CHAP TER 2
Overview of the
This chapter provides an overview of the specific steps undertaken by the Federal
Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation (RTC)
to complete a resolution of a failing or failed institution. The intent is to provide back-
ground for the reader. Chapters 3 through 7 then trace in more detail the evolution of
issues associated with, and results of, various resolution alternatives employed by the
FDIC and the RTC between 1980 and 1994.
The three basic resolution methods for failed and failing institutions are a deposit pay-
off, a purchase and assumption (P&A) agreement, and an open bank assistance (OBA)
agreement. Through the years, the FDIC and RTC have used these transactions in a
number of variations, which are discussed in later chapters.
In a deposit payoff, as soon as the bank or thrift is closed, the FDIC is appointed
receiver, and all depositors with insured funds are paid the full amount of their insured
deposits.1 Depositors with uninsured funds and other general creditors of the failed
1. The FDIC’s insurance limit is $100,000. Any amount over that limit, including interest, is uninsured. The
FDIC uses the term “insured depositor” to refer to any depositor whose total deposits are under the insurance limit.
Similarly, the term “uninsured depositor” is used to refer to those depositors whose total deposits are over the in-
surance limit. It is important to note that customers with uninsured deposits are paid up to the insurance limit; and
only that portion of their deposits over $100,000 is uninsured. Deposit payoff is described in more detail in
Chapter 3, Evolution of the FDIC’s Resolution Practices.
M A NAGIN G THE CRISIS
institution are given receivership certificates entitling them to a share of the net proceeds
from the sale and liquidation of the failed institution’s assets.
The P&A agreement is a closed bank transaction in which a healthy institution
(generally referred to as eith