cases, the banks were declared insolvent as of the close of business on a Friday and the payoffs began the following Monday morning. The ultimate loss to the depositors in the three cases is expected to be minimal; the uninsured deposits in two of the banks were less than $600.

In the failures resulting in deposit assumptions, the 13 assuming banks paid purchase premiums totaling $37.5 million for the right to acquire the failed banks' deposit liabilities. When a significant price for a transaction is paid by the acquiring bank, this is added to the capital cushion available to the FDIC to absorb losses and may mean the difference between some recovery and none for shareholders and noteholders of the failed bank. In connection with the three largest failures, The Hamilton National Bank of Chattanooga, Chattanooga, Tennessee; American Bank & Trust Company, New York, New York; and International City Bank and Trust Company, New Orleans, Louisiana; the Corporation purchased capital notes of $24 million, $10 million, and $7.5 million, respectively, from the banks acquiring the deposits to alleviate the capital needs resulting from the sudden expansion in their deposit liabilities. Also in 1976, the Corporation received payment in full of the $8-million capital note it purchased from Southern Bancorporation, Inc., Greenville, South Carolina, whose subsidiary bank assumed the liabilities and purchased certain assets of American Bank & Trust, Orangeburg, South Carolina, which failed in 1974. The obligation to the FDIC was to mature on September 24, 1977, but the holding company was able to arrange a 10-year refinancing for the full amount through First Union National Bank of North Carolina, Charlotte, North Carolina. As a result of the refinancing, the Corporation on December 9, 1976, received payment in full of the $8 million owed to it by Southern. In exchange for the repayment, the Corporation agreed to guaranty 75 percent of the principal of the First

Union National Bank loan, the amount of the guaranty to be reduced pro rata as regular principal reductions are made.

Following the closing of International City Bank and Trust Company, the FDIC followed its normal practice of asking several groups to submit bids for an FDIC-assisted transaction. When no bids were submitted, the FDIC began negotiations with two parties that had expressed some interest, and a mutually acceptable contract between the FDIC and The Bank of New Orleans and Trust Company was finally arranged. The greatest obstacle in negotiations, and the primary reason that no bids were received in the first instance, was approximately $44 million in "wild card" certificates of deposit issued by ICB in 1973. These deposits carried interest rates substantially higher than those currently obtainable. Therefore, any bank assuming these deposits could be expected to incur substantial losses and suffer a negative impact upon its earnings. To avoid placing this large financial risk on Bank of New Orleans, the FDIC agreed to reimburse Bank of New Orleans for certain of its anticipated losses, indemnifying the bank in an amount equaling the difference between interest accruing on the wild card deposits and the amount of income Bank of New Orleans could earn during the same period on money prudently invested in U.S. Treasury bills. In addition to assuming approximately $160 million in deposits and other liabilities, The Bank of New Orleans and Trust Company agreed to pay a purchase premium of $800,000. To facilitate the transaction, the FDIC advanced cash amounting to $116.9 million and retained book assets of the failed bank of $129.9 million.

Direct assistance to operating insured banks. Direct assistance by the FDIC to an operating insured bank, initially authorized in 1950 under section 13(c) of the Federal Deposit Insurance Act, may be employed if a bank is both in danger of closing and essential to maintain ade

quate banking services in the community. The Corporation first used this authority in 1971 and has used it on three occasions since then. The most recent use was in 1976 to assist Farmers Bank of the State of Delaware. The Corporation and the State of Delaware (which owns 49.4 percent of the bank's common stock) developed a program of financial assistance after it became evident that the bank was in danger of closing primarily due to a deterioration in the quality of its real estate loan portfolio.

Farmers Bank, with $370 million in deposits at the time of the announcement of this transaction, was the second largest commercial bank in Delaware and is the sole depository for State funds under Delaware law. The Corporation, the State of Delaware, and the bank entered into an assistance agreement on June 10, 1976, whereby the State purchased a $20-million new issue of preferred voting stock of the bank, and the Corporation purchased, for $32 million, poor quality loans and other assets of the bank having a book value of approximately $40 million. In addition, the State of Delaware agreed to keep certain minimum balances with the bank and certain managerial changes were made to facilitate the bank's return to profitability.

Also in 1976, the FDIC and Bank of the Commonwealth, Detroit, Michigan, agreed to a financing plan for the bank. The plan involves the sale of an additional $10 million of common stock underwritten by First Arabian Corporation and the extension of the maturity of the existing $35.5-million capital note from the FDIC to the bank. The note, which is scheduled to mature in April 1977, will be extended for a minimum of 5 years. Interest payments on the note, fixed at 5.5 percent, were increased to 6.6 percent per annum, the rate earned on the FDIC insurance fund, payable for the first 5 years only to the extent of onehalf of the bank's net income for any year. The remaining income will be added

to the bank's equity capital. Amortization of the note will begin in 1979. The new financing program is designed to make Bank of the Commonwealth a competitive force in the Detroit banking market. Financial assistance was originally given to the bank by the FDIC in 1972 under section 13(c). While the original assistance averted the danger of Bank of the Commonwealth failing, recovery of the bank's position has been retarded by the bank's large holdings of low-yielding assets acquired by prior management as well as by the unfavorable economic climate of recent years. Detroit, the primary market served by the bank, has been particularly hard hit by the recent recession and unemployment has been substantially higher than the national average.

The Corporation also agreed to extend until June 30, 1982, the $1.5-million capital note of Unity Bank and Trust Company, Boston, Massachusetts, which was scheduled to mature on December 31, 1976. Amortization of the note will begin on June 30, 1980. The loan was part of an assistance program initiated in July 1971 which prevented the failure of Unity Bank and Trust Company and assured continued banking service for the black community in Roxbury and Dorchester. The bank's full recovery has been inhibited to a large extent by adverse economic conditions.

Protection of depositors, 1934-1976. The Corporation makes disbursements when it pays depositors up to the insurance limit in payoff cases and acquires their claims against the failed banks, when it assists deposit assumptions through loans or purchases of assets, and when it provides assistance to enable an operating bank to remain open. From January 1, 1934 through December 31, 1976, the Corporation disbursed approximately $2.3 billion for 539 insured banks requiring assistance. These banks had aggregate deposits of about $6.2 billion. In the 535 closed banks, at the end of 1976 over 99.8 percent of the depositors

had received or were assured of payments of their deposits in full, and 99.6 percent of the total deposits had been paid or made available to them. Banks whose deposits were assumed by other insured banks with the Corporation's assistance accounted for almost 72 percent of the deposits in the closed banks. By far the largest proportion of the amount recovered by depositors in payoff cases has been provided by FDIC payments of insured deposits, with additional payments received from the proceeds of liquidated assets, offsets against indebtedness, and pledged assets.

Including the amounts disbursed in failure cases and assistance to operating banks, and all losses and provision for losses on assets being liquidated, the Corporation's losses of $285.0 million have amounted to 12.4 percent of its disbursements in all insurance operations.

Liquidation activities. At year-end 1976, the FDIC's Division of Liquidation was administering over 72,000 assets with an aggregate book value of approximately $2.6 billion. The largest portion of those assets, over $900 million, was real estate related. To liquidate those assets the Corporation employs approximately 600 persons in the Division of Liquidation. During 1976, the Division of Liquidation collected approximately $740 million from the assets of the closed banks held by the Corporation either directly or as receiver. The complexity of those assets has increased significantly during the past few years as a result of the larger bank closings.

In the Franklin National Bank (FNB) liquidation, the FDIC's largest, as of December 31, 1976, the Corporation had collected $1,124.7 million on assets held, and had paid $1,073.5 million of this amount to the Federal Reserve Bank of New York, thereby reducing the principal amount due on the "window" loan extended to FNB from $1,723.5 million at the time of the bank's closing on October 8, 1974, to $650 million at year-end

1976. Interest at the rate of 7.52 percent per annum will not be due until the note matures on October 8, 1977. The principal book value of assets remaining to be liquidated as of December 31, 1976, is approximately $1,208.6 million compared with the principal and accrued interest on the FDIC's outstanding debt to the Federal Reserve Bank of New York of $848.8 million.

On October 8, 1977, it is estimated that the Corporation will be required to advance approximately $465 million to $665 million to pay the Federal Reserve Bank the remaining balance due on the original $1,723.5-million obligation which was owed by Franklin as of its closing. Based on a number of assumptions as to the duration of the receivership, the pace of collections, and the results of matters in litigation, it is unlikely that the Corporation will suffer a loss in this very large failure.

Charters for two deposit insurance national banks established in 1975 were scheduled to terminate in 1977 according to the statute authorizing their establishment; and before the expiration of each charter, the FDIC must make arrangements to dispose of the bank's business. Deposit insurance national banks (DINB) were organized in accordance with section 11 of the Federal Deposit Insurance Act to deal with the failures in 1975 of Swope Parkway National Bank, Kansas City, Missouri, and The Peoples Bank of the Virgin Islands, St. Thomas, Virgin Islands. In such cases, the receiver of the closed bank immediately transfers to the new bank all insured and fully secured deposits in the closed bank, and those funds are available to their owners to the same extent that they were available before the bank's closing. By establishing a deposit insurance national bank the FDIC hopes to encourage local communities to consider the establishment and capitalization of a new bank.

The FDIC is authorized to dispose of a deposit insurance national bank's business

either by offering capital stock in the bank for sale or by transferring its business to any insured bank within the same community. Stockholders of the former bank have the first opportunity to purchase such stock. The FDIC made a stock offering in 1976 in connection with the deposit insurance national bank created in the Swope Parkway failure and conducted meetings with the stockholders of the former The Peoples Bank of the Virgin Islands. Former stockholders of Swope Parkway National Bank did not reorganize a new bank; therefore, the Corporation on December 18, 1976, entered into a transaction transferring the remaining business of the DINB to Laurel Bank of Kansas City, Kansas City, Missouri. The decision to transfer the remaining business to Laurel Bank was made because of that bank's willingness to enter into such a transaction, because Laurel Bank already had a significant volume of business from the trade area of the DINB, and because the location of Laurel, among those available, was the most geographically convenient to the transferred depositors. In addition, Laurel agreed to pay the FDIC a $3,000 premium for the transaction.

The FDIC has received expressions of interest from various groups in connection with the DINB in the Virgin Islands. The interest of these groups will be pursued and hopefully the result will be proposals for a new bank that will include the participation and support of the local community.

ENFORCING CONSUMER AND INVES

TOR LEGISLATION

The FDIC is responsible for enforcing a number of consumer protection laws and regulations, including the Truth in Lending Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Civil Rights Act, and the Home

Mortgage Disclosure Act, with respect to the insured nonmember banks within its supervisory and regulatory jurisdiction. In most cases, this responsibility is explicit, that is, the result of an explicit direction in a governing statute. In some cases however, the responsibility is implicit, that is, it arises by virtue of the FDIC's supervisory responsibility to see to it that the banks it supervises operate within the confines of applicable Federal law.

Publicly held insured State nonmember banks fall under the Corporation's explicit regulatory authority for public reporting, proxy solicitations, and trading by insiders of their own bank stock. The Corporation also supervises disclosure with respect to take-over attempts and other purchases of publicly held securities of banks subject to its primary jurisdiction. Newer statutory responsibilities have engaged the Corporation in the regulation of insured nonmember banks that act as transfer agents and deal in municipal securities.

These increasing statutory responsibilities in the securities disclosure area have coincided with the Corporation's increased interest and concern in securities disclosure problems even where it has no explicit statutory mandate. The Corporation, for example, has actively encouraged the use of offering circulars in connection with bank stock and debenture offerings and has become more concerned with general questions of bank accounting and disclosure by bank holding companies regulated by the Securities and Exchange Commission. It has also monitored banks' securities marketing devices and banks' involvement in the market for their own stock.

Compliance examinations and related activities. The FDIC carries out its responsibility to enforce various consumer laws primarily through the examination and supervisory process. FDIC examiners checked for compliance with the requirements of such laws during regular bank examinations in 1976 in every State ex