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FACTBOX: How regulators take over failed banks
NEW YORK (Reuters) - Mortgage lender IndyMac Bancorp Inc was taken over by the Federal Deposit Insurance Corp on Friday, becoming the second-largest financial institution to be closed in U.S. history.
Banks are not able to file for bankruptcy protection as other corporations may choose to do if they became insolvent.
Rather, the FDIC has special powers to oversee the liquidation of assets from failed banks and thrifts and/or search for a buyer for that bank.
Congress first gave the FDIC receivership power in the 1930s, after thousands of bank failures in the Great Depression highlighted the difficulty in efficiently liquidating the assets of a failed bank and returning deposits to customers.
The following explains how the receivership process works today:
* When the FDIC is appointed as receiver, it first takes custody of the bank's offices, records, loans and other assets.
* The FDIC insures bank deposits up to its limit of $100,000. It also notifies the bank's creditors and customers with uninsured deposits to submit proof of their claims to the receiver.
* The FDIC posts notices to explain the changes to the public. It changes the locks and combinations on the banks, and notifies other banks and interested parties about the closing.
* The FDIC may liquidate the bank or transfer some or all of its assets to another institution that wants to acquire it. It may also choose to form a new institution, such as a "bridge bank," to take over the failed institution's assets and liabilities.
* The receiver is required, by law, to maximize the return on assets of the failed bank or thrift and minimize any losses to the FDIC's insurance funds.
* The FDIC does not need approval from any other agency, court, or party with contractual rights to transfer the failed bank's assets.
* The receiver can choose which claims to allow or disallow, and may also reject burdensome contracts. It can request litigation against the failed bank be put on hold for up to 90 days.
* The law prioritizes the order in which those with claims on the failed bank are paid. The receiver's administrative expenses are given first priority, followed by customer deposits, other general and senior liabilities of the bank, other subordinated obligations and lastly, shareholder claims.
Source: FDIC
(Reporting by Emily Chasan; Editing by Braden Reddall)
