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Inside the Fdic: Thirty Years of Bank Failures, Bailouts, and Regulatory Battles
Witness how the FDIC manages your money during financial crises Inside the FDIC tells the real stories behind bank failures and financial crises to provide a direct account of the Federal Deposit Insurance Corporation and other bank regulators. Author John Bovenzi served in senior level positions within the FDIC for over twenty years, including a decade as the Deputy to the Chairman and Chief Operating Officer. This book describes what he witnessed as the person in charge of day-to-day operations, as a nearly invisible agency grew to become a major, highly independent force impacting US financial markets.Readers will learn how the FDIC and other bank regulators use the power of the federal government, spend other people's money, and approach decision-making.This book takes readers inside the FDIC to The FDIC's emergence as a major market influence How ten FDIC chairmen helped shape the US financial regulatory system Internal conflicts between the FDIC and other bank regulatory agencies Pressures and challenges presented by financial crises Since the early 1980s, over 3,400 banks have failed. These failures weren't steady, regular, and easily predictable events; periods of tranquility were followed by turmoil, booms led to busts, and peaceful complacency often turned to sudden devastation. Inside the FDIC chronicles it all, from the perspective of a first hand witness inside the agency responsible for calming the storm.
224 pages, Kindle Edition
First published January 7, 2015
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Displaying 1 - 9 of 9 reviews
November 26, 2021
Read it for training purpose. If you are a current/future FDIC employee it’s a good read. Goes through the history of the agency, especially during the 1980s, 1990s and 200s and the FDICs response to the important events of that era such as the Savings and Loan Crisis and 2008. Provides an interesting view of the leadership of the agency during that era with Bovenzi having praise for several of the directors, and implicit and even explicit criticism of others. Goes into detail about the internal and external politics of the agency, and it’s relationship with other parts of the government, specifically the White House, Federal Reserve and Treasury Department. Bovenzi also explains the concept of too big to fail as well, and explains the reasoning for the FDICs tougher line on the banks compared to other government agencies, and the reasons too big to fail remains a serious issue.
January 11, 2023
Having been in banking for those 30 years, I must say that Bovenzi has written a very accurate, judicious account. His diagnosis of the structural issues are spot except when he enters the Meritor minefield. It was a surprise when he took a minor swipe at Sheila Bair!
Having said that, it's not clear who this book was written for. The general public will not care and it's not interesting enough to grab them. It seems to be ideal for Congressional staffers who need to get up to speed on the FDIC in a hurry - but that's a very small market.
Having said that, it's not clear who this book was written for. The general public will not care and it's not interesting enough to grab them. It seems to be ideal for Congressional staffers who need to get up to speed on the FDIC in a hurry - but that's a very small market.
January 5, 2019
BANK CRISES AND THE CAUSES
The author gives a first hand look at rhe cause of bank failures and the politics involved. He does an excellent job.
The author gives a first hand look at rhe cause of bank failures and the politics involved. He does an excellent job.
May 30, 2015
By Antony Currie
Billie Jean Cherry hid over 100 boxes of unfiled documents in a storage unit across the street from the bank she helped run. Her long-time colleague Terry Church, after realizing the firm was about to go under, had even more records dumped into a truck from a window on the bank’s third floor, drove them to her house in the mountains of West Virginia and buried them in a trench 10 feet deep, 10 feet wide and 100 feet long.
Investigators from the U.S. Federal Deposit Insurance Corp found them all. The documents later helped send both women to jail for fraud. The case is a seminal moment in the narrative of former FDIC Deputy Chairman John Bovenzi’s book, “Inside the FDIC: Thirty Years of Bank Failures, Bailouts and Regulatory Battles.” Despite the cumbersome title, Bovenzi has penned a surprisingly readable tome.
The story of Church and Cherry is from the turn of the millennium, not the more recent financial crisis of 2008. And they weren’t Wall Street types. Their lender, the First National Bank of Keystone, served a town with only 600 or so residents and boasted just $1.1 billion in assets.
But their story is a microcosm of much that seems to recur in American lending debacles. Keystone had grown quickly, relying in part on offering high rates of interest on deposits that brokers brought in from miles away. Similar tactics laid lenders low in the 1980s and in 2008.
To pay for it, the bank provided subprime mortgages, often offloading them into securitizations. But Keystone kept the riskiest slices of the loans, known as residuals, to boost income – and chose to value them as favorably as possible. The FDIC, when finally allowed in by the Office of the Comptroller of the Currency, the bank’s chief regulator, pegged them far lower. The difference was enough to wipe out Keystone’s capital.
Then came the death blow. Keystone had pretended it still owned $515 million of assets that it had in fact sold. Students of Lehman Brothers’ later failure will recall it used a legal, if questionable, tactic known as “repo 105” to do the reverse, making it look as if it had fewer assets than it actually did.
The many problems, from poor business decisions to fraud and infighting between regulators, should have made the Keystone tale required reading for bank watchdogs right away. Bovenzi provides several more. During his 28-year career at the FDIC he witnessed, often first-hand, the trouble wrought on the financial sector by rising interest rates, plunging oil prices and agricultural woes in the 1980s. One of his final tasks involved being parachuted in to run IndyMac when the bank with $32 billion in assets failed in 2008.
He was there when Continental Illinois failed – the first bank considered too big to fail. It’s a topic, Bovenzi claims, that he and others at the FDIC spent a great deal of time on over the years. But other regulators did not have their finger on the pulse.
That’s another main theme of his book. The nation’s various bank watchdogs have never rubbed along well enough to operate as effectively as they should. This, too, is now generally assumed to be the case when crises arise. But by highlighting longer-term disagreements on crucial topics like too-big-to-fail, Bovenzi shows how endemic the problem has been.
What’s more, he lays this out in just 200 pages, interspersing weightier topics with more light-hearted moments. His 1980s colleagues in the aptly named Department of Liquidation, he says, “did not like to let beer-drinking opportunities pass them by” when off the clock.
And the bank failures of the 1980s, it turns out, left the FDIC and the Resolution Trust Corp holding a number of esoteric assets, including a buffalo sperm bank and a bordello in Nevada. The RTC even had a 12 percent stake in the Dallas Cowboys football team, which it sold after two terrible seasons – just before the team won several Super Bowls.
Bovenzi’s description of the FDIC in the later 1990s makes perhaps the most depressing reading. As the savings-and-loan crisis receded the watchdog cut jobs, many remaining employees were put under investigation thanks to often spurious outside allegations, and the agency lost the influence it had built up over the previous 15 years.
The fallout from the 2008 crisis appears to have re-established the FDIC’s position to some extent. It is now, after all, responsible for winding down all major financial firms when they collapse, not just banks. But as the past 35 years of American history have shown, the country has a tendency to forget the lessons of financial crises. Bovenzi’s book deserves a slim spot on the shelf of any reader trying not to let that happen again.
Billie Jean Cherry hid over 100 boxes of unfiled documents in a storage unit across the street from the bank she helped run. Her long-time colleague Terry Church, after realizing the firm was about to go under, had even more records dumped into a truck from a window on the bank’s third floor, drove them to her house in the mountains of West Virginia and buried them in a trench 10 feet deep, 10 feet wide and 100 feet long.
Investigators from the U.S. Federal Deposit Insurance Corp found them all. The documents later helped send both women to jail for fraud. The case is a seminal moment in the narrative of former FDIC Deputy Chairman John Bovenzi’s book, “Inside the FDIC: Thirty Years of Bank Failures, Bailouts and Regulatory Battles.” Despite the cumbersome title, Bovenzi has penned a surprisingly readable tome.
The story of Church and Cherry is from the turn of the millennium, not the more recent financial crisis of 2008. And they weren’t Wall Street types. Their lender, the First National Bank of Keystone, served a town with only 600 or so residents and boasted just $1.1 billion in assets.
But their story is a microcosm of much that seems to recur in American lending debacles. Keystone had grown quickly, relying in part on offering high rates of interest on deposits that brokers brought in from miles away. Similar tactics laid lenders low in the 1980s and in 2008.
To pay for it, the bank provided subprime mortgages, often offloading them into securitizations. But Keystone kept the riskiest slices of the loans, known as residuals, to boost income – and chose to value them as favorably as possible. The FDIC, when finally allowed in by the Office of the Comptroller of the Currency, the bank’s chief regulator, pegged them far lower. The difference was enough to wipe out Keystone’s capital.
Then came the death blow. Keystone had pretended it still owned $515 million of assets that it had in fact sold. Students of Lehman Brothers’ later failure will recall it used a legal, if questionable, tactic known as “repo 105” to do the reverse, making it look as if it had fewer assets than it actually did.
The many problems, from poor business decisions to fraud and infighting between regulators, should have made the Keystone tale required reading for bank watchdogs right away. Bovenzi provides several more. During his 28-year career at the FDIC he witnessed, often first-hand, the trouble wrought on the financial sector by rising interest rates, plunging oil prices and agricultural woes in the 1980s. One of his final tasks involved being parachuted in to run IndyMac when the bank with $32 billion in assets failed in 2008.
He was there when Continental Illinois failed – the first bank considered too big to fail. It’s a topic, Bovenzi claims, that he and others at the FDIC spent a great deal of time on over the years. But other regulators did not have their finger on the pulse.
That’s another main theme of his book. The nation’s various bank watchdogs have never rubbed along well enough to operate as effectively as they should. This, too, is now generally assumed to be the case when crises arise. But by highlighting longer-term disagreements on crucial topics like too-big-to-fail, Bovenzi shows how endemic the problem has been.
What’s more, he lays this out in just 200 pages, interspersing weightier topics with more light-hearted moments. His 1980s colleagues in the aptly named Department of Liquidation, he says, “did not like to let beer-drinking opportunities pass them by” when off the clock.
And the bank failures of the 1980s, it turns out, left the FDIC and the Resolution Trust Corp holding a number of esoteric assets, including a buffalo sperm bank and a bordello in Nevada. The RTC even had a 12 percent stake in the Dallas Cowboys football team, which it sold after two terrible seasons – just before the team won several Super Bowls.
Bovenzi’s description of the FDIC in the later 1990s makes perhaps the most depressing reading. As the savings-and-loan crisis receded the watchdog cut jobs, many remaining employees were put under investigation thanks to often spurious outside allegations, and the agency lost the influence it had built up over the previous 15 years.
The fallout from the 2008 crisis appears to have re-established the FDIC’s position to some extent. It is now, after all, responsible for winding down all major financial firms when they collapse, not just banks. But as the past 35 years of American history have shown, the country has a tendency to forget the lessons of financial crises. Bovenzi’s book deserves a slim spot on the shelf of any reader trying not to let that happen again.
June 8, 2015
In the introduction, Bovenzi mentions that as a career civil servant at the Federal Deposit Insurance Corporation (FDIC), he had a unique perspective on banking and politics that is rarely conveyed in high-level political histories. He encourages more civil servants to write about their time in government so the public can better understand what they do, and this memoir proves the value of such an effort. It's not flashy, or ground-breaking, but it is a straight-forward and well-done description of Bovenzi's work and experience at the FDIC, stretching from the Savings and Loan crisis of the 1980s to the 2008 financial crisis.
There are some surprises here, however. Bovenzi is quietly critical of Chairwoman Sheila Barr, who has received many press plaudits, for scuttling Wal-Mart's 2005 application to create a card-clearing "bank" or "Industrial Loan Corporation," which would have allowed customers to save money on debit and credit purchases. The FDIC had no problem approving a similar application for Target the previous year, or the big car companies soon after, but the mere specter of Walmart caused Barr to put a moratorium on all such loan company applications until Walmart withdrew. (Bovenzi later approves Barr's work in fighting to allow Washington Mutual to fail instead of being bailed out, but still criticizes her poor negotiating skills.)
Bovenzi also points out other times the FDIC was politicized, such as the extreme efforts they made to accommodate media-darlings the Sweeneys, who defaulted on land development loans to a soon-to-be-closed bank in 1988 and refused to pay up, claiming they had a verbal commitment for more loans. Despite a 1942 Supreme Court decision stating that the FDIC was not bound by previous banks' verbal commitments (called the D'Oench Duhme doctrine), the Sweeneys managed to sucker the media into believing they were innocent victims of the government instead of developers gone bust, and the FDIC did everything to end the crisis, including offering the Sweeneys their land back for $1, which they refused. Finally US Marshalls had to evict them, 11 years after they first defaulted and after millions in losses. Other legal cases, such as that of the closing of the Philadelphia Savings and Loan Society after FDIC commitments to ensure "supervisory goodwill" and keep the bank open, dragged on for over a decade in the courts and in the media and cost the insurance fund plenty. Bovenzi also points out the difficulties in negotiating with the National Treasury Employees Union, who represented FDIC employees, and who refusing to help scale down the operations after the worst of the S&L crisis abated.
Despite these notable failures, Bovenzi is very bullish on the FDIC. Unlike the other federal bank supervisors, the FDIC actually has money at stake, and is therefore somewhat more likely to recommend bankruptcies over bailouts, and to resist political pressure to loosen standards, such as those the George HW Bush administration pushed for in the early 1990s during the Savings and Loan cleanup. Bovenzi salutes such chairs as Bill Seidman during that era who managed to keep the fund above-water (barely), while keeping office morale high, and political pressure at bay. He also appreciates Don Powell's work as chair during the early George W Bush administration, for bringing regular training and accountability into the organization.
The book's narrative is somewhat sporadic, but there are plenty of little insights into the intersection of civil servant, politics, and bankings. Considering what the country has been through, its an important perspective that deserves attention.
There are some surprises here, however. Bovenzi is quietly critical of Chairwoman Sheila Barr, who has received many press plaudits, for scuttling Wal-Mart's 2005 application to create a card-clearing "bank" or "Industrial Loan Corporation," which would have allowed customers to save money on debit and credit purchases. The FDIC had no problem approving a similar application for Target the previous year, or the big car companies soon after, but the mere specter of Walmart caused Barr to put a moratorium on all such loan company applications until Walmart withdrew. (Bovenzi later approves Barr's work in fighting to allow Washington Mutual to fail instead of being bailed out, but still criticizes her poor negotiating skills.)
Bovenzi also points out other times the FDIC was politicized, such as the extreme efforts they made to accommodate media-darlings the Sweeneys, who defaulted on land development loans to a soon-to-be-closed bank in 1988 and refused to pay up, claiming they had a verbal commitment for more loans. Despite a 1942 Supreme Court decision stating that the FDIC was not bound by previous banks' verbal commitments (called the D'Oench Duhme doctrine), the Sweeneys managed to sucker the media into believing they were innocent victims of the government instead of developers gone bust, and the FDIC did everything to end the crisis, including offering the Sweeneys their land back for $1, which they refused. Finally US Marshalls had to evict them, 11 years after they first defaulted and after millions in losses. Other legal cases, such as that of the closing of the Philadelphia Savings and Loan Society after FDIC commitments to ensure "supervisory goodwill" and keep the bank open, dragged on for over a decade in the courts and in the media and cost the insurance fund plenty. Bovenzi also points out the difficulties in negotiating with the National Treasury Employees Union, who represented FDIC employees, and who refusing to help scale down the operations after the worst of the S&L crisis abated.
Despite these notable failures, Bovenzi is very bullish on the FDIC. Unlike the other federal bank supervisors, the FDIC actually has money at stake, and is therefore somewhat more likely to recommend bankruptcies over bailouts, and to resist political pressure to loosen standards, such as those the George HW Bush administration pushed for in the early 1990s during the Savings and Loan cleanup. Bovenzi salutes such chairs as Bill Seidman during that era who managed to keep the fund above-water (barely), while keeping office morale high, and political pressure at bay. He also appreciates Don Powell's work as chair during the early George W Bush administration, for bringing regular training and accountability into the organization.
The book's narrative is somewhat sporadic, but there are plenty of little insights into the intersection of civil servant, politics, and bankings. Considering what the country has been through, its an important perspective that deserves attention.
January 3, 2017
This book is written by a career bureaucrat at the FDIC. It covers from the 80s onwards but I only read the more recent years, begin with Keystone and through the 2008 financial crisis. The coverage of institutional failures during the crisis is succinct and fantastic, with an inside view on the cases where the FDIC played a role (IndyMac, Wachovia). I've read a few books on the crisis and most gloss over these in favor of the bigger investment banks (Bear, Lehman). The author also has a lot of interesting insights and a few suggestions for preventing future systematic failures in the banking system --- some are well voiced already (stricter capital requirements) while others are more unique: requiring banks to take a larger ratio of long term credit instead of short term which gets quickly reevaluated and revoked when creditors get spooked in a crisis --- the time the banks need it most.
June 20, 2017
Since I work at the FDIC, I considered this required reading. The author did a very good job of detailing challenges that the FDIC faced over the past 30 years and the dedicated public servants that faced those challenges. The author also gives the reader a feeling of the culture at the FDIC, particularly at the executive level. It gives the reader insights into some of the politics that influence the agency, despite its formal independent nature. I came away very impressed by Mr. Bovenzi.
Read
May 14, 2015Although a somewhat technical and, at times, dry topic, this book is written in such a way as to grab your attention and keep it. It is captivating and engaging. Simply put, it is a brief overview of some of the larger financial crisis faced throughout our history with an emphasis on lessons learned through the eyes of the FDIC. The conclusions drawn seemed a little obvious, but then again, sometimes it's the most obvious solutions we often overlook.
March 24, 2016
Good insight into workings of FDIC
The book is a little disjointed, but provides a good insight and relatively long term perspective into the workings of the FDIC. Mr. Bovenzi doesn't provide significant insights into the financial crisis, but does provide some color on the overall role of the FDIC in the regulation of financial institutions.
The book is a little disjointed, but provides a good insight and relatively long term perspective into the workings of the FDIC. Mr. Bovenzi doesn't provide significant insights into the financial crisis, but does provide some color on the overall role of the FDIC in the regulation of financial institutions.
Displaying 1 - 9 of 9 reviews