Abstract

The primary goal of a bank intervention is to control and inventory the assets of the bank, prepare closeout financial statements (balance sheet and income statement), and, as applicable, compensate insured depositors.2 The supervisory authority and the deposit insurance agency (DIA) must work closely to accomplish these goals. Supervisory authority personnel are responsible for the inventory and control of assets, whereas the DIA is responsible for making repayment to insured depositors.3 A bank intervention team should be prepared to accomplish functional duties related to security, cash operations, asset control, deposit operations, facilities, information technology, and legal matters. Depending on the size of the bank, some of these functions may be combined. Depending on the number of branches, branch teams must be prepared to perform the same functions at each branch.

The primary goal of a bank intervention is to control and inventory the assets of the bank, prepare closeout financial statements (balance sheet and income statement), and, as applicable, compensate insured depositors.2 The supervisory authority and the deposit insurance agency (DIA) must work closely to accomplish these goals. Supervisory authority personnel are responsible for the inventory and control of assets, whereas the DIA is responsible for making repayment to insured depositors.3 A bank intervention team should be prepared to accomplish functional duties related to security, cash operations, asset control, deposit operations, facilities, information technology, and legal matters. Depending on the size of the bank, some of these functions may be combined. Depending on the number of branches, branch teams must be prepared to perform the same functions at each branch.

There are three situations when a bank intervention is necessary:

  • When a bank has its license revoked and is closed (whether via an assisted transaction or straight to liquidation), a situation that calls for prompt and speedy action to accomplish the intervention procedures.

  • When the supervisory authority appoints a conservator—generally, banking law does not require onerous time constraints, but the authorities should still strive for prompt and speedy action, particularly with regard to securing assets.

  • When the conservator executes a resolution plan (such as a P&A agreement)—since there would have been an intervention upon appointment of a conservator, this can be considered an update of the completion of the asset inventory and financial statements.

Banking law usually empowers the supervisory authority to appoint a conservator or receiver for a problem bank. As mentioned in Chapter 1, banks need not necessarily be placed in conservatorship prior to being placed in receivership for final resolution. Often a bank will be in such a dire financial condition that it will necessitate skipping the conservatorship stage and proceeding directly to receivership. In such situations, the checklists and directions in this chapter can be streamlined, omitting those provisions dealing with continued operations.

There are two alternatives to guide the extent of intervention activities in case of conservatorship:

  1. Where existing owners and management cooperate in trying to preserve value and rehabilitate the bank; and

  2. Where a bank’s owners and management do not cooperate and oppose any intervention.

In the first case, the conservator may be comfortable with the quality of the bank’s staff, operations, and controls, and not require a full-scope intervention. The conservator would do well, however, to follow this chapter’s guidelines to take stock of the bank to be managed. After all, as a replacement for bank management and board, the conservator is responsible for securing and preserving the value of the bank’s assets.

In the second case, the supervisory authority should fully incorporate the bank intervention procedures outlined in this chapter to prevent asset stripping, destruction of records, and so on, and any consequent potential adverse impact on public confidence.

Whether a bank is placed in conservatorship or receivership, there are certain basic operating procedures and policies that must be observed. For example, though most banks have adequate management information, auditing, reporting, and filing systems, the conservator or receiver must ensure that these systems meet minimal standards. Where there are deficiencies, the conservator or receiver should use the appropriate sections of Chapters 6 and 7 as a guide.

In the case of problem bank resolution, regardless of whether there is an acquiring bank or the bank goes to liquidation, the intervention team must be prepared for a large number of customers who want their deposits. Deposit operations team members, comprised of the DIA staff, must be prepared to repay insured depositors as well as counsel uninsured depositors on their uninsured amount (and how to file a claim for that amount).

DUTIES AND RESPONSIBILITIES OF INTERVENTION TEAM

Conservator

  • Responsible for conserving the assets and liabilities, preparing a final resolution plan, and winding up all affairs of the conservatorship

  • Handles all contacts with the media after the intervention period

  • Has power of attorney to execute documents on behalf of the conservatorship.

Receiver

  • Responsible for liquidating the assets and liabilities and winding up all affairs of the receivership

  • Handles all contacts with the media after the intervention period

  • Has power of attorney to execute documents on behalf of the receivership.

Bank Intervention Manager

  • Plans, manages, and coordinates all activities relating to the intervention

  • Manages the intervention team, including release dates

  • Acts as the primary contact for the assuming bank and failed bank employees.

Accounting Team

  • Closes out the books of the failed bank

  • Reconciles general ledger accounts and compiles an adjusted final balance sheet for the failed bank.

Where there is a purchase and assumption (P&A) agreement and an assuming bank, the accounting team:

  • Compiles a balance sheet for the assuming bank reflecting the assets and liabilities assumed per the agreement, and a balance sheet of assets and liabilities retained by the receiver

  • Determines the amount of money to transfer to the assuming bank on the first business day following intervention

  • Coordinates continuation of asset servicing of receiver’s loans by the assuming bank (per the servicing agreement)

  • Manages the settlement process, including:

    • Administering any transactional agreement (e.g., P&A)

    • Monitoring transactions to assure compliance with all terms and conditions of the agreement by the assuming bank and the receiver

    • Administering the transfer of funds to and from the assuming bank for the payment of assets sold under the agreement and the reimbursement of expenses incurred on behalf of the receiver or the assuming bank

    • Notifying all correspondent banks and transfers accounts

    • Acting as the assuming bank’s key contact during the settlement process.

Asset Team

  • Inventories, segregates, and secures pooled notes, files, and collateral

  • Determines, based on the agreement, the split of assets between the assuming bank and the receiver

  • Receipts assets to the assuming bank

  • Begins disposal of retained other real estate, vehicles, and other assets

  • Reviews assets retained by receiver, assembles packages, and implements procedures to market and sell the assets, via a sealed bid process, to interested investors (see Chapter 7).

Branch Operations Team4

  • Controls branch premises and operations

  • Takes control of the cash and any other valuable documents (notes, negotiable collateral, safekeeping items, and other negotiable instruments) at these branches

  • Inspects branch sites and evaluates physical facility and local market, collects pending items such as approved or in process loans, and ensures that information flows and conservator or receiver controls are in place at every branch location

  • Coordinates branch operations with functional areas, including facilities management, personnel, lending, teller, and deposit functions.

Deposit Operations Team

  • Responsible for the repayment of insured deposits

  • Notifies and meets with uninsured depositors

  • Completes determinations of insurance and creditor claims

  • Determines and notifies the general creditors that the bank has failed and communicates the claims filing procedures (time period, etc.).

Facilities and Security Team

  • Responsible for financial and physical maintenance of office properties and other fixed assets

  • Arranges and maintains work stations for all employees (locates and provides additional work space if needed)

  • Arranges for delivery of copiers, fax machines, and printers as needed

  • Places movable assets, such as vehicles, furniture, fixtures, and equipment, under control and immediately inventories them (from largest to smallest value)

  • Safeguards the assets of the bank and safety of employees by preventing entry by unauthorized persons, vandalism of property, including files and records, and theft of bank property.

Information Technology Team

  • Coordinates and communicates with the data processing servicer, whether in-house or off-site

  • Coordinates report generation and distribution

  • Controls, transfers, or terminates any e-banking capability.

Legal Team

  • Works in an advisory capacity with the conservator or receiver and bank intervention manager prior to and during the bank intervention

  • Ensures that the intervention documents are complete, accurate, signed, and properly filed

  • Preparation and/or review of communications items

  • Review of contingent liabilities and preparation of the closing memoranda and the legal closing book

  • Oversight of inherited litigation intake

  • Provides intervention team with legal interpretations of all transactional agreements

  • Processes bond claims and director and officer insurance claims, with duties including employee interviews, desk audits, and gathering and inspection of bank records.

Personnel Team

  • Audits and inventories the failed bank’s personnel files for receipt by the assuming bank

  • Holds employee meetings for failed bank employees to explain the situation.

In summary, intervention (takeover) of a bank and appointment of a conservator or receiver are serious and often complicated procedures. Effective preliminary preparation and execution of the action plan can make the intervention much easier. This chapter sets forth the various roles and responsibilities of the supervisory authority and DIA employees involved in the intervention.5 It is divided into three sections:

  1. Advance preparation for intervention

    • Intervention action plan

    • Management and legal

    • Information packages

    • Function areas

    • Advance preparation.

  2. Immediate actions at intervention

    • Intervention steps

    • Management and legal

    • Public/media relations

    • Function manager plan and intervention actions.

  3. Functional area checklists (Annex 3.1).6

ADVANCE PREPARATION FOR INTERVENTION

Planning

When it is determined that a failing bank cannot be recapitalized or rehabilitated by its owners and management, the supervisory authority may consider appointing a conservator according to the banking law. If it is determined that there is no chance of rehabilitating the bank, then the supervisory authority may skip the conservatorship stage and appoint a receiver to liquidate the bank. Either of these actions will require an intervention of the bank, with a primary aim of controlling and inventorying the bank’s assets.

Upon this decision, a bank intervention manager should be appointed to carefully design an intervention action plan for the actual takeover of the bank (Annex 3.2). The bank intervention manager will administer and take fundamental responsibility for this action plan. The bank intervention manager is responsible for the critically important but short-term bank intervention process detailed in this chapter. A conservator is primarily responsible for the longer-term con-servatorship process, whereas a receiver is responsible for the receivership process (liquidation of the bank’s assets).7 At the appropriate “trigger” event, the DIA is responsible for compensating insured depositors.

Intervention Staffing

The bank intervention manager will decide the appropriate resource level for the bank intervention. This includes the number of personnel required to fulfill the functions, an adequate amount of supplies and equipment, and assurances of obtaining the necessary deposit reports.

The supervisory authority and deposit insurance agency (DIA) bear primary responsibility to staff the bank intervention team. Under the leadership of a bank intervention manager, appointed by the supervisory group, supervisory authority and DIA officers should act as function managers, to manage areas such as security, cash operations, asset control, deposit operations, technical facilities, information technology, and legal issues during the conservatorship. The bank intervention manager and function managers together comprise the bank intervention team. Depending on the size of the bank, the team can combine some of the intervention functions. Depending on the number of branches, branch teams must be prepared to perform the same functions at each branch.1

Former employees of the problem or failed bank can assist in these functions. For larger bank failures, it will probably be necessary to recruit supervisory authority employees from outside the bank supervision department.

  • Supervisory authority’s administrative staff can assist on inventory and control of fixed assets, to change locks, or to control certain records. (Note: intervened bank staff can assist with inventory functions; however, they should not have control of assets and/or records.)

  • Supervisory authority’s information technology experts can assist on computer control and security.

  • Security concerns may require some type of assistance from other government authorities (e.g., the Ministry of Internal Affairs).

  • The supervisory authority and bank staff should be prepared to work extended hours in the early part of the process.

  • Prepare for emotional reactions by people involved, especially bank’s staff. Supervisory authority staff must be firm while remaining calm and professional when dealing with bank staff and customers.

1

In jurisdictions with a narrow-mandate DIA, the supervisory authority will bear the bulk of staff responsibility. In jurisdictions with a broad-mandate DIA, particularly those with bank resolution powers, the DIA will bear the bulk of staff responsibility. In case of a large bank intervention, either or both may need to employ contractors.

On the intervention organizational chart (Annex 3.3), the bank intervention manager reports to the conservator or receiver who has authority from the supervisory authority through the banking law. (Any decision beyond the conservator’s or receiver’s delegated authority will be referred to the appropriate level for disposition.) The bank intervention manager is supported by function managers responsible for the various intervention duties required.

The bank intervention manager has responsibility for the following:

  • Coordinates and manages all intervention functions, including staffing level determination, personnel selection, designation of assignments, and liaison with all supervisory authority departments (see Box 3.1)

  • Organizes and supervises intervention personnel in all aspects of the intervention, assuring that all resources are efficiently and properly used

  • Provides input to the function managers regarding specific requirements for the intervention

  • Coordinates all meetings and intervention personnel matters

  • Establishes and ensures appropriate lines of communication with all function managers.

Some key items and time frames for specific assignments to consider for the bank intervention manager are:

  • Use the intervention action plan as a checklist for planned actions and assignments (who, what, when, where, why, how)

  • Ensure that all areas of risk will be controlled without delay

  • Plan the date and entry time in a way that minimizes confusion, allowing for the most effective and efficient action. (Which key officials should be present and available? Do you plan a Friday afternoon entry and work during weekend?)

  • Walk through action plan with key staff members

  • Walk through action plan with everyone involved (maybe in function subgroups)

  • Ensure that those involved understand their assignment.

One or two days before the intervention the conservator or receiver should review the intervention plan with the bank intervention manager and key staff members. Checklists should be finalized and approved by the bank intervention manager prior to this meeting. This is an opportunity to resolve any outstanding issues and make sure all duties have been assigned. It is also a good time to finalize the date and time for intervention.

The bank intervention manager and conservator or receiver should request a meeting with the bank’s general director and key staff to be held at the bank immediately before the date and time of intervention.8

Generally, the supervisory authority will provide the legal adviser for the bank intervention team prior to the intervention. The legal adviser should plan to be on the premises with the receiver at the entry into the bank and remain there for approximately the first week.

The legal adviser will have ongoing duties throughout the resolution process. Generally, the adviser will be involved in drafting corrective measures, transactional documents as applicable (i.e., P&A agreement), any required notices, and any required powers of attorney for the conservator or receiver, and responsible for providing legal assistance to a liquidator on broad matters, such as challenges to the supervisory authority’s actions, and more specific matters, such as assets in litigation, foreclosures, and bankruptcies.9 Additionally, to the extent that the legislative system permits, the adviser should assist outside counsel and/or liquidation staff in actively pursuing professional liability claims (e.g., actions against the failed bank’s directors and officers, auditing firms, legal firms, etc.) when there is negligence.

Depending on the situation, the legal adviser may not thereafter be needed on a full-time basis but should remain on call and available to the receiver until the liquidation process is completed. Depending on the volume of bank interventions at any particular time, the supervisory authority may have several attorneys devoted to bank liquidation legal matters.10

A designated intervention team member should work with the legal division to prepare the following notices and other legal documents regarding appointment of the conservator or receiver:

  • Publication in the [insert appropriate legal bodies names here] (Annex 3.4)

  • Filing at the appropriate court (Annex 3.5)

  • Door notification (Annex 3.6)

  • Notice to the board of directors and management of bank (Annex 3.7)

  • Notice to clearing system, correspondent banks, and ATM network (Annex 3.8)

  • Notice to bank officers and employees (Annex 3.9)

  • Code of conduct/consent and release for bank employees during intervention and conservatorship or receivership process (Annex 3.10)

  • Notice to shareholders, depositors, borrowers, and vendors (Annex 3.11).

Table 3.1 contains a list of necessary intervention documents, including the responsible party and time frame for completion.

TABLE 3.1

Intervention Documents

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Note: BIM = bank intervention manager; BIT = bank intervention team; DIA = deposit insurance agency.

The sections below summarize basic preintervention duties and responsibilities according to the various function areas.11

Conservator or Receiver

If necessary, establish a preliminary failed bank employee retention strategy with the bank intervention manager, and management of any extant liquidation office, giving consideration to (1) the cost of the incentive versus the disruptive cost to the receivership should the employee(s) leave, (2) industry standards, and (3) alternative retention strategies. The receiver should hire any necessary employees on a limited-term contract in order to avoid labor problems later.12

Ensure that appropriate delegations of authority (see Chapter 7) and powers of attorney have been issued, as applicable.13

Make inquiries with the examiner-in-charge, or the appropriate bank employee, to determine when the bank employees were last paid and how much accrued vacation pay may be owed to them.

Bank Intervention Manager

The bank intervention manager’s main function is managing and coordinating all intervention team members to assure that the intervention goes as smoothly as possible. The bank intervention manager can delegate many of the functions to others; however, the bank intervention manager bears ultimate responsibility to assure completion of intervention activities as required. Initial activities include:

  • Obtain and review a copy of the information package and other relevant information.

  • Verify and coordinate with the function managers the number and distribution of noncomputer-generated reports and computer-generated reports.

  • Determine the type of business conducted at each location.

  • Develop strategies and assign responsibilities for business lines.

  • Select a code name for the intervention.

  • Ensure that lodging (if necessary) and meeting room arrangements have been made.

  • Prepare “intervention packets” to be given to program areas and intervention team members (include organizational chart, telephone and fax number list, and information sheet).

  • Coordinate with information technology (IT) team and get a copy of the preintervention IT analysis to determine the important information itemized on the IT checklist (e.g., When do accruals cut off? Can hold be placed on accounts?).

  • Ensure that security and facilities teams are prepared to secure ATMs and night deposit boxes if locations are not purchased or the assuming bank wants them closed

  • Conduct a preintervention meeting with the entire intervention team, making sure everyone understands what their job will be, whom they will report to, and how their assignment fits into the intervention as a whole.

  • If applicable, contact the winning bidder, provide a copy of the assuming institution’s preintervention information, and discuss the intervention process and weekend schedule and responsibilities, particularly in regard to deposit account holds and how to deal with the media (i.e., refer questions to supervisory authority’s designated spokesperson). Stress the importance of confidentiality until the intervention.

  • Obtain the following:

    • List of assuming bank’s personnel attending the intervention

    • Name and telephone number of the contact person with the assuming bank

    • Assuming bank’s board resolutions identifying names and signatures of employees authorized to sign official receipts

    • Insurance binder covering the institution building, contents, and liability, naming the conservator/receiver as additional insured as of institution intervention

    • Wire instructions

  • Determine if payment of earned and unpaid payroll expenses of bank employees is in the best interest of the conservatorship/receivership and, if so, ensure payment prior to intervention.

  • Obtain the failed bank employee roster and inquire among function managers if they need to use those employees for intervention activities. If possible, select a temporary employment service contractor as the method to pay failed bank employees for their services during an extended intervention or post-intervention period. For small, short interventions, arrange with the assuming bank to pay failed bank employees, with reimbursement through settlement.

Accounting Team

  • Review the information package to estimate the number and composition of assets that the receivership can expect to inherit.

  • Review proposed transactional document (e.g., P&A agreement) for asset and liabilities splits with assuming bank, if applicable.

  • Review bank’s financial reports.

  • Determine the staffing required for the intervention.

  • Determine the computer equipment/software, and the supplies required to perform the accounting function.

  • Attend preintervention function managers meetings and other meetings as applicable.

Asset Team

  • Review the information package to estimate the number and composition of assets that the receivership can expect to inherit.

  • Review any nontraditional business lines in terms of how they operate, special skills needed, and staffing requirements.

  • Determine the staffing required for the intervention.14

  • Determine the computer equipment/software, and the supplies required to perform the asset intervention function.

Branch Operations Team

  • Identify the number of branches and the types of activities offered at each branch, the institution contact person, and the assuming bank contact (if applicable) at each branch. Plan for differences in language spoken, time zones, and hours of operation. For foreign branches, the banking and bankruptcy regulations of the country will take precedence and should be researched in advance. For branches located abroad, coordinate with the legal department to secure the services of an experienced banking attorney in each country prior to the intervention.

  • Determine the staffing requirements of each branch. For large interventions with large branches, establish an on-call reserve force to help handle Monday customer lines and other unforeseen needs.

  • Instruct each branch manager to check in during the first hour of the intervention to report status and problems.

  • Obtain the address, directions to, phone number, and fax number of the branch and a copy of lease and landlord’s name and phone number, if available.

  • If a representative of the assuming bank plans to attend the branch intervention, prepare a copy of the closing overview for the representative’s information. If this information has not been delivered, a copy should be provided just prior to the intervention or upon arrival of the representative.

Deposit Operations Team

  • Perform a preliminary insurance determination according to governing deposit insurance law.

  • Identify any politically sensitive depositors such as churches, charitable or religious organizations, and public units unsecured, fully insured, and/or fully secured.

Facilities and Security

Supplies:

  • If needed, prepare a box of supplies to be sent to the intervention site; depending on the retail resources available at the intervention location, additional supplies may be obtained later.

  • Ensure necessary forms and documents are loaded on laptop and a CD for back-up.

  • Obtain printer for use at the hotel/failed bank.

  • Arrange for an official seal, tape, or other means to control drawers, and use labels for inventory.

Intervention team coordination:

  • Review the information package and attend all prein-tervention meetings to determine the number of supplies, copiers, printers, and security officers needed to facilitate a smooth institution intervention.

  • Prepare the intervention packets for distribution the intervention team members; suggested items to include information sheet, organizational chart, map with directions to the institution/hotel.

  • As needed, arrange for intervention meetings with the team managers and/or entire intervention team.

Logistics:

  • If applicable, begin travel arrangements (i.e, hotel availability near the institution, airline schedules). Once the hotel is selected and a contract is negotiated, submit it to the bank intervention manager for the approval process. Ask for a 24-hour cancellation clause. Also, arrange for a room for meeting space and storage of supplies/equipment.

  • Determine if the failed bank’s existing facilities have the capacity to accommodate the intervention team. Arrange for additional work space if necessary (e.g., hotel conference rooms).

Security:

  • Meet with contracted security guard firm or police; provide instructions, determine locations and assignments.

Information Technology Team

If possible, the IT manager should visit the failing institution to help prepare data files, equipment, and information needed for the intervention. The manager can use this opportunity to gather additional information and resolve unanswered questions where possible. Additional tasks include:

  • Determine capability of stopping accruals, when to expect the download files, report generation capability, delivery logistics, and staffing.

  • Coordinate with the bank intervention manager regarding the important information itemized on the IT checklist (e.g., When do accruals cut off? Can we place holds on accounts? Has the bank been servicing loans for any other banks?).

Legal Team

  • Review the bank inspection report.

  • Review the legal authority of the regulating and supervisory entities to commence the process, withdraw the bank’s license, and designate a receiver, supporting the actions with legal foundations.

  • Prepare the proper legal order (i.e., conservatorship or receivership) as required by law.

  • Meet with the members of the receivership/liquidation team to review the strategy for the process.

  • Provide the bank intervention manager with copies of applicable transaction documents (e.g., P&A agreement) once a bid has been accepted, if applicable.

  • Review major contracts and agreements as requested by the conservator/receiver or the bank intervention manager (including letters of credit, open credit lines, unfunded and partially funded commitments, etc.).

  • Accompany the conservator/receiver, the bank intervention manager, and the representative from the applicable supervisory authority when the proper legal notice (i.e., conservatorship or receivership) is served on the bank.

  • Make sure that the notice is published in accordance with the law.

  • Review important documents as indicated on the checklist (e.g., insurance policies, correspondence and claims, audit reports, board of directors minutes, legal and litigation files, etc.) for possible future legal action against the bank’s directors and officers.

  • Identify and prepare the initial target list of directors and officers whose electronic data are to be secured.

Personnel Team

  • Prepare sign-in/out sheets for intervention team and failed bank employees.

  • Prepare timesheets for failed bank employees to use (unless theirs are acceptable).

Information Packages

The bank intervention manager should ensure that information packages are developed and distributed to the bank intervention team, the conservator or receiver, and other appropriate supervisory authority employees prior to intervention. The information packages consist of:

1. Master Package

The master package is strictly confidential and cannot be released to the public, bank personnel, or others who are not directly involved in the intervention. It should be available to the function managers and assistants for review only. It includes:

  • Initial bank information (Annex 3.12) or general data summary about bank

  • Copy of supervisory authority appointment order and related documentation

  • List of bank personnel, members of bank board of directors, officers, management, and other staff

  • Organizational chart of the bank

  • Two most recent on-site examination reports

  • Most recent off-site report

  • List of key shareholders

  • Information on parties contributing to bank’s problems

  • Any news items

  • Other relevant information.

2. Function Manager Packages

  • List of bank intervention team and designated responsibilities

  • Copy of applicable sections of bank intervention manual, including checklist(s)

  • Bank data summary

  • Bank organization chart including personnel listing for designated function

  • Earlier examinations’ summary reports

  • Bank intervention press release.

Each function manager should create and maintain the following files:

  • Function plan and revisions (see function area section)

  • Reports file (memorandum files of function area and bank).

IMMEDIATE ACTIONS AT INTERVENTION

Intervention Steps

Immediately prior to intervention, the bank intervention manager will conduct an intervention team meeting to go over the plan for entry into the bank. This meeting will include the initial intervention team and all other intervention team members. At this time, the bank intervention manager will go over the initial responsibilities for each team member. Any extra or special responsibilities will be assigned to the appropriate function manager.

The initial intervention team consists of:

  • Bank intervention manager

  • Senior officials of the supervisory authority

  • Legal adviser

  • Conservator or receiver

  • Facilities/security function manager, along with any other necessary security personnel.

Note: The supervisory authority officials and all intervention team personnel should wear official identification badges during and after the intervention process.

The following are the immediate intervention steps:

  • The initial intervention team enters the bank and meets with key bank officials and representatives.

  • The designated supervisory authority official (this could also be the bank intervention manager, conservator or receiver, or designee) explains to the key bank officials what is taking place, and presents the intervention order to the general director or the representative in the general director’s absence.

  • The designated official advises the general director or the representative of the appointment of a conservator or receiver, introduces the conservator or receiver, and relieves the general director and selected management of their authority and responsibilities. The general director and problem management personnel should then be escorted from the premises (after collecting bank credit cards and any keys for bank-owned property—including automobiles).

  • Ensure that the bank intervention notification is posted on the door.

Security Team

  • The security function manager should take immediate control of SWIFT and/or other wire transfer facilities.

  • The security function and IT managers should ensure that ATMs are disabled and applicable networks notified.15

  • All the night depositories should be locked and/or sealed, with official notices posted on them. Any night depositories must be emptied and the contents inventoried under dual control and work processed by the accounting team.16

  • The initial intervention team must keep the key bank officials under control. Do not allow anyone to leave the meeting, make a phone call, or issue any instructions, as this may be detrimental to the bank.

  • Depending on the nature of the bank’s problems (i.e., responsibility of key bank management for the bank’s problems), the former key bank management may be escorted out of the bank. In this case, they are not allowed to remove any items, personal or otherwise. The intervention team will inventory their offices and take control of anything important to the bank’s business. The bank intervention manager or conservator or receiver will arrange for any personal items to be delivered later.

The bank intervention manager then notifies the remaining intervention team members to enter the bank and commence their assignments. The intervention team may be much larger than the initial intervention team and in that case, team members should enter in small groups. Coordinate the entry scheduling of intervention team members to eliminate any confusion. Intervention team members with branch operations responsibilities can coordinate by phone.

Initial intervention team meets with remaining management, notifies them of the revocation of all authority and their new reporting responsibilities. Depending on staff size and locations, all employees may be included in initial staff meeting.

When team members enter the bank, each function manager immediately commences a meeting with bank staff in his/her assigned area. If the bank has a small number of staff, this meeting may be held with all bank employees at one time, or the bank intervention manager may have already conducted it. Coordinate this meeting during intervention planning. The outline for the meeting is shown in Annex 3.13.

Function managers are to follow the checklists that have been prepared and approved for their actions. The following critical areas are stressed:

  • Ensure that everything concerning the ongoing operation is under control, including:

    • SWIFT or other wire transfer facilities

    • Cash

    • Loan notes, collateral, and other documentation

    • Deposit files and documentation

    • Wire transfer

    • Fixed assets

    • Other assets documentation

    • Telephones

    • Fax machines

    • Cars.

  • Cash must be counted.

  • Offices, desks, and storage areas, such as drawers, file cabinets, etc., must be secured and inventoried. If inventory cannot be accomplished immediately the storage areas must be secured by an official adhesive seal or tape to prevent contents from being stolen, lost, or destroyed. Initially, extra supervisory authority staff can help secure and inventory bank items. Bank staff may assist as long as they are accompanied by an intervention team member. Frequently bank personnel maintain some cash in their desks.

  • Personal computers must be secured to prevent deletion of important files.

  • The security function manager must collect the bank’s official stamps, seals, and any other evidence of authority for bank. These must be inventoried and secured, with notification given to the proper authorities.

  • General ledger must be posted to date, reconciled, and balanced.

  • The supervisory authority must prevent any loss, destruction, or manipulation of records, assets, or liabilities. The function managers must be alert to potential problems with employees such as abuses, vandalism of documentation or systems, and similar problems.

  • Immediately advise other affected parties (payment system, clearing system, correspondent banks) of the intervention, revocation of previous management’s authorities, and transfer of authority to supervisory authority.

Public/Media Relations

Well before any problem bank action, communications departments from both the supervisory authority and the DIA should diligently coordinate information and control information through one spokesperson. They should prepare and deliver a media statement immediately after taking control of a bank, providing information in a positive light to reassure the public. It should stress that the authorities have acted in the best interests of the depositors and the financial stability of the banking system. To avert any uncertainty and misconception, all communication should be provided in simple terms, as outlined below.

  • Press releases should be brief, factually accurate, and as positive as possible (see Annex 3.14).

  • Possible follow-up questions should be anticipated and answers prepared (see Annex 3.15).

  • The authorities should share as much information as possible with the media in order to create and maintain goodwill.

  • The initial message should describe the action taken and how the resolution will be handled.

Prior to any bank failures, the authorities should coordinate in developing a media and depositor education plan that answers, at a minimum, the following questions:

  • Where will insured deposits be paid?

  • Is there an acquiring bank to act as paying agent?

  • Will all branch facilities be open for payment?

  • When will deposits be paid (or be made available)?

  • What information must an insured depositor provide to obtain payment?

  • What happens to my loan?

  • Must I continue making payments?

Function managers, team members, employees of the bank, and supervisory authority and DIA employees must not make statements to the press or the public. Channel all such contact through the designated official spokesperson.

Failed bank employees answering general telephone calls may be provided scripted information to provide to callers or visitors to the failed bank premises (Annex 3.16). Inquiries for further information or callers demanding to talk to an official should be referred to the designated official spokesperson of the intervention team.

Finally a notification letter should be distributed to all shareholders, customers, borrowers, and vendors of the bank. The letter should provide basic information and a contact person and telephone number, and emphasize the continuing responsibilities of borrowers to the bank.

Function Areas17

Function Manager Plan

This section describes the various objectives for each intervention function.18 Each function manager is to prepare a plan for each area of responsibility prior to initial intervention. (Note: Neither the bank intervention manager nor the conservator or receiver should serve as a function manager during the intervention, unless the bank to be closed is small. The bank intervention manager should focus on managing and controlling the process and informing the conservator or receiver, who will be preparing for conservatorship or receivership. Other conservator or receiver team members may also serve as function managers, however.) The plan must be reviewed and approved by the bank intervention manager and conservator or receiver not less than three days prior to intervention. The plan should be developed as follows:

  • Review applicable section of intervention manual and preliminary information package for bank.

  • Talk to other function managers in charge of related functions to coordinate responsibilities (e.g., the IT team will have to interact significantly with the deposit operations team and asset team to ensure that they receive the necessary reports).

  • Inform the bank intervention manager of any areas of significant overlap, or areas of responsibility with no one assigned.

  • From objectives, checklists, and other items set out in this manual, develop a checklist of specific tasks to be accomplished, and establish the priority based upon importance and urgency. The checklist should focus on tasks required from the time of intervention.

  • Discuss proposed plan with others on the intervention team in related functions and with persons familiar with bank (on-site and off-site), and revise the plan as necessary.

  • Submit your plan to the bank intervention manager for review and approval. The bank intervention manager will review all plans and will be able to detect areas with duplicate or missing items.

  • Revise the function plan. Intervention organization and procedures may need to be revised during the intervention period as the function manager learns more about the operation and organization of the bank.

The bank intervention manager will prepare a comprehensive intervention report for the conservator or receiver. The report should include accomplishments, a summary of problems encountered, pending issues, and other areas of concern assembled from the various function manager checklists. It should clearly explain the work performed and follow up concerns in priority order.

The function plan should contain the following components:

  • Statement of objectives

  • Tasks, with primary and secondary tasks listed in priority order

  • Issues or questions requiring additional information or of special interest.

The function areas are:

  1. Accounting

  2. Asset management (cash, teller, and vault operations)

  3. Branch operations

  4. Deposit operations

  5. Facilities and security

  6. Information technology

  7. Legal

  8. Personnel.

Checklists for each function area are included in the function checklists at the end of this chapter. Checklists must be prepared and ready at the time of intervention. The bank intervention manager or conservator or receiver must approve any major changes and additions. Properly maintained checklists should provide a method for the bank intervention manager, function manager, and conservator or receiver to review the project status at any time.

Conservator or Receiver

The conservator or receiver should attend, to the extent possible, daily bank intervention managers’ meetings with function managers, settlement/P&A meetings with the assuming bank, and accounting meetings with the assuming bank, if applicable.

The conservator or receiver must also bear transition items in mind, such as:

  1. Coordinating with the asset manager:

    • Ensure that assets transferred under terms of the P&A agreement are receipted to the assuming bank.

    • Present list of letters of credit to the assuming bank, and request that they replace the letters of credit prior to disaffirmation.

    • Present list of retained unfunded commitments to the assuming bank, and request that they review them for possible assumption prior to dis-affirmation.

    • Ensure that repossessed collateral is secured for later disposition in a proper and cost-effective manner.

    • Confirm with the asset manager that first notice letters have been sent to customers whose loans have been retained by the conservator/receiver.

    • Determine which, if any, unfunded commitments will be honored. Obtain approval to fund or disaffirm unfunded commitments. Set procedures with the intervention accounting manager and the assuming bank, if necessary, on funding and track-ing advances for retained unfunded commitments.

  2. Coordinating with the deposit operations manager:

    • Ensure that notice letters are sent to depositors whose accounts have been held.

    • Remind the assuming bank that it is their responsibility to sustain the account holds until appropriately released.

  3. Coordinating with the personnel manager:

    • Finalize and implement employee retention strategy.

    • Confirm how the failed bank employee costs are to be shared by the receiver and assuming bank, as applicable.

  4. Coordinating with the facilities manager:

    • Obtain schedule of contracts, agreements, and leases from closing team. Prepare disaffirmation cases and notices on items not assumed by the assuming bank. The assuming bank may decline certain contracts and agreements immediately, but others will need further review (a P&A agreement usually sets a 30-day deadline). In either case, disaffirm the contracts, agreements, and leases, as soon as possible.

    • Ensure that appropriate space, staffing, and equipment are available for any potential asset sales.

  5. Coordinating with the legal manager:

    • Obtain from the legal department a list of loans subject to litigation. Confirm with legal the correct litigation division between the conservator or receiver and the assuming bank.

Additionally, the conservator or receiver must have adequate staff and space available to meet with customers, answer questions, and respond to customer needs and problems regarding relevant aspects of the intervention process. Please refer to Chapter 6 and 7 for greater detail on transition and post-intervention activities.

Bank Intervention Manager

The bank intervention manager has responsibility for the following:

  • Coordinates and manages all intervention functions, including staffing level determination, personnel selection, designation of assignments, and liaison with all supervisory authority departments.

  • Organizes and supervises intervention personnel in all aspects of the intervention, assuring that all resources are efficiently and properly used.

  • Provides input to the function managers regarding specific requirements for the intervention.

  • Coordinates all meetings and intervention personnel matters.

  • Establishes and ensures appropriate lines of communication with all function managers.

The bank intervention manager should prepare a comprehensive intervention file to document all the intervention activities. The manager’s book should contain documents and materials such as those listed in the sample table of contents in Annex 3.17.19

Additionally, the bank intervention manager should designate a member of the intervention team to prepare an inventory book of assets and liabilities. The inventory book is a compilation of important financial information and other data pertaining to the bank as of the date of receivership. This information provides an important reference to the receiver in the post-resolution period of the bank.

The inventory book should be completed within 120 days of the bank intervention date. Information should be compiled electronically whenever possible. Original “signed” documents (e.g., the P&A agreement) should be scanned if possible.

Verify the documents with the source contact as needed. The attachments should be reviewed and organized prior to submitting them to the bank intervention manager for approval. The manager may decide to include additional items in the book, as circumstances vary at each intervention.

Annex 3.18 presents a listing of the items to be included in the inventory book, a description of each item, and the contact responsible for providing the information.20

Accounting

Objective: Manage and maintain the accounting function, including posting to the general ledger and subledgers and production of financial and management reports. Preserve integrity and accuracy of accounting system. Assist other function managers to identify all assets and liabilities and see that they are properly reflected on the books of the bank.

It is critical that the bank’s accounting records be current and accurate in order that proper reports can be developed for the conservator or receiver and others to use in this process. The following additional tasks should be carried out:

  • Obtain, catalog, secure, and analyze all existing reports in regular usage.

  • Request and obtain all of the bank’s account numbers at the clearinghouse, reports on accounting activity, and a daily balance sheet.

  • Post any outstanding items after review at proper level.

  • Analyze each general ledger account and identify the components of each subsidiary account. Prepare a pro forma balance sheet reflecting corrective adjustments. Identify additional write-offs and questionable entries discovered during the analysis.

  • Provide an accurate financial statement as of intervention date (or most recent month-end) and on regular basis in the future.

  • Reconcile accounting records internally, and with regulatory reports.

  • Work with the asset function manager to prepare the “Estimated Loss in Assets” (Annex 3.19) report for the conservator or receiver.

  • Produce cash flow statement (recent historic) and cash flow projection.

  • Verify compliance with tax reporting and payment requirements.

  • Produce bank regulatory and clearing reports in a timely manner.

  • Interact closely with other departments on entries to help identify assets and liabilities that are not properly reflected on the bank’s books.

  • Manage the settlement process, including:

    • Administering any transactional agreement (e.g., P&A)

    • Monitoring transactions to assure compliance with all terms and conditions of the agreement by the assuming bank and the receiver

    • Administering the transfer of funds to and from the assuming bank for the payment of assets sold under the agreement and the reimbursement of expenses incurred on behalf of the receiver or the assuming bank

    • Notifying all correspondent banks and transfers accounts, acting as the assuming bank’s key contact during the settlement process.

Asset Management

Objective: Preservation of value of loans and other assets, including off-balance-sheet assets. The following tasks should be carried out:

  • Inventory investments, loans, and other assets (nonfa-cilities)

  • Assess their condition

  • Determine what actions are required to assure the necessary control, continued accounting, and administration of the assets during the conservator or receivership period.

General:

  • Obtain physical control and preservation of loan files, other asset documents, and off-balance-sheet items, including written guaranties, commitments, and letters of credit.

  • Ensure secure storage of legal documents and other important documentation.

  • Order and review most recent accounting records (trial balance, subsidiary ledgers).

  • Locate all work in process and confirm exact status—interview loan officers and check their desk files.

  • Enforce the general rule—no new loans or applications, and no renewals or extensions without written justification and approval by conservator or receiver.

Loans

Review each outstanding loan to determine current status, according to the asset checklist (e.g., verify that all outstanding loans are reflected on the general ledger and loan subsidiary ledger, verify that original documentation is in file, compile an inventory of any missing documents, review and evaluate pending commitments and approved loans, etc.).

Other (Nonloan, Nonfacility) Assets

Other assets consist of repossessed assets, investments in subsidiaries, joint ventures, partnerships, consignment items such as commemorative coins, art, and apartments or holiday resort properties, or any otherwise unidentified asset that may have value to the bank. The following tasks should be carried out:

  • Identify and inventory other assets.

  • Assess the risk exposure for other items.

  • Determine what further analysis is necessary.

  • Recommend appropriate action to protect the value or minimize the risk of identified assets.

Off-balance-sheet items:

  • Obtain accounting records.

  • Identify and inventory off-balance-sheet items.

  • Assess the risk exposure for off-balance-sheet items.

  • Develop plans for most urgent items.

  • Assess contingent liability and risk exposure, and prepare report on findings.

  • Determine next steps and make recommendation.

Written-off loans and other assets:

  • Obtain records and review.

  • Identify assets that should be accounted for and tracked (collection expected).

  • Evaluate collection possibilities.

  • Take appropriate steps to liquidate assets, including starting litigation procedure of debtors, if justified.

Note: An important responsibility of the conservator, receiver, or liquidator is the creation of a map of related debtors, indicating their respective companies, as well as the asset and liability accounts involved, the associated collateral, and the persons or representatives through which the presumed “fraud” of the directors and/or managers of the institution placed in conservatorship or receivership has been conducted, so that the legal and financial scam used for personal gain to the detriment of the bank will be absolutely clear.21

Cashier, Teller, and Vault Operations22

Objective: Preserve and safeguard cash and cash-like assets.23 The following tasks should be carried out:

  • Inventory (count) all cash at teller drawers and vault cash at time of intervention (Annex 3.20).

  • Inventory cash-like items (traveler’s checks, money orders, all other) at time of intervention.

  • Continue teller operations.

  • Review internal controls and make changes to protect cash and cash-like items.

  • Develop and establish transaction authorizations. Provide clear and simple authorization levels at initial intervention, and modify as necessary.

Branch Operations

Objective: Control branch premises, assets, and operations. The following additional tasks should be carried out:

  • Take control of and inventory the cash and any other valuable documents (notes, negotiable collateral, safekeeping items, and other negotiable instruments) at these branches.

  • Inspect branch sites and evaluate physical facility and local market, and collect pending items such as approved or in process loans; ensure that information flows and conservator or receiver controls are in place at all branch locations.

  • Coordinate branch operations with functional areas related to facilities management, personnel, lending, teller, and deposit functions.

Deposit Operations

Conservatorship objective: To preserve the bank’s deposit base and provide liquidity for the bank.

Receivership objective: To compensate insured depositors.

The following tasks should be carried out:

  • Be prepared to have adequate staff on hand to counsel uninsured depositors; staff must explain how the insured deposit was determined and how to file a claim for the uninsured amount.

  • Develop contingency plan for a deposit run, and train employees.

  • Regardless of whether there is an acquiring bank or the bank goes to liquidation, the intervention team must be prepared for a large number of customers gathering at the bank premises who want their deposits.

  • Obtain and secure accounts’ subsidiary ledgers and customer lists.

  • Prepare deposit distribution schedules that show deposits according to priority of claim.

  • Evaluate interest rates and other account terms on maturing accounts.

  • Recommend changes to deposit account interest rates on a regular basis (e.g., weekly) according to market practices.

  • Provide maturity information and pro forma to accounting for cash flow projection.

Account Holds

In coordination with legal and the asset team, a member of the deposit operations team should develop a list of deposit accounts that may correspond to delinquent or matured loans (potential offset), or that are pledged as collateral for a loan or letter of credit.

Following are some criteria for freezing deposit accounts:

  • The deposit amount is in excess of the deposit insurance limit.

  • When any maker or guarantor of a loan (i.e., commercial, real estate, installment, etc.) is 60 days or more past due.

  • When any maker or guarantor’s loan is one or more days past maturity.

  • The accounts of directors and/or officers, pending consultation with the legal team.

  • All deposit accounts pledged as collateral on a loan or letter of credit.

  • All accounts of any maker or guarantor of a charged-off loan.

Note: Holds should not be placed on any account or group of accounts for an amount that exceeds the party’s indebtedness. If the loan is past due, past maturity, or charged-off, then a hold for the full amount of payoff (principal and interest) would be appropriate.

Account holds should be coordinated with the IT team prior to the start of business the next day.

In case of an assuming bank, management of the assuming bank is responsible for maintaining the holds. Provide an alphabetical listing of account holds to the assuming bank’s tellers prior to the bank’s reopening. Clearly instruct them that they have no authority to release any funds from held deposit accounts. Any problems should be referred to the bank intervention manager, conservator, or receiver.

Account hold notices should be prepared, reviewed by legal counsel, and mailed to all appropriate parties (e.g., account holders whose accounts are being held for reasons other than collateral).24

Facilities and Security

Facilities objective: Responsible for financial and physical maintenance of office properties and other fixed assets. The following tasks should be carried out:

  • Arrange and maintain work stations for all employees.

  • Provide office supplies as necessary.

  • Provide meal service for first night of intervention as appropriate.

  • Arrange for delivery of copiers, fax machines, and printers as needed.

  • Locate and provide support for additional work space for intervention team if needed.

In coordination with the asset manager:

  • Place moveable assets, such as vehicles, furniture, fixtures, and equipment under control and immediately inventory (from largest to smallest value).

  • Assess physical condition of real estate and determine whether repair or rehabilitation is necessary to preserve asset value.

  • Assess all costs and outstanding expenses for reason-ability, especially insider (bank’s affiliates) transactions and recent changes.

In coordination with the accounting manager:

  • Review recent purchases, outstanding payables, and similar large items for abuses or insider transactions.

  • Continue rent and utilities payments on all office facilities and other fixed assets; notify all vendors immediately in writing (Annex 3.11).

  • Continue collection of rents on office space and apartments; notify all tenants immediately in writing (Annex 3.11).

  • Collect all insurance policies and evaluate amounts and types that are in force. What are maturity dates? Ensure that premium payments are made to continue coverage.

  • Until a closed bank budget is approved, establish a level above which payments must be approved by the function manager and, over a higher designated amount, by the conservator or receiver.

  • Develop a six-month budget for anticipated facilities expenses.

  • Coordinate funding requirements with the accounting function manager to ensure funds are available for necessary payments.

Security objective: To safeguard the assets of the bank by preventing:

  • Entry by unauthorized persons

  • Vandalism of property, including files and records

  • Theft of bank property.

Two areas of particular vulnerability are actions of remaining employees and/or customers, and nonbanking hours when the intervention team is not in the bank.

  • Access to the bank, particularly noncustomer areas, must be restricted to approved employees; asset storage facilities must be secured immediately; put official seals on vault, cash drawers, note cabinets, and any storage areas containing official stamps, negotiable collateral, safekeeping items, other negotiable items (unissued CDs, traveler’s checks, check stock, etc., as applicable), and any other asset.

  • Locks must be changed immediately, or as soon as possible;25 distribution of new keys and combinations should be limited to a “need” basis, and be fully documented; keys/combinations to sensitive or significant areas should not be distributed.

  • Security systems and services must be immediately brought under control of conservator or receiver (consider hiring new security service for after-hours security).

  • Access codes and passwords to alarms, door entries, and computer systems must be immediately changed, with new distribution fully documented and limited to a “need” basis (see Alarm Instructions below).

  • Coordinate crowd control with local police in case large gatherings of customers and/or employees threaten the public peace.

  • In cases of deposit payoff, coordinate with deposit operations regarding the number of customers to allow inside the bank.

General Security

  • Require identification of any individual not readily identified as intervention team members, contractors, or former bank employees working for the conservator or receiver.

  • Ensure all individuals sign in and out each time they leave or return to the bank premises.

  • Inspect any large parcels, boxes, or suspicious items leaving the premises.

  • Refer any questionable items being removed from the building that are not clearly personal in nature to the bank intervention manager, the conservator, receiver, or the facilities manager.

  • All individuals not identified as intervention team members or former bank employees working for the conservator or receiver will be denied entrance to the building until cleared by the facilities manager.

Vault Security

  • Former bank employees are not permitted in the vault without being accompanied by an intervention team member.

  • All individuals must sign in and out of the vault.

  • Any item removed from or taken into the vault must be signed in and out.

Other Requirements

  • Provide contact information for the bank intervention manager and conservator or receiver to security personnel in case of an emergency after hours.

  • After hours, no one is permitted into the bank unless accompanied or authorized by an intervention team member.

  • Security personnel must ensure that the bank premises key is given to the next guard on duty.

Combinations

  • Obtain all combinations from bank personnel and place them in a sealed envelope with the critical information listed on the envelope (bank name, bank number, branch location, person obtained from and location of the vault). The combinations will be receipted to the assuming bank. In the event of a payout, receipt over to the owned real estate specialist.

Alarm Instructions

  • Obtain the alarm instructions, alarm code, and/or the alarm key from the bank’s security officer. Place the instructions and key/code in a sealed envelope with the critical information listed on the envelope (bank name, bank number, branch location, person obtained from or bank’s security officer, and alarm company name, contact person, phone number and the responding agency).

  • Determine whether unauthorized personnel can impair the integrity of the system.

  • If the system includes local law enforcement agency monitoring, notify the agency immediately of the bank’s intervention. Advise the agency of the hours in which the premises will be occupied. Inform the agency how they may contact the facilities manager around-the-clock in the event of an emergency.

Information Technology

Objective: Maintain system integrity and continue services in accounting, reporting, and other management information and external beneficiaries. The following tasks should be carried out:

  • Physically secure computer system, including on-site data processing operations, communications systems, e-banking services, wire transfer, personal computers, Internet provider, and networks. Secure and protect storage media.

  • Disable automatic teller machines (ATM, Bancomat) and notify network service (Annex 3.8).26

  • Act as point of contact between the bank intervention manager and failed bank’s data processing operations staff and/or data processing servicer.

  • Coordinate processing requirements for all bank intervention team functional areas.

  • Coordinate ongoing operation with the assuming bank.

  • Coordinate imaging and storage of documents associated with failed bank.

  • Obtain and deliver downloads and reports as required.

  • Review internal controls and limit access to system.

  • Assess backup, archive system, and emergency situation plan; make necessary changes to ensure integrity and protection of systems and data.

  • Review distribution procedures for reporting and make necessary changes to ensure proper and timely distribution.

One common possibility that the IT function manager should always bear in mind is that the bank employees may keep unofficial copies of information and/or documents, which could be of great value for the intervention team, whether or not the management of the bank has authorized those copies. Accordingly, any member of the intervention team who has access to or is aware of such information should inform the IT function manager for follow-up. Similarly, the IT function manager, interacting with whomever it may concern, should decide whether to prerecord the data or eliminate and/or disable the use of storage devices such as disk drives, CD writers, external hard drives, etc.27

Legal Issues

Objective: Initiate, manage, and terminate intervention litigation. The following tasks should be carried out:

  • Provide legal support to other functions.

  • Provide counsel to the conservator or receiver on legal matters.

  • Provide legal advice to functional areas at the direction of the conservator or receiver, especially with regard to risk exposure of contracts and viable alternative actions.

  • Responsible for continuation of existing litigation, with timely and urgent assessment of whether and to what extent such litigation can and should be continued or concluded.

  • Draft legal contracts and other required documents.

  • Authority includes hiring and firing of law firms and payment of legal fees, subject to approval of conservator or receiver above a specified amount.

  • Oversee modifications to loans and other contract signings.

During the Receivership

  • Assist the receiver or liquidator in the act of commencing the bank receivership process.

  • Attend the meetings between the persons in charge of the bank placed in receivership and the receiver or liquidator.

  • Obtain a list of all the litigation of the bank and the files on those cases (if the files are not at the bank, locate them immediately).

  • Review the most important cases and submit a report on them to the receiver or liquidator.

  • Provide advice on any legal matter regarding relations with the bank’s employees (labor laws in effect, etc.).

  • Provide advice to the members of the intervention team on any legal issue.

  • Provide advice on the finalization of contracts or other pending obligations.

  • Assist in finalizing or settling all the bank’s fiduciary obligations.

  • Collaborate in preparing notice to customers and other financial institutions and persons who may be affected by the bank intervention.

  • Assist the receiver or liquidator in the review and resolution of any type of claim.

  • Assist the receiver or liquidator regarding legal requirements involving payment priorities on claims (order of priority of creditors).28

Personnel Issues

Objective: Maintain adequate staffing, in number and abilities, to accomplish objectives of the supervisory authority and the conservator or receiver acting in the best interest of the deposit insurance fund and the depositors and creditors of the failed bank. Continue personnel policies and procedures, while preventing abuses. The following tasks should be carried out:

  • Prepare and maintain the failed bank organization chart, job descriptions, and listing of employees, consultants, and contractors.

  • Assess compensation for reasonableness and identify potential abuses, with particular emphasis on upper management, shareholders, and recent changes in compensation.

  • Protect and maintain failed bank personnel records.

  • Continue the payment of wages, salaries, and benefits.

  • Evaluate staffing level and salaries, and make precise recommendations to conservator or receiver.

  • Assist function managers with employee issues, including hiring and firing personnel.

  • Do not pay large or suspicious amounts until approved by the conservator or receiver, in consultation with legal.

Functional Area Checklists

Functional area checklists follow the specific objectives for each function, as seen in the series of checklists at the end of this chapter. The functional checklists contain tasks related to both preintervention and intervention. Documentation on each checklist should include at a minimum:

  • Name of bank

  • Function title (for this checklist)

  • Initial intervention date

  • Functional manager responsible

  • Individual assigned tasks

  • Number of pages

  • Subheading: Preintervention Planning

  • Subheading: Priority Actions

  • Subheading: Other Initial Intervention Actions

  • Subheading: Other Routine Actions (in order of urgency and importance).29

This checklist provides guidance for the function manager’s performance in the intervention. It serves as an ongoing status report for review by the bank intervention manager, function manager, and the conservator or receiver. Actions should be listed in order of importance. The following general instructions apply to all checklists for each functional area.

The checklist form is confidential. It must not be shown to bank employees or outside individuals, and must remain in the custody of the appropriate function manager at all times. Do not photocopy this document except to facilitate the bank intervention manager’s, conservator’s, or receiver’s review.

The checklist may be revised as required; however, the bank intervention manager, conservator, or receiver must approve any major revisions.

The checklists are designed to provide a tracking record of completed tasks assigned to specific intervention team members. Unusual circumstances of a particular bank failure may necessitate the addition of certain tasks to one or more of the checklists. Tasks should not be deleted; all tasks should be checked either “Yes,” “No,” “Pending,” or “N/A,” as appropriate.30 Any response other than “Yes” or “N/A” must have an explanation in the “comments” section at the bottom, identified according to the appropriate task number. For internal control purposes, it is important that none of the checklist items be left blank. The comments section can also be used for follow-up items, or detail of unusual circumstances. Extra comments pages can be added as necessary. Note that there may be some duplication in the checklists, such as different function managers being charged with providing notice. These duplications can be managed prior to the intervention with a responsible party clearly assigned.

Each function manager provides completed checklists to the bank intervention manager before the function manager is released from the intervention. The function manager and bank intervention manager must sign the completed checklist for delivery to the conservator or receiver.

1

An earlier version of this chapter was published in David C. Parker, Provisional Administration - FBA (Washington, U.S. Agency for International Development, 2000).

2

If the supervisory authority believes that there is a chance to rehabilitate the bank, then conservatorship may be a good option. Conservatorship operations are discussed in Chapter 4.

3

In some jurisdictions where the DIA has a broad mandate that includes bank resolution responsibilities, the DIA will take a greater role in staffing inter-vention procedures, and the supervisory authority will have a lesser role.

4

The term “branch” is defined here as any office (e.g., loan processing office, branch office, etc.) where the bank conducts business and where valuable business records or property, or both, are held.

5

The allocation of responsibilities assumes the existence of a DIA with a narrow mandate. For those jurisdictions where a DIA has a broader mandate, especially with regard to bank resolution activities, the various responsibilities must be modified. The tasks still must be accomplished; there just may be deviation from the text inasmuch as mandates dictate responsibility.

6

Function area checklists are designed comprehensively so as to include duties that must be completed to ensure effective conservatorship operations. In cases where a bank is intervened to be placed in receivership, the checklists can be streamlined, with items regarding conservatorship operations eliminated. The items that can be eliminated from receivership checklists have been identified in the footnotes in each checklist.

7

Depending on the size and complexity of the bank, it is possible that one person can fill more than one role, as in the case, for example, of a small bank.

8

Depending on the circumstances, the general director and key staff will be relieved of duties and removed from the premises immediately upon intervention.

9

Duties of the legal adviser during the various phases of bank resolution are specified in more detail in the appropriate chapters.

10

William Dudley, Liquidation Closing Procedures and Liquidation Manual (U.S. Agency for International Development, Washington, July 2003).

11

Portions of this section are derived from the Federal Deposit Insurance Corporation’s (FDIC) Failed Financial Institutions Closing Manual (Washington, 2004). Most, if not all, of these intervention actions are included in the various function manager checklists.

12

Some countries have strict legislation regarding labor issues (i.e., retirement, severance pay, social benefits, etc.), which must be taken into account when dealing with staffing strategies.

13

In some jurisdictions, a conservator or receiver has authority to conduct business on behalf of the bank because of appointment; in other countries the legal system may require a conservator or receiver to have an official power of attorney to represent the bank.

14

For example, if most of the assets will be passed to an assuming bank via a P&A agreement, then fewer asset personnel will be needed for follow-up analysis of the assets.

15

If a bank is to continue operating as a conservatorship the ATMs should not be disabled.

16

If a bank is to continue operating as a conservatorship the night depositories need not be locked and sealed.

17

Note that most, if not all, of these intervention steps are included in the various function manager checklists.

18

Portions of the objectives were taken from FDIC, Failed Financial Institutions Closing Manual (Washington, 2004).

19

FDIC, Failed Financial Institutions Closing Manual (Washington, 2004), Exhibit 3.U.

20

Ibid.

21

Fernando de Mergelina, The Resolution Process for a Bank in Crisis and the Operating Manuals for that Process. Operating Manual No. 1: Conducting a Bank Receivership (Inter-American Development Bank, Washington, 2004), p. 19.

22

Note that the functions related to cash (tellers, vault, etc.) are under the asset management team. The function and checklist have been separated because of the urgency in taking control and counting the cash.

23

Depending on the bankruptcy regime, cash may or may not be transferred to an assuming bank. Most bankruptcy legislation provides that receivership operating expenses have the top claim priority. If the receivership is conducted through bankruptcy court, then the bankruptcy trustee may need the cash for operations until it starts receiving loan payments. In jurisdictions where, for example, the DIA is also a liquidating agency (e.g., the FDIC), there may be enough funds in the agency’s budget to fund operations of another receivership without retaining the cash on hand. The local situation will dictate how to handle this matter.

24

FDIC, Failed Financial Institutions Closing Manual (Washington, 2004), Exhibit 5.A.

25

If locks cannot be changed immediately, continue security guard presence at the site.

26

For receivership.

27

Fernando de Mergelina, Th e Resolution Process for a Bank in Crisis and the Operating Manuals for that Process. Operating Manual No. 1: Conducting a Bank Receivership (Inter-American Development Bank, Washington, 2004), p. 25.

28

Ibid. p. 69.

29

The “other routine actions” portion of the checklist can often be actions that are performed by the conservator’s or liquidator’s staff (e.g., completing the asset review sheet to estimate asset values) following the intervention period.

30

For example, in jurisdictions where the bank liquidation will be conducted through commercial bankruptcy court, there will be no need to put so much emphasis on asset analysis beyond securing, inventorying, and balancing the accounts as required by law.

ANNEX 3.1. FUNCTIONAL AREA CHECKLISTS

CONFIDENTIAL

Function Title: BANK INTERVENTION MANAGER

BANK INTERVENTION MANAGER CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary.

CONFIDENTIAL

Function Title: Accounting 1

ACCOUNTING CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary.

1

Items 9, 10, and 11 can be eliminated from Receivership checklists.

CONFIDENTIAL

Function Title: Asset Management 1

ASSET MANAGEMENT CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary

1

Other than taking physical control of cash, loan notes, and other valuable assets and working with the accounting team to balance asset accounts to the general ledger, most of the duties under this function should be accomplished in the days and weeks following initial bank intervention.

CONFIDENTIAL

Function Title: Cashier, Teller, and Vault Operations

CASHIER, TELLER, AND VAULT OPERATIONS CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary.

CONFIDENTIAL

Function Title: Branch Operations

BRANCH OPERATIONS CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary.

CONFIDENTIAL

Function Title: Deposit Operations 1

DEPOSIT OPERATIONS CHECKLIST

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Comments:

Note: Use additional pages for comments as necessary.

1

In case of Receivership, the Deposit Insurance Agency Compensation Manager will be in charge of Deposit Operations, working with Function Managers in IT and Accounting with the highest priority to make insured deposit repayments. In such a case, Items 6, 9, and 10 can be eliminated from the checklist and other items’ priority may be altered.

2

The IT Function Manager will assist in either using the failed bank’s existing system to make the stratification and calculations or download the failed bank’s data to the Deposit Insurance Agency’s insured deposit repayment software program.

CONFIDENTIAL

Function Title: Facilities and Security 1

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