Originally Broadcast June 21, 2008
Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org. And now The Business of Government Hour.
Mr. Morales: Good morning. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government.
Bank failures, more so than any other corporate collapse, directly undermines the stability and public confidence in the nation's financial system. As a result, preventing and mitigating bank failures is major public policy concern and goes right to the core of the mission of the Federal Deposit Insurance Corporation, the FDIC.
Through its various programs, the FDIC seeks to mitigate and limit the ripple-effect bank failures have on the U.S. economy while maintaining the stability and public confidence in our national financial system.
With us this morning to discuss his office's effort in this area is our special guest, Mr. Mitchell Glassman, director of the Division of Resolutions and Receiverships at Federal Deposit Insurance Corporation.
Good morning, Mitchell.
Mr. Glassman: Morning.
Mr. Morales: Also joining us in our conversation, from IBM, is Dennis Kaizer, partner in IBM's federal civilian programs.
Good Morning, Dennis.
Mr. Kaizer: Good morning, Al.
Mr. Morales: Mitchell, we all see the FDIC moniker on the doors, teller windows and ATM machines across the country, but perhaps you can set some context by starting with the history and the mission of the FDIC.
Can you tell us when it was created and a bit about its mission today?
Mr. Glassman: The Federal Deposit Insurance Corporation was organized and created in 1933, so we are having our 75th anniversary this year. Its function and its creation was based on maintaining stability and public confidence in the nation's financial system, and we do that really in three different ways, and that mission is still the same as it was back in 1933, it's by insuring deposits in the institutions that belong to the FDIC through our examination function, but also in managing receiverships.
Mr. Morales: So with that mission, can you tell us a bit about how the FDIC is organized, perhaps tell us a little bit about the budget, number of employees, and how you're organized across the country?
Mr. Glassman: The FDIC is not a very large organization, but it does have 4,500 employees. We're organized really in three major driver divisions. This is our Supervision and Consumer Protection, our insurance and research and the division that I'm over, in Resolutions and Receiverships.
We do have other divisions and offices that supply vital services whether it's in information technology, or administration, finance, legal and we have a corporate university which provides the, you know, the amount of our training that is necessary.
We're located not only in Washington, but we also have six regional offices -- but also we have 85 offices throughout the country, where our examiners also reside; and our budget right now is, you know, approximately $1.1 billion.
Mr. Kaizer: Mitchell, now that you've provided us a sense of the larger organization, perhaps you can give us some more specifics about your division and your role as a director there?
Mr. Glassman: Well, as director, I wear multiple hats. As I was saying before, I'm also the chief claim agent. In other words, as institutions become insolvent, we're very much concerned about the payment of insured deposits back to those particular depositors, but also as we manage the bank's receiverships, we also manage those receiverships.
So we're basically serving as the deposit insurer, but also in the liquidation of the bank for the benefit of the claimants, including that of the FDIC's.
Mr. Kaizer: So regarding your specific duties, can you tell me what you're, maybe, top three challenges might be in your role, and how you're addressing those?
Mr. Glassman: Well, my number one priority is readiness. One thing that the FDIC has to be prepared is to handle any particular institution, insured institution that may have its charter removed by the primary regulator.
That requires me to be not only to be on standby, but to have teams of people ready to move at a moment's notice. For us that is absolutely critical, that we meet the needs of the depositor, but also get into those communities as quickly as possible.
My second priority is that in our management of the receiverships, we want to use the best business judgment, but in particular, we're very much interested in customer service. You know, we believe that providing good customer service is also something that is a depositor not only deserves, but also the creditors who we may have to deal with.
And I would say the third, which is not as -- is part of the top three and could be considered the number one, is employee development. One of the things we work through is our people, and we're very robust in not only in developing our people, but also making sure we have a succession.
You know, as many agencies, you know, we do have an aging workforce. We want to make sure we got well-trained people ready to take over and to continue the function of the FDIC for the next 75 years.
Mr. Morales: Mitchell, I wanted to just go back for a moment about something you said earlier, about the 4,500 employees. Roughly, about how many of those employees reside within your organization?
Mr. Glassman: Well, I'm very -- leveraged quite a bit. I have approximately 250 currently, but you know, we're going to be adding some additional resources. We really try not to get a very large number because we're more of a think-tank kind of organization, you know, one that organizes resources, so that's all we have as now, but we have the ability to expand our resources on an as-needed basis, either through contracting or through, you know, leveraging bank employees if we need them.
Mr. Morales: Great, so you mentioned the 75th anniversary of the FDIC. I also understand that you've now spent some 35 years in the business, and with this organization. Could you describe your career path for our listeners? How did you get started?
Mr. Glassman: Well, I can honestly say my family got me started. My mother was a career banker. My wife's family owned the bank, so I got started off with banking in my blood. I actually worked at a community bank, not my family's, where I really got the taste of what banking is all about, and just what a great career path.
Eventually I did get recruited by the FDIC. At the time I was the youngest employee to have been recruited at the time, and actually joined what used to be called the Division of Liquidation, which is now the division, you know, we're running and that we're calling Resolutions and Receiverships.
So from that aspect, I have moved to various management and leadership jobs throughout the country, and basically whenever there was a crisis, I was able to move in and to be able to organize around it. So eventually they asked me to come to Washington, D.C., and I'm here before you now.
Mr. Morales: That's great. So, Mitchell, as you reflect upon these experiences both in the industry and now on the government side, how have these experiences in various roles prepared you for your current leadership role and have they sort of shaped your leadership style?
Mr. Glassman: Well, I learned early on, just the way we operated that you know, you have to work in a team environment. You have to work where cooperation was of the essence. You had to work in a way that was smart.
You had to work in a way that if there was technology you needed to leverage that technology but also to be absolutely open and honest and to be certain that -- that you were taking certain actions with your employees that they would trust, because when you're operating in a very stressed environment, which a lot of us we do, you're very dependent on your employees, and you have to have a trusting relationship with them.
So over time, I tried to view not only my employees but you know, really the rest of my colleagues at the FDIC as family, and just like in family, you need to communicate, you need to be able to give them responsibility, but also be able to criticize in such a way that it adds value, not takes away.
Mr. Morales: It's interesting you use the word trust. This obviously also gets to the core of your business. It's about trust and the trust that people have in the financial system and the banking system of this country.
What happens when a bank fails and goes into receivership? We will ask Mitchell Glassman, director of the Division of Resolutions and Receiverships at the FDIC to share with us, when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Mitchell Glassman, director of the Division of Resolutions and Receiverships at the FDIC.
Also joining us in our conversation from IBM is Dennis Kaizer.
Mitchell, the FDIC examines and supervises more than half of the institutions in the U.S. banking system, if I have my facts correct. Could you tell us a bit more about the characteristics of banks or depository institutions insured by the FDIC?
But more specifically, what's the composition of, say, regional versus large national banks and institutions and how do these insured institutions typically belong to the Federal Reserve System?
Mr. Glassman: Well, first of all there, you know, insured institutions have to be chartered and it could be under a state charter, it could be chartered by our Office of the Comptroller of the Currency or the Office of Thrift Supervision.
Currently there's about 8,500 insured depository institutions. There's about 7,200 that are commercial banks and approximately 1,200 that are what you would consider thrifts. Of that number, you know, the FDIC regulates 5,100 of them and the banks that we regulate are state non-member banks of the Federal Reserve System.
As far as size, you know, you could have a large regional bank that may cover a multi-state area, or you can have a very, very large bank that may be the top three or four in the country.
But overall, we have about approximately a 160 banks that are over $2 billion. That only represents about 2 percent of the total banks. The vast majority of the banks that the FDIC insure are small community banks, so you know the numbers aren't -- are more in the favor of the community banks.
As far as the Federal Reserve System, if the charter is the national bank, and it automatically becomes under the Federal Reserve System. State banks have a choice, either they are state member banks, in other words, state charters who belong to the Federal Reserve System and they are regulated by the Federal Reserve.
If they are non-members, as I was mentioning before, then the FDIC would be the primary insurer, then you have the Federal Thrifts and those are also not members of the Federal Reserve System, but they are you know, regulated by the Office of Thrift Supervision.
Mr. Morales: So there's really different flavors of banks out there depending on who charters them, size, those are a couple of different dimensions of how you would categorize banks or depository institutions?
Mr. Glassman: That's correct. It provides great diversity in the financial system and that's probably one of the, you know, one of the best things about our current -- not only our current regulatory system but also the strength of our financial system.
Mr. Morales: So, Mitchell, we've been using the term bank failure. What constitutes a bank failure, and could you give us a historical perspective on the history and trends of bank failures in the U.S., since the inception of the FDIC program 75 years ago?
Mr. Glassman: Well, first of all the FDIC never closes a bank. It's usually -- it is the primary regulator that actually has the ability to pull the charter. But by law, if the charter is pulled, then the FDIC becomes the receiver and as receiver we have multiple functions, but one of the primary roles we have is the deposit insurer.
That's one of our first priorities, it is to take care of depositors. We have to do a determination of the liability side of the balance sheet which is where the depositors accounting is and then determine who is insured and who is uninsured and make sure that that money is provided to the depositors as quickly as possible, whether through another assuming bank or through what we call a payoff.
We also have the role of receiver, which is also very important and this is very unique. No other country in the world has this role as receiver -- what we basically control the liability side of the balance sheet, but also the asset side of the balance sheet.
It's the role where we have to be not only be very careful, but also the way we handle the receivership has to be where it's not only fair and equitable but that we also do it in a least-cost manner. One thing we want to do is very business-like, very customer-service like, but also try to get the best dollars out of the remaining assets, not only for the benefit of the FDIC but for all other creditors that are doing owing.
So it's a huge responsibility, it's very unique and one that we always take very seriously. So we use all means that we can to be able to accomplish that task. So that is something we're very, very crucial and as far as the number of failures, you know, it -- there's peaks and balances with failures.
You know, during tough economic items, you know, failures can go up; you know, in recent history, during the savings and loan crisis during the last, you know, economic disruption, there were thousands of banks that closed, you know, with very large dollar amounts.
But that is sort of an anomaly. On average, from really since the time of the FDIC's existence, there's only been an average of maybe 3 to 12 banks that have actually have failed.
There are some years in past history here where we have no failures. So it's one of those things that depending on the economy, depending upon what would happen at the banks, sometimes failures do not occur because of loan losses, there maybe fraud, so those also would trigger potential failures.
But overall, you know, there's really no magic number, but the idea is the FDIC needs to be prepared whether there's one failure or multiple failures.
Mr. Morales: And this goes back to your point about readiness, that was one of your key concerns?
Mr. Glassman: Readiness is a key concern.
Mr. Kaizer: So Mitchell, you kind of walked us through what happens, you know, after closing and it goes into receivership at a high level. Can you actually maybe provide a little bit more detail?
So I understand the FDIC doesn't actually close the bank, but what happens? How does the FDIC get notified and then what steps do you take to mobilize for managing all those activities in your receivership?
Mr. Glassman: Well, we work pretty closely with our examiners, with our division of supervision and consumer compliance. And then we also have relationships with the office of the comptroller and OTS.
As a mater of fact, both the Comptroller of the Currency, and the director of our Office of Thrift Supervision are actually board members. We also have a very, very strong relationship with the Federal Reserve System, so we basically work very closely together to share information. But in particular, the FDIC collects a lot of information on bank performances.
We also have a very robust examination function so that we have examiners going in including the other regulators. So as information is gathered, as we start to see certain trends, it may be become evident that a bank may be having problems, whether it's loan losses that deplete capital to a certain point, or where they may have a liquidity issue.
When it reaches a certain point, we would be notified, you know, by the primary regulator that they have some deep concerns about a particular institution. We try to get hopefully at least 90 days notice that there is an issue, but there are occasions where we may only get one day's notice.
But regardless of whether it's 90 days or one day, I'm in the role where we have to be able to react quickly, efficiently, and that we're going to try to accomplish the same task whether we had 90 days to prepare versus one day.
So we have five teams of people standing by. I created what they call a "watch commander program," where basically every week somebody is on call. I've got a model where I only make one phone call and we can mobilize a lot of people.
If the bank is large and we need to react quickly our division of supervision and consumer compliance works with us very closely, we can get bank examiners actually to come in and take control while our teams gathers and then gets to the geographic location.
So it's very difficult what we have to do but it's something that we take great pride that if we get notified regardless of where the insured institution is geographically and we're also talking about insured banks in Puerto Rico, and Guam and the Virgin Islands, we handle those as though, you know, they were next door to us.
Mr. Kaizer: So banks through some supervision by one of the regulators ends up on a troubled list, if you will; does getting onto to this list mean that the failure of that institution and subsequent receivership is imminent?
Mr. Glassman: No, far from it. If anything, very few of those banks actually would lead to failure, and historically it's always been less than 10 percent. Being on the list actually means that it's getting more regulatory scrutiny.
I would tell you the majority of those banks that are on the list actually get recapitalized, they get merged, they get handled by the open market where the FDIC does not have to get involved.
But again, we treat any bank that's on this list as ones that we need to pay attention more closely on, but again whether it's on the list or I have to deal with an institution because there was a fraud in the bank, you know, the reaction's the same.
Mr. Kaizer: As I understand it part of the receivership role is to manage and sell the failed institution's assets. Can you tell us a little bit more about what you and your organization does to sell those assets, the strategies you have in place for that, the types of tools you might use?
Mr. Glassman: That is something that -- again, we use our business judgment, but that is something that in order for our insurance fund to stay solvent and also to return money back to the creditors as quickly as possible, we try to market the assets very quickly.
We are a division and an organization that believes in marketing, to try to return the assets, both the good and the problems to the marketplace as quickly as possible. One of the strategies that we use is that lot of times, if a new bank wants to purchase the institution's deposits, we give them options to buy portfolios from the FDIC.
Naturally, those portfolios match up sometimes with the deposits so that they can remain in the community. We also -- if indeed the assuming bank, if we have one, does not want the portfolios that we have, then we very aggressively go out and offer those portfolios to other outside investors.
One of the tools that we've got that I've been very proud of and actually won a presidential award on, was VUC (?) commerce, where very much we practice the idea that placing information on a secured website using the Internet is one of the best ways for us to develop a market and we have been very successful.
We have been doing this since the year 2000, and I always brag to my staff and anybody who'd listen to me, is the fact sometimes I think e-Bay took our idea. I just --
Mr. Glassman: I was just not able to get it franchised fast enough.
Mr. Morales: That's great. It strikes me today, Mitchell, that as we talk about, you know, banks and these large institutions, I mean, these could be very, very complex organizations and I would imagine that this presents a growing challenge for you as you look to prepare for a potential large-bank insurance determination process.
Could you elaborate on perhaps some of the improvements that you're pursuing in this area and how might these changes enable you to better handle or prepare for one of these types of failures?
Mr. Glassman: You know, Al, you're absolutely right. You know, large institutions are a lot more complex, not only what they do in the capital markets, how they deploy their IT strategies to reach out to their customers, but also in particular on the type of systems that they use that we have to draw upon.
One of the things that we try to do is gather as much of information from that institution and that's very critical for us. We currently have a policy out that we hope to make into a regulation where we're asking the very large banks, particularly you know, the top 160 to provide us with a standard data set so that we can quickly deploy that into our own systems to be able to do that deposit insurance determination.
In addition, the ability to place what we call "provisional holds." This is basically a device where a bank automatically can put holds on those depositors that we know have uninsured dollar amounts, but it does allow us to get the bank reopened very quickly, but at least give the depositors with the insured money access to their money very quickly.
And then also to release those holds that if indeed we find they are insured, you know, that we can do it on an automated basis. So we're trying to use the bank's own way of doing business using what I think is a very innovative approach for us to do these determinations using automation versus a lot of staff, and that allows us to be able to do determination, get the bank reopened, but also that's all part of our safe -- not only our safety and soundness, but our confidence in the banking system.
So whether it's a small community bank or one of the largest banks in the country, the ability to get that bank reopened quickly is one of our main mandates and using and leveraging IT systems and the new regulation is I think one of the ways that I think we're going to able to accomplish that.
Mr. Morales: Now the FDIC has an absolutely crystal-clear reputation, but it strikes me that with some of the complexities that you describe in terms of the types of institutions, the complexity of the process that you manage -- and you talked about this earlier as one of your priorities -- how do you ensure that the FDIC has the right number of people with the right qualifications to manage this process?
Specifically, could you tell us a little bit more about initiatives that I understand you manage, such as the Corporate Employee Program and the Resolutions and Receiverships Commissioning Program that assist you in this area?
Mr. Glassman: Yes. You know, we recognized very early first of all, you know, if you were to look at the FDIC budget like many agencies in other companies, you know, human resources is probably one of the largest single items that you would have.
And we are very fortunate at the FDIC that we have a very highly educated and very motivated staff who are very familiar with bank operations.
When you take a look at what I do, we also are involved in bank operations and bank assets. So the way the FDIC is operating is that if we can train -- cross-train our bank examiners and other like staff into how we handle claims and how we handle receivership matters that help us with the actual closing, what that allows us to do is leverage.
The best -- where -- place to start doing this training is when we have new employees come in through the program, is to educate them not just on their primary duties as bank examiners but also to give them the functional training that maybe necessary for them to help us during those peak times where we made a draw upon those resources.
But I tell you the reverse is also true, because I had employees who are in receiverships and claims, who have gone out on bank exams. So in a way from our FDIC board, and from our chairman, you know, basically everybody at the FDIC is prepared to handle bank failures, but then again where bank examination may need help, we're able to swing those resources elsewhere.
So it's a holistic approach to the management of human resources and one that we've been very beneficial. As far as our commissioning, this is something that I have been desiring for some time.
The -- you know, we have commissioning for our bank examiners, it's a highly regarded commissioning. Bank examiners are very proud of it, but I felt in order for knowledge management and for the ability to pass on the unique knowledge that we have in handling what we do which is unique that we credit our own commissioning for the role of resolutions and/or receiverships.
This is a way for me to pass on my knowledge and my experience to the next generation and to also to have a commissioning where they also would be just as prideful of the work that they do in that area, as much as a bank examiner does with their commissioning.
Mr. Morales: So this is a type of a certification type program?
Mr. Glassman: It -- commissioning is little bit more than a certification. We do have certifications for individual functions like what we call franchise and asset marketing. We have certifications for claims, you know, to handle claims determinations and for asset marketing.
But a commissioning is basically a specialist who can handle all parts of the organization and actually go out and run a receivership -- a small receivership on their own without a lot of supervision.
Mr. Morales: So Mitchell, you clearly have this model where at any point in time you can summon vast parts of the organizations to various crises because you've cross-trained people across a variety of different tasks.
But with so few failures in any given year, how do you actually provide the knowledge and the real-world experience of how to manage this process?
Mr. Glassman: Well, I -- there's multiple things that we're doing. First of all, we've highly documented all of our activities, so we have the typical manuals. But we've gone one step further. We have also have created what I call web-based training, what I would call training that you know, if you get called upon and you were going to a particular failure and you had a particular duty you would be able to pull down a CD-ROM or go to a website and be able to get that just in time training.
We also at the FDIC and particularly in our division, we've done a lot of simulations. The fact is that we put people through what would happen and what you would be doing.
We also have -- whenever we do have failures, we allow people to shadow so they not can witness it, but they can also be participatory. And last but not least, we have a very dedicated program with our corporate university, that is finding all different ways to cross-train through people's career on not only our functions but also the functions that, you know, they would need for, you know, their corporate life to make them successful.
Mr. Morales: That's great. How has the subprime mortgage crisis and the resulting credit crunch impacted the FDIC? We will ask Mitchell Glassman, director of the Division of Resolutions and Receiverships at the FDIC to share with us, when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Mitchell Glassman, director of the Division of Resolutions & Receiverships at the Federal Deposit Insurance Corporation. Also joining us in our conversation from IBM is Dennis Kaizer.
Mitchell, you can't pick up a newspaper today without seeing that the home foreclosure rate has nearly doubled in the past 2 years. I also read that an estimated 1.7 million homeowner-occupied subprime hybrid-adjustable mortgages -- that's sort of a mouthful -- are set to reschedule over the next couple of years. Now, the combination of declining home prices and scarce refinancing options may result in even more foreclosures.
So, how has the subprime mortgage crisis and the resulting credit crunch impacted the FDIC, and what role does the FDIC play in working with the market to develop solutions that might help prevent unnecessary foreclosures and keep homeowners in their home?
Mr. Glassman: Obviously, the FDIC, as we talked about before, has to maintain confidence in the banking system. And one of the things that we have done not only through our chairman but through our board, is to work with the institutions not only for those who have these type of loan products on their books that to be not only cautious, but to be very careful about how they handle them. But also that this is a consumer issue that has, you know, a wide net that it seems to be carrying.
So for the financial institutions that we ensure, you know, we want them to be careful, we want them to do the right thing. But you know, if indeed they need to get more capital, you know, we try to work with them to get more capital to -- also to, you know, handle their servicing in a way that allows borrowers to try to recast their loan so they do not have to go through foreclosure. I would tell you that we're also -- been very proactive in financial literacy and in working with outside groups to try to work with the consumer.
We have a very, very strong belief that foreclosure is not a good option for the banks. We feel working with the borrowers in recasting their loans is the better way to minimize lawsuits and also keep the home prices stable, because foreclosures are not good for the country, they're not going to be good for the banks.
Mr. Morales: So -- we talked earlier about the number of bank failures and enclosures per year. I understand that there were, I think, three FDI-insured banks that failed last year. I'm sure that all three of these pose their unique set of challenges for you. But I understand that one of them was particularly challenging in that it was an Internet bank which did not have any physical branch offices. How do you deal with this, and to what extent did closing such a large Internet bank require you to modify and rethink your receivership processes?
Mr. Glassman: That's a good question. The -- you know, any insured institution we have to be prepared for. And when you speak of an Internet bank, for your listeners who may not know what an Internet bank -- but this is basically an institution where the customer basically deals with that bank either through an Internet portal or through some other means, whether it's an ATM, they do not have a physical branch in many cases, and they do not have a main bank to be able to transact business.
So we're basically dealing with a core base of customers in a virtual world. These type of institutions have a lot of technology that they're deploying sometimes on multiple platforms, sometimes in different locations. And for us to be able to handle that -- and again, this was our preparation, you know, because we had dealt with something similar that we wanted to be certain that we're able to still do our deposit insurance determination, get the money in the hands of depositors.
But we're also very fortunate in the sense that ING Direct, you know, which is also another Internet provider, was able to purchase those particular customers, which then left us with the receivership. But for us to plan such a very difficult type closings, we had to be in the right place with the right people. We had to be certain that a) if you shut down the Internet portal, you know, we had it up and running within 2 hours, and gave access to money to people very, very quickly.
So whether it's a community bank or a virtual bank like this Internet bank, you know, we move very quickly. But you have to plan for it. You cannot just walk in and say, oops, where do I go?
Mr. Kaizer: Mitchell, while the number of bank failures has been quite low in recent years, there's certainly some speculation that the number of failures is going to increase potentially in the relatively near future. Can you tell us what you may be doing to prepare for an increase in bank failures?
Mr. Glassman: Well, Dennis, you know, I have to tell you that, you know, that question comes up quite frequently. But, you know, I sort of ignored, you know, the idea of whether there is one bank or a hundred banks -- it really doesn't matter. You know, the FDIC is going to be ready. It doesn't matter what size, what location. So even though there is a deep concern about the financial health of the industry, I think one thing the consumers and depositors can be reassured they shouldn't worry.
You know, the fact is the FDIC is going to stand by those deposits, they're going to efficiently handle the receiverships, and that we're prepared to go to any lengths to be able to, you know, make sure that we meet our obligations. So, you know, I'm not concerned, and I don't think anybody else should be.
Mr. Kaizer: Great. You know, we've heard you talk about how the FDIC places a high priority rate on getting the deposits back in the consumers' hands in a timely manner. Can you tell us what first are some of the critical reasons that it's so important to get those deposits back into the person's hands so quickly, and then maybe some examples of how by doing that you are supporting that local economy and those depositors and the impact that that has?
Mr. Glassman: The way our financial system works, to be able to have deposits available -- if you think about it, you pay your mortgage, you have to go to the drugstore, you go to the grocery store, you have to pay your doctors, all of this is through the handling of either checks or through cash.
And if you take away the ability of depositors or customers to transact business or to issue checks where they not -- may not be accepted by the merchant or vendor, it starts to create a lack of confidence, because all of a sudden your -- this bank and this community may have failed, but what about my bank down the street?
So our ability to get insured deposits back to consumers is so important, because we want to be able to demonstrate not only to that community, but everybody else that's in that community and throughout the country who have their deposits at banks, that should be the least of their concerns that they're not going to have access. I would tell you that in certain countries, you know, that does not always happen.
I would tell you before the FDIC it took years for people to get their money back. So that is one of the main things that we do is to be able to get money back in their hands so they can be utilized within the local economy.
Mr. Kaizer: So Mitchell, you've talked about how a consumer would get their ensured deposits back in a timely manner. So is there a scenario that you can talk to us about where depositors might not get all of their money back because that's not all an insured deposit?
Mr. Glassman: Unfortunately, that does happen. We do have depositors that have placed money into the institution that was beyond our FDIC insurance limit. You know, currently it's $100,000. There are certain accounts that are, you know, that are retirement accounts that are up to $250,000. But if the customer has excess funds, then what ends up happening they become uninsured depositors, and they would share in the proceeds of any collections that we have out of the receivership.
So we would pay -- later on as we liquidate the assets, we would pay them a dividend for their uninsured portion. For instance, if somebody had $110,000 we would pay them 100,000, we would give them a receiver certificate for 10,000. But because of the efficiency we try to deploy, and you know, the value of the assets, we may be able to return 80 percent of that portion. So we may be able to pay them $8,000 over the time of the receivership. So net net they did lose, but it would be $2,000, not the full 10,000.
Mr. Kaizer: So you're always trying to drive to make people as whole as possible, but folk should realize that there are some limitations.
Mr. Glassman: That's absolutely correct. And that's something that I would encourage, you know, your listeners and anybody else that, you know, that has deposits, that they do check on their insurability. They can check on the FDIC's website -- wwwfdic.gov, and they will be able to get help in getting -- answering their questions on -- about insured deposits.
Mr. Kaizer: Great.
Mr. Morales: Mitchell, in the past few years, we've seen a range of natural disasters within our country. Would you tell us about the role FDIC might play in the response to a natural disaster? What about the regulatory relief that FDIC may provide to insured financial institutions in the event they sustain significant damage as a result of a natural disaster, or that may service those affected areas by such an event?
Mr. Glassman: You know, Al, that's probably one that I'm probably the proudest about even though, you know, it's not involving bank failures or supervision. But the fact is the FDIC, because of its experience -- I will give you an example -- during Hurricane Katrina, you know, the FDIC was one of the first to provide call center support for the people who wanted to know if their banks were opened and where they would be able to find an ATM or able to call, you know, the FDIC and actually get people to answer, and to actually direct them to where they can get help.
I would tell you there are supervision people. We're also very much in there. They basically make sure banks were able to reopen, that they had their backup systems, make sure that they had the help. They actually help the banks partner with other banks that had to share lobbies. But also that if there was some kind of relief that needed to be made for the borrowers, you know, we also send out, you know, notices to say, you know, if indeed a borrower has been harmed, that there are certain things that the banks would be allowed to do to work with those borrowers.
So we have a multiple approach, but I think when it comes to disaster, the FDIC has a very good track record of consumer protection, but also being very sensitive to the needs of the bank to get open as quickly as possible. Again, it all stems from our confidence in the banking system that we feel that we are very major players in that.
Mr. Morales: That's great. That's a very significant issue here in our country. So we spent a fair amount of time talking about the financial system here within the U.S. Could you elaborate on perhaps an increasing leadership role that the FDIC is playing on a global scale? To what extent are foreign governments looking to the FDIC as a model for either establishing or strengthening their own system of a deposit insurance and bank supervision?
Mr. Glassman: The FDIC has taken a very, very strong leadership role -- the foreign countries are trying to get their own banking system up and running, because they know that's very much intricately part of their own economic wellbeing. And they look to the FDIC not only to develop their own deposit insurance system, but also our way of regulation but also the way we handle bank failures. We have been very much active in the International Association of Deposit Insurers -- we call it IADI.
Matter of fact, our vice chairman, Marty Gruenberg, is the chairman of this committee. So we do training, we provide folks to help them with -- write -- drafting their own legislation. We help -- actually teach them some of the functions that go along with this activity, and have a lot of what I call "open communication" that goes on constantly. So we're very proud of the fact that we feel that also helping these countries develop their banking system is also good for United States and also for the global economy.
Mr. Morales: That's fantastic. What does the future hold for the FDIC's Division of Resolutions & Receiverships? We will ask Mitchell Glassman, director of the Division of Resolutions and Receiverships at the FDIC to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to our final segment of The Business of Government Hour. I am your host Albert Morales and this morning's conversation is with Mitchell Glassman, director of the Division of Resolutions & Receiverships at the Federal Deposit Insurance Corporation. Also joining us in our conversation from IBM is Dennis Kaizer.
Mitchell, given the interconnected and interdependent nature of the financial systems as we've discussed, could you tell us about the kinds of partnerships you are developing to improve operations or outcomes to sustain the system and how might these partnership change over time?
Mr. Glassman: Well, partnership is very important. Not only do we form partnerships with the other regulatory communities, but also with the banks themselves. You know, we need to stay in-tune with what the banks are doing and how they are operating. I would say that we actually have partnerships with the consumers themselves, you know, reaching out and listening to what's on their minds in some of their issues with local, state, and federal governments are also part of our partnerships.
And then in particular with major companies and contractors, who have inside knowledge and expertise that we may not have, we call them partners. Anything that helps us do our jobs and to do it better, we will enter into the partnership. But also being a partner means also we share, and that we also provide insight.
So we kind of feel like this is a good way of doing business. It's one that keeps us abreast of the issues, but also gets us prepared that if we need to change the way, our thinking, or the way we operate, or possibly to help mitigate risk, this is a good way for us to practice what we do, and partnership, I think, is a good business practice.
Mr. Morales: So it sounds like you also try to operate as open a system as you can?
Mr. Glassman: I firmly believe that that's the way we need to operate. You know, that's one thing, I think, that the FDIC prides is that we have the ability to reach out and touch, but we also want people to reach out and touch us. We have a very active call center.
You know, our website is something that people can derive a lot of information on, whether it's about their FDIC insurance, whether they, you know, through a program we call, "ED." If they want knowledge about how can I better educate myself, my kids, or myself through adult literacy, we have this money smart program that you can download, and look at. We actually have our FDIC employees go out and actually teach it.
Then also the fact is that we are going to let people know who we are. You know, we are going to have our 75-year celebration, where we are going to go out into the communities, and let people know just how important their FDIC insurance is. But in particularly what the role of banking as in our economy, and why they should look to their banks is a place to, you know, conduct their financial affairs.
Mr. Morales: It's perfect timing for that.
Mr. Kaizer: Mitchell, you've mentioned, you know, the Internet and some of the things that you have under, a couple of times now. I believe a Brown University research study released in 2007 ranked the FDIC's website 8th in the federal government, which is just great. Can you tell us a little bit more about how maybe your division actually uses that website or that Internet in an actual bank closing?
Mr. Glassman: Yes, we use it for multiple purposes, you know, one not only to provide information to all of our constituencies to who may have to deal with this. We may have buyers that come looking for real estate or looking for information on how they would be able to connect with us. We also after receivership, after bank failures we post everything that we know about that transaction, but also what is going on in that receivership.
So if you are a creditor, you would have the information readily available to you. One of the things we practice is that if we can answer as many of people's concerns or questions, or provide documents, that's -- and saves them from having to call us, or to write a letter, then we want to do it. So we are always constantly keeping it updated. We are constantly always looking for different kinds of technology to be able to help the customer, but the use of the Internet, I think, is probably one of the best vehicles for communicating with the public.
But also that as things change we can also make sure that information gets there very quickly so that the customer themselves would be able to react to it quickly.
Mr. Kaizer: Speaking of change, I'd like to transition now to talking about the future. You know, as financial institutions grow in both size and complexity, the FDIC is likely to face, you know, some challenges, if one or more might fail simultaneously. Can you give us a sense of maybe some of the key issues that will affect the FDIC, and in particular your division, maybe, over the next few years and how you envision your office might need to evolve in light of these challenges.
Mr. Glassman: It is always something that we constantly keep in our radar. You know, you are correct, the institutions are getting large. They are always merging, they are acquiring, even at the community bank level there's a lot of changes. One thing we try to do is look ahead, where is the industry going, and whether or not our current processes and procedures really match up to what we are going to be doing.
I'll give you a case in point, you know, when we come into a large institution or any institution, they now have the ability of customers to pay bills online. It is very important, so when we come into an institution, we might want to make sure we maintain that type of relationship. We also are very interested in making sure we maintain the core value of the franchise, whether it's the core deposits, the type of loans, the type of technology platforms.
As banks become much larger they also get involved in capital markets-type approaches. Where they get their funding becomes a little bit more diverse. So our ability to understand how the banks operate, and how they are dealing with their customers because what we are trying to do is capture that value, and actually through a merger-acquisition process be able to move it to a new institution, so that the same continuity of services that the customers expect will just flow to the new customer.
So in a way, we have to be prepared to move quickly to understand what's on the balance sheet of the bank, but how does it relates to the FDIC on a least cost manner, but also ultimately to the consumer. And in order to do that you will always have to look ahead. You always have to see what's out there. You have to kind of figure out, a) How am I going to deal with this particular situation?
Example is a lot of the institutions are now getting involved with what they call reverse mortgages. Well, that is something that is very important to the consumer. And we are, you know, working very hard to say, what if we were to receive a portfolio like this, how would we react, or if there is multiple platforms that the bank is working on, for instance, they may have offshore platforms, how would we handle that.
What if certain things weren't to happen, how would we deal with it? So the banks become large, they also become complex and we try to foreshadow what we need to do, and be certain that we are operating in a way that gets us the best results. The least cost result.
Mr. Morales: So this is actually a very critical point here. So it's really more than just insuring the deposits. It's also about preserving the services, that that institution was providing within that community, so that, the consumers to a certain extent will see sort of a seamless transition, should one of these events takes place.
Mr. Glassman: That is very critical for us. But I would also tell you that I am in the business of selling banks. You know, if I can obtain a premium for that franchised value that is in the best interest, not only the FDIC, but all the creditors that may be involved. So by understanding the nature of the bank, its customer base, how it was operating, allows me to be able to transfer that value, and hopefully through an auction process, through a bidding process, we are able to get more value from it, and actually receive more dollars for the benefit of everybody.
That's one thing, that we do have, is we have $52 billion in our insurance fund, and it is not taxpayer driven. Our funds come from the industry, so we have a very strong desire to be certain that we try to minimize the cost not only to the consumers, but ultimately to protect our taxpayers.
Mr. Morales: That's great. We talk a lot to our guests about the pending government retirement wave, which is a big issue for many organizations here in the federal government. How are you handling this issue within your organization, and what are you doing to ensure that you have the right staff mix to meet any of these future challenges?
Mr. Glassman: That is something that we at the FDIC are also facing, we have this bell curve where we've got a lot of new folks that we are bringing in, we've got a lot of people who have the ability to leave under voluntary retirement, and that's like a big bubble right in the middle. So we have got different strategies, as we discussed earlier, we have our Corporate Employee Program, where a lot of the newer folks who are coming in, getting across, you know, understanding of the organization.
But we also have brought back what I consider mid-career hire employees, people who have experience to be able to fill the gap, who in their careers are able to join us. We brought back retirees in certain cases to help, you know, meet the bubble. And last but not least, we are always looking that if indeed we loose certain knowledge, certain key people, who would be in our succession.
So we've developed a program through our corporate university where we identify who are high potentials. We have got a very aggressive leadership program, and I might want to add that I am also dean of the College of Leadership Development, so I am very much into what we are doing organizationally, you know, to provide succession. But what really counts is that it's the knowledge that the folks retained, and you'll be able to pass it on, so that the next generation not only has the ability to provide management and leadership, but also has the technical skill sets that do it successfully.
Mr. Morales: So let's talk about this future generation. As you reflect on your 35 years of experience in the industry and in public service, what advice might you perhaps give a person, who is out there considering a career in the public sector?
Mr. Glassman: Well, I would tell you it wasn't my plan to stay in the public sector more than 5 years, but I have to tell you when you are in the role of helping people, making a difference, and being part of something bigger than you are, it is very easy to catch some passion for it. And I do have a passion for what I do, because I have been in West Kansas, and parts of Iowa, and parts of Texas, where I have met people, who depended upon the FDIC, depended upon their government, to step up and do the right thing.
And I think that gives you a certain amount of satisfaction, so I would encourage anybody, who is seeking a career in the federal sector, in the federal space that is a good career, it is something they can get a lot of satisfaction, and whether they stay one year, or they stay like me 35 years, they are going to gain. It's going to be value added to not only to their own career, but I would also tell something that in lot of families they'll take pride in the fact that they are out helping the public in a service that's desperately needed.
Mr. Morales: That's a great perspective. Thank you. Unfortunately, we have come to the end of our time, so I want to thank you for fitting us into your busy schedule. But importantly, Dennis and I would like to thank you, for your dedicated service to our country across the various roles that you have held at the FDIC.
Mr. Glassman: Well, I'd like to thank you for being invited and sharing. One thing, the FDIC is going to be here for 75 years, it's going to be here for a long time, but I think that's one thing that's consistent that, you know, that we will always try to do the best we can, and frankly take leadership role in all of the federal services, and again we thank you for inviting us to share.
Mr. Morales: Great, thank you.
This has been The Business of Government Hour, featuring a conversation with Mitchell Glassman, director of the Division of Resolutions & Receiverships at the Federal Deposit Insurance Corporation. My co-host has been Dennis Kaizer, partner in IBM's federal civilian practice.
As you enjoy the rest of your day please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning show on how we are improving their government, and who deserve our unconditional respect and support.
For The Business of Government Hour, I'm Albert Morales. Thank you for listening.
Speaker: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m. and visit us on the web at businessofgovernment.org. There you can learn more about our programs and get a transcript of today's conversation. Until next week, it's businessofgovernment.org.