would have been about $1 billion
of additional loss; some of the people here remember when Crossland failed, we had two
very ugly bids, one from Chase and one from Republic. Republic tried to buy Crossland
three different times. Their bid, if I’m not mistaken, was $5 million and they refused to
manage one asset, which actually is what put us over the edge in terms of creating this
bridge because we couldn’t walk into a situation and immediately manage the assets, and
Chase’s bid was only for half of the deposits and it really was not optimal. But, that created the opportunity to re-invent bridge banks which John Stone, Bill Roelle and Roger
Watson and others had created and executed in the late 80s.
I also think it is the same with First City. The second time, I wasn’t around for the
first time, but I believe that the orderly manner in which we handled First City as a
bridge allowed all the bridge banks to be sold and make so much money for the government, and in fact, created a lot of work for the legal division in terms of the lawsuit that
First City entered into because there was money left over.
I believe that bridge banks should not become the norm. Many banks can be sold
without a bridge and I understand there was a failure a couple of weeks ago—proud that
it included loss share. That is something I’m not going to talk about, but it was an area
we spent a lot of time with and there were those who believed it couldn’t be done in
small banks and I understand it was a $40 million bank that sold with the loss share—

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that’s great. But, in a situation like that, you can get your arms very quickly around the
institution and be able to sell it contemporaneously with a sale or with a failure.
As we all know, there has been criticism of the government competing with other
institutions while managing a bridge, and I actually think that is absurd. I think that is
an academic argument or an argument of journalists to create some controversy in their
publications. The bridge banks that we controlled and oversaw the management of, we
never managed them ourselves, we were very conscious of the fact that we did not have
experience in running banks. We hired good people to run banks. We directed them
very distinctly, not to compete effectively on rate, and to essentially just take the institution, determine how to best organize it, and work with our group in Resolutions to sell
it. I think the criticism was ill-founded. Those are my thoughts on bridge banks—with
only 10 or 15 minutes, you can go on and on with these topics all day.
Cross guarantee authority—I actually was not at the agency when cross guarantee
came into being in 1989, but I believe it is a very important tool, right up there with
FDICIA in terms of its importance. It is unfortunate that when the cross guarantee
authority came into being, we had a banking system that was essentially uneven around
the country. We had states like Texas that had grown up with large chains of banks and
that really caused for messier resolutions, but it effectively allowed the government to
avoid taking the bad pieces of these chains of banks and watching managements of those
banks move bad assets and things into those banks. The use of the authority was effective in two different ways. It was effective in allowing us to take healthy banks along
with failed banks and as we think back to First City, there were really only two banks at
First City, maybe a third—I really didn’t study First City before coming here today—but
as I remember, we were able to sell almost all of the 20 First City banks as whole banks
without any assets passing to the agency, and that really was useful to offset the value of
the bad banks that First City had in Dallas and Houston.
And I think people really understand why it makes sense to take the healthy banks
at the time of resolution. There were a few situations where there were healthy banks
that were sisters or brothers of failed banks, and the decision was made at the time of the
failure of the unhealthy bank not to take the sister bank, and that also can work. There
was one situation in Maine called Coastal Bank, which is around today, it was a wholly
owned sub of a bank called Suffield—it might have been a savings bank or thrift in Connecticut—and Suffield failed before I got to the agency. I don’t really know why Coastal
was not taken at the time, but it turned out that Coastal ended up surviving, and today
is doing very well. We got involved late in the process, the RTC and the old Division of
Liquidation were involved in trying to determine the way to resolve Coastal, because of
course the FDIC believed it owned Coastal. But, that was enough leverage to get Coastal
to come to the table. A very creative resolution—it really wasn’t a resolution but a creative transaction that was developed which went to the board of the FDIC and ultimately a lot of money was moved from the equity position of Coastal to the receivership
of Suffield without having to take the bank. So, I think this tool can work in both ways.
The FDIC doesn’t have to be so quick to take healthy banks if it can figure out ways to

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use the leverage of the law to gain the value without necessarily having to sell. A very
important tool—almost obvious for all of us that went through Resolutions 101 in the
early years and hopefully it never goes away.
Least cost—I guess least cost was my least favorite requirement, and probably that is
shared by others here. I think least cost was only loved by the GAO and others who tried
to reduce every decision to an analytical decision. As many of us know, resolutions is not
a science. There isn’t a script that you follow. It is really an art and everyone is different
and it is very difficult to come up with a least cost analysis, yet I had to sit before many
FDIC boards and explain assumptions. I want to thank many of those boards for being
flexible and understanding and believing in the assumptions that we came up with—
some of which were a little creative—but if they weren’t creative, you would have found
that you wouldn’t be able to have been creative in some of the resolutions that were
done. Ultimately, I think we came up with good assumptions that had their basis in
logic and in what was expected to occur. Many of those assumptions did occur and I
think as the materials will come out in this next volume, you’ll see that the costs of resolutions were generally at or below what were the least cost assumptions at the time. Having said that, it was not a fun thing to do.
I also think it virtually eliminated the creativity that Wall Street was responsible for
in terms of open bank and early resolution assistance. Many people spent a lot of hours
trying to figure out how to resolve First City. We can talk about that—the lawsuit is
over. There is a lawsuit out, I’ve been told I’m being deposed. It hasn’t happened yet,
thankfully, for Meritor, but many banks tried to save themselves, as you might expect it
being human nature, before failure. Once least cost came into being, you essentially
couldn’t compare the cost, you couldn’t auction a bank before it failed and come up with
a creative open bank solution. So, you usually had one group sponsored by bank management and in some cases bank management was suspect and in other cases they
weren’t, but you couldn’t ever really compare that to anything. So, we had trouble convincing the FDIC board that those open bank solutions would be the least cost solution.
It stifled creativity and so I’m mixed on my feeling of least cost.
The last thing I will just mention is the topic of acquiring an ownership interest by
the government. As you might expect, I’m fairly enthusiastic about this and I hope the
agency does this going forward. I think history has shown that when there are a lot of failures, prices are reduced. There are not a lot of buyers, and it is very little value that you
are giving up at the time of resolution for the insurance fund to take an ongoing position.
It is important for that ongoing position to be a neutral position from a management
standpoint. There were great criticisms of Continental and of First City the first time—
that the government position somehow had some influence in managing the institution. I
can tell you that in Continental’s case, I was involved very late in the resolution process—
I was involved in the sale of the securities the government held, and I remember Holly
Rademacher who was the CFO complaining to me that Roger Watson wouldn’t tell him
a thing about how to run the bank and they were upset about that. I actually think that
was good of Roger to do that because that is not what the government’s role should have

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been. Yet, the government played a significant role in creating the value that the shareholders ultimately received for Continental and there is no reason that the government
shouldn’t share in that value.
In the case of the thrift, American Savings Bank, the government had a 30 percent
position. We thank Jim Meyer and his colleagues for creating an unbelievably complicated transaction. Once the FDIC was convinced about the sale of ASB, the government’s position was initially estimated to be $200 or $300 million. Washington Mutual
acquired it, the value at that time was $400 million, and ultimately when the position
was sold, it was worth $600 million. That is really a lesson in—except for managing of
the assets and the assistance agreement—there is really no direction by the FRF of how
to manage that institution. That is really great to see a structure work like that.
So, I’m very positive. I would like to see more of it. I’m afraid that in the near term
we’re not going to see too many resolutions. It is somewhat a shame there is so much
more enthusiasm and now so much more understanding about how to handle these
things and I think we would all like to see this chapter happen again, but I guess there
are others in the country and on the Hill that wouldn’t want to see that.
Those are my thoughts on those four items. I would be happy to talk to you in the
Q&A if anyone has any questions, and I would like to turn it over to Doyle.
Thank you.

Doyle Mitchell, President
Industrial Bank, N.A.
Good morning. I will approach this from Industrial Bank’s experience in going through
the resolution process, and then also try to point out some things that I think are very
important to a lot of the communities in which we typically do business. In doing so,
hopefully I will address branch breakups and interim capital assistance and other issues
that were relevant to us as a minority bank participating in the process.
I want to thank the FDIC for holding these symposiums and in particular, recognize Former Chairman Helfer in holding these symposiums after the crisis is over. Hindsight is 20/20, but only if you look. I think it is extremely important that we go back
and do that and prepare for the future, if necessary.
In 1993, I participated in a session at the National Bankers Association, the minority bank trade association, where individuals from the FDIC or other consulting firms
explained to us what was happening in the thrift industry.
At the time, I had been President about six months at Industrial Bank. We had
established a fairly assertive vision for the bank, where we thought we would someday
establish branches in regional areas around Washington, D.C. I had no idea it would
happen nearly so soon. So, in September or October, we started to investigate the thrifts
in our area that were going to close and how we might be able to participate. We actually
closed on two branches of one of the thrifts in June of 1994, long before I ever thought

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we would acquire branches in Prince Georges County, Maryland. I knew Prince Georges
County, Maryland was an attractive area. It had a lot of the flight of the middle class
from Washington, D.C. into that county and is an attractive market for our institution.
The transaction did become very complicated on a number of different fronts. The
first front being that we had a Washington, D.C. charter for our bank, although we were
regulated by the Comptroller of the Currency, probably the only one of that nature in
the country. And, the thrifts that we wanted to bid on were in Prince Georges County,
Maryland. If you recall, that was about the time that the whole interstate banking debate
was starting to heat up and although the RTC did have intrastate and interstate branching override authority, the interstate branching authority was something that they did
not want to touch, and I can understand why. It was being actively debated in Congress
at the time.
So, we had a problem. We had a District bank and we had branches that we wanted
to purchase in Prince Georges County, Maryland. The transaction from the crisis standpoint was small. From our standpoint, it was fairly large. We were looking at two
branches that had about $40 million in deposits. We were about $190 million in total
assets at the time.
I think the difficulty came as we looked at the benefits under the minority program
in the way the law was originally crafted. I think that there was good intent on the part
of Congress to recognize that there had to be some protection of services in low- and
moderate-income neighborhoods and minority neighborhoods of banking services
which typically seem to decline after an acquisition. But, along with the least cost test,
which I think is always notorious in these acquisition situations, there was an inherent
conflict in the way the law was documented. It presented a lot of conflict right within
the Resolution Trust Corporation itself in how to interpret that, and actually how to
implement it. I think those involved in the resolutions process wanted to protect the services in minority neighborhoods. The lawyers said there was a least cost test, so there
was a constant conflict. I would urge that if there is any future legislation, that it be carefully crafted so that those conflicts don’t occur in the future.
Now, why a minority program? I think from our experience at the bank, it’s clear
there is a need to protect banking services in low- and moderate-income areas, and those
areas which tend to typically be predominately minority populated. We have over 60
years in areas that have been neglected and underserved by mainstream financial institutions. We’ve been able to do well. Four of our seven branches in Washington D.C., out
of a total of nine, are in low- and moderate-income census tracts in Washington, D.C.
We have learned it can be labor intensive to serve those markets that do not fall into the
mainstream of financial services. But, at the same time, we have found that we can make
a profit and also uplift those particular communities.
Well, let me kind of move on and discuss some particulars. For us, serving those
communities is important and for those who live there, we are an important part of that
community. And although we can’t, at this point, do it on a national level and we don’t
hit the charts, if you will, in terms of large statistics, other minority banks around the

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country do the exact same thing. That is why you see so much objection when our
institutions close or are looking to be sold to non-minority institutions, or why you
have public debate when major institutions close branches in those neighborhoods, particularly in this case after an acquisition.
One of the things that we think worked very well was the branch breakup. It
allowed institutions like ours to look at individual branches within a branch system. In
this case, we bid on John Hanson Federal Savings and Loan, which had approximately
nine branches. At the time it was resolved, it was about $150 million. The branches
were spread out from north of Baltimore to southern Prince Georges County, Maryland.
And, for an institution like ours, we had a focus on only 2–4 branches. We ended up
choosing two that we thought we would bid on. And although I believe the efforts were
to sell John Hanson as a whole institution, later it was broken up by branch. You could
bid individually on branches, clusters of branches, or the whole institution and I believe
the deciding factor probably was the least cost test.
In that vein though, I believe by breaking it up, you got more interest from community banks that wanted one or two branches. They had a branch on the eastern shore
and I believe a community bank down there purchased the branch on the eastern shore.
We had no interest in it, but a bank operating on the eastern shore certainly did. In the
end, it probably brought a greater premium to the RTC by breaking the branches up
and offering them in a number of different ways, either in clusters, per branch, or as a
whole institution. So, I think that is something that works extremely well. I think it is
something that all community banks would like to see in the future. Our branches that
we targeted, obviously, were much more valuable to us than they would be as part of a
whole bank resolution. I think that has the effect of raising the premiums.
The second thing that I believe has the effect of raising the premiums is the minority institutions program itself. For those branches that have a particular interest to us
that others may not have, has the effect of raising the premium to the RTC and FDIC.
There were a number of benefits that we were able to take part in. There was in the
law a “preference” and I say that in quotes because it was essentially zeroed out by the
least cost test. But the way it was implemented was if a minority institution bid within
10 percent of a bid of another institution, the minority group was allowed to go back
and re-bid. We won one of our branches hands down. It was that valuable to us. It was a
branch that had some office space and we bid very aggressively. The other one we were
able to purchase from the core acquirer.
Interim capital assistance was a good program for those trying to establish new
minority institutions in minority neighborhoods. It originally was designed for that purpose, to be short-term interim capital assistance. It was later expanded so that existing
institutions could make use of it as well. We probably used about 25 percent of what we
were actually eligible to take down. It came in the form of a note and we were very risk
adverse. We raised about $1.1 million in our own capital and took a million dollars in
the interim capital assistance, which we will pay off when the time comes.

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It was a good provision. It was a smart move to expand it to existing institutions
because although it was intended to develop new banks, there were not a lot of new
groups coming together to take advantage of some of the resolutions in those neighborhoods. There were some that were successfully created, but our position had always been
that we, as existing institutions that were profitable and sound and that had been operating in these neighborhoods for a long time, could probably do a better job.
It proved a little true in the acquisitions process when there was a minority group
out of Connecticut that wanted to actually buy all of John Hanson. The short story was
that group came forward and made a bid that they could not actually close on, and
much to our displeasure, we had to bid on it twice. There was a second round of bidding
in which we increased our bid particularly for that one branch that had the office space.
It did prove as to why the ICA was useful not only for short-term interim capital for
new institutions, but for those that had been in existence for awhile.
We were able to purchase loans, which was another very attractive part of the program. We sold some of those loans. I’ll talk to you a little bit about the accounting treatment under the sale, and we were able to occupy the entire branch on one of those owned
facilities “rent-free.” I put that in quotes because the way we had to treat it from an
accounting standpoint, there was some and is some existing amortization costs to that.
In terms of what our accountants did, we weren’t real happy, but we went along with
it and, in the end, it was a more conservative approach, but it benefited us more so than
taking short-term benefits. We made a small profit on the loans. We didn’t get rich on
any sale by any stretch of the imagination. Our auditors did not allow us to book a
profit. What they did was add it to, as part of the premium. They took all of the benefits
that we had under this minority program—and I think this was an excellent way to treat
it rather than to shoot for the short-term benefits, such as occupying the branch on a
rent-free basis for five years. They assigned a value to all the benefits under the program
and said we must amortize them over the period that applied, which was five years. So,
we’re writing that down. Of course we had to write it down as core deposit intangibles
and core deposit values, and they also incorporated the profit on the sale of the loans.
They actually looked at the discount and made that a segment of the premium, or actually deducted it for capital purposes as part of the premium. So, we didn’t get the shortterm profit benefits from that, but what we did get was an immediate impact to tangible
capital from that treatment.
That is really the conclusion of my remarks and in summarizing, I think the important thing is that we all recognize the importance of financial services in low- and moderate-income areas. They can be very difficult to find for those in those neighborhoods.
We just opened a branch in Washington, D.C. in what I would consider a moderate to
middle class income neighborhood—a very stable bedroom community in Washington,
D.C. where the home ownership rate is probably well over 60–70 percent. But, ironically, we are probably the only one of two branches within that neighborhood. There
has been a lot of consolidation. There has been a lot of branch closings, and actually the
building we are in was the home of Meritor Savings when they were taken over and

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eventually the acquiring institution left. That is what our mission has been—to serve
those particular neighborhoods where those individuals need financial services. That is
how we’ve made our niche. That is how we’ve made money. They handle their business
very well. So, I would encourage going forward, that the programs are crafted with the
branch breakup as a way to resolve institutions. I think there probably should be a study
conducted on branch closures in minority neighborhoods, and a study on the public
policy benefits of offering benefits to any institution that may want to acquire branches
in low- and moderate-income neighborhoods. Again, I would also be happy to take
questions when we get to the Q&A. I’ll turn it over to Jim at this time.

Jim Montgomery, Past Chairman
Great Western Financial
Thanks very much. It is nice to be with you this morning. It is not a terribly pleasant
subject to me that we’re discussing this morning. I lived through the thrift crisis in the
1980s in this country, a lot of my good friends flew over the cliff, and it was not a pleasant thing. But, it is important, I think, for all of us to look back on that time and learn
some lessons and make sure we don’t repeat a lot of mistakes in the future.
I was asked to cover three subjects, dealing with the RTC, entire franchise deals and
acquiring a franchise after conservatorship. I’m probably an expert on these subjects. I
think we were probably, if not the RTC’s number one customer, pretty close. Quoting
from our 1993 annual report, “Since 1990, Great Western has completed 12 acquisitions totaling $14.2 billion in deposits.” The names on that list are kind of interesting.
The largest thrift failure, Home Fed of San Diego we acquired the remains of. The two
most infamous thrift failures, Lincoln Savings with Charlie Keating in California, and
Centrust Savings with David Paul in Florida, the remains of those two institutions
became part of Great Western. It was an interesting time. It helped our company but
that is the hard way to do it.
We involved ourselves in a lot of the activities that resolved thrift problems, including the management consignment program, which hasn’t been mentioned. We did lend
some of our senior officers to institutions to help work out problems. But, I want to
spend a minute on one resolution program that we at Great Western did not take part
in. I think it is a very important thing to look back on. I haven’t seen it discussed a lot in
the reflections on the thrift crisis and I think it should be focused on. That is the early
resolution program adopted by the thrift industry with the help of the Federal Home
Loan Bank Board and the then-FSLIC. That was the acquiring of one thrift by another
using a technique called purchase accounting. Let me just give you some numbers.
As was mentioned earlier, the early thrift crisis was an interest rate crisis. There
weren’t troubled assets as such, but thrifts had a lot of fixed rate loans on their books and
were paying more for deposits than they were receiving for loans. So, they were going
broke with literally no problem assets. I think it’s interesting that Great Western was one

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of the few major companies in the thrift business that did not take part in this resolution
process of using purchase accounting. One of the reasons it’s interesting is because I created the technique to do this. It was originally called the Montgomery Plan. I was sitting
in a meeting of our trade association around 1980. We were all reflecting on how we
could deal with this interest rate crisis in the business and how could we induce the
healthy institutions to acquire the failing ones. Well, with my accounting background I
was working on a process that, as I say, eventually became the Montgomery Plan. Under
purchase accounting, most of you probably know you mark the assets of the acquired
company to market. In this case, we’re talking about a loan portfolio.
Let me give you some specific numbers because this is actually a case we were working on in Florida. A billion dollar institution, a billion dollars in deposits, essentially a
billion dollars in loans and no net worth. Their net worth had disappeared because of
the losses. Now, the loans were worth about $700 million in the marketplace at that
time because they were at very low interest rates and we were in a double-digit interest
rate environment. If you acquire that company, you mark the assets to market, which is
to write them down to $700 million. The offset to the transaction is not to charge net
worth, but to create a goodwill account under purchase accounting. Now, if you mark
the assets to market, the technique that was allowed was to amortize that discount into
income over about seven years. Accounting literature at the time allowed you to amoritize goodwill to expense over 30 years. So, look at the implications for your financial
statements. You amortized the discount on loans in the income—about $45 million a
year for seven years. What is hitting your expense account is $10 million a year because
you’re amortizing the expense over 30 years. The Montgomery Plan said that taking that
example, the FSLIC’s cost of resolution should be $300 million, because that is the difference between the assets and the liabilities. But, if they were to, in effect, fund the
amortization of the goodwill over 30 years—in other words, write a check to the acquiring institution for $10 million a year each year for the 30 years, everyone would benefit.
The government would spread out the cost of their resolution over 30 years, the institution that is doing the acquiring would have seven years of very good income stream
under which it could restructure the assets of the acquired institution, and I thought
everyone would benefit.
The reason that we didn’t use the program is because it was changed in one very
important way. What the government said is, we’ll allow the write down and the creation of the goodwill account, but we won’t fund the amortization of the goodwill. It
was at that point that I erased my name from the Montgomery Plan. My point was, if I
acquire deposits of $1 billion that I have to pay out at par, and I acquire assets of $1 billion that are worth $700 million, I’ve paid $300 million for that transaction, regardless
of what the accounting says. So, we said we wouldn’t do that.
It was an interesting thing that happened during that time. We created $27 billion
of goodwill on the balance sheets of the thrift industry in the beginning of the 1980s
through this accounting technique. Now, did that cause the thrift crisis? Certainly not.
Did it add to it? Yes it did, because, what you had was a seriously undercapitalized

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industry growing on a rather thin tangible capital base, and what happened afterwards is
a lot of bad assets were created by people like David Paul and Charlie Keating, who got
a hold of these institutions with very little capital investment and then we had the second wave of the thrift crisis, which was the asset-based problem. It was a much larger
problem because this technique allowed time buying for institutions, and a lot of things
happened in the 1980s that were not very pleasant.
It is interesting that when the seven-year period ran out towards the end of the 80s
and there was still a lot of goodwill on the books, that is when a lot of failures took
place. That is not a coincidence. It is something that I think is interesting to look back
on and I’m frankly surprised that I have not seen this discussed very much in the literature about the thrift crisis. Now, maybe it is in the studies that we’re being presented
with this week. I hope so, because I think it is a very important lesson to be learned.
To bring it up to date, I was interested when I picked up a newspaper about six
months ago and read that the required capital for a new thrift institution had been
reduced from $3 million to $2 million. I found that rather curious and I wondered why
that took place. This comes at a time when the cost of deposit insurance to an institution, new or old, is essentially nil. I wonder why we would want to capitalize institutions
at a relatively small amount, times are good, things are wonderful, and I’m not predicting another crisis in the offing, but I think the most important thing we have to have in
our financial institutions is a strong capital base. The line of defense between the crazies
and the insurance fund, if you will, is having people with their own serious money at
risk. So, I’m a little surprised that we reduced that capital requirement to where it is.
We are capitalizing a new thrift institution, which was mentioned, Frontier Bank in
Utah. We are capitalizing it at $6 million and I think that is a lot more sensible for an
institution. I just think it’s important to look back. Do I blame the Federal Home Loan
Bank and the FSLIC? No. I think it was kind of a smart move on their part because
what they were able to do was resolve a lot of cases without writing any checks. From
their standpoint at the moment, it probably made a lot of sense. The problem was, without tangible capital, those institutions really were not able to make it, even under lower
interest rate environments, without doing a lot of risky things. And we have seen the
results of that.
I remember results very well and people tend to blame the regulators during some of
this crisis. Well, I testified before Congress at the beginning of the 1980s saying that the
unlimited use of brokered deposits in the deregulated world was going to be a disaster.
I’m sorry that I’m as right as I was, but think about it. It was the first time in the history
of the world that we would insure the cash flow of a seriously undercapitalized institution with very few questions asked. Now, where were the examiners? Let me tell you—
you can do a lot of mischief between examinations, if you can pick up the phone and ask
Wall Street to send you as much money as you want, put it in hundred thousand dollar
increments, and pay a higher rate than someone else.
I remember in the old days, under rate control, we all paid the same rate and we
could only have 5 percent of our deposits from money brokers. We said two things at the

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beginning of the 1980s. You can pay anything you want to for deposits and you can get
as much as 100 percent from money brokers. We had an institution in California that
grew from zero to $2 billion literally overnight and lost it all. Now, that can all take place
between examinations, so you can’t really blame the regulators. The reason I remember
this particular example so well is that this institution had no retail branches, one office
on the second story of a building, and got all of their money by telephone. That office
happened to be the second story of a Great Western building, and when the T.V. focused
that evening on this great failure, all you could see was the Great Western sign.
These are important things to remember. We ought to be very vigilant to make sure
that we don’t forget these lessons of the past, and repeat them in the future.
Thank you.

H. Jay Sarles, Vice Chairman
Fleet Financial Group
Good morning. I would like to read you a couple sentences from a December 1992
Harvard Business School study to set the stage for my remarks.
“At 5:00 p.m. on April 22, 1991, the tension at Fleet Financial Group headquarters
was palpable. By the end of the day, William Seidman, the Chairman of the FDIC,
would announce the name of the firm that would win the right to acquire the failed
Bank of New England. To Terry Murray, Fleet’s Chairman and Chief Executive, acquiring BNE in an FDIC-assisted transaction would be a strategic coup. BNE held solid
Massachusetts and Connecticut franchises that Fleet needed to become the dominant,
super-regional commercial bank in New England. Furthermore, the transaction would
be low risk to Fleet, the FDIC would take ownership of all BNE’s nonperforming assets.
Murray had stitched together a partnership with Kohlberg, Kravis & Roberts (KKR) in
record time to raise the capital that Fleet needed to make a serious bid. The only question was whether the FDIC would find it more appealing than the bids submitted by
Bank of America and Bank of Boston.”
Needless to say, as history bears it out, we were the winning bidder.
What I would like to do this morning is spend a little time giving you our view of
how it happened, how it worked, and why it was successful.
To give you a little bit of history, the Bank of New England failed in January 1991.
A bridge bank was established immediately thereon. From February to April, the FDIC
ran a due diligence and bidding process. The deal structure, as indicated, was a good
bank/bad bank. The good bank would be divested of all nonperforming assets, including
a right to put future nonperforming assets. There would be a bad bank created that
either the bidder in a separate transaction could manage, or another party could manage.
We were the successful bidder, as you know, in April of 1991 and the actual transaction
closed in July of 1991.

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What made it work from our standpoint? It was very attractive from a financial
standpoint. In the short term we enjoyed guaranteed earnings from the good bank and
we had fee income from the bad bank. Furthermore, it gave us the opportunity to build
a very strong franchise in New England. So, it wasn’t just earnings; we ended up with a
tremendous franchise in New England. Finally, we could minimize the risk because we
had the right to put to the FDIC any assets that turned bad over the next three years. So,
in a time where there was tremendous risk and tremendous uncertainty, we had an ability to get rid of those bad assets. We could clearly determine what our risk was and it was
an operating risk and not a loan loss risk. Because of the reasons outlined, the transaction gave us the opportunity to attract almost $300 million in capital from KKR.
The way the transaction was structured, Fleet Financial Group was the purchaser,
but we had raised money from KKR—$283 million. Initially, KKR wanted to structure
a joint venture with Fleet—a 50/50 joint venture to purchase Bank of New England.
Through five days of negotiation, we convinced them that would not be a successful way
to win the bid nor to manage the company, and we convinced them to invest in Fleet,
thus enabling us to bid on Bank of New England. But, they were concerned because
while they were getting a clean bank with Bank of New England, they had Fleet to deal
with and we had our own problems. So, they came up with an innovative structure,
Dual Convertible Preferred. Essentially, they made a $283 million investment in Fleet.
They were in a position either to convert that up into Fleet shares, 22.5 million Fleet
shares, or down into a 50 percent interest in Bank of New England. The downward conversion, which is something neither of us wanted to happen, was there in case Fleet had
problems. It would give them a 50 percent interest in a clean bank and preserve the
value of their equity investment.
The prize was obvious. It was a $15 billion bank with a very strong franchise. We
[Fleet] and KKR invested $500 million in capital to capitalize the bank. We ended up
with $200 million in annual earnings out of this, after 18 months, or essentially a 40
percent return on our equity. KKR made an investment in Fleet of $283 million. Today
it is worth $2.25 billion or a profit of $2 billion.
Now, to be fair about it, obviously there has been a tremendous run-up in bank
stocks. But, if you look at it from when they invested the money to when we renegotiated the downward conversion out, their investment essentially went from $283 million
to about $1.0 billion. They received about a 35 percent compounded return. For those
of you who would be interested, that compares to a 17 percent compounded return for
the S&P 500 in the period.
From our standpoint, it gave us the size, the earnings, and the capability to grow
into the $100 billion financial institution we are today, the tenth largest bank in the
U.S. in terms of size and market capitalization. Without the Bank of New England deal,
we would not be where we are today.
What made it work for Fleet was our experience in mergers and acquisitions and
our ability to get costs out. Short term, what drove this deal for us was we received a
clean bank, we were able to get $350 million in costs out, and we convinced the FDIC

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that Fleet could make the transaction work. Obviously, getting a clean bank put us in a
position to have strong earnings, a major help to Fleet at the time. We also got fee
income from the RECOLL subsidiary. Without question, much of the quick turnaround and the profit was because of the turnaround in the economy, fueled by lower
rates. But, it was clearly something where because of the structure and because of our
capabilities in mergers and acquisitions and cost savings, we were able to turn it into a
winning situation in a short period of time.
Looking at the transaction from the FDIC’s point of view, three things were accomplished for the FDIC. First, they got a quick resolution of a large bank failure. It was six
months from the time they put it into receivership until the time we took ownership of
it. This obviously freed up their resources to deal with the continuing issues that were
confronting the banking business. One-third of the financial institutions in New
England went broke in this period, so there were obviously a lot of call in terms of their
resources. Also, it returned the management of the bank to the private sector.
Secondly, it attracted new capital to the banking sector in the form of KKR’s $283
million investment. Third, and most important in my view, by the structure they came
up with, by putting it in the hands of a New England bank, it really went a long way to
helping stabilize the New England banking environment. I think that was key, from the
regulatory standpoint, because Fleet was now in a position to lend money again. We
were in a position to support the local economy at a time when it desperately needed it.
For the next couple of minutes, I would like to just touch on one of our subsidiaries—RECOLL. As part of the BNE transaction, we ended up forming a subsidiary
called RECOLL, which entered into a five-year contract with the FDIC to manage
BNE’s bad assets. This operated independently from the bank. Tom Lucey is in the
audience. He was picked to run this operation and he toiled over the next several years
with the FDIC to make it work. It was a big job. He was handed $6 billion in assets on
the first day of the job—with no company, no people, etc., other than the people at the
Bank of New England. We put an additional $750 million in assets into that subsidiary
during the next two and one-half years.
How did RECOLL work? On the next slide you can see it was a wholly-owned subsidiary of Fleet. Its sole purpose was to manage and liquidate the bad bank. At one
point, we had 1,200 employees. I think the structure that the FDIC came up with was
innovative and worked very well. Essentially, we got paid, as a percentage of net cash collected, and that was defined as actual cash collections, less interest expense and less two
times the expenses. We got paid starting at 1.5 percent and it could run up ultimately to
26 percent, depending on how much we collected over the period. We never got to the
26 percent. We got to 18.5 percent and as I said totaled about $140 million in fee
income over three and one-half years. So, from that standpoint, it worked very well.
Interestingly enough, we had no public policy issues in terms of the acquisition of
Bank of New England—the good bank—but we did have a lot of issues in terms of
RECOLL in New England. It goes, in my view, to two things. One was the collection
philosophy—a liquidation approach. The FDIC is charged with liquidating these assets

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at least cost to the fund. So, at a time when New England was struggling, businesses
were saying, we don’t want liquidations to happen, we want support. So, there was a tension between the businesses and ultimately the politicians and the FDIC mandate. Secondly, RECOLL was obviously incented to collect those assets because it was only cash
that counted. If you restructured the loan, until you sold that loan, you didn’t get paid.
So, there was a feeling that RECOLL was out there liquidating as fast as possible in
order to make a profit. In the political environment, that was a tough one. There are a
number of people in this room who worked with us. We went to hearings before the
Senate and the House and we dealt with the staffs of various New England Senators and
Representatives. It was a tough political environment.
One of the things we learned early on was that just saying no wasn’t going to work.
We set up a group in RECOLL that did nothing but deal with the staffs. We had a hotline with the FDIC to deal with any issues that they got. Most importantly, we came up
with an innovative structure which Mitchell Glassman and I worked out. This was the
“soft seven” portfolio structure. Those were loans that were classified, mostly loans to
small businesses, but they were loans the businesses were paying interest on, were current on, and the only reason they were classified was because there wasn’t enough collateral to support them. Fleet bought those loans out of RECOLL and took them back
into the banking system. The FDIC was innovative enough to realize we needed to do
that. We bought $780 million of them, but the FDIC gave us the right to put them
back if they went bad over the next three years. That program was an enormous success
in terms of taking assets in liquidation and putting them back into the banking system.
It basically went a long way in dealing with the public policy issue. Once we put that
program in place, then the number and volume of complaints came down dramatically.
As I said, I would give the FDIC enormous credit for their flexibility and for their
understanding of what had to be done.
Finally, in terms of lessons, I believe this was a very good private/public partnership
between Fleet and the FDIC through this period of time in terms of structuring the
deal, working out the deal, working with RECOLL. They were innovative and they
were flexible. I wasn’t necessarily a believer then, but I have become a believer that the
accelerated asset disposition process in cleaning things up is the right way to go, I think
we’ve seen that in terms of how quickly the financial system bounced back.
One last thought: you need to be politically sensitive. You can’t operate in this country without understanding that and responding to both economic considerations and
political considerations. Fleet and the FDIC, I think, did a reasonably good job on that
front. The economic recovery was a huge help. Without that, it would have been much
tougher slogging. Much of what I have said here really goes to the fact that the resolution process has to be flexible to meet the conditions at the time.
I close with one last remark and that goes to this question of least cost. I just want to
thank the FDIC for the creative use of least cost assumptions with regard to BNE.
Thank you very much.

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Stan Silverberg
Banking and Economic Consultant
I’m pleased to be here and to have an opportunity to see some people that I haven’t seen
in a while, people that I’ve worked with and some old friends. I’ve been asked to talk
about too big to fail, open bank assistance, and forbearance. That is a lot. Let me see if I
can run through some of this fairly quickly.
First of all, it is hard to get excited about these things. We have had a strong economy and no significant failures for five years. We’ve eliminated competition from insolvent institutions and undercapitalized institutions. As a result, we’ve got record bank
earnings and very high stock valuations. If we have a troubled bank, it is likely to be
carefully examined by healthy institutions and snapped up without any assistance, unless
it is substantially insolvent. I think that as long as there is a strong banking environment,
there will be fewer failures, and most resolutions are going to bypass the FDIC.
Still, I think that we can’t go on the assumption that there aren’t going to be failures
and some of these problems that we’ve dealt with in the past aren’t going to come back.
Otherwise, life at the FDIC is going to be very, very boring over the next decade.
Let me make a brief comment on forbearance. In principle, everyone, especially
economists, hated it; but when it has been employed consciously with respect to groups
of banks with appropriate monitoring, it has actually worked fairly well. Two programs
in particular, the savings bank net worth certificate program and the farm bank program,
both had heavy political support. My recollection is that Bill Isaac publicly opposed both
of them and complained about them. With respect to the savings bank program, I think
the FDIC staff felt that with appropriate restrictions on their behavior, that you could
take an insolvent savings bank, make an assumption that interest rates were going to
remain relatively constant, and factor in that long-term assets would appreciate as they
approached maturity and that would offset some of the earnings losses. And then there
were some benefits from a delayed resolution. The numbers actually led you to the conclusion that this really was not a particularly risky program, we didn’t have to assume
that rates were going to decline to make this program work out, and many of the savings
banks in fact did ultimately survive and recapitalize. Some did not.
What conclusions can we come to from a forbearance program? Well I think, again,
if it is monitored carefully and you don’t let undercapitalized or insolvent institutions
expand or behave inappropriately, under certain circumstances it seems to work.
Whether it is something to happen and to be used in the future, that is hard to say.
I would like to mention that there was another very substantial forbearance program
in the late 70s and the 80s. That related to the treatment of sovereign risk loans. Had the
regulators insisted on realistic write-offs of Latin American loans, a number of the
money center banks would have been in much deeper trouble than they were, and perhaps some would have become insolvent. That too was a situation where the delayed
recognition of losses gave banks time to eventually work out of their situation. It is not

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as though those loans became good—earnings from other sources offset delayed writeoffs. So, again, something that is hard to defend in principle, worked.
Let’s talk a little bit about too big to fail. There are two questions here. One is, why do
we do it? I think that is easier. And, what do we mean by it? And that may be a little harder.
I think the “why” is basically that if you have a situation where there are no good
options to deal with a large failing bank, you’ve got to try to do something else. I think
the Continental case stands out because concerns were real. There were, in fact, a few
purchase and assumption possibilities. Not only would they have been very expensive,
but I think they would have been subject to more political criticism than the transaction
that ultimately occurred. The notion of paying off Continental was never a serious consideration. I think it is important to appreciate that the FDIC did not have the capacity
to pay off a bank that size, and quite frankly, I don’t think the FDIC today has the capacity to pay off banks with a very substantial number of deposit accounts, at least not without many problems. Perhaps I’m wrong and I would be interested in hearing about that.
But, the concern too was that any significant loss to depositors would have probably
had substantial impact on a number of money center banks that were in serious trouble.
I recall that when the loan was made by a number of New York banks at the time to
bridge Continental’s liquidity situation, the most vocal supporter of that was John Magilacutty at Manufacturers Hanover and for good reason. Our concern was that they were
clearly the most exposed bank and would have experienced a substantial run if, in fact,
some depositor losses were inflicted on Continental. Unfortunately, it was not a good
time for a P&A transaction. Continental, at that point, had little franchise value. There
were few interested parties. Prevailing rules with respect to interstate branching or permissible activities limited foreign interests, and while there was a possibility of changing
the law to accommodate a domestic P&A, the general environment was not a healthy
one. The more logical bidders were not in very strong condition.
I think that in today’s environment, until we started to look at the top two, three or
four banks, it would be hard to think of a need to do open bank assistance for a bank in
Continental’s situation. Continental was perhaps the 10th largest bank at that time. I
think there are lots of options today. There are, perhaps, at least a half-dozen strong foreign banks as well as domestic banks that would give you options for a very large P&A
transaction.
But, the other aspect of too big to fail is, are we willing to impose losses on depositors in very large banks and whether we have the capacity to do it? There had been some
proposals in the past to haircut large bank depositors in the P&A transactions. I think I
wrote one of those for the American Bankers Association several years ago. But, the
FDIC has never seemed to be enthusiastic about those options. So, I think what too big
to fail has come to mean is that by and large, we are not going to have depositor losses in
the largest banks; and in fact, it is my impression that we probably have not had any
depositor losses in any bank over about $2 billion. Also, I don’t think we have had any
losses to foreign depositors in any U.S. bank failure.

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Is this a cause for real concern? There is obviously concern about fairness, that similarly situated depositors can be treated differently in different banks—competitive concerns that uninsured depositors in smaller banks are exposed to loss and larger banks are
not. There is also concern that short-term practicality is going to undermine longer run
financial market discipline.
What is the reality here? First of all, smaller banks and medium sized banks, actually
hold very little in the way of uninsured longer-term deposits. In most bank failures, the
amount of uninsured depositors by the time the bank fails tends to be very, very small.
Actually, it’s the larger banks where that becomes an issue because if you started out with
50 percent of your deposits uninsured, there is a limit to how much depositor flight you
can absorb without the regulators stepping in.
As far as the question of discipline is concerned, I think there is enough ambiguity
and uncertainty in the law so that depositors are still not going to feel that comfortable
in a large troubled bank. The large depositor is going to feel exposed and he’s going to
try to get out. There are pressures on fund managers to get out. The behavior of the
bank itself is going to be influenced by the fact that if it gets into trouble, it’s going to
have a liquidity problem. So, I think that whether or not we impose those losses, people
behave as though those losses are going to be imposed and I don’t think discipline is substantially undermined. I have to confess to having some ambiguity in my own feelings
on this issue, and I’ll come back to this.
There is also a lot of supervisory discipline that we didn’t have before. We have riskbased insurance premiums. Not only is there a cost associated with it, but for a publicly
owned bank, it is very easy to determine that a bank is paying a high deposit insurance
premium by just looking at its financial statements. There is a greater willingness to pursue enforcement actions and again for a publicly-owned bank that is going to be considered a material event and require disclosure.
We’ve got improved data quality. The quality and speed of reporting is such that
large banks have got to be very sensitive to the market implications of getting into difficulty. So, if there is a problem about not imposing losses on depositors in large banks, as
a matter of principle, I don’t think the actual behavior of the institutions is going to be
dramatically influenced by that fact. Maybe a series of bail-outs of depositors in large
bank failures will change that. But, at this point I wouldn’t have great concern.
On the other hand, I do believe that on occasion, imposing losses on depositors has
actually produced some positive results. When depositors at Penn Square were paid off,
it got an enormous amount of attention. It had a substantial impact in the marketplace,
and actually caused the Federal Reserve to ease interest rates at a time when Fed policy
had probably been too tight. Occasionally that kind of market phenomenon can have a
positive effect in terms of forestalling overly aggressive behavior. That was 1982. In
1983, there was an opportunity to pay off Midland Bank and Texas Bank. The Comptroller was reluctant to close the bank. The bank was not paid off. Eventually, there was
a P&A. I have this vague feeling that if Midland Bank had been paid off, that some of
the subsequent problems in Texas would have been reduced. Again, this is all hindsight

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and it is easier to look at something like this as a matter of hindsight. Also, it isn’t clear
whether it is the FDIC’s role or whose role it ought to be to sort of shock the market and
impose that kind of behavior.
Well, what about the future? I think that consistency is a nice thing to have, but the
reality is that sometimes you have to depart from consistency, and I think the FDIC, by
and large, has done that at appropriate times, and sometimes done it reasonably well. I
think that the more serious issue when we talk about too big to fail relates to what about
the three or four or so really big banks. Could we do a P&A with Chase or could there
be a P&A connection with the forthcoming NationsBank/Bank of America combination? Maybe you can and maybe you can’t, but I think the answer probably is that there
are so many potential difficulties that policy ought to be geared so that it doesn’t happen. What that probably means is perhaps more monitoring, perhaps a higher capital
requirement or a higher threshold where enforcement action occurs. Presumably there is
no great difficulty if a large, complicated institution is under pressure to recapitalize and
sells off parts of its institution. It is a lot easier if that is done at an early stage than if it’s
done in connection with a failed bank transaction. So, I think the answer there has got
to be that the best way to deal with it is to make sure it doesn’t happen and to take the
appropriate action to forestall anything that may be happening.
As a final comment, I’m also left with a couple of question marks about big bank
failures. One is the ability to impose losses on depositors in very large banks. The other
is whether there is any real system in place to deal with a situation where a large U.S.
bank with foreign branches fails. Each country has its own rules. There are capital
requirements that are imposed on foreign branches, and to assume that the FDIC would
somehow be in control of a resolution, probably is not correct.
Again, I think those problems are so complicated that the appropriate strategy is to
make sure they don’t happen and to deal with those few U.S. banks that have sizeable
operations abroad in a way to make sure that any potential problem is resolved well
before failure is a possibility.
Thank you.
Wigand: At this point in the program, we’re going to turn to our question and
answer session. While the participants, meaning you in the audience, are perhaps jotting
down some questions you may have, I’m going to follow-up with some comments that
Stan made and ask questions of the other panelists and that is, what do you think about
the too big to fail doctrine, particularly in light of the consolidation of the banking
industry where we’re going to have a fairly segmented banking industry in which we
have many banks which are small and operate in community niches, if you will, and a
handful of very large institutions, the likes of which this country has never seen. So,
given that question, why don’t we just go down the row. I think Stan has already given
some comments on that, but I would like to hear what the other panelists have to say.
Hartheimer: I guess my view is that in this country since deposit insurance was created, we’ve enjoyed a relatively calm banking environment from the standpoint of the
depositor. Notwithstanding that banks are getting larger and larger, I think that while no

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one at the agency would ever admit that too big to fail exists, it has to exist. It brings up
words that I remember from a couple years ago, of systemic risk and contagion and all
these great, interesting words. But, I don’t think there is discipline in the market that
would really ever believe that this government would let Travelers/Citicorp fail. I think
you have to take that along with the fact that it is a consequence of enjoying depositor
protection. So, I believe it effectively exists, but you would never really know it until you
and John walk up to that little conference room off the Chairman’s office to say, well, we
have a problem. How are we going to handle it?
Mitchell: From my standpoint, the doctrine obviously works counterproductively to
community banks. We see a lot of people who limit their deposits to $100,000 and may
not do so at other banks simply because they know that doctrine exists. At the same
time, the issue for the FDIC to consider is that it insures essentially all deposits under
that doctrine.
The problem with it also, the third thing is that it doesn’t encourage that discipline.
So when someone, a business and/or an individual, is placing their money in a financial
institution, they have to be remotely concerned about the general health of that institution. Usually these failures don’t come overnight. They can be forewarned. I don’t think
it encourages that kind of market discipline that I think should exist.
Finally though, if there was such a policy, it could force deposits out of the banking
system altogether and even though it may not be fair to community banks, that is not
something I think we as community banks would want to see either.
Montgomery: We’re going to open Frontier Bank on June 1st. I think by year-end,
we will be too big to fail. I don’t want to belabor this. I agree with what has been said
before. I think you don’t telegraph it in advance, but in fact there are banks that are too
big to fail and we’re just not going to let it happen.
Sarles: I would agree. With the very large banks, they probably are too big to fail. I
think you go to Stan’s point. You’ve got to make sure that they are very aggressive in
maintaining capital in those banks so it limits the chance of a failure. You need strong
supervisory involvement if problems happen to try to begin to think through what you
need to do and basically prevent it from happening. Third, I think you need to begin to
think through changes in the Federal Deposit Insurance approach. While that probably
is an anathema with the politicians, I think with the changes in the financial services
business that we need to begin to address that and determine whether something like
that is absolutely necessary for some of these large banks. Maybe it is only necessary for
banks under a certain size. I think we need a debate on that. In my view, one of the
greatest disasters that happened was because of brokered deposits. The problem that Jim
said should have been a small problem was magnified by growth from brokered deposits.
We allowed banks that were community banks with $15 million in assets, that might
have grown to $100 million and after failure could cost you $10 million. Instead they
grew to $2 billion in six months with brokered deposits and cost the fund $300, $400 or
$500 million. The brokered deposit situation has to be changed.

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Wigand: All right—thank you. Now, it is going to be the participants’, the audience’s turn. We have several people placed throughout the room with microphones. Do
any of you have any questions for our panelists?
Joseph: My name is Milton Joseph. This is really a question for Mr. Silverberg, but
I think perhaps Mr. Montgomery might have a thought on this. It is a thrift related
question. During the early 80s, without being redundant, obviously the problem was
systemic interest rate environment and the whole host—no need to repeat all that. But,
to me, one of the real tragedies of the thrift industry was Financial Corp. of America—
the Charlie Knapp situation. He was the granddaddy, really, of what turned later into
the real thrift problem, the credit quality problem. When Knapp was allowed to merge
with American, which was really sort of a sleepy but not a problem high net worth ratio
S&L, he got the ability to really go forward. I was just wondering, what motivated, in
Mr. Silverberg’s opinion and perhaps Mr. Montgomery’s opinion, the federal regulators
to allow somebody with that kind of background who really typified what was wrong
with the S&L industry to gain the ability to run an institution of that size, which ultimately created a real thrift catastrophe?
Silverberg: Without commenting on Charlie Knapp, perhaps Jim will, I would just
say that you had a situation where the industry was dramatically undercapitalized. I
would be much more critical of the regulators. I think that there was an attempt to grow
out of the problem. There was an unrealistic assessment about the benefits of commercial real estate lending for institutions that had no experience in the area, and that
turned out to be the worst possible time to get involved in the activity. But, I think that
when you come down to it, the Bank Board didn’t have the funds and they weren’t getting the funds from Congress. It was like trying to keep a lot of balls up in the air with
the hope that somehow a combination of lower interest rates and other events would
bail them out. But, it really was sort of a classic case of rolling the dice when you are trying to deal with too many insolvent institutions.
Montgomery: Charlie was one of a number of flamboyant operators in the business
at the time and there was a lot of cheerleading going on from Wall Street and other
places about that situation. One of the things that I’ve always found very strange, we did
some studies inside Great Western when we were working on this so-called Montgomery
Plan. There was a prevailing thought that the business was the victim of high interest
rates, and once interest rates came back down, these seriously undercapitalized institutions were going to be okay. Our studies showed that wasn’t the case. You couldn’t make
one of those things turn around, no matter how low interest rates got, unless you did
some very crazy things on the asset side of the balance sheet, which is what happened in
a lot of cases. There was a lack of understanding of the fact that once an institution’s
capital was gone, that capital base was very important not just for safety but for earnings,
and they didn’t have enough of a spread type of income available to them from traditional thrift activities to take an institution that didn’t have capital and make it viable. I
think the misunderstanding of that situation caused a lot of people to incorrectly think
you could grow away from this problem. While you can see some interesting, dramatic

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results in some institutions on a short-term basis, it didn’t seem sustainable and it turned
out not to be.
Burdick: I’m Glen Burdick from A.E.W. Capital Management. A couple of the panelists, particularly Bob and Jay, touched on incentives, I think from both the public sector and from the private sector, and I think both in a positive way. To follow-up on that
question, I would be interested in the panelists’ perspective on whether the incentives
that the public sector, i.e., the FDIC, received under various programs generally were
fair, appropriate, and are there particular things, if we get into this situation in the future,
are there particular areas where incentives may be better focused from the public sector?
Sarles: I think the challenge at the time for the FDIC was to attract capital into the
system and to deal with an onslaught of problems and so forth. So, I think what they
were trying to do with a combination of their own thinking, Wall Street, etc., was to
come up with different ways and different means of incenting people to put capital at
risk or to get involved. That is to their credit. I think that part of the problem is that
because it is a public entity and because of this, you’ve got a doctrine of least cost and all
the rest of it, there is a conflict there. I’m all in favor of a process that at least puts it out
to a bid-type situation and offers incentives because I think that works best in attracting
capital in this country and attracting management. The more you can do the better. The
difficulty is that the minute you begin offering an ability to wheel and deal, you’re going
to have people second-guessing saying, oh, they didn’t follow this rule, or oh, you didn’t
do this right—my God, haul them up before Congress and let’s beat the living whatever
it is out of them. That is too bad. There is a tension there. On the one hand, you want
all the incentives possible. On the other hand, it isn’t possible when you’re a government
agency. So, there is a line and I thought they did a pretty good job at it.
Hartheimer: In chatting with Jay before we all started, we were just talking about
the banks Fleet bought. Jay had a comment which I thought was interesting. He said,
yeah, it was relatively easy and then loss sharing came, and that was a little bit more difficult, which is a good sign, I think. But, it also tells me that while I’m a big proponent
of incentives, I think the environment has to be right. When I got to the agency in 1991,
with Crossland being the first real big one—I had gotten there right after New Hampshire had occurred and Southeast, and that was not an environment where incentives
worked because there were no buyers and no one believed that the real estate world was
going to turn around. So, I think that the agency has lived through and people here have
lived through environments where incentives work and incentives don’t work. I think
you need to look at the environment and try to figure out whether you can push the
envelope a little bit. If you have just enough bidders, then you layer in incentives. What
was it—Michael Douglas said, “greed is good.” It worked great for us in the early 90s
when there were a lot of buyers. You could have the discipline of creating a structure,
forcing bidders to bid only on that structure. It used to drive all of us crazy when bidders
would lob in at the last minute a bid that was “nonconforming” and when the environment got better in 1992, we felt pretty good about saying you only can bid on this structure. But, it is the environment, I think, that drives the incentives and I think it has to

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first be looked at and then the agency should continue to push the envelope, as I believe
they are doing.
Crocker: Don Crocker. There were at least four versions of the bridge bank. One
was the Southwest plan, the bridge bank, the conservatorships, and also the management consignment program. Each one had a different approach to trying to figure out
how do you keep this institution without losing all its depositors, without creating additional losses to the fund, and I’m interested in what the panel thinks of the best of the
various versions for the future?
Silverberg: I think that there is obviously a distinction between the conservatorships
which was just sort of a hold reaction in which the institutions could then be divided up
and so forth and the bridge bank. Bridge banks became an option after I had left the
FDIC. It was not an option, for example, with Continental. I always had mixed reactions to them. On the one hand, it would be nice if you could effect a clean transaction
immediately without having to go through the bridge bank process and have the government involved heavily in that process. But the reality was that in a complicated transaction, it has been very hard to do.
Sarles: Our experience was very positive. I thought the bridge bank concept worked
extremely well with Bank of New England. It worked because, in my view, there was a
management team there. The minute we were picked as a bidder, we became involved
and it was a short process to closing. What it did was it kept intact the franchise. It kept
intact the customers, and that was a large part of what we saw in terms of the value. As
long as the process is short, I think it can work very well and I think it is a terrific vehicle
for creating the most value for the fund and for the ultimate buyer. What I’m not in
favor of is having long-term ownership, in the public sector. I think if you want to get
some of the upside, that it would be as an investor in the ultimate buyer of the bank,
and not holding it from that standpoint. But, I thought the bridge bank concept worked
extremely well. If they closed it down and tried to auction pieces, I don’t think they
would have done anywhere near as well in terms of recoveries. So, I’m a big proponent
of it as a very workable solution.
Montgomery: I think these are all time-buying devices. I think they all work reasonably well. We had some good experience with a management consignment program.
But, I just think any of those things should be tools to be used in the future to buy time
until you can get a real resolution.
Mitchell: I would agree with all the comments, but since my experience is not extensive with it, I’ll just defer to Bob.
Hartheimer: I guess as you think about each of the structures you mentioned, they
all really came at different times in the crisis for different reasons. The conservatorships
really were created because there was just a supply of failures that it was impossible to sell
them off. So, it did buy time. The management consignment program, I’m not that
familiar with, but my sense is it was really before the big crisis and it was a way to just
forestall any activity at a time when the FSLIC had no money. Bridge banks—really the
secret in all of this, when we talk about the protection of the depositor, that is a given.

R E S O L UT I O NS

What we found as the secret is how best you dispose of the assets because, until the last
couple years, you couldn’t imagine people paying anywhere near the value for deposits
that are being paid today and people are paying upwards of 30 percent of deposits today.
But, back in the early 90s/late 80s, you would pay 5, 6, 7 or 8 percent. But, there was a
huge differential in the value of assets and the cost of assets. You could lose 20 percent of
your asset value overnight if it wasn’t managed right. So, I think these tools were really
best used to manage the asset disposition and that is how they should be used going forward. I don’t think you’re going to see many conservatorships because it is unlikely that
you will see the supply of failures. But, you should see bridge banks if you have complicated situations to take some time to figure out how best to dispose of the primary assets.
Murden: Bill Murden, Treasury Department. I have a two-part question on open
bank assistance that I would like to follow-up on. Japan recently used open bank assistance for its banks in a way that is different from FDIC’s experience. So, the first question is what the panel’s views might be on the appropriate conditions that should
accompany open bank assistance in terms of management and shareholders, etc.? The
second, [what are] the pros and cons and the various forms of open bank assistance in
terms of subordinated debt, preferred stock, asset purchases and so on?
Wigand: Are you directing your question to anyone in particular, or do you want to
hear all panelists’ views?
Silverberg: Anyone who has been through the process would tend to be very skeptical of open bank assistance, but if you don’t know what the future situation is going to be
and what the options are, maybe you’ve got to at least keep it on the table or under the
table, as a possibility. If you’ve got an option of bringing in a new bank, bringing in new
management and so forth, that is easier to rationalize. However, there have also been a
lot of changes that make closed banks somewhat more attractive. Depositor preference,
the fact that some of the provisions in FIRREA allow easier closure of branches and
impose limits on existing contracts and so forth. There is some advantage to acquiring a
closed bank rather than putting in assistance and having somebody else come in. But,
again, I think there is a strong feeling in this country that if an institution has gotten into
difficulty and become insolvent, the marketplace says it ought to go out of business.
Sarles: I’m not in favor of open assistance, but you may need that approach once in a
while. If you use it, in my view, you wipe out the existing shareholders and management.
Montgomery: I don’t have anything to add.
Mitchell: I would have to agree with the comments that were made. When a bank is
on the verge of failing, it ought to be closed and prior to that is when management and
the shareholders have their opportunity. So, they should be wiped out.
Hartheimer: I guess I would only add if you can attract a significant amount of outside capital, which would be in the first-loss position, I think you can find situations
where that would make some sense. The problem is, there is never enough capital and
there is always a differing view of the condition of the bank the examiners have. And in
Japan, I’m not really that familiar with what is going on there, but my guess is that they
have big problems and they need to be creative instead of just taking over all of these

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banks. If there are piles of money around the world that are kind of hovering to be
invested, I think they ought to try and see if they can get those piles of money to be the
first-loss positions, versus the Japanese Treasury.
Wigand: As you will note in your agenda for this symposium, we do have a panel
tomorrow which will actually be talking about international banking issues associated
with failures, you may want to ask this question at that time as well.
Comment: On open bank assistance, I might mention that we did have a program
that worked pretty well, I gather, in the 1930s—the RFC. There was a use of preferred
stock and bonds that helped capitalize banks that I gather were considered to be solvent.
But, again, it was a program that I think hindsight gave fairly high marks to.
McKinley: I’m Don McKinley of the FDIC. Maybe this is for Bob and Stan, but
when you look at the current legal environment of prompt corrective action, systemic
risk, least cost test, and you look at the nature of the banking industry as it has changed,
non-bank activities, bank activities, perhaps you have some type of assessment of the reaction time that the government might have in responding to that hypothetical large bank
closing. How do you see the FDIC’s ability in terms of reactive time as compared to the
time we had in the past to respond to the large failures like Continental or First Republic?
Hartheimer: Well, I spent my Thanksgiving—I think it was 1994—courtesy of
Chairman Helfer, preparing a plan for a big failure of a bank that had some derivative
problems. I think that it’s one of the situations for which you never can prepare enough,
but we had a team of probably a dozen people that spent four or five days, we put a plan
together. No one really expected this bank to have problems, but it was a good exercise—it wasn’t great that it was over Thanksgiving. But, it was a good exercise to do. I
think you at least outlined the things that you know you have to face when you get
there. But, it is something that could be handled by the agency. You’ll continue to go
through trial runs, but I think it is just—it keeps the resolutions thinking young in a
sense by continuing to think about how you handle derivative contracts or the sales of
subsidiaries in non-bank activities and things like that. I don’t think it is anything the
agency can’t handle if it happens.
Silverberg: I just think that the quality of available data and the quality of accounting and audit reports are much better than they were in the past. The speed and ease of
access and so forth is much better. In the case of publicly-traded banks, I think there
really has been a quantum improvement over the past decade.
Wigand: Unfortunately, that is all the time we have for questions. At this time, I
would like to once again extend my thanks and I’m sure the audience would like to
extend their thanks to the panelists for coming today. We certainly appreciate hearing
their perspectives on resolution activity during the crisis years, and I think the comments that we’ve heard are very insightful.
We are breaking for lunch now. Lunch will be served in five minutes in the room
right next door—the North Ballroom—and then we will be reconvening here at 1:30
for the asset disposition panel. See you then.

Luncheon Address

Introduction
John Bovenzi, Director
Division of Resolutions and Receiverships, FDIC
It is my privilege today to introduce our luncheon speaker, Joseph H. Neely, a native of
Grenada, Mississippi. He attended the University of Southern Mississippi, where he
obtained a Bachelor of Science degree in Business Administration, majoring in Finance.
Joe continued his studies as a Graduate Fellow at the University of Southern Mississippi
and earned an MBA degree. Joe Neely began his banking career in 1977 with Grenada
Sunburst Banking System, serving in the lending area of the bank. In 1980, he joined
the Merchants National Bank of Vicksburg, where he served as Senior Vice President. In
April of 1992, Joe was appointed Commissioner of the Department of Banking and
Consumer Finance for the State of Mississippi. In July of 1995, President Clinton
appointed him to the FDIC Board of Directors.
Joe Neely became a member of the Board of Directors of the FDIC on January 29,
1996. I can attest that since coming to the FDIC, Joe has been an active participant in
FDIC activities. He takes his responsibilities seriously, regularly asks tough questions to
be sure the job is being done right, yet Joe is always approachable and extremely supportive of the staff.
It has been a pleasure to work with someone as dedicated and as sincere as Joe Neely,
and when Skip Hove, our original luncheon speaker was called to testify before Congress
this morning, Joe was gracious enough to accept a last-minute invitation to fill in.
Despite the late notice, I’m sure you will find his comments thoughtful and interesting.
Please join me in welcoming FDIC Director Joseph Neely.

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Joseph Neely
FDIC Director
Thank you, John.
On behalf of the corporation, let me welcome everyone here. I hope you find that
this day and a half is worthwhile to you and worthy of your time and attention, and I
hope you are able to take something away from this. I know that to many of you in this
room, this is a very personal subject to you and a good bit of your hide, so to speak, is
invested in this process that we’re reviewing here. Thank you again for coming because
without your participation this conference and symposium wouldn’t be what it is.
We use military comparisons a lot in making analogies, in making points, and the
military a lot of times is very appropriate to use in such situations. I know many times in
talking to bankers and as a supervisor, and even as a banker, I always felt that a military
perspective pretty much described the proper structure of a bank where the shareholders
were like the generals. The shareholders are the ones that staff the army, or they pick the
staff they want to carry out the mission. The directors are the strategists and do just
that—set strategy and set direction for the bank and if the directors try to do a whole lot
more than that, they are probably complicating the issue. If anybody else tries to direct
the bank, other than directors, sometimes you can have a problem.
The CEO is more like the field marshal or the director in the field. The CEO leads
the bank and says, “we want to go in this direction—let’s go over here.” Management is
like the lieutenants—the management of the bank takes care of the day-to-day operations and makes those decisions and arguably runs the bank. Then the employees are
like the ground troops. The employees are the ones that actually take the battle to the
enemy, if you will, and carry out the directives of all their supervisors.
In this light, in military affairs there is something called the fog of battle. This refers
to uncertainty—the uncertainty of your terrain, the uncertainty of enemy forces you
may face, the uncertainty of the adequacy of your own forces, or events over the horizon
that may have a bearing on the battle at hand. The art of military leadership consists of
bringing order out of all of this chaos, an art that requires one to continually adapt to
changes in situations in the field in order to obtain the objectives or obtain the achievements that you seek to achieve.
Please bear with me for a moment or two as I defer to our former Chairman and
well-respected Bill Seidman, who is here today. His statement in the FDIC’s 1990
annual report, I enjoyed very much. I was telling him earlier today. Going back to the
last 10–12 years of FDIC annual reports and reading certain excerpts from the Chairmen as they recapped the year’s events and made prophecies about events to come, Bill
said in the 1990 report, “Entering 1990 it was clear to everyone associated with the
FDIC that it would be a very difficult year for the agency. We would struggle with
mounting problems in the banking industry, particularly in real estate portfolios. We
would face the prospect of additional losses to the Bank Insurance Fund. We would have
our first full year addressing the savings industry problems through the operations of the

LU N C H E O N AD D R E S S

Resolution Trust Corporation, and as back-up supervisor of savings associations.” But,
Chairman Seidman concluded that as the year unfolded, “1990 presented difficulties
and challenges far beyond anyone’s expectations.”
The FDIC and the RTC were truly in the midst of the fog of battle where uncertainty reigned. Years of economic expansion can erase a lot of bad memories. We’ve
heard reference to that this morning—current economic and banking conditions tend to
move some of the events so personal to many of us further and further into the past.
But, the world is different now than it was then. As time passes, it becomes harder and
harder for many people to recall how threatening the banking and thrift crisis of the 80s
and early 90s was. Many of you remember, however, because you worked day in and day
out to face the crisis and to keep the threat at bay.
One of my favorite sayings is that an organization is in trouble when it has more
memories than it has dreams, and that is true. I think it is very important, particularly
with some of the events taking place today, that we have to take a very proactive attitude
at the FDIC. But you are also equally familiar with the saying, that those of us who do
not remember our history are doomed to repeat it.
And that is what this conference is all about. I was particularly impressed with a
comment by Doyle Mitchell this morning. He said that hindsight is 20/20, but only if
you look. So, that is what we’re doing hopefully this day and a half.
How bad was it? Just how bad was it? Focusing on 1990, the excerpts of the 1990
annual report, Bill Seidman’s comments, commercial banks in 1990 earned $16.6 billion for the year. In contrast, commercial banks earned $15.3 billion last quarter of last
year. Year-end 1990, there were 1,046 banks on the FDIC problem list. As you well
know, this was down from well over 1,500 banks at one time, with over $530 billion in
problem bank assets.
At year-end 1997, there were 71 commercial banks on the problem bank list, and
they held $5 billion total in problem bank assets. Likewise, at year-end 1997, there were
21 thrifts on the problem thrift list with $2 billion in total problem thrift assets. In
1990, 168 banks failed after three consecutive years of having over 200 banks fail annually and massive failures in the thrift industry. Those 168 banks held about $14.5 billion
in assets. That was bad enough. But, in 1991, 124 banks failed and they held assets close
to $54 billion. Last year, one commercial bank failed and it had assets of slightly over
$27 million. In 1989, 330 thrifts failed with total assets of $136 billion. Last year, no
thrift failed and no thrift has failed in the last 21 months—rather staggering given the
focus of what we’re here about for this day and a half.
Over a 15-year period from 1980 to 1994, a federally insured depository institution
failed on an average of every other day. At the height of the crisis, the five-year period
1988 through 1992, a bank or savings institution failed on average every day. On one
day, institutions holding one-third of the banking assets in the State of New Hampshire
closed—in one day.
Looking at it another way, during the 15 years of crisis that this symposium covers,
institutions holding one-fifth of the assets of the banking system—20 percent of the

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assets of the entire system—either failed or received federal financial assistance just to
stay open. During that threatening time, not one person lost a cent in a federally insured
account. The FDIC and the RTC managed to liquidate hundreds of billions of dollars in
assets and through the hard work and leadership of many people who are participants in
this very symposium, and many, many other people working for the sister agencies—the
FDIC and the RTC—many people in this room, many people watching this through
live remote, many people who have gone on to other careers and many people who have
retired. Order was created out of chaos and our objectives were met. We are here today
and we’ll be here tomorrow to discuss just how that happened and to distill from that
experience lessons for the future, should we ever have to face similar prospects again.
The objectives were simple to express but difficult to achieve—to maintain public
confidence while restoring financial stability. Stability is a goal, not a given. Either
directly or indirectly, everything the sister agencies did was aimed at achieving those
objectives, while encouraging market discipline, consistency and cost effectiveness. The
FDIC and the RTC were constantly doing things to meet those objectives. Obviously,
they met them.
In essence, the strategy of the agencies was to make a bank failure a non-event for an
insured depositor. Before the creation of the FDIC, depositors had learned from experience that if they kept their money in a bank, it might not be available when they needed
it and they might lose a large portion of it as well. As a general practice between the years
1865 and 1933, depositors of national and state banks were treated in the same way as
other creditors. They received funds from the liquidation of the bank’s assets after those
assets were liquidated. The time taken at the federal level to liquidate a failed bank’s
assets to pay the depositors and close the books averaged about six years, although in at
least one case it took 21 years.
From 1921 through 1930, more than 1,200 banks failed and were liquidated. From
those liquidations, depositors at banks chartered by the states received on average 62
percent of their deposits back. Depositors at banks chartered by the federal government
received an average of 58 percent of their deposits back. Given the long delays in receiving any money and the significant reduction in deposits that were returned, there is no
wonder at all why anxious depositors would withdraw their savings at any hint of a crisis
or any hint of a problem, thus triggering bank runs.
With the wave of failures in 1929, it became apparent that the lack of liquidity
resulting from the resolution process that was currently in place contributed significantly
to the economic problems and consequences in that period of time in the United States.
The FDIC in the 1930s, and the FDIC and RTC in the 80s and 90s, gave insured
depositors access to their funds as quickly as possible and uninsured depositors as much
of their money as possible as quickly as possible to maintain public confidence in the
system and to restore liquidity in the economy. For all insured depositors, this was an
absolute guarantee. For the vast majority of depositors in the most recent crisis, the
subject of this symposium, this meant virtually no loss of access to their money. Banks

LU N C H E O N AD D R E S S

may fail, but as far as insured depositors were concerned, the banking system continued
to operate without pause.
As circumstances changed in the 80s and 90s however, the agencies changed their
way of doing business to follow the strategy of making a bank failure as much of a nonevent to depositors as possible. The rising tide of bank failures prompted innovation and
creativity. Until 1983, for example, the most typical bank failure resulted in a settlement
of deposit insurance by either an FDIC-assisted merger or by a direct payment to the
insured depositor—the insured payout where depositors would line up to get their
money from the FDIC. Fifty-one of the 123 banks that failed in the 60s and 70s were
resolved through a deposit payout. As a general matter, few of the failed banks’ assets
were passed on to the acquiring institutions in those times.
In 1983, the FDIC pioneered the use of a new technique—the insured deposit
transfer—where the agency auctioned a failing bank’s insured deposits to a healthy bank.
The premium that the acquiring bank paid helped lower the resolution cost. Depositors
had an account in a healthy bank as a result—with immediate access to money—usually
the next business day after the transaction.
For uninsured depositors, the FDIC developed a methodology for getting an
advance dividend into the hands of uninsured depositors as early as possible. This
advance dividend was an estimate of what the uninsured depositors would receive if
assets were liquidated. Innovation, therefore, made things easier for both the insured
and uninsured depositors and provided liquidity for the economy.
Measured by type of transaction, about 74 percent of the resolutions of failed banks
in the year 1980 to 1994 were purchase and assumption transactions. About 11 percent
were insured deposit transfers, 8 percent were open bank assistance, and a little over 7
percent were deposit payoffs. We saw a slide this morning, the pie chart showing that
very thing.
I want to touch on just a few of the other innovations that the agency developed.
The most dramatic attempt by the FDIC to pass assets from failed banks quickly back
into the private sector was a whole bank transaction, a variation of the P&A—the purchase and assumption. Along with liabilities, almost always both the insured and uninsured deposits and virtually all of the failed bank’s assets, were passed to the acquirer for
a one-time cash payment. Whole bank transactions kept down the volume of assets that
the agency had responsibility to liquidate and therefore preserved the liquidity of the
deposit insurance funds and the transactions transferred risk from the agency to the
acquirers. Overall, the FDIC completed 202 whole bank transactions from the years
1987 to 1992, almost one-fifth of the total number of transactions during the period.
As the volume of bank failures in the mid- to late-80s increased, the FDIC began to
look for ways to pass more of the failed banks’ assets to the acquirer. One way of doing
this was through a put option. The FDIC and later the RTC would require an acquirer
to take assets but gave them an option to return or to put back the assets they did not
want to keep. This innovation also conserved liquidity in the insurance fund.

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The third innovation in the resolutions process was the creation of asset pools, pioneered by the RTC, which gave investors the flexibility to bid on pools of similar loans
at prices set by the agency. Potential acquirers were often reluctant to assume large loan
portfolios that did not fit their current business strategies. By selling loan pools separately from the deposit franchise, the resolution options were expanded.
Another wrinkle in the P&A methodology was the loss sharing transaction whereby
as many assets as possible were transferred to the acquiring bank and the acquiring bank
managed and collected the nonperforming assets. As an incentive to enter the arrangement, the FDIC agreed to absorb a significant portion of the loss on a specified pool of
assets with the acquiring bank liable for the remaining portion of the loss. Each of these
innovations and others were designed to encourage the private sector to become more
involved and to take more of a role in the resolution of failed banks.
In that regard, probably the most innovative method the RTC used for asset disposition was equity partnerships—joining in partnership with private investors who would
use their expertise and their efficiencies to recover more value from troubled assets than
the agency would have been able to recover. In all, the RTC created 72 such partnerships
which had a total asset book value of about $21.4 billion.
The agencies also looked to the private sector for guidance and for additional
resources. For example, in 1990 the RTC was holding more than $34 billion in mortgage loans. After a disappointing performance in bulk sales, the RTC turned to the
mortgage-backed securities market for assistance in liquidating these mortgage portfolios and establishing its own securitization program. It couldn’t have been more successful. The RTC sold approximately $43 billion in mortgage loans through this program—
more than 500,000 single-family, multi-family, commercial, home equity and mobile
home loans were repackaged and sold as securities.
In all these innovations, and in all others, the FDIC and the RTC exhibited flexibility by changing their ways of doing business to adapt to changing circumstance. They
exhibited independent thinking, embracing the new and the untried methods. The
FDIC exhibited a desire to apply that flexibility and independent thinking in ways that
would preserve the liquidity of the deposit insurance fund and to hold down the cost of
bank failures. The agencies made mistakes, and we’ll talk about those mistakes, as well as
successes, over the next day and a half. But, by the end of the day, the FDIC and the
RTC performed their mission—maintaining public confidence and assuring stability. It
has been said this morning that it is awfully easy to look back and to criticize. What I
always said as a banker and have said since then is that I don’t think we ever want to find
out what the cost of the alternative might have been.
The agencies didn’t manage the failure of institutions—that was simply a means to
an end. The end was managing the crisis.
One of my most memorable experiences concerning the FDIC was as a state supervisor when I worked very closely with a regional director who was retiring. We called a
bank board in, and we had a problem situation and were preparing for a very intense
meeting. We broke for lunch before we sat down with this bank board. He was leaving

LU N C H E O N AD D R E S S

after about a 30-year career with the FDIC and I really wanted to pick his brain because
I knew I was possibly going to end up on the FDIC Board. I respected him a lot. I asked
him, “after your 25–30 year career with this corporation, what do you leave here with?
What reflections?” We were on the 19th floor of the office building—that gives away the
region—doesn’t it. He looked out the window and was in a very pensive and reflective
mood, and there was some fellow walking across the parking lot to a bank that was
across the parking lot. He said, “you know Joe, I think I leave here with one major overriding thought—that fellow right there (and I looked out the window and thought
maybe it was somebody he knew), that fellow right there has no idea how close we came.
That fellow right there is going to his bank to make a deposit or make a withdrawal with
total, absolute, unquestioned confidence in the banking system and the deposit insurance system and the protection of his deposits. That fellow right there has no idea that
the absolute financial underpinnings of this industry were under siege. That fellow has
no idea that at any given time in the war room, information would come in and we
would sit around and say, we can’t do it—we don’t have the resources—we don’t have
the people—we don’t have the money—we don’t have the logistics—we can’t handle
this. But we did. We had people making decisions well above their level of authority. We
had people making decisions well above their delegations of responsibility. We had people working weekends away from home, weeks and months at a time. We had people
making decisions at 3:00 a.m., learning how to eat pizza for breakfast. We had people
who were doing things they probably weren’t commissioned or authorized to do, but
they just did the right thing and moved on to the next challenge.”
Teddy Roosevelt once said that there are three things you can do—the best thing
obviously you can do is the right thing. The next best thing you can do is the wrong
thing. The worst thing you can do is to just do nothing. One of the dangers, I think, is
to run in place. We need to be extremely cautious about that.
One of the things the FDIC didn’t do during the period covered by this symposium
was that it didn’t run in place. People made decisions, the right decision or the wrong decision. They followed their heart. They followed their instincts, and they said that we just
want to protect that gentleman walking across that parking lot because we’re not sure—
we’re scared to think about how close we may be right now. We don’t have time to think
about it. Let’s make the decision and try to do the right thing, and let’s just move on.
Another personal experience, if you’ll allow me, was when John Bovenzi talked to
me about making this talk. I said to John that I came to the FDIC in January of 1996—
I’ve been here two and a half years, approximately. I wasn’t here during this period. Skip
Hove was here and I feel a little bit in awe of many of you who were here and fought the
battle. I said, I don’t feel like I need to get up there and try to give the impression that I
was here during that period of time, so I won’t. I’ll talk about where I was during that
period of time.
During that period of time, many times on a Monday, I’d go to the bank, totally
minding my own business, trying to maybe do the right thing every now and then.
Little did I know that on Wednesday, I might be in some motel room or hotel room in

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a neighboring city with reservations having been made under some clandestine name
or purpose. I was going through the proper clearances to be allowed to go into a room
where a transaction was about to take place unlike any in America. I had the opportunity to go in and witness a bid meeting on several occasions, and to see the process
work. Again, on Monday having no idea until I got the call that I might be in Baton
Rouge, Louisiana, Jackson, Mississippi, or somewhere else. On Wednesday, knowing
that I probably would go ahead and check into that hotel and spend the next 48 hours
with my people trying to put together a bid presentation. No other business, no other
entity, no other assets are transferred under such circumstances. As a banker, I was so
in awe of watching the system work. What was even more impressive, as a community
banker from Mississippi, bidding on what was at the time, in the scheme of things, an
insignificant pool of assets or a relatively small institution, I was made to feel like that
was the only transaction taking place at the time.
I was always impressed with the innovation, the creativity, the ingenuity and the
imagination of the people I was dealing with. No deal was too ridiculous to consider
because the issues at hand and the job at hand were too important.
And, on Friday, we would cross our fingers not knowing if we wanted to win or lose,
because we knew we had to open on Monday, exactly one week from the time I got that
first phone call. We were in a new market, in a new bank, with an acquired customer
base that we didn’t know. We didn’t know a single one of them, wondering if we could
retain those deposits, employees, and customers.
The second part of that is that I was there after the FDIC/RTC left. You went on to
your next assignment and I was there with my new customers. Not only were all the
bankers in awe and proud to watch the system work, but you can’t imagine the gratification of sitting down with formerly uninsured depositors, fairly unsophisticated people in
many circumstances, who had been tremendous beneficiaries of the system and for the
first time were realizing it. To sit there and work with these people and make the introductions and try to get them to stay with your institution, and then watch them come to
the appreciation of what had just transpired and how they had benefited as a result. Benefited from a unique system that doesn’t exist anywhere else. It was quite a rewarding
experience.
So, I wasn’t here at the FDIC at that time, but I certainly saw it from a different perspective.
The seasoned military officers will tell you that the true enemy on the battlefield is
uncertainty. In resolving the failures of the 80s and the 90s, the FDIC and the RTC
were often in unknown territory, unsure of what would happen next, how their plans
would be disrupted, but by keeping their eyes on the objective, their eyes on the goal,
and their eyes on the mission, they overcame uncertainty. Perhaps, that is the greatest
lesson we can take away from this whole experience.
Thank you.

PA N E L 2

Asset Disposition

Introduction
John Bovenzi, Director
Division of Resolutions and Receiverships, FDIC
Our afternoon panel will focus on asset disposition. The moderator of that panel is Sandra Thompson, who is the Assistant Director of Asset Marketing at the FDIC. In this
position she oversees the marketing and sales activity for the FDIC’s asset inventory.
Prior to assuming this position in March of 1997, Ms. Thompson was manager of securitization and mortgage-backed securities administration and was responsible for the
administration of FDIC and RTC securities and equity partnership transactions. Ms.
Thompson worked at the RTC from September of 1990 until its closing in December
of 1995, and was assistant vice president of securitization management and directed the
securitization and equity partnership programs for over $54 billion in loans and other
assets. Prior to joining RTC, Ms. Thompson was an investment banker at Goldman
Sachs & Company, where she worked on mortgage-backed securitizations for banks,
thrifts and insurance companies. She holds a Bachelors in Business Administration in
Finance from Howard University, and as you can see from all this, is extremely knowledgeable about a wide range of asset disposition activities that have gone on at FDIC
and RTC. We’re glad to have her moderating this panel. If you would welcome Sandra
Thompson, we’ll turn it over to her.

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Sandra Thompson, Assistant Director, Asset Marketing
Division of Resolutions and Receiverships, FDIC
Good afternoon. I must tell you that it was very difficult to prepare remarks for this
panel’s discussion. There are so many issues that should be addressed and each one
deserves an appropriate amount of time and consideration. How do you really explain
the magnitude of what was done? How do you put into the proper context that during
the crisis the government sold over $1 trillion in assets without exacerbating the very
problem it was supposed to solve? Do you explain that during the crisis the government
acquired and had to sell assets that it never owned before, such as junk bonds, oil drilling rigs, energy and agricultural loans, derivatives, undeveloped land, environmentally
impaired assets and subsidiaries? Or, do you talk about the fact that the government
owned assets in all 50 states, Puerto Rico and the Virgin Islands, and had no central
computer system? Do you discuss that at the height of the crisis, the FDIC and the RTC
together owned over $126 billion in assets? How do you sell this many assets in a
depressed market when you’re mandated to obtain the highest possible price? Do you
sell quickly or do you take your time? Do you talk about how soon you learn that you
can’t use the same marketing strategies that worked well when you sold the $100 million
in assets, when you have $100 billion? Do you sell using in-house staff, or do you hire
private contractors? Should the assets be sold from headquarters, or should you open
sales offices around the country? How do you level the playing field so as to give equal
opportunities to small investors and large investors, to community banks and Wall
Street firms, to majority-, minority- and woman-owned firms? How can you ever
describe the pressures of the extreme governmental and public scrutiny? How do you
value your portfolio? Do you estimate projected collections or do you value initial cash
flows? Do you sell assets with government guarantees, or do you offer seller financing?
Do you sell with reps and warranties, or do you sell as-is? Which sales methods work
best? Do you sell real estate through brokers, sealed bids, or auctions? Do you sell loans
using bulk sales, securitizations, or equity partnerships? How do you ensure that your
affordable housing program is effective? How do you explain that the government took
the crisis personally, that many of the sales strategies were created only after we found
out how some smart investor received a great deal from the not-so-smart government?
How can you describe the feeling you get when you sell a package of loans for 70 cents
on the dollar, only to later find out that your buyer repackaged and sold the same loans
for 90 cents on the dollar?
How do you feel when the country reads daily, and in detail, of the huge profits
investors receive when they buy assets you are responsible for selling? How do you
explain that because of the crisis, assets were sold that had never been sold before?
Because of the crisis, new markets were created for delinquent and defaulted loans.
Because of this crisis, structures were developed that aligned incentives between buyer
and seller. Because of the crisis, there is a commercial securitization market. Because of
the crisis, partnerships were formed between the public and private sector. How do you

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make it clear that old strategies were enhanced and new strategies were developed, and
that often trial and error dictated the evolution of the innovative methods that were used
by the FDIC and the RTC to sell assets?
I’m not sure if all of these questions will be answered today, but this distinguished
panel will address many of them.
Dr. Lawrence White will begin our discussion. Dr. White is currently a Professor of
Economics at New York University, Stern School of Business, and from 1986 through
1989, he served as a member of the Federal Home Loan Bank Board. Dr. White is the
author of numerous books and articles, including the S&L Debacle: Public Policy Lessons
for Bank and Thrift Regulation.
Following Dr. White will be attorney Hubert Bell, owner of the Law Offices of
Hubert Bell in Austin, Texas. Mr. Bell previously worked as acting general counsel for
the Texas Banking Department, where he was directly involved in bank and regulatory
matters during the late 80s. Mr. Bell will also talk about the asset that wasn’t on the corporation’s balance sheet—professional liability suits.
Following Mr. Bell will be David Cooke, currently a Director at the Barents Group,
formerly an advisor to the Agency for International Development, the Treasury Department, The World Bank, and the International Monetary Fund. He was also formerly
president of the Commercial Mortgage Asset Corporation and, prior to that, David
Cooke was the executive director for the Resolution Trust Corporation from 1989
through 1992.
Following Mr. Cooke will be Ted Samuel, former Chairman and CEO of the Niagara Portfolio Management Corporation, where his company managed the liquidation
of over $2 billion of assets from Goldome Bank. Mr. Samuel was also an Executive Vice
President with NationsBank, where his group managed the first asset liquidation agreement for the FDIC. Mr. Samuel was also instrumental in developing many of the structures that were used to sell assets at the RTC.
Winding up the presentation will be Diana Reid, a Managing Director of Credit
Suisse First Boston. Ms. Reid joined the First Boston Corporation in 1983 as a Vice President, where she was responsible for forming and trading their mortgage capital group.
Now, I would like to begin the panel’s discussion with Dr. Larry White.

Dr. Lawrence White, Professor of Economics
Stern Business School, New York University
Thank you, Sandra. I’m very pleased to be here this afternoon. The FDIC is to be
greatly congratulated on having this conference and on doing the studies. I can’t claim
that I’ve read every word in them, but I have scanned and skimmed them, and they are
very impressive. They are going to be a very valuable resource for historians, and for others who want to learn from the experience of the 80s and the 90s. The men and women
who are responsible for these studies really are to be commended.

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Now, as a number of the speakers this morning reminded us, there was a world
before the RTC, and that is what I’m going to be talking about.
As Sandra mentioned, I was one of the board members of the Federal Home Loan
Bank Board from November of 1986 until August of 1989, when the Congress of the
United States legislated me out of existence. They probably would have liked to have
done more serious things to me than that, but that is all they could do.
I want to make a number of points about the experience of the agency in terms of
asset disposition during the time I was there, and (as best I can tell) during the years before.
Let me start by saying that the agency was ill-prepared for the wave of S&L failures
that began in 1985. This is not meant to be a slam at the men and women at the agency.
I constantly had great respect for their expertise, for how much they did in a comparatively small amount of time with a comparatively small amount of resources.
But, the industry of the 1980s was a very different industry than it had been in the
1960s and the 70s. Jim Montgomery: with all due respect, the industry of the 60s and
70s was a very sleepy industry. And, the agency was geared to that industry of the 60s
and the 70s. Even the wave of interest-rate-generated failures of the early 1980s, the
interest rate mismatch, the borrowing short and lending long problems of the industry
of the early 80s, had really not prepared the agency for the wave of problems that
engulfed it in the middle and late 80s.
Now, asset disposition, which is what this panel is about, was really a neglected area
at the agency. The major action was in making deals via whole bank resolutions. This
was an efficient way of disposing assets. The disposition of assets on a one-by-one individual basis out of a receivership was laborious, it was time-consuming, and quite honestly it was outside the leadership’s expertise. I, for sure, didn’t know a whole lot about
disposing of assets, about selling real estate. I didn’t even know a lot about deal making,
but at least I felt I could guide the process of deal making and worry about incentives
and good stuff like that. I didn’t have a clue about selling real estate, except one clue that
I’ll mention later on.
Whole bank resolution was strongly favored. It was the way to preserve the firm’s
going-concern value, any firm-specific capital that might still be there in the institution,
and it was the way of keeping assets in the hands of those who were most likely to manage and dispose of them in an effective manner.
As most of the people in this room know or will remember, assets were acquired by
the agency when an institution was liquidated—i.e., when there was a transfer of deposit
accounts only, or when there was an insured deposit payout, or when we transferred
most of the assets of an institution but there were some assets that were so “stinky” that
the acquirer said, “I don’t want them—you keep them.” Either way, we would end up
with those assets. If my memory serves me correctly, as of year-end 1987, we had about
$7 billion of these mostly stinky assets owned by the agency, ranging from single-family
homes to commercial properties to mortgages to loans in foreclosure to securities.
Almost by definition, these remaining assets were going to be the stinky assets because

A S S E T D I S PO S I T I ON

the good assets were the ones that either we could transfer with the S&L at the time of
disposal, or we could sell them pretty readily, pretty quickly.
Asset disposition was clearly a major problem for the agency. First, the agency was a
poor manager of assets, which was a special problem for asset categories like residential
real estate that required active management. This point was really driven home to me in
May of 1989, relatively late in my tenure. I had volunteered to go on the Phil Donohue
Show. Using 20/20 hindsight, I’m not sure it was such a great idea because I really got
my backside handed to me on a platter. But, at the time I thought that I should try to go
out, tell the story as best I could.
In preparing for that appearance, I was briefed by the FSLIC staff on a wide range of
topics and issues. In fact, on the show I wasn’t asked about anything that I was briefed
on. But one of the things that I was briefed on was some residential real estate that the
FSLIC had owned in Chicago since 1983. This was 1989! I asked, “why do we own this
stuff? Why do we still own it six years later?” I was given a story, I tucked it away, and I
decided that I needed to find out more.
After licking my wounds and trying to heal the verbal bruises inflicted by Phil
Donohue, I went back to the agency and started finding out more about our asset disposition process. We weren’t doing deals anymore in the spring of 1989. That had been
taken out of our hands. We were just putting sick thrifts into conservatorships at that
point, and the RTC was going to do all the deals. So, it was now time to find out about
asset disposition.
I learned that for a piece of acquired real estate, it looked like we did the right thing.
After acquiring it, we would get an appraisal. Then a sales person would have some flexibility. He or she could go below the appraisal and sell at a price as low as 90 percent of
the appraisal. So far, so good. But why, six years later hadn’t we sold this particular piece
of property?
Then I realized that our procedures weren’t flexible enough. The appraisal might
not have been an accurate appraisal at the time, or the market might have fallen away
between the time that the appraisal was done and when real estate was really being marketed. So, I asked, “what happens next?” Well, after awhile we would get another
appraisal, but often we would go back to the same appraiser, and that appraiser might be
reluctant to change the appraisal value because that might indicate that he or she had
made a mistake the first time around. And so, we would get stuck with these problems
of unsold and poorly managed real estate.
It was then that I had my first and only insight with respect to asset disposal. I realized that since we were bad managers of this stuff, we shouldn’t be holding onto it. What
we needed to do was to forget about going back for appraisals. Instead we should set
some kind of time limits: perhaps six months for a single-family residence and nine
months for a multi-family residence, and a year for some kinds of commercial property.
If we hadn’t sold a piece of property within the time limits, then we should start dropping the price. Give the sales person flexibility down to 80 percent. If three months after

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that we still hadn’t sold it, drop the floor to 70 percent. Just keep dropping the price
until the property is sold.
At that point, I started working with the staff of the agency: sitting down in their
offices, talking to them, trying to plant the seeds of this idea—of giving the sales people
a reasonable chance to sell a piece of property, but if it didn’t sell, just keep dropping the
floor price until it did.
I realized that this idea wouldn’t take hold immediately. But, I was extremely pleased
when I read in the newspapers about a year and a half later that Bill Seidman announced
that exactly this plan—of periodically dropping the floor price—was going to be put
into place. Of course, a lot of the newspapers described Bill’s plan as a fire sale, as giving
the properties away. They didn’t understand it. I think that is an indication of just how
much damage the “dead hand” of historically based, backward-looking accounting has
done, of how much influence it still has on the way most of the world perceives things,
rather than thinking in terms of markets and current market prices. But, I was very
pleased that Bill stuck to the plan, which helped move the real estate.
Back to my points. Besides being a poor manager of assets, the agency was a poor
seller of assets. It was difficult to acquire high-quality expertise at civil service salaries
and the absence of commissions, bonuses, etc. Government salary structures limited
greatly what we could do. Again, that is not meant to be a criticism of the men and
women we had on the staff. They did very well. But, they had their limitations, and the
salary structure—the absence of commissions, the absence of bonuses, and similar
incentives that would be natural in a private-sector setting—clearly put limitations on
what we could do.
The incentive structure was a major problem. Our inability to provide financing
was a problem. And, when I got to the agency in 1986, the one effort that had been
made to try to deal with these personnel problems, expertise problems and incentive
problems—the Federal Asset Disposition Association (FADA)—was in the process of
foundering and basically turned out to be not very useful, because of political and
bureaucratic insensitivities on the part of the leadership of the FADA.
I look back on all of this and I conclude that selling real estate is inevitably going to
be a problem in this kind of environment. It is just too easy to be criticized regardless of
the strategy pursued. Sandra just mentioned all the ways that a government staff person
can get criticized in carrying out a transaction. Either you’ve sold too cheap and somebody else is making huge profits, or you’ve held it too long and the market has fallen
away and why didn’t you sell sooner? It is a large problem. It leads to an unfortunate but
realistic conclusion: the management and sales of real estate in a political fish bowl ain’t
easy. I have a lot of respect for the men and women of the FSLIC and then the RTC
who, despite all these problems, managed to do quite a credible job.
Thank you very much.

A S S E T D I S PO S I T I ON

Hubert Bell, Jr., Attorney/CPA
The Law Offices of Hubert Bell, Jr.
I’m pleased to be here today and participate in this symposium. As Sandra indicated, I
will discuss those assets that generally do not appear on the books of the failed institution. Rather, they represent intangible-like assets of a receivership estate. When the
FDIC or FSLIC closed an institution, it succeeded to a number of rights, titles, privileges, and claims that are generally referred to as professional liability claims. These
assets, or claims under civil law, are pursued since any recoveries are used to help offset
the losses that may have been caused by the misconduct of directors, officers, accountants, or appraisers who provided services for the institution.
Professional liability claims can be quite complex and contentious, and generally
require a number of years to pursue before any recovery is achieved by the receiver. I also
will discuss today my involvement in that process—the conversion process—that is the
identification and conversion of those assets into dollars. I will also talk about what happened in Texas and some of the problems that the industry faced there during the crisis
years. I plan to spend most of the time, however, talking about the conversion process
and prosecution of director and officer liability cases on behalf of the FDIC and RTC.
I began my career in the banking regulatory industry as an administrative law judge
in Texas. At the time, Jim Sexton was the Commissioner. One of my duties or responsibilities was to conduct bank charter hearings on applicants who had filed applications
for bank charters. That was at a time when there were investors who still wanted a charter. That changed over time.
We were required to hold a hearing on each charter application. Our procedure was
somewhat different than the OCC’s. Regardless of whether the application was contested, we were required to conduct a hearing and my job was to conduct those hearings.
There were certain standards that had to be met, such as the likelihood of profitability,
adequacy of capital, good faith of the applicant, requisite experience, ability and integrity of the applicant to assure success of the institution, and a public necessity must have
existed for the new institution.
I have several charts that I want to show you which graphically illustrate how the
industry declined and the resulting economic impact of that decline. Chart 1 shows the
increase in the number of financial institutions in the state of Texas and how that picture
changed over time. It is also important to note that Texas did not have branch banking
until 1987. So, all the banks were independent, free-standing, chartered institutions.
You can see the increase in charters from 808 state charters and 627 national charters in
1979, to a high of 896 state charters and 1,076 national charters in 1986. As I understand it, the OCC’s view on granting bank charters at that time was basically to allow
the free market system to work. If an applicant had the necessary capital, the application
fee, and was of good character, then the charter was granted. This might account for the
lower percentage increase in the number of charters for state banks as compared with
national banks during the economic boom times in Texas.

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You can also see the decline in the total number of banks over the years from a high
of 1,972 in 1986 to the present number of only 840 banks, with nearly an equal number
of state and national charters.
Lawyers played a prominent role in assisting the FDIC and RTC in managing the
crisis. Lawyers were involved in identifying potential claims, as well as in the process of
converting these identified claims to some actual monetary benefit for the receivership
estates. The next chart I’ll show you illustrates the number of legal matters handled by
the FDIC during the crisis years. Chart 2 shows that there was a high of 65,000 matters
handled in 1988, with a high average asset value of $43.3 million occurring in 1991. In
addition, the professional liability section of the FDIC and RTC was required to use
outside counsel extensively during this period.
Now, to move on to the Texas experience. In most communities, certainly in Texas
and probably throughout the country, the most paramount, dominant structure in a city
is generally the bank building. It would appear that it is the most stable industry in the
city, but that generally is not the case. Banks are institutions that are not able to withstand major macroeconomic shocks in our economic system. I will show you the results
of a study that sort of reflects that as well. There was a study performed which compared
the financial characteristics of banks that failed with those that survived during the
height of the problem years. That study revealed that those institutions that survived
were those that generally had a higher equity-to-asset ratio and a lower loan-to-asset
ratio. So, banking institutions that may appear to be very stable and secure are actually
quite sensitive to changes in our system because of these very low and sensitive margins.
The next chart that I want to show you, Chart 3, shows the number of bank failures
in Texas during the crisis years. 1986 was the worst year since the Great Depression for
the nation’s banking system. There were a total of 138 bank failures and 26 of those failures were in Texas, which represented about 18.8 percent of the total. However, the collapse in the real estate market in 1987 and 1988 had an even more pronounced effect on
Texas banks. Out of the 184 total bank failures in the nation in 1987, Texas accounted
for 50, comprising about 27 percent of the total bank failures.
As the real estate market worsened in the state, so did the number of bank failures.
As a result of the real estate problems, total bank failures, again, set a record of 200 for
the year 1988, and of that 200, 133 or 56 percent of those institutions were Texas banks.
Also, I have a chart, Chart 4, that shows the same or similar type of results or statistics for savings and loans in the state. In 1988, 205 thrifts failed in the U.S. and 90
(nearly 44 percent) of those failed thrifts were in Texas. Another 127 Texas thrifts failed
during 1990 and 1991, representing nearly 23 percent of the total number of thrift failures nationwide during that same two-year period.
Most of the problems in Texas were due to the decline in the oil and gas industry, as
well as the collapse in the Texas real estate market which was precipitated to some degree
by the Tax Reform Act of 1996. There was considerable over-investment by a number of
real estate developers and speculators.

A S S E T D I S PO S I T I ON

Also during this period, you have to remember that deregulation, certainly in the
S&L industry, as well as the phasing out of Regulation Q helped to create an environment that led to the resulting problems.
Now, I’m going to move on to the director and officer liability area. Ultimately, a
bank’s management and its board of directors and their cumulative decisions are responsible for the success or failure of an institution. Regulators play a role in this, but they
certainly are not responsible for the primary success or failure of the bank. Another
study was performed of the failures of banks during the crisis period which showed that,
out of the banks that were resolved, 90 percent of those institutions had some type of
management-driven weaknesses. That seems to be a high percentage, but from my
involvement with director and officer liability cases, that is probably not too high. Also,
that same study showed that, out of the total number of banks resolved, one-third of
those institutions were plagued by fraud or abuse. I would say in Texas, certainly from
my experience, the problems caused by insider abuse probably approached the 50 percent level, as opposed to 33 percent.
I recently had the opportunity to talk with both the former banking commissioner
of Texas and the current banking commissioner. They both felt that those are fairly
accurate numbers.
Directors and officers of financial institutions have three fiduciary duties. First is the
duty of care. Second is the duty of loyalty. Third is the duty of obedience. The duty of
care requires that directors and officers conduct the business of the bank with prudence
and good judgment. It is sort of an ordinary, prudent-man standard.
The duty of loyalty requires that the directors and officers of the institution conduct
the affairs of the bank with honesty and integrity, and they are forbidden from engaging in
transactions that would place their interest at a higher level than the interests of the bank.
The third duty mentioned, the duty of obedience, is the duty to obey the law.
Some of these standards, over the years, in Texas as well as in other states, were
relaxed as state legislatures enacted laws to lower the standard of care required by directors and officers of institutions in an effort to protect them from actions brought by the
FDIC and RTC. Some of those states even passed laws that applied only to financial
institutions. Texas was one of those states, and not only did Texas pass a law that applied
only to financial institutions, they enacted a law that applied only to lawsuits brought by
the RTC and FDIC. In addition, they retroactively abolished the cause of action for
breach of the basic duty of care, simple negligence, and they made this new standard
applicable to cases already pending in Texas.
Needless to say, there were a number of challenges based on constitutional grounds
that the law was somewhat discriminatory and should not stand. The Texas legislature in
the next session made some changes to that statute before this issue was fully adjudicated.
In wrapping up, I want to show you the final chart, Chart 5, which depicts the
results of the activities of the FDIC and RTC during this period. The professional liability recoveries from January 1986 to December 1996 by the FDIC exceeded $2.5 billion.
The costs for outside counsel during that same period was about $444 million. Also,

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during that period, the RTC collected over $1.5 billion, with associated costs of $466
million. So, from a return on investment standpoint, I would say that the activities and
efforts they put forth were remarkably successful.
Thank you.

David Cooke, Director
Barents Group, L.L.C.
Hello. I’m David Cooke and it’s certainly an honor and privilege to be here today. I was
delighted when I was asked to be here today and talk a little bit about the RTC experience. I’ve been gone for six years so it really is an out-of-body experience for me. I’m trying to recall as much as I can. When I was asked to make a presentation by Sandra
Thompson and John Bovenzi, “I said, I’ve been gone for a long time. What specifically
would you like me to talk about?” I was told you should talk about some of the issues
and concerns that you had. The more I thought about it, the more excited I became.
There were a lot of things happening back then. There were funding issues. There were
legislative issues. There were debates—don’t sell too fast or too slow. There were contracting issues—hire these guys, don’t hire those guys. The more I thought about it, the
more excited I got. Sandra said, “you know Dave, that is going to fit in really great and I
really want you to do it. But, make sure you stay within 10 minutes—preferably 6–7!”
So, I will try to go quickly.
From my perspective, the way the RTC began was influenced by a lot of things. It
was influenced by the law that created it. It was a complex law. The governance of the
RTC was confusing. The political environment was hostile, unforgiving and impatient.
I can’t help but think back to some of the early testimonies and just how hostile the
environment was to members of the savings and loan industry. Just a few years ago, it
was a “good life” with Jimmy Stewart, and now the sentiment had changed.
Another factor that influenced the RTC was, of course, the FDIC. The FDIC, I’ve
got to say, was essential and supportive. We could not have done it without them. But,
the FDIC had its own capacity problems and to be honest with you, they weren’t ready
for the workload either. I vividly remember the first RTC board meeting when Danny
Wall, former head of the Bank Board said, “you guys don’t know what you’re getting
into.” About six or seven days later, I thought, yeah, he’s right—what am I doing here?
This reminds me of another story. I had been with the FDIC for years and some of
you out there know that. At the time the RTC was being conceived, I was Deputy to
Chairman Seidman. He had been interviewing people to take over the top RTC position.
One day in July, I asked him, how’s it going? He says I’m interviewing this guy and that
guy but I’m not really sure they’re right. They all seemed pretty impressive to me. He
said, you ought to think about taking the job. I thought he was kidding, to be honest
with you. I said, yeah right. The next week, he said, well, have you thought about taking
the job? Of course, this was quite an honor and I said, can I think about it overnight? So,

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I went home, thought about it, came in the next morning feeling pretty good. So, I go in
to see him and I say, well Bill, do you really think I am the best guy for the job? He says,
no I don’t, but you know the people, you know the issues and you’re here. So, with that
word of encouragement…I went to the first board meeting where Danny Wall was saying
you don’t know what you’re getting into. Then I had this Congressman tell me I was
going down a slippery slope. So, I began to think this may have been a big career mistake.
The RTC was also influenced by the private sector. We had private sector guys running to and running from the RTC. There were people running to the RTC because
they wanted to get work. They wanted to advise us how to sell assets. They wanted to do
due diligence. They wanted to help run the back room operations of the thrifts. And,
there were people running from the RTC that were afraid they were going to be sued by
the RTC. That issue caused a bit of a problem in the early days as well.
Also influencing how the RTC acted were the assets—we had an awful lot of assets
that came in very early—and the funding issues.
As far as the law, at first, it looks like a pretty good law. You had to maximize recoveries. You want to minimize the disruption to the marketplace. No fire sales. Use the private sector wherever feasible and close up operations in seven years. I can tell you seven
years seems a long way out. So, everything seemed fine.
However, there were some other provisions in the legislation that we really had not
dealt with before. There were provisions that said make sure you don’t sell to any professional who has caused problems, who has caused a loss. That was a problem because
anybody with thrift experience might be sued to get some money back with professional
liability suits. So, immediately we had some problems in contracting—who can we contract with.
There were other provisions—give certain preferences to women and minority
groups in the contracting arena and in the institution sales and later in some asset sales.
At the FDIC, where the core of us came from at the beginning—we didn’t have any
experience in working those issues and they were very, very politically sensitive. There
were also provisions to give preferences to certain low income groups in buying housing—again something we had no experience with whatsoever. So, it made us realize that
we had to do some different things.
The law also provided us with what I think is a unique governance structure, which
I thought was probably not going to be duplicated again, but it might be. In some countries, believe it or not, a structure like the RTC may be the answer for people looking to
absolve themselves of responsibility in the process.
The governance provisions of the RTC legislation attempted to separate policy from
operations. We had an oversight board in the early days, a very demanding one which
was later revised. It set policies and approved budgets and you had the RTC/FDIC board
which ran operations and never the twain shall meet. We also had advisory boards to give
us advice. So, the lines of accountability were clearly blurred. There were times when we
would go to one board to be told you’ve got to go talk to the other board, and the other
board would say you’ve got to go back to that board on some very sensitive issues.

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In the structure that was set up, we had lots of people involved in the process, giving
us advice. There were not as many committed to actually doing it, other than a lot of
people we recruited. This reminds me of the story of the difference between involvement
and commitment that a colleague once told me. He said, it is like having ham and eggs
for breakfast. The chicken is involved but the pig is committed. So, not to refer to us as a
bunch of pigs, but we were definitely committed to the process.
The early emphasis in the RTC’s establishment, most of the time and attention was
just focused on building the staff, the infrastructure and in setting up policies. We had
all these issues dealing with contracting and how you run a conservatorship. There were
a lot of things consuming a lot of time. It was a big job, which Bill Roelle knows better
than anybody here—getting control of all these S&Ls. The FDIC started taking over
the conservatorships in early 1989, as Larry White mentioned, the RTC was created on
August 9th or 10th. From that day forward—we became really responsible for what happened to those institutions.
There were lots of issues on the basic approach—which was, let’s package these
institutions up and sell them to healthy banks. We started trying what was known as a
whole bank sale where we tried to find some bank that would, at a certain price, take on
a lot of the assets except for the really “stinky” assets, as Larry White called them. I think
we called them “opportunity” assets. That may have been a difference in the sales strategy between the RTC and the Bank Board.
A lot of time was focused on how are we going to manage all this real estate and
these low quality loans, nonperforming, subperforming, potentially nonperforming—all
these loans that we felt that we couldn’t sell. We found out that we couldn’t sell a lot of
those loans, even the ones that we thought we could sell.
The political emphasis at that time when we started centered on concerns about the
RTC dumping assets and disrupting markets. People would come in and say, my God,
you’re going to destroy the market in Arizona, you’re going to destroy the market in
Texas, so make sure you don’t do it. We knew the appraisals that were on the books for
these assets in the beginning were totally unrealistic. We knew we had to get more realistic—that means we need to lower appraisals on these properties to sell them. We spent
lots of time meeting with members of Congress and state and local representatives that
were very concerned that we were going to disrupt the financial markets, the asset markets, the credit flow. We always would have some borrower who felt that we were being
unreasonable.
Things started to change though. Some of the factors that started to influence that
change was that banks took only the best assets. That was despite the fact that we offered
them price discounts. We offered them put-back options and generally they would put
them back after they had been cherry picked and they would put them back late. I
remember we used to get the reports looking at how many assets had been sold. We
would originally count things we sold with put-backs as a sale, and then we would keep
our fingers crossed that at the expiration of the put period that they would actually keep
them and for some assets they did, but for too many of the harder to sell, they didn’t.

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Well, since we couldn’t get the banks to buy them, we needed funding to carry the
asset inventory. We had two types of funds that we used to preach about. We had loss
funds and what we called working capital. We needed money to carry the assets. If we
wanted to get rid of the conservatorship, close it down, sell off the good assets and sell
off the deposit liabilities to somebody else, we needed to have funds. We needed to have
cash in effect to fund us holding onto the assets in inventory.
The legislation simply did not address that funding need at all. It only talked about
loss funds. So, very early on we ran into a brick wall. We couldn’t do any more transactions because we couldn’t fund the closing. The S&Ls had to be kept in conservatorship
longer and longer and longer. I don’t remember what the average worked out to, but it
was getting pretty long and that meant we had more and more control problems. We
had to deal with the liquidity problems of the institutions and we had to regularly
preach about what the cost of this delay was. We had some very creative thinkers in our
Department of Research that would put together some really convincing numbers.
Eventually things changed when Treasury funding was arranged after about six
months. Treasury would lend us money to carry these inventories. The good news was the
pace of S&L sales picked up dramatically. That was an exciting time at RTC. Over three
months we sold lots of S&Ls. Paul Ramey and Sherwin Koopmans and Bill Roelle were
setting off whistles and having contests—it was an exciting time—it was a happy mood.
But, people started to get concerned now about all these assets coming in and Treasury
borrowings being scored, since it was a budget outlay. They didn’t have to go through the
appropriations process, but the impact was negative. So, there was growing discontent.
Also, a growing asset inventory meant increasing market interest. Then criticism
started to increase about the pace of sales and the way we were handling assets with our
standardized asset management and disposition contracts. We knew that we had some
problems with incentives in those contracts, and we were in the midst of revising them
when due to a policy change decreed by Chairman Seidman, we stopped looking to the
asset managers for the disposition phase.
Other things also influenced the change in direction. The oversight board did direct
the RTC to experiment with structured transactions and equity participations. They
said why don’t you try some new things. Interestingly, they had been resistant to do
some things, like seller financing. But, they eventually changed that position to where
they approved of seller financing and then were asking us why weren’t we using it more
often than we were.
Another factor of influence was the FDIC chairman. While we were just working
on an experiment for the oversight board, he said we should just go ahead and do a big
bulk sale. I remember when he called me into his office and he said, Dave, you know, if
we only sell a million dollars a day it is going to take like three trillion years to sell them
all. Then I said, “that is a good point Bill, but you know we are selling more than a million dollars a day.” But the next thing I know we are going to a public meeting, with the
oversight board, and Bill is saying, “if we only sold a million dollars a day . . . .” and so
now it’s in the media. Chairman Seidman says it will take years to get rid of the assets.

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So, people were saying you guys were trying to build a bureaucracy—you’re going to be
here forever. So, immediately we started to switch to become more large-sales oriented.
Some of the things that were done by the RTC that I think were really commendable were the development of the standard sales agreements, due diligence procedures,
appraisal guidelines, and instructions to appraisers—many of these things were controversial. Almost every step that seems standard now was a big, agonizing debate at one
point. Providing market oriented reps and warrants—who provides the warranty? Is it
just going to be the receivership? How far does it go? What are you doing to the government? There was a lot of anxiety over that. Creation of sales centers, the 800 sales lines,
which were quickly swamped, publishing calendars of upcoming sales—and lots of
other new things were done in the area of asset sales.
Not to exceed my time, I just want to make a couple comments of some things that
I thought were particularly memorable to me. At the time, everything was important,
but some of the things that I remember about securitization and whether or not to do
securitization. Our first securitization transaction was junk bond securities. We went to
the board and they approved it. It was the first one. Later, we went back to the board and
said, well, we would now like to do securitization of mortgages. The board members
were really concerned about their own liability and delayed it several months. But finally,
a law was passed that said the board would not have to worry about that liability and it
went through. Securitization was very successful—and I believe it worked out very well.
Another big issue that I recall was whether or not we should re-underwrite a lot of
these loans. If we re-underwrite the loans, we can make them look better and we can
package them better in securitizations. When I left, and I think it ended this way, the
decision came down to say we might be opening Pandora’s box. There may be truth that
a lot of mortgages that were potentially nonperforming that we decided to restructure
might have opened up the flood gates for others and we might have done things to the
loans that might actually have made them less attractive—so, we decided not to. However, that is an issue and I do a fair amount of international stuff and the re-underwriting of loans is a big issue, particularly when you start dealing with industrial companies
and not primary real estate assets.
Another thing, real estate auction, major real estate auctions, auctions of nonperforming assets, I was delighted to see that those things took off and were flying so well.
Our first big real estate auction was a major disaster. It didn’t go off, as a matter of fact.
We ended up in litigation with the auctioneer company. But, because of those mistakes,
and that was the nice thing, the people at the RTC were really, maybe we were under a
lot of pressure, but we were willing to try just about anything. It wasn’t real clear who
would tell us we could or couldn’t either because it was a confusing structure. So, we
would try different things and we would get through stuff a little bit along the way but
we would do all right in the final end. I know in the final one they did, the processes
really got streamlined and the FDIC has also helped streamline. They’ve done some of
the same procedures so everybody is to be congratulated.

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The Derived Investment Value (DIV) was another thing developed by the RTC,
with the help of consultants that are, now are competitors of the company that I work
for, I won’t give them any credit. But there were consultants that helped develop that
scheme. And DIV basically analyzed cash flows and resulted in giving values that were
much lower, closer to what an investor might consider an asset worth. I remember some
of the early transactions—I think it was Tom Horton—I said, Tom, how did you do?
He said, great Dave, we got 75 percent of value. I said, that is really great and I’m thinking of appraisal values. He said, no Dave, it is a DIV which is only about 70 percent of
the appraisal value or whatever. So, it did work. We let the market speak.
Earlier Larry White mentioned a variation of the Filene’s basement sale. I remember
that. Bill Seidman actually called it the Filene’s basement sale and people did see it as a
fire sale. But by then, everybody’s attitudes were changing. In the early days of the RTC,
we were visited in the chairman’s office, even before RTC, by people from Arizona and
Texas, and they were coming and saying, please do not sell these assets. Do not destroy
the market. Those same people came in about a year later and said, please sell those
assets. The market is all clogged up. Nobody wants to buy anything. They all saw this
big weight that the government is holding.
Seller financing was an issue that the RTC finally worked out. That was a very, very
controversial issue, considering how sparingly it was eventually used. I don’t think it was
more than just a few billion dollars in the end, but it was so controversial, I think it was
one of the major factors why the first president of the oversight board staff decided not
to stay, because he was a big supporter that we should provide it.
Certainly, the structured transactions the RTC built, the end-deals and the equity
participations, those were really break-throughs. I think the RTC and the FDIC did a
tremendous job doing it. Sometimes I find myself in my idle moments thinking back
though. You look back on the process because you hear things when you leave—you hear
things through people on the private-sector side. You hear things from people in other
countries. I guess I don’t know—it would be interesting to see—did we go too fast? Did
we leave too much on the table, or is the pace more important than the price, because the
faster the pace the faster you unclog that clog, but at a price to do it? I still think about it
from time to time. I don’t know that we would have handled it any differently, really.
Maybe just some of the lessons we learned the first year or so we would avoid them.
Anyway, thank you very much.

Ted Samuel, Former Chairman and Chief Executive Officer
Niagara Asset Corporation
Niagara Portfolio Management Corporation
Good afternoon and I’m delighted to be invited to this meeting. I believe my role here is
to represent the perspective of the private-sector contractor. I will attempt to discuss briefly
some of the concepts and the evolution of the crisis resolution, as opposed to the details.

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First, it is very difficult in 1998 on a spring day, with interest rates at 6 percent and
the Dow Jones somewhere around 9,000, to portray the climate of 1989. However,
1989 was a much different story.
• Interest rates were very high and had a huge effect on nonperforming assets.
High interest rates were incorporated in appraisal capitalization rates as well as in
present value rates.
• For many borrowers, particularly in the real estate sector, there was no alternative
financing available.
• The country was hostile. I was in Texas—it was really hostile in Texas. I was not
from Texas either. There was an attitude of anger and suspicion at both the borrowers and the lenders.
• Confidence in the financial system hung in the balance. It was a crisis in Texas.
The crisis first involved me when I arrived at First RepublicBank. The bank had
failed and its problem assets of over $10 billion created a large potential drain on the
FDIC fund. There were about 300,000 items under special asset management. There
were about 1,000 employees. They were angry employees. They were angry at possibly
no longer being employees. They were angry at me because I was from North Carolina—Ohio really.
The crisis we faced in this climate was immediate, material and real. The resolution
of the crisis became a riddle which had objectives and constraints.
The objectives were fairly simple to write down. Liquidate large numbers of poorly
understood assets quickly and for cash. Those objectives were reinforced by the asset liquidation agreement, under which we worked.
The constraints to asset management fell into several broad categories. First, let’s
talk about the large numbers—300,000 items, mostly small loans and consumer loans.
They presented a certain chaotic element to asset management and administration.
Second—poorly understood assets. Initially, we didn’t know what we had. We didn’t
know what we were attempting to manage or sell. This was perhaps the biggest problem
of all. These loans were not made or documented to ever be transferred anywhere. One
of my biggest shocks came while walking down the street with Jim Irwin shortly after
arriving at the FirstRepublic Special Asset Bank. I was in charge of the real estate problem loan portfolio. I said to Jim, “Okay I’m here—I’d like my list of assets.” There was a
pause. There was a long pause. He said, well, we don’t have one. It took me six months
to get a list of assets. I’m sure that was repeated time after time at other institutions and
at the RTC.
Third, after a brief period of collections funded by alternative sources, we ran into a
logjam as our borrowers could not raise money. Other banks were not lending money.
No one was lending money. We needed cash from those assets. The FDIC needed cash.
We reached an impasse.
We concluded that in addition to our traditional collection activities, we needed
another vehicle to solve the riddle. The traditional methods failed for several reasons.
First, the time requirements to resolve large asset volumes were unacceptable. Second,

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cash collections were difficult, as refinancing was not available for many of our borrowers. Third, fairness and wisdom dictated restructuring debt in many cases as opposed to
demanding a cash settlement from our borrowers. Fourth, the market was imperiled by
requiring cash for asset sales, particularly real estate owned sales. Fifth, fair market values
were not attainable quickly for cash collections or sales. And, sixth, real estate sales took
too much time and did not close.
We began to focus on bulk or pooled sales as a solution. In theory, bulk or pooled
sales would quickly generate cash, sell large volumes, allow restructurings at the borrower level, and not destroy individual markets. However, several theoretical and practical impediments remained. The first one, which continued, was that we did not know
what we were selling.
I’m going to take a minute and talk about something fundamental to the whole process and that is appraisals. Appraisals were crucial requirements for asset resolutions.
One of my earlier experiences at the former FirstRepublic was being told that we simply
could not get appraisals because there were no more appraisers available. Appraisals
tended to come in high on the first go-around because the appraisals were based on prior
sales when property values had fallen 30 to 40 percent due to future projections. This
required at least a second round of appraisals. One logistical problem with appraisals is
the need to give the appraiser good property information. Of course, we didn’t have that
information. The time requirements for this expanded geometrically. We just slogged
our way through the appraisal issues.
In retrospect, I believe some of the information problems we encountered could have
been reduced through the judicious use of representations and warranties, particularly in
conjunction with bulk sales. In my opinion, buyers will accept the additional work of
researching certain asset issues following closing, provided they are protected from what
they find. They will accept this work without significantly discounting bid prices. Note
that I believe work can be transferred but not risk. If I were to hold up a loan file and told
you it contained a first mortgage and asked you to bid on it, you may bid with your
implied understanding of what it was. If I said “maybe” it is a first mortgage, your bid
would be considerably different. We started with the “maybe” first mortgage.
Fortunately, over the years, we expanded sale representations and warranties which
encouraged effective sales. Transferring loan review work through expanded representations and warranties would have significantly sped up the sale process had they been
used earlier. As it was, we experienced significant delay in an attempt to avoid representations or warranties which did nothing to remove risk or improve value.
The second remaining problem for loan sales was to satisfy the fair market value
requirement. Our global assignment was to recover the highest net present value, but
fair market value inevitably crept in. We satisfied the fair market value requirement by
demonstrating several things.
First, we demonstrated fairness by subjecting all bidders to the same rules, by providing all bidders with reasonable representations and warranties, by providing relatively

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affordable small and stratified pools, by providing the same information to all the bidders, and by providing competitive bidding with broad marketing.
Second, we needed to demonstrate, in addition to obtaining appraisals, that sales
were at market values. We demonstrated obtaining market values by widely marketing,
by advertising sales, by widening the market through providing financing, and by profitsharing arrangements and equity participations. I am in favor of equity participations
because whatever the assets were worth, we shared in those values. Hopefully, values
were being enhanced by the buyers’ efforts.
In addition, we developed new concepts of net recovery values, such as the Derived
Investment Value (DIV), which allowed for realistic valuation. Still, we had an
appraisal-timing problem that didn’t go away and slowed us down.
Okay, so the theory worked. Bulk sales could meet objectives, but would they work?
Would they close? Was there a wide enough and deep enough market?
First, we needed deals to close. We had a good deal of experience with deals that did
not close. The reason they did not close was that we did not require prior due diligence.
Requiring prior due diligence was key to these programs working. When people bid, they
bought. At first, people were reluctant to bid. People may have bid low, but they bought.
The second key element was representations and warranties. We improved the representations and warranties so that the bid risk structures were appropriate to the assets
being sold.
The final element was the depth of the market. In short, would we get a price which
met our fair market value test? The first deals closed and investors noticed the attractive
prices. You can always count on competitive greed. Bidders and prices increased substantially. A viable market was born. Asset sale prices began exceeding our expectations and
then our belief. Competitive bidding worked. Reasonably priced funds were raised to
fund troubled assets. The crisis, from my standpoint, stabilized.
A by-product of bulk sales is that it changed the temperament of the problem and
the crisis. When you’re a bank or liquidator and you collect 70 percent of a loan, you feel
you’ve lost no matter how good your collection. You still feel you’ve lost. In the bulk sale
environment, profits are made and it changed the entire temperament. All of a sudden,
there is an optimism about workouts and prospects for the future. We saw that happen
in Texas. People recognized an opportunity. Then they bid the opportunity up to very
competitive levels.
We finished our job and went home and interest rates fell and we were invited to
symposiums and lived happily ever after.
Seriously, proper credit must be given to several additional factors. First, I worked
under asset liquidation agreements, and those agreements delegated authority through
oversight committees. The oversight committees were extremely important to us. I
admit when I arrived in Dallas there was a great deal of animosity between my staff and
the FDIC staff. This probably resulted from anger and disappointment at being part of
a failed bank, with a failed career. Nonetheless, over a period of time, this animosity was

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largely dispelled to the credit of the oversight committees. They did great work, used
common sense, were locally available, and key to the success.
Second, incentives based on cash collections for both the private contractors and
their employees played a large role. This kept our focus and our enthusiasm as we
worked ourselves out of jobs and careers. It was highly effective down to the lowest
employee level. It made my job of managing much, much easier than I told the oversight
committee. Never underestimate the value of management by incentives.
To summarize, I would recommend the following in the future: (1) Avoid large
numbers of small assets. Make acquiring banks take them and if that is not possible, sell
them immediately. The administration of small assets was one of our greatest difficulties; (2) Sell loans in bulk competitive bids with financing and retain a profits interest,
particularly in difficult to value transactions; (3) Use firm sale contracts with prior due
diligence and representations and warranties; (4) Delegate authority; (5) Provide incentives to servicers; (6) Provide seller financing for all large sales of loans or REO; (7) Place
less emphasis on cash collections from primary borrowers, and; (8) Transfer work to
investors through representations and warranties.
In closing, what did our efforts accomplish with the bulk sales solution? We broadened recovery methods. We lowered the cost of funds and refinanced billions of dollars
of assets. We changed the temperament of collections from losing to winning, and we
saved time and expense. Make no mistake, there were mistakes made—I know because I
made some. However, criticism that bulk sales, at least the ones we sold, sold cheap, is
simply false. The Dow Jones stocks sold cheap. Bonds sold cheap. I believe that the average buyer of our pools would have done approximately as well had they purchased
almost any mutual fund in 1990.
Finally, make no mistake, I believe that asset dispositions were handled very well
overall. In 1990, I drafted, but did not send, an editorial regarding the difficulties facing
the RTC and the FDIC. The opening line was, “Hercules and Solomon on their best
day could not resolve the problems confronting the RTC and FDIC to everyone’s satisfaction.” I still believe that. I also believe that I worked with many outstanding people in
both the public and private sectors and I’m proud of our joint success. Thank you.

Diana Reid, Managing Director/Senior Advisor
Credit Suisse First Boston
My name is Diana Reid and I am a managing director with the investment banking firm
of Credit Suisse First Boston. I want to thank Sandra for inviting me to join you today. I
am honored to be the lone investment banker at this gathering.
Sandra asked me to speak about the variety of roles that Wall Street played in the
RTC and FDIC’s crisis management. Among the Wall Street firms, there was a wide
range of participation in RTC activities. Some Wall Street firms had very little involvement with the RTC crisis management; they decided not to commit the infrastructure,

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resources, and time; or just didn’t have the capability among their product areas. Others
had the capability, but decided it was not a long-term product line. Others among the
Wall Street firms did commit significant time and resources to the effort. The commitment or the amount of involvement had a wide range of risk appetites. Some firms
focused completely on the advisory work and fee-based assignments. Some firms
focused on the principal opportunities. Some firms focused on both.
What I’m going to speak about today is what Credit Suisse First Boston did and
what we did not do, and how we made those choices.
One personal note I’d like to share is how I got involved with First Boston’s effort.
Think back to the situation in 1989 and 1990. I’ve worked at First Boston since 1983,
as Sandra noted, and what I focused on was credit risk classes of assets; the newer, more
difficult-to-sell ABS (asset backed securities) and MBS (mortgage back securities). So,
when the RTC and the FDIC came along with bulk sales, I was asked by my manager to
get involved and identify the investors for these assets. At that time, real estate was in the
news, not in positive articles such as appear today; but every day there was something
else negative about thrift assets or real estate that appeared in the papers. So, my assignment was to find investors for an asset class with a negative taint.
Let me walk you through the evolution of CSFB’s involvement in the RTC’s asset
disposition. The first aspect we got involved in, in the very early years, was advising our
institutional clients, major banks and thrifts on their whole bank purchases. We were
not initially involved in the government advisory business; we were helping our clients
figure out a strategy to purchase some of the banks and thrifts that were for sale. Sometimes we would provide them financing for such acquisitions. We would take some risk,
and we would arrange financing for their purchases. In one case, we provided a valuation
of all of the assets of a large thrift that a bank was purchasing so that the bank could
quickly purchase those assets, value them and securitize them. So, CSFB’s first involvement was advising our traditional client base on how to purchase some of the thrifts and
banks that were for sale.
The second phase in CSFB’s participation was to become an advisor to the RTC on
various issues, primarily the bulk sale advisory work. So, before we took any principal
risk, we became an advisor and began to understand what the issues were with the assets.
What the assets were and what the process of securitization or sale might entail. So,
CSFB would receive a fee, which we had competitively submitted and been chosen
through an auction process, and we would receive that fee for assisting the RTC in coordinating all of the information gathering, overseeing the due diligence advisors, developing a marketing strategy (which was probably one of the most challenging tasks),
figuring out who would be the possible bidders for these assets, putting together an
organized book to send out to the potential bidders, working with those bidders on their
due diligence, and then running an auction. That was an exciting task—running those
auctions. On our first of several bulk sales, I remember sitting with the RTC staff and
the CSFB team, being so excited when we would finally receive bids that were at or

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above the threshold price that the RTC had set. It was terrific to have found multiple
investors to bid competitively for the assets in such a different environment.
CSFB completed many advisory assignments. But remember, at that time, we
weren’t risking any of our own money. We allocated a lot of time, resources, infrastructure, sometimes even some new systems design, and we were receiving a fee for that
work. CSFB completed such advisory assignments on residential loans, multi-family
loans, commercial property loans, performing loans, and nonperforming loans; for the
range that the RTC was managing, we would act as advisor on those bulk sales. Only
after we had completed such advisory assignments, assisting the RTC in selling billions
of dollars of assets through bulk sales, did CSFB decide that we would also risk some
principal and become a bidder in certain bulk sales.
So, then CSFB’s role became the investor in certain loans. Sometimes we would
securitize them. Other times we would sell them “as-is,” maybe in different groupings or
individually. Sometimes we would meet with the borrowers and restructure the loans
before we then re-offered them to other investors. Sometimes we entered into joint ventures with asset managers who were much more familiar with a certain location, real
estate market or property type than we were, to ensure that we didn’t make mistakes bidding from New York City on assets that were located in Texas or California.
So, CSFB became bidders for these assets. But, there was a range of risks taken. We
profited on many portfolios. We lost money on a few portfolios. At times we underestimated the cost of servicing, modifying or working out the very small loans or residential
loans. That was where the most difficulty occurred. But, overall, CSFB saw it as an
opportunity to combine our knowledge of asset valuation, risk taking and securitization.
The next step began with the securitization programs. This is really where Wall
Street contributed significantly. After all, securitization is our primary business. We at
CSFB took a great deal of pride in being a founder and leader of asset-backed and mortgage-backed securities/markets. We knew those markets very well. This was an area that
we acted as advisor to the FDIC and the RTC, and also played a leading role as an
underwriter of those securities. This was, to me, definitely the most satisfying of all of
the projects that I worked on for the RTC. Beginning with residential loans and then to
multi-family, and then to commercial, and then to the combination of commercial and
multi-family. CSFB participated as advisor on the securitization of nonperforming
loans, but not as securities underwriter. We did participate on the equity tranches of
some transactions, as principal.
The securitization program was one of the most significant innovations of the RTC
and has contributed to today’s active and healthy CMBS (commercial mortgage backed
securities) market. Its results are still seen in the market today. The RTC forced the securities underwriters to innovate, find new investors, and to create new credit enhancement structures.
The other product that Wall Street broadly participated in was funds. For the nonperforming loans, the equity partnerships, the nonperforming pools in securitizations,
many firms established funds. Morgan Stanley, Goldman Sachs, and CSFB were really

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the dominant players in investing our own money as well as raising third-party funds in
limited partnership structures and using those limited partnerships to bid on some of
these nonperforming assets. That is a big on-going business today in different types of
assets with different types of sellers, but is certainly one of the main legacies of the RTC
experience.
“Necessity is the mother of invention” is an apt quote to summarize the RTC experience. Sandra and her staff forced the Wall Street professionals to be creative, to invent
new solutions. Three such examples: In an early residential loan securitzation, we were
faced with selling several hundred million dollars in loans indexed to the 11th District
Cost of Funds index. One of the healthy California thrifts had just attempted to do a
much smaller transaction with a similar pool of adjustable rate mortgage; and it had
taken them several weeks to clear the market, i.e., find enough investors to purchase all
the securities. So, I was, needless to say, a little bit worried about a much larger deal
clearing the market. What we created was a “cross-index” feature that proved popular
with investors and profitable for the RTC, as well. We issued the bonds using LIBOR
and we proved to the rating agencies (and we proved to the RTC who was holding the
residual), and to the investors that there was enough cash flow in the transaction to support this feature.
The multi-family securitization of 1991-M5 was the first time we had looked at balloon maturity extensions. If you looked at the underlying asset value of the multi-family
properties versus the loan on a property, all the loans were about 100 percent of property
value and re-financing was not as liquid as it is today. We came up with an “extension”
scenario that gave the investors comfort that the securities would perform well. We gave
the rating agencies comfort that the securities could support that rating, and also introduced servicer flexibility so that at the balloon maturity the borrower was not forced
into foreclosure.
In commercial real estate transactions, the “excess apply” structure was one that I’m
most proud of having helped execute. The RTC kept the residual value and paid off
early the highest yielding components of the financing. The structure allowed us to
attract new investors to those securitizations.
I’d like to conclude my remarks with a list of what the RTC experience has created
in the fixed-income securities market. First and foremost, I believe that traders and the
fixed-income departments on Wall Street are more capable today of selling securities
with a complex story. There were many trading desks and many firms that did not have
the expertise nor take the time to sell securities that had complex stories. The RTC experience pushed us all to develop skills that we would not have otherwise had. So, there is
a lot more complexity in structured transactions, which allows issuers to create offerings
tailored to their current needs.
Second, there exists today a commercial mortgage-backed securities market. There
wasn’t one in 1990. The CMBS market really developed because the RTC proved there
were investors out there to support it. The CMBS market has provided liquidity to the
real estate market, and that liquidity has been a factor behind the real estate recovery of

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this decade. The RTC created the early CMBS market, forced the setting of standards of
due diligence and focused the rating agencies on this market.
Third, the street today is more willing to take principal risk for assets that can be
placed into securitizations. There are more firms today willing to look at unusual assets
and commit their own capital.
Fourth, the enhancement of systems and financial modeling is not one that most
people recognize. But very advanced financial engineering was required to model many
of the RTC transactions which introduced new structural twists, new asset types, and
new credit enhancement methods. I remember when we were structuring 1991-M5, one
weekend in the financial engineering room we had 15 computer programmers who had
been working 12 to 16 hour days for about three weeks to upgrade the systems so that
we could model, provide analysis, answer investor questions, and value the residual that
the RTC would retain on this transaction. We believed we had one of the best systems
on the street before M5, but we still had to enhance and improve that system. Most of
the Wall Street firms have vastly improved financial engineering models today if they
were involved in the RTC process.
Thompson: Before we start the question and answer period, I would like to pose a
question to any one of the panelists who would care to address it. That is that there is a lot
of debate about whole loan sales or the government selling assets while retaining an equity
interest. Do you think the government should retain an equity interest in asset sales?
Samuel: I believe the answer depends on the type of assets being sold. If the assets
are well understood with a defined market providing full market value, then sell without
equity participation. In cases of poorly understood assets or difficult to value assets then
equity participation is beneficial.
Thompson: David Cooke, why didn’t the government sell assets using government
guarantees?
Cooke: That was an issue of some discussion. The feeling was if you could put a full
faith and credit guarantee behind an asset, you could sell anything. So, what’s the point.
Actually there were some asset categories where at one time we thought it might make
sense because the market was being irrational. But, as the opponents to that approach
said, and thinking about it, I think they’re right—if we slap the full faith and credit of
the U.S., we don’t really need you to go around and try to sell it. So, it was decided not
to. But again, some of the representations and warranties, especially some of the early
reps and warranties that went on some of the early securitization deals, I recall, seemed
to be getting awful close to a full faith guarantee because reps given by the RTC were, in
effect, backed by full faith and credit. But I think the whole view was very cautious not
to do anything to prolong the government’s involvement in those assets, and I think it
was probably for the best.
White: The names of the programs might have been a little different, the particular
twists might have been a little different, but the same fundamental problems were
present. David, you had the advantage of more development in capital markets, better
technology; you could do stuff that we weren’t capable of. But, on the issue of guarantees

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or financing, basically there was a strong sentiment in the FSLIC that said, let’s just get
rid of this stuff. We don’t want it coming back to us. We want it out of here. That was a
very strong sentiment.
Thompson: Based on your remarks on progress that we had with FADA, do you
think we would have been better served in just hiring a private contractor to just sell
everything, as opposed to trying to sell it ourselves?
White: There is no right answer to that. It’s all an issue of monitoring, of structuring
contracts, of incentives. In principle, by having the private sector rather than the public
sector, you are not subject to the limitations of salaries, of not being able to offer
bonuses, of not being able to hire the necessary expertise at the government civil service
rates. On the other hand, if you get the contract wrong with a private-sector contractor,
they’re going to take advantage of it. If you provide too rich an incentive to manage
rather than to sell, they’ll manage the hell out of those assets and they won’t sell them. If
you provide not enough incentive for management, they’ll dump stuff that ought to be
managed before it’s sold. So, getting those contract terms right is terrifically important
and terrifically difficult. There is no good or right answer.
I think the FADA was a creative effort to try to bring private-sector expertise, salaries, and incentives into the tent while still retaining a decent amount of oversight and
control on the part of the federal agency. But, as I said, it fell apart because of inadequate
sensitivities to the bureaucratic niceties of the government sector, the unfamiliarity of
the private-sector people in trying to deal with the public sector.
Smith: I’m Ed Smith with Banc One Mortgage Capital Markets, and I have a question for Mr. Bell, if you will. If you measure recoveries of these claims in terms of actual
cash dollars as opposed to judgment amounts, how would you compare that with the
cost of seeking those recoveries?
Bell: I’m not sure if I have the statistics to completely answer your question, but I
think most of those recoveries that were reflected on the chart would be actual dollar
recoveries, either from proceeds from insurance companies or actual cash settlements
with the defendants in the case, and not simply judgments.
Kroener: Bill Kroener, General Counsel of the FDIC. The long-term, ten-year
numbers, total costs on total recoveries, are just about four to one recoveries as against
cost. That is for both the RTC and the FDIC for the PLS program as a whole. We track
these numbers fairly carefully and regularly and that is the overall number for the tenyear period. Obviously, there are amplitudes within the period.
Thompson: Any more questions?
Cooke: Maybe I could ask a question on that issue, if you don’t mind. I’m just not
sure how something turned out. When I was at the RTC, we used to say, we have
100,000 pieces of litigation and some of it was claims against people that borrowed
money. It was all varieties. But if you looked at the dollar amounts, some of them were
very small. And, there was a consideration about why don’t we just go and auction off all
these claims. And I remember, this was a very difficult thing to do. I’m not talking about
loan judgments, and stuff like that. I’m talking about litigation cases, small dollar cases.

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But, it was something like, as I recall, 75 percent of the number was less than $25,000 in
claims. I thought, why can’t we just get rid of that? Did anybody ever do that? I left in
1992. Or, do we still have 100,000 small claims?
Smith: I’m Jack Smith, Deputy General Counsel for the FDIC. That was a public
policy issue that came up from time-to-time and the resolution was you can’t take those
restitution orders, which are $2 billion outstanding, and you can’t take those PLS claims
and auction them off to the public because there is a concept of public prosecution in
those kinds of claims. So you can’t just discount them. Sometimes, a particular defendant, for example, Don Dixon, went bankrupt and he lost a lot of money for us, as you
will recall. People thought, well, we’ll just auction off his claim because he’s never going
to have any money again. But, believe it or not Don Dixon has come back and he is
making money down in Florida and we think we’re going to get a million dollars out of
him there. So, you don’t just give up on those kinds of claims.
Bell: If I could add to that—I would think with the uncertainty of litigation, it
would be fairly difficult to market those types of claims because there are a number of
defenses that the defendants would use in defense of the action that would be brought.
One defense would be bankruptcy, another would be the statute of limitations, mitigation of damages, and other issues that could make the actual litigation very risky for a
purchaser of those type of claims.
Cooke: It was yesterday and was an economic issue at the time, it seemed like. Small
things, get rid of them as fast as you can. We always would—I know the legal divisions
would always work to do a cost-benefit analysis. What is the probability of getting it. It
seemed to me that the majority of the claims just made it where it made sense to go forward. That is probably unfair because it had probably been just the ones I saw. It seemed
the probability of winning and the probability of getting anything in judgment—it
would work out that the amount of the expected recovery was always enough for the
expected cost.
Crocker: Don Crocker. Is it fair to say that the receiver’s powers that were given
under FIRREA had a significant impact that increased the recoveries that the RTC and
the FDIC achieved during the four- or five-year period of the crisis?
Cooke: I would think it had to have a positive impact on recoveries. I don’t know
what it did in a more broad concept. If you’re talking about the receivership powers—
the superpowers—the special powers to deal with the burdensome contracts, and there
were others, proved to be very helpful to have. But, there are questions and I don’t know
if anybody focuses on them any more about the fairness of it. Was the government given
too much power? Some of my friends at the FDIC tell me that there are some, even
within the FDIC, that wonder about how powerful should a receivership be? I don’t
know. You probably have a view on that. What do you think?
Comment: Lots of people besides the taxpayers and the receiver’s powers had a huge
adverse impact on third parties to the benefit of the funds and that no longer would be
supported by a court under due process or condemnation or a variety of other legal theories and that is why these current lawsuits on the Supreme Court have been authorized

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on the net worth issue—the regulatory net worth issue—which is important because
there is no longer a war so there is no longer authority to be using war powers.
White: And there were also long-run incentive issues. Do individuals and institutions change their contracting arrangements because of the possibility that, when a
receiver comes in, he or she will take harsh measures?
Cooke: The RTC, its job was to maximize recoveries and it had these special powers.
What we find ourselves doing is using those powers to the absolute maximum because
they would say, hey look, we are supposed to maximize recoveries and I guess the most
memorable one was an irate call I got from a Senator from New York about the position
on rent control being taken by the RTC. I don’t know where that ended up. To be honest with you, I’ve been gone for a number of years and I haven’t really followed it. But
from the RTC standpoint, our job was to try to get as much as we could, and as many
powers as Congress gave us, we were inclined to use. I don’t remember anybody saying,
well, gee, I don’t think we should use it. It was more or less, well, we ought to use it
because we’ve got it. Because if we don’t, people will say, why aren’t you using it? But
you’re right. Maybe times have changed.
In other countries that you go in and you talk about the scope of powers given the
FDIC and the RTC, and basically some people you’re just cutting out the of court process and it is something that in some of the markets I go in, they just can’t conceive cutting out the judicial process as much. It is a hard sell because we do have a due process
here in our own structure.
Thompson: Ted, we’ve spoke in quite extensive terms about securitizations and
equity partnerships, but quite honestly, the failed bank assets were really cleaner and the
FDIC used a lot of different disposition strategies to try to sell assets. They sold them
individually. They used bulk sales. Can you talk a little bit about what you did as an
asset liquidation manager for Goldome in particular?
Samuel: I can try. We employed everything from individual asset sales to bulk sales
of large quantities of assets. We also managed 34 Goldome subsidiaries that ranged from
insurance companies to Goldome Credit Corporation, a major secondary finance
lender. We employed the most practical approach at the moment for the issue. In the
subsidiaries, we were the board of directors. Speed is essential in dealing with operating
companies. The subsidiaries were sold off, one-by-one, in separate transactions.
When we received a homogenous group of assets with decent data, we sold them in
the secondary market. In one case, they were quickly turned around and securitized.
That sale and securitization paved the way for later securitizations.
We considered securitizing those assets ourselves, but frankly the process and the
representations and warranties needed to securitize were farther than we chose to go. In
retrospect, I think we left a little money on the table, maybe 4–5 percent of the transaction. But, it was a very good transaction for us and it had some very difficult issues for
the eventual purchaser.
McFarland: My name is Beverly McFarland and I’m with the Beverly Group. I
would like to address a question to Ms. Thompson and Mr. White. Of all of the

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methodologies used to dispose of assets around the United States, which do you feel,
perhaps some research has been accomplished, had the highest net yield? Securitization, auctions, direct sales by the sales center, bulk sales, the SAMDA contractors, and
how did the SAMDA contractors come out?
White: I’m the wrong guy. I don’t have those answers. Often the assets are such different types that the different channels must be used. I’m not sure how we would even
address the issue and provide you with the answer. But, I’m the wrong guy.
Thompson: I’m the wrong girl. No, actually there were different sales strategies that
were used for different types of assets, and different methods worked best depending on
the market. Whole loan sales worked really well at certain points in time for residential
mortgage loans. Securitization works well when you have a certain dollar threshold
because there are expenses that are associated with each type of transaction. We’ve
looked or tried to look at the SAMDA contracts and also the SAMA, ALA and RALA
contracts, and it really is an evolutionary concept and all of these methods worked well
for what they were supposed to do. As we learned and as we grew, we refined these methods to try to get to the point where we are today. So, it is really hard for me to put in
context which worked best because you’re looking at different points in time and different asset categories. So, I think they all worked well and I think the government benefited from the mistakes that were made because we refined the strategies that were used
to sell assets over the years.
Reid: Just to add one point to your question, perhaps to help you re-think the question you’re asking. Each time CSFB acted as an underwriter on a securitization, one of
the last tasks we would perform before offering it to investors was to review the information and present to the RTC the indicative pricing of what that pool would sell for if we
were to sell it “as-is,” as whole loans with no credit enhancement, instead of in a securitization. Usually that is a fairly complex analysis, but there are two elements to it that I
think really are important to add in when you’re comparing what you would get for selling a pool of whole loans and what you get through a securitization. It is not only the
cash raised on the day of closing, because on a whole loan sale, that is all the cash you’re
going to see. That is the total amount of cash you will see out of that sale. Typically in
the RTC transactions, the RTC held on to a residual interest, not an equity participation
like some of the later deals, but a residual interest. If the assets performed better than the
expectations (or base case) then there would be money left over at the end of the transaction and that would go back to the RTC. So, when you are comparing purely a bulk sale
with a securitization, you have to look at both the cash raised on the day you closed, as
well as the total cash to the RTC after considering the residual interest.
Meyer: Jim Meyer from the FDIC. Ted, as you reached the end of your contracts
with the FDIC, etc., what were some of the challenges you faced as you reached the end
and did your incentive structures hold, and what advice do you have for us as we clean
up the bottom of the barrel, basically?

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Samuel: I’m delighted to say that at the end of our contract, we had almost nothing
left. Our incentive contract had a sliding scale which started at one percent and went to
about 15–20 percent. That provided great incentive for us to resolve almost everything.
I assume there are other cases when there are many assets left. In those cases, I think
the FDIC should either extend the servicing agreement to facilitate final collections or
bulk sales or transfer the assets to a consolidating servicer.
Gilbert: Gary Gilbert, America’s Community Bankers. This is for anyone on the
panel who would like to respond. I was wondering if there are any unique problems in
disposing either through a securitization process or otherwise, small business loans, particularly those that are not collateralized or poorly collateralized?
Reid: From a securitization standpoint, I believe there was one securitization done
quite a few years ago by Chrysler Finance. The statement of how difficult it is to determine the long-term repayment probability of small business loans is that that transaction was a split-rated transaction, which in securitization indicates that the rating
agencies do not agree on what the repayment to bond holders will be. Small business
loans are a difficult asset class to value because you can view them purely as corporate
loans to corporations that are not in the Fortune 500 or you can view them as business
loans where it is also a real estate venture, in effect, because they are occupying the entire
building and running a business out of it. So, in the case of foreclosure/non-payment, if
the small business fails, the lender is left with a property and a business. Can you find an
alternative buyer or use for the property to re-coup your loan?
Samuel: I think small business loans are among the most difficult to collect. They
are particularly difficult if the collection objective is fast cash. They generally have no
collateral. They fit very well in financed bulk sales with an equity participation which
gives buyers of those packages time to work with the small business people over a longer
period of time.
Question: In the Texas situation, how pervasive was fraud where you found that
assets were basically worth nothing and you couldn’t collect anything at all?
Bell: In general or with respect to insider deals and pursuing claims related to professional misconduct—I’m asking for clarification of your question.
Question: How much of it was really, when you actually went in there, did you find
that the assets were fraudulent and they had been made either by people who were dishonest or borrowers who were dishonest, and the assets themselves were worth nothing?
Bell: Okay, I follow your question. Very few of the cases that we prosecuted for the
FDIC and RTC involved actual fraud, that is those cases that I directly participated in.
We saw a number of cases where there was substantial insider abuse and favorable treatment given to insiders, but not very many cases where there were sham transactions or
where a director received some benefit and actually provided nothing in return. We
didn’t see very many of those type cases. But, I have seen studies that indicate in about
one-third of the cases overall, and I assume those include S&Ls and commercial banks
as well, where they saw some fraud that was about one-third. Also in Texas I’ve heard
reports that fraud may have risen to the level of at least 50 percent.

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Thompson: I think we’re just about ready to take a break so that we can be back at
4:00 p.m. to hear our featured speaker, John Heimann. I want to thank my panelists
very much and thank you all for participating.

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Featured Speaker

Introduction
John Bovenzi, Director
Division of Resolutions and Receiverships, FDIC
I would like to introduce our afternoon speaker, and my understanding is that after his
remarks he is willing to take some questions. Let me introduce John Heimann, who is
the Chairman of Global Financial Institutions for Merrill Lynch & Company, a member
of the firm’s Office of the Chairman and Executive Management Committee. Mr.
Heimann came to Merrill Lynch in 1984 as Vice Chairman of Merrill Lynch Capital
Markets. He served as Chairman for the Executive Committee for Merrill Lynch European/Middle East from 1988 to 1990, and became Chairman of Global Financial Institutions in 1991. He served as U.S. Comptroller of the Currency from 1977 to 1981 and
as a member of the FDIC’s board of directors. You’ll notice if you look later at his biography in your program that John Heimann has accomplished quite a lot. I won’t go
through all of it, but it’s impressive and suffice to say we are very pleased that he was
willing to take time from his busy schedule to be with us today. So, would you please
join me in welcoming John Heimann.

John G. Heimann
Chairman, Global Financial Institutions
Merrill Lynch & Company
Thank you very much. I am an investment banker that morphed into a supervisor. I was
first Superintendent of the Banks of New York State and then came to Washington as
Comptroller of the Currency to return to the investment banking industry. So, the best

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introduction I’ve ever received was from Alan Greenspan who said, this is John
Heimann—he’s a poacher, turned gamekeeper, turned poacher. I wish that fate for all of
you—I really do.
I’m really very pleased to be with you today at this symposium. When I was asked to
join you, the organizers gave me the wonderful brief to “talk about anything that interests me.” That is generous, but it does cause one to reflect and think about what would
you really want to say to so sophisticated and knowledgeable an audience? I decided I
would discard those matters which would be a regurgitation of comments made by
myself and others on a number of well-worthwhile subjects such as Glass-Steagall. What
will Congress do? Will it make any difference and how did we ever get into this ridiculous situation with a Congress struggling with self-interested turf battles while the financial intermediary system in the United States and the rest of the world steams ahead and
redesigns itself?
I suspect that the future will be filled with very learned doctorate theses, dissecting
the history of Glass-Steagall, from its hurried enactment to its protracted reform. Since I
have been an active participant in this issue, having first testified for the repeal of GlassSteagall as New York State Superintendent of Banks 23 years ago (I must have been very
persuasive right?) I will leave objective dissection of this issue in the hands of interested
academics of the future.
Nor will I address in the body of my talk the future of the financial services industry.
Anyone with eyes, ears, and common sense can easily determine the future shape of the
financial services industry. It has been apparent for the past decade and I have again
written and spoken to the subject so many times that I thought I would spare myself,
and others, a repetition of the obvious. Nor will I dwell on the suitability of deposit
insurance. It is thoroughly apparent that deposit insurance is a key, if not the key element, in any banking system. To debate its importance is questionable use of valuable
time. Deposit insurance is a bedrock for stability. In a positive sense, we know that from
the U.S. experience, and in a negative sense, we know that from the Asian experience.
Yes, of course, there is room for debate on the extent of coverage under deposit insurance, and yes, there is room for debate whether deposit insurance should be privately
funded or supported in the final analysis by an implicit government guarantee. Unquestionably, there is need for far more debate on the issue of moral hazard and its flip side,
too big to fail, than has taken place to date.
But, I shall pass on all of that, even though I have strong views on these related subjects, not only as it affects the United States’ financial system, but also how it impacts
the international activities of the International Monetary Fund. On these subjects during question and answer, if you want to bring them up, that is fine with me.
But, in light of the globalization of the financial services industry, which combines
banking, securities, and in many countries, insurance, and the recent spate of mergers in
the United States and elsewhere, for example, Nations Bank and Bank of America,
which we were involved in, Bank One/MBD which I was involved in, CIBC/Toronto
Dominion Bank in Canada, Credito Italiano and Unicredito in Italy.

FE A T U R E D S P E A K ER

I just thought I would like to talk about the future of the structure, not of the industry, but of the system that supervises the industry in its broadest sense—the financial
regulators. Now, I know that this is a complicated subject. It is one that is bound to raise
considerable controversy. But, I thought it would be unfair of me to come down here
without setting the cat amongst the pigeons, and when I say cat amongst the pigeons,
that’s what I mean. I don’t mean every man for himself as the elephant said to the chickens. I mean cat amongst the pigeons—to discuss this subject.
It has been discussed, by the way, on an international basis by the Group of 30
study, which many of you may have seen, of which I co-chaired on financial supervision
and national limitations. The subtitle of that study is “The Inherent Contradiction of
National Supervision of Global Firms and Global Markets.” Any of you who haven’t
seen that study, if you will give me your card after this is over, I would be delighted to
send it to you because it is a first rate piece of work. I know that is immodest, but that is
what the FT said. That is the Financial Times and the Wall Street Journal. But, it is
really worth your reading if your concerned in this area of activity.
Now, financial supervision is predicated upon the correct belief that the real economy should be isolated from the repercussions of systemic failure in the financial intermediary system. I will always use that phrase. I don’t mean the banking system. I don’t
mean the securities system. I don’t mean insurance. I mean the financial intermediary
system. Those institutions that intermediate the savings of the nation and put them to
productive use.
Financial crises, particularly those that occur in the banking system, have dramatic
economic consequences in the societies which they intermediate. Innocent savers, small
businesses and others are perversely affected through no fault of their own. The financial
supervisors’ main task, therefore, is to prevent the unintended consequences of financial
institutional failure. And, they do that through the supervision and regulation of individual institutions which, taken together, make up the financial intermediary system.
That is not to say that financial institutions cannot disappear. A dynamic system that
constantly evolves to meet the needs of the customers or clients will always include those
who cannot adjust or those who make poor judgments. When that occurs, and it always
does, but when that occurs, these institutions must be and inevitably are weeded out.
That is not only permissible, it is desirable. But, the process of disappearance must be
managed to prevent the problem of one institution being transmitted to others.
As a sidebar, and we won’t discuss this at any length now, but one need only look at
what has happened in the Japanese financial system to understand how not to manage
this type of problem.
But, before tackling the issue of supervisory instruction, there are three principles
that need to be observed. Number one is independence. Banking supervision, in fact all
financial supervision, must be independent and not subject to the passing political whims
and fancies of the legislative and executive body. By that I mean the financial supervisory
structure should be so designed that the supervisor can take actions he or she deems necessary in the public interest, free from parochial, political pressures. Supervisors’ powers

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are great—I heard a bit of that before when I was listening. In the granting of charters,
they bestow economic advantage. Conversely, in the closure of an institution, they take
away economic advantage. To be independent, the supervisory agency must be free of
undue short term influence from either the administration or the Congress. Therefore,
the supervisory agency should not rely upon the appropriations process for its funding.
Furthermore, the person or persons who run that supervisory agency should receive term
appointments and be subject to rule only through a Congressional process. These twin
requirements keep the supervisor free of direct Congressional and Executive Branch pressure. That is the case today for the banking regulatory agencies, but not for some of the
others. But, of course, it is understood that the agency must be responsive to the parliamentary body that created it and that is done through Congressional oversight.
In my view, the model for the United States today is the newly-created Financial
Services Authority in the United Kingdom which combines all the functions of the
financial regulatory powers covering banks, building societies (we call them thrifts),
securities activities and insurance. Even though it is totally independent, the linkage
between the FSA and the central bank is strong and reciprocal, as it should be since the
central bank is responsible for the provision of liquidity without which financial crises
could easily blossom. In my view, the FSA is the prototype for the entire world.
My second principle is integration. As the recent announcement of Citicorp and
Travelers highlights and others around the globe, the melding of banking, securities and
insurance is the design of the future. This structure exists in most European nations.
With the disappearance of Article 65 in Japan—that is their Glass-Steagall law which
has disappeared—we will continue to seek commingling of banking and securities activities in that country. In fact, with the broad exemptions granted under Section 20 by the
Federal Reserve, the amalgamation of banking and securities activities in the United
States is broadly operative. Therefore, considering those realities of now and in the
future, we must expect that we will see more and more of these activities housed in one
operating entity. It hardly makes sense to have a variety of different supervisors involved
in overseeing that operation.
As it stands today, we have three national banking supervisory agencies—the Federal
Reserve, the Office of the Comptroller of the Currency and the FDIC. Thrifts are regulated by the Office of Thrift Supervision; credit unions by the National Credit Union
Administration. On top of this, there are 50 state banking supervisors. In the world of
securities, we find the Securities Exchange Commission. We have the Commodities
Futures Trading Commission. And of course, when it comes to insurance, there is no
national supervision, as that is vested in the 50 state insurance commissioners.
Now, how do we integrate all of this into an efficient and effective supervisory system which simultaneously permits innovation and forward movement? To me the
answer is obvious—it’s the same answer that has propelled the U.S. banking system forward since the founding days of the republic, and it’s the dual banking system which
clearly must be protected for those states which are willing to appropriate the necessary
resources to properly supervise state-chartered institutions.

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So, integration means bringing together all of the activities that modern financial
institutions offer to the public, and under the supervisory umbrella of one entity. Obviously, today’s supervisory bodies have very special areas of expertise developed over the
years. To use these talents effectively, many have argued for functional regulation, a concept with which I am in total agreement. To do otherwise I think would be foolish. In
H.R.10, this concept is promulgated. But that still leaves the issue of the lead supervisor
who always sees the whole and works closely with the functional regulators.
Regardless of the specifics of the present bill, it is my contention that the supervisory structure in the United States needs a major overhaul so that it brings together the
various banking and securities regulators in one body. Insurance should be a part of this,
but until there is some Congressionally-authorized role for national insurance company
supervisors, this will have to remain outside the new structure.
We should create a financial services supervisory body which would preserve functional regulation, and simultaneously, would permit state-chartered institutions to flourish.
The third point is integrity, and by integrity I mean the process which combines
independence and integration, and that is critical.
In short, the overseer of the diversified financial enterprise should be capable of
viewing the totality of operations from a safety and soundness viewpoint and it should
not be subject to undue political pressures. Additionally, it means the integrity of the
process by which it makes its judgment, and that its goals and responsibilities are clearly
stated and understandable to the public.
In recent months, we have witnessed some unseemly squabbles amongst the regulators, over what can charitably be called turf. It is understandable that private interests
will engage in adversarial politics in consideration of their economic self-interest. However, it is hard to justify self-interest for agencies of the government responsible to the
people. These battles do not serve the public interest and undoubtedly will continue
until the supervisory system is rationalized. In light of the rapid globalization of finance,
delay in resolving our dilemma will prove to be as expensive as it is unnecessary.
One of the major arguments against a single federal regulator is that it would put
too much power in a single regulatory body, that it would stifle innovation, and that it
would be slow to move as it would become exceedingly bureaucratic. Many of these concerns would be solved, as I pointed out before, if we not only preserve but increasingly
support a strong and effective dual banking system. My experience in New York State
and then from my years here is that many of the real innovations that have taken place
in banking did, in fact, start at the state level. They were not created in Washington, but
they were created in one of the states by an imaginative superintendent or commissioner
with the support of the banking community in that state.
So, my proposal fundamentally is to create a federal financial commission which
would combine the banking supervisory activities of the Federal Reserve, the Office of
the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation, and the National Credit Union Administration. Additionally,
the Securities and Exchange Commission and the Commodities Futures Trading

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Commission would also be members. Each existing agency would continue its functional responsibility in order to preserve their expertise and to avoid unnecessary
duplication. The commission’s board would consist of the heads of the agencies named
above, slightly overweighted in favor of the Fed, which would have two board members for a total of nine. There is a legitimate argument on the part of the Fed that they
have to know what is going on in the financial system as part of their duties and
responsibilities as the central bank.
In addition, there would be two public members appointed for a five-year term, one
of whom would be the chairman and both appointed by the President with the advice
and consent of the Senate. The commission would then have 11 voting members, and as
noted before, it would be funded by fees charged to the regulated institutions to keep it
free from the day-to-day hassle with the appropriations process, though obviously the
commission would be responsive to federal legislative oversight.
However, I know that is the perfect plan. But, I think it is a step too far. I know it
has been right for years, but it’s not going to work obviously—too many turf battles
involved here. But yet we still need to do something. So, if Congress does not see in its
wisdom to create a federal commission, then it seems to me that an acceptable alternative would be for the commission to be part of the Federal Reserve which is independent, according to the standards I set forth previously. In that case, the Fed would need
only one member of the board on the commission and public members would be
reduced to one, the chairman of the board, for a total commission membership of nine.
The state superintendents of banks would relate directly to the commission through the
FDIC. The FDIC would remain the insurer of the system as it is today, but its structure
would need to be adjusted so that it can more directly represent the states. This could be
accomplished by a restructuring of the FDIC board to include one or more state representatives. Importantly, it should be noted that the existing structure of all agencies
would remain as they are today, that is, there would be no change in the governance
structure in the Fed or the SEC, the FDIC, the CFTC and so forth. The governance
does not affect those agencies that have a single person regulator such as the OCC and
the OTS.
Now, I realize that bringing all of these agencies together would be difficult. Winston Churchill said don’t argue the difficulties—they argue themselves. But, it seems to
me that we must, in the United States, adapt our system to the growing reality of international financial competition. We have to do that in a way which takes care of the
unique situation of the United States in terms of the spread of our financial system. It is
unlike any other nation and therefore we have to adjust accordingly. Nevertheless, that
should not be the excuse for doing nothing. That merely says we have to be imaginative
in its design. I think that we can do that. I don’t think we want to wait for circumstances
to force us to change because whenever that happens, it is usually the result of crisis
which costs the taxpayers a heck of a lot of money.
So, with that I would like to close my remarks and open it up to questions, except to
say one thing. I want to take this opportunity—this is totally off the subject—but I

FE A T U R E D S P E A K ER

want to take this opportunity to commend in this audience Skip Hove. The reason I
want to do that is, I think he is one of the unsung heroes of financial supervision in the
United States. He has been Acting Chairman of the FDIC—I’m not sure he’s here so I’m
not saying this for his benefit in his presence. He has been Acting Chairman of the
FDIC three times and I don’t think he’s ever gotten the credit he deserves for the
extraordinary job he’s done standing in for one of the great agencies that was left leaderless. I just wanted to say Skip Hove is a treasure and we’re all lucky that he is here.
Question: With either your new financial organization or the current regulators,
what types of qualitative performance standards would you be applying to see if they’re
successful, especially in light of the Government Performance Results Act?
Heimann: That is a very good question. I think financial supervision has to change
quite dramatically from where it’s been in the past 20 years. When you have a giant
organization that you have to oversee, and to make sure they are not getting themselves
into financial difficulty, whatever that means, you can’t do it the old fashioned way. It
can no longer be examined as looking at loan files or questioning transactions. There is
only one way you can oversee an organization of 50,000 to 100,000 people with a couple of hundred billion dollars in assets, with offices and activities in 40 nations, 50
nations, 80 nations—I don’t know how many. How are you going to do that? You are all
professionals—how are you going to do that? Are you going to put one guy in the head
office—is he going to do it? No. Are you going to send in 10,000 examiners? We don’t
have 10,000 examiners. Are you going to send in 10,000 examiners to look at that and
take a snapshot, and what good is a snapshot. When you can change your balance sheet
in nanoseconds, so to speak, if you’re so inclined, by pressing buttons on a computer and
increasing your risks substantially through the use of just trading derivatives, etc., what
good is a balance sheet analysis?
So, the whole form of supervisory oversight will have to change if it is to be effective
in the future. It’s going to have to combine very great knowledge, of not just banking per
se. What is a bank today? Banking in the traditional sense—certainly capital markets—
the banking system has been disintermediated by the capital markets. The banks all
want to be in the capital market. I don’t blame them for that one bit. So, you need people who understand traditional commercial banking, capital markets activities, and
obviously insurance would be another element of it.
I wonder what happened to Daiwa? When the examiners from Japan came to New
York to look at Daiwa, it was the banking examiners who came from the banking bureau.
They didn’t know beans about securities and of course the problem was in the securities
side of Daiwa. Would it have been curtailed or controlled if it had been the securities
guys from the securities bureau of the Ministry of Finance? I don’t know. But it seems to
me it would have been far more logical if those two sets of talents had been combined
when they looked at Daiwa. The point in all this is you have to combine the talents.
So, the next question is are you going to have every agency duplicate things? Is the
Fed now going to have a whole bunch of capital markets people? Is the FDIC going to
have a whole bunch of capital markets people? Is the SEC now going to have a whole

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bunch of bank examiners and the costs for all of that? That doesn’t make any sense. It is
not fair to the public. It is simply unfair to the consumer, if nobody else.
So, how are we going to measure it? I think we’re going to measure it by a number of
ways going into the future. Obviously—I’m going to have to divert for a minute. We do
have a dual banking system in the United States, but it is not what everybody calls the
dual banking system. When in my remarks I was talking about state supervision and
federal supervision—we have a dual banking system in the United States which are the
big banks and the little banks. We have had that dual banking system for many years.
The rules of the game are different. I happen to be a strong supporter of the community
banking system and I think it has enormous value in this country and some of the community bankers are the smartest bankers around by far. But, having said that, you can
examine and supervise a bank of $100 million or $500 million, or up to a billion quite
differently than one that is $250 billion or greater than that.
So, we do have a dual banking system and we’re going to have to adjust. That is why
I feel so strongly about the state superintendents and state banking commissions. We
have to adjust our systems so that there is an entity on a national level that can look at
the big multinational problem and then you have the capacity simultaneously to deal
with the domestic institutions.
How will it be measured? Well, more and more it’s going to be measured by disclosure, transparency and by the markets themselves. As the systems grow, the markets are
going to be the most severe judges of these institutions in terms of their share price.
They have been in the past, but I don’t think people have appreciated that so much. If
you had looked at outfits like Franklin National or First Pennsylvania, just to name a
few at different periods of time, Continental Illinois—all the different periods of time,
you’ll see their share prices were declining, long before the problem became a public
problem. And, so in my view, for the larger institutions it’s transparency and disclosure.
More and more, I think the banking supervisors have begun to understand that following the share prices of these institutions is a wonderful early warning signal and pay
attention to what the broad public is saying about a financial institution. How will it be
measured? I think that is how it will be measured. That will be the reality of it.
This also brings up the other question about too big to fail, and I don’t know if you
want to get into that and I’ll pass on that. But, I would have to say that of course there
are institutions that are too big to fail. Why are we kidding ourselves? Can you imagine
what would happen to the financial system of the world if you name the institution—I
don’t want to pick any one out—but forget the United States—if the Deutsche Bank
closed its doors. They must be involved with financial institutions everywhere in the
globe, as are our larger banks. So, it is not an issue of too big to fail.
We in the United States have found an answer to that and importantly the FDIC
had a really lead role in finding that answer. It first happened with First Pennsylvania
and then it went on—Continental Illinois, etc. We have designed a neutron bomb to
take care of financial institutions that have been badly managed. We wipe out the shareholders. We sue the members of the board and management. But, the building still

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stands. It still continues to function. So, too big to fail is a meaningless phrase if the
shareholders are wiped out and management is changed. So, I think we have to revise
our lexicon when we discuss these subjects.
Finally, I would say yes, institutions must disappear. As I said in my remarks, there
will be numbers of institutions that simply are sufficiently badly managed that they will
come on hard times and they deserve to be wiped out. That doesn’t mean just closing it
down, but certainly the shareholders, the board of directors, the managers, etc. have to
pay the penalty for their mismanagement. So, I think that is another system that will be
very effective.
Question: Mr. Heimann, you’ve concentrated your remarks on how to reform the
federal regulatory system. What would you do to improve market discipline in the system? You spoke a little bit about disclosure and transparency and touched on too big to
fail. Is that your answer, or is there more we could do?
Heimann: I think that is a good question. Market discipline—that is something that
is broached about by everyone. What is market discipline? There can be no market discipline without full information being made public. You just can’t have market discipline
without that. How is the market going to know?
One other thing about deposit insurance—I remembered this debate while I was
here. That was we should rely on market discipline—we don’t need deposit insurance. I
have this picture of a hundred million Americans sitting around staring at half-baked balance sheets of banks, trying to understand whether the bank was strong or weak, and in
many of the banks, they are so small they put out material once a year or twice a year.
This just doesn’t make any sense. We’re not going to have market discipline in those cases.
We have market discipline where you have security analysts following the individual
institutions. They issue reports and there is full information. I think part of the answer is
market discipline certainly. But there has to be full information, which raises the most
important question that people don’t like to talk about—what about CAMEL ratings?
Should they be made public? Isn’t that a way for the public to find out? Isn’t that a way to
have market discipline? Shouldn’t they know that the supervisors have looked at ABC
institution and given it a four—because if it’s a five it’s not a problem—they’re gone. But,
giving them a four? What will that do? It is the same basic theory as having a variable rate
deposit insurance. That is all part of market discipline in the broadest sense of the word.
I happen to believe, after all of this time that I’ve been around this system, and that
has been a long time it seems like, that the CAMEL ratings should be made public. That
is the way to create market discipline.
Now you say, that is a terrible thing to do—look at the problems you cause the regulators because up until now they could put any rating they want on it and they can’t get
sued or blamed for a run. But, I think that creates discipline and it creates discipline not
only in the financial system but it creates a certain kind of discipline amongst the financial regulatory organizations, that they have to defend the ratings.
This brings me to another subject. I don’t know how many people fundamentally get
to the concept that all supervisory, certainly on loans and credit, questions are subjective.

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They are not objective. But, as anyone knows if you’re looking at a loan, it depends on
the assumptions you apply to that loan. If it’s a building in downtown Washington and
you assume that the U.S. economy is going to grow by 2.5 percent in real terms, your
valuation of that building in downtown Washington will be somewhat different than if
you assume it will be a one percent negative growth in real terms. Therefore, the heart of
supervision is subjective.
Question: Are the Japanese authorities moving in any way toward a solution?
Heimann: Well, I’m a great admirer of the Japanese and I think they’ve done a fantastic job since the end of World War II, and they surely have done that. There is a cultural question here that the Japanese government really has to deal with. There are a
couple cultural questions. Number one, when they were recovering from the ravages of
the war in the Pacific, the Japanese authorities felt it was their responsibility, and quite
correctly so, to protect their industry, and the Ministry of Trade and Industry and the
Ministry of Finance saw it as their primary responsibility to help build these indigenous
corporations and financial institutions and they did a terrific job. There is no question
about it. And Japan became a true economic power in the world, second only to the
United States today, and assuming that the European Monetary Union (EMU) works as
they think it will, Europe will be one of the three economic giants and powers of the
world.
The problem, as I’ve seen it, and I’ve expressed this concern for the last five to ten
years was that for whatever reason, the bureaucrats, and you can use that word in Japan
with much more meaning than you can in the United States and we use it in the United
States a lot, but in Japan the bureaucrats have enormous power and influence. They continue to protect the system and manage it in a way that we would never dream of in the
United States. So, the financial system, if you look at it, was protected for many years on
the philosophy of the lowest common denominator. It was considered anathema in
Japan that a financial institution should fail or close, or disappear. Therefore, their rules
and regulations and the standards they have set were the lowest common denominator—not those that were necessarily correct, but those which when implemented would
not cause the disappearance or the failure of one of their financial institutions. Japanese
are like Americans—they’ve got good bankers and they’ve got bad bankers. We have the
same thing—good bankers and bad bankers. But, it was part of the Japanese cultural
philosophy to protect everyone—it was called the convoy effect.
Unfortunately, that is still, in many ways, in action. It is true the Japanese authorities have closed a bank and they have closed a securities company—Yamaichi. Yet, with
the money that the Diet granted for support of the banks, they put $100 million into
every one of the banks, regardless of what was weak and what was strong. The reason
they did that is they said if you put it into bank “A” and not to bank “B,” the public
would assume that bank “A” was in trouble and they would cause a run on the bank.
I’m a great believer in deposit insurance. That solves a lot of these kinds of problems. Nevertheless, the Japanese have a way to go in terms of structuring their financial
system so it’s not only competitive, but it is competitive in the world arena and it should

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be because it is a very historically strong economy and people are savers and hard workers, and they deserve a financial system which does represent the best of their country
rather than some hangover from the past, which is no longer effective.
Will they get it right in the long run? The answer is yes, because they are very smart.
Their political system is vastly different from ours. I think they’ll get it right in the long
run, but they’re going to have to go through this kind of turmoil and concern as it
affects their people. You will notice in the paper today that Japan just had the largest
jump in unemployment in the last 10–12 years. The publicly announced unemployment numbers in Japan are not real because they have sort of make-do employment, so
the unemployment numbers are actually higher than the 4.6 percent that they
announced today. Our analysts in Japan say it is about 7.2 percent.
The Japanese also—the problem is for 50 years people were trained and taxed to
save. Interest was tax-free. Consumption was taxed. That helped build the nation. No
question about it. But, today what they need is consumption because retail sales are falling off the cliff. They really have to get their economy going again and they can’t export
their way out of the problems. They’re going to have to do it through domestic consumption. That means changes in the tax laws which have been proposed. But, once
again, there is a problem because they proposed temporary tax relief—not permanent tax
relief. Savers, people who are sitting there seeing the economy in the doldrums, seeing
people getting laid off for the first time in the post-World War II period, and getting 0.2
percent on their savings—they’re not about to start spending a lot of money unless they
think the tax cut is something they will have for a long period of time. I think Japan will
come out of it. It still has a way to go, and I don’t understand the politics of that country
well enough to know how they’re going to resolve the issue. But, for the good of the Japanese people and for the good of Asia and for the good of the world, I hope they do.
Question: Returning to your comment before about making CAMEL ratings public. What do you think of the private sector attempts at emulating a rating system—do
you think that is a suitable substitute for market discipline?
Heimann: Well, you mean the rating agencies?
Question: Yes, and those people that do ratings on banks and thrifts using call report
data.
Heimann: They don’t have the insight that the supervisors do. What is the great
strength of the supervisory system? Are the bank examiners smarter than everybody—
no. They are as smart as everybody in a cross-section of the public. They have something
that nobody else has—that is, they go into a series of banks and they can compare. They
can see what is happening inside of those institutions. They can see who is doing a good
job and who’s not. They can see whose risk controls work better than others. It is very
hard for outsiders to see that. You see it in the end when things go awry, but until they
go awry, it is very hard to see that.
For example, you know that there was a study done called the Derivatives Policy
Group Report that was done for the SEC and the CFTC of which I was co-chairman.
At the beginning we went around with 50 banks and asked who had independent risk

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management, and 50 hands went up in the air. Everybody had independent risk management. So, you started to poke at it, and what did they mean by independent? Of
course, some were really independent and others reported to the CFO, who had a treasury department that was a profit center. That is not independent. I won’t go through
all of those war stories, but you have to be able to get inside. No one can do that like the
bank examiners.
I’m not suggesting that the confidential sections of bank examination reports be
made public. I don’t mean that at all. I’m just talking about the ratings. Obviously, it
wouldn’t make sense to publish all the ratings tomorrow. I think you would have to prepare the public to understand what they meant. So, this would be a process that would
take place over years.
As far as the rating agencies are concerned, Asia proved yet, once again, that the rating agencies are a lagging indicator.
If there are no other questions, let me once again thank you for doing me the honor
of having me visit with you today. Again, anyone who wants the Group of 30 Report,
and I do recommend it to you, should just give me their card.
Thank you very much.

D AY 2

Managing the Crisis:
The FDIC and RTC Experience
April 29–30, 1998

Introduction
Kate McDermott
Symposium Hostess
It is my distinct pleasure this morning to introduce to you Gail Patelunas. Gail is the
Deputy Director of Asset Management for the FDIC’s Division of Resolutions and
Receiverships. Gail joined the FDIC in 1990 to work on resolving failed financial institutions. As one of the initial members of the former Division of Resolutions, she gained
increasing responsibility and became acting director of the Division of Resolutions for
the year prior to its merger into the Division of Resolutions and Receiverships. Prior to
joining the FDIC, Gail Patelunas worked as a financial analyst with the Board of Governors of the Federal Reserve, Division of Banking Supervision and Regulation. Gail was
also a bank stock analyst for Kidder Peabody and a senior manager in KPMG Peat Marwick’s bank consulting group.
Ladies and gentlemen, Gail Patelunas.

Welcoming Remarks
Gail Patelunas, Deputy Director, Asset Management
Division of Resolutions and Receiverships, FDIC
Thanks, Kate.
Well, I just want to summarize what we listened to yesterday and some of the things
that we heard. We heard a wide variety and array of views and perspectives and also history on the resolution of the banking crisis of the 1980s and early 1990s. This ranged
from the general resolution techniques to more specific asset disposition methods and

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problems. We also heard some suggestions for future activities and improvements on
those techniques which was very good.
Judging from some of the comments we heard yesterday, I suggest that we have a
whole other symposium on the cost test. That seems to be a very controversial issue.
Looking back and listening to the comments that I heard yesterday, our efforts
seemed to center on maximizing our flexibility and innovation in dealing with the failures in a very constraining environment, both legally and economically. The techniques
used to address the resolutions and the failures evolved through trial and error and also
as the economic conditions changed and the pace of the failures picked up, and in the
FDIC and the private sector, the capabilities changed in absorbing the amount of assets
that were thrown off by the failing banks.
Going forward, one of the FDIC’s challenges will be to develop a readiness to deal
innovatively with potential problems in a continually evolving banking industry which
is marked by consolidation unprecedented in size and product diversification. Like Joe
Neeley said yesterday, uncertainty is the greatest risk of battle and that will certainly be
true for the FDIC in the future.
I was at a financial analyst seminar recently in New York where part of the discussion focused on why banks typically trade at a discount to the market and whether or
not this phenomenon is likely to change permanently, given the bank’s record earnings,
their good credit quality and the stable interest rates. One participant put it very bluntly
and very succinctly, and he said, banks speculate on debt with other people’s money.
This not only explains the reason for a traditional trading discount, but that banks are in
a cyclical business and continue to be tied to the economy in the cyclicality. The FDIC
must use this information and be ready for the uncertainties that the future brings. In
that effort, seminars like this are very useful.
Today, we will hear about the banking crises in other countries and we’ll also solicit
ideas for future readiness.
The first panel this morning will discuss banking crises in other countries. The
moderator is Tom Rose, Senior Deputy Director of the Division of Resolutions and
Receiverships. Tom began his FDIC career in 1982 in the Legal Division where he
gained progressively increasing responsibilities and was appointed deputy general counsel for the liquidation branch in 1985. Mr. Rose worked closely with the resolution staff,
developing policies relating to closed bank and thrift operations and legal issues. In mid1996, Mr. Rose was appointed senior deputy director of the Division of Resolutions and
Receiverships, where he oversees the general operations of the division. Mr. Rose has an
undergraduate degree in Political Science from Villanova University and a law degree
from Villanova University.
Please join me in welcoming Mr. Rose and his panel.

PA N E L 3

Managing Bank Crises in Other
Countries

Thomas Rose, Senior Deputy Director
Division of Resolutions and Receiverships, FDIC
Thank you, Gail. Once again I’ll join in welcoming all of you to the second day of the
symposium. Yesterday, the panels discussed the U.S. bank and thrift failures of the
1980s and the 1990s. As noted yesterday, one of the most successful resolutions is prevention. Forecasting and addressing the problems early on normally will result in fewer
failures and reduced cost. Prevention, however, is not always possible, especially if there
is a currency crisis or other external influencing factors. Absent the prevention, the
development of resolution strategies sufficiently flexible to adapt to a changing economy
are critical to resolving troubled institutions.
The techniques used to address the enormous volume of assets resulting from failures in the U.S. were as varied as their results. I believe the ability to be creative and flexible will be seen for years to come as a key to resolving any bank crisis.
The United States has not been alone in dealing with troubled banks and thrifts.
Over the same time period, many other countries such as Argentina, Bolivia, Brazil,
Chile, Peru, Venezuela, Mexico, Finland—and the list goes on and on—have all dealt
with or are currently dealing with problem financial institutions.
Troubled institutions throughout the world have created challenges for financial systems worldwide. Governments have implemented a variety of resolution strategies ranging from forbearance to open bank assistance to liquidation. Generally, these strategies
have been used as a tool to maintaining or restoring public confidence and financial stability. Today, we have a distinguished panel who will address resolution strategies used by
other countries. You will see that the spectrum of resolution processes has been varied.
You will note similarities as well as differences in the process used in the United States.

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As we proceed with the discussion, it should become very clear that no two banking
failures or crises are the same. Likewise, no two countries are the same. What worked in
one country may serve as a possible solution for another, but should be viewed more as a
building block to crafting the right solution rather than the solution itself. Resolving
failing financial institutions must be viewed in the broadest of contexts, especially in
developing nations, where a banking crisis can easily become a debt crisis.
Many factors must be considered when attempting to resolve banking problems. A
review of the laws, the culture, the existence or non-existence of deposit insurance, the
expected cost, the economy, as well as the political environment, and finally, the potential long-term impact, are all critical, essential elements to crafting the right solution.
The concentration of banking in a few institutions may also impact the resolution
process. As was seen with the rescue package of Credit Lyonnaise, it may suggest that the
reality of too big to fail has already been proven. At the same time, the resolution of
Credit Lyonnaise attempted to address the moral hazard by forcing a downsizing of that
institution in the rest of Europe; therefore, making it not overly competitive with the
other institutions in Europe, not giving it an advantage. In France, it was left such that
the other French banks feel that they’ve been placed at a competitive disadvantage.
As suggested by our featured speaker yesterday, what do the mega mergers in the
U.S. suggest for our future? Can we afford to ignore the banking problems of other
countries? Economies continue to grow more interdependent, failures on an individual
basis may only impact the local economy. On the other hand, a large number of failures
or the failure of a mega institution may, in fact, have fall-out in a number of countries.
Today’s discussion will focus on past crises and current events, starting with the Scandinavian experience. We will then move to Eastern Europe and the issues confronted by
emerging nations, followed by a discussion of the Japanese government’s response to
recent banking problems and the potential impact on the rest of southeast Asia, as well
as the world.
Let us welcome this morning’s panel. To my left is Arne Berggren. Mr. Berggren
traveled a great distance to be with us today, coming from an assignment in South Korea
via his home in Stockholm. He is President of Eusticon and serves as a consulting advisor to banking authorities in a number of countries, as well as to The World Bank and
the International Monetary Fund. Earlier in his career, Mr. Berggren was Special Advisor
to the Swedish Ministry of Finance, and in that capacity, he assisted extensively with
measures taken to strengthen the Swedish banking system.
To Mr. Berggren’s left is Bill Roelle. No stranger to us. Bill is currently Managing
Director of Business Development for General Electric Capital Corporation. Immediately prior to assuming that position he served as an advisor to the Polish government in
addressing bank privatization. Earlier in his career, he was employed at the FDIC in a
number of different positions. He also served as Chief Financial Officer and Director of
Resolutions and Operations for the Resolution Trust Corporation.
To Mr. Roelle’s left is also no stranger to us—a former FDIC chairman, Bill
Seidman. Mr. Seidman is currently a commentator on CNBC TV, publisher of Bank

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Director magazine, and a worldwide consultant on banking issues. While at the FDIC,
he oversaw the birth of the Resolution Trust Corporation and served as its first chairman. He was responsible for many of the asset disposition and resolution strategies used
by the FDIC in the late 1980s. He has had a varied career, including serving as vice
chairman and chief financial officer of Phelps Dodge Corporation, managing partner of
the accounting firm of Seidman & Seidman, educator and a member of the White
House staff of President Ford as assistant for economic affairs.
I would like to thank the panelists for taking time from their busy schedules to be
with us today. At the conclusion of the presentation today, as in yesterday, there will be
an opportunity for questions. I would encourage all of you to be active participants in
this discussion. The worldwide financial news of the past six months clearly suggests
that this should be an interesting and lively discussion.
Let me introduce our first panelist, Mr. Berggren.

Arne Berggren
International Banking Consultant
Good morning. First, I would like to say how glad and honored I am to be here. I am
impressed by the failed bank resolution processes that you have developed and by what
you have accomplished in resolving your banking crisis. I also think you have a lot of
experience that many countries will benefit from in the future.
However, while there are many similarities, it is critical to note that there are also
important differences between a banking crisis in the United States and a banking crisis
in smaller countries. First of all, the American economy is the largest in the world and is
“closed” in the sense that it is not as exposed to problems in other countries. Smaller
countries have more “open” economies, as they are more reliant on foreign trade, and are
therefore more exposed to problems in other countries. These economies can be rather
volatile, as they typically are also more reliant on foreign sources for investment. As a
result, banking problems in these countries can quickly develop into severe systemic
problems. Moreover, the economic and political differences between countries make it
important to adjust the responses and techniques to fit the unique circumstances.
What I will do today is to go through the Scandinavian banking crises. First, I will
try to show you some similarities between the three Scandinavian countries. I will then
move to the Swedish case. I am most familiar with that case since I engineered most of
the Swedish strategies and processes.
If you look at most countries that have lived through a banking crisis, especially the
more developed countries, you will see a scary pattern that very often starts with deregulation of the domestic credit market and/or the current account. It seems to be a rule of
nature that deregulation is often followed by an over-expansion of the economy—a
boom period. This boom lasts for a while and oftentimes results in a crash.

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Let’s look at the banking crises in Scandinavia. Each crisis happened at different
times due to the different structures of their economies. The Norwegian economy is
based on oil. You are very familiar with what can happen in that type of situation. When
the price of oil fell in the early 1980s, it had a dramatic effect on Norway’s terms of
trade, and this eventually had a negative effect on their banking system. Finland and
Sweden, in a sense, benefited from Norway’s problems and were able to “postpone” their
bank problems for a couple of years. Finland had extensive trade relations with their
Soviet neighbor, and their banking crisis became serious when the Soviet Union fell
apart. The Swedish banking crisis started with the bursting of our real estate bubble.
The most difficult period of the Swedish banking crisis came after a period of currency
unrest (when George Soros became a household name, even in Europe).
So what we have noticed is that a country will have a period of deregulation and
experience an over-expansion of their economy, which oftentimes ends in a crash. I
think that you have seen that cycle at work in many states and areas within the U.S.
Let’s go back to the mid-1980s to look at the development of the Swedish economy.
The combination of strong economic growth coupled with the deregulation of the
domestic credit markets eventually generated a banking environment that was the equivalent of an economic hothouse. The deregulation enabled a rapid credit expansion by
bankers that did not fully understand the risks involved. Prior to deregulation, those
bankers were in a sense required to go to the central bank once a week and ask for
money to lend—but when everything was deregulated they were looking for new markets and to increase market share. At the same time, we had a system with high marginal
taxes and interest income was tax-deductible. As a result, a very high leverage ratio was
built into the Swedish economy.
During the period of expansion (until 1989–1990) real estate prices rose 25 percent
per annum. There was also a wave of leveraged buyouts. The ratio of credit to Gross
Domestic Product (GDP) rose from 90 percent to 140 percent in just two years.
I would like to point out an important difference between the American banking
system and the European banking systems. In Europe, the normal ratio of banking assets
to GDP is around 100 percent. In America, it is around 50 percent. The banking systems are more important in Europe since their capital markets are less developed.
The expansion lasted until around 1989–1990 when an international recession, a
tax reform, and some other events led to a dramatic downward adjustment in asset values. Real estate prices fell 50 percent, stock prices fell, and practically everything lost
value in a very short period of time. That was later followed by a currency crisis that led
to a 30 percent depreciation of the currency. That caused another wave of business failures. This demonstrates how quickly things can evolve in an open economy.
A period of ad hoc measures was instituted when the banking crisis first began to
appear. We were initially approaching the situation bank-by-bank until it became clear
that the entire banking system was fragile. We eventually instituted a general guarantee—which I will discuss later.

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So, that was the macroeconomic situation. Let’s now look at the structure of the system. The finance companies were the first financial institutions that were hit by the crisis. These institutions were one of the results of the regulations existing prior to 1985.
They could not take deposits. They issued CDs. They often borrowed short term and
lended long term.
We also had a wave of mergers in the banking system as all institutions were hunting
for dominance, for market share, and were trying to cut costs. By 1992, we had only 17
commercial banks in the country and the six largest banks accounted for 75 percent of
our banking system. As we developed our strategies to address the banking crisis, it was
clear that we could not liquidate them all.
Other considerations had to do with the structure of the economy. Sweden has quite
a few multi-national corporations. Maybe 90 percent of their sales are outside the country and are in other currencies. The structure of the Swedish economy is like a cocktail
glass in that we have several extremely large multinational corporations, a few mid-sized
companies, and many small business organizations. One result is that approximately 40
percent of bank loans are in foreign currencies. This is a short description of the situation at that time.
So what did we do? It was clear that the failing finance companies were nonsystemic
so they were handled by the supervisory authorities in a normal court liquidation process or in negotiations between creditors. The Swedish banking system was, in relative
terms, well capitalized before the crisis. It looked strong and we thought that we could
weather the storm. But our financial problems did not end there. We had our first bank
failures in 1991, and those were large bank failures. The consequence was that the Swedish Ministry of Finance got directly involved.
We did not have a deposit insurance system in Sweden, which was good in my opinion. Those large failing banks were all systemic and taxpayers’ money was necessary in
order to solve their problems. That meant that we had to go to the Parliament with a bill
each time a bank had a problem and explain why it was necessary to do certain things.
However, the condition of the system was not improving. It was increasingly clear that
the system was fragile. At the Ministry of Finance a few of us started to develop a worstcase scenario. That was important in that it helped us to form a political consensus
among the decision-makers in the Ministry of Finance, the Central Bank, and the office
of the Prime Minister, as well as the political opposition.
The crisis continued. We had to make a big quick fix for Nordbanken. However, it
was soon clear that the quick fix was not enough. So we decided to nationalize the bank
and recapitalize it. Nordbanken was very large, as its asset base equaled 23 percent of
GDP. The initial cost of recapitalizing Nordbanken equaled 3 percent of GDP. A few
years later we were able turn it around at a profit for the taxpayers and that transaction,
more or less, paid for the banking crisis.
The restructuring of Nordbanken was really important in that it served as a showcase for the rest of our work. It demonstrated the government’s determination to address
and resolve the crisis and it helped us to gain respect. If you are operating in a small

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open economy and are dependent on the international capital markets, you need to
explain to American pension fund managers, to Japanese pension fund managers, to
Standard & Poor’s, to Moody’s, and to others what your country is up to. The intended
audience was not the depositors, because they already trusted us, it was the international
capital market.
So what do you do in a situation like the one in Nordbanken? You need to develop
a strategy, a set of actions, and determine how to pay for it. The interests of the shareholders, depositors, creditors, management, employees, and the taxpayers were all at
stake. We approached the problem as a commercial undertaking and determined how
we could maximize profits to the government or minimize cost. We studied Nordbanken’s operations to determine how we could improve efficiency and the management of
various asset types. It was clear that there was a potential for improving the core banking
operation, to cut costs and unprofitable lines of business, and to refocus the organization. We felt that a successful approach would be to act as an aggressive equity investor
focused on profit maximization. That would be the only way to recover some or all of
the taxpayers’ expenditures.
Nordbanken was refocused to retail and we decided to skip the large corporate segment altogether. The large and complex nonperforming loans, and what we called nonstrategic assets, were removed from the franchise. As you can see, we were more involved
in the organization and management of the restructuring of the bank than governments
often are in situations like this.
It was also really clear that we needed to explain to the politicians that we had suffered a loss, that we were less rich than we had previously thought, and that the necessary expenditures to restore confidence in the system could be a sunk cost. However, a
portion of those expenditures could actually be viewed as an investment and as a way to
get our money back. It was clear that we needed to recapitalize the bank to a decent level
to restore confidence. The best-managed and capitalized banks in the country were used
as benchmarks for the recapitalization.
Our goal was to re-privatize the bank in a reasonable amount of time and thereby
recover our initial investment. That would allow us to achieve our primary goal, which
was to minimize the final cost to the taxpayers.
An asset management corporation called Securum AB was established and the large
bad assets were transferred to that entity from the bank. The government provided the
required equity. Once that was accomplished the restructured Nordbanken had a balance sheet that was more transparent and its operations more focused, and we were able
to start the bank and the asset sales process.
Just a few words about the asset sales process. We used different approaches to asset
disposition, both organizationally and strategically, depending on the type and the size of
the assets. Securum is just one example. Most of Securum’s assets were linked to larger real
estate and industrial companies—such as the chemical industry for example. Our scope
was international. We had assets in the United Kingdom and in Germany, we had assets in
Atlanta and in New York. We had golf courses in Spain and France and in similar places.

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Anyway, the idea we wanted to get across was that we did not mind becoming an
owner of the underlying assets. The message was that we wanted to work out the loans
effectively and that Securum’s mission was to get its money back. In many cases that
meant that companies were taken over and run by Securum. We took over the companies, restructured and merged them into more logical industrial groups, made them
profitable, and then exited the investments by floating them on the stock exchange or by
negotiated sales.
The reason for this approach instead of direct sales of nonperforming loans was that
Sweden is a small country with less developed capital markets. We couldn’t securitize,
since our capital market was not deep enough. So we needed another approach and this
was the corporate restructuring approach.
We thought that it would take eight to ten years for Securum AB to get rid of the
assets, but it actually took only five to six. During the general crisis that followed after
the restructuring of Nordbanken, the government set up other types of asset management corporations. Some were independent and others were established as bank subsidiaries. All banks eventually established asset management corporations during the crisis,
and those were later spun off to their shareholders.
In 1992 it was clear that the Swedish banking system was falling apart and we were
forced to issue a general guarantee, i.e., the state guaranteed that all banks would meet
all their commitments on a timely basis. Everything was guaranteed apart from the
stockholders’ interests. Moreover, the parliament gave the administration a “carte
blanche” to do whatever was necessary to safeguard the payment system. That meant
that we no longer had to go to parliament seeking approval for individual measures and
to get funding—we could use as much money as was needed to accomplish our objectives, i.e., to restore confidence in accordance with the principles set out in the bill.
We said that the support system would be in place as long as it was needed. However, we wanted to shorten that period since we realized that the pricing mechanism
would be disturbed as long as the guarantee was in place. We managed to clearly communicate that message as we could see that all short-term bank papers were priced the
same, while there were differences between longer-term bank papers. It was clear those
investors understood that the support system was a temporary measure.
The individual decisions were all based on a few principles during the crisis. However, certain principles were more critical than others. I think the commercial principle
was one—to run the operation as a business and to maximize profits for the real owners,
i.e., the taxpayers. Another was to focus on minimizing final costs rather than shortterm government expenditures.
We established the Bank Support Process with this in mind. First, we decided what
kind of banking system we wanted, or would most likely end up having, in the future.
We then developed our analytical framework. This framework was used to decide which
banks we had to close or merge, which business lines to get out of, and which banks had
the greatest potential for profit improvement. We ran through a lot of financial valuations, risk analyses, and reviews of strategic options for each of the institutions that

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applied for support. We wanted to preserve local competition—we did not want a community to have only one local bank branch.
This is what we did to alleviate our banking crisis. We had to do all of this since
there were no market prices at the time. How can you value stock, real estate, loans, etc.,
when there is no market? You have to value it anyway. You need to develop assumptions
and you need to develop an analytical framework that treats everyone equal. You need to
be able to delegate this framework into your system, and you have to control the methodologies and other things crucial for making this process work. For example, by using
this framework we were able to individually value 25,000 pieces of real estate in just four
to five months.
To conclude, when you are faced with a systemic banking crisis like the one we had,
the most important thing is to develop a worst-case scenario and to be certain that you
have the management capacity to handle it. It is also quite important that you base your
restructuring efforts on facts, and not on wishes, in order to shorten the workout period.
You may think that our approach was extreme. I have not seen it used in any country other than Sweden. However, I think it made it possible for us to shorten the period
of intervention to two years and we were able to remove the guarantee since the situation had returned to normal by then. We had initially used around 7 percent of GDP.
But we actually recovered most of that when we were able to sell our stakes in the intervened institutions. As a result, the final cost was 0.5 percent of GDP.
Thank you.

Bill Roelle, Head of Operations, Financial Services Group
GE Capital
Good morning. I want to speak a little bit today about managing the crisis in Eastern
Europe. Could we have the first slide please?
Slide BR-1

I’ll focus on the Polish experience because I’m most familiar with that, and I think it
would be safe to say that you can assume for most of the Visiguard countries that the
Polish experience is fairly representative. It is just a larger country and they have more
banks, but the process and the problems are the same.
Let me point out before I start this that they started off in a crisis when they came
out from under the Iron Curtain. Their banking system was essentially non-existent as
we know it and it was in crisis from almost day one because virtually all their banks, by
our standards, were insolvent.
Slide BR-2

If you look at the legislative framework, in 1989 the Polish banking system had
been transformed from a collection of highly specialized state-owned banks to financial
services institutions or universal banks. These banks were taken out from under the
National Bank of Poland which was their mono-bank. They were commercialized which

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was to say they were taken out and made stock institutions, of which the state owned all
the stock. So, they were still essentially state-owned banks, but they were partitioned. As
you see, the National Bank of Poland Act created a monetary policy arm, a bank regulation and supervisory arm, and it split up the National Bank of Poland.
The monetary policy arm has done a reasonably good job. The Polish economy has
had real growth the last three years, averaging slightly over six percent. However, the
monetary policy arm is highly politicized and very much influenced by the IMF and
The World Bank. Poland continues to want to enter the European economy. They want
in NATO and they are highly influenced and they have to maintain many of the strictures that are placed upon them by the IMF and The World Bank and that often conflicts with their domestic policy issues.
Regulation and supervision—I’ll tell you a little bit more about that on the next
slide.
The Banking Act really established or tried to establish, and I’m using the word
here—“de-monopolization.” You might call it restructuring. But what they really set out
to do is they understood that they had a monopoly and it was a mono-bank and they
had to do something about that. So, they split it up, as I told you. But, the split up was
rather more form over substance.
They also created the power for the Bank Privatization Act to be housed with the
Ministry of Finance, which has also had its difficulties and was highly politicized and I’ll
tell you a little bit more about that in the next slide.
The Deposit Insurance Act was created. It is very similar to ours. They’ve done some
things that we probably, in hindsight, would have done. They’ve kept the amount of
deposits that are insured to a very reasonable limit. They’ve been careful not to go too far
too quickly. But, there are differences and some of them are significant and debilitating.
Slide BR-3

I’ll give you a quick overview of the banking sector today. If you look at that, what is
in the private sector is 38 percent of the gross assets. Privatization—these are institutions
that are teed up to be privatized, represent 8 percent. You have 5 percent in co-ops and
you have virtually half of their entire system in what are called specialized banks. I’ll tell
you a little bit about each of those.
The footings in the banking system are around $70 billion. If you look at the number of banks in each of those categories, there are 76 banks in the private sector. There
are two banks teed up to be privatized. There are seven banks in the specialized category,
and there are 1,600 co-ops, most of which are insolvent.
Slide BR-4

The opportunities are substantial and we should remember that although they
started out in crisis, the Poles didn’t realize they were in crisis. They weren’t valuing or
measuring their banking system exactly the way we would. They saw, coming out from
the Iron Curtain, and joining the free nations with a market driven economy as a huge
opportunity, in spite of the crisis that we might see as regulators, supervisors, and folks
who had worked in and around bank problems in the United States for the last 20 years.

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They have a stable government and they are very much market driven. Perhaps too stable. The reason I say that is that their governments, since they came out from under the
Iron Curtain, have been largely coalition governments—very fractured. The coalitions
get together and form a government and because of the special interest inside the coalitions, you may have a very right-wing coalition that wants to drive ahead with privatization of the entire sector, not only the banking sector but the industrial sector. On the
other side of the coalition, but within the coalition, you will have the ex-communist
party who are ostensibly democratic, want to go slow, do not want to disturb the power
settings that were already in existence, and do not want to have the economy move too
quickly until they are fairly certain that, if one were to be skeptical, they were substantially in place to inherit the wealth of the new economy. If one wanted to be more objective, they really do believe that the socialist system still has many positive attributes and
they don’t want to become completely a capitalist system.
They get a lot of help from the international community. One place they’ve gotten a
great deal of help is from the Polish Bank Privatization Fund which was anchored by the
United States. We put up close to $400 million. England put up about $150 million.
The Japanese put up roughly $2 or $3 million. Australians put in some money. Altogether, the fund represented about $600 million dollars. This fund was put together to
help the Polish government recapitalize their banks and the way they did it is the Polish
government issued bonds and put the bonds in the bank. So, they recapitalized the bank
by creating instruments that they gave to the banks, essentially. The problem was, how
were they going to, in effect, deal with that hit on their budget.
So, the western governments got together, built this fund, and this fund is currently
being used to amortize this debt that the Polish government took on in order to recapitalize their banks. It is basically set up as a defeasance program.
They’ve had strong real growth. They are growing at roughly over 6 percent, as I
said, and that is helping a great deal. The EBRD is also taking an active role in the
reconstruction of the banking system. They don’t do it directly. They’re very careful
about not becoming owners, owners in the sense of being directors and managers of the
bank. But, as the Poles take their banks to the private sector and to the stock market, the
EBRD usually takes a standby position in an IPO investment. So, in effect, if they go to
market and the IPO is 80–85 percent successful, the EBRD will step up for the remaining 15 percent. They will become a passive stockholder with the expectation that there
will be a take-out within five years.
There is substantial foreign interest in Polish banking. It is an interesting fact that
Poles don’t trust us and probably with good cause. They understand that their banking
system is near and dear to their economic growth. They need us. They need foreign
investment, and they need foreign know-how, but the Poles’ history, their thousand-year
history suggests to them that many of their neighbors are not always kindly disposed
towards them and one of the old sayings in Poland is that first they invaded us with
tanks, and now they’re invading us with their money. Probably true.

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They also, in terms of foreign investment, they do not know how to deal with it.
Along with the investment comes very active participation, as you would expect. The
foreigners who invest in Polish banks want to move the banks along much faster in
terms of what the Poles are willing to do, or even can do, given their coalition government. What you find is that a foreign investor will come in. It’s not unusual to have a
bank in Poland have something in the neighborhood of a billion dollars in assets and
maybe 5,000 employees, which would be unheard of here. They may have 200 or 300
branches in these banks that were spun off from the National Bank of Poland, each one
operates like a unit bank. It’s very reminiscent of Texas. So, you have the headquarters
bank, which is usually located in one of the major cities, usually Warsaw, a few in Krakow and then Gdansk, but largely in Warsaw. Then they have branches all over the
country operating as unit banks. They have their own P&Ls. They give very limited
information to their headquarters bank. It would be almost impossible for them to roll
up any significant information in less than two weeks, and often it takes a month to find
out what their financial position is.
In short, it’s a difficult situation. They have a good and a well-organized stock market, patterned very much like ours. The problem with that is it’s very young, it’s highly
volatile and 50 percent of the stocks in their market are banking stocks. So, as they
privatize more banks it makes it difficult for the next generation of IPOs because the
market is not balanced and there are entirely too many bank stocks.
Slide BR-5

Now, the challenges are significant. The deposit insurance, those of you here and
particularly my colleagues at the FDIC will find this interesting. The deposit insurance
responsibility is split among three agencies: the Treasury, the Ministry of Finance, and
the National Bank of Poland. Then they have a staff called the Deposit Insurance Staff.
Now, for those of you who have gone through the last 20 years at the FDIC with me, can
you imagine what it would have taken for us to do some of the things that we needed to
do in the banking crisis and the thrift crisis if we had a board compiled of this group of
people who all had good intentions but different agendas? So, the deposit insurance
responsibility in Poland is going to be a difficult proposition, I believe, for them to figure
out how they’re going to handle the crisis when they have the money to do so.
As I indicated, the coalition government is slow to act. They are also reflective of the
constituency in their coalition. There is high difficulty in doing anything that strikes as
somehow undermining the social program that is in place there. As a side note, one
thinks of our social security program and how much we have to worry about that. Over
25 percent of the Polish GDP goes to their social programs. So, they have a huge social
program, high unemployment, and many people in retirement at age 50. So, it is a huge
problem and those people do know how to vote.
The government has been inconsistent and confusing in its privatization efforts.
They started out doing IPOs. The last IPO they did almost failed, then they switched to
creating a Phoenix. We had great difficulty convincing them that was a bad idea, but

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they thought they could take all of their bad banks, put them together into one huge
bank and somehow create gold out of lead.
They really did think that they knew more about market allocation than the market.
I’ve tried to persuade them that generally if you could get the market to resolve your
problem, even though the market was young and still forming, that it would be a better
result than trying to engineer a solution themselves. However, they have had many fits
and starts. They had a recent transaction where they put a bank up for sale under a competitive bidding process, much like we would do a failed bank transaction. They had
very competitive bids. One from a German bank, one from a Dutch bank, and the winner was a Korean bank. They promptly took those bids into the inner sanctum and they
came out with no winner and they did not privatize that bank. So, they disappointed
their foreign investors. The foreign investors spent a lot of money doing due diligence,
involving themselves in the process, stepping up to bid, and then the government
changes its mind. So, they have had a difficult process in trying to gain some equilibrium in going forward.
The legal infrastructure is not conducive to safe and sound banking practices. Mortgage liens are not centrally recorded, if recorded. Many properties were confiscated by
the communist government and the German occupation forces before them, and there is
a lot of litigation in the courts about who owns property and therefore getting a mortgage and getting a free and clear title to a piece of land is quite difficult.
There are no UCC filings. There is no UCC program. It is difficult, therefore, to
put any kind of a lien on rolling stock or anything that one might want to repossess if
one could repossess. There are no credit bureaus. The banks now exchange information
among themselves and largely it is that informal system that represents their credit
bureau system.
Slide BR-6

I’ll show you a typical Polish bank that is in that private group that is going to be
privatized. This is PBK. If you look at the amount of cash and due, it is substantial.
Loans—substantial, but I’ll explain that in the next slide. Securities—those are government securities. No investments by and large. Small fixed assets and other assets.
Slide BR-7

If you look at the loans, you’ll see that consumer loans are minimum. Consumerism, the average consumer loan in the Polish banks, and it is not average—average is a
bad measure here—the average Polish citizen owes about $182, which is roughly 50 percent of their monthly disposable income. So, they’re not heavily in debt yet. If you look
at commercial loans, you will see up there I think it says about 28 percent are in what
are called government-directed loans. These are loans that are ostensibly guaranteed by
the government. They are loans that were directed to state-owned enterprise. Most of
these loans, if you were to go in and examine these banks, look at the state-owned enterprise and then look at the value of the loan, most of them would be classified as loss.

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The reason that they are carried on their books and that they are current is because they
are fully guaranteed by the government.
Slide BR-8

You look at the reserves. They don’t have much in the way of classification. Below
standard is reasonably small. Doubtful—very small. They only started using doubtful as
a measure after they started working with largely folks from the U.S. over at the
National Bank of Poland. You’ll see at the bottom there it says lost. I had a lot of trouble
with my Polish colleagues. I kept saying make that loss, and they kept wanting to change
it to lost. I kept saying, no, no, it’s loss. They said, no, but we’ve lost it. So, finally I just
gave up and left it as lost. What you also find is they don’t recognize classifications
hardly at all until the judgment day, and then it goes immediately to loss.
Slide BR-9

If you look at their liabilities, “due to” is not substantial; deposits are very substantial. The Poles have virtually all of their money in banks, but it is not in any kind of
accounts that you would recognize. I will tell you a little bit about that later. Their other
liabilities are relatively small.
Slide BR-10

If you look at the deposit breakdown, individual deposits are reasonable. They do
not think of a deposit as a transactional deposit, even though you’ll see that some are
current and some are term. Their current deposits are largely deposits that are put in
that can be withdrawn on demand. There are very few checking accounts in Poland.
These are just savings accounts that you can go to and have immediate withdrawal privileges. This is very painful as it usually takes you 35–40 minutes to go in and do a bank
transaction in Poland.
Corporations and non-government—again, split. Some are term. Some are current.
About 60/40. The current deposits are largely deposits that are in for a short period of
time and would represent working capital or would represent compensating balances
that are held for purposes of some lending that is going on.
In summary, if you take what’s going on in Poland and you expand it to the other
Visiguard countries which are Hungary, Czech Republic, Slovakia—they are largely in
the same boat. They all had mono-banks. When their mono-banks converted, they split
out to specialized banks and to these so-called commercialized banks, and they have all
attacked the problem roughly the same way. Hungary and the Czech Republic privatized
much quicker. They got their hands around the problem ostensibly and got the banks in
the private sector. They have regretted it to a certain extent. Many of those banks were
not adequately capitalized. They are having to re-visit a number of those transactions,
and where they were good transactions, the banks have not fared extraordinarily well
because of the difficulty in getting the population to engage itself with the banking sector. In Poland, they’ve gone slower. They’ve made fewer mistakes, but they have not
privatized.
A side on the specialized banks—the ones that represent 40 percent of the assets—
there are only seven banks there. Those banks are gargantuan—they’re huge. Literally
among the seven banks there are probably somewhere in the neighborhood of 2,500

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branches. Three of those specialized banks, three of the largest—one is called Vigized—
that is an agricultural bank. The other is PKLSA, which was a foreign investment bank.
And then they have PKLBP, which was their mortgage bank. All three of those banks, by
our standards, under our examination, would be insolvent. The government has recapitalized them and even under the recapitalization going forward, it is problematic how
they are going to deal with those problems because all of the loans they hold are old agricultural cooperative loans, many of which don’t exist any longer. The mortgage loans are
to co-ops. There is no equity in these loans. The co-ops themselves are hard to split up.
There is no actual ownership interest in the co-ops. You cannot evict. There are a number of legalistic problems associated with these loans that make them uncollectible.
So, they have a big struggle. They are going to have to work on those big specialized
banks and they’re going to have to solve that problem. My confidence is that they will.
They’re going to do a good job. It’s going to take a long time. If their economy keeps
growing, they’ll make it.
One thing that I would point out as well in one of the slides, the bank management,
the young managers, the people that have studied western economics and finance are
very capable. They are extremely capable. They need leadership. The old entrenched
senior management and directors in these banks came from the old communist system.
They are not good bankers by our standards. They understand the system extraordinarily well. They know how to negotiate and operate within their old system. They have
great difficulty dealing with the new reality of a privatized system where the banks are
supposed to allocate credit and direct capital flows to the most needy. They want to continue to do the direction by feel-good old relationships. They would still want to put
money into some of the state-owned enterprises where they have high connections and
high confidence in their friends that are in those state-owned enterprises.
Overcoming that is a large struggle for the National Bank of Poland. I think, under
their new supervision program that they are rolling out in the next year or so, they will
come to grips with this. But, if you can imagine, if countries like the Visiguard countries
have lived under a form of government where the banking system was nothing but a
check writer to state-owned enterprises and simply an allocative mechanism that was
determined by a central committee, to one day drop that Iron Curtain and say, now,
we’re going to split up the mono-bank into commercialized banks and go forth and do
commercial banking—it was a tall order. Almost impossible but they’re doing well and
they will succeed—I think. It will take time, again, and I think the one last thing I
would say is that they are getting a lot of advice from people like me and some of you
out there. Most of it is good. Some of it is bad. They’re overwhelmed with advice. Probably one of the nicest things we could do is back off, give them help when they ask for
help, and otherwise let them try to learn and sort out their problems. They are overwhelmed with advice.
Thank you very much, I appreciate it.

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L. William Seidman, Chief Commentator
CNBC-TV
It is a great pleasure to be back at the FDIC. To be here and listen to board member
Neeley eloquently describe what most of you went through in the past is a real pleasure,
and it’s just an honor to be here with the old FDIC and RTC heros—Bovenzi, Cooke,
Glassman, Stone, Roelle, Rose—those are all the people who really pulled us through.
I’m amazed as I go around the world that everybody knows the RTC but not too many
people know the FDIC. I have to point out to them that the RTC cost the government
$100 billion which the taxpayers paid, but the FDIC has never cost the taxpayer a
penny. So, the real hero in this ought to really be the FDIC who weathered more failures
than the RTC handled.
My assignment is to tell you about the countries that I’ve been to. That includes
Saudi Arabia, Russia, Japan and just beginning with China.
Let me start with Saudi Arabia. Their challenge is they have so much money they
have trouble knowing what to do with it. The second challenge is that they have what is
called Muslim banking which makes paying/charging interest illegal. Now, if interest is
illegal, I want all of you great bank supervisors and those who value banks to go into the
bank and determine the condition of the bank when every deal is based on a purchase
and sale, even though it may be figured like interest. It is an exciting way of banking and
it’s a challenge to do, and if you have as much money as they have, you can do that. But,
my role there is merely to help them spend their money. That is not all bad.
Let me say this about Russia, 90 percent of what you heard from Bill Roelle about
Poland applies to the Russian system. In fact, the Russian system reminds me of this
story they tell over there. Ivan asked his mother—mother, why have I got the biggest
feet in the third grade? Is it because my dad was communist? She says, no son, it’s
because you’re 19.
Well, the fact of the matter is, Russia is a huge country, but it has a banking system
that is in the third grade. It is just really beginning and the biggest difference between
what you’ve heard from Bill Roelle about Poland and Russia is that Russia has started a
lot of new independent banks which are truly trying to be banks in the same sense as we
have in our country. The difference is that they’re very small and, if you took a look at
the United States in 1870, you would get a pretty good picture of their banks today.
They are small. Their longest loan is 90 days. A lot of what they do is really just foreign
exchange. I went into one small bank and there were three or four of the tougher looking Russians sitting around with AK47s and I said, I know that crime is awful around
here, but do you need to have a real army here to defend this small of a bank? They said,
well, they are not here to defend the bank, those are the people who collect our loans.
That is essentially the way banking was done earlier in our country. So, the Russian
banking system is just beginning to develop.
I was there for The World Bank and we had $2 billion to spend, and if you want to
really be treated royally, just wander through Russia with $2 billion that you can provide

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them. I got so full of caviar that I couldn’t look at a fish egg again. We ultimately ended
up with a program that took 200 selected banks around the country, small banks that
were developing, and tried to bring their people over here and train them, capitalize
them, and turn them into real banks. That program is actually working fairly well. They
are developing a whole new system of banks outside of the kind you heard about from
Roelle, the old Russian communist banks. So, that is all I’ll say about Russia.
I’m a TV broadcaster and I’m used to three minute pitches, so I can’t go on for too
long on one subject or I’ll ruin my status as a TV man.
Let me go on to Japan which, of course, is far more important to us—the second
largest economy in the world. I think what Japan proves is what I have found everywhere I’ve gone in the world, that while many things are the same, many things are different. When you go to these countries, one of the first things you try to do is sort out
what is the same and what is different. Certainly, Japan is a good place to do that. I’ve
been going there ever since I left the FDIC and it kind of reminds me of the bad news/
worse news stories. A doctor calls up his patient and says, I have bad news for you and
worse news for you. You have only 24 hours to live. The patient says, oh, that’s terrible.
What could be worse news? The doctor says, I’ve been trying to get you since yesterday.
That is pretty much where the Japanese banking system is. They’ve been getting bad
news and every year it gets worse.
If you looked at their system, you could see many things that were comparable to
problems we had, particularly in the S&L industry. First, they had a real estate boom.
Their banks had huge conflicts of interest with borrowers. They had poor to no supervision. The Japanese were the original inventors of “not on my watch” and would do anything to push it off until the next guy is in office. They tried to deal with it by, in effect,
having strong institutions take over weak institutions. So, all of you will recognize their
situation was comparable to what we saw, particularly in our S&L mess.
But, there were major differences, and are major differences. First, they don’t have
any holding company structures and in many ways, that makes taking over a bank if it
has failed, much easier. If you remember the bridge bank mechanism to handle failures.
If there were no holding companies, it would be very easy to take over an organization of
any size. You simply would change the ownership of the bank. You wouldn’t have the
kind of problems you have with holding companies. So, that makes it much easier. But,
the thing that makes it much harder in Japan is that 40–50 percent of the capital of the
banks is ownership of other bank stocks. So, to the extent that you fail a bank and make
the stock worthless, it reverberates throughout the system because other banks lose capital. In that way, their problem is much, and I mean much, more difficult than the problems that we had.
They have fewer institutions than we have and that, of course, makes it somewhat
easier, although I will say, Arne, that I was consulted by the Swedish group in 1990 and
when I looked over the situation I said, well, you have five or six big banks and they’re all
busted—that is too tough for me—go get somebody else to handle it. They were really
in the soup.

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Above all, the Japanese culture is much different than ours and when I began going
there, their basic approach was that time will correct this, that prices are depressed—that
this is just a cycle and over time this will take care of itself. Well, as all of us who have
been in the business know, if on the asset side of the balance sheet you have 15–20 percent of assets that are producing no income, and on the liability side you’re paying for
holding those assets, then it is unlikely that time is going to cure that in any period. Of
course, the only reason the Japanese banking system is actually operating today is due to
their central bank reducing the short-term interest rates to a half of one percent so that
the banks can borrow from the central bank at a half of one percent and lend it to us at
5–6 percent. That spread is the income that has essentially been keeping the banking
system alive in Japan. Without that, there would have been a crisis which would have
demanded an overall correction immediately.
“Too big to fail” is something that doesn’t worry the Japanese. As soon as they had
their problem, they guaranteed all bank deposits in all banks. That is the way they are
operating today. It is almost amusing to hear people discuss, is too big to fail really alive
and well? In every country in the world that has had major problems it is not only alive
and well, but we’re in the position now that Korea is too big to fail and Indonesia is too
big to fail. We, and the IMF and others are out saving banking systems all over the world
because they’re too big to fail and they’ll jeopardize the world’s financial system. So, too
big to fail—the Japanese have no problem with that. They have already guaranteed all
bank accounts, all deposits in all banks and they’re right in step with the rest of the world.
For many years we have been telling them that what they were doing to meet their
problems was not really going to work. You couldn’t keep those interest rates down there
forever. As long as you have a banking system that didn’t work, you weren’t going to have
an economy that recovered. Finally they had runs on some banks. Much as we found at
the FDIC, it really moves you into action when a big bank has a run on it. The Japanese
have not done anything with an insolvent bank—any bank, unless there has been a
“run” on the bank. Only at that time have they taken action and so far that has involved
three or four institutions, a large credit union, and one relatively large bank.
So, as far as the kind of action that we talk about and you study here, you don’t need
to spend a lot of time in Japan because the net result of what they’ve done is to subsidize
their banks through monetary policy. They really haven’t taken any action in the past.
Now, all that is being changed. They decided they would have a “Big Bang,” like the
big bang they had in London, and free their markets, and put their system on what they
call world standards of banking. So, what have they done? They’ve created a new independent supervisory institution which is not under the Ministry of Finance. It reports to
the Prime Minister. It is independent, and the law requires it to use international banking standards and to institute “prompt corrective action.” Well, they marched up to that
requirement and took a look, and the first thing they did was defer it for a year because
if you took prompt corrective action using international accounting standards, you
would maybe have only one or two solvent banks. The size of their banking problems,
no one knows for sure because they have not had an independent bank supervisory

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group. You’ve heard about several bank supervisors who are now being indicted. The
Japanese have a very small on-site type of supervision that clearly wasn’t effective. For an
advanced country they have some of the weakest and least computerized banking and
supervisory systems. So, the answer is they don’t really know today how badly off they
are. They know that it’s bad. They’ve admitted to $600 billion of nonperforming loans.
But, they have had pretty much the same experience that we had with the S&Ls which
was if they reported that their loss was $50 million, when we liquidated it, it was $150
million. I believe, they are going to find when they get this new supervisory agency
going, that their problem is much larger than they so far have acknowledged.
So, how are they going to handle this? Well, they looked at what we did in the
United States and they decided they would take it all. They would set up an FDIC
which they called the Deposit Insurance Corporation of Japan. They set up an RTC
which would handle assets, and they would set up an RFC, which we used during the
Great Depression to refinance all of our banks. The RFC would handle any preferred
stocks in banks that were “well run” and had some capital, even though they were
undercapitalized.
That is approximately the situation a few months ago when I was there. They passed
the legislation and the first thing they did was say, well the RFC investments looks like
the way we ought to go first, so we’ll start putting money in the weaker banks to boost
their capital. This is where the Japanese culture comes in. They said, we can’t put capital
into just the problem banks—if, for example, the Fuji Bank comes in and wants this
capital and the Mitsubishi Bank doesn’t, that will make a distinction between the two
and it will label Fuji Banks as weak. So, what has happened? All the major banks have
come in and the government has put preferred stock in all of them—good, bad and
indifferent. So, the government is now providing what we call open bank assistance to
all the major banks “whether they need it or not.” They’ve said, we can’t have any distinction because if you did there would be a run on those banks labeled weak and the
system would be in trouble.
They’ve also started to dispose of assets. The sales have been by the banks themselves
dealing with all our old friends at Bankers Trust and Goldman Sachs and all the rest.
The government agencies, which have $230 billion in funding, have not yet, as far as I
can see, done anything in that regard. I’m going over there again in another month and
maybe by that time they will have started to move in that direction.
They are looking at commercial real estate securitization. We will have to see
whether having talked the talk, whether they are really actually going to walk the walk.
So far, it is not too encouraging.
One of the key questions is, why the Japanese government is not more concerned
about their economic problems? They’ve been in a non-growth economy for seven years
now. Their GDP growth is zero to one percent, and you would think that if something
like that was going on in this country, there would be a revolution. The fact of the matter
is in Japan, the average Japanese citizen may be better off than he was seven years ago.
They have had full employment since by the nature of their system they don’t fire people,

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and they don’t cut anybody’s wages. Since they have experienced deflation in effect, the
average person in Japan is living as well or better than he did in the past. As a matter of
fact, the crash in real estate prices has allowed lots of Japanese to now live somewhere
closer to their work than a two-hour commute by train to Tokyo. So, they have a word
over there that describes why the Japanese aren’t doing anything—it’s something like
nooroomaya, and it sort of means, I’m in a lukewarm bath and it’s cold outside—I don’t
think I’ll get out. There is no political will to do any of the tough things that we were
required to do. Yet, it is obvious that they can’t continue. Many of their banks are not
capitalized at world standards and their credit ratings have been lowered. Eventually they
will have to do something if they want their economy to recover.
When you go over there and talk with the average person in Japan and ask them
why they are not yelling for the heads of their politicians, and they all say, “things are not
bad. I have my job. My pay is good. I’m not going to be fired. I’m saving money for my
old age. I don’t trust the politicians. I’d rather let things go the way they are.” So, we’ll
see what happens. The key to it is that they are in the world economy and slowly the
world is impressing on them the costs of having a system that isn’t up to world standards.
Thank you.
Rose: I have a couple of questions that I was going to ask, but I would like to, at this
point, defer to the rest of you, the participants. Does anyone have a question they would
like to ask of the panel?
Question: This is for Mr. Berggren. Will the Euro, the whole method of changing
Europe and their economic union, effectively convert European countries into closed
economies, more like the United States, and cause some of the problems that you experienced to not occur in such a dramatic fashion?
Berggren: You have many mergers going on in Europe right now. It is not only
between banks and insurance companies, it is going on all over the place. You have the
same thing going on here. So, I think you will continue to have lots of mergers going on
in Europe. I think it will be a fragile situation in a way. I think any future problems
would not come to a situation with many small banks, as you had in the U.S. I think it
will be with the larger banks. But, of course the macroeconomic shocks will be less
because the whole European economy in a sense will be closed as the American situation.
Milton Joseph: For the whole panel, in the United States we obviously have really
adequate disclosure for people who want to look at banks in terms of call reports. Is
there anything going on to standardize accounting and disclosure among international
banks in these countries?
Seidman: Well, the Japanese system as they have now announced it would move
them into full disclosure using international standards for their banking system. So, if
they actually put into effect what they said they’re going to put into effect, that would be
a very important change to improve transparency. But, they haven’t done it yet and
based on their past record, we’ll have to wait and see whether they actually do.
Roelle: In Poland and the Visiguard countries, they have adopted international
accounting standards. They have difficulty making the transformation from the current

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accounting system, which was French inspired, difficult to figure out, and done substantially differently than most of you all would recognize, in particular, the way they handle
reserves and some other things in the accounting statement. However, the Polish
National Bank, and I think it’s true of Hungary and the Czech Republic, have all
adopted international accounting standards. So, you will eventually see that all of their
balance sheet and income statements will look the same. But, I think it is probably a
year or so away before that happens.
Berggren: Although some countries claim to be adopting international accounting
standards, if you have a close look at it, maybe they are not really international accounting standards. There are also other problems. In many countries, you don’t require consolidation of industry groups. So, you can have a lot of funny stuff going on in accounts
outside the bank balance sheet and that takes some time to figure out. You can also have
very weak accounting professionals in the country. Many of the local accounting companies do not apply the American or European standard of accounting. So, there are a lot of
questions and difficulties when you try to go to a foreign country and assess the situation.
John Quinn, FDIC: This question is for Bill Seidman. You mentioned that you’re
starting to work in China. I was wondering if you’ve been able to identify any models
that the Chinese government is interested in pursuing with respect to privatizing their
banking sector, supervision, regulation, or deposit insurance?
Seidman: As I said, they’re just getting started. The central committee has ordered
that the banking system become a sound banking system in terms of world standards
and they’ve got all the problems of a communist state which has made huge loans to government industries and they are looking now at starting, not by privatizing the system,
but by actually taking out the bad loans, taking out the security on the bad loans, and
selling it in a securitized method, mainly with foreign capital. That is where they are at
the moment. Then actually privatizing the banks—they do have private banks in China
now and they supposedly, Price Waterhouse has been over there for I don’t know how
many years trying to help them set up a system. So, the first step is going to be to try to
take the bad assets out and after that, apparently they’re going to try to privatize some of
the larger banks. But, they haven’t done any of this yet. So, it is all in the talk stage.
Don McKinley, FDIC: To Bill Roelle and Bill Seidman, maybe you can describe what
opportunities, if any, there are for European banks or U.S. domestic financial services
industries to operate in countries like Japan or over in eastern Europe in terms of making consumer loans or taking deposits and basically interacting with their economies?
Roelle: In eastern Europe and in Poland, as I indicated, you have a lot of foreign
interest. I think there are difficulties however. One is, as I mentioned, virtually all of the
Polish banks are unit banks. Each branch is a unit bank. They do not have very sophisticated computer systems. They do not operate in a check environment. It is still a cash
based economy. There is heavy consumer demand as they come out from the Iron Curtain and as real wages and disposable income have increased. The Poles, for example, the
Polish automobile sector was the fifth largest in terms of sales in Europe in 1996 and was
almost the fourth largest in 1997. That shows a lot of pent-up demand. The answer is

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yes—there is a lot of opportunity for foreign investment in Poland. There is a lot of
opportunity in consumer lending. I think until they get some of their infrastructure
fixed so that you can have liens on cars that will be centrally registered, so that you can
actually repossess the property if necessary, that it is going to go slow. Any foreign investor is going to have to put a huge investment in terms of computer systems and technology into the Polish banks. The Poles want to sell these banks. They view them as crown
jewels so they want a high premium. So, if you’re looking at the premium you have to
pay the Polish government to get the bank and then the investment you have to make in
it and the kind of returns that your investors are probably going to want, your stockholders or shareholders, it’s a tough proposition. But, there is a lot of opportunity.
Question: I have a question for Mr. Seidman on Japan. You mentioned that some of
the companies bidding to be the initial buyers are American companies. What are some
of the obstacles and challenges they are facing for acquiring portfolios in Japan and what
kind of competition do you see for them by either other Japanese companies who want
to get into the business, or perhaps other countries?
Seidman: Right now the biggest challenge is to get the product. The government
has not yet put any product on the market, so it all has to be negotiated from the private
banks. That is, at least so far it has, just really gotten started in the last few months. So,
it is just getting underway. I think longer term there will be lots of opportunities for
people to bid for assets much in the way they did here. So far, there hasn’t been, as far as
I know, Japanese bidders for what is essentially nonperforming real estate. So, it is pretty
much in the same state as it was at the RTC when Bill Roelle took it over and got it
going. They are just establishing the market. They hadn’t allowed securitization or any
of those things up until these new laws were passed. So, there will be a lot of opportunities, I believe, in the future.
Bert Ely: For Bill Seidman with regard to Japan. Bill, my sense is that things have
continued to roll along as they have in Japan because the Japanese government is running some very substantial budget deficits, and its ratio of government debt to GDP is
starting to reach very high levels. I heard someone refer to Japan recently as the Italy of
Asia in that regard. How much longer is Japan going to be able to keep doing that? Is it
possible that it will break the back there, that their debt levels will get just too high, and
in that regard, I believe I read recently that one of the major credit rating agencies, either
Moodys or S&P, put Japan on credit watch. What are some of the longer-term implications of that, not only for the Japanese government debt, but also for private sector debt
in Japan?
Seidman: I think Japan is on a road that if they don’t change, eventually will lead to
real financial chaos because they won’t be able to maintain this full employment. Some,
like the chairman of Sony, have already said that if they don’t do something very soon,
the average citizen is going to feel the problems that they have. So, they have to change
because as I said in my remarks, the world is not going to accept them as a sound player
in the financial markets unless they do something. On the other hand, they have larger
savings than any other nation in the world. Their pool of capital is tremendous so that I

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don’t think this is a near-term problem. It is a long-term problem, which is just beginning to show up. I would guess that before it really starts to become a major problem for
them, they will do something. They are living today on exports and the rest of the world
is not going to live with them trying to maintain their economy solely on exports and
running huge surpluses in a balance of trade. So, they will have to change, but because
of the tremendous reserves they have, they can run quite a while without it.
Question: There has been a lot of talk today about some of the similarities and differences in the methods in which various countries have dealt with problem institutions.
There has also been a number of people calling for a uniform system on resolutions
worldwide. Do you have any feelings, any of you on the panel, any comments with
regard to a uniform system of resolution?
Seidman: I have to go and make a broadcast now. Time, tide and broadcast wait for
no man. So, I have to leave, but I would just say that what impresses me is that uniform
resolutions of banking problems, we don’t have them in this country and I can’t imagine
having them in the world.
Berg: My name is Dick Berg, and I’m with First National Bank of Ordway, Colorado. We’ve heard that the European banks do not have or have not taken any real action
on the year 2000 problem. Do you have any comment on that?
Roelle: I don’t think that is accurate. We spend a lot of time discussing, in addition
to all the other things that I had talked to you today, about that. The Polish government,
for example, and I know from my current affiliation with our activities in Europe, there
is truly a huge amount of investment in time being spent on the year 2000. So, I can’t
speak for every European bank, but I can certainly speak for most of the U.S. interests in
Europe. We’re spending a huge amount of money and time on the year 2000 issues, as
well as Euro issues. It may be that some of the European banks are not paying attention,
but I doubt it.
Berggren: Actually, I’m not familiar with what is happening, but I know how much
focus we have on it in many of the Scandinavian countries. I think the conversion to the
Euro (currency) is what people are most concerned about. They need to have systems to
handle that. A related issue is for the countries that will not join. Sweden is one of those
countries. We will have to have parallel systems.
Rose: Thank you all very much. We appreciate your participation in today’s panel.
Thank you in the audience for being active participants. We are going to have a short
break now until 11:15. Thank you.

PA N E L 4

Reflections and Looking Ahead

Introduction
Gail Patelunas, Deputy Director, Asset Management
Division of Resolutions and Receiverships, FDIC
In our second panel this morning, we’re going to be looking at future events and what
some of the future events might hold in the resolutions arena. Moderating this panel is
Mitchell Glassman, who is a Deputy Director in the Division of Resolutions and
Receiverships. Mitchell joined the FDIC in 1975 as a liquidator-at-large. He’s worked
on failures in Kansas, Illinois, California and Florida. In looking at his biography, one of
the things that I noticed was that Mitchell was a liquidator-in-charge at the failure of the
Metropolitan Bank & Trust in Tampa, Florida, which failed in 1982. If you can remember back to 1982, that was the largest failure to date and it was $250 million in total
assets. So, that puts it all in perspective. In 1983, Mr. Glassman moved to Dallas to
establish a liquidation office, and in 1984, he became the Deputy Regional Director of
that regional office. In 1993, he moved to Washington, D.C. and became the Deputy
Director in the then Division of Liquidation. He currently serves as the Deputy Director
for the Operations Branch of this division. Mr. Glassman holds a business degree from
the University of Missouri, and is a graduate of the Stonier Graduate School of Banking.
Please join me in welcoming Mr. Glassman and his panel.

Mitchell Glassman, Deputy Director, Operations
Division of Resolutions and Receiverships, FDIC
Thank you, Gail. The subject of this final panel of our symposium is to not only reflect
upon the FDIC and RTC’s most difficult challenges, but also their accomplishments

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during the past period of financial turmoil in the U.S. banking and thrift industry. As a
long-term employee of FDIC who was deeply involved in resolving and managing the
bank crisis, I’ve been looking forward to not only moderating this panel, but also to listen and learn from our panelists and guests, for we have to go on. There is a future.
Oliver Wendell Holmes once said that if you want to understand what is happening
today or try to decide what will happen tomorrow, try looking back.
During the last day and a half, we have heard discussions relative to bank and thrift
resolution strategies and methods, asset disposition and marketing strategies and techniques, application of deposit insurance and failed institutions, and also we heard at the
luncheon from Director Neeley who mentioned that it wasn’t just the FDIC and RTC
corporate experience, but it was also a personal one for those who fought the battle. I have
to admit that I’m one who fits in this category. The historic study of the bank and thrift
crisis brought back many reflections for me. I would just like to share one very quickly.
You’re not going to find this in the study or find this in any anecdotal information
that may be provided later on, but it has to do with a small bank in east Texas. Again, it
was like many other banks that we had dealt with. What was unique about this bank is
that we were walking in and we had a closing crew, and this closing crew was on its
fourth closing in six weeks, so they were tired, but the adrenaline was there, and they
were ready to go to work. When we were walking into this bank, which was on a Friday
at 6:00 p.m., we noticed an elderly gentleman, and in east Texas, it is not unusual to
have people out on the street. But, this gentleman was obviously a rancher who had
been in the community. He stayed outside for most of the weekend. We were very concerned and I asked the employees inside if everything was okay—was there anything we
could do for him to reassure him that everything was going to be okay. They told us that
his name was Jake and that he was a long-term community leader and that two weeks
before, he had just deposited money in the bank and the money came from a failed
S&L. So, Jake was worried obviously and had an anxious look on his face. But, he stayed
there. He was able to peer through the windows and he watched our team work. At that
time, we didn’t have an assuming bank. There was a re-bidding process going and the
FDIC always has to be prepared, as claim agents, to be paying deposit insurance. So, he
saw this activity and we were working through the night.
Come Monday—good news. We did have an assuming bank. Jake came in, cashed
his $20 check, and came over and said hello to the assuming bank, but he also came over
to me and basically said thanks. Thanks for being there. When I asked why he stayed out
there all night, he related the story that 50 years prior to that there was another institution in that bank—this was in the early 30s—and he said that bank was suspended. It was
suspended. It was before deposit insurance. He said what made him feel good in looking
through that window is that when the bank was suspended the last time, there was no
activity, no work. The bank shut down and nobody came. So, it made him feel good.
So, not only did he thank the FDIC for being there, but he wanted to thank all those
people and those entities who brought you here. For me, that really hit home because in
his unique way, he sensed that the FDIC did not just appear at the bank to handle the

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crisis in his small community just out of the blue. Even though he witnessed first hand
what FDIC was doing and the bank people that were there, a well-rehearsed militaristic
type of way of getting the job done, he knew that there was something else to it.
I think what Jake really sensed, but really had no way of knowing, was that the
FDIC and RTC had many employees who were passionately dedicated to the mission of
maintaining public confidence and ensuring stability. In essence, as we heard from
Director Neeley and what a lot of you will see in the literature is that we try to make the
bank closing a non-event for the public, especially for the depositor, especially for Jake.
In addition, I don’t want to forget that it wasn’t just the FDIC employees that
helped. It was all the bank and thrift employees who joined in with FDIC and RTC,
who stayed on those Friday nights and weekends and worked with us side-by-side
because they also had a sense of what it meant to protect depositors and to get the bank
reopened. And for all of them who not only worked in our bridge banks and our conservatorships, but those who stayed and actually helped us do the payoffs, those I, also, do
not want to forget.
It is for history and the study that we have recorded the FDIC and RTC experiences
in managing the crisis. But, it should also be noted that our agencies’ historic experiences
in resolving and managing the massive numbers of bank and thrift failures in the United
States, with our desire to maintain the public confidence in the financial system, would
be incomplete without recognizing the enormous efforts of other significant parties and
participants. One only has to look at our agenda and look at the participants in our symposium as to the variety of backgrounds of those who were participants in our efforts.
The private sector, the ones who provided the capital to purchase the banks and
thrifts, and to refinance the borrowers, and to fund the asset purchases and all the contractor support, not only for those who managed the assets and helped at the closings,
but also those who left their own employment in the private sector to help the FDIC
and RTC in their efforts.
From the academic and media communities who studied, reviewed, and provided a
perpetual comment of the economic and moral impact of the RTC and FDIC policies
and procedures.
Last but not least, should we not forget the role of our federal government and our
democratic form of government which allowed the U.S. financial crisis to not only be
dealt with openly and directly through discussion and comment, but that provided
funding so that action could be taken and of course lots of oversight that served as a
check and balance.
As the country and financial sector moves forward into the new millennium, it is
important that we reflect on our past and to learn the important lessons from our collective experiences. For the future does not hold any guarantees. Nobody ever indicated
there is never going to be a guarantee that there will never be another bank failure or
that the U.S. financial markets will never ever be in chaos. To help us reflect on this subject and to give us their insights, I’m very pleased to have with me three distinguished
panelists—Jonathan Fiechter, Dr. Paul Horvitz, and Jack Ryan.

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Jonathan Fiechter serves as a Director of the Special Financial Operations for The
World Bank. Prior to this position, he was Director of Financial Sector Development of
The World Bank, which provided policy advice and technical assistance to client countries seeking assistance. Mr. Fiechter joined The World Bank from the Office of Thrift
Supervision and while at the OTS, Mr. Fiechter held a series of progressively responsible
positions, including serving as head of the agency from 1992 to 1996. Mr. Fiechter
began his professional career at the U.S. Department of Treasury as an international
economist in 1972, and in 1978 he joined the Office of the Comptroller of the Currency. Mr. Fiechter has also served as a Director of the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Neighborhood Investment Corporation,
and is Chairman of the Financial Examination Counsel. Welcome Mr. Fiechter.
Dr. Paul Horvitz has been a Professor of Banking and Finance at the University of
Houston since 1977. He received a B.A. degree from the University of Chicago, an
MBA degree from Boston University, and in 1958, he received his Ph.D. in Economics
from MIT. From 1957 to 1966, Dr. Horvitz worked for the Federal Reserve Bank, the
OCC, and in 1967, he joined the FDIC as an Assistant Director of Research, becoming
its Director of Research in 1969 and Deputy to the Chairman for Policy in 1976. Dr.
Horvitz has authored and edited several books and numerous articles on banking and
finance in professional and trade journals, and he is currently co-editor of the Journal of
Financial Services Research. From 1983 to 1989, he was a Public Interest Director at the
Federal Home Loan Bank of Dallas. Mr. Horvitz is a charter member and remains a
member of the Shadow Financial Regulatory Committee. He was a Director of Pulse
EFT from 1990 to 1996, and is a current Director of Bank United.
Jack Ryan is the Regional Director of the Office of Thrift Supervision, southeast
region. The southeast region in Atlanta, which is also known as the Atlanta Regional
Office of OTS, is responsible for 265 thrift institutions with aggregate total assets of
more than $61 billion. During 1994 and 1995, Mr. Ryan was on leave of absence from
the OTS and served as the Acting CEO of RTC. Before being appointed the Regional
Director, Mr. Ryan served as Senior Executive Vice President and Chief Regulatory
Officer of the Federal Home Loan Bank of Boston. He also served as the Acting President for a period of seven months in 1989. Mr. Ryan spent 25 years as a commercial
bank and bank holding company regulator for the Federal Reserve System and for eight
years Mr. Ryan served as Director of the Division of Bank Supervision and Regulation
for the Federal Reserve Board in Washington, reporting directly to the board during the
terms of Chairman Burns, Miller, and Volker.
I would like to note that at the end we will take questions, and I will ask since this is
the last symposium panel, this is your last chance, so we expect a lot of questions to
come from you. Without any further ado, I would like to ask Jonathan Fiechter to please
start us off.

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Jonathan Fiechter, Director, Special Financial Operations
The World Bank
Thank you, Mitchell. It is great to be back. I also think the topic, managing crisis, is an
excellent one. Often regulatory conferences such as this focus on how to prevent banking failures, and I think we probably spend too little time on how to manage them once
they’re upon us. So, I commend the FDIC for this effort.
I would agree with Mitchell that our objective ought to be to try to make bank failures a non-event, that arguably the better we are at managing bank failures in an effective and efficient fashion, and at minimum cost to the taxpayer, the more likely we are to
embrace the notion that a healthy banking system that includes risk-takers will have the
occasional failure. Our objectives should not be to prevent all bank failures.
Today, I want to touch upon three topics. First, I want to review the lessons that I
learned in my time, at the Comptroller of the Currency and Office of Thrift Supervision
starting in 1982 with Penn Square and going through the 90s with the thrift industry.
Secondly, I’d like to touch upon some lessons related to the resolution process. And then
third, conclude with a comment on the future and particularly the application of
prompt corrective action, and what that might hold for us going forward.
In terms of the lessons of the 80s and 90s, first and foremost, I think that it is
unlikely that any of the supervisory agencies are ever going to be able to predict and prevent major banking problems in the financial sector. They appear to arise almost like
clockwork—the REIT problems, LDC, energy sector, the ag bank problem and the
thrift industry. So, I think we’re going to have to live with systemic crises. Everyone has
a bit of myopia, so I think we’re going to hold conferences like this long into the future.
Secondly, and this is related—agencies are going to be forced to operate with imperfect information for a variety of reasons, including lack of adequate resources. Predicting
bank failures is always going to be more of an art rather than a science.
Third, supervisory agencies will make mistakes. Hopefully Congress will accept this
and be reasonable in their natural tendency to second-guess agency decisions. When
you’ve got major problems, swift action is often better than studying an issue and holding off making decisions for fear that a mistake will be made.
Fourth, I think that supervisory agencies in the future, as in the past, will always be
tempted to take steps to avoid closing banks, to avoid a loss of credibility and to prevent
criticism. Unfortunately, in our system, when a bank fails, particularly a major bank, it is
often viewed as a failure on the part of the supervisor—where were they, why didn’t they
prevent it? In going back to my earlier comments, it would be wonderful if one day we
got to the point where we just accept that failures will occur—it’s part of a natural process, particularly in a market system.
Fifth, I think agencies have to assume that often, banking problems will turn out to
be worse than initial estimates. Bill Seidman has said that when he took on the role of
head of the RTC, he assumed the thrift problem was a golf ball, but it turned out to be
a watermelon. When I joined the Federal Home Loan Bank Board in 1987, we were

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talking about a problem that was in the $5 to $10 billion range—that is late 1987. I
think the estimate now for the cost of the thrift problem is around $150 billion, not
including the interest payment. So, we were off by many multiples.
Based on at least the experience I had with the thrifts, I think once a systemic problem occurs, agencies are much better off if they get their best estimate of the size of the
problem out in the public, publicize the heck out of how big the problem is, and bring
the public along. I don’t recall the banking agencies taking the same approach. At the
OTS, we had press conferences every three months where we said, here are the number
of 4 and 5 rated thrifts; here are the number of 3 rated thrifts; this is what their losses
are. We inundated the public with information. In terms of the experience of the OTS,
and part of our objective was to rebuild credibility, I think it was very successful.
Another obvious lesson is that postponing addressing problems raises the cost.
Arguably, the thrift problem was a problem of the late 70s and yet it wasn’t until the late
80s that we tackled it. And in the intervening decade, the cost of dealing with the problem rose dramatically.
Another thing that may be obvious but became quite apparent again in dealing with
the thrift industry, where such a large block of a particular sector was in trouble, was that
allowing non-viable thrifts to continue to conduct business really hurt everyone in the
area. It was phenomenal how earnings of surviving thrifts improved as what were then
called “zombies” were closed down. Having institutions with no return on equity constraints, and who could underprice loans and overpay for deposits—not only were they
obviously raising additional costs vis-a-vis the FDIC or FSLIC, but they hurt everyone
else in the local marketplace.
Another lesson—agencies really have to fight the temptation to come up with quick
fixes. It has to be accepted that fixing a broken banking system is a very difficult process.
The old Federal Home Loan Bank Board tried a whole bunch of quick fixes, most of
which ended up making problems worse rather than better.
In terms of the process, as I just mentioned, I think it has to be recognized that dealing with failed institutions is much more complicated, particularly when you have major
organizations, than one thinks at first glance. Again, I think that the effort that went
into putting this conference together, really looking at techniques, has a tremendous
payoff over the long run. One of the silver linings of creating the RTC was that at least
within the U.S., it created a second opportunity for smart individuals to come together
and figure out how to tackle failed institutions. Interestingly there were differences in
the approach taken by the RTC versus the FDIC, and I think it was great that when the
RTC was folded into the FDIC, a lot of effort was taken looking at which agency had
the better approach.
Once a problem is acknowledged, once you’ve taken over an institution, the quicker
you get it back into private hands, the better. I think that with the RTC (and I don’t
think there was much of a choice), the extended conservatorships of institutions that
were taken over by the RTC, ultimately raised the cost of the final resolution. Certainly
some of the Bank Board’s efforts, of merging weak institutions (what was called the

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Southwest Plan), in hindsight turned out not to have been a great success. In that
respect, to the extent one has the capacity, simply taking the institution over and getting
the good assets back into private hands as quickly as possible is the way to go.
Another lesson we learned in the mid-90s in the thrift industry was that political
support for what you’re doing is fleeting. Political support is very strong when the problem is first made public. We identified our poster boys who were primary culprits to
generate public support for the effort—the Mr. Keatings of the world. But that lasts 24–
36 months, and then you begin to have hearings on, are you being too tough, why are
you doing this to these people who in fact, never intended to do wrong and simply
didn’t understand their obligation as a bank or thrift director. So, as strong as the political support may be in the midst of the crisis, one needs to take advantage of it, and not
take for granted that it will be there over the long term.
In terms of the resolution process, and I don’t want to get into what Jack Ryan
might say after me, the more orderly and predictable the process is, with absolute transparency, the better it will go and the more likely you are to retain political support for
the process. Resolutions are necessarily complex. There is lots of money involved. But I
think one clear lesson between the way the FDIC and the RTC handled 747 failed institutions versus what the Bank Board went through with the thrift resolutions in 1988,
relates to openness and transparency. The Bank Board chose to move very quickly to
resolve institutions to take advantage of some tax provisions but they acted in secret. In
hindsight, a more open and orderly process, even when you’ve got lots of institutions, is
a much better approach.
Something that the RTC did, more so than the FDIC, was getting the private sector
involved in the solution in the beginning. As I recall, it was a statutory mandate of the
RTC that they use the private-sector to the greatest extent possible. Notwithstanding
some of the difficulties of using the private sector (e.g., how much was charged for
xeroxing), this private sector involvement was quite successful. We brought in outside
expertise and when you are faced with major tasks of the type faced by the RTC, that is
a worthwhile lesson to remember.
Auctions of assets from failed institutions—and this is something that at The World
Bank we run into in a lot of countries—when you start selling assets, the early birds
really do get some pretty good deals. People are unfamiliar with the processes when you
first begin selling assets. There are some very good deals and some good assets and some
great profits can be made by the people coming in early. We have to accept the fact that
for the market to work, you have to have an attractive profit up front. That’s what brings
lots of bidders for subsequent auctions.
The difficulty we’re facing overseas is that those initial bidders tend to be foreigners
and that makes it particularly difficult for the countries to have the foreigners picking up
assets at very low costs. The presence of foreigners is even more difficult than simply the
fact that the private sector is coming in and making money.
I saw Jim Montgomery (Former Chairman of Great Western Bank) here—I don’t
know whether he is still here or not, but one of the lessons in terms of the way the SAIF

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was funded was that explicitly imposing the costs of resolution on the remaining open
institutions turns these institutions into ultra-conservatives. During the early part of the
thrift crisis, you did not have the U.S. League out there rooting for the Bank Board to
close more institutions. Rather it argued the regulators were being far too harsh. It
argued we were overestimating the size of the problem. “Forebear and in a couple of
years they’ll turn around,” was the position taken by the thrift industry trade group.
As the SAIF premiums began to rise, however, and particularly as the process of
shifting the cost of resolving the thrifts to the SAIF was occurring, at OTS we began getting calls from the industry saying, go back, look again, make certain there is no one out
there among our thrift institutions that is unsafe and unsound. It was the thrift industry
that became the biggest fan of ensuring that you had a healthy industry because they
began to say, if you at OTS make a mistake, if an institution closes and costs the SAIF
$100 million, that’s our money. It was an interesting turn of events.
In terms of the next crisis, whenever that may be, two things have struck me. First,
the number of people in the audience who I had worked with who were very experienced in this business, have retired and gone on to other and better things. I think that
is true across-the-board. All of the banking agencies have experienced a fairly major
drain of experienced staff. I certainly worry that three or four years down the pike when
we run into this problem again, I hope a lot of the lessons will not have to be re-learned
by staff who were not part of dealing with the problems of the past.
Secondly, we now have prompt corrective action. I’m not quite certain how these
old lessons will apply in this new world. Certainly we were able to manage the thrift resolution process much more smoothly because of our ability to deal with these institutions in an orderly fashion. We had a long list of problem institutions. We closed those
institutions in close coordination with the RTC in an orderly fashion to avoid indigestion. With prompt corrective action, if one has a systemic problem of the type we had
with the ag banks where you had a collapse in farm real estate prices and all of a sudden
there are a whole bunch of institutions that are not able to meet the various capital
requirements, I’m not quite certain what kind of flexibility we will have. We may find
ourselves in the same boat that the FDIC found itself in early 1989, when they took on
a couple hundred thrifts pre-RTC legislation, and you had a major case of indigestion.
I think prompt corrective action is great on an institution-by-institution basis
because it creates tremendous incentives for owners to deal with problems early. But, if
we run into a systemic problem, I worry about the ability of the FDIC and the banking
agencies to deal with such a problem.
This is particularly worrisome with the addition of risked-based deposit insurance
premiums. When institutions run into trouble under the risk-based premium system,
their after-tax costs start going up rapidly as their earnings are falling. So, risk-based
insurance premiums can contribute to a rapid drop in capital.
Thank you very much.

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Paul Horvitz, Professor of Banking and Finance
University of Houston
I am impressed with much of what I have read and heard here about the FDIC/RTC
resolution process. Over time, and as a result of its own analyses and a push from FDICIA, the FDIC has developed the ability to handle failures efficiently and effectively. I
want to focus my comments on one aspect of the process that has been solely within the
province of the lawyers, but in which I believe that economists have something to contribute. I am referring to FDIC and RTC efforts to recover losses due to the actions of
those with special responsibilities for bank soundness—accountants, lawyers, directors
and management. Obviously, I am not going to give legal advice. My comments relate
to the economics of the professional liability issue, and to public policy considerations.
When I was at the FDIC bank failures were rare events. Even in those days, there
were incompetent and inattentive auditors, lawyers, bankers and directors. But the competitive and financial environment was such that bad luck or modest doses of incompetence were not sufficient to cause a bank to fail. A failure was generally the result of some
sort of wrong-doing—fraud or self-dealing. It was routine in such cases to sue those
responsible, and there was almost always an insurance company providing at least a
potentially deep pocket. It is true that FDIC recoveries from bonding companies during
that time were modest, but that is a different issue. I believe that those efforts at recovery
of FDIC losses on grounds of professional liability were appropriate and reasonable.
The situation in the 1980s and 1990s is a different order. The FDIC and RTC have
recovered $5 billion as a result of its pursuit of professional liability. That is not a number that can be easily dismissed, although most of that money came from a very small
number of large firms. Nevertheless, the FDIC/RTC process has been badly conceived
and poorly applied. I do not believe that those responsible for FDIC losses should be let
off the hook, but the process of determining who is responsible was badly tainted—
tainted by political and financial considerations at the expense of justice. For those who
would question my credentials here, let me note that justice is not a concept that
belongs solely to the realm of the lawyers. As an economist, I wish I had better data with
which to explore this issue. Much of what I have to say is anecdotal, but it derives from
my own experience as an expert witness in a fair number of cases. I have been retained as
an expert by both the FDIC/RTC and defendants in this type of litigation (though only
rarely in the same case).
It is important to distinguish criminal from civil actions. People who violate criminal laws should be prosecuted, whether they are rich or poor, and whether or not their
violations caused losses to the FDIC. As an economist, I have little to say about the
criminal prosecution of violators of banking law. But criminal prosecution should not be
part of an extortion scheme or a protection racket. It has been frequently alleged, though
I have no personal knowledge of this, that defendants in civil cases have inferred that
refusal to cooperate with the FDIC could increase the likelihood of criminal prosecution. I am sure that we can all agree that any threats or promises by FDIC lawyers about

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criminal action as a means of gaining settlements in civil cases are not authorized and
not consistent with FDIC policy. In fact, the RTC Guide for Outside Counsel states that
“As a matter of policy, the settlement of civil litigation on behalf of the RTC may not,
expressly or by implication, be related to or conditioned upon the disposition of any
criminal charges or recommendations….”
My focus is on civil actions. These involve economic as well as legal judgments.
Suing on the basis of professional liability involves three major components: a determination that the subject has done something wrong; that wrong has caused a loss to the
FDIC; and the subject has assets that can satisfy a judgment against him. This last point
is clearly important in civil actions. There is no point in winning a judgment that cannot be collected, but this consideration has frequently led to suits against outside directors while management directly responsible for actions costly to the FDIC escaped any
legal action. It also led to suits against wealthy directors for actions that passed as “business judgments” for many of their poorer colleagues at other failed banks and thrifts.
This inequity bothers me less if the actions or inaction of the wealthy directors caused
losses. I am bothered by suits against those with deep pockets and only a tangential connection with the cause of the losses.
Bank and thrift failures in the 1980s and 1990s were different from those of my
experience with the FDIC in the 1960s and 1970s. The economic environment was
much more hostile. Many thrift institutions, run by competent managers in accord with
traditional policies, failed in the early 1980s as a result of high interest rates. It would
not have been appropriate for the FDIC or FSLIC to take legal action against management and directors of these institutions, and they didn’t.
Later on in the 1980s, many thrift institutions run by managers who had been considered competent shifted their operations in the direction of assets involving significant
credit risk, such as commercial real estate and construction loans. This shift was in
accord with the thrust of DIDMCA and Garn-St Germain, and with the advice being
given by consultants and regulators that thrift institutions should include such assets in
their portfolio because they generally have adjustable rates and higher yields. Managements whose banks became insolvent because of losses on these assets have been subject
to professional liability suits by the FDIC. Why do they deserve such action, when those
who incurred similar losses from interest rate risk did not?
What has been the objective of FDIC and RTC professional liability suits? Based on
my experience, I would say that the objective is to obtain the maximum amount of
money possible from those connected with the failed institution. That is not good public policy. At risk of appearing naïve to this group, I would argue that the objective
should be to collect an amount commensurate with the losses these people caused. The
distinction is simple: the cost of litigation, particularly litigation with the government, is
so great that many subjects of suits by the FDIC or RTC agreed to pay some amount
even if they were not responsible for losses. I have seen cases without substantive merit
in which the RTC made exorbitant damage claims based on rather outlandish theories.
Because the defendant can not be sure that a court will reject the outlandish theory and

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the exorbitant amount, he may be willing to settle the suit. Whatever the merits of such
legal tactics by private parties, it is unseemly when done by the government.
Such tactics do not seem to be in accord with stated FDIC policy. The FDIC’s Historical Study states the “the collection process for PL claims is conducted in as consistent
and as fair a manner as possible. Potential claims are carefully investigated after every
bank and thrift failure. All potential claims are subject to multi-layered review by the
FDIC’s attorneys and investigators before a final decision on whether and how to proceed….At the FDIC the final decision whether to file suit typically rests with the Board
of Directors….No claim is pursued unless it meets both components of a two-part test.
First, the claim must be sound on the merits, with the receiver more than likely to succeed in any litigation necessary to collect on the claim. Second, any necessary litigation
must likely be cost effective….” This is a good statement of policy.
The RTC policy was that “the Legal Division seeks to avoid extreme advocacy positions and coercive, delaying or obstructive tactics that are not likely to have a substantive
impact on the outcome of litigation.” I would interpret this statement positively as well,
though it seems to suggest that extreme, coercive, delaying, and obstructive tactics are
fine if they will affect the outcome. The problem is that these policy statements did not
control the way the process worked. In practice, a number of cases with little merit have
been pursued.
How do cases without merit get filed? In many cases the RTC (though not the
FDIC) hired outside law firms to investigate potential professional liability claims and
make a recommendation to the RTC. If the law firm recommended that no action be
taken, it obviously was paid for its investigatory efforts. If, on the other hand, it recommended that the RTC pursue the case, the law firm was almost certain to be hired to
handle the case (they know more about it than anyone else), and will earn very substantial fees. It is beyond even my naïveté to believe that the RTC always received objective
advice. This was a low-risk strategy for the RTC, because cases with no merit rarely led
to a loss for the RTC. In those cases, the law firm ultimately recommended a settlement
sufficient to cover the legal costs. Because of the costs of a trial, the defendant was usually willing to settle on this basis.
The economic issue that most concerns me is the crucial linkage between actions
taken by defendants and the losses. This is most frequently the place in which FDIC PL
claims go astray. The FDIC/RTC cases I have been involved in invariably involve real
losses suffered by a failed bank or thrift, allegations of mistakes, negligence or wrongdoing by some professionals, and a failure to connect the alleged acts with the losses.
Many losses have been blamed on the lack of, or poor quality of, appraisals. If a $5 million loan results in a $3 million loss, and the appraisal was not done in accordance with
the regulations, this does not mean that the loss would have been avoided if the appraisal
had been up to snuff. In any case, the burden should be on the plaintiff to demonstrate
that the inadequacy of the appraisal was responsible for the loss. That is simply not done
in the cases I have seen.

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Suppose that a loan is made on a development project. The loan approval requires
that a soil test be done, but management neglects to do so. Suppose the loan defaults for
reasons that have nothing to do with the soil. Is that negligence by management? Probably it is. Is it the cause of a loss? No. Have the FDIC and RTC tried to collect from those
responsible for the failure to get the test done? Yes.
Suits against auditors frequently suffer from this problem. Auditors did poor work
in many savings and loan audits. But before the FDIC should be able to win a case
against the auditor, it should be required to show that the audit flaws led to the losses. I
was an expert witness in a case for the RTC in which there was evidence that the auditors had not insisted on appropriate reserves against some troubled commercial real
estate loans. My testimony was to be to the effect that directors appropriately rely on the
work of outside auditors, and that if the audit had indicated that increased reserves were
necessary, and that earnings were overstated, the Board might well have changed its policies on real estate lending. Note that the auditors should not be held responsible for the
losses on the loans they messed up on, because those loans were already on the books
and the funds out the door. But losses on loans made after the audit might have been
avoided if the audit had been done well. The FDIC must have reason to believe that is
the case before it brings suit. It should not be able simply to assert that losses on loans
made after a poorly-done audit were caused by the poor audit.
A similar problem of causation arises in some suits against lawyers. Law firms, like
accounting firms, are prime targets for FDIC action because they usually have assets and
insurance. Some of the cases I have seen indicate a real stretch by the FDIC to argue
attorney responsibility for losses. In some cases, lawyers whose only role was to prepare
closing documents for loans that ultimately went bad, were charged with responsibility
for the credit quality of the loan. Do we really want lawyers to insist on reviewing an
entire loan proposal and analysis before agreeing to prepare the closing documents? My
experience suggests that lawyers will not do this for free.
At the same time that I was working for the FDIC on the case against the auditors, I
was serving as an expert witness for the directors of a failed thrift that involved similar
issues. I was actually giving the same testimony in both cases—that directors appropriately put heavy reliance on independent auditors. But in the second case the RTC was
arguing that directors have a responsibility for seeing that appropriate loan loss reserves
are maintained, and that they cannot rely on outside auditors. This position runs counter
to current FDIC policy, as stated in a recent speech by FDIC General Counsel William
F. Kroener, III, that “a corporate director is entitled to rely on reports, opinions, information, and statements of the corporation’s officers, legal counsel, accountants, employees,
and committees….” But even if there were no FDIC policy on this matter, I don’t think
the FDIC should argue both sides of an issue of this sort. I am not making a legal argument. I don’t know whether there is any ethical or legal problem for a lawyer making an
argument when he knows that his client is maintaining the exact opposite position in
another courtroom. As a matter of public policy, the government shouldn’t do that.

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Many of the cases in which I have been retained involve matters of corporate governance. I believe that the FDIC has overreached in many of its suits against bank and
thrift directors. Despite all of the books and articles written for directors that attempt to
alert them to their responsibilities (all written by lawyers), they do not provide good,
workable advice for real-life situations. The Board of Directors must set policies, and take
reasonable steps to assure that policies are being followed. It is reasonable for directors to
rely on outside auditors and on management. If loan policy requires current financial
statements of borrowers, and management indicates that the policy is being followed, I
do not expect directors to examine loan files to verify the presence of the financials.
More important, the directors are in their positions to represent stockholders. Their
obligation is to do what is best for the stockholders. At least that is what we are teaching
students in corporate finance courses. Directors have no fiduciary duty to protect creditors (including insurers), and if they can benefit stockholders by screwing creditors, that
is what they should do. Creditors expect this, and have adequate means to protect themselves. That clearly applies to the FDIC. Obviously, directors must comply with law and
regulation, but they have no obligation to disadvantage stockholders to benefit creditors
(including depositors). This issue becomes significant, of course, when a bank is in a very
weak financial condition. Directors of an insolvent bank may rationally decide to take
extraordinary risks, on grounds that normal operations will not allow them to return to
solvency. This is what Dan Brumbaugh has called “gambling for resurrection,” and others have referred to as throwing the “Hail Mary” pass. These strategies may be better for
stockholders than patiently waiting for the coming of the Messiah, because the odds are
high that the examiners will come first. I recognize, of course, that this is not always the
case. In the early 1980s, those thrift managers who simply prayed for lower interest rates
came out better than those who took more activist strategies. The “business judgment”
rule should apply to adoption of high risk strategies as well as to specific transactions, if
they are carefully considered and adopted in a rational business-like manner.
I have seen several cases in which the FDIC has seemed to lack an understanding of
the timing of losses. It is unreasonable to attempt to hold a director responsible for losses
incurred on loans made before the director joined the Board, even if the recognition of
the losses occurs during his term. This is so obvious a point that I would not bother to
mention it, except that the FDIC has brought suits in such situations.
A related issue concerns workouts of problem loans, or loans made to facilitate the
sale of REO. Bankers have always recognized that different considerations and loan
terms are appropriate in dealing with these assets—assets that are already on the
books—than with loans being originated. Suppose a bank makes a prudent loan of $10
million to enable the borrower to acquire an apartment project. As a result of economic
and real estate declines, the loan defaults and the bank forecloses on the project, which is
now worth only $8 million. It is not necessarily unsound to lend a new borrower $10
million on favorable terms to acquire the property from the bank, simply because the
loan is greater than the current appraisal. Similarly, even if a bank has an explicit loan
policy against cash-flow mortgages, or loans made without personal liability, it is often

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reasonable to make exceptions in workout situations. Again, this is obvious, but the
FDIC and RTC often have included claims related to losses on such loans. These claims
generally ignore the fact that the losses would be there even if the workout loans, or
loans to facilitate, were not made.
I have a more serious charge to make against FDIC/RTC behavior in some of these
professional liability suits. Many of these cases involve testimony by examiners or other
supervisory personnel of the FDIC or OTS. I have seen several cases in which government employees have given untruthful deposition testimony. I do not know whether the
lawyers were aware of this or not. I interpret this as a fear by current government
employees that their careers will suffer if their testimony undermines the government’s
case. Any banker who has met with FDIC examiners, and is impressed with their knowledge and confidence, would be amazed to read depositions in which these capable people claim to know nothing about banking or bank supervision, claim a lack of
knowledge of agency policies and procedures, and disavow the significance of examination findings that bankers take seriously. In a number of instances the inability of examiners and supervisory personnel to recall facts about specific cases—even when the case
is the largest bank failure they have ever been involved with—is beyond belief. It is also
surprising how often witnesses from the regulatory agencies turned out to occupy that
unique position in the hierarchy of the agency so low that all significant decisions were
made by their subordinates, which they simply rubber-stamped, yet were so low in the
organization that all significant decisions were made by their superiors.
Let me be clear about my criticism of FDIC handling of professional liability cases.
Many failed banks and thrifts suffered losses because of the negligence or wrong-doing
of managers, directors, accountants, lawyers, or appraisers. It is reasonable for the FDIC
to pursue suits against the people responsible. That is not the issue. My point is that the
RTC (and to some extent the FDIC) filed and pursued such suits virtually indiscriminately in most cases of failure. The reason is obvious. The FDIC, RTC, and OTS feared
Congressional criticism that they were too easy on the S&L crooks. Rather than explain
to a Congressional Committee just why a bank failed, and how the regulators missed
picking up the problem early enough, it is easier to blame it on professional negligence
and file a suit. The attitude seemed to be “let’s sue them all, and let the courts sort them
out.” After all, a loss in court can be blamed on the judges or the juries, but the agencies
cannot be criticized for failing to make every effort to recover its losses. Some of the
actions taken by the agencies have been so egregious, that it cannot be believed that they
didn’t understand the situation. It is much more likely that the explanation lies in the
lack of political courage. This desire to avoid responsibility exists at lower levels in the
organization as well. I quoted earlier from the FDIC’s Historical Study about the
FDIC’s “multi-layered review.” Think about how this would work in practice. An examiner or investigator or lawyer recommends that a PL action be filed. This recommendation is reviewed by the next layer of management. The supervisor will never be criticized
for going along with the recommendation, even if the case is a loser in court. However, a
decision to reverse the recommendation, and not take action, might be damaging to

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one’s career, particularly if it turns out that the subject of the proposed PL suit is truly a
bad guy, or if the losses from a particular failure turn out to be very great.
Some limited evidence on this issue can be found in the Annual Report of the Professional Liability Section for 1997, which notes that following an invitation in a speech
to bankers made by the FDIC General Counsel, defense counsel in more than 20 cases
contacted the General Counsel to report that their settlement proposals were not receiving appropriate attention at lower levels. The Annual Report notes that “This high level
focus and involvement enhanced the settlement process in a number of cases that were
the subject of these communications.” That is fine, of course, for those whose cases were
settled, but what about those who faced similar problems before the General Counsel’s
invitation and intervention? By 1997 the number of outstanding cases may have been
small enough to make the General Counsel’s involvement feasible, but that was not the
case earlier.
I recognize that there is no simple way of determining which actions of professionals
warrant legal action and which don’t. I have found, however, that self-dealing is a pretty
good criterion to use. This goes to basic corporate governance issues. The primary obligations owed by directors are a duty of care and a duty of loyalty. Self-dealing clearly
raises flags about the duty of loyalty, except that bank directors are expected to generate
business for the bank (often, that is why they are on the board). But lack of self-dealing
is a reasonable indication that the director is not taking personal advantage of his position. My experience suggests that the FDIC does not give this sufficient weight. That is,
I think it should be hard to make a negligence case against a bank director for loans that
turn out badly when that director has not received any personal benefit from the loan.
A poor record of success in the courts would provide support for the criticisms I am
making here. The absence of such evidence does not mean I am wrong, because the
FDIC has the ability to drop cases, or accept nominal settlements, when it believes that
the outcome at trial will be adverse. It is interesting to note that the FDIC’s Historical
Study does not cite any statistics on its record in court, despite a plethora of other statistical data. Virtually none of the cases I have worked on has gone to trial, so I have no
personal knowledge of such results. I have read occasional stories of a judge blasting the
FDIC, but I don’t know how common such results are. The FDIC has an obligation to
present this data in its Historical Study. I am surprised at the lack of such data in the
Historical Study or in the FDIC’s Annual Reports of the Professional Liability Section.
An economist would routinely expect to see data on the results of cases that have gone to
trial, and hence are uninfluenced by the willingness of defendants to pay money to avoid
or end a lawsuit.
The Chapter on Professional Liability Claims refers several times to “developing
legal doctrines,” and “evolving standards of liability for director and officer claims.” This
is probably a matter for the lawyers, but it seems questionable to me. It appears that
much litigation represented attempts by the FDIC to change the legal standards, or at
least to establish that the standards for bank officers and directors should be different
than those that apply to corporate officials generally. Apart from the legal aspects of that,

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I don’t see the economic logic of a higher standard for bank officers and directors. The
FDIC is better able to protect itself than the ordinary creditor or stockholder. Yet at one
time the Director of the Office of Thrift Supervision argued that thrift institution directors owe a fiduciary duty to the federal deposit insurance system. Without opining on
the law, I cannot see any economic basis for such a position. Yet, as far as I know, that
position has never been disavowed by the OTS or FDIC.
I have put this discussion in terms of RTC and FDIC, though I recognize that these
criticisms are more applicable to RTC than to FDIC. In view of the history of the organizations and the closeness of their operations, I think it is reasonable to combine them
for this purpose. In any case, if there were substantive differences, the FDIC had the
opportunity to impose its (presumably) more appropriate standards when it took over
the RTC caseload at the sunset of the RTC. It is not clear how many RTC cases were
dropped for lack of merit. If the FDIC believes that its behavior has been better than the
RTC, it should be able to cite a significant number of such cases. A rather damning
comment on this issue is found in a 1997 speech to the Assembly for Bank Directors by
then-FDIC Chairman Ricki Helfer. Chairman Helfer stated (I think proudly) that “In
one instance the FDIC refused to bring a case that had been authorized…by the RTC,
and decided to forego a $200,000 settlement offer that was on the table because the case
lacked merit.” If there truly is only one such case, then the FDIC cannot claim that its
standards differ significantly from those used by the RTC.
I am sure that the FDIC has heard these criticisms from defendants and their counsel.
I am not an advocate for defendants in general or for those who have retained me. I hope
that criticism of this sort can spark a reconsideration of its position by the FDIC. Incidentally, responses that demonstrate that the FDIC has the legal authority to take every action
and every position that it has taken in professional liability matters are not really relevant.
What is relevant is an indication that FDIC actions constitute good public policy. Respect
for government is in short supply today. The IRS presents an example of how arbitrary
actions by an agency, even though consistent with its mission of collecting taxes, can go
too far, resulting in loss of public respect and, ultimately, adverse Congressional action.

Jack Ryan, Acting Executive Director of Supervision
Office of Thrift Supervision
It’s somehow fitting that I bring up the end here, having performed that function before.
I was listening earlier and heard all those bouquets being thrown at the RTC, but
Dr. Horvitz has brought us back to reality and it feels like we’ve been transported back
into 1994 and 1995.
I, for one, am pleased to talk about the RTC and the resolution process in the past
tense, not because it wasn’t a challenging and rewarding experience, it clearly was. And,
not because I didn’t have the opportunity to work with some very talented and dedicated people, because I did. But, mainly, because it is a whole lot more fun and interesting in hindsight than it was when the RTC was being criticized from every quarter.

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There are so many issues that should be addressed in a forum such as this, and I
have time to touch only on a few. I will try not to duplicate what has already been discussed concerning the various resolution techniques, some that worked and some that
didn’t. Instead, I will focus on the RTC as a resolution concept.
Although not entirely germane to the topic of this symposium, it is important to
put some of the issues in an historical perspective. In the early 1980s, the thrift industry
was caught in the fight against inflation with a portfolio of long-term fixed mortgages
financed with short-term interest sensitive funds. When market interest rates rose to historically high levels, operating losses in the S&L industry escalated, and failures threatened to wipe out the FSLIC Fund. Instead of facing up to the problem at that time, the
decision was made to prop up insolvent S&Ls through the use of regulatory forbearance
and let them grow out of the problem. The result was a much bigger problem that
threatened the economy.
The first lesson we should take away from this experience is perhaps the most difficult one in a political environment; i.e., admitting there is a problem for which existing
systems do not provide viable solutions. We did not do that. The other lesson learned is
that the solution has to be real and has to be fashioned in a way that does not double the
bet. We did not do that either and we paid the price.
In late 1988 and early 1989, when it became obvious that the financial crisis was
going to take extraordinary steps, the concept of the Resolution Trust Corporation was
announced. I must confess my initial reaction to the RTC part of that proposal was negative. It just didn’t make sense to take assets that were under active management by the
private sector and turn them over to government bureaucrats for disposition. This
seemed to be a sure way to maximize the loss and perpetuate the problem.
I suspect the RTC decision was made because of what was probably a false premise;
i.e., that the entire thrift industry was out of control and, therefore, a government solution was the only viable alternative. Except for a handful of rogue institutions, that simply was not the case. However, that decision was not unlike the one regulators make in
dealing with troubled institutions. Do they leave management that created the problem
in place because they are the most familiar with the assets and are therefore in the best
position to deal with them, or do they bring in fresh talent? For reasons of credibility
and honesty in the assessment of the problems, it is almost always preferable to opt for
new talent and a fresh approach. That was what was done when the RTC was created.
But, how did the RTC avoid the problems that are so often encountered when government agencies are created to deal with a short-term problem and, instead, grow and
perpetuate their mission? I don’t have a complete answer. Clearly, much of the credit
goes to the early management of the RTC and the oversight of Chairman Seidman, who
continually pushed for aggressive asset disposition goals. Much of the credit also goes to
a very dedicated and professional staff that kept focused on completing the task at hand.
The definite statutory sunset of the RTC, coupled with giving the FDIC responsibility
for resolving any remaining business, provided an added incentive to complete as much
of the work as possible.

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As everyone knows, there were no big incentive bonuses for staff and no pot of gold
at the end of the rainbow. As a matter of fact, many of the dedicated staff were working
hard to put themselves out of a job and the nation owes them a great deal of gratitude.
Finally, I believe that luck and the improving economy brought about by lower rates
and the improving real estate market, which in turn was brought about by the RTC’s
disposition of assets to the private sector, aided in the process. As I’m sure you’ve heard
here today, it was quite an accomplishment. In just six and a half years, the RTC took
possession of some 747 failed thrifts, paid off over $200 billion in insured deposits, and
sold over $400 billion in assets.
When I was preparing these remarks, I didn’t have access to the precise numbers,
but taxpayer costs for the RTC were in the neighborhood of $90 billion. The question
many have struggled with is whether that cost might have been lower if more of those
assets, clearly not all of them, had been left in private hands. Although we will never
know whether the cost would have been lower, the answer may well depend on how cost
is defined. It is my observation that the private sector tends to hold assets rather than
dispose of them at distressed prices, even when the economics of holding is unclear.
Their bias tends to tip more toward recovery rates than disposition goals. Moreover,
many of the institutions that would have been judged capable of managing those assets
were undercapitalized and were distorting the deposit markets by driving up the cost of
funds for both banks and thrifts.
I believe that if a significantly larger portion of the assets had been held by government propped up S&Ls, the overhang in the real estate markets would have been
extended over a longer period of time and the restoration of a healthy thrift industry
would have been delayed. By utilizing all the techniques reported here by the other panels, the RTC removed non-viable institutions from the market and disposed of their assets
at the then-prevailing market rates over a fairly short-time horizon. This helped create the
environment that led to the sustained period of economic growth that we now enjoy.
The topic of this panel also deals with the future. The RTC developed valuable resolution techniques and we have learned that these techniques have to be dynamic and
keep pace with the changing markets. These lessons should help deal with the inevitable
future financial crisis. I sincerely hope we have learned enough to avoid problems that
would require another RTC. The RTC model may not be the right one for every situation, but it was clearly the ideal one for dealing with the S&L crisis in the U.S.
Thank you very much.
Glassman: I would like to move to the question and answer period and I would like
to get started. If I can ask a question, with the rapid changes in the U.S. financial markets
and financial U.S. banking system and the role of the global economy, and especially the
role of technology in banks, what do you feel banking is going to look like as we get to
the new millennium, and what lessons that we have been describing will be able to be
applied to them? I’m thinking also of the fact that banks no longer have to have a brick
and mortar office anymore. They can just have a web site. How do we take those lessons
and apply them to the banks that we may see in the future?

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Horvitz: Banking will be different in the future and crises will be different in the
future. We never have the luxury of there being exactly the same crisis repeating itself the
next time around, so that in a sense, narrow lessons that are learned may not be applicable to the next crisis. I think the way John described the lessons that have been learned
have broad applicability. I have a high degree of confidence that the sort of skills that
have developed, the approaches that have been taken, and I think the help of the legislation pushing things into a recognition that minimizing cost is the key element, gives me
confidence that the next crisis, whether it is the year 2000 problem or some other kind
of crisis, that the FDIC is set up to be able to deal with it as well as to be expected.
Fiechter: Just to change your question a little bit, as you describe technology and
web sites, I have a view of a basement filled with computers with these blinking lights.
Yes, that would be a different type of institution. But, we also have another type of institution, which will also be a challenge—the too big to fail type. There are huge financial
organizations being formed in the market and should one of those be closed, it will pose
very different challenges than what was faced by the FDIC in the past. I don’t know
what the biggest liquidation by the FDIC ever was, but I don’t know how you find a
partner for a $250 billion bank. I suspect that Paul is right that there will be some new
challenges going forward should one of these mega-banks ever get into trouble.
Ryan: On the subject of too big to fail, I worked very closely on recapitalization of
Continental Illinois when it was in financial trouble. Since then there has been a lot of
debate about whether too big to fail is a doctrine to be followed in the United States,
given how it undercuts market discipline. I think that “fail” has to be defined. The
repercussions of shutting one of these big institutions down and risking the kind of disruptions that could occur in the markets around the world, is a risk that I don’t believe
policy makers are going to be willing to take. I would assume that wiping out the equity
holders’ interests and reconstituting the institution through the private sector or through
a combination of the private sector and the insurance funds in order to preserve the
marketplace, will be something that the policy makers will be driven to regardless of
whether they like it or not.
Horvitz: I think what it really means is too big to liquidate is clearly a correct comment for any of these very large institutions, even ones smaller than the mega banks. So,
too big to liquidate is clearly part of it. No institution is too big to have stockholders
wiped out and one of the parts of the progress that we’ve made as a result of the last
problem is that essentially depositor preference makes it pretty clear that depositors of a
mega bank really aren’t at risk almost no matter what happens.
John Stone: I have a question for Dr. Horvitz. My name is John Stone—I’m unemployed. Dr. Horvitz, I really appreciated your talk and understood much of what you
said of suits being wrongly brought, particularly those involving a director that wasn’t
even present when the loans were made. But one thing that did puzzle me and like yourself I’m not looking at this from a legalistic standpoint, but when a creditor of a normal
corporation, a non-bank corporation, makes a conscious financial decision with its own
due diligence and covenants to protect itself, what have you, I agree—directors of that

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corporation, their prime responsibility is in their stockholders’ interests, and that creditor has protected its interest. But, in a financial institution with depositors not as sophisticated and not having the same extent of information available to them, and because of
that putting their money into a corporation that has a much higher leverage ratio than a
standard corporation, I see a distinct difference, and I think case law said because of
that, there is a distinct difference that the directors do have an obligation to depositors
much higher than a director would in a non-bank corporation to the creditors. Unless I
missed something, is that your premise that they are the same regardless—there is no
distinction?
Horvitz: The point is well taken that a depositor in a bank doesn’t sit down and
negotiate a set of covenants on the operation of the bank prior to the bank accepting the
deposit. But, what we have is the regulators or the FDIC taking over that role for the
depositor and hence the FDIC is protecting the depositor in doing what a creditor
would in a normal situation. Given that, I would say that a director of a bank—and
again I’m not opining on what the law is—I’m saying what I think public policy and
efficient economics would be—if directors were concerned with a fiduciary duty to
stockholders and an obligation obviously to obey the rules and regulations of the regulators. That takes care of the creditor obligation as I see it.
Don McKinley: Looking at the past resolution strategies that we’ve deployed—forbearance assistance, government intervention in a failed bank by taking over the assets
and paying off depositors, and then taking a look at the year 2000 situation, not the
large mega-banks but the community banks, and the possibility of those type of technological insolvencies or where a regulator finds that the banks are substantially in unsafe,
unsound condition—does the panel have any assessment of what the role of the government ought to be in addressing those types of smaller bank insolvencies, or near insolvencies in terms of resolution strategies? I’m curious as to what that might be.
Ryan: I guess I drew the short straw here. There really isn’t any clear answer. We’re
not really talking in most cases about an insolvency because of the year 2000. We’re talking about the inability to conduct business. The issue about whether an institution can
be taken over under those circumstances is one that I understand is being researched.
But, it would seem to me that if you are a depositor in an institution and you cannot get
access to your funds because of the inability of that institution to transact business
because of a computer failure and there isn’t any opportunity for them to correct that
problem over any reasonable period of time, that the FDIC would probably step in and
pay off, as it were, the depositors to make them liquid, and then take control of the
assets—I would think.
Kolatch: I would like to ask Jack Ryan, as the person who headed the RTC for its
final two years, what is your reaction to the claim by Paul Horvitz that it often filed professional liability suits indiscriminately?
Ryan: It seems to me that first of all, I have to look back on many of these suits and
recognize that I came from a regulatory role at the OTS. I can tell you that many of the
boards of directors of these institutions did not exercise what I would regard as even a

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low level of meeting their fiduciary responsibility to the institutions. Many of them were
simply rubber stamping everything that management brought to them. I don’t think
that is the kind of board of directors that we want to see in an institution and to the
degree that the suits that were brought by the RTC heightened the directors’ awareness
that they have a responsibility at least to ask reasonable questions and make sure they get
a reasonable amount of information in order to fulfill their role as a director, that is a salutary thing in a number of ways. Clearly there are some directors who were sued who
maybe shouldn’t have been. I don’t doubt that for a minute. But, I think we tried, with
the information we had at hand, to deal with those people as fairly as we could.
Horvitz: I don’t think that people were sued who did a good job as directors. That is
not the point I was making. I think most of the people who were sued did fail to do
their duty in one sense or another. The problem, however, is their failure was not really
what was responsible for the losses and I think it is unreasonable as a civil suit matter to
sue people for losses that were not due to their actions or inactions.
Bill Kroener: Just to add some statistics here—I’m Bill Kroener, General Counsel of
the FDIC. We did have occasion to look at the professional liability programs pretty
hard, particularly after RTC sunset, and we and the RTC both investigate every instance
of a bank failure. Looking at the historical record, we end up at the FDIC bringing suits
against either the directors or professionals in approximately 20 percent of the bank failures. The comparable RTC numbers were 40 percent. So there were differences. That
may have to do with different policies. It may have to do with different behaviors of
directors in the two types of institutions. But, I do think one of the things that is arising
out of our experience, hopefully for everyone, is that a directorship of a financial institution is not an honorary position from which someone can do nothing. It requires care
and attention. But, one of the important things that certainly former Chairman Helfer
and I have been speaking out on is that it’s very important that financial institutions do
have careful, thoughtful directors, and it would be a disservice I think to financial institutions to leave the impression that serving as a director of an insured institution is per
se “risky,” because I don’t believe the statistics bear that out and going forward it is very
important to have high-quality directors.
Glassman: Okay. With that I would like to thank our panelists for the discussion
and for the insight. And, in conclusion, I would like to ask John Bovenzi if he would
come up and officially end our symposium. Thank you very much.

Closing Remarks
John Bovenzi, Director
Division of Resolutions and Receiverships, FDIC
The comments I’ve received from you over the past day and a half have indicated to me
that this has been time well spent. I certainly believe that. I would like to thank our
panelists in particular for making the program a success. I think it’s been interesting and

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informative. The panelists have covered a wide range of issues and they’ve certainly
given those of us at the FDIC food for thought as we go forward.
I would like to thank all of you as participants for your questions and your interaction over the last day and a half in helping make this a successful conference.
Finally, I would be neglecting my duties if I didn’t mention one other group. Just as
one of the objectives in managing a bank failure is to try to make it a non-event for the
public, one of the objectives in managing a conference is trying to make things as convenient as possible for all of you so you can sit back and enjoy it. To the extent that has
been done and I certainly believe it has been, I’d like to thank in particular Stan Ivie for
coordinating the group that has managed the conference, and also Mike Spaid, Jim Gallagher, Bill Phipps, Shelby Heyn-Rigg, Ann Gay and Francine Gage. Also, I don’t know
all the names of everyone from our Division of Information Resource Management
who’ve been providing the technical support. I understand that the video conferencing
and the telecasting have gone very well. I would like to thank all of them as well.
So, if we could end by giving that group a hand, thank you.

AP P E N D I X A

Biographies

Hubert Bell, Jr.
Mr. Bell graduated with honors from the University of Houston in 1978, earning a
Bachelor of Arts in Accounting. While attending the University of Houston, Mr. Bell
was an academic scholarship recipient; a regular on the Dean’s List; and a member of the
following honor societies: Beta Gamma Sigma, Phi Kappa Phi, and Phi Theta Kappa.
Following graduation, he successfully completed the Certified Public Accountants
Examination and accepted a position with the accounting firm of Arthur Andersen &
Co., where he became senior auditor.
Mr. Bell subsequently left the firm to attend the University of Texas School of Law
and earned his Juris Doctor in 1983. Since graduation from law school, Mr. Bell has
worked for the Texas Railroad Commission and the Texas Banking Department. At the
Texas Banking Department, he was directly involved in various banking issues including
administrative enforcement actions, bank chartering, determining permissible bank
activities, bank closings and administrative hearings, including appeals to district appellate courts.
In late 1988, he established a general civil practice in Austin that is primarily
engaged in general business and corporate representation, civil litigation, banking, bankruptcy, commercial and real estate transactions, and director and officer liability matters.
He has handled claims exceeding $20 million.
In 1983, Mr. Bell was nominated by the Governor and confirmed by the Texas Senate to serve on the Finance Commission of Texas.
Mr. Bell has written articles on various legal issues and has spoken at seminars sponsored by the University of Texas Law School, Texas Association of Bank Counsel, American Institute of Banking, and the South Texas College of Law. Mr. Bell is a member of
the bar of the State of Texas and is admitted to practice in Federal Court in the Western
and Southern Districts of Texas. He is a member of the Committee on Admissions of

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the Supreme Court of Texas, Board of Law Examiners, and the College of the State Bar
of Texas.
He is also a member of various professional organizations including the Corporation, Banking and Business Law Section of the State Bar; the American Institute of Certified Public Accountants; Texas Association of Black Counsel; Austin Black Lawyers
Association; and others.

Arne Berggren
Arne Berggren is President of Eusticon AB, and is a financial and strategic consulting
advisor for the banking authorities in several Asian and European countries, and for several large financial institutions within his native Sweden. Mr. Berggren is an advisor in
the area of systemic bank restructuring for the Monetary and Exchange Affairs Department of the International Monetary Fund. As an advisor to The World Bank, Mr. Berggren has also participated in a number of missions to Korea, Thailand, Brazil, Mexico,
Lithuania, Russia, Turkey, Bangladesh, the Philippines and Azerbaijan.
While with the Swedish Ministry of Finance (from 1989 to 1993), Mr. Berggren
was the special advisor in the area of financial institutions and markets, as well as the inhouse investment banker, and was involved in all measures undertaken by the Government to strengthen the Swedish banking system. Mr. Berggren developed the strategy
and processes for evaluating the condition of Swedish banks and managed the teams of
investment bankers and advisors who were engaged for this project. Mr. Berggren was
personally involved with the restructuring of Nordbanken and the creation of the asset
management companies of Securum AB and Retriva AB.
While with the Swedish Bank Support Authority (from 1993 to 1995), Mr. Berggren negotiated the sale and/or the financial support packages for problem Swedish
banks and also established their in-house workout organization.
Mr. Berggren is also on the Board of Directors for the venture capital company of
EntreTech Capital Partners AB.

John F. Bovenzi
John F. Bovenzi is the Director of the Division of Resolutions and Receiverships at the
Federal Deposit Insurance Corporation. In this position, he oversees the FDIC’s bank
and savings and loan closing and receivership management activities. These responsibilities include making payments to insured depositors and disposing of the failed institution’s assets. He was appointed to this position in November of 1992 by then-Acting
Chairman, Andrew C. “Skip” Hove, Jr.
From 1989 through most of 1992, Mr. Bovenzi served as the Deputy to the Chairman. In that position, he served as an advisor primarily to Chairmen William Seidman

BIOGRAPHIES

and the late William Taylor. Mr. Bovenzi assisted them in administrating and implementing day-to-day operations of the FDIC and the Resolution Trust Corporation.
Prior to this appointment, Mr. Bovenzi served for two years as Deputy Director of the
FDIC’s Division of Research and Statistics. Before that, he was Special Assistant to an
FDIC Director, the late C.C. Hope, Jr. Mr. Bovenzi joined the FDIC in 1981 as a
financial economist.
Mr. Bovenzi has written and published a number of articles regarding various banking issues, and has given numerous Congressional testimonies regarding the FDIC’s
activities. Mr. Bovenzi holds a B.A. degree in economics from the University of Massachusetts and MA and Ph.D. degrees in economics from Clark University.

David Cooke
Mr. Cooke is widely recognized within the international financial community as an
expert in bank regulation. Before joining Barents as a Director in its Financial Sector
Regulatory Practice, he served as an advisor to USAID, the U.S. Treasury Department,
The World Bank, and the International Monetary Fund. He has worked with banking
systems in the U.S., Central and Eastern Europe, and Latin America. His varied assignments have included advising central banks on problem bank resolution, deposit insurance, asset disposition strategies, bank diagnostics, and financial supervision.
From 1992 to 1995, Mr. Cooke served as President of the Commercial Mortgage
Asset Corporation (COMMAC), a company specializing in the securitization of commercial real estate loans originated by commercial banks and other financial institutions.
From 1989 to 1992, Mr. Cooke served as Executive Director of the Resolution Trust
Corporation with responsibility for the agency’s organization, staffing, and operation.
Mr. Cooke oversaw the RTC’s takeover of nearly 700 financial institutions and the development of innovative initiatives for managing and disposing of $400 billion in assets.
From 1986 to 1989, Mr. Cooke worked for Chairman L. William Seidman of the
Federal Deposit Insurance Corporation, rising to the position of Deputy—serving as
senior policy advisor and directing key management committees.
Earlier, Mr. Cooke served the FDIC in a number of capacities, such as Senior Bank
Examiner and Chief Bank Analyst responsible for developing and implementing off-site
surveillance programs used to monitor all insured banks. He has held senior policy positions responsible for supervisory and corporate policies including positions on riskbased deposit insurance and other deposit reform issues. During the early 1980s he
advised the FDIC Chairman on emerging developments in the thrift industry and failure resolution programs.
Mr. Cooke has also served as an adjunct professor specializing in finance and real
estate at a number of internationally recognized universities.
Mr. Cooke has a B.S. in business from the University of Maryland and an M.B.A.
from George Washington University.

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Jonathan Lee Fiechter
Jonathan Lee Fiechter is the Director, Special Financial Operations for The World Bank.
Prior to this position, he was the Director of the Financial Sector Development Department of The World Bank. That Department provided policy advice and technical assistance to client countries seeking to strengthen their financial sectors. Mr. Fiechter joined
the World Bank from the Office of Thrift Supervision. While at OTS, Mr. Fiechter held
a series of progressively responsible positions, including serving as head of the agency
from 1992 to 1996.
Mr. Fiechter began his professional career at the U.S. Department of Treasury as an
international economist in 1972. In 1978, he joined the Office of the Comptroller of
the Currency, the U.S. Agency responsible for supervising national banks, where he was
Deputy Comptroller for Economic Research. Mr. Fiechter has also served as a Director
of the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, and
the Neighborhood Reinvestment Corporation, and as Chairman of the Federal Financial Institutions Examination Council.

Mitchell L. Glassman
Mitchell L. Glassman began his career in banking in 1973. He came to the FDIC in
1975 as a Liquidator-at-Large and was assigned to the Deposit National Bank in Kansas
City, Missouri. He later served as a field liquidator of numerous failed banks in Illinois
and Wisconsin. In 1978, Mr. Glassman returned to Kansas City as Assistant Liquidator
at the Swope Parkway National Bank, Kansas City, Missouri. He served in a similar
capacity at the United States National Bank in San Diego, California, the largest bank to
have failed during the period. In 1982, he was then assigned to Tampa, Florida as the
Liquidator-in-Charge of a large and complex real estate portfolio at the former Metropolitan Bank and Trust Company. In 1983, when the Division of Liquidation decentralized and established six regional offices, Mr. Glassman moved to Dallas, Texas to help
establish the new Dallas Regional Office, and served as Senior Liquidation Specialist
(Commercial Loans).
In 1984, he was named Deputy Regional Director of the Dallas Region. He also
served as the Managing Liquidator for the $1.2 billion First National Bank of Midland,
Texas. In 1985, Mr. Glassman moved to Kansas City, Missouri to help establish the new
Kansas City Regional Office. He has overseen the closing and liquidation of over 250
commercial bank failures nationwide and the closing of the $1.2 billion Federal Land
Bank of Jackson, Mississippi.
In February 1989 Mr. Glassman accepted the newly created position of Associate
Director for the Assistance Transactions Branch of the Division of Liquidation. Mr. Glassman also served as the Chairman of the NCNB Texas Bank One Oversight Committees.

BIOGRAPHIES

These committees administered over $14 billion in assets. Mr. Glassman administered and
negotiated all Division of Liquidation Service Agreements nationwide.
In January 1993, Mr. Glassman became the new Deputy Director of the Division of
Liquidation. He currently serves as Deputy Director (Operations) of the Division of
Resolutions and Receiverships. Mr. Glassman holds a BBA from the University of Missouri at Kansas City and is a graduate of The Stonier Graduate School of Banking at
Delaware University, Newark, Delaware.

Robert H. Hartheimer
Bob Hartheimer joined Friedman Billings Ramsey Group, Inc. (FBR) in January 1996
as a Managing Director of Investment Banking. Mr. Hartheimer is a senior member of
the firm’s Financial Services group calling on banks, thrifts and specialty finance companies and at the same time is responsible for the initial public offerings for Styling Technologies Corporation and Credit Management Solutions, Inc.
Prior to joining FBR, Mr. Hartheimer served as Director, Deputy and Associate
Director of the Division of Resolutions at the Federal Deposit Insurance Corporation,
Washington D.C. As Director of the 300-person Division of Resolutions, Mr. Hartheimer was responsible for the sale of all failing banking institutions, renegotiations of
FSLIC assistance agreements and the sale of capital instruments held by the FDIC and
FSLIC. During his four years at the agency, Mr. Hartheimer was responsible for the sale
of over 200 failed banks aggregating $58 billion in assets. During his tenure, the FDIC
took over and managed five banking institutions. Mr. Hartheimer was responsible for
hiring new CEOs of these institutions overseeing the bank’s restructuring and selling
them to the public. Innovative transactions by the FDIC such as the $332 million public offering of Crossland Federal Bank and the breakup and record sale of 20 First City
Banks were directed and initiated by Mr. Hartheimer.
For the nine years prior to the FDIC, Mr. Hartheimer was an investment banker
specializing in financial institutions at both Smith Barney & Co. Inc. and Merrill Lynch
& Co. Inc. During this period of time, Mr. Hartheimer worked with virtually every type
of financial institution on a wide variety of transactions including mergers, public offerings, mortgage securities and credit card receivable sales.
Mr. Hartheimer has a B.A. from Hamilton College and an M.B.A. from the Wharton Business School at the University of Pennsylvania.

John G. Heimann
John G. Heimann is Chairman of Global Financial Institutions for Merrill Lynch &
Co., Inc., with senior responsibility for financial institutions worldwide. He is also a
member of the firm's Office of the Chairman and Executive Management Committee.

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Mr. Heimann, who came to Merrill Lynch in 1984 as Vice Chairman of Merrill
Lynch Capital Markets, served from 1988 to 1990 as Chairman of the Executive Committee for Merrill Lynch Europe/Middle East and, from 1991 to present, as Chairman
of Global Financial Institutions.
Mr. Heimann began his career at Smith Barney & Co. in 1956. He joined E.M.
Warburg Pincus & Co. in 1967 as Senior Vice President and Director. In 1975, he
served as Superintendent of Banks for the State of New York, and the following year
held the position of Commissioner for the New York State Division of Housing and
Community Renewal. While serving as U.S. Comptroller of the Currency from 1977 to
1981, he was also a member of the Board of Directors at the Federal Deposit Insurance
Corporation and the Federal National Mortgage Association, as well as Chairman of the
Federal Financial Institutions Examination Council. He then served as Chairman of the
Executive Committee at Warburg, Paribas Becker before being named Deputy Chairman for Becker Paribas Incorporated in 1982.
Mr. Heimann serves as Director to Merrill Lynch National Financial and Merrill
Lynch Capital Markets Bank Limited, and as Chairman of Merrill Lynch International
Bank. He is Chairman of the Financial Services Council, and a Vice Chairman of the
Board of Trustees of the National Policy Association. He is also a Member and Treasurer
of the group of Thirty; Member of the Board and Executive Committee of the Institute of
International Finance; Member of the Advisory Committee of the Toronto International
Leadership Centre for Financial Sector Supervision; and a Trustee of Hampshire College.
He is co-Chairman of the British-North American Committee, a Member of the
International Capital Markets Advisory Committee for the Federal Reserve Bank of
New York, and the Council of Foreign Relations. He also belongs to the Citizens Committee for New York City, New York City Housing Partnership. He is a Director of The
American Ditchley Foundation.
Mr. Heimann served as Chairman of New York State’s Committee on Transnational
Banking Institutions; Chairman of New York State’s Executive Advisory Commission on
Insurance Industry Regulation Reform; Special Advisor to the Governor on Temporary
Commission on Banking, Insurance, and Financial Reform; and a Member of the Yale
School of Management Advisory Panel on the Financial Services for 1988.
Mr. Heimann was named “Housing Man of the Year” by the National Housing
Conference in 1976. He was a distinguished Lecturer for Columbia University’s School
of Internal Affairs in 1979, also having received the Chancellor Medal from Syracuse
University the year prior. The Bank Administration Institute honored him with a key
for distinguished service in 1980, and he received the Alexander Hamilton Award from
the Department of the Treasury the following year. In 1986, he accepted the Brotherhood Award from the National Conference of Christians & Jews and the Pacesetter
Award from the National Association of Bank Women, Inc.
Mr. Heimann graduated from Syracuse University in 1950 with a B.A. in Economics. In 1979, he received a Doctor of Laws from St. Michael’s College in Vermont.

BIOGRAPHIES

Paul Horvitz
Paul Horvitz has been Professor of Banking and Finance at the University of Houston
since 1977.
He received a B.A. degree from the University of Chicago, an M.B.A. degree from
Boston University, and in 1958 he received the Ph.D. in Economics from M.I.T.
Dr. Horvitz was a Financial Economist at the Federal Reserve Bank of Boston from
1957 to 1960, Assistant Professor of Finance at Boston University from 1960 to 1962,
and Senior Economist and Associate Director of Research at the Office of the Comptroller of the Currency from 1963 to 1966. In 1967, he joined the FDIC as Assistant
Director of Research, becoming Director of Research in 1969, and Deputy to the Chairman for Policy in 1976.
Dr. Horvitz has authored or edited several books and numerous articles on banking
and finance in professional and trade journals. He is currently a co-editor of the Journal
of Financial Services Research. He has been a consultant to several government agencies
and a number of financial institutions and trade associations, and has been an expert
witness in litigation between financial institutions and government agencies. From 1983
to 1989 he was a Public Interest Director of the Federal Home Loan Bank of Dallas. Dr.
Horvitz was a charter member, and remains a member of the Shadow Financial Regulatory Committee. He was a Director of Pulse EFT Association from 1990 to 1996, and is
currently a Director of Bank United.

Doyle Mitchell
B. Doyle Mitchell is President of Industrial Bank, N.A., the second largest minorityowned commercial bank and the third largest minority financial institution in the country, according to the June 1996 issue of Black Enterprise. Under his leadership, the bank
formed a bank holding company, IBW Financial Corporation, to facilitate expansion
into Prince George’s County, Maryland. He was also recognized by then Secretary of
Treasury, Lloyd Bentsen, as a pioneer in the banking industry at the signing of the Interstate Banking Bill that was enacted in September 1994.
Mr. Mitchell was born and raised in the banking community of Washington, D.C.
that his grandfather and father helped to create. At the age of 16, he began working
summers in the bookkeeping department of the bank. In 1980, he enrolled in Rutgers
University in New Brunswick, NJ., continuing his summer employment at the bank
during his undergraduate years. He received a B.S. in Economics with a concentration
in Finance and Accounting, and began a full-time career at Industrial, working in the
accounting, loan, audit, and operations departments of the bank. During this period, he
also earned his Retail Banking Diploma from the American Institute of Banking and
completed the Business of Banking School sponsored by the American Bankers Association. By 1989, he was appointed Assistant Vice President, Commercial Loans, and was

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named to the Board of Directors in 1990. Mr. Mitchell became Vice President in 1991,
and succeeded his father as president in 1993. He is a Certified Financial Planner.
Like his grandfather and father, Mr. Mitchell has a clear direction for the bank. As
the District customers began to move to the Maryland suburbs, the bank needed to follow. Mr. Mitchell took advantage of a Resolution Trust Corporation opportunity and
purchased two bank branches in Prince George’s County.
Mr. Mitchell serves on the Board of Directors of the Luke C. Moore Academy, the
Neighborhood Economic Development Corp., the MAAT Center for Human Development, the District of Columbia Chamber of Commerce, the D.C. Water and Sewer
Authority, Bowie State Board of Visitors, and American Institute of Banking. He also
sits on the Montgomery County/Prince George’s County CEO Round Table of the
Greater Washington Board of Trade, and is a member of the National Coalition of
Minority Business. He also serves on the Board and is President of the U Street Theatre
Foundation (Lincoln Theater).

James Montgomery
James F. Montgomery is past Chairman and Chief Executive of Great Western Financial
Corporation and its principal subsidiary, Great Western Bank, a Federal Savings Bank.
He was elected a Director and President of the company in 1975, Chief Executive in
1979 and Chairman of the Board of Directors in 1981.
Named “Outstanding Chief Executive Officer” in the savings and loan industry for
six years by The Wall Street Transcript, Mr. Montgomery is a widely recognized leader in
the financial services business.
Mr. Montgomery’s experience in the financial services industry spans nearly 40
years. He began his business career in 1957 with the accounting firm of Price Waterhouse and Company in Los Angeles. In 1960, he joined Great Western as Assistant to
the President before leaving the company in 1964 to serve as Director and President of
United Financial Corporation and its subsidiary, Citizens Savings and Loan Association.
Mr. Montgomery rejoined Great Western in 1975 as President.
Mr. Montgomery is a Director of the Federal Home Loan Mortgage Corporation,
known as Freddie Mac, one of the nation’s largest purchasers of home mortgages in the
secondary market. A stockholder-owned corporation chartered by Congress, Freddie
Mac helps maintain a continuous flow of funds to mortgage lenders in support of home
ownership and rental housing.
Mr. Montgomery served as Chairman of the America’s Community Bankers of
America, the national trade association for savings institutions, in 1996. He is a past
Director of the California Chamber of Commerce and a former advisor to the Federal
Reserve System in Washington, D.C.
Mr. Montgomery served many terms as a Director of the Federal Home Loan Bank
of San Francisco. Strongly committed to civic affairs, Mr. Montgomery served as a

BIOGRAPHIES

Director of the Neighborhood Housing Services of America and the Local Initiative Support Corporation, a nationwide, non-profit organization that helps finance the construction or renovation of rental housing for low-income families. In addition, he was named
the first recipient of the John Wayne Cancer Clinic’s “Duke Award” for his outstanding
service in the fight against cancer and his humanitarian service to the community.
Mr. Montgomery earned a bachelor’s degree in accounting from the University of
California, Los Angeles.

Joseph H. Neely
Joseph H. Neely became a Member of the Board of Directors of the Federal Deposit
Insurance Corporation on January 29, 1996.
A native of Grenada, Mississippi, Joe Neely attended University of Southern Mississippi where he attained a Bachelor of Science degree in Business Administration, majoring in Finance. He continued his studies as a Graduate Fellow of the University of
Southern Mississippi and earned a Masters of Business Administration degree.
Upon graduation, Neely served for two years as an instructor of Accounting and
Economics at Hinds Community College in Raymond, Mississippi. He began his banking career in 1977 with the Grenada Sunburst Banking System, serving in the lending
area of the bank. In 1980, he joined the Merchants National Bank of Vicksburg where
he served as Senior Vice President. In April 1992, Governor Kirk Fordice appointed Mr.
Neely Commissioner of the Department of Banking and Consumer Finance for the
State of Mississippi. In July 1995, President Clinton appointed Mr. Neely to the FDIC
Board of Directors. After confirmation by the United States Senate in December 1995,
Mr. Neely was sworn in as a Director in January 1996.
Mr. Neely is a graduate of the American Bankers Association’s Stonier Graduate
School of Banking, the School of Bank Marketing, and the School of Bank Management and Strategic Planning. He has lectured at the Stonier Graduate School of Banking, the Graduate School of Banking at Louisiana State University, and the Alabama and
Mississippi Schools of Banking. In addition, Mr. Neely regularly addresses banking
groups and associations throughout the country on a variety of current industry issues.
Mr. Neely has served in numerous civic leadership positions and has been active in
community affairs throughout his career.

Gail Patelunas
Ms. Patelunas joined the FDIC in 1990 to work on resolving failed financial institutions. One of the initial members of the Division of Resolutions, she gained increasing
responsibility and became Acting Director for the year prior to its merger with the Division of Depositor and Asset Services in December 1996. Gail is currently a Deputy Director of asset management in the succeeding Division of Resolutions and Receiverships.

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Prior to joining the FDIC, Ms. Patelunas worked as a Financial Analyst with the
Board of Governors of the Federal Reserve, Division of Banking Supervision and Regulation. Ms. Patelunas was also a Bank Stock Analyst for Kidder Peabody and a Senior
Manager in KPMG Peat Marwick’s bank-consulting group.
Ms. Patelunas has a B.S. in business administration from Rochester Institute of
Technology and an M.B.A. from the University of Maryland, graduated from the Stonier Graduate School of Banking and is a Chartered Financial Analyst.

Diana Reid
Diana W. Reid is a Managing Director-Senior Advisor of Credit Suisse First Boston, an
international corporate and investment banking firm. Ms. Reid currently raises private
placement debt and equity focusing on real estate and mortgage assets, companies or
funds including recent innovative structures of catastrophic risk bonds, collateralized
loan bonds, and unrated commercial mortgage-backed securities. Prior to her move to
the Investment Banking Department in 1996, Ms. Reid managed the firm’s real estate
capital markets, sales and trading activities. She was named a Managing Director in February 1994.
Ms. Reid joined The First Boston Corporation in 1983 as a Vice President in mortgage trading, responsible for coverage of mortgage originators. She traded rated conventional mortgages from 1988 to 1991, forming the mortgage capital markets desk to
structure and price new issue offerings of conventional mortgage loans, home equity
loans and manufactured housing contracts.
Ms. Reid is a member of the Commercial Real Estate Finance division of the Mortgage Bankers Association and a member of the Executive Board of the Commercial Real
Estate Securitization Association (CSSA). Ms. Reid received her B.S. from California
State University in 1975 and her M.B.A. from the University of Virginia in 1980.

William H. Roelle
Bill Roelle joined General Electric Capital Corporation in 1996. He is the Managing
Director, Business Development, Office of Executive Vice President for General Electric
Capital Corporation.
Prior to joining G.E. Capital Corporation, Mr. Roelle was the Advisor to the Minister of Finance (Poland). In this capacity, he advised the Minister of Finance on Bank
Privatization and related issues.
Between 1969 and 1995, Mr. Roelle held various executive positions with the Federal Deposit Insurance Corporation and the Resolution Trust Corporation. Among
them, Deputy to the Director of the Federal Deposit Insurance Corporation wherein he
served as an Advisor to the Board of Directors. Senior Vice President and Chief Financial

BIOGRAPHIES

Officer, Resolution Trust Corporation, responsibilities included but were not limited to:
Chairman of the Executive Committee, Director of Resolutions and Operations, Corporate and Field Accounting, Information Resource Management. As of December 31,
1993, the RTC had assumed control of 743 institutions with assets of $450 billion and
had resolved 680 institutions with assets of $390 billion. Earlier in his career with the
FDIC, he was the Associate Director, Division of Bank Supervision, wherein he was
responsible for failing bank sales and assistance transactions, including assisted mergers.
Mr. Roelle served in the United States Marine Corps for four years and is a graduate
of the University of Maryland and holds a B.A. in Economics.

Thomas A. Rose
Thomas A. Rose was selected as the Division of Resolutions and Receiverships’ Senior
Deputy Director in July 1996. In that capacity, he oversees the general operation of the
Division. Mr. Rose joined the Division from the Legal Division, where he served as
Deputy General Counsel for the FDIC’s Liquidation Branch since 1985. As Deputy
General Counsel for the Liquidation Branch, Mr. Rose worked closely with the Division
and developed national policies relating to closed bank and thrift legal operations.
Mr. Rose began his career with the FDIC in October 1982 and held the positions of
Senior Attorney, Counsel, and Assistant General Counsel prior to his appointment as
Deputy General Counsel for the Liquidation Branch. Prior to his career with the FDIC,
Mr. Rose worked for the Department of Commerce, the Small Business Administration,
and a private law firm, Rengier, Musser & Stengel.
Mr. Rose completed his undergraduate studies in political science at Villanova University in 1970, and obtained a law degree from the Villanova University School of Law
in 1973.

John E. (Jack) Ryan
John E. (Jack) Ryan is Regional Director of the Office of Thrift Supervision – Southeast
Region. As the region’s highest ranking federal thrift regulatory official, he is responsible
for the examination, supervision and regulation of the savings and loan industry in the
District of Columbia, Maryland, Virginia, North Carolina, Florida, Georgia, Alabama,
Puerto Rico and the Virgin Islands.
During 1994 and 1995, Mr. Ryan was on leave of absence from the OTS and served
as the Acting CEO of the Resolution Trust Corporation.
Before being appointed Regional Director, Mr. Ryan served as Senior Executive Vice
President and Chief Regulatory Officer of the Federal Home Loan Bank of Boston. He
also served as its Acting President for a period of seven months in 1989. Mr. Ryan spent
25 years as a commercial bank and bank holding company regulator for the Federal

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Reserve System. For eight years, Mr. Ryan served as Director of the Division of Banking
Supervision and Regulation for the Federal Reserve Board in Washington, D.C., reporting directly to the Board during the terms of Chairmen Burns, Miller and Volcker.
The Southeast region (Atlanta Regional Office) of the OTS is responsible for 265
thrift institutions with aggregate total assets of more than $61 billion.

Theodore J. (Ted) Samuel
Ted Samuel has more than 25 years experience in the financial services and real estate
industries. This experience has spanned several institutions, geographic areas and functional responsibilities. At the current time, Mr. Samuel is managing a personal investment corporation engaged in real estate and loan venture capital. Prior to that activity, he
was Chairman and Chief Executive Officer of both Niagara Portfolio Management Corporation and Niagara Asset Corporation. These entities are subsidiaries of Key Bank of
New York and were solely engaged in the management of the residual assets of the
former Goldome Bank. The management of these assets was under contract with the
FDIC. The Niagara Companies liquidated substantially all of Goldome’s assets totaling
more than $2 billion. Mr. Samuel was formerly with NationsBank, where he was Executive Vice President in the Special Asset Bank. This group handled the First Republic
Bank asset liquidation agreement for the FDIC, and Mr. Samuel was responsible for a
real estate loan workout portfolio exceeding $3 billion. This was the first large asset liquidation contract developed by the FDIC for use in failed bank situations. Mr. Samuel also
assisted the Resolution Trust Corporation in pooled sales and collection activities.
Prior to these responsibilities, Mr. Samuel presided over TJS Advisory Corporation,
a firm focused on bank building leasing and sales; served as head of real estate loan
underwriting for NationsBank; headed the real estate credit group for Mellon Bank; and
worked with a financial conglomerate serving in mortgage banking, lending, venture
capital and loan workout roles. He was also the treasurer of a workout NYSE REIT during the 1974 real estate recession. Mr. Samuel holds a B.S.B.A. and an M.A. in Finance
and Real Estate from Ohio State University.

H. Jay Sarles
H. Jay Sarles is Vice Chairman and Chief Administrative Officer of Fleet Financial
Group. He is responsible for strategic planning and acquisitions, Fleet’s administrative
functions, and the financial services line of business including Fleet Equity Partners,
Fleet Mortgage, and Fleet’s credit card operations. In addition to serving as Vice Chairman and Chief Administrative Officer for Fleet Financial Group, Sarles also is chairman
of Fleet Bank, N.A. and chairs Fleet Financial Group’s Diversity Council. He reports to
Terrence Murray, Chairman and Chief Executive Officer.

BIOGRAPHIES

Since joining Fleet in 1968, Mr. Sarles has held a variety of positions. He oversaw
the company’s commercial real estate business in the 1970s. In 1980, Mr. Sarles was
named Vice President of Fleet Financial Group and in 1986 was promoted to Executive
Vice President. In 1991, he was appointed President and Chief Executive Officer of
Fleet Banking Group, parent company of the former Bank of New England units in
Massachusetts and Connecticut. He was named a Vice Chairman of Fleet Financial
Group in 1993.
Active in several philanthropic and professional endeavors, Mr. Sarles is currently
Chairman of the Metropolitan Boston Housing Partnership and a member of the Board
of Trustees of Lifespan, a Providence-based health care system.
Mr. Sarles received his B.A. degree from Amherst College in Massachusetts and
attended the Program for Management Development at Harvard Business School.

L. William Seidman
L. William Seidman is the Chief Commentator on cable network’s CNBC-TV and publisher of Bank Director magazine. He has consulted with numerous organizations,
including the Deposit Corporation of Japan, Tiger Management, J.P. Morgan, Inc., The
World Bank, BDO Seidman, and The Capital Group, and is currently a member of the
Board of Directors of Fiserv, Inc. and Intelidata, Inc. Prior to that, he served as the 14th
Chairman of the Federal Deposit Insurance Corporation from 1985 to 1991. He
became the first Chairman of the Resolution Trust Corporation in 1989 and served in
that capacity until 1991. While at the RTC, he supervised the creation of an 8,000 person agency handling over $500 billion in assets from failed savings and loans.
At the time of his presidential appointment, he was completing his third year as
Dean of the College of Business at Arizona State University, Tempe, Arizona, one of
America’s largest business colleges. When he left, the Seidman Institute of Research was
created in his honor.
While in Arizona, he was Chairman of the Governor’s Commission on Interstate
Banking and wrote a business column for the Phoenix Gazette.
Mr. Seidman served on the White House staff of President Gerald Ford as Assistant
for Economic Affairs from 1974 to 1977. In this role, he helped to develop a series of
proposals in deregulation of transportation and other industries. He served President
Reagan as co-chair of the White House Conference on Productivity in 1983 and 1984.
On the business side of his career, Mr. Seidman was Vice-Chairman and Chief
Financial Officer of the Phelps Dodge Corporation from 1977 to 1982. He was Director
of Phelps Dodge Corporation, The Conference Board and United Bancorp of Arizona.
In the 1960s he founded Sumercom, a TV, radio and newspaper company, where he
was CEO until 1974 when the company was sold.
Mr. Seidman was managing partner of Seidman and Seidman, Certified Public
Accountants (now BDO Seidman) from 1968 to 1974. Under his stewardship, the firm

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expanded from a small family enterprise to become one of the 10th largest public
accounting firms in the nation. Mr. Seidman also served as Chairman (1970) and Director of the Detroit Bank of the Federal Reserve Bank of Chicago from 1966 to 1970.
As an educator, he is known as the father of Grand Valley State University, Allendale, Michigan. Grand Valley State is a state university which has grown to 15,000 students. He is also the founder of The Washington Campus, a consortium of major
universities teaching in Washington, D.C.
Mr. Seidman is the author of two books: Productivity: The American Advantage
(with Steven L. Shancke), Simon & Schuster, 1989, and Full Faith and Credit, Random
House, 1993.
Mr. Seidman holds an A.B. from Dartmouth (Phi Beta Kappa), and LL.B from
Harvard Law School, and is an honors graduate with an M.B.A. from the University of
Michigan. He served in the United States Navy from 1942 to 1946, earning battle stars
and the Bronze Star Medal on a destroyer in the Pacific Ocean.

Stanley C. Silverberg
Stanley Silverberg has been an independent consultant since 1987, when he retired from
the FDIC. Much of his early consulting activity dealt with failing bank and thrift institutions and deposit insurance. During the late 1980s and early 1990s, he advised the
Federal Home Loan Bank Board, consulted with the FDIC in connection with establishing the RTC, advised banks, thrifts and investor groups on acquisition of failing
depository institutions, and worked on several law suits arising from bank failures. Mr.
Silverberg also consulted with virtually all the bank and thrift trade associations on bank
failure issues and deposit insurance.
When bank and thrift failures slowed, Mr. Silverberg began consulting on banking
issues in developing countries, principally for The World Bank and the International
Monetary Fund. Addressing such issues as bank liberalization, privatization, insolvent
banks, and deposit insurance provided an opportunity to draw on many years of U.S.
bank experience. During the past several years, Mr. Silverberg has consulted in about 15
countries, ranging from Argentina to Zambia.
Mr. Silverberg worked at the FDIC for almost 20 years, the last eight as Director of
Research and Strategic Planning. At the FDIC, he played an important role in guiding
the FDIC’s research and statistics programs and played a major role in developing FDIC
policies on deposit insurance, handling bank failures, and supervisory and liquidation
issues. He played a lead role in developing the FDIC strategy for handling failing savings
banks and the lead staff role in the Continental Illinois case.
Prior to joining the FDIC in 1967, Mr. Silverberg worked as an economist for Bank
of America, and for the Treasury Department in the Office of the Comptroller of the
Currency and in the Office of the Secretary. Mr. Silverberg received a B.A. from the
University of Wisconsin and an M.A. and Ph.D. in economics from Yale University.

BIOGRAPHIES

Sandra L. Thompson
Sandra L. Thompson is the Assistant Director, Asset Marketing for the Franchise and
Asset Marketing Branch of the Federal Deposit Insurance Corporation. In this position,
she oversees the marketing and sales activities for the FDIC’s asset inventory. Prior to
assuming this position in March 1997, Ms. Thompson was the Manager of Securitization and Mortgage-Backed Securities Administration for the Division of Depositor and
Asset Services, and was responsible for the administration of FDIC and RTC issued
securities and equity partnership transactions.
Ms. Thompson worked at the RTC from September 1990 until its closing in
December 1995, as Assistant Vice President, Securitization Management. In this position, Ms. Thompson directed the Asset Management and Sales Division’s securitization
and equity partnership program for over $54 billion of loans and other assets.
Prior to Ms. Thompson joining the RTC and the FDIC, she was an Investment
Banker at Goldman Sachs, & Co. in New York City where she worked on private label
mortgage-backed securitizations for banks, thrifts and insurance companies. She holds a
Bachelor of Business Administration Degree in Finance from Howard University.

Lawrence J. White
Lawrence J. White is Arthur E. Imperatore Professor of Economics at New York University’s Stern School of Business. During 1986–1989 he was on leave to serve as Board
Member, Federal Home Loan Bank Board, and during 1982–1983 he was on leave to
serve as Director of the Economic Policy Office, Antitrust Division, U.S. Department of
Justice.
He received a B.A. from Harvard University (1964), an M.Sc. from the London
School of Economics (1965), and a Ph.D. from Harvard University (1969).
He is the author of The Automobile Industry Since 1945 (1971); Industrial Concentration and Economic Power in Pakistan (1974); Reforming Regulation: Processes and Problems (1981); The Regulation of Air Pollutant Emissions from Motor Vehicles (1982); The
Public Library in the 1980’s: The Problems of Choice (1983); International Trade in Ocean
Shipping Services: The U.S. and the World (1988); The S&L Debacle: Public Policy Lessons
for Bank and Thrift Regulation (1991); and articles in leading economic and law journals. He is editor or co-editor of seven volumes: Deregulation of the Banking and Securities Industries (1979); Mergers and Acquisitions: Current Problems in Perspective (1982);
Technology and the Regulation of Financial Markets: Securities, Futures, and Banking
(1986); Private Antitrust Litigation: New Evidence, New Learning (1988); The Antitrust
Revolution (1989; 2nd ed., 1994); Bank Management and Regulation (1992); and Structural Change in Banking (1993).

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He also served on the Senior Staff of the President’s Council of Economic Advisors
during 1978–1979, and was Chairman of the Stern School’s Department of Economics,
1990–1995.

James R. Wigand
James R. Wigand is the Deputy Director for Franchise and Asset Marketing, Division of
Resolutions and Receiverships, FDIC, and oversees the resolution of failing insured
financial institutions and the sale of their assets. Prior to assuming this position in January 1997, Mr. Wigand was Assistant Director, Capital Markets, Division of Depositor
and Asset Services, and was responsible for the administration of FDIC and RTC issued
securities and the sale of securities from failed thrifts.
Mr. Wigand worked at the RTC from December 1989 until its closing in December 1995, most recently as Assistant Vice President, Operations and Asset Management.
In this position, Mr. Wigand oversaw the Asset Management and Sales Division’s programs for asset management, seller financing, equity partnerships, management information systems, receivership operations, and internal review.
Prior to joining the RTC, Mr. Wigand worked in the Division of Liquidation,
FDIC, the Federal Savings and Loan Insurance Corporation’s Operations and Liquidation Division, Ferris & Company, and the U.S. General Accounting Office.
Mr. Wigand holds a B.S. degree in zoology from the University of Maryland and an
M.B.A. with a specialization in finance from the University of Chicago Graduate School
of Business.

AP P E N D I X B

Resolutions Panel

The large number of bank and thrift failures in the 1980s and early 1990s created challenges not seen in the U.S. financial system since the 1930s. The FDIC and the RTC
modified basic resolution strategies with an eye toward maintaining public confidence
and financial stability, without sacrificing other public policy objectives. This panel
focuses on the issues and strategies that arose in connection with these bank and thrift
failures.

Possible Issues for Discussion
Too Big To Fail—The FDIC and other regulators’ preference for solutions that favored

stability rather than market discipline was apparent in the treatment of larger banks during the 1980s. The transactions in the early 1980s involving First Pennsylvania, the
mutual savings banks and Continental Illinois set the pattern for the treatment of large
banks throughout the rest of the 1980s. In large-bank resolutions, the FDIC used purchase and assumptions transactions, bridge banks, and open bank assistance agreements
that typically provided full protection for uninsured depositors and other general creditors. This raised questions of fairness, since numerous small bank failures were resolved
through deposit payoffs, in which uninsured depositors suffered losses. This was said to
have created incentives for depositors to place large deposits in larger banks.
Forbearance—Forbearance, as practiced by the FDIC, exempted certain distressed
institutions that had been operating in a safe and sound manner from capital requirements for a limited period of time. The first formal forbearance program was the Net
Worth Certificate Program, which was established in 1982 under the Garn-St Germain
Act. Other forbearance programs established for banks in the mid-to-late 1980s
included a temporary capital forbearance program for agricultural banks and banks with
a concentration of energy loans and the agricultural loan loss amortization program
adopted by Congress in 1987. There are many risks in offering forbearance programs,

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and without proper oversight, forbearance can permit further deterioration and result in
increased costs. The experience of the savings and loan industry in the 1980s when forbearance was applied broadly to the whole industry is a clear example of the problems
associated with forbearance.
Impact of FDICIA—While the Federal Deposit Insurance Corporation Improvement
Act (FDICIA) of 1991 touched a wide range of regulatory areas, certain provisions—
particularly those pertaining to prompt corrective action (PCA) on failing institutions
and the least cost test—had profound effects on the way the FDIC conducted failed
bank resolutions. The aspect of PCA that most directly affects the FDIC’s approach to
bank failures prescribes mandatory measures for critically undercapitalized institutions
(those with a ratio of tangible equity to total assets equal to or less than 2 percent). In
these cases, a conservator or receiver must be appointed no later than 90 days after the
institution falls into the critically undercapitalized category. The FDIC may grant up to
two 90-day extensions of the PCA period if it is determined that those extensions would
better protect the insurance fund from long-term losses. FDICIA also requires the FDIC
to pick the least costly resolution transaction available. All bids must be considered
together and evaluated on the basis of comparative cost; other policy considerations cannot be factored into the determination of the appropriate transaction.
Ownership Interest—In several of the large bank failures in the 1980s, such as Continental Illinois and First City, the FDIC, as part of the resolution, took back stock and/
or warrants as part of the deal. This resulted in the FDIC having an ownership position
(in some cases a majority position) in the resulting institution. In most cases, this ownership position was later sold back to the resulting institutions. Some critics objected to
the notion of a government agency acquiring ownership in a bank and considered it
“nationalization.” Others view this as an appropriate way for the FDIC to share in any
“upside” potential given that it bears the “downside” risk.
Bridge Banks—A bridge bank is a temporary banking structure controlled by the
FDIC to take over the operations of a failed bank and maintain banking services for the
customers. As the name implies, a bridge bank is designed to “bridge” the gap between
the failure of a bank and the time when the FDIC can implement a satisfactory resolution of the failed bank. Beginning in 1987, the bridge bank structure became an important part of the FDIC’s bank resolution process for large banks with complex financial
structures in danger of failing. The bridge bank provided the FDIC time to take control
of the failed bank’s business, stabilize the situation, and determine an appropriate permanent resolution. Many proponents of the bridge bank structure believe that the
bridge bank structure will remain an integral part of large bank failures in the future.
Some critics however have expressed concern that the government is running a bank and
competing against other nongovernment owned banks.
Open Bank Assistance—The FDIC was authorized to provide open bank assistance
(OBA) under Section 13(c) of the FDI Act. OBA was not used by the RTC. OBA transactions occurred when a distressed financial institution remained open with the aid of
government financial assistance. Generally, the FDIC required new management,

R E S O L UT I O NS PA NE L

ensured that the ownership interest was diluted to a nominal amount, and called for a
private sector capital infusion. OBA was also used to facilitate the acquisition of a failing
bank or thrift by a healthy institution (e.g. mutual savings banks in the early 1980s).
The FDIC provided financial help in the form of loans, contributions, deposits, asset
purchases, or the assumption of liabilities. While minimizing cost to the deposit insurance funds was the ultimate goal, OBA was provided for public policy reasons, such as
maintaining public confidence and maintaining banking services to a community. A
major criticism of OBA has been that shareholders of failing institutions have benefited
from government assistance. The FDIC moved away from OBA after 1988 as bridge
bank authority gave the FDIC a more expedient and flexible alternative. Currently, in
order for the FDIC to provide OBA, it must establish that the assistance is the least
costly to the insurance fund of all possible methods for resolving the institution and
insurance funds cannot be used to benefit shareholders of the failing institution. There
have been no OBA transactions since 1992.
Cross-Guarantee Authority—The Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) of 1989 gave the FDIC the authority to assess cross-guarantee claims against banks that were affiliates of a failed bank. This was designed to prevent affiliated banks from shifting assets and liabilities in anticipation of the failure of
one or more of their number in an attempt to retain value for the owners while depriving the FDIC of that value and increasing the FDIC’s costs. The cross-guarantee authority allowed the FDIC to apportion loss among all the banks within the affiliated group
in the event that one or more of the institutions failed. Since the addition of this authority, the FDIC has closed affiliated banks that would otherwise have remained open and
has sold the entire group of affiliated banks at the same time.
Loss Sharing—The loss sharing transaction was designed to address problems associated with marketing large banks that typically had sizeable commercial loan and commercial real estate portfolios. Acquiring institutions had been reluctant to acquire
commercial assets in FDIC transactions because of limited due diligence periods, poor
or questionable underwriting criteria of the failed bank, and declining and volatile commercial real estate markets in the late 1980s and early 1990s. Under loss sharing, the
FDIC agreed to absorb a significant portion, typically 80 percent, of the losses on a
specified pool of commercial-type loans, with the acquiring bank liable for the remaining portion of the loss. By limiting an acquirer’s exposure to a maximum loss of 20 percent, the FDIC hoped to pass most of the failed bank assets while still receiving a
substantial premium for the deposit franchise. The FDIC also hoped to induce rational,
economic asset management behavior.
Interim Capital Assistance—FIRREA mandated that the RTC attempt to preserve
the minority ownership of failed minority thrifts. To achieve this objective, the RTC
developed and administered programs for minority participation. As part of the program, the RTC provided interim capital assistance (ICA) of up to two-thirds of the
required capital for the acquisition. Initially, these funds were to be short-term bridge
financing but were later extended up to 5 years. These ICA loans carried interest rates

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equal to the RTC’s borrowing cost, which was much lower than comparable financing.
The use of ICA raised issues over public policy benefits versus least cost.
Advanced Dividends—An advance dividend is a payment made to uninsured
depositors immediately after a bank fails, based on a conservative estimate of the value of
the receivership’s assets and a determination of the uninsured depositors’ pro rata share
of that value. Advance dividends were developed to reduce the disruption caused by a
deposit payoff to uninsured depositors by providing uninsured depositors with greater
liquidity.
Branch Breakups—In certain failing institutions, there have been few, if any, acquirers willing to assume the deposits of a multi-branch bank or thrift. This became a major
concern to the RTC in the early 1990s as the large size of many of the failed thrifts and
the general health of the banking and thrift industries limited the amount of interest in
these institutions. In response, the RTC used the branch breakup transaction to increase
bidder participation and competition, and add flexibility to the resolution process. The
RTC marketed institutions through branch breakup transactions unless their accounting
systems were incapable of handling multiple acquirers. Because the branch breakup
approach enabled potential acquirers to bid on individual branch offices of failed thrifts,
it appealed to a much broader group of potential investors. While the branch breakup
was also used by the FDIC, usually when competition for the entire franchise was
expected to be limited, it was used more frequently by the RTC. This process, which initially was used only in situations where there were few bidders for the entire franchise,
became a means to enhance value through increased competition. However, certain disadvantages exist with branch breakup transactions. Electronic data processing costs are
generally higher than in whole franchise transactions, and it is more difficult to complete transactions within the required timeframes. Branch breakups also require one of
the acquiring institutions to be lead acquirer and provide backroom operations for all
the acquirers during the transition period.

AP P E N D I X C

Asset Disposition Panel

The rapid increase of failures in the 1980s and early 1990s resulted in an unparalleled
volume of assets in the hands of the FDIC and RTC. This panel will focus on the variety
of techniques used by the FDIC and the RTC to dispose of the substantial volume of
assets once held by both agencies, and will discuss the respective merits of each of the
different strategies used by the agencies.

Possible Issues for Discussion
Asset Disposition Methods—The FDIC and RTC used a variety of asset disposition

methods to handle the liquidation of over $400 billion in assets that the FDIC and RTC
did not sell to an assuming institution during the resolution process. The methods used
evolved in response to the circumstances of the times. The methods range from negotiating/compromising with a borrower on one asset to more sophisticated methods,
including securitized sales of assets and equity partnerships with private sector firms.
Other methods included auctions, sealed bid sales, and sales by brokers.
Selling at Resolution Vs. Outside of Resolution—The FDIC sold a majority of the
assets in failed banks at the time of resolution by selling them to assuming banks. Of the
$302.6 billion in failed bank assets, about $230 billion, or 76 percent, were sold immediately at resolution to assuming banks. Initially, the RTC tried to sell assets at resolution but found few takers. Later, the RTC found it more effective to split the assets from
the deposit liabilities and therefore sold a relatively smaller percentage of assets at the
time of resolution. Instead, the RTC disposed of the assets either during conservatorship
or after completion of the resolution transaction. Of the $402.6 billion in assets from
failed thrifts, only $75.3 billion, or 18.7 percent, were handled at the time of resolution.
Private Sector Contracting—At the beginning of the crisis years (1980–1984), the
FDIC used primarily in-house staff to liquidate assets on an individual basis. However,
as the number of failures rose and the total volume of assets to be liquidated increased, it

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became more difficult to perform these functions entirely with in-house personnel. In
response, the FDIC began to use outside contractors to handle some of the assets. The
FDIC first began using contractors to manage and dispose of distressed assets in the
mid-1980s with the resolution of Continental. By the late 1980s, it was standard practice for contractors to be used by the FDIC for the management and disposition of
assets retained from some of the larger bank failures. The early contracts evolved into the
use of Asset Liquidation Agreements (ALAs) and Regional Asset Liquidation Agreements (RALAs). The FDIC used 16 asset management contracts to liquidate assets with
a book value of over $33 billion, or nearly half, of the post-resolution assets the FDIC
retained for liquidation. For the RTC, with its large volume of assets at day one, asset
management contractors were utilized from the outset. In addition, FIRREA required
the RTC to hire private-sector contractors if such services were available in the private
sector and if such services were practicable, cost effective, and efficient. The RTC issued
199 Standard Asset Management and Disposition Agreements (SAMDAs) to 91 contractors covering assets with a book value of approximately $49 billion.
Bulk Sales—As asset inventories increased and bank-closing activity accelerated,
FDIC policies began to emphasize bulk sales for broader classes of assets, including
delinquent and charged-off loans. The RTC also implemented a Bulk Sale Program,
which initially focused on the RTC’s vast holdings of performing residential and commercial mortgages. At first, the RTC adopted the FDIC methodology of internally
packaging and selling asset portfolios. However, some critical differences later developed
between the agencies. By 1990, the RTC was relying predominantly on private-sector
firms to evaluate, package, and market its loan portfolios. The RTC also adopted the use
of seller financing as a marketing tool for portfolio sales. To boost the demand for nonperforming multi-family and commercial mortgages and other real estate, the RTC
introduced the Structured Transaction Program. A structured transaction was a form of
portfolio sale created to achieve a high volume of portfolio sales, as opposed to the sale
of commercial assets on an individual basis. Packages were structured based on input
from investor groups and financing was made available.
Securitizations—Securitization is the process by which assets with generally predictable cash flows and similar features are packaged into interest-bearing securities with
marketable investment characteristics. Securitized assets have been created using diverse
types of collateral, including home mortgages, commercial mortgages, manufactured
housing loans, leases, and installment contracts on personal property. The FDIC did not
use securitized loan sales as a major asset disposition method. However, the RTC, due to
the large volume of mortgage loans in its inventory, used securitized sales as a method to
meet its FIRREA mandate of maximizing returns while also liquidating assets expeditiously. From June 1991 to June 1997, 72 RTC and 2 FDIC securitized transactions
closed, representing loans with a book value of $42 billion for the RTC and $2 billion
for the FDIC.
Equity Partnerships—The RTC, and to a much more limited extent, the FDIC
used equity partnership programs with private-sector partners as an asset disposition

A S S E T D I S PO S I T I ON PA N E L

method. During the 1990s, the RTC created 72 partnerships with a total book value of
about $21 billion. The FDIC became a partner in two partnerships holding assets having a book value of about $4 billion. Under the equity partnership program, the RTC
established joint ventures between itself, acting as limited partner (LP), and a private sector investor, usually a joint venture between an equity investor and an asset management
company, acting as general partner (GP). The RTC contributed asset pools (usually subperforming loans, nonperforming loans, and owned real estate), and arranged for financing to the partnership. The GP invested both equity capital and asset management
services. After the debt was paid off, the remaining proceeds were usually split according
to the ownership percentage each respective partner held. Thus, unlike a direct asset sale,
the RTC retained a residual interest, which entitled it to receive some proceeds at closing
and, as the assets were liquidated, receive the remainder of the proceeds periodically
throughout the life of the portfolio. It was believed by the RTC that the net present
value of the residual income stream, when added to the upfront cash receipts would be
greater than the total proceeds that would have been received from a direct asset sale.
Asset Valuation—The FDIC and RTC differed in their asset valuation procedures.
The FDIC generally relied on in-house staff to value assets based on estimated collections from all sources of recovery, subtracted anticipated expenses, and applied a present
value to the cash flows. The RTC relied on an asset evaluation methodology developed
in coordination with outside real estate professionals. That methodology attempted to
value asset portfolios as investors would perceive their value. The RTC relied predominantly on actual net cash flows, and gave less weight to other, more subjective sources of
recovery. In general, RTC procedures resulted in lower estimates of value. Both agencies
used reserves to set base prices for portfolio sales and required wide marketing to ensure
maximum competition. The RTC, however, tended to be more market oriented and
more inclined to let the market speak concerning the acceptability of bids. In contrast,
the FDIC was driven more by appraisals and relied more on internal reserves to set
benchmarks for determining the acceptability of bids.
Liquidation Differential—While there is no empirical evidence, it is generally
believed that after an asset from a failing bank is transferred to a receivership, the asset
suffers a loss in value. Loans have unique characteristics and prospective purchasers need
to gather information about the loans to properly evaluate them. Such “information
costs” are factored into the price that the outside parties are willing to pay for the loans.
A loss in value can also occur because of the break in the bank-customer relationship.
Environmental/Historical Assets Policy—In the early 1990s, the FDIC and RTC
developed environmental programs to prepare and train staff to oversee implementation
of federal and state environmental statutory provisions. The environmental programs
were premised on identifying hazardous environmental conditions or substances, such as
underground storage tanks, lead based paint, damaged, friable asbestos, and special environmental resources including wetlands, habitats of endangered species, and nationally
significant historic sites. To help identify assets with environmental conditions, contractors with expertise in resource identification and environmental site assessments were

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engaged. Various disposition methods were used including national sales and environmental representations and warranties for loans collateralized by real estate that were
securitized or sold into trust arrangements. A primary difference between the RTC’s and
FDIC’s sales of real estate with environmental conditions was the RTC’s use of “buyer
remediation agreements.” The RTC, as part of its standard sales documents, established
requirements for buyer remediation, including an asset specific statement and schedule
of work, an escrow account for funding such remediation from the sale proceeds, and a
system for determining when remediation was completed. The FDIC, on the other
hand, sold the properties “as is” without formally requiring that the buyer take corrective action.
Affordable Housing Program—Marketing and sales of owned real estate were
affected in both the FDIC and RTC by legally mandated affordable housing programs.
FIRREA established the framework for such programs, and required that the RTC
implement an affordable housing program, whose purpose was to provide home ownership and rental housing opportunities for families with low-to-moderate incomes. Section 40 of FDICIA required that the FDIC establish an affordable housing program for
the same purpose. The major difference between the FDIC and RTC programs was in
the funding of the programs. Because the FDIC does not use public funds for its operations, it required a separate federal appropriation for an affordable housing program.
The FDIC and RTC developed many strategies for marketing affordable housing.
Those strategies included using clearinghouses, retaining assistance advisers, developing
seller financing, establishing repair funding, developing a direct sale program, adjusting
the value for a reduced price, developing a donation policy, establishing an exclusive
marketing period, and using auctions and sealed bids.
While the FDIC and RTC affordable housing programs provided housing to lowincome and moderate-income households, it did come at a price to taxpayers. The
added costs are not high relative to the overall cost of the FDIC and RTC as a whole,
but may be considered significant when viewed within the smaller confines of the
affordable housing programs themselves.

AP P E N D I X D

Managing Bank Crises in Other
Countries Panel

The rapid rise of private banking in Eastern Europe and around the world and the
emerging financial crises occurring in the Far East raise issues regarding how other countries deal with banking failures. This panel will focus on the resolution strategies used by
other countries and how they differ from those typically used in the United States.

Issues for Discussion
Past Crises—Other nations have had banking crises over the past several decades. Swe-

den in the 1980s, Latin America and Eastern Europe in the mid 1990s and most
recently Japan and other countries in Southeast Asia. One issue is how these nations
have chosen to address these past or current crises in their banking systems. In some
countries the private sector has taken a much more active role, while in others, the government has been the primary architect behind the solution. In addition, the range of
responses is broad, ranging from forbearance to liquidation. Some nations have relied
primarily on “open bank” type assistance while others have chosen to actively close failing institutions and dispose of the assets. Finally, some countries follow a judicial liquidation approach (bankruptcy laws), while other countries, like the U.S., have their own
liquidation system for failed institutions.
Current Crises—The Japanese government recently announced a multi-trillion-yen
package to strengthen its banking system and lessen the risk of global financial crisis.
Certain troubled banks would be aided through temporary capital assistance and/or the
purchase of over one billion yen in troubled assets by the government. Other troubled
banks would be allowed to fail. This raises issues about how the government plans to
resolve the troubled banks and dispose of these troubled assets and what effects, if any, it
could have on banking in other countries, especially those in southeast Asia. In the past,
the Japanese government has been reluctant to take over troubled institutions but
instead has relied on private sector assistance.

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Consistency of Approach—With the continuing globalization of financial markets,
some have called for a uniform system on resolution, receivership, and bankruptcy practices. The intent of a uniform approach is purportedly to reduce the impact of failures in
one country on another, to recognize insolvency proceedings in each country, and permit the orderly and timely liquidation of assets located in another country. Is consistency really the best solution for each country?

AP P E N D I X E

Charts and Graphs

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Overheads Used by the Panelists

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Symposium Participant List

Liz Aaron

David Barr

Regulatory Policy Representative
Independent Bankers Association of
America

Public Affairs Specialist
Office of Corporate Communications
Federal Deposit Insurance Corporation

Hank Abbot

Phil Battey

Manager, Equity Oversight
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Director
Office of Corporate Communications
Federal Deposit Insurance Corporation

Rick Aboussie

Mary Bean

Associate General Counsel
Legal Division
Federal Deposit Insurance Corporation

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Jack Adair

Donald Bean, Jr.

Auditor to the Board of Supervisors
Fairfax County, Virginia

Fensterheim & Bean
Ginsberg, Feldman & Bress

Jerry Anderson

Hubert Bell, Jr.

Senior Partner
Heskin/Signet Partners Joint Venture

Attorney
Law Office of Hubert Bell, Jr.

Carol Armstrong

Richard Berg

Assistant Transactions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Chairman of the Board
The First National Bank of Ordway
and Gunnison Bank & Trust

Kevin Bailey

Arne Berggren

Office of Comptroller of the Currency

International Banking Consultant
Stockholm, Sweden

Scott Barancik

American Banker

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Mitch Berns

Fred Carns

Director
Office of Supervision
Federal Housing Finance Board

Assistant Director
Division of Insurance
Federal Deposit Insurance Corporation

Ron Bieker

Casey Carter

Deputy Director
Division of Compliance and Consumer
Affairs
Federal Deposit Insurance Corporation

Vice President and Representative
The Fuji Bank, Ltd.

John Binkley

Counsel
Legal Division
Federal Deposit Insurance Corporation

Sherry Chen

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
James Chessen

Christine Blair

Chief Economist
American Bankers Association

Financial Economist
Division of Research and Statistics
Federal Deposit Insurance Corporation

American Bankers Association

Joe Blalock

Jim Collins

Principal Consultant
Price Waterhouse L.L.P.

Special Advisor to the Chief Operating
Officer
Federal Deposit Insurance Corporation

Barbara Chiapella

John Bovenzi

Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Bill Collishaw

Assistant General Counsel
Legal Division
Federal Deposit Insurance Corporation

Gary Bowen

Deputy Regional Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Mary Connelly

Chief Operating Officer
Farm Credit System Insurance
Corporation

Bruce Brown

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Director
Barents Group, L. L. C.

David Bufton

Erica Cooper

Consultant

Deputy General Counsel
Legal Division
Federal Deposit Insurance Corporation

Glenn Burdick

Director
Aldrich, Eastman & Waltch Capital
Management, L.P.

David Cooke

Don Crocker

Vice Chairman
J.E. Robert Company

Bill Carley

Retired
Federal Deposit Insurance Corporation

Steve Davidson

Division of Research
America's Community Bankers

SY M PO S I U M PA R T I C I P A N T L I S T

239

James Davis

Mary Farnan

Manager
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Counsel
Legal Division
Federal Deposit Insurance Corporation

Lee Davison

Bob Feldman

Historian
Division of Research and Statistics
Federal Deposit Insurance Corporation

Executive Secretary
Office of Executive Secretary
Federal Deposit Insurance Corporation

Don Demitros

A. J. Felton

Director
Division of Information Resources
Management
Federal Deposit Insurance Corporation

Deputy Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Jonathan Fiechter

Vijay Deshpande

Director
Office of Internal Control Management
Federal Deposit Insurance Corporation

Director
Special Financial Operations
The World Bank Group
Carlos Fiol

John Donovan

Price Waterhouse L.L.P.

Manager, Projects & Planning
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Thomascine Douglas

Division of Administration
Federal Deposit Insurance Corporation
Martha Duncan-Hodge

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Dean Eisenberg

Supervisory Internal Review Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Dick Fischman

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Jim Forrestal

Associate Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Jeanette Franzel

Bert Ely

Assistant Director
Corporate Audits
U.S. General Accounting Office

President
Ely and Company, Inc.

George French

Michelle Enger

Policy Analyst, Financial Institutions
Branch
Office of Management & Budget
Executive Office of the President
John Eveland

Supervisory Financial Analyst
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Deputy Director
Division of Insurance
Federal Deposit Insurance Corporation
Judith Friedman

Special Counsel
Legal Division
Federal Deposit Insurance Corporation
Francine Gage

Division of Administration
Federal Deposit Insurance Corporation

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M A NA GI N G T H E C R I S I S

Jim Gallagher

Matt Green

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Financial Analyst
Office of Financial Institutions Policy
U.S. Department of Treasury

Ann Gay

Henry Griffin

Symposium Coordinator/Greeter
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Assistant General Counsel
Legal Division
Federal Deposit Insurance Corporation

Dennis Geer

Jay Hambric

Deputy to the Chairman & Chief
Operating Officer
Federal Deposit Insurance Corporation

Vice President
Mexico
GE Capital

Gaston Gianni

George Hanc

Inspector General
Office of Inspector General
Federal Deposit Insurance Corporation

Associate Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Mike Gibson

Denis Harootunian

Economist
Federal Reserve Board

Senior Analyst
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Gary Gilbert

Government Relations
America's Community Bankers

Norma Hart

President
National Bankers Association

William Ginsberg

Managing Director
Federal Housing Finance Board
Mitchell Glassman

Deputy Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Bob Hartheimer

Managing Director
Investment Banking Division
Friedman, Billings, Ramsey & Co.
Margaret Hawley

Asset Marketing Specialist
Small Business Administration

Alan Glenn

Chief Financial Officer
Farm Credit System Insurance
Corporation
Leanna Gouthro

Legislative Analyst
Office of Legislative Affairs
Federal Deposit Insurance Corporation
Bob Gramling

Director
Corporate Audits and Standards
U.S. General Accounting Office

Larry Hayes
John Heimann

Chairman
Global Financial Institutions
Merrill Lynch & Company, Inc.
Herb Held

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

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241

Jo-Ann Henry

Stefan Jouret

Director
Office of Diversity & Economic
Opportunity
Federal Deposit Insurance Corporation

Professional Staff Member
Committee on Banking & Financial
Services
House of Representatives

Shelby Heyn-Rigg

Jay Jupiter

Program Manager
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Attorney
Chris Kallivokas

Rod Hood

Chairman
RER Financial Group

Deputy to the Vice Chairman
Federal Deposit Insurance Corporation

Martin Kamarck

Tom Horton

Principal
EYKL

Chief Operating Officer
Aldrich, Eastman & Waltch Capital
Management, L.P.
Hiroshi Kamiguchi

Paul Horvitz

Professor of Banking and Finance
University of Houston

Financial and Payment System Office
The Bank of Japan
Jon Karlson

Chairman
Federal Deposit Insurance Corporation

Regional Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Stephen Hudak

Arleas Upton Kea

Special Assistant to Chairman
Federal Housing Finance Board

Director
Office of the Ombudsman
Federal Deposit Insurance Corporation

Andrew Hove

Don Inscoe

Associate Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Sally Kearney

Senior Writer/Editor
Office of Corporate Communication
Federal Deposit Insurance Corporation

Colleen Ivie

Vice President
RER Financial Group

Pat Keough

Writer
Bostonia Government Services

Stan Ivie

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Nick Ketcha

Director
Division of Supervision
Federal Deposit Insurance Corporation

Ann Jaedicke

Office of Comptroller of the Currency

Howard Kinhart

Milton Joseph

Director
Office of the Inspector General
Federal Deposit Insurance Corporation

President
Joseph Consulting

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M A NA GI N G T H E C R I S I S

Alvin Kitchen

Sharon Lusk

Deputy Director
Division of Finance
Federal Deposit Insurance Corporation

Oversight Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Barry Kolatch

Nancy Maginn

Deputy Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Marilyn Kraus

Ed Mahaney

Deputy Assistant Inspector General
Office of the Inspector General
Federal Deposit Insurance Corporation

Associate Director
Division of Finance
Federal Deposit Insurance Corporation

Bill Kroener

Ralph Malami

General Counsel
Legal Division
Federal Deposit Insurance Corporation

MBS Administrative Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Rose Kushmeider

John Marchant

Financial Economist
Division of Research and Statistics
Federal Deposit Insurance Corporation

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Ronald Label

Jim Marino

Managing Partner
EYKL

Associate Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Edward Lane-Reticker

Associate Director
Boston University School of Law

Bernie Mason

Deputy to Director Seidman
Office of Thrift Supervision

Lee Lassiter

Ombudsman
Office of Thrift Supervision

Kate McDermott

Roger Lerner

Oversight Manager/Symposium Hostess
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Attorney
Lerner, Reed, Bolton & McManus, L.L.P.

Jim McDermott

John Liles

Senior Counsel
Legal Division
Federal Deposit Insurance Corporation
Tom Lucey

Director
Corporate Properties
Fleet Financial Group

Assistant Director
Financial Institutions and Markets
U.S. General Accounting Office
Beverly McFarland

Chief Executive Officer
The Beverly Group
Don McKinley

Regional Counsel
Legal Division
Federal Deposit Insurance Corporation

SY M PO S I U M PA R T I C I P A N T L I S T

243

David Meadows

Dina Nichelson

Deputy to Director Neely
Federal Deposit Insurance Corporation

Executive Director
American League of Financial Institutions

Jim Meyer

Tom O'Keefe

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Phil Mistretta

Bill Ostermiller

Financial Institutions and Markets
U.S. General Accounting Office

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Doyle Mitchell

President
Industrial Bank, N.A.

Lorraine Padgett

James Montgomery

Supervisory Risk Management Analyst
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Past Chairman
Great Western Financial

Gail Patelunas

Bill Murden

Director
Office of International Banking &
Securities
U. S. Department of Treasury

Deputy Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Neal Peterson
Bill Phipps

Partner
Cleary, Gottlieb, Steen, Hamilton

Senior Information Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Art Murton

Marcia Potter

Jack Murphy

Director
Division of Insurance
Federal Deposit Insurance Corporation

Senior Project Manager
Heskin/Signet Partners Joint Venture

Marcia Myerberg

President
Nationwide Mortgage Services, Inc.

CEO
Myerberg & Company, L.P.
Joseph Neely

Director
Federal Deposit Insurance Corporation
Lynn Nejezchleb

Special Assistant to the Vice Chairman
Federal Deposit Insurance Corporation
Mike Newton

Regional Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Rosalia Pratt

Paul Pryde

President
Capital Access Group, L.L.C.
John Quinn

Executive Assistant to Chief Financial
Officer
Division of Finance
Federal Deposit Insurance Corporation
Mitch Rachlis

Senior Economist
U.S. General Accounting Office

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M A NA GI N G T H E C R I S I S

Paul Ramey

Marian Rush

Former Executive
Federal Deposit Insurance Corporation
and Resolution Trust Corporation

Attorney
Salem, Saxon & Nielsen
Bob Russell

John Recchia

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Director
Office of Policy Development
Federal Deposit Insurance Corporation
Theresa Rutledge

Senior Writer/Editor
Office of Corporate Communication
Federal Deposit Insurance Corporation

Financial Analyst
Office of International Banking &
Securities
U.S. Department of Treasury

Diana Reid

Jack Ryan

Managing Director, Senior Advisor
Credit Suisse First Boston

Acting Executive Director of Supervision
Office of Thrift Supervision

Jack Reidhill

Paul Sachtleben

Financial Economist
Division of Research and Statistics
Federal Deposit Insurance Corporation

Director
Division of Finance
Federal Deposit Insurance Corporation

Craig Rice

Tony Samson

Senior Regional Analyst
Division of Insurance
Federal Deposit Insurance Corporation

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Steven Rigg

Ted Samuel

Board Member F.H.L.B. of Topeka

Former Chairman & Chief Executive
Officer
Niagara Asset Corporation,
Niagara Portfolio Management Corp.

Clyde Reid

Bill Roelle

Head of Operations
Financial Services Group
GE Capital

H. Jay Sarles

Claude Rollin

Vice Chairman
Fleet Financial Group

Special Assistant to Director Neely
Federal Deposit Insurance Corporation

Jane Sartori

Tom Rose

Senior Deputy Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Ed Rosenthal

Director
Division of Administration
Federal Deposit Insurance Corporation
Robert Schmidt

Financial Services Practice
KPMG Peat Marwick

J.E. Robert Company
Tom Schulz
Yeeleng Rothman

Principal
Rothman and Associates

Assistant General Counsel
Legal Division
Federal Deposit Insurance Corporation

SY M PO S I U M PA R T I C I P A N T L I S T

245

Steve Seelig

Eric Spitler

Deputy Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Deputy Director
Office of Legislative Affairs
Federal Deposit Insurance Corporation

Bill Seidman

Tom Stack

Chief Commentator
CNBC-TV

Senior Advisor
Cash and Credit Management
Office of Management and Budget

Fred Selby

Deputy Director
Division of Finance
Federal Deposit Insurance Corporation

Principal
GBS Associates

Anuraag Shah

Doug Stinchcum

Goldman Sachs

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Kevin A. Sheehan

Senior System Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Stan Silverberg

Jerry Stanton

Steve Stockton

Supervisory Liquidation Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Banking and Economic Consultant
John Stone
Ed Smith

Chief Operating Officer
Banc One Mortgage Capital Markets,
L.L.C.
Jack Smith

Deputy General Counsel
Legal Division
Federal Deposit Insurance Corporation
Ronald Sommers

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Mike Spaid

Acting Special Assistant to Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Joci Spector

Oversight Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

Retired Executive
Federal Deposit Insurance Corporation
Robert Strand

Senior Economist
American Bankers Association
Maureen Sweeney

Special Assistant to Director
Division of Insurance
Federal Deposit Insurance Corporation
Steve Switzer

Deputy Inspector General for Audits
Office of Inspector General
Federal Deposit Insurance Corporation
Barbara Taft

Assistant General Counsel
Legal Division
Federal Deposit Insurance Corporation
Nobusuke Tamaki

Chief Representative
Representative Office in Washington, DC
The Bank of Japan

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M A NA GI N G T H E C R I S I S

John Tautges

Donald Weyback

Senior Investment Officer
The Baltic-American Enterprise Fund

Senior Resolutions Specialist
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

T. Michael Thompson

Vice President
OAO Corporation
Sandra Thompson

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation
Jun Tomita

Lawrence White

Professor of Economics
Stern Business School
New York University
Susan Whited

Assistant Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

The Bank of Japan
Jim Wigand

Banking and Financial Supervisor
Banca d'Italia, Research Division

Deputy Director
Division of Resolutions and Receiverships
Federal Deposit Insurance Corporation

John Treanor

Frank Willis

Banking Advisor
Financial Institutions and Markets
U.S. General Accounting Office

Accounting Manager
Division of Finance
Federal Deposit Insurance Corporation

Tom Tsui

Cecile Yepes

Country Program Coordinator
Thailand
The World Bank

Assistant to the Minister, Financial
Counselor
French Embassy, Financial Ministry
Office

Maurizio Trapanese

Carol Van Cleef

Partner
Katten, Muchin, Zavis

U.S. Department of Treasury

Alice Veenstra

Tom Zemke

Office of Management & Budget
Executive Office of the President

Deputy to Director Ludwig
Office of Comptroller of the Currency

Muriel Watkins

Diane Zyats

President
MW Financial, Inc.

Vice President
Newmyer Associates

Roger Watson

Director
Division of Research and Statistics
Federal Deposit Insurance Corporation

Mike Yuenger