I am pleased to be sending you the Fall 2009 issue of our Banking Law Committee Journal. Peter Heyward, our Editor, has done a great job putting this timely and informative issue together. This edition contains an insightful analysis from Tom Vartanian and Gordon Miller of recent transactions reflecting the FDIC's evolving methods for resolving failed banks; a timely and detailed primer on commercial real estate loan workouts from savvy practitioner Elizabeth Bohn; and Travis Nelson's valuable summary of some of the most significant recent developments affecting the financial services business. On a lighter note, this issue also introduces a new feature - Test Your Banking Knowledge! - which will enable Committee members to compete in their recollection of useless banking industry trivia. We hope you will enjoy it.

All Committee members are encouraged to contribute articles to the Journal. Analyses of recent developments are always welcome, but book reviews, opinion pieces or other submissions relevant to the banking business are also appropriate. You will be reaching a nationwide audience of more than 2000. Feel free to contact Peter Heyward at peheyward@venable.com or 202-344-4616 if you would like to propose an item for the next issue.

Sally Miller
Chair, Banking Law Committee
smiller@aba.com

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The housing market has finally begun to show signs of recovery, signaling the beginning of the end of unprecedented levels of home mortgage foreclosures in most markets. The forecast for commercial real estate markets is not nearly as sanguine. Tight credit markets, continued high unemployment and the poor economy have left commercial property owners unable to meet or refinance mortgage debt obligations, contributing to soaring commercial real estate loan defaults. The situation is likely to worsen as loans come due, credit remains scarce, and property values continue to deteriorate.

In this market, and considering the time and costs involved in obtaining a foreclosure judgment and then holding and remarketing foreclosed property, simply foreclosing and taking back the property may result in losses to the lender. If the borrower files for bankruptcy, additional issues will also arise with the potential to detrimentally affect the lender's position.


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During the first nine months of 2009, the condition of the U.S. banking industry continued to put severe strains on the capacity of the Federal Deposit Insurance Corporation (FDIC) to cope with failed and failing institutions. This has compelled the FDIC to continue to innovate in order to streamline its receivership operations and reduce costs.

Numbers tell the story. From December 31, 2008 to June 30, 2009, banks and thrifts on the agency's watch list increased from 252 to 416, the largest number since 1994. Total assets of those 416 institutions were $299.8 billion, the largest amount on the watch list since 1993. The FDIC's Deposit Insurance Fund (DIF), its principal unallocated source of funds to finance receiverships and conservatorships, declined to $10.4 billion, or 0.22% of insured deposits, the lowest percentage coverage in more than 16 years. Forty-five institutions failed in the first half of 2009, compared to four in the first half of 2008. Twenty-one institutions failed in the second half of 2008, but during the third quarter of 2009 alone an additional 45 institutions were closed, including the sixth and eleventh largest institutions ever to fail, at an estimated total cost to the DIF of $14.8 billion. On nine occasions during the first nine months of 2009, no bank or thrift could be found to assume the deposits of a failed institution on acceptable terms, requiring the FDIC to establish a Deposit Insurance National Bank to assume deposits, create a bridge bank or make a direct pay-out to depositors of the insured amount of their accounts.


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This article provides a brief overview of issues emerging on Capitol Hill, in the regulatory agencies, and in the financial services industry in general, that are of importance to financial institutions and their customers.

Financial Regulatory Reform

In June 2009, the Obama Administration proposed an ambitious and much debated regulatory reform proposal. The proposal, while intending to streamline the financial regulatory process, making it more efficient and targeted in its objectives, would create or modify four new regulatory regimes: (i) a Financial Services Oversight Council (the "Council"), chaired by Treasury and including the heads of the principal federal financial regulators; (ii) a National Bank Supervisor ("NBS"); (iii) an Office of National Insurance ("ONI") within Treasury; and (iv) a Consumer Financial Protection Agency ("CFPA").


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With this issue, we introduce a new, occasional feature of the Banking Law Committee Journal: Test Your Banking Knowledge! The rules are simple. TYBK will consist of a question about some aspect of banking law or history. The correct answer, and the names of the first five respondents to e-mail it to Peter Heyward (peheyward@venable.com), will be published in the next issue of the Journal. Peter's determinations regarding what constitutes a "correct" answer will be final.

This issue's question is:

What do Alan Greenspan and the late Ernesto "Che" Guevara have in common?


Good luck!

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