| TO: |
FDIC Advisory Committee On Banking Policy |
| FROM:: |
Donald E. Powell
Chairman |
| DATE: |
November 21, 2002 |
| SUBJECT: |
Summary of the November 13, 2002 Advisory Committee Meeting |
First of all, I want to thank you for attending our first Advisory Committee meeting last week and for making it a success. Your views are very helpful to us. I was especially pleased that you engaged our staff in an informative dialogue on matters very important to the Corporation. I am attaching the speech by John Medlin that I referenced in my remarks. Also, each of you will soon be receiving a subscription to the American Banker newspaper.
Meeting Summary
The meeting centered on three presentations and a roundtable discussion. First, John Bovenzi, our Chief Operating Officer, provided an overview of the FDIC, our history, and our three lines of business (deposit insurance, risk management, and failed bank resolutions). Second,
Steve App, our Chief Financial Officer, discussed our financial structure, our budget, and how we manage the deposit insurance funds. Third, C.K. Lee, of my staff, provided information on the FDIC's priorities in 2003. The outlines of their presentations are contained in the package of information sent to you prior to the meeting date.
Policy Issues
During the meeting, several members brought up topics for discussion. These included:
- Regulatory Restructuring: The staff outlined our views on the inefficiencies inherent in the current regulatory structure and some thoughts on how we might fix them. The staff referenced recent speeches on the subject and indicated this might be on the list of discussion topics at future advisory committee meetings.
- Growth of Federal Home Loan Bank Advances: Some members of the committee had questions about how these funding instruments were treated from both the supervisory and bank resolution perspective. The staff answered the questions, but there were substantive policy questions raised about the risks of securied liabilities in general. We will provide you additional information on the subject and can discuss it next time if the Committee would find it useful.
- Regulatory Burden/Call Report Simplification: Concern was raised about the accumulation of regulatory burden on banks over the years. Specifically, the concern focused on the complexity of Call Reports and the ability of community banks to handle all of their compliance responsibilities under the USA Patriot Act. The FDIC staff talked about internal and external initiatives we've kicked off to decrease burden - but acknowledged this is a difficult problem and we could be doing more. Specifically, the staff indicated we would try to be more aggressive in identifying burdensome programs and policies in the statute and expressing these concerns to the committees in Congress.
- Optional Excess Deposit Insurance: Committee members raised questions about the feasibility of the FDIC identifying ways to make deposit insurance in excess of $100,000 available to banks at affordable rates. The staff agreed to look at the question and respond to the Committee at a future meeting.
- Technology/Risk Management: Committee members noted that risk management techniques are becoming increasingly sophisticated - particularly in large institutions. This raises a number of issues for the FDIC. Namely, do we have staff on board who have the expertise to properly evaluate these methodologies? Can we borrow techniques from the private sector to better manage our own risk? How can we use these new methodologies to create a better 'culture of credit' within large financial institutions? With the onset of a new international capital accord, based largely on banks own internal risk modeling, what should the FDIC be doing to ensure that we are prepared? This is likely to be a topic of discussion at future meetings of the Committee.
- Flexibility in Fund Management: The Committee discussed how the FDIC currently manages its reserves and queried the staff about whether we can use even simple financial mangement techniques to better realize gains or hedge against potential loss. The staff has agreed to review this suggestion and evaluate the options available to the FDIC.
- Improved Bank Data Collection/Distribution: The Committee expressed an interest in better understanding how financial data is collected from banks and distributed to the public. The staff shared the FDIC's frustration with the lengthy delay in obtaining good numbers to analyze, making internal management decisions, and informing the public about the health of the banking industry. We outlined our vision of a 'real time' data regime - and some of the steps we've taken so far. We will provide updates on this issue at future Committee meetings.
In addition to the items above which will be discussed at upcoming Committee meetings, we will work to keep you informed about significant developments at the FDIC between now and our next meeting. We look forward to seeing you again in the Spring. Until then, please feel free to contact me, C.K. Lee of my staff, or Erica Cooper if you have any questions or suggestions.
Attachment
cc: C.K. Lee
Erica Cooper
