[Congressional Record (Bound Edition), Volume 157 (2011), Part 9]
[House]
[Pages 12065-12068]
[From the U.S. Government Publishing Office, www.gpo.gov]




           IMPACT OF INSURED DEPOSITORY INSTITUTION FAILURES

  Mr. WESTMORELAND. Mr. Speaker, I move to suspend the rules and pass 
the bill (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, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2056

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. INSPECTOR GENERAL STUDY.

       (a) Study.--The Inspector General of the Federal Deposit 
     Insurance Corporation (FDIC) shall conduct a comprehensive 
     study on the impact of the failure of insured depository 
     institutions.
       (b) Definitions.--For purposes of this Act--
       (1) the term ``insured depository institution'' has the 
     meaning given such term in section 3(c) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1813(c));
       (2) the term ``private equity company'' has the meaning 
     given the terms ``hedge fund'' and ``private equity fund'' in 
     section 13(h)(2) of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1851(h)(2)); and
       (3) the term ``paper-loss'' means any write down on a 
     performing asset held by an insured depository institution 
     that causes such institution to raise more capital in order 
     to cover the write down.
       (c) Matters To Be Studied.--In conducting the study under 
     this section, the Inspector General shall address the 
     following:
       (1) Loss-sharing agreements.--The effect of loss-sharing 
     agreements (LSAs), including--
       (A) the impact of loss-sharing on the insured depository 
     institutions that survive and the borrowers of insured 
     depository institutions that fail, including--
       (i) the impact on the rate of loan modifications and 
     adjustments;
       (ii) whether more types of loans (such as commercial 
     (including land development and 1- to 4-family residential 
     and commercial construction loans), residential, or small 
     business loans) could be modified with fewer LSAs, or if LSAs 
     could be phased out altogether;
       (iii) the FDIC's policies and procedures for monitoring 
     LSAs, including those designed to ensure institutions are not 
     imprudently selling assets at a depressed value;
       (iv) the impact on the availability of credit; and
       (v) the impact on loans with participation agreements 
     outstanding with other insured depository institutions;
       (B) the FDIC's policies and procedures for terminating LSAs 
     and mitigating the risk of acquiring institutions having 
     substantial assets remaining in their portfolio when the LSAs 
     are due to expire;
       (C) the extent to which LSAs provide incentives for loan 
     modifications and other means of increasing the probability 
     of commercial assets being considered ``performing'';
       (D) the nature and extent of differences for modifying 
     residential assets and working out commercial real estate 
     under LSAs; and
       (E) methods of ensuring the orderly end of expiring LSAs to 
     prevent any adverse impact on borrowing, real estate industry 
     and the Depositors Insurance Fund.

[[Page 12066]]

       (2) Paper losses.--The significance of paper losses, 
     including--
       (A) the number of insured depository institutions that have 
     been placed into receivership or conservatorship due to paper 
     losses;
       (B) the impact on paper losses of raising more capital;
       (C) the effect of changes in the application of the fair 
     value of real estate accounting rules and other accounting 
     standards;
       (D) whether field examiners are using proper appraisal 
     procedures with respect to paper losses; and
       (E) methods of stopping the vicious downward spiral of 
     losses and write downs.
       (3) Appraisals.--
       (A) The number of insured depository institutions placed 
     into receivership or conservatorship due to asset write-downs 
     and the policies and procedures for evaluating the adequacy 
     of an insured depository institution's allowance for loan and 
     lease losses.
       (B) The policies and procedures examiners use for 
     evaluating the appraised values of property securing real 
     estate loans and the extent to which those policies and 
     procedures are followed.
       (C) FDIC field examiner implementation of guidance issued 
     December 2, 2010, titled ``Agencies Issue Final Appraisal and 
     Evaluation Guidelines''.
       (4) Capital.--
       (A) The factors that examiners use to assess the adequacy 
     of capital at insured depository institutions, including the 
     extent to which the quality and risk profile of the insured 
     institution's loan portfolio is considered in the examiners' 
     assessment.
       (B) The number of applications received by the FDIC from 
     private capital investors to acquire insured depository 
     institutions in receivership, the factors used by the FDIC in 
     evaluating the applications, and the number of applications 
     that have been approved or not approved, including the 
     reasons pertaining thereto.
       (C) The policies and procedures associated with the 
     evaluation of potential private investments in insured 
     depository institutions and the extent to which those 
     policies and procedures are followed.
       (5) Workouts.--The success of FDIC field examiners in 
     implementing FDIC guidelines titled ``Policy Statement on 
     Prudent Commercial Real Estate Loan Workouts'' (October 31, 
     2009) regarding workouts of commercial real estate, 
     including--
       (A) whether field examiners are using the correct 
     appraisals; and
       (B) whether there is any difference in implementation 
     between residential workouts and commercial (including land 
     development and 1- to 4-family residential and commercial 
     construction loans) workouts.
       (6) Orders.--The application and impact of consent orders 
     and cease and desist orders, including--
       (A) whether such orders have been applied uniformly and 
     fairly across all insured depository institutions;
       (B) the reasons for failing to apply such orders uniformly 
     and fairly when such failure occurs;
       (C) the impact of such orders on the ability of insured 
     depository institutions to raise capital;
       (D) the impact of such orders on the ability of insured 
     depository institutions to extend or modify credit to 
     existing and new borrowers; and
       (E) whether individual insured depository institutions have 
     improved enough to have such orders removed.
       (7) FDIC policy.--The application and impact of FDIC 
     policies, including--
       (A) the impact of FDIC policies on the investment in 
     insured depository institutions, especially in States where 
     more than 10 such institutions have failed since 2008;
       (B) whether the FDIC fairly and consistently applies 
     capital standards when an insured depository institution is 
     successful in raising private capital; and
       (C) whether the FDIC steers potential investors away from 
     insured depository institutions that may be in danger of 
     being placed in receivership or conservatorship.
       (8) Private equity companies.--The FDIC's handling of 
     potential investment from private equity companies in insured 
     depository institutions, including--
       (A) the number of insured depository institutions that have 
     been approved to receive private equity investment by the 
     FDIC;
       (B) the number of insured depository institutions that have 
     been rejected from receiving private equity investment by the 
     FDIC; and
       (C) the reasons for rejection of private equity investment 
     when such rejection occurs.
       (d) Report.--Not later than one year after the date of the 
     enactment of this Act, the Inspector General shall submit to 
     Congress a report--
       (1) on the results of the study conducted pursuant to this 
     section; and
       (2) any recommendations based on such study.
       (e) Coordination Between FDIC IG, Treasury IG, and Federal 
     Reserve IG.--In carrying out this section, the Inspector 
     General of the FDIC shall consult with the Inspectors General 
     of the Treasury and of the Federal Reserve System, and such 
     Inspectors General shall provide any documents or other 
     material requested by the Inspector General of the FDIC in 
     order to carry out this section.

     SEC. 2. FUNDING.

       The FDIC shall make available from the portion of the FDIC 
     budget allocated to management expenses, sums allowing the 
     FDIC Inspector General to complete this study.

     SEC. 3. GAO STUDY.

       (a) Study.--The Comptroller General of the United States 
     shall carry out a study on the following:
       (1) The causes of high levels of bank failures in states 
     with 10 or more failures since 2008.
       (2) The procyclical impact of fair value accounting 
     standards.
       (3) The causes and potential solutions for the ``vicious 
     cycle'' of loan write downs, raising capital, and failures.
       (4) An analysis of the community impact of bank failures.
       (5) The feasibility and overall impact of loss share 
     agreements.
       (b) Report.--Not later than the end of the 1-year period 
     beginning on the date of the enactment of this Act, the 
     Comptroller General shall issue a report to the Congress on 
     the study carried out pursuant to subsection (a).

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Georgia (Mr. Westmoreland) and the gentleman from Georgia (Mr. David 
Scott) each will control 20 minutes.
  The Chair recognizes the gentleman from Georgia (Mr. Westmoreland).


                             General Leave

  Mr. WESTMORELAND. I ask unanimous consent that all Members have 5 
legislative days within which to revise and extend their remarks and to 
add extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Georgia?
  There was no objection.
  Mr. WESTMORELAND. I yield myself such time as I may consume.
  Mr. Speaker, the bill before the House today is one that will provide 
much needed transparency to the FDIC process of examining and resolving 
banks.
  First, I would like to thank Chairman Bachus and Subcommittee 
Chairman Capito, Ranking Member Frank and Subcommittee Ranking Member 
Maloney for their support of H.R. 2056.
  I'd also like to thank my lead cosponsor, the gentleman from Georgia, 
my friend, Representative Scott, for his tireless support on this 
issue.
  As I have said many times before, there is no greater threat to our 
communities than bank failures, especially in my State of Georgia.
  Mr. Speaker, I want to take a minute to highlight bank failures by 
the numbers in my State of Georgia: 319 is the total number of failures 
in the U.S. since 2008; 67 of those, that's the total number of Georgia 
bank failures since 2008; 16, this is the number of banks in Georgia 
that failed in 2011; 11 banks have failed in my congressional district.
  Mr. Speaker, I would like to get you to look at this chart, and you 
can see by this chart that these communities, these 10 States, have had 
the largest closing number. Their unemployment rate is some of the 
highest, the deficiency rates. And if you look at the percentages, if 
you look at Arizona, 30 percent of their banks have closed; Nevada, 41 
percent of their banks have closed; and in my State of Georgia, 26 
percent have closed. Sadly, there are some communities in my district 
that no longer are even served by a community bank.
  And I have often referenced these, the 10 over 10, and these are the 
10 States that have had more than 10 bank failures since 2008. As you 
can see these unlucky States are Georgia, Florida, Illinois, 
California, Minnesota, Washington, Michigan, Nevada, Missouri, and 
Arizona. In fact, six of these 10 States have had more than 10 percent 
of their banks fail in the past 3 years.
  These States also share other commonalities. As I mentioned, each 
have a higher than average unemployment rate and serious delinquency 
rates as well as a high number of bank failures.

                              {time}  1900

  While I hope no more States are added to this list, many States are 
not far off. Colorado has had nine failures, including one on Friday. 
Kansas and Oregon have had seven failures.
  Without a doubt, the FDIC is a wealth of information about the health 
of banks, if you have the time and resources to go through it. However, 
too

[[Page 12067]]

much information without proper context can be detrimental. H.R. 2056 
is designed to cut through all the information to analyze the 
underlying fundamentals that continue to cause bank failures across 
this country.
  The bill directs the FDIC Inspector General, in consultation with the 
Treasury and Federal Reserve IGs, to study FDIC policies and practices 
with regard to loss share agreements, the fair application of 
regulatory capital standards, appraisals, FDIC procedures for loan 
modifications, and the FDIC's handling of consent orders and cease and 
desist orders.
  Further, the GAO also has a study in the bill to pursue those 
questions the FDIC Inspector General is unable to fully explore, such 
as the causes of the high number of bank failures, procyclical impact 
of fair value accounting, analysis of the impact of failures on the 
community, and the overall effectiveness of loss share agreements for 
resolving banks.
  I have welcomed the input from the FDIC IG as well as witnesses from 
the FDIC, the Office of the Comptroller of the Currency, the 
Independent Community Bankers Association, and the witnesses at the 
hearing 3 weeks ago. Overwhelmingly, these witnesses supported H.R. 
2056. Likewise, the Financial Services Committee passed H.R. 2056 out 
of committee last week by voice vote.
  Mr. Speaker, it is clear that Congress needs more information about 
the underlying causes of these bank failures.
  I reserve the balance of my time.
  Mr. DAVID SCOTT of Georgia. Mr. Speaker, I yield myself such time as 
I may consume.
  As my distinguished colleague from Georgia, Congressman Westmoreland, 
pointed out, whom I am very pleased to serve as a cosponsor with on 
this bill, he very aptly described the very dire situation facing our 
State of Georgia.
  Mr. Speaker, as I stand here, Georgia, since the 2008 financial 
difficulties started in this country, 67 banks have failed, which makes 
us the leader in the Nation in this area in our State. We have some 
very capable business people in Georgia and in Atlanta, very sterling 
leaders of the financial services industry worldwide based out of 
Atlanta. We're grappling with the recovery.
  But there is no more important sector of our economy than our banking 
system. It is, indeed, the heart of our economic system. It pumps out 
the credit. It pumps out the capital that makes our economy go around. 
So it is very important that we really deal with an area and with 
information and with an effective study so that we can grasp the full 
meaning of what caused this to happen, what were the characteristics in 
Atlanta or in Georgia that caused this disproportionate number of bank 
failures. And, indeed, we could learn so much so that we can prevent 
this type of a collapse in our bank financial system from happening 
again and make a very valuable contribution.
  So with that, Mr. Speaker, I want to take just a moment to explain 
what we are doing with this important bill, H.R. 2056, that we feel 
will make a very valuable contribution to preventing these kinds of 
collapses from happening again to the detriment of our economic system.
  The purpose of this bill is, one, to determine the extent to which 
certain FDIC practices precipitated the bank failures. We need to find 
out if there's something that the FDIC was doing, that regulators were 
doing that we need to improve upon.
  Two, we need to determine whether various FDIC policies and practices 
for resolving failed banks are appropriate. That's very important to 
know. If what we're doing is not appropriate, we can fix that.
  And, three, we need to determine the extent to which the FDIC 
employees, themselves, in the field, the investigators, the bank 
examiners take actions that were consistent with FDIC policies and 
procedures that we developed here in Washington. In other words, Mr. 
Speaker, we need to take the time to look at this peculiar situation of 
this rash of bank failures in one basic geographic area of this country 
to see what really went wrong and if there were some things that we 
were doing here in Washington that we need to correct.
  And, finally, we need to determine the extent to which the FDIC 
policies and procedures are applied consistently across all banks. This 
information will be very important.
  The bill requires that the FDIC Inspector General, within 1 year of 
enactment of this bill, will conduct a study on the impact of the 
failure of banks and report the results and any associated 
recommendations back to Congress.
  This study would address, one, the effect of the FDIC's use of loss 
sharing agreements on relevant stakeholders, including banks that 
survive and borrowers of the failed IDI. Two, the significance that 
paper losses, including the extent to which they trigger IDI 
receiverships and the impact they have on raising more capital. Three, 
the success of field examiners in implementing the FDIC policies and 
procedures on commercial real estate workouts.
  One of the things we find in our State of Georgia, one of the common 
characteristics that sort of held these banks separate was the 
overleverage, we shall say, of the portfolios in real estate and the 
housing bubble burst on us.
  Four, the application and impact of consent orders and cease and 
desist orders, including whether such orders are used consistently 
across all types of banks, and also the application and impact of FDIC 
policies, particularly as they relate to a bank's ability to attract 
private capital. And then the FDIC's handling of potential investments 
by private equity companies in banks.
  In H.R. 2056, as introduced, we received great bipartisan support and 
reception at a hearing that we recently had that my colleague from 
Georgia (Mr. Westmoreland) mentioned and the FDIC and the OCC are 
working with us on this bill. And the OCC has suggested that the FDIC 
Inspector General should consult with the OCC Inspectors General with 
respect to studied topics that pertain to banks that the OCC, which is 
the Office of the Comptroller of the Currency, directly supervisors 
and, of course, that same logic would argue for consultation with the 
Fed.
  So subsequently, an amendment was adopted by voice vote in the full 
committee in the markup, requiring that the FDIC Inspector General 
consult with the Inspectors General of the Treasury, within which the 
OIC is housed, and the Fed. This amendment was passed by voice vote 
with strong bipartisan support to supplement the study factors 
regarding the loss sharing agreements. It added new study factors 
regarding appraisals and capital. It required the FDIC's Inspectors 
General to coordinate with the Treasury and the Fed's internal 
Inspectors General. And four, it added a new separate GAO study on bank 
failures to the report due 1 year after enactment. And I might add that 
both the FDIC as well as the OCC are supportive of this measure.
  In conclusion, Mr. Speaker, this bill is very important for us not 
only in Georgia but across this country where we've had this rash of 
bank failures. It's important for us to learn and to know about the 
causes of the bank failures in the States that have been hardest hit, 
especially the issue of application and effect of consent orders and 
cease and desist orders, particularly where these orders have been 
enforced uniformly and fairly across all banks. This has been a concern 
from our banking community in Georgia.

                              {time}  1910

  While I know this bill alone will not solve our current banking 
crisis, I am confident it will provide Congress and regulators with 
valuable information that may prevent failures in the future and 
provide us with ways that the FDIC, that the OCC and the Fed, our 
banking regulators and examiners, can help our banks avoid bank 
failures.
  If we're ever going to climb out of this terrible economic malaise 
that we're in and spark growth in our communities, it is the banks that 
must be stable. It is the banks that must be well-capitalized and able 
to lend to

[[Page 12068]]

consumers and small businesses. And in particular, our small and 
community banks are the ones that will lead the way to our economic 
recovery, but only if they're able to work, hand-in-hand, with our 
Federal regulators and examiners to remain viable.
  This bill is a small step, but it is a big step in the right 
direction in that respect, and I encourage all of my colleagues to 
support it.
  I yield back the balance of my time.
  Mr. WESTMORELAND. Mr. Speaker, I yield myself as much time as I may 
consume.
  Mr. Speaker, our hope is that this will shed some light on these bank 
failures. We hope it will also shed light on why so many business 
people have come to all of us in this body to find out why they cannot 
get loans to promote job growth, to help expand their businesses. We 
need those answers.
  We also need to make sure that this study will shed some light on 
what effects TARP and Loss-Share Agreements have had on our community 
banks. We also hope that it will shed light on why immediate write-
downs are being demanded on our community banks when the loans are 
performing. People are paying their interest. They're meeting their 
renewal requirements, yet regulators are insisting that these loans be 
marked down. This has caused what I call a paper loss for a lot of 
these bankers that are then being made to ask to raise capital when 
they're under cease and desist orders.
  So all of this does not work together. And, in fact, a lot of things 
that we have done in this previous Congress has caused the snowball to 
roll faster downhill.
  I hope they'll look at the market to see what has happened and what 
is the effect of banks that have gotten TARP money and have come in and 
``fire sold'' properties that have caused real property values to go 
down, not just for the banks, but for the people that have bought in 
there.
  We need to find out why Loss-Share Agreements promote not modifying 
loans, why they promote getting rid of some of these bad loans, why 
they promote a bank to be able to get rid of property when the 
government guarantees them 95 percent of their loss. What effect has 
that had on our community banks that didn't get the TARP, that have not 
been allowed to be in any of these Loss-Share Agreements?
  These are answers that we're looking for.
  Mr. GARDNER. Mr. Speaker, thousands of local community banks operate 
across the country, making a valuable contribution to America's 
economy. Colorado has a rich history of community banking, where small 
business owners and employers can do business with a bank they know and 
trust, and people know that the money they deposit is being redeployed 
into the community by an institution that wants to see the community 
succeed as much as they do.
  That shared interest in the community has traditionally led local 
banks to act in a responsible manner and shield themselves from 
systemic problems, but they are not immune from tough times. 
Unfortunately, federal regulators are forcing community banks in 
particular to fight through the rough economy with one hand tied behind 
their backs.
  In short, we must increase bank lending to improve the economy, but 
regulators are preventing such lending by forcing banks to hoard 
capital, and by prohibiting community banks from effectively working 
with their borrowers. We cannot expect to reinvigorate the economy 
while this is the case.
  Congress has been considering this problem since 2009, and it is time 
for action. It's been two and a half years since the fall of 2008, and 
yet we are still facing high unemployment, a weak dollar, and a 
sluggish economy. It is time to move forward, and we know that to move 
forward we need to stimulate lending. That is why I support this bill.
  Mrs. MALONEY. Mr. Speaker, I rise today in support of H.R. 2056 
offered by my colleagues on the Financial Services Committee, Rep. Lynn 
Westmoreland and Rep. David Scott. I am proud to be a cosponsor of this 
legislation which requires the FDIC Inspector General to conduct a 
comprehensive study of issues raised by persistent failures of U.S. 
banks. These issues include appraisals, capital, loss share agreements 
and other issues that arise when a bank becomes vulnerable to closure.
  I have heard from banks in my district that have been working with 
the FDIC to recapitalize and restructure their institutions so they can 
avoid being closed. They argue that the FDIC offers them little 
flexibility or time to raise the capital they need or make the changes 
they need to satisfy the FDIC. I hope the study this bill authorizes 
will examine these procedures and bring to light any procedural changes 
that the FDIC can implement to address these concerns.
  H.R. 2056 was amended in committee to reflect some additional factors 
that the FDIC thought were important to include in the study's 
parameters. I urge my colleagues to support this important bill.
  Mr. WESTMORELAND. Mr. Speaker, I have no further requests for time, 
and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Georgia (Mr. Westmoreland) that the House suspend the 
rules and pass the bill, H.R. 2056, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. WESTMORELAND. Mr. Speaker, I object to the vote on the ground 
that a quorum is not present and make the point of order that a quorum 
is not present.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.
  The point of no quorum is considered withdrawn.

                          ____________________