Bids for Failed Banks: A State Secret?

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For decades, the Federal Deposit Insurance Corp. disclosed all bids on failed banks to the public.

That was then. This is now: no disclosure on losing bids, no explanation to date, and the change might become permanent.

Industry insiders are crying foul. The records are used in formulating future bids and, with the pace of failures accelerating, the about-face could not come at a worse time, they said. Some observers also questioned whether the FDIC can legally withhold such records and accused the agency of flouting the Freedom of Information Act, which details what can be kept confidential and requires public disclosure in all other cases.

"The statute has not changed," said Bill Loving, who chairs the journalism department at California Polytechnic State University in San Luis Obispo. "It is the same law that was in place when they used to give out the information before."

But the FDIC has posted a brief note on its Web site, saying that it is reviewing its disclosure policy.

"The FDIC has delayed processing of FOIA requests for bid information pending completion of that review," the note says. "The FDIC will make a public announcement when the review is completed and processing of pending FOIA requests relating to bid information has resumed."

David Barr, an FDIC spokesman, said winning bids are still available to those who request them; the delay applies only to information about the losing bidders and their bids.

He said the agency is considering whether to change its practice of releasing such information and expects to make a decision by the end of September. He would not discuss the reason for the change or its legality.

A source familiar with the FDIC's thinking said one concern prompting the review is that a bank might put in the highest bid but be rejected because regulators consider it too weak.

Those who help banks prepare bids on failed institutions say they are disheartened. "We have been doing this for 20 years, since the late '80s," said Randy Dennis, the president of DD&F Consulting Group. "We have every winner and loser for every FDIC acquisition for a long, long time. It allows us to have a better perspective, and the bankers to be better-informed bidders."

Ken Thomas, an independent bank consultant and economist in Miami, said he cannot see any way for the agency to justify the sudden secrecy. "We aren't talking about a private deal with two private companies," he said. "We are talking about the FDIC and taxpayers bailing out banks."

Thomas, who frequently submits FOIA requests to the FDIC, said he has been receiving bid documents for decades and only encountered problems in recent months. He said the FDIC only partially fulfilled a request for information about the $13 billion-asset BankUnited in Coral Gables, Fla., which failed May 21.

Jeffrey C. Gerrish, a partner at Gerrish McCreary Smith PC in Memphis, speculated that bidders might be telling the FDIC that they want to keep quiet about their plans to do bank acquisitions.

"They don't want to do anything that chills acquirers bidding on failed banks," said Gerrish, who was an attorney for the FDIC decades ago. "The rationale might be, 'We don't want these folks who weren't successful to be in the public because they bid on it.' "

But Gerrish said that logic still would not allow for the change, because the law requires disclosure.

"The way I look at it is, FOIA hasn't changed," he said. "They would have no basis for doing a new interpretation. They are going to have a hard time justifying that."

Dan Bass, a managing director for the investment bank Carson Medlin Co., said the change is unlikely to yield higher bids — if that is what the FDIC had in mind.

"You could argue that if nobody knows anything, someone may overbid, and that may save the insurance fund some money," he said. "But I think most people are not going to overbid."

Many winning bids are for a zero, or even a negative, deposit premium, Bass said. So any impetus to bid higher would come more from knowing that demand is high in a particular area, based on the number of bids for previous failures. By withholding such information, Bass said, "they are hurting their chances of getting a better bid."

Several observers also said the Obama administration has promised to be more transparent, making the FDIC change all the more puzzling.

"This seems to run very counter to the direction from the White House," said Patrice McDermott, the director of, a coalition of 70 organizations that works for government accountability.

McDermott also said only Congress can change the law that determines what is public information, so the FDIC is overstepping its bounds both in delaying the release of the bids and in contemplating a permanent change. "I don't know where they think they get the authority to do this."

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