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Managing America: Banking & Finance

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Week Ending July 29, 2011

H.R.2056 To instruct the Inspector General of the Federal Deposit Insurance Corporation to study the impact of insured depository institution failures, and for other purposes.

The bill directs the Inspector General of the FDIC to conduct a comprehensive study on the impact of the failure of insured depository institutions. The study will look at such things as ‘paper-loss write-downs’ when an asset held by an institution must raise more capital to cover the write-down.

The IG must also look at the impact of loss-sharing agreements (LSA) on the insured institutions that survive and the borrowers that fail to include the impact on loan modifications and adjustments, the volume of types of loans, the impact on current borrowers looking for a loan modification, the impact on the availability of credit, and the impact on loans with participation agreements.

The effect of FIC policies on LSA’s and the impact on the real estate market and the likelihood that banks will sell off assets to take advantage of LSA’s, and how to bring LSA’s to an orderly end.

The IG must evaluate the number of institutions that have been placed in receivership or conservatorship due to paper losses, how that position affects raising capital, and the final affect on the fair value of real estate accounting rules.

The IG will look into workouts which involve a field examiner using the correct appraisals and if there is a difference between commercial and residential workouts.

A report will include the handling of potential investments from private equity companies. The report will show the number of institutions that have been approved to receive private equity investments by the FDIC, the number that have been rejected and the reasons for rejection.

A report is due Congress within one year.

Sponsor:  Rep. Lynn Westmoreland (GA-3^rd)

Vote: House agreed by voice vote.

Cost to the taxpayers: Amount not given but the bill requires that the cost of the effort will be born by FDIC from the agencies budget item for management of expenses.

Pay-as-you-go requirements:  Undetermined if they apply.

Cut-as-you-go requirements:   

Regulatory impact:  To be determined

Earmark Certification:   Not applicable

Constitutional Authority:  By Mr. WESTMORELAND:

        H.R. 2056.

        Congress has the power to enact this legislation pursuant

     to the following:

       Article I, Section 8 of the United States Constitution.

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