Financial Institution Insolvency and the Federal Response to the Regional Bank Failures of 2023

Financial Institution Insolvency and the Federal Response to the Regional Bank Failures of 2023

Financial Institution Insolvency and the
August 21, 2023
Federal Response to the Regional Bank
David H. Carpenter
Failures of 2023
Legislative Attorney

Three high-profile regional banks collapsed suddenly in the United States during the first half of
Michael D. Contino
2023. On March 10, 2023, the California Department of Financial Protection and Innovation
Legislative Attorney
(California DFPI) closed Silicon Valley Bank (SVB). Two days later, the New York State

Department of Financial Services shut down Signature Bank. In early May, the California DFPI
closed First Republic Bank (First Republic). These closures reflect the second- (First Republic),

third- (SVB), and fourth- (Signature Bank) largest bank failures in U.S. history.
Following each bank failure, those state financial regulators appointed the Federal Deposit Insurance Corporation (FDIC) as
receiver. Congress empowers the FDIC, as the nation’s deposit insurer, to resolve failed insured depository institutions (IDIs)
with the primary objectives of protecting insured depositors and the Deposit Insurance Fund (DIF). The FDIC entered
agreements under which three different healthy banks took over the failed banks. First-Citizens acquired all of SVB’s
deposits and approximately $72 billion in assets at a discount, and entered a loss-share agreement with the FDIC regarding
SVB’s commercial loans. Flagstar Bank purchased substantially all of Signature Bank’s deposits and approximately $38.4
billion of its assets, including certain loan portfolios at a discount. JPMorgan Chase purchased all of First Republic’s deposits
and substantially all of its assets, and entered into a loss-share agreement with the FDIC involving First Republic’s
commercial, residential, and single-family loans. The FDIC will continue to operate the portions of the institutions that it
retained until they are fully liquidated and otherwise wound-down.
The failures of SVB, Signature Bank, and First Republic sparked debate among policymakers about how IDIs are managed
and supervised for safety and soundness to avoid failure, as well as how the FDIC resolves IDIs when they become insolvent.
These regional bank failures have prompted regulatory reviews by the FDIC and the Board of Governors of the Federal
Reserve System, multiple congressional hearings, the introduction of several legislative proposals by Members of Congress,
and calls for congressional action by President Biden.
This report analyzes the FDIC’s authority over failed IDIs, the process by which IDIs are closed and the FDIC is appointed
conservator or receiver, the FDIC’s powers as conservator and receiver, the resolution options utilized by the FDIC applying
the “least-cost resolution” requirement, the receiver claims process, and the FDIC’s authority to hold officers and directors
accountable for an IDI’s failure. The report concludes with recent legislative actions in response to the regional bank failures
of 2023 and other considerations for Congress.

Congressional Research Service

link to page 4 link to page 6 link to page 6 link to page 8 link to page 9 link to page 9 link to page 10 link to page 11 link to page 12 link to page 13 link to page 14 link to page 15 link to page 15 link to page 16 link to page 16 link to page 16 link to page 17 link to page 17 link to page 18 link to page 18 link to page 20 link to page 23 Financial Institution Insolvency and the Federal Response to Regional Bank Failures

Contents
Overview of Bank Supervision and the Bank Failures of 2023 ...................................................... 1
FDIC’s Authority Over Failed Insured Depository Institutions ...................................................... 3
Background and Overview ........................................................................................................ 3
Grounds for Appointing the FDIC as Conservator or Receiver ................................................ 5
General Missions as Conservator and Receiver ........................................................................ 6
Conservatorship and Receivership Powers ............................................................................... 6
Additional Powers as Receiver ................................................................................................. 7
Least-Cost Resolution Requirement.......................................................................................... 8
Systemic Risk Exception to the Least-Cost Resolution Requirement ................................ 9
Options for Resolving IDI Failures ......................................................................................... 10
Purchase and Assumption Agreements (P&As) ................................................................. 11
Deposit Payoff .................................................................................................................. 12
Bridge Bank ...................................................................................................................... 12
Open Institution Assistance ............................................................................................... 13
Claims Process as Receiver ..................................................................................................... 13
Overview ........................................................................................................................... 13
Payment of Claims and Priority of Claimants .................................................................. 14
Agreements Against the Interests of the FDIC ................................................................. 14
Statutes of Limitation Applicable to Conservatorships and Receiverships ............................. 15
Officer and Director Liability ................................................................................................. 15
Considerations for Congress.......................................................................................................... 17

Contacts
Author Information ........................................................................................................................ 20

Congressional Research Service

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

Overview of Bank Supervision and the Bank
Failures of 2023
Multiple high-profile regional banks collapsed in the United States during the first half of 2023,
raising concerns about the financial stability of the banking sector and putting a spotlight on the
processes by which federal regulators supervise banks for safety and soundness and resolve failed
banks.1
For a financial institution to offer federally insured deposits, it must receive a banking charter
from either the Office of the Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (Fed Board), the Federal Deposit Insurance Corporation (FDIC), or a
state banking regulator. These state and federally chartered banks and thrifts (insured depository
institutions, or IDIs) are subject to comprehensive regulation for both safety and soundness
(prudential regulation), with the goal of ensuring that banks maintain profitability and avoid
failure. Consumer compliance regulation is designed to ensure that banks comply with applicable
consumer protection and fair-lending laws. The OCC is the prudential regulator for federally
chartered IDIs. The state chartering authorities and the Fed Board share prudential regulation of
state-chartered IDIs that are members of the Federal Reserve System (state-chartered member
banks). State chartering authorities and the FDIC are the prudential regulators of state-chartered
IDIs that are not members of the Federal Reserve System (state-chartered nonmember banks).
The FDIC, in addition to its role as supervisor, insures deposits of IDIs up to the statutory limit of
$250,000, per depositor, per FDIC-insured bank, per ownership category2 and maintains the
Deposit Insurance Fund (DIF).3 The FDIC also plays a crucial role in the resolution of banks.
Congress empowers the FDIC, as the nation’s deposit insurer, to resolve failed IDIs with the
primary objectives of protecting insured depositors and the DIF.
On March 10, 2023, the California DFPI closed Silicon Valley Bank (SVB), a state-chartered
member bank.4 Two days later, the New York State Department of Financial Services shut down
Signature Bank, a state-chartered, nonmember bank.5 Then on May 1, the California DFPI closed
First Republic Bank (First Republic), another state-chartered, nonmember bank.6 Each of these
institutions held between $100 billion and $250 billion in total consolidated assets,7 making these
failures the second- (First Republic), third- (SVB), and fourth- (Signature Bank) largest bank

1 For an overview of bank regulation, see CRS In Focus IF11055, Introduction to Bank Regulation: Supervision, by
Marc Labonte and David W. Perkins.
2 12 U.S.C. § 1821(a). See also Deposit Insurance FAQs, Fed. Deposit Ins. Corp. (last updated Mar. 20, 2023).
3 12 U.S.C. § 1821(a)(1)(E).
4 California Financial Regulator Takes Possession of Silicon Valley Bank, Cal. Dep’t of Fin. Prot. and Innovation
(Mar. 10, 2023), https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/.
For an overview of bank chartering authorities, see CRS Report R47014, An Analysis of Bank Charters and Selected
Policy Issues, by Andrew P. Scott.
5 Notice Regarding Signature Bank, N.Y. Dep’t of Fin. Servs. (Mar. 12, 2023),
https://www.dfs.ny.gov/consumers/alerts/SignatureBank.
6 California Financial Regulator Takes Possession of First Republic Bank, Dep’t of Fin. Prot. and Innovation (May 1,
2023), https://dfpi.ca.gov/2023/05/01/california-financial-regulator-takes-possession-of-first-republic-bank; Notice
Regarding Signature Bank, N.Y. Dep’t of Fin. Servs. (Mar. 12, 2023),
https://www.dfs.ny.gov/consumers/alerts/SignatureBank.
7 Karl Russell & Christine Zhang, 3 Failed Banks This Year Were Bigger than 25 That Crumbled in 2008, N.Y. Times
(May 1, 2023), https://www.nytimes.com/interactive/2023/business/bank-failures-svb-first-republic-
signature.html#:~:text=Government%20regulators%20seized%20and%20sold,of%20%24532%20billion%20in%20ass
ets.
Congressional Research Service

1

link to page 13 Financial Institution Insolvency and the Federal Response to Regional Bank Failures

failures in U.S. history.8 In each instance, the state bank regulators closed the IDI and appointed
the FDIC as its receiver.9
The FDIC, as receiver, transferred all deposits and substantially all assets of SVB and Signature
Bank into separate, newly chartered bridge banks—Silicon Valley Bridge Bank, N.A.10 and
Signature Bridge Bank, N.A.11 These bridge banks opened the Monday after regulators closed the
failed banks, giving customers full access to their deposits.12 The FDIC organized and operated
these bridge banks temporarily to give it more time to find acceptable purchasers for the failed
institutions. On the same day the bridge banks opened, the Secretary of the Treasury, on the
recommendation of the FDIC and the Fed Board, invoked the systemic risk exception under
Section 13 of the Federal Deposit Insurance Act (FDI Act)13 to provide the FDIC greater
flexibility in the resolving both SVB and Signature Bank, while protecting financial stability.14
The invocation of the systemic risk exception allowed the FDIC to guarantee all of the deposits—
both insured and uninsured—of both banks.15
Approximately two weeks after the establishment of the bridge banks, the FDIC entered into
purchase and assumption (P&A) agreements with First-Citizens Bank & Trust Company (First-
Citizens)16 and Flagstar Bank, National Association17 for SVB and Signature Bank, respectively.
First-Citizens acquired all of SVB’s deposits and approximately $72 billion in assets at a
discount, and entered a loss-share agreement with the FDIC regarding SVB’s commercial loans.18
At the time the P&A with First-Citizens was announced, the FDIC estimated that SVB’s failure
would cost the DIF $20 billion.19 Flagstar Bank purchased substantially all of Signature Bank’s
deposits and approximately $38.4 billion of its assets, including certain loan portfolios at a

8 Matthew Goldberg, The 7 Largest Bank Failures in U.S. History, Bankrate (May 1, 2023),
https://www.bankrate.com/banking/largest-bank-failures/.
9 Press Release, Cal. Dep’t of Fin. Prot. & Innovation, California Financial Regulator Takes Possession of Silicon
Valley Bank, Cal. Dep’t of Fin. Prot. and Innovation (Mar. 10, 2023), https://dfpi.ca.gov/2023/03/10/california-
financial-regulator-takes-possession-of-silicon-valley-bank/.
10 Prior to establishing the SVB bridge bank, the FDIC briefly established a Depository Institution National Bank
(DINB) with the expectation of liquidating the bank through a deposit payoff. See Press Release, FDIC, FDIC Creates a
Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara,
California, Fed. Deposit Ins. Corp. (Mar. 10, 2023), https://www.fdic.gov/news/press-releases/2023/pr23016.html. For
more information on DINBs and deposit payoffs, see the infra p.10 “Options for Resolving IDI Failures.”
11 Press Release, FDIC, FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, Santa Clara,
California, (Mar. 13, 2023), https://www.fdic.gov/news/press-releases/2023/pr23019.html; Press Release, FDIC, FDIC
Establishes Signature Bridge Bank, N.A., as Successor to Signature Bank, New York, NY, (Mar. 13, 2023),
https://www.fdic.gov/news/press-releases/2023/pr23018.html.
12 Id.
13 12 U.S.C. § 1823(c)(4)(G).
14 Press Release, FDIC, Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC, Fed. Deposit
Ins. Corp. (Mar. 12, 2023), https://www.fdic.gov/news/press-releases/2023/pr23017.html. For more information on the
systemic risk exception, see CRS In Focus IF12378, Bank Failures: The FDIC’s Systemic Risk Exception, by Marc
Labonte.
15 See Joint Statement by the Department of the Treasury supra note 14.
16 Press Release, FDIC, First–Citizens Bank & Trust Company, Raleigh, NC, to Assume All Deposits and Loans of
Silicon Valley Bridge Bank, N.A., (Mar. 26, 2023), https://www.fdic.gov/news/press-releases/2023/pr23023.html.
17 Press Release, FDIC, Subsidiary of New York Community Bancorp, Inc., to Assume Deposits of Signature Bridge
Bank, N.A., From the FDIC, (Mar. 26, 2023), https://www.fdic.gov/news/press-releases/2023/pr23021.html.
18 Press Release, FDIC, First–Citizens Bank & Trust Company, Raleigh, NC, to Assume All Deposits and Loans of
Silicon Valley Bridge Bank, N.A., From the FDIC, (Mar. 26, 2023), https://www.fdic.gov/news/press-
releases/2023/pr23023.html.
19 Id.
Congressional Research Service

2

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

discount.20 The FDIC estimated at the time that Signature Bank’s failure would cost the DIF $2.5
billion.21
On the day that the California DFPI closed First Republic and appointed the FDIC as its receiver,
the FDIC signed a P&A agreement with JPMorgan Chase Bank under which JPMorgan Chase
purchased all of First Republic’s deposits and substantially all of its assets, and entered into a
loss-share agreement with the FDIC involving First Republic’s commercial, residential, and
single-family loans.22 The FDIC estimated at the time that First Signature’s failure would cost the
DIF $13 billion.23
The FDIC will maintain receiverships for each of the three failed institutions until it is able to
liquidate all the assets and liabilities that were not included in the P&A agreements and otherwise
resolve the affairs of the institutions.24 All proceeds realized from the resolutions of these
institutions will be used to reimburse the FDIC for both the administrative costs of the
receiverships and disbursements made to protect insured depositors, and to otherwise pay claims
against the failed IDIs in accordance with the priority schemes established by the FDI Act.
This report analyzes the FDIC’s authority over failed IDIs, the process by which IDIs are closed
and the FDIC is appointed conservator or receiver, the FDIC’s powers as conservator and
receiver, the resolution options utilized by the FDIC applying the “least-cost resolution”
requirement, the receiver claims process, and the FDIC’s authority to hold officers and directors
accountable for an IDI’s failure. The report concludes with recent legislative actions in response
to the regional bank failures of 2023 and other considerations for Congress.
FDIC’s Authority Over Failed Insured Depository
Institutions
Background and Overview
The FDI Act establishes the FDIC as an independent federal agency to provide federal deposit
insurance to IDIs.25 To further this statutory purpose, the FDIC administers the DIF, which
consists of premiums assessed on IDIs based on the amount of insured deposits each institution
holds.26 If an IDI fails, the FDIC must see to it that insured deposits are protected through
disbursements from the DIF and proceeds derived from the resolution and wind-down of the

20 Press Release, FDIC, Subsidiary of New York Community Bancorp, Inc., to Assume Deposits of Signature Bridge
Bank, N.A., From the FDIC, (Mar. 26, 2023), https://www.fdic.gov/news/press-releases/2023/pr23021.html.
21 Id.
22 Press Release, FDIC, JPMorgan Chase Bank, Columbus, Ohio Assumes All the Deposits of First Republic Bank, San
Francisco, California, (May 1, 2023), https://www.fdic.gov/news/press-releases/2023/pr23034.html.
23 Id.
24 Failed Bank Information for Silicon Valley Bank, Santa Clara, CA, Fed. Deposit Ins. Corp.,
https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html; Failed Bank Information
for Signature Bank, New York, NY, Fed. Deposit Ins. Corp., https://www.fdic.gov/resources/resolutions/bank-
failures/failed-bank-list/signature-ny.html; Failed Bank Information for First Republic Bank, San Francisco, CA, Fed.
Deposit Ins. Corp., https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/first-
republic.html#:~:text=On%20Monday%2C%20May%201%2C%202023,a%20financial%20institution%20is%20close
d.
25 12 U.S.C. §§ 1811–12.
26 For a description of deposit insurance, see CRS Report R41718, Federal Deposit Insurance for Banks and Credit
Unions, by Darryl E. Getter.
Congressional Research Service

3

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

failed institution. Federal deposit insurance is backed by the full faith and credit of the United
States.27 If the DIF is exhausted, the FDIC has a permanent appropriation authorizing it to borrow
from the Treasury to protect insured depositors.28
Due to the possible threat to the federal fisc,29 among other reasons,30 Congress established a
special regime for resolving depository institution insolvencies. Rather than subjecting IDIs to the
U.S. Bankruptcy Code31 that is applicable to most corporate bankruptcies,32 the FDI Act
establishes an FDIC-administered conservatorship/receivership regime for resolving IDIs.33 When
an IDI fails, the institution’s charterer, its primary federal regulator, or the FDIC is authorized to
act ex parte (i.e., without notice or a hearing) to seize the institution and its assets and install the
FDIC as conservator or receiver.34 If the circumstances allow for it, the institution’s regulator and
the FDIC consult prior to acting so that the FDIC may investigate the situation and determine its
resolution strategy before the public is made aware of the looming failure.35
The IDI’s regulators decide whether to appoint the FDIC as conservator or receiver based on one
or more grounds specified in Section 11 of the FDI Act.36 Neither the creditors of an institution
nor its managers have the authority to declare the institution insolvent. Appointment of the FDIC
as conservator or receiver for a federally chartered depository institution is generally at the
discretion of the institution’s chartering authority.37 In the case of a state-chartered depository

27 12 U.S.C. § 1828(a)(1)(B).
28 12 U.S.C. § 1824(a). For instance, in the savings and loan crisis of 1985–1995, 1,043 thrifts failed with combined
assets of over $500 billion, costing taxpayers $124 billion and the thrift industry, $29 billion. Timothy Curry & Lynn
Shibut, The Cost of the Savings and Loan Crisis: Truth and Consequences, 13 FDIC BANKING REV. 26, 33 (2000).
29 The public fisc refers to the U.S. Treasury. See, e.g., United States ex rel. Ryan v. Endo Pharms., 27 F. Supp. 3d 615,
626 n.11 (E.D. Pa. 2014), aff’d sub nom, United States ex rel. Dhillon v. Endo Pharms., 617 F. App’x 208 (3d Cir.
2015); see also Helen Schroeder, Getting Away with Murder: Why U.S. Courts Should Incorporate the VCLT in the
Interpretation of International Tax Treaties, 21 SANTA CLARA J. INT’L L. 19, 29 n.79 (2023).
30 The general assumption has been that the pivotal role banks and thrifts play in mainstream economic life justifies
government control of bank and thrift insolvencies. See, e.g., David A. Skeel, Jr., The Law and Finance of Bank and
Insurance Insolvency Regulation, 76 TEX. L. REV. 723 (1998). It has also been suggested that the risk of insider abuse
is another primary reason for treating bank or thrift insolvencies under a special regime. See, Peter P. Swire, Bank
Insolvency Law Now That It Matters Again, 42 DUKE L. J. 469 (1992).
31 11 U.S.C. § 109(b), (d). See CRS Legal Sidebar LSB10926, Federal Statutory Bankruptcy Alternatives: A Roadmap,
by Michael D. Contino.
32 See Robert R. Bliss & George G. Kaufman, U.S. Corporate and Bank Insolvency Regimes: A Comparison and
Evaluation, 2 Va. L. & Bus. Rev. 143 (2007) (comparing bank and other corporate insolvencies).
33 12 U.S.C. § 1821.
34 12 U.S.C. § 1821(c)(2)–(4). The FDIC must be appointed conservator or receiver of a failed federally chartered
depository. State-chartered depositories can be resolved in accordance with state law. Nevertheless, the FDIC is usually
appointed conservator or receiver upon their failure. In a rare instance in which another entity is appointed to resolve a
failed state-chartered depository, the FDIC can still appoint itself conservator or receiver under certain circumstances.
12 U.S.C. § 1821(c)(4), (9), (10).
35 FDIC, CRISIS AND RESPONSE: AN FDIC HISTORY, 2008–2013, 186 (2017).
36 12 U.S.C. § 1821(c).
37 12 U.S.C. § 1464(d)(2)(E)(ii) (national savings institution); 12 U.S.C. § 191 (national banks). The decision to appoint
a receiver for a national bank is to be determined by the OCC “in the Comptroller’s discretion.” 12 U.S.C. § 191.
OCC’s decision is generally not subject to judicial review. U.S. Savs. Bank v. Morgenthau, 85 F. 2d 811 (D.C. Cir.
1936). In addition to the grounds specified in the FDI Act, 12 U.S.C. § 1821(c)(5), the OCC may appoint a receiver
upon determining that the bank’s board of directors consists of fewer than five members. 12 U.S.C. § 191(2).
Congressional Research Service

4

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

institution, appointment of the FDIC as conservator or receiver may be at the discretion of the
state chartering authority, the primary federal regulator, or, in certain cases, the FDIC.38
The FDIC holds broad powers as conservator or receiver. The FDIC as conservator or receiver
may “take any action authorized by . . . . [the FDI Act], which the Corporation determines is in
the best interests of the depository institution, its depositors, or the Corporation.”39 An IDI in
conservatorship remains subject to “banking agency supervision.”40 Otherwise, the FDIC as
conservator or receiver is not subject to any other authority in exercising its powers.41
Grounds for Appointing the FDIC as Conservator or Receiver
The FDI Act authorizes the appointment of a conservator or receiver on a number of grounds.
These include financial insolvency, that is, when the institution has insufficient assets to meet its
obligations, but regulators also are authorized to intervene prior to the institution becoming
insolvent.42 The grounds on which the FDIC may be appointed conservator or receiver include if
the IDI
• has insufficient assets to meet obligations;
• is undercapitalized with no reasonable prospect of becoming adequately
capitalized, fails to submit an adequate recapitalization plan, or materially fails to
implement an accepted capital restoration plan;
• suffers losses with no reasonable likelihood of becoming adequately capitalized
absent federal assistance;
• is in an unsafe or unsound condition to transact business;
• provides consent through its board of directors or shareholders;
• has its deposit insurance revoked; or

38 12 U.S.C. § 1821(c)(2), (6) (appointment of the FDIC as conservator or receiver of federally chartered depository
institution at the discretion of the chartering agency); 12 U.S.C. § 1821(c)(3), (4), (9), (10) (appointment of the FDIC as
conservator or receiver of state-chartered depository institution). The FDIC may appoint itself as receiver for a state-
chartered, FDIC-insured depository institution upon determining that (1) a state-appointed conservator or receiver has
been appointed and 15 consecutive days have passed and one or more depositors has been unable to withdraw any
amount of insured deposit or (2) the institution has been closed under state law and the FDIC determines that one of the
grounds specified in 12 U.S.C. § 1821(c)(4) exists or existed. If the FDIC acts to appoint itself conservator or receiver
under any of those circumstances, the institution is provided with an opportunity for judicial review. 12 U.S.C.
§ 1821(c)(7). There is also authority for the FDIC to appoint itself as conservator or receiver for any insured depository
institution “to prevent loss to the deposit insurance fund.” 12 U.S.C. § 1821(c)(10).
39 12 U.S.C. § 1821(d)(2)(J)(ii). See MBIA Ins. Corp. v. FDIC, 708 F.3d 234, 236 (D.C. Cir. 2013); Freeman v. FDIC,
56 F.3d 1394, 1398–99 (D.C. Cir. 1995) (“In particular, the FDIC’s broad powers as receiver include the power to
foreclose on the property of a debtor held by the failed bank as collateral, and no court may enjoin the exercise of that
power.”); FDIC v. Am. Cas. Co., 975 F.2d 677, 681 (10th Cir. 1992) (“Section 1821(d)(2) enunciates some of the
broad powers granted to the FDIC.”).
40 12 U.S.C. § 1821(c)(2)(D), 3(D).
41 12 U.S.C. § 1821(c)(2)(C). This provision states: “When acting as conservator or receiver. . . , the Corporation shall
not be subject to the direction or supervision of any other agency or department of the United States or any State in the
exercise of the Corporation’s rights, powers, and privileges.” See also 12 U.S.C. § 1821(j), entitled “Limitation on
court action,” which sets forth: “Except as provided in this section, no court may take any action, except at the request
of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the
Corporation as a conservator or receiver.”
42 Keith R. Fisher, 2 Banking Law Manual § 1.03[4] (Lexis Pub. (3d ed.) (hereinafter Fisher), (“[T]he United States
banking industry has long been subject to a heavy overlay of government regulation whose implicit (if not explicit) aim
is to avoid insolvency.”).
Congressional Research Service

5

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

• is convicted of a money laundering offense.43
General Missions as Conservator and Receiver
The FDI Act establishes distinct missions for the FDIC as conservator on the one hand and
receiver on the other. The FDIC’s primary role as conservator is to take any action “(i) necessary
to put the insured depository institution in a sound and solvent condition . . . and (ii) [any action
which is] appropriate to carry on the business of the institution and preserve and conserve the
assets and property of the institution.”44 The U.S. Court of Appeals for the Eleventh Circuit has
noted that “[t]he conservator’s mission is to conserve assets which often involves continuing an
ongoing business.”45 The FDIC can use a conservatorship to stabilize an institution, but more
frequently the FDIC uses the mechanism to give it time to prepare for the institution’s ultimate
closure and receivership.46 In practice, the vast majority of failed IDIs result in receiverships, and
conservatorships are rare.47
In contrast, the FDIC’s general mission as receiver is to liquidate the IDI and sell its assets.48 To
further this mission, the FDI Act grants the FDIC more powers as receiver than when acting as a
conservator, as discussed below.
Conservatorship and Receivership Powers
The FDI Act broadly empowers the FDIC as conservator and receiver. In either capacity, the
FDIC succeeds to “all rights, titles, powers, and privileges of the insured depository institution”
and is endowed with “all the powers of the members or shareholders, the directors, and the
officers of the institution.”49 The FDIC may collect all obligations due to the institution, perform
its duties, and preserve and conserve its assets.50 In addition to these general powers, the FDI Act
provides the FDIC as conservator or receiver “such incidental powers as shall be necessary to
carry out such powers.”51 The FDI Act also provides that, in exercising its conservatorship or
receivership authority, the FDIC “shall not be subject to the direction or supervision of any other

43 12 U.S.C. § 1821(c)(5). Other grounds for appointing the FDIC as conservator or receiver include:
undercapitalization with no reasonable prospect of becoming adequately capitalized, failing to submit an adequate
recapitalization plan, or materially failing to implement an accepted capital restoration plan; critical undercapitalization
or substantially insufficient capital; willful violation of a final cease-and-desist order; concealment of the institution’s
books or records or refusal to submit to a regulatory inspection or examination; asset or earning dissipation due to
violation of statute or regulation or an unsafe or unsound condition; legal violation or an unsafe or unsound practice
that is likely to cause insolvency, weaken the institution’s financial standing, or seriously prejudice the interests of
depositors or the DIF. Id.
44 12 U.S.C. § 1821(d)(2)(D).
45 Resol. Tr. Corp. v. United Tr. Fund, Inc., 57 F.3d 1025, 1033 (11th Cir. 1995). See also Resolution Tr. Corp. v.
Cheshire Mgmt. Co., 18 F.3d 330, 333 (6th Cir. 1994); Resolution Tr. Corp. v. CedarMinn Bldg. LP, 956 F.2d 1446,
1453 (8th Cir. 1992).
46 See Del. Cnty. v. Fed. Hous. Fin. Agency, 747 F.3d 215, 219 (3d Cir. 2014). See also Fisher supra note 42, § 15.03.
47 Richard M. Hynes & Steven D. Walt, Why Banks Are Not Allowed in Bankruptcy, 67 WASH & LEE L. REV. 985, 987
n.3 (2010) (“Conservatorships are very rare, however. Between 1934 and 2005 only two banks were resolved in
conservatorships.”).
48 12 U.S.C. § 1821(d)(2)(E). The statute also specifies that, as receiver of a state-chartered institution, the FDIC may
“liquidate the institution in an orderly manner . . . and . . . make any other disposition of any matter concerning the
institution, as the [FDIC] determines is in the best interests of the institution, the depositors of the institution, and the
[FDIC].” 12 U.S.C. § 1821(c)(13)(B).
49 12 U.S.C. § 1821(d)(2).
50 Id. See Zucker v. Rodriguez, 919 F.3d 649, 655–56 (1st Cir. 2019).
51 12 U.S.C. § 1821(d)(2)(J). See Willner v. Dimon, 849 F.3d 93, 106 (4th Cir. 2017).
Congressional Research Service

6

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

agency or department of the United States or any State in the exercise of the [FDIC’s] rights,
powers, and privileges.”52 The FDIC is provided broad rulemaking authority to issue rules for the
conduct of conservatorships or receiverships, which are codified at 12 C.F.R. Part 360.53
The FDI Act also provides the FDIC as conservator or receiver a number of specific powers to
further its general and incidental authority. These include the power to
• merge the IDI with another IDI;54
• transfer any asset of the IDI, including trust department assets;55
• pay valid obligations of the IDI;56
• issue subpoenas;57
• avoid certain fraudulent transfers made with the intent to “hinder, delay, or
defraud the IDI”;58
• repudiate contracts (with the exception of loans from the Federal Home Loan
Banks or Federal Reserve Banks) or leases entered into by the institution, under
certain conditions;59
• enforce most of the IDI’s contracts;60 and
• bring an action to hold a director or officer of an IDI personally liable for gross
negligence.61
Additional Powers as Receiver
The FDI Act grants the FDIC a broader range of powers in its capacity as receiver relative to its
capacity as conservator. As receiver, the FDIC may
• organize a new depository institution under 12 U.S.C. § 1821(m) or a bridge
depository institution under 12 U.S.C. § 1821(n);62

52 12 C.F.R. § 360 (1993); see 12 U.S.C. § 1821(c)(2)(B), and (C), (3)(B), (C). The depository institution in
conservatorship remains subject to “banking agency supervision.” 12 U.S.C. § 1821(c)(2)(D) (federal depository
institution) and (c)(3(D) (state depository institution).
53 12 U.S.C. § 1821(d)(1).
54 12 U.S.C. § 1821(d)(2)(G)(i).
55 12 U.S.C. § 1821(d)(2)(G)(ii). Unless the FDIC is transferring assets to a new depository institution or a bridge
depository institution, the FDIC may not transfer assets without the approval of the appropriate Federal banking
agency.
56 12 U.S.C. § 1821(d)(2)(H).
57 12 U.S.C. § 1821(d)(2)(I).
58 12 U.S.C. § 1821(d)(17).
59 12 U.S.C. § 1821(e)(1). The statute requires that the repudiation determination be within a reasonable time following
the appointment of the receiver or conservator. 12 U.S.C. § 1821(e)(2). It limits damages to “actual direct
compensatory damages,” 12 U.S.C. § 1821(e)(3), and contains specific provisions relating to various types of contracts
and leases. These include leases for which the insured depository institution is the lessee or lessor, 12 U.S.C.
§ 1821(e)(4) and (5); contracts for the sale of real property, 12 U.S.C.§ 1821(e)(6); service contracts, 12 U.S.C.
§ 1821(e)(7); and any certain securities contract, commodity contract, forward contract, repurchase agreement, swap
agreement, or similar agreement that the FDIC determines to be “a qualified financial contract,” 12 U.S.C.
§ 1821(e)(8)–(10). The Corporation has authority to enforce contracts under 12 U.S.C. § 1821(e)(13). The exception
for Federal Home Loan Bank and Federal Reserve Bank loans is found at 12 U.S.C. § 1821(e)(14).
60 12 U.S.C. § 1821(e)(12).
61 12 U.S.C. § 1821(k).
62 12 U.S.C. § 1821(d)(2)(F).
Congressional Research Service

7

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

• merge the IDI with another IDI;63
• transfer assets and liabilities to another IDI;64
• make rules for and determine claims against the receivership, subject to statutory
prescriptions;65
• assert exemptions from all federal, state, and local criminal prosecution for any
act allegedly committed by the IDI, or persons acting on the IDI’s behalf, prior to
the appointment of the FDIC as receiver;66 and
• fix fees, compensation, and expenses of the liquidation and administration of the
IDI and pay for these out of receivership funds.67
Least-Cost Resolution Requirement
One of the guiding principles the FDI Act imposes upon the FDIC in resolving IDI failures is the
least-cost resolution requirement.68 The FDIC, with one exception discussed below, is barred
from resolving a failed IDI by any method other than the one that is the least costly to the DIF.69
Specifically, the FDIC is generally prohibited from resolving failing institutions in any manner
unless it determines that (1) the action is necessary to protect that institution’s insured deposits
and (2) the total to be expended and obligations to be incurred will cost the DIF less than any
other resolution method.70 To determine which approach is least costly, the FDIC is required to
evaluate alternatives on a present-value basis, document the underlying assumptions, and include
forgone federal tax revenues as part of the cost.71
In accordance with the least-cost resolution requirement, the FDIC may not take any action to
protect depositors for more than the insured portions of their deposits or protect creditors other
than depositors, absent a systemic risk invocation.72 However, the FDI Act allows the FDIC to
arrange purchase and assumption transactions in which the acquiring institution takes on

63 12 U.S.C. § 1821(d)(2)(G).
64 Id. The FDIC may also merge or transfer assets in its capacity as conservator.
65 12 U.S.C. § 1821(d)(3)–(11).
66 12 U.S.C. § 1825(b)(4).
67 Id. The FDIC as receiver may also appoint agents to assist in its duties as receiver, 12 U.S.C. § 1822(a); assert
exemption from any requirement to post a bond, id.; assert immunity to attachment or execution upon assets of
receivership and obtain insulation from judicial oversight of rights in assets of the receivership or claims relating to acts
or omissions of the IDI or the FDIC as receiver, 12 U.S.C. § 1821(d)(13)(C), (D); and assert exemptions from state and
local taxes (except for real estate taxes), from tax penalties and fines, and from liens or foreclosure on its property
without its consent, 12 U.S.C. § 1825(b).
68 Under § 143 of the Federal Deposit Insurance Corporation Improvement Act of 1991, P.L. 102-242, there is a sense
of Congress urging the FDIC to favor early resolution of troubled institutions when doing so involves the least possible
long-term cost to the insurance fund. To achieve this end, the FDIC is exhorted to follow various practices: entering
into competitive negotiation; requiring substantial private investment; requiring owners and holding companies of
troubled institutions to make concessions; making sure that there is qualified management for resulting institutions;
assuring FDIC participation in the resulting institution; and structuring transactions so that the FDIC does not acquire
too much of a troubled institution’s problem assets. 12 U.S.C. § 1823 note.
69 12 U.S.C. § 1823(c)(4)(A).
70 Id.
71 12 U.S.C. § 1823(c)(4)(B).
72 12 U.S.C. § 1823(c)(4)(A).
Congressional Research Service

8

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

uninsured deposit liabilities of the failed IDI if doing so does not result in greater loss to the DIF
than had the IDI been liquidated.73
As a result of the least-cost resolution requirement, the FDIC generally has four options for
resolving IDI failures: a purchase and assumption (P&A); a deposit payoff;74 a bridge bank; or
open institution assistance.75 A P&A is the FDIC’s most commonly used resolution method
because it typically is the least costly to the DIF. 76 In addition to evaluating options based on the
least-cost resolution requirement, the FDIC must consider the potential adverse economic effect
of any resolution on the local community and the viability of other depository institutions in the
same community, and issue guidelines and take certain actions to alleviate this impact.77
Systemic Risk Exception to the Least-Cost Resolution Requirement
The FDI Act provides one exception to the least-cost resolution requirement. The requirement
may be waived to prevent systemic risk to financial stability or general economic conditions.78
Invocation of a systemic risk waiver to the least-cost resolution standard requires that the
Secretary of the Treasury, in consultation with the President and two-thirds of both the FDIC and
Board of Governors of the Federal Reserve System, determines that
• complying with the least-cost resolution requirement “would have serious
adverse effects on economic conditions or financial stability,”79 and
• waiving the requirement “would avoid or mitigate such adverse effects.”80
When the systemic risk exception is used, the FDI Act requires the FDIC to impose emergency
special assessments on IDIs to cover any losses to the DIF stemming from the resulting
resolution.81

73 12 U.S.C. § 1823(c)(4)(E).
74 A deposit payoff is also sometimes referred to as a payout or a liquidation. See CRISIS AND RESPONSE, supra note 35.
75 Michael Mitchelson, The FDIC Response to Penn Square and the Local Implementation of a National Policy, 27
OKLA. CITY U. L. REV. 1039, 1040 (2002). See Buck v. F.D.I.C., 75 F.3d 1285, 1286–87 (8th Cir. 1996) (“The FDIC
has a number of options for resolving a bank failure, including, but not limited to, an immediate liquidation, the sale of
the failed bank, or the formation of a transition bridge bank with an eventual sale to a healthy succeeding bank.”).
76 CRISIS AND RESPONSE, at 188. See MBIA Ins. Corp. v. FDIC, 708 F.3d 234, 243 (11th Cir. 2013) (referring to P&A
agreements as “commonly-used”); see also In re 604 Columbus Ave Realty Tr., 968 F.2d 1332, 1337 (1st Cir. 1992)
(“‘The preferred option when a bank fails, therefore, is the purchase and assumption option.’”) (quoting Timberland
Design, Inc. v. First Serv. Bank for Savs., 932 F.2d 46, 48 (1st Cir. 1991)).
77 12 U.S.C. § 1821(h).
78 12 U.S.C. § 1823(c)(4)(G).
79 12 U.S.C. § 1823(c)(4)(G)(i)(I).
80 12 U.S.C. § 1823(c)(4)(G)(i)(II).
81 12 U.S.C. § 1823(c)(4)(G)(ii)–(iv). Additionally, the Secretary of the Treasury must document the determination and
the Comptroller General of the United States must review the invocation of the exception for, among other things, “the
likely effect of the determination and such action on the incentives and conduct of insured depository institutions and
uninsured depositors.” Id. Section 126(c) of the Emergency Economic Stabilization Act of 2008, P.L. 110-343,
amended the FDI Act to makes unenforceable certain types of contracts and agreements related to the FDIC’s systemic
risk exception authority. 12 U.S.C. § 1823(c)(11). The section declares unenforceable and contrary to public policy any
contractual provisions that restrict the ability of any person to acquire or to offer to acquire or that prohibit a person
from acquiring or offering to acquire “all or part of any insured depository institution . . . in connection with any
transaction in which the [FDIC] . . . exercises its authority [with respect to systemic risk].” Id. The prohibition covers
contractual provisions that prohibit any person from using previously disclosed information in connection with such an
offer. For example, this description would apply to an agreement by which the target institution agreed to keep
confidential details of the negotiation with the prospective acquirer, and an exclusivity agreement, whereby a
(continued...)
Congressional Research Service

9

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

The Secretary of the Treasury invoked the systemic risk exception in response to the failures of
SVB and Signature Bank in 2023. The Secretary, upon the recommendation of a supermajority of
both the FDIC and the Federal Reserve, waived the least-cost resolution requirement applicable to
both the SVB and Signature Bank failures. In so doing, the regulators announced that the FDIC
would guarantee all of the institutions’ deposits, including their uninsured deposits.82 The
regulators did not make a systemic-risk determination for First Republic.
Regulators also invoked the systemic risk exception several times during the banking crisis that
began in 2008, including for Wachovia Bank, Bank of America, and Citigroup.83
Options for Resolving IDI Failures
When an IDI fails, the institution’s chartering authority revokes the banking charter, shuts down
the bank, and appoints the FDIC its receiver.84 The FDIC immediately establishes a
receivership.85 The FDIC has explained that “receivership does not end until all the bank’s assets
are sold and all the claims against the bank are addressed.”86 When possible, the FDIC will
prepare for the IDI’s failure in advance, which can involve taking steps to find an acquirer for the
failed institution—a process that the FDIC refers to as “franchise marketing.”87 To market a
failing institution’s franchise, the FDIC uses a bidding process to determine the best and least-
costly option for resolving the institution.88 These bids include the assets and liabilities that a
potential acquirer wants to purchase, along with any money it would want from the FDIC to
complete the deal, which can vary depending on the value of the assets versus the liabilities
proposed to be acquired, the extent to which those assets and liabilities fit within the acquiring
bank’s business model, and the extent of competition in the bidding process.89 After receiving all
bids, the FDIC conducts the least-cost resolution analysis.90 This process typically results in some
form of a P&A, with the FDIC generally preferring to sell the bank’s assets to a healthy IDI as
quickly as possible to reduce the cost and complexity of FDIC-run receivership.91 When the FDIC
is unable to find an acquirer or all proposed acquisitions would be more costly to the DIF than a
deposit payoff, the FDIC usually will use a payoff.92 Though infrequent, the FDIC may also use a

prospective acquirer secures a commitment from the target institution that it will not sell the institution to another party.
An exclusivity agreement, for example, arose in the aftermath of Wachovia Bank’s failure. Citigroup sued Wells Fargo,
accusing it of interfering with an exclusivity agreement to purchase Washington Mutual. See Debra Cassens Weiss, Citi
Abandons Wachovia Bid, but Not Its Lawsuit, ABA LAW NEWS NOW (Oct. 10, 2008).
https://www.abajournal.com/news/article/citigroup_abandons_wachovia_bid_but_not_its_lawsuit. Wells Fargo
ultimately paid Citi $100 million to settle the suit. Maria Aspan & Jonathan Stempel, Update 3-Wells to pay Citi $100
mln, Ends Wachovia Lawsuits, REUTERS (Nov. 19, 2010), https://www.reuters.com/article/citigroup-wellsfargo/update-
3-wells-to-pay-citi-100-mln-ends-wachovia-lawsuits-idUSN1918939120101119.
82 Press Release, FDIC, Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC (Mar. 12,
2023), https://www.fdic.gov/news/press-releases/2023/pr23017.html.
83 CRISIS AND RESPONSE, supra note 35, at 68.
84 Id. at 177.
85 Id. at 176.
86 Id.
87 Id. at 177.
88 Id. at 184.
89 Id. at 187.
90 Id.
91 Id. at 179–80. See Langley v. FDIC, 484 U.S. 86 (1987); FDIC v. Leach, 772 F.2d 1262, 1264 (6th Cir. 1985) (“To
accomplish this, the transaction must be consummated with great speed, usually overnight.”).
92 CRISIS AND RESPONSE, supra note 35, at 184.
Congressional Research Service

10

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

bridge bank, as it did with SVB and Signature Bank, or provide open bank assistance.93 These
resolution options are discussed in turn.94
Regardless of the resolution option used, the FDIC must administer the receivership until “all the
bank’s assets and liabilities have been sold, liquidated, transferred, or otherwise passed beyond
the FDIC’s responsibility to care for them.”95 Until that happens, the FDIC as receiver must
manage the affairs of the bank, including overseeing any agreements with an acquiring
institution, servicing the loans and other assets that remain in the receivership, complying with
accounting and reporting requirements, identifying and paying depositor and other claims against
the failed bank, and bringing suit against officers and directors who played a role in the bank’s
failure, as warranted.96
Purchase and Assumption Agreements (P&As)
In a P&A, a healthy IDI buys some or all of the assets and assumes some or all of the liabilities of
the failed institution. The FDIC will transfer the purchased assets and liabilities to the acquiring
bank and manages what remains as receiver. There are several types of P&As, including the
following:
• Basic P&A—the acquiring bank assumes insured deposits and acquires cash and
cash equivalent assets of the failed bank.97
• Whole bank P&A—the acquiring bank purchases all of the failed institution’s
assets and assumes all of its liabilities as-is, at a discount, without the FDIC
providing any guarantees or sharing in any subsequent losses experienced in the
acquisition.98
• Loan purchase P&A—the acquiring bank assumes insured deposits and
acquires cash, cash equivalents, and certain portions of the failed bank’s loan
portfolio, such as installment loans.99 The FDIC entered into a variation of a loan
purchase P&A with Flagstar Bank for Signature Bank.100
• Loss sharing P&A—the acquiring bank assumes deposits and acquires cash,
cash equivalents, and other assets, with the FDIC agreeing to share some of the
future losses that the acquirer may experience on those assets.101 The FDIC

93 Id.
94 For additional information on bank resolution options, see CRS In Focus IF10055, Bank Failures and the FDIC, by
Raj Gnanarajah.
95 CRISIS AND RESPONSE supra note 35, at 177.
96 Id.
97 Id. at 189.
98 Id. at 190–91.
99 Id. at 193–94.
100 Press Release, FDIC, Subsidiary of New York Community Bancorp, Inc., to Assume Deposits of Signature Bridge
Bank, N.A., from the FDIC (Mar. 26, 2023), https://www.fdic.gov/news/press-releases/2023/pr23021.html.
101 CRISIS AND RESPONSE supra note 35 at 191–92.
Congressional Research Service

11

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

entered into loss share P&A agreements with First-Citizens for SVB102 and with
JPMorgan Chase Bank for First Republic.103
Deposit Payoff
If the FDIC is unable to find an acquirer for a P&A, it may decide upon a deposit payoff104 to
comply with the FDI Act’s requirement that the FDIC pay insured deposits “as soon as possible”
after a bank closes.105 In such cases, the FDIC will calculate the amount of insured deposits for
each customer and make those funds available to them via one of two mechanisms: (1) a straight
deposit payoff, in which the FDIC pays depositors directly; or (2) an insured deposit transfer, in
which the FDIC transfers deposits to a healthy institution acting as an agent of the FDIC, and the
transferee IDI pays the depositors of the failed institution or allows the depositors to open new
accounts with the transferee IDI.106 The FDIC will notify customers where their funds will be
available to them.107 In a straight payoff, the checks will be written by the FDIC and available
either at the closed IDI or by mail.108 In an insured deposit transfer, the funds will be available at
the transferee IDI.109
Less frequently, the FDIC will perform a deposit payoff through a newly chartered Deposit
Insurance National Bank that temporarily provides customers access to their insured deposits in
order to allow depositors time to find new banks to hold their deposit accounts.110
Bridge Bank
The FDIC can charter and operate a new national bank, called a bridge bank, to acquire the assets
and assume the liabilities of a failed institution on a temporary basis as the FDIC weighs its
resolution options under the least-cost resolution requirement.111 The FDIC often uses bridge
banks when resolving large, complex IDIs.112 The FDIC used bridge banks in the resolutions of
SVB and Signature Bank.113 During the financial crisis in 2008, the FDIC also used a bridge bank

102 First–Citizens Bank & Trust Company, Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley Bridge
Bank, N.A., from the FDIC, Fed. Deposit Ins. Corp. (Mar. 26, 2023), https://www.fdic.gov/news/press-
releases/2023/pr23023.html.
103 JPMorgan Chase Bank, Columbus, Ohio Assumes All the Deposits of First Republic Bank, San Francisco,
California, Fed. Deposit Ins. Corp. (May 1, 2023), https://www.fdic.gov/news/press-releases/2023/pr23034.html.
104 CRISIS AND RESPONSE supra note 35, at 184.
105 12 U.S.C. § 1821(f)(1).
106 FDIC, When a Bank Fails - Facts for Depositors, Creditors, and Borrowers,
https://www.fdic.gov/consumers/banking/facts/payment.html (last updated July 27, 2010).
107 Id.
108 FDIC, Resolution Handbook, 94, https://www.fdic.gov/bank/historical/reshandbook/glossary.pdf.
109 Id. at 92.
110 CRISIS AND RESPONSE supra note 35, at 177.
111 12 U.S.C. § 1821(n). See also FDIC, Resolution Handbook, 90,
https://www.fdic.gov/bank/historical/reshandbook/glossary.pdf.
112 CRISIS AND RESPONSE supra note 35, at 182, 196–97.
113 Press Release, FDIC, FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, Santa Clara,
California, Fed. Deposit Ins. Corp. (Mar. 13, 2023), https://www.fdic.gov/news/press-releases/2023/pr23019.html;
Press Release, FDIC, FDIC Establishes Signature Bridge Bank, N.A., as Successor to Signature Bank, New York, NY,
Fed. Deposit Ins. Corp. (Mar. 13, 2023), https://www.fdic.gov/news/press-releases/2023/pr23018.html.
Congressional Research Service

12

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

to resolve IndyMac, F.S.B., which at the time was the most expensive bank failure in FDIC
history, costing the DIF more than $12 billion.114
Open Institution Assistance
Section 13(c) of the FDI Act provides the FDIC with discretion, subject to the least-cost
resolution requirement,115 to provide assistance to an institution to prevent default, to restore an
institution in default to normal operations, or to deal with conditions that threaten the stability of
“a significant number of IDIs or of IDIs possessing significant financial resources.”116 This open
institution assistance, which is designed either to aid a merger or to keep the troubled institution
or institutions from failing, may take the form of FDIC loans, guarantees, asset acquisitions, or
liability assumptions.117 When the FDIC provides open institution assistance, it often requires a
change in bank management and dilution of shareholders’ interests in the institution.118 Before the
FDIC can provide open institution assistance, the FDIC and the IDI’s primary federal regulator
must determine that, prior to the IDI’s deterioration, its managers were competent, complied with
all banking laws and regulations, and did not engage in abusive activity like insider trading.119
Claims Process as Receiver
Overview
As receiver of a failed IDI, the FDIC is responsible for settling claims against the institution. The
FDIC settles creditors’ claims using proceeds from the sale and liquidation of the institution’s
assets to the extent that funds are available after paying insured depositors. The FDIC’s liability
to creditors is limited to what each would have received had the FDIC liquidated the
institution.120 Creditors are notified that they must present their claims within a certain time,
which may not be less than 90 days from the date of the notice.121 Within 180 days of receiving a
claim, the FDIC must notify the claimant whether or not it will allow the claim.122 The FDIC has
authority to disallow claims “not proved to the satisfaction of the receiver.”123 When a claim has
been disallowed, the claimant has 60 days to seek administrative124 or judicial review or the
FDIC’s disallowance decision is final.125

114 CRISIS AND RESPONSE supra note 35, at 182.
115 12 U.S.C. § 1823(c)(4).
116 12 U.S.C. § 1823(c)(1)(A)–(C).
117 12 U.S.C. § 1823(c)(1)–(2).
118 FDIC, Resolution Handbook, 96, https://www.fdic.gov/bank/historical/reshandbook/glossary.pdf.
119 12 U.S.C. § 1823(c)(8).
120 12 U.S.C. § 1821(i)(2).
121 12 U.S.C. § 1821(d)(3)(B). Creditors who are suing the institution are also subject to this requirement to provide the
FDIC with notice and proof of their claim, giving the FDIC the opportunity to seek a stay of the proceeding under 12
U.S.C. § 1821(d)(12).
122 12 U.S.C. § 1821(d)(5)(A)(i).
123 12 U.S.C. § 1821(d)(5)(D)(i).
124 12 U.S.C. § 1821(d)(7)(A). Administrative review is subject to the judicial review provisions of the federal
Administrative Procedure Act (APA), meaning that final agency action may be appealed on grounds specified in that
law. 5 U.S.C. §§ 701–706. See Miller v. FDIC, 738 F.3d 836, 841 (7th Cir. 2013) (“One option is to request further
administrative review of the claim. A claimant who follows this route may, if unsuccessful or only partially successful,
seek judicial review after the extra round of administrative process is complete.”) (citation omitted).
125 12 U.S.C. § 1821(d)(6)(A). See FDIC v. Estrada-Rivera, 722 F.3d 50, 54 (1st Cir. 2013).
Congressional Research Service

13

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

Payment of Claims and Priority of Claimants
The FDI Act specifies the order in which claims are paid from the funds generated by a failed
IDI’s liquidation in receivership.126 The FDI Act imposes a depositor preference, which means
that depositors’ claims have priority over all other unsecured claims, except those involving
administrative expenses of the receivership.127 Secured claims, including advances from a federal
home loan bank and loans from the Federal Reserve’s discount window, take precedence over any
unsecured claims.128 The FDIC pays secured claims up to the value of the security and treats any
liability beyond what is secured as an unsecured claim.129 The statute establishes the priority for
other classes of unsecured creditors, with shareholder claims at the bottom.
The statute specifies the following priority:130
• secured claims;
• administrative expenses of the receivership;
• insured deposit liabilities;
• uninsured deposit liabilities;
• any other general or senior liability;
• any obligation subordinated to depositors or general creditors that is not an
obligation owed to shareholders as shareholders;
• obligations owed to shareholders arising as a result of their status as
shareholders.131
Agreements Against the Interests of the FDIC
The FDIC as receiver may defeat claims against its interest in assets it has acquired in a
receivership or through open institution assistance.132 To prevail on a claim that might defeat or
diminish the FDIC’s interest in such an asset, the claimant must show that there was a written

126 Slattery v. United States, 583 F.3d 800, 825 (Fed. Cir. 2009) (“Section 1821(d) establishes the priority of
distribution of funds held by the receiver for an insured institution.”), vacated en banc, 369 F. App’x 142 (Fed. Cir.
2010). State law is preempted to the extent that the FDIC determines the state law is inconsistent with the applicable
federal law, subject to judicial review under the judicial review provisions of the federal APA. 12 U.S.C.
§ 1821(d)(11)(B). The judicial review provisions of the APA are found at 5 U.S.C. §§ 702–706.
127 12 U.S.C. § 1821(d)(11).
128 12 U.S.C. § 1821(d)(11)(A).
129 Id.
130 Id.; 12 C.F.R. § 360.3.
131 12 U.S.C. § 1821(d)(11)(A)(i)–(v). FDIC regulations establish prioritization of these claims in greater granularity.
12 C.F.R. § 360.3.
132 This authority is described as a “superpower”—a term used to describe the tools available to the FDIC to deal with
insolvent IDIs, stemming from long-standing judicial decisions and legislation enacted following the savings and loan
crisis of the 1980s. These powers, in some respect, exceed the authority of a bankruptcy court. They include the power
to reorganize the institution, to sell its assets, and repudiate certain claims, with little judicial oversight. See, e.g.,
Thomas C. Baxter, Jr., et al., Two Cheers for Territoriality: An Essay on International Bank Insolvency Law, 78 Am.
Bankr. L. J. 57, 72 (2004); Robert W. Norcross, Jr., The Bank Insolvency Game: FDIC Superpowers, the D’Oench
Doctrine, and Federal Common Law, 103 Banking L. J. 316, 328 (1986); Fred Galves, Might Does Not Make Right:
The Call for Reform of the Federal Government’s D’Oench, Duhme and 12 U.S.C. 1823(e) Superpowers in Failed
Bank Litigation, 80 Minn. L. Rev. 1323 (1996); Robert W. Norcross, Jr., The Bank Insolvency Game: FDIC
Superpowers, the D’Oench Doctrine, and Federal Common Law, 103 Banking L. J. 316, n.137 (1986).
Congressional Research Service

14

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

agreement, executed contemporaneously with the IDI’s acquisition of the assets, approved by the
IDI’s board of directors or its loan committee, and continuously reflected on the IDI’s books.133
Statutes of Limitation Applicable to Conservatorships and
Receiverships
Special statutes of limitation apply to actions brought by the FDIC as conservator or receiver.134
For contract actions, the statute of limitations begins on the longer of the six-year period
beginning on the date the claim accrues or the period applicable under state law. For tort claims,
the statute of limitations is three years, unless state law provides a longer time frame.135
Officer and Director Liability
Pursuant to a provision of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), the FDIC, as receiver, may hold officers and directors of a failed IDI personally
liable for civil monetary damages.136 This provision established a federal fiduciary standard of
care for bank officers and directors.137 Prior to the enactment of FIRREA, which Congress passed
in response to the savings and loan crisis of the 1980s, bank officers and directors were subject to
varying state corporate duties of care to the institutions they served.138 The FIRREA provision,
codified at 12 U.S.C. § 1821(k), changed the relevant framework by establishing a statutory duty
of care applicable to officers and directors of failed IDIs.139
The FDIC explains that the duty of care generally means that officers and directors are obligated
to monitor the bank’s activities and employees; to be informed of all material facts and
circumstances when making decisions for the bank; and to ensure that bank decisions further a
legitimate business purpose.140 The stringency of these duties, however, is often tempered in
practice by the “business judgment rule,” which can shield officers and directors from liability for

133 12 U.S.C. § 1823(e). To some extent, this codifies and expands upon the common law doctrine emanating from the
Supreme Court’s decision in D’Oench, Duhme v. FDIC, 315 U.S. 447 (1942). Under the holding of that case, the
FDIC’s actions to collect on notes may not be defeated by defenses based on secret side agreements. Subsequently, the
doctrine has been extended to cover “innocent understandings about regular bank transactions that were never
recorded,” as well as fraudulent arrangements. Fisher supra note 42 § 16.04[1]. There also are statutory exemptions
from the contemporaneous execution requirement—agreements lawfully collateralizing deposits or other loans by
governmental entities, bankruptcy estate funds, extensions of credit from Federal Home Loan Banks and Federal
Reserve Banks and “qualified financial contracts.” 12 U.S.C. § 1823(e)(2).
134 12 U.S.C. § 1821(d)(14). The FDI Act also expressly provides the following specific authorities: use private-sector
services if available and most cost effective, 12 U.S.C. § 1821(d)(2)(K); obtain temporary stays of judicial actions in
which the IDI is or becomes a party, 12 U.S.C. § 1821(d)(12); exercise rights of the IDI with respect to any appealable
judgment, including removal to federal court, 12 U.S.C. § 1821(d)(13); contract with state housing finance authorities
to sell mortgage-related assets of a defaulting IDI without having to secure any other approval, assignment, or consent,
12 U.S.C. § 1821(d)(16); obtain court-ordered attachment, that is, an asset freeze, of any of the assets acquired or
liabilities assumed by the FDIC as conservator or receiver, 12 U.S.C. § 1821(d)(18).
135 Id. There is also a provision authorizing the FDIC to revive tort claims subject to a state statute of limitation if the
claim has expired not more than five years before appointment of a conservator or receiver. 12 U.S.C.
§ 1821(d)(14)(C).
136 P.L. 101-73, § 212(a), 103 STAT. 243 (Aug. 9, 1989).
137 12 U.S.C. § 1821(k).
138 Atherton v. FDIC, 519 U.S. 213, 217 (1997).
139 FIRREA § 212(a), 103 Stat. 183, 243 (codified at 12 U.S.C. § 1821(k)).
140 Id.
Congressional Research Service

15

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

bad business decisions—i.e., exercising poor judgment—as long as those decisions are rational
and made in good faith, with full information, and absent conflicts of interest.141
Under 12 U.S.C. § 1821(k), the FDIC, as receiver of a failed IDI, may hold officers and directors
personally liable for civil monetary damages for “gross negligence, including any similar conduct
or conduct that demonstrates a greater disregard of a duty of care (than gross negligence)
including intentional tortious conduct,” as defined by state law.142 The provision concludes with a
savings clause that states that “[n]othing in this paragraph shall impair or affect any right of the
Corporation under other applicable law.”143
The meaning of this provision was litigated in the 1990s.144 Some bank personnel argued that
FIRREA established a uniform federal standard of gross negligence for directors and officers of
failed banks.145 The FDIC, in contrast, contended that the provision authorized, at a minimum,
claims of gross negligence, but also any lower standard that might be applicable under state
law.146
The Supreme Court ultimately sided with the FDIC in the 1997 decision Atherton v. FDIC.147
Relying largely on the provision’s savings clause, the Court held that §1821(k) establishes a gross
negligence floor, but also allows the FDIC to pursue claims against bank officers and directors
under less stringent standards, such as simple negligence, when permitted under applicable state
law.148
As a result, the standards for bank officer and director liability vary state by state. These
standards generally range from simple negligence (i.e., what a reasonably prudent person with
similar experience would do in similar circumstances) to gross negligence (i.e., a heightened
standard often requiring recklessness or willful indifference).149 Some states have also adopted
various intermediate standards that apply in certain circumstances.
The FDIC has used its § 1821(k) authority extensively. Since the 2008 financial crisis, the FDIC
has filed dozens of lawsuits and entered into nearly 1,000 settlement agreements with officers,
directors, and other professionals related to losses suffered by failed IDIs.150 These actions have
led to recoveries totaling more than $4 billion.151
The FDIC has noted, however, that it “will not bring civil suits against directors and officers who
fulfill their responsibilities . . . and who make reasonable business judgments on a fully informed

141 Julie Andersen Hill & Douglas K. Moll, The Duty of Care of Bank Directors and Officers, 68 Ala. L. Rev. 965,
978–79 (2017).
142 Id.
143 Id.
144 Hill & Moll, supra note 141, at 995.
145 Id.
146 Id.
147 519 U.S. 213, 213 (1997).
148 Id. at 216.
149 See Negligence, BLACK’S LAW DICTIONARY (11th ed. 2019).
150 Professional Liability Program Lawsuits, FED. DEPOSIT INS. CORP.,
https://www.fdic.gov/resources/resolutions/professional-liability/lawsuits.html (last updated May 22, 2023);
Professional Liability Settlement Agreements, FED. DEPOSIT INS. CORP., https://www.fdic.gov/foia/plsa/index.html (last
accessed Aug. 17, 2023).
151 Professional Liability Program, FED. DEPOSIT INS. CORP. (June 3, 2022),
https://www.fdic.gov/resources/resolutions/professional-liability/.
Congressional Research Service

16

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

basis and after proper deliberation.”152 The FDIC has stated that it largely brings personal liability
cases against the officers and directors of failed banks in the following situations:
• dishonest conduct;153
• inappropriate transactions with bank insiders;154
• failure to establish, follow, or monitor sound underwriting policies and
procedures;155 and
• failure to respond to concerns raised by regulators, accountants, counsel, or other
professionals.156
Considerations for Congress
The failures of SVB, Signature Bank, and First Republic sparked debate among policymakers
about how IDIs are managed and supervised for safety and soundness to avoid failure, as well as
how they are resolved by the FDIC when they become insolvent. The regional bank failures of
2023 have prompted a regulatory review by the Fed Board,157 multiple congressional hearings,158
the introduction of several legislative proposals by Members of Congress,159 and calls for
congressional action by President Biden.160
The Fed Board, SVB’s primary federal regulator, conducted a review of SVB’s collapse and
issued a public report of its findings.161 The Board reached four broad conclusions: (1) the bank’s
officers and directors failed to manage effectively interest rate and liquidity risks; (2) the Federal
Reserve failed to gauge correctly SVB’s stability in the wake of the institution’s swift growth in
size and complexity in the months preceding its failure; (3) once Federal Reserve supervisors
realized SVB’s vulnerabilities, they failed to force SVB to rectify its weaknesses quickly enough;
and (4) the Federal Reserve’s decision to eliminate enhanced prudential regulation of bank
holding companies with $100 billion to $250 billion in assets in response to enactment of the
Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) “impeded

152 FED. DEPOSIT INS. CORP., Statement Concerning the Responsibilities of Bank Directors and Officers 2 (Dec. 3,
1992), https://www.fdic.gov/regulations/laws/rules/responsibilities-bank-directors-officers.pdf.
153 Id.
154 Id. at 3.
155 Id.
156 Id.
157 FED. RSRV., Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank (Apr. 28, 2023).
158 Press Release, H. Comm. on Fin. Servs. and Accountability, Hearing Wrap Up: Silicon Valley Bank Collapse is a
‘Case of Failed Supervision’ (May 25, 2023), https://oversight.house.gov/release/hearing-wrap-up-silicon-valley-bank-
collapse-is-a-case-of-failed-supervision/; Press Release, S. Comm. on Banking, Hous., and Urb. Dev., Brown Advances
Bipartisan Bills to Hold Bank Executives Accountable and Curb the Flow of Deadly Fentanyl into Communities (June
21, 2023), https://www.banking.senate.gov/newsroom/majority/brown-advances-bipartisan-bills-hold-bank-executives-
accountable-curb-flow-deadly-fentanyl-into-communities.
159 See infra notes 168–73 and surrounding text.
160 Press Release, White House, FACT SHEET: President Biden Urges Congressional Action to Strengthen
Accountability for Senior Bank Executives (Mar. 17, 2023), https://www.whitehouse.gov/briefing-room/statements-
releases/2023/03/17/fact-sheet-president-biden-urges-congressional-action-to-strengthen-accountability-for-senior-
bank-executives/.
161 FED. RSRV., Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank (Apr. 28, 2023).
Congressional Research Service

17

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

effective supervision [of SVB] by reducing standards, increasing complexity, and promoting a
less assertive supervisory approach.”162
The FDIC conducted a similar review of Signature Bank.163 The FDIC determined that poor
management was the “root cause” of Signature’s failure, but that it was precipitated by contagion
stemming from the failures of both SVB and Silvergate Bank, another California-based bank that
closed two days before SVB.164 The FDIC noted that it had taken a number of supervisory actions
to address potential safety and soundness concerns involving Signature, but that it could have
escalated regulatory actions and issued supervisory reports sooner and communicated concerns
with bank management more effectively.165
Following the release of the FDIC’s and Fed Board’s reports, the Senate Banking Committee and
a subcommittee of the House Financial Services Committee each held hearings on the bank
failures. Members expressed concerns about mistakes made by federal bank supervisors,166 as
well as the lack of accountability for officers and directors who were compensated handsomely
despite their mismanagement possibly playing a role in the bank failures.167
The 118th Congress is considering multiple bills designed to increase bank safety and soundness
regulations and to strengthen the FDIC’s receivership powers. These bills include the RECOUP
Act,168 the Failed Executives Clawback Act (FECA),169 the Failed Bank Executives Clawback
Act,170 the Protecting Consumers from Bailouts Act,171 the Deliver Executive Profits on Seized
Institutions to Taxpayers (DEPOSIT) Act,172 and the Secure Viable Banking (SVB) Act.173 Many
of these bills would strengthen the FDIC’s authority to claw back officer and director
compensation after a bank failure.174 Other proposals would impose corporate governance
responsibilities on banks and strengthen the FDIC’s authority to prohibit bank executives from
participating in the business of banking due to misconduct. The Biden Administration has also
urged Congress to pass legislation that would make it easier for regulators to hold executives of
failed banks accountable.

162 P.L. 115-174, 132 Stat. 1296 (2018).
163 FED. DEPOSIT INS. CORP., FDIC’s Supervision of Signature Bank (Apr. 28, 2023).
164 Id. at 7.
165 Id. at 17.
166 Press Release, H. Comm. on Fin. Servs. and Accountability, Hearing Wrap Up: Silicon Valley Bank Collapse is a
‘Case of Failed Supervision’ (May 25, 2023), https://oversight.house.gov/release/hearing-wrap-up-silicon-valley-bank-
collapse-is-a-case-of-failed-supervision/.
167 Press Release, S. Comm. on Banking, Hous., and Urb. Dev., Brown Advances Bipartisan Bills to Hold Bank
Executives Accountable and Curb the Flow of Deadly Fentanyl into Communities (June 21, 2023),
https://www.banking.senate.gov/newsroom/majority/brown-advances-bipartisan-bills-hold-bank-executives-
accountable-curb-flow-deadly-fentanyl-into-communities. See also CRS Legal Sidebar LSB10946, Silicon Valley
Bank’s Failure and Potential Director/Officer Liability, by David H. Carpenter and Jay B. Sykes.
168 S. 2190, 118th Cong. § 2 (2023).
169 S. 1790, 118th Cong. (2023).
170 S. 1045, 118th Cong. (2023).
171 S. 825, 118th Cong. (2023).
172 S. 800, 118th Cong. (2023).
173 S. 817, 118th Cong. (2023).
174 Press Release, White House, FACT SHEET: President Biden Urges Congressional Action to Strengthen
Accountability for Senior Bank Executives (Mar. 17, 2023), https://www.whitehouse.gov/briefing-room/statements-
releases/2023/03/17/fact-sheet-president-biden-urges-congressional-action-to-strengthen-accountability-for-senior-
bank-executives/.
Congressional Research Service

18

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

The RECOUP Act would, among other things, authorize the FDIC to claw back compensation of
senior executives who are responsible for the failed condition of an IDI or IDI holding company
with assets of $10 billion or more.175 The clawback authority would apply to compensation
earned in the two years prior to the institution’s failure.176 The RECOUP Act would also require
IDIs and their holding companies to adopt governance and accountability standards in their
bylaws or other governing documents that promote safety and soundness, responsiveness to
supervisory matters, and responsible management.177 The Act would also add a new civil money
penalty for senior executives who recklessly engage in unsafe or unsound practices or certain
other covered activity.178 The Senate Banking Committee favorably reported the RECOUP Act to
the full Senate by a 23-2 vote.179
FECA would provide the FDIC clawback authority similar to that in the RECOUP Act, but it
would provide a longer three-year lookback period180 and would apply to officers, directors,
controlling shareholders, and certain other covered parties who “cause more than a minimal
financial loss to, or a significant adverse effect on,” an IDI with more than $10 billion in assets.181
The Failed Bank Executives Clawback Act would provide the FDIC as receiver the same
clawback authority as would be provided by FECA. However, the Failed Bank Executives
Clawback Act would also amend the clawback authorities available under the FDIC’s Orderly
Liquidation Authority (OLA) to apply to IDI receiverships.182 Title II of the Dodd-Frank Act
establishes the FDIC’s OLA for resolving nondepository financial companies if certain statutory
prerequisites involving systemic risk are satisfied.183 An OLA provision, codified at 12 U.S.C.
§ 5390(s), provides the FDIC with the authority to recover compensation paid to senior
executives and directors during the prior two years if such persons are determined to be
“substantially responsible” for a company’s failure. FDIC regulations implementing this authority
adopt a rebuttable presumption that certain executives and directors—including a firm’s
chairman, chief executive officer, president, and chief financial officer—are “substantially
responsible” for a firm’s failure.184
The Protecting Consumers from Bailouts Act would empower the FDIC to claw back any
incentive-based compensation paid to an officer of a failed bank in the year preceding the FDIC’s
appointment as receiver.185
Adopting an alternative approach, the DEPOSIT Act would apply a 90% tax rate for bonuses paid
to senior executives of a failed bank within the 60 days before the FDIC’s appointment as
conservator or receiver.186 The bill would also apply a 100% tax rate on the profits of senior

175 S. 2190, § 3.
176 Id.
177 Id. § 3.
178 Id. § 5.
179 Id.
180 Compare S. 1790, § 2 with S. 2190, § 3.
181 S. 1790, § 2.
182 S. 1045, § 3.
183 12 U.S.C. § 5383.
184 12 C.F.R. § 380.7.
185 S. 825, § 3.
186 S. 800, § 3(k). The bill would only apply to senior executives who earned more than $250,000 in gross adjusted
income during the taxable year.
Congressional Research Service

19

Financial Institution Insolvency and the Federal Response to Regional Bank Failures

executives of a failed bank from any transactions in the bank’s securities within the 60 days prior
to the FDIC’s appointment.187
The SVB Act does not contain a clawback provision.188 Rather, the bill would repeal Title IV of
EGRRCPA,189 which eliminated mandatory enhanced prudential regulations for bank holding
companies with assets between $50 billion and $100 billion.190
In addition to the policies proposed in the aforementioned bills, Congress could consider
strengthening the FDIC’s authority under 12 U.S.C. § 1821(k) to obtain damages from officers
and directors of failed banks. As discussed, this FIRREA provision establishes a federal floor of
gross negligence for FDIC actions seeking damages from bank officers and directors.191 Less
stringent burdens may apply, however, based on governing state law. To respond to accountability
concerns raised by recent bank failures, Congress could consider reducing the federal standard
from a floor of gross negligence to simple negligence.

Author Information

David H. Carpenter
Michael D. Contino
Legislative Attorney
Legislative Attorney

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

187 Id.
188 S. 817.
189 Id. § 2.
190 P.L. 115-174 §§ 401–403.
191 12 U.S.C. § 1821(k).
Congressional Research Service
R47658 · VERSION 1 · NEW
20