Identify a Problem in Bank and Prepare a Research Proposal

 Identify a Problem in Bank and Prepare a Research Proposal 

 

In the United States of America, there have been numerous bank problems and failures that Federal Deposit Insurance Corporation is experiencing today. Based on this research, there are 416 banks with mixed assets of $ 299.8 billion do not passed in the FDIC’s grading system in terms of liquidity, asset value and revenues since year 1994.  The U.S. government has been taken over 81 banks that include the Guaranty Financial Group Inc. located in Texas. Similarly, Colonial Banc Group Inc. in Alabama is also experiencing extreme financial predicament at present.  Regulators are charging banks an emergency fee that raised up to $ 5.6 billion for its insurance fund.  And there has been a $ 11.6 billion loss provisions for bank failures that resulted to the downfall of the reserve fund of the clients.  According to FDIC, if the funds are exhausted, it has the option to tap a line credit at the treasury line credit.  This is   an effort from the Treasury Department of Congress that provides $ 100 billion for each problem bank, with this; the bank is allowed to borrow $ 500 billion until the last quarter of 2010. 

According to FDIC chairman, Sheila Bair, problem banks and failures are being cleaned up through close monitoring of their balance sheets.  Many business analysts believe that the difficult and necessary process of recognizing loan losses are being verified and cleaned up.  According to FDIC-insured banks has an insured loss of S 3.7 billion during the second quarter, as to compare to what they gain in the first quarter that went up to 5.5 billion. The bad loans even drove many banks to significant bankruptcy.  Funds set aside by banks to cover loan losses rose to .9 billion in the second quarter from .9 billion in the first quarter.   Furthermore, there are 150 plus banks that have nonperforming loans that amounting to 5 percent of the value of the bank’s holdings. The FDIC is a state bank regulator that protects depositors  money; as well as it takes charge of finding buyers for failing banks and helps banks who have  already collapsed.  In view thereof, various studies and proposals have been analyzed and studied in order to resolve various bank issues  and failures  as well as to maintain the full  bank protection of the depositors  through deposit insurance in Federal Deposit Insurance Corporation (FDIC), the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).  Relatively, the US government should study comprehensively the accounting area of federal deposit insurance programs through its Congressional Budget Office.  And, as mandated by US government, insurance programs, loan guarantees among others must be on a cash basis system.  This proposal has been designed in order to examine the primary factors that caused failures during bank operation. Subsequently, a thorough review of the compilation of the deposit insurance problems is very crucial in determining the causes and effects of the relevant issues or problems. Besides, the Deposit Insurance Options Paper is needed to initiate discussion and review about the process of pricing risks, funding of insurance losses; as well as the establishment of coverage limits of insurances.  And, after evaluating the main cause of prevalent identified bank problems, the concerned agencies must recommend guidelines for total reform or re-organization.  Various strategies for bank reformation are the most effective way in changing the present condition of many bankrupt banks today. Equally important, is to propose modification on the existing of deposit insurance system.

The banking problems of various countries in the world magnify more to the economic depression that the whole world is experiencing right now.  FDIC researchers and banking analysts must study deeply the regulatory and supervisory response in order to eliminate bank problems and failures not only in the USA, but in the rest of the world. At this time and age, the modern evolution of innovative approaches   and methods are essential elements of changing financial marketplace. Again, the strict FDIC supervisory and monitoring system   must be always ready for

the restructuring of the banking industry. But, how it will it happen?

Recommendations for Deposit Insurance Reform

In April, 2001, after a completing a comprehensive review, the FDIC issued recommendations for strengthening the deposit insurance system. These recommendations included merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), and adopting a more risk-based system for charging insurance premiums. http://www.fdic.gov/deposit/insurance/initiative/index.html

Report to the Congress on the Findings and Recommendations Concerning the “Two-Window” Deposit System Proposal. Washington, 1992.

Mandated by FDICIA, a “two-window” structure would allow banking organizations to compete in non-bank markets without exposing the deposit insurance fund to undue risk.

Resolutions Handbook: Methods for Resolving Troubled Financial Institutions in the United States. Washington, 1998

The report details the processes available to the FDIC for the resolution of problem banks and savings institutions. http://www.fdic.gov/bank/historical/reshandbook/index.html

A Study of the Desirability and Feasibility of a Risk-Based Deposit Insurance Premium System.Washington, 1990.

Another FIRREA-mandated report, the FDIC reviewed the framework for deposit insurance pricing methods and recommended procedures and an implementation strategy.

Federal Home Loan Bank Board

Agenda for Reform: A Report on Deposit Insurance Reform. Washington, 1983.

Mandated by the Garn-St. Germain Act, the report recommended a variety of improvements in the deposit insurance system.

National Commission on Financial Institution Reform, Recovery and Enforcement

Origins and Causes of the S&L Debacle: A Blueprint for Reform. Washington, 1993.

The Commission’s report was based on months of study, public hearings, recorded interviews and original research on the causes of the savings-and-loan crisis of the 1980s and early 1990s. The Commission focused on the major forces that led to the crisis and/or contributed to its magnitude. The report also recommended policy changes that would reduce the chances for a similar, future crisis.

Office of the Comptroller of the Currency

Bank Failure: An Evaluation of the Factors Contributing to the Failure of National Banks.Washington, 1988.

The OCC found that in most cases of failure, specific factors and patterns of practice within the bank itself were the chief determinants of failure, although economic problems in the local market served by the bank often played a contributing role.http://www.occ.treas.gov/bankfailure.pdf

Problem Bank Identification, Rehabilitation, and Resolution: a Guide for Examiners. Washington, 2001.

A detailed guide to the early detection and rehabilitation of problem banks and the advanced supervision and resolution of these institutions when conditions are more serious. Considerable discussion is offered on early warning systems for examiners, the supervision strategies designed to rehabilitate problem institutions, resolution management and the bank closing process. http://www.occ.treas.gov/prbbnkgd.pdf

Resolution Trust Corporation

Open-Bank Assistance: A Study of Government Assistance to Troubled Banks from the RFC to the Present. Washington, 1990.

This RTC research study describes four major types of open-bank assistance; the loan and investment program of the Reconstruction Finance Corporation; the FDIC’s net worth certificate program; the FDIC’s capital forbearance program; and direct open-bank assistance transactions.

U.S. Congress, House Committee on Banking, Finance and Urban Affairs

Banking Industry in Turmoil: A Report on the Condition of the U.S. Banking Industry and the Bank Insurance Fund. Washington, 1990.

Three private-sector economists, James Barth, Dan Brumbaugh and Robert Litan, presented this study to the Subcommittee on Financial Institutions. In addition to providing an overview of the banking industry’s travails, the authors recommended a variety of reforms to the deposit insurance system, as well as legislative changes that in their view would reduce the deposit insurance liabilities of the government.

Briefing Paper on Deposit Insurance: How it Originated and How it Works. Washington, 1990.

The report was intended as a guide for members as the House of Representatives debated various deposit insurance reform proposals.

U.S. General Accounting Office

Deposit Insurance: Analysis of Reform Proposals. Washington, 1986.

The report recommended strengthened supervisory and financial reporting requirements by financial institutions.

Deposit Insurance: A Strategy for Reform. Washington, 1991.

Mandated by FIRREA, the report outlined changes to the deposit insurance system that in the GAO’s view would promote a safe, sound and stable banking industry. Among the GAO’s many recommendations were heightened supervision of bank and thrifts and an increase in the regulatory authority of the FDIC.

U.S. Office of Management and Budget

Budgeting for Federal Deposit Insurance. Washington, 1991.

The OMB found that the then-present system of cash accounting for deposit insurance had delayed recognition of the growing costs of the program.

U.S. Department of the Treasury

Modernizing the Financial System: Recommendations for Safer, More Competitive Banks.Washington, 1991.

Mandated by FIRREA, this lengthy report recommended introducing a risk-based system for pricing federal deposit insurance. Many of the recommendations were incorporated into the FDICIA legislation of 1991.

Recommendations for Change in the Federal Deposit Insurance System. Washington. The Working Group of the Cabinet Council on Economic Affairs, January, 1985.

The report recommended risk-related pricing of deposit insurance, increasing the size of the bank and thrift funds, increasing capital requirements and improving regulatory procedures.

http://www.fdic.gov/bank/historical/govstudy/

Credit:ivythesis.typepad.com