Banking-Law.us

What is a Dividend:When a financial institution is closed and the Federal Deposit Insurance Corporation (”FDIC”) is appointed as receiver, one of FDIC’s responsibilities is to sell the institution’s assets to pay the depositors and its creditors. If there is any excess cash generated by the disposition of these assets less disposition cost and reserves met (cash it must hold to meet the obligations of the receivership), then a dividend may be declared and distributed to the proven claimants.

Priority of Dividends:

Prior to August 10, 1993 the law in effect at the time the institution failed determined the priority in which the proven claimants received dividends.  All receiverships established after August 10, 1993, must distribute dividends according to the Federal Deposit Insurance Act, 12 U.S.C. § 1821(d)(11)(A), which mandates the following priorities:

1. Administrative expenses of the Receiver;
2. Any deposit liability of the institution;
3. Any other general or senior liability of the institution;
4. Any subordinated obligations;
5. Any obligations to the shareholders or members (including holding companies and their creditors).

Types of Dividends:

1. Advance: Dividends paid to proven uninsured depositors (usually paid within 30 days of closing). The FDIC Board of Directors authorizes the percentage of dividends for this type of dividend.
2. Traditional: Dividends paid from the net proceeds derived from converting assets of the institution to cash. Such a dividend may be declared for uninsured depositors and unsecured creditors with proven claims, and others in order of their priority. This type of dividend is the most commonly used.
3. Initial: A hybrid of the Advance and Traditional dividends. This dividend is based on the dollar amount paid for the assets assumed by the acquiring institution less appropriate reserves. The Initial dividend is paid as soon as possible after the institution is closed and paid to the proven uninsured depositors, generally within a few weeks.
4. Post Insolvency Interest:

This dividend is paid once a receivership has paid 100% of the principal on the uninsured Depositor and General Creditor Claims.

How often are dividends paid:

The FDIC conducts quarterly reviews of the financial statements of the receivership to determine if sufficient funds are available to pay dividends, and as additional funds become available, dividends may be declared. Disbursements for dividends less than $25.00 are held until the aggregate total dividend exceeds $25.00.