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Appendix
Program Resource Requirements
The FDIC’s annual corporate operating budget is developed
in a manner that allows the budget to be broken out for its three
major programs (Insurance, Supervision and Receivership Management).
The chart below presents the budgetary resources that the FDIC
projects that it will expend for these programs during 2009 to
pursue the strategic goals and objectives and the annual performance
goals set forth in this Plan, and to carry out other program-related
activities. The estimates reflect each program’s share
of common support services that are provided by the Corporation
on a consolidated basis.
| Supervision |
$766,287,751 |
| Insurance |
$175,375,570
|
| Receivership Management |
$1,119,768,572
|
|
Subtotal
|
$2,061,431,893
|
| Corporate Expenses |
$182,333,351 |
|
TOTAL |
$2,243,765,244 |
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The FDIC's Planning Process
The FDIC has a
long-range strategic plan that identifies strategic goals and objectives
for its three major programs: Insurance, Supervision and Receivership
Management. The plan is reviewed and updated every three years. The
Corporation also develops Annual Performance Plans that identify
annual goals, indicators and targets for each strategic objective.
In developing its Strategic
and Annual Performance Plans, the FDIC uses an integrated planning process
in which guidance and direction are provided by senior management and plans
and budgets are developed with input from program personnel. Business requirements,
industry information, human capital, technology and financial data are considered
in preparing annual performance plans and budgets. Factors influencing the
FDIC’s plans include changes in the financial services industry, program
evaluations and other management studies and prior period performance.
The FDIC’s strategic
goals and objectives and its annual performance goals, indicators and targets
are communicated to its employees via the FDIC’s internal website and
through internal communication mechanisms, such as newsletters and staff
meetings. The Corporation also establishes on an annual basis additional “stretch” objectives
that further challenge FDIC employees to pursue strategic initiatives and
results. FDIC pay and award/recognition programs are structured to reward
employee contributions to the achievement of the Corporation’s annual
goals and objectives.
Throughout
the year, progress reports are reviewed by FDIC senior management. After
the year ends, the FDIC submits its Annual Report to Congress that compares
actual performance to the annual performance goals and targets. This report
is also posted on the FDIC’s website, www.fdic.gov.
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Program Evaluation
Office of Enterprise
Risk Management has primary responsibility for coordinating and reporting
on evaluations of the Corporation’s programs. This role is independent
of the program areas; however, program evaluations are interdivisional,
collaborative efforts, and they involve management and staff from all
affected divisions and offices. Such participation is critical to fully
understanding the program being evaluated. The results of program evaluations
are the basis for annual assurances made by division and office directors
to the Chairman that operations are effective and efficient; financial
data and reporting are reliable; laws and regulations are complied
with; and internal controls are adequate. These results are also considered
in making strategic decisions for the FDIC.
Over the past three years, numerous program evaluations have been carried
out in each of the Corporation’s three program areas:
- Insurance – implementation
of Deposit Insurance Reform and implementation of major initiatives of
the Temporary Liquidity Guarantee Program;
- Supervision – monitoring
or addressing regulatory concerns regarding areas of heightened risk, such
as subprime and nontraditional real estate lending practices; unfair and
deceptive lending practices; niche and de novo banks; concentrations in
commercial real estate; effects of economic decline in certain sectors;
and situations of rapid growth; and
- Receivership
Management – maintaining readiness and productivity of the receivership
functions and transitioning resources to conduct financial institution
closings.
During the period covered
by this Plan, the FDIC will continue to perform risk-based reviews in each
strategic area of the Corporation. Results of these reviews will assist management
by confirming that programs are strategically aligned or by identifying changes
that need to be made to a particular program. Program evaluation activities
in 2009 will focus on key corporate issues, including continuing work on
TLGP, issues relating to contract oversight management, anticipated increases
in bank failures, and continuous improvements to the FDIC’s core business
functions.
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Interagency Relationships
The FDIC has
very productive working relationships with agencies at the state,
federal and international levels. It leverages those relationships
to achieve the goals outlined in this Plan and to promote confidence
in the U.S. banking system. Listed below are examples of the
many important relationships that the FDIC has built with other
agencies, seeking to promote strength, stability and confidence
in the financial services industry.
Other
Financial Institution Regulatory Agencies
The FDIC works closely
with other federal financial institution regulators—principally the Board
of Governors of the Federal Reserve System (FRB), the Office of the Comptroller
of the Currency (OCC), and the Office of Thrift Supervision (OTS)—to address
issues and programs that transcend the jurisdiction of each agency. Regulations
are in many cases interagency efforts, and the majority of supervisory policies
are written on an interagency basis. Examples include policies addressing subprime
lending, capital adequacy, fraud information-sharing and offsite monitoring systems.
In addition, the Comptroller of the Currency and the OTS Director are members
of the FDIC Board of Directors, which facilitates crosscutting policy development
and regulatory practices among the FDIC, the OCC and the OTS.
The FDIC,
the FRB, the OCC and the OTS also work closely with the National
Credit Union Administration (NCUA), which supervises and insures
credit unions; the Conference of State Bank Supervisors (CSBS),
which represents the state regulatory authorities; and individual
state regulatory agencies.
The
Federal Financial Institutions Examination Council (FFIEC)
The FFIEC is a formal
interagency body empowered to prescribe uniform principles, standards and report
forms for the federal examination of financial institutions and to make recommendations
to promote uniformity in the supervision of financial institutions. The member
agencies of the FFIEC are the FDIC, FRB, OTS, OCC and NCUA. As the result of
legislation in 2006, the Chair of the FFIEC State Liaison Committee now serves
as a sixth member of the FFIEC. The State Liaison Committee is composed of five
representatives of state supervisory agencies. To foster interagency cooperation,
the FFIEC has established interagency task forces on consumer compliance, examiner
education, information sharing, regulatory reports, surveillance systems and
supervision. The FFIEC has statutory responsibilities to facilitate public access
to data that depository institutions must disclose under the Home Mortgage Disclosure
Act of 1975 (HMDA) and the aggregation of annual HMDA data for each metropolitan
statistical area. The FFIEC publishes handbooks, catalogues and databases that
provide uniform guidance and information to promote a consistent examination
process among the agencies.
State
Banking Departments
The
FDIC works closely with state banking departments as well as
the Conference of State Bank Supervisors to provide greater efficiencies
in examining financial institutions and promote a uniform approach
to the examination process. In most states, alternating examination
programs reduce the number of examinations at financial institutions,
thereby reducing regulatory burden. Joint examinations at larger
financial institutions also maximize state and FDIC resources
when examining large, complex and problem FDIC-supervised financial
institutions.
Dedicated
Examiner Program
The
FDIC has six “dedicated examiners” assigned to the
six largest insured financial organizations. Dedicated examiners
work closely with the organizations’ primary federal regulator
and use supervisory information, internal organization information,
and external sources of information to evaluate risks and assign
an FDIC risk rating for each of these six organizations.
Basel
Committee
on Banking Supervision
The
FDIC participates on the Basel Committee on Banking Supervision
(BCBS), a forum for international cooperation on matters relating
to financial institution supervision, and on numerous subcommittees
of the committee. The committee aims to improve the consistency
of capital regulations internationally, make regulatory capital
more risk sensitive and promote enhanced risk-management practices
among large internationally active banking organizations. The
Basel II Capital Accord is an effort by international banking
supervisors to update the original international bank capital
accord (Basel I), which has been in effect since 1988.
The FDIC
has also established working relationships with international
regulatory authorities to ensure effective supervision of domestic
insured institutions that are wholly owned by foreign entities,
which includes coordination of efforts to implement the Basel
II Capital Accord.
BCBS
- International Liaison Group
In
addition to the FDIC’s membership on the BCBS, the FDIC
is a member of a BCBS subcommittee called the International Liaison
Group (ILG). The ILG provides a forum for deepening engagement
and cooperation with supervisors from around the world on a broad
range of issues involving banking and supervision. In addition
to the United States, the ILG has senior representatives from
seven other member countries including France, Germany, Italy,
Japan, the Netherlands, Spain, and the United Kingdom.
Interagency
Country Exposure Review Committee
The
Interagency Country Exposure Review Committee (ICERC) was established
by the FDIC, the FRB and the OCC to ensure consistent treatment
of the transfer risk associated with banks’ foreign exposures
to both public and private sector entities. The ICERC assesses
the degree of transfer risk inherent in cross-border and cross-currency
exposures of U.S. banks, assigns ratings based on its risk assessment
and publishes annual reports of these risks by country.
International Association of Deposit
Insurers
The FDIC plays
a leadership role in the International Association of Deposit
Insurers (IADI) and participates in associated activities. IADI
contributes to the stability of the financial system by promoting
international cooperation in the field of deposit insurance.
Through IADI, the FDIC focuses its efforts to build strong bilateral
and multilateral relationships with foreign regulators and insurers,
U.S. government entities and international organizations. The
FDIC also provides technical assistance and conducts outreach
activities with foreign entities to help in the development and
maintenance of sound banking and deposit insurance systems. The
FDIC’s Vice Chairman currently serves as President of IADI.
Association
of Supervisors of Banks of the Americas
The FDIC, as Director of the North American Group, exercises a leadership role
in the Association of Supervisors of Banks of the Americas (ASBA) and actively
participates in the organization’s activities. ASBA develops, disseminates
and promotes sound banking supervisory practices throughout the Americas in
line with international standards. The FDIC supports the organization’s
mission and activities by actively contributing to ASBA’s research and
guidance initiatives and its education and training services. .
Shared
National Credit Program
The FDIC participates with the other federal financial institution regulatory
agencies in the Shared National Credit Program, an interagency effort to perform
a uniform credit review of financial institution loans that exceed $20 million
and are shared by three or more financial institutions. The results of these
reviews are used to identify trends in industry sectors and banks’ credit
risk management practices. These trends are typically published in September
of each year to aid the industry in understanding economic and credit risk-management
trends.
Joint
Agency Task Force on Discrimination in Lending
The FDIC participates on the Joint Agency Task Force on Discrimination in Lending
with all five of the federal financial institution regulators (FDIC, FRB, OCC,
OTS and NCUA) along with the Department of Housing and Urban Development, the
Federal Housing Finance Agency, the Department of Justice (DOJ), and the Federal
Trade Commission. The agencies exchange information about fair lending issues,
examination and investigation techniques, and interpretations of the statute
and regulations and case precedents.
European
Forum of Deposit Insurers
The FDIC shares
mutual interests with the European Forum of Deposit Insurers
(EFDI) and supports the organization’s mission to contribute to the
stability of financial systems by promoting European cooperation in the
field of deposit insurance. As such, the FDIC contributes its expertise
and experience in supervision and deposit insurance and openly shares this
expertise through discussions and exchanges on issues that are of mutual
interest and concern (e.g., cross-border issues, bilateral and multilateral
relations and financial customers’ protections).
Bank
Secrecy Act, Anti-Money Laundering, Counter-Financing
of Terrorism, and Anti-Fraud Working Groups
The FDIC works with the Department of Homeland Security and the Office of Cyberspace
Security through the Finance and Banking Information Infrastructure Committee
(FBIIC) to improve the reliability and security of the financial industry’s
infrastructure. Other members of FBIIC include the Commodity Futures Trading
Commission (CFTC), FRB, NCUA, OCC, OTS, the Securities and Exchange Commission
(SEC), the Department of the Treasury, and the National Association of Insurance
Commissioners (NAIC).
The FDIC
participates in several other interagency groups, described
below, to assist in efforts to combat fraud and money laundering
and to implement the USA PATRIOT Act:
- The
Bank Secrecy Act Advisory Group, a public/private partnership
of agencies and organizations that meet to discuss strategies
and industry efforts to address money laundering controls.
- The
National Secrecy Act Advisory Group, a public/private partnership
of agencies and organizations that meet to discuss strategies
and industry efforts to curb money laundering.
- The
FFIEC Bank Secrecy Act/Anti-Money Laundering Working Group,
which is composed of the federal bank regulatory agencies,
FinCEN and the CSBS, to coordinate BSA/AML training and
awareness efforts and to improve communications among the
agencies.
The BSA/AML working group builds on existing activities
and works to strengthen initiatives that are already being
pursued
by other formal and informal interagency groups providing
oversight of various BSA/AML-related matters.
- The
National Bank Fraud Working Group, which is sponsored
by DOJ.
- The
Check Fraud Working Group (a subcommittee of the
National Bank Fraud Working Group), which is co-chaired
by the FDIC
and the Federal Bureau of Investigation (FBI) and
is composed of the federal bank regulatory agencies,
DOJ, the FBI,
FinCEN, the Internal Revenue Service (IRS), the Bureau
of Public
Debt (BPD), and the U.S. Postal Service.
- The
Cyber Fraud Working Group (a subcommittee of the National
Bank Fraud Working Group), which is composed of the
federal bank regulatory agencies, DOJ, the FBI, FinCEN,
the IRS,
and BPD.
- The
National Money Laundering Strategy Steering Committee,
which is co-chaired by DOJ and the Department of the
Treasury.
- The
Terrorist Finance Working Group,
which is sponsored by the State Department to assist in the
AML training
effort internationally
and the assessment of foreign
countries’ financial
structures for potential money
laundering and terrorist financing vulnerabilities.
- Other
working groups that are sponsored by the Department
of the Treasury to develop USA PATRIOT Act rules, interpretive
guidance
and other relevant BSA materials applicable to insured
financial institutions.
Financial Literacy and Education Commission
The
FDIC is a member of the Financial Literacy and Education
Commission (FLEC), as mandated by the Fair and Accurate
Credit Transactions (FACT) Act of 2003 established.
The FDIC actively supports FLEC’s efforts to
improve financial literacy in America by assigning
experienced staff to work in the Office of Financial
Education, providing leadership in the development
and maintenance of the My Money hotline and toolkits,
and participating in on-going meetings that address
issues affecting the promotion of financial literacy
and education.
Alliance for Economic Inclusion
The FDIC established and leads the Alliance for Economic Inclusion (AEI),
a national initiative to bring all unbanked and underserved populations
into the financial mainstream. The AEI is comprised of broad-based coalitions
of financial institutions, community-based organizations and other partners
in eleven markets across the country. The coalitions work to increase
banking services for underserved consumers in low- and moderate-income
neighborhoods, minority and immigrant communities, and rural areas. These
expanded services include savings accounts, affordable remittance products,
targeted financial education programs, short-term loans, alternative
delivery channels and other asset-building programs.
Government Performance
and Results Act
Financial Institutions
Regulatory Working
Group
The interagency Financial
Institutions Regulatory Working Group, which is composed of all five
federal financial institution regulators (OTS, FRB, OCC, NCUA and FDIC),
was formed in October 1997 to support compliance with the Government
Performance and Results Act (GPRA). The Federal Housing Finance Agency,
which supervises Freddie Mac and Fannie Mae, and the Department of the
Treasury also participate. This group identifies programs and strategic
goals/objectives that are common to these organizations and promotes
discussion among them on appropriate performance indicators and targets.
Federal Trade Commission,
National Association of
Insurance Commissioners
and the Securities and
Exchange Commission
GLBA was enacted
in 1999. It permitted insured financial institutions to expand
the products they offer to include insurance and securities.
This Act also included increased security requirements and disclosures
to protect consumer privacy. The FDIC and other FFIEC agencies
coordinate with the FTC, the SEC, and NAIC to develop industry
research and guidelines relating to these products.
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External Factors: The Economy and Its Impact on the Banking
Industry and the FDIC
Economic conditions
at the national, regional, and local levels affect banking strategies
and the industry’s overall performance. Economic conditions
also affect the performance of businesses and consumers, which impact
loan growth and credit exposure for the banking industry. Overall
business conditions and macroeconomic policies are key determinants
of inflation, domestic interest rates, the exchange value of the
dollar, and equity market valuations, which in turn influence the
lending, funding, and off-balance sheet activities of FDIC-insured
depository institutions.
Adverse
economic conditions, such as a national or regional economic
downturn, raise the risk profile of the banking industry or select
groups of insured institutions. An economic downturn may accelerate
statutory examination frequencies and increase the incidence
of failures, resolution costs, and the pace at which the FDIC
markets assets and terminates receiverships. Adverse economic
scenarios may also divert FDIC staff from other activities to
address these or other operational concerns.
The U.S. economy will continue in recession in 2009.
The U.S. economy has been in a recession since December 2007, according to the
National Bureau of Economic Research, and it is already the longest recession
since the 16-month recession that ended in 1982. In addition, during 2008,
financial market disruptions evolved into a crisis that challenged the soundness
and profitability of some FDIC-insured institutions, and the banking industry
will likely continue to experience elevated levels of stress over the coming
year. Financial markets became extremely stressed in mid-September 2008 following
the failure and near-failure of several major financial institutions, which
triggered a global re-pricing of risk. Credit spreads and interbank lending
markets spiked, but have recently subsided following unprecedented government
stabilization initiatives.
Weak economic
conditions continue to exert significant stress on banking industry
performance. Large job losses and reduced household wealth pose
risks to consumer credit performance, while slower business activity
raises concerns about commercial loan portfolios. Consumer spending
declined in the third quarter 2008 for the first time since 1991,
and it declined again in fourth quarter as rising unemployment
and falling home and equity prices dampened consumer sentiment.
The housing sector continues to experience weakness in home sales,
prices, and starts. Business activity has also slowed in other
industries. The manufacturing sector faces continued weakness,
particularly the automotive industry, as vehicle sales posted continued
declines during 2008. Weakening export growth has reduced a significant
contributor to economic growth, as global demand has fallen.
The economic
outlook remains uncertain and depends to a large extent on the
results of U.S. and foreign government fiscal stimulus efforts
and initiatives to stem financial market disruptions. Government
efforts, including several FDIC initiatives, have resulted in a
number of programs to preserve public confidence and mitigate the
impact of an economic downturn.
Banking
industry performance has been hampered by the economic slowdown.
In the fourth quarter of 2008, the banking industry posted a net loss of $26.2
billion, the first aggregate net loss for the industry since the fourth quarter
of 1990. The industry’s quarterly return on assets (ROA) was -0.77 percent,
the lowest in 22 years. Almost one in every three institutions (32 percent)
reported a net loss in the fourth quarter.
Non-current loans
and leases increased to $230.7 billion in the fourth quarter of
2008, more than double the fourth quarter 2007 level of $109.9
billion. The percentage of total loans and leases that were non-current
rose to 2.93 percent, the highest level since the end of 1992.
More than two-thirds (69 percent) of the growth in non-current
loans during the quarter came from loans secured by real estate.
The industry’s “coverage ratio” of reserves to
non-current loans decreased during the fourth quarter from 0.84
to 0.75 – the lowest level since the third quarter of 1992.
Loan-loss provisions
in the fourth quarter of 2008 totaled $69.3 billion, more than
double the $32.1 billion that insured institutions set aside for
credit losses in the fourth quarter of 2007. Net charge-offs totaled
$37.9 billion, up 132 percent from the previous year. The largest
increases occurred in real estate construction and development
loans (up $6.1 billion, or 448 percent), residential mortgage loans
(up $4.6 billion, or 206 percent), commercial and industrial loans
(up $3.0 billion, or 97 percent), and credit cards (up $2.5 billion,
or 60 percent).
As of year-end
2008, there were 252 problem institutions with a combined $159
billion in assets. If non-current loans and net charge-offs on
loans continue to increase as earnings performance declines, the
number of problem institutions may increase further.
Net interest
income increased 4.9 percent to $97.0 billion in the fourth quarter
of 2008 from the year earlier. The average net interest margin
(NIM) was 3.34 percent in the fourth quarter of 2008, up slightly
from 3.32 percent a year earlier, but lower than the 3.37 percent
average in the third quarter. The improvement in the industry’s
NIM was concentrated among larger institutions. Average net interest
margins at community banks fell to a 20-year low.
Recent bank failures
have reduced the DIF balance. In 2008, there were 25 failures with
a combined $372 billion in assets. Also in 2008, five banks with
combined assets of $1.3 trillion received open-bank assistance
under a systemic risk determination. At the end of the fourth quarter
of 2008, the DIF stood at $18.9 billion, down from $52.4 billion
a year earlier, and the reserve ratio was 0.40 (based on unaudited
fund balance results). On February 27, 2009, the FDIC adopted an
amended restoration plan that will raise assessment rates, impose
an emergency special assessment, and make other changes to restore
the DIF reserve ratio to at least 1.15 over a seven-year period.
The banking industry
has the capacity to provide the necessary backing to the insurance
fund, given its historically strong capital levels. More than 97
percent of all FDIC-insured institutions are well-capitalized according
to the regulatory capital definition for Prompt Corrective Action.
This, together with the backing of the full faith and credit of
the U.S. government provide confidence that the FDIC will continue
to protect insured depositors.
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