FDIC profits from online auction
The Federal Deposit Insurance Corp. recently tried its hand at online auctioning and came away with a profit 16 percent bigger than it had expected.
Federal agencies manage about $200 billion in loans. In 1998, $48 billion in debt owed to federal agencies was more than 180 days late, and more than $35 billion of that was more than two years old. Selling loans to the private sector is one way agencies have found to manage their delinquent debt problem.
Though slow to catch on, online auctioning is becoming an attractive way for federal agencies to get rid of seized, distressed and surplus items. According to David C. Wyld, an associate professor at Southeastern Louisiana University, less than 1 percent of the more than $1 trillion in federal, state and local government transactions take place online.
FDIC has long used the traditional sealed bid method for selling off assets. Agency officials decided to try online auctioning as a way to test the new technology and assess the Internet market for financial commodities. The agency provides up to $100,000 in insurance for deposits at banks and thrift institutions. FDIC also examines and supervises nearly 6,000 banks.
"We wanted to see if, in fact, this is a viable option for us as just one of the ways to sell assets," said George Alexander, FDIC's manager of capital markets. "It was a simultaneous kind of auction and we were very pleased with the results, ultimately, of the auction."
To pull off its online auction pilot, FDIC brought in Bid4Assets.com, an Internet auction company that specializes in seized, distressed and surplus government assets, and Pedestal.com, which specializes in the secondary mortgage marketplace.
Both companies conducted online auctions in an attempt to produce the highest bidders and ultimately sold $7 million in loans and $5 million in bad debt for FDIC. All the information buyers needed was posted on the Internet by the two companies, which used various methods of advertising to attract buyers to the auction. When the auctions closed, the two companies had managed to get 16 percent more than the agency's anticipated price.
FDIC may conduct another pilot program before making a decision to add online auctions to its cadre of tools for selling financial commodities.
"We'll construct some kind of a universe of eligible firms and, as we wind up with assets that we believe would lend themselves to being effectively marketed and sold using the Internet, then we will steer business in that direction," FDIC's Alexander said.