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      Cover design: C. Wallace

      Copyright © 2015 by John Bovenzi. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data:

      Bovenzi, John F.

      Inside the FDIC: thirty years of bank failures, bailouts, and regulatory battles / John F. Bovenzi.

      1 online resource.

      Includes index.

      ISBN 978-1-118-99412-2 (pdf) – ISBN 978-1-118-99410-8 (epub) – ISBN 978-1-118-99408-5 (hardback) 1. Federal Deposit Insurance Corporation. 2. Deposit insurance-United States. 3. Bank failures-United States. 4. Banks and banking-Government policy-United States. 5. Banks and banking-State supervision-United States. I. Title.

      HG1662.U5

      368.8 '5400973–dc23

      Acknowledgments

      First and foremost I'd like to thank my wife, Erica, who reviewed every word many times over. Without her insights and support, this book would not have been possible.

      I'd also like to give particular thanks to my former colleagues and friends, Art Murton, Maureen Sweeney, and Jim Wigand, each of whom reviewed the entire manuscript and provided me with critically important comments and suggestions.

      Others important contributors include April Breslaw, Diane Ellis, and Gary Hindes. A great many other former colleagues and friends spent their personal time reviewing specific chapters, helping me remember events, and ensuring that I got my facts straight.

      Thanks to Annie Moffett and Matt Rees for great editorial assistance, to Oliver Wyman, and in particular Steve Szaraz, for supporting my efforts, and to Tula Batanchiev and her staff at Wiley for their support in publishing this book.

      I'd like to thank my cousin, Adrian Nicole LeBlanc, an exceptionally talented and accomplished writer, who helped guide me through the book publishing process.

      I'd also like to thank my three sons, Adam, Eric, and Greg, who lent moral support throughout the process.

      Any mistakes that remain are my own.

      Introduction

      We have heard little from the behind-the-scenes people who were on the front lines as the events of 2008 unfolded. Their actions can calm the storm and bring fair treatment to inherently unfair situations, or they can compound the problems. These often-maligned bureaucrats can either display courage, integrity, and fair play or contribute to an environment of fear, anger, and chaos.

      This book doesn't focus on the arcane and mind-numbing details of capital, liquidity, and the other technical parts of a bank regulator's job. Instead, it puts human faces on the causes and effects of financial crises. These are personal stories of real people grappling with complicated issues while under enormous pressure, of individuals trying to ensure that they and others are treated fairly by our government, and of individuals misusing the system to serve their personal interests.

      I spent 28 years as a bank regulator at the Federal Deposit Insurance Corporation (FDIC). During my career, I worked directly with ten FDIC chairmen and with many other senior government officials.

      I was the highest-level FDIC career executive during the two biggest financial crises in the United States since the Great Depression. During the banking and S&L crisis of the 1980s and early 1990s, I assisted with the creation of the Resolution Trust Corporation (RTC) and personally had to explain to President George H. W. Bush that the FDIC's deposit insurance fund was running out of money. During the 2008 financial crisis, I helped develop the agency's policy and operational initiatives and served as chief executive officer at IndyMac Federal Savings Bank, the first large bank in over 20 years to be shut down and then reopened under government ownership.

      Thus, I come to the topic with a perspective that's often absent from the financial-sector debates that play out on the airwaves and in the opinion pages. This book provides a different view of the FDIC and other bank regulators. Readers will see:

      I hope this book engages a different kind of discussion about the longer-term strategies needed to prevent repeating cycles of booms, busts, and bailouts. I also hope to encourage others to write about their experiences, so the historical perspective of long-term government employees can be added to policy debates in other regulatory arenas as well.

      Chapter 1

      IndyMac

      I flew into Burbank, California, Thursday evening, July 10, 2008; drove a rental car the short distance to Pasadena; and checked into the Hilton Pasadena on South Los Robles Avenue. Dozens of my colleagues from the Federal Deposit Insurance Corporation (FDIC) were also checking into hotels throughout the city. We used our personal credit cards rather than our government cards. Why? Because if anyone learned that the FDIC had descended

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