[United States Statutes at Large, Volume 125, 112th Congress, 1st Session]
[From the U.S. Government Publishing Office, www.gpo.gov]


Public Law 112-88
112th Congress

An Act


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

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)); and
(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)).

(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;

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(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.
(2) Losses.--The significance of losses, including--
(A) the number of insured depository institutions
that have been placed into receivership or
conservatorship due to significant losses arising from
loans for which all payments of principal, interest, and
fees were current, according to the contractual terms of
the loans;
(B) the impact of significant losses arising from
loans for which all payments of principal, interest, and
fees were current, according to the contractual terms of
the loans, on the ability of insured depository
institutions to raise additional capital;
(C) the effect of changes in the application of fair
value accounting rules and other accounting standards,
including the allowance for loan and lease loss
methodology, on insured depository institutions,
specifically the degree to which fair value accounting
rules and other accounting standards have led to
regulatory action against banks, including consent
orders and closure of the institution; and
(D) whether field examiners are using appropriate
appraisal procedures with respect to losses arising from
loans for which all payments of principal, interest, and
fees were current, according to the contractual terms of
the loans, and whether the application of appraisals
leads to immediate write downs on the value of the
underlying asset.
(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

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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 1 year after the date of the enactment
of this Act, the Inspector General shall submit to Congress a report--

[[Page 1902]]

(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. CONGRESSIONAL TESTIMONY.

<> The Inspector General of the Federal Deposit
Insurance Corporation and the Comptroller General of the United States
shall appear before the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the House of
Representatives, not later than 150 days after the date of publication
of the study required under this Act to discuss the outcomes and impact
of Federal regulations on bank examinations and failures.
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).

Approved January 3, 2012.

LEGISLATIVE HISTORY--H.R. 2056:
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HOUSE REPORTS: No. 112-182 (Comm. on Financial Services).
CONGRESSIONAL RECORD, Vol. 157 (2011):
July 26, 28, considered and passed House.
Nov. 17, considered and passed Senate, amended.
Dec. 19, 20, House considered and concurred in Senate
amendments.