FDIC Goes Underground To Shore Up Insurance Fund
The Federal Deposit Insurance Corporation (FDIC) has launched a new national program to retain mineral rights on lands it has taken back as a result of foreclosures and bank failures.
In areas such as Northern Colorado, where oil and gas development is booming, the new policy could mean millions of dollars for the agency's beleaguered bank insurance fund, and lower insurance premiums for banks.
But the program, which took effect April 1, could also complicate land deals, reduce some property values and mean lower tax revenues for local governments.
"Weld County believes that it could mean they will collect fewer taxes,” says Northern Colorado Business Report editor Jerd Smith. “Because the FDIC, like other non-profits, pays a lower tax rate than private entities do, the agency won’t have to pay as much on parcels it owns as a private company would."
Weld County is one of Colorado’s most active areas for oil and gas production, and could soon produce 80 percent of the state’s oil output.
Why is the FDIC, which is primarily a regulator of banks, moving into the oil and gas business?
"Like everyone else, the FDIC is looking for ways to recover more quickly from the Great Recession and the huge losses it sustained when banks failed. As banks failed, the FDIC had to cover the cost to depositors – it had to insure the funds they had in those banks. As a result, it went deeply into the red, something like $20 billion into the red, and it’s been trying to claw its way back ever since.
It is now out of the red and back into the black, but under the Dodd-Frank Act that’s seeking to make our financial system more stable, the FDIC is going to be required to maintain a larger fund, and it’s nowhere close to getting there. If it retains the mineral rights on lands that it has repossessed, that could prove to be a significant source of revenue for the agency."
What impact will this new policy have on oil and gas development?
"It certainly shouldn’t slow oil and gas development, by any means. However, according to people that we spoke with, valuing mineral rights is a tricky business. And the FDIC is either going to have to acquire the expertise, or hire people to value these rights for them. In addition, people who are heavily into land deals believe that it could very easily complicate [them]. Because [of the issue of] who owns the mineral rights... and if you own mineral rights underneath the land, who has access to extract them?"
Many experts say the recovery is already underway. Why is the FDIC doing this now?
"Clearly from documents the FDIC has, they are way behind on funding their recovery. And we believe this is one of the ways they intend to do it.
By the way, the FDIC was reluctant to talk live about this story. They issued a statement simply saying they were trying to 'maximize the return on their assets.' But we were able to obtain the policy paper that they’ve distributed to lenders and title companies, explaining how they’re going to proceed."