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Insurance
Program
The FDIC also had to consider its need for cash to pay for projected near-term failures. After notice and comment, the FDIC Board adopted a rule on November 12, 2009, requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The prepaid assessment for these periods was collected on December 30, 2009, along with each institutions regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. Those institutions that were likely to be severely adversely affected by the prepayment were exempted from this requirement. Any prepaid assessment not exhausted after collection of the amount due on June 30, 2013, will be returned to the institution at that time. Should industry conditions improve before that time, the FDIC Board may vote to return funds to the industry sooner. The FDIC collected $45.7 billion from the prepaid assessments enough to fund current projected liquidity needs.
On October 3, 2008,
the Emergency Economic Stabilization Act of 2008 was signed into
law. It temporarily raised the basic limit on federal deposit insurance
coverage
from $100,000 to $250,000 per depositor, through December 31, 2009.
On May 20, 2009, the President signed the Helping Families Save Their
Homes
Act of 2009, which among other provisions extended the temporary
increase to December 31, 2013. After December 31, 2013, the standard
maximum deposit
insurance amount will return to $100,000.
The
FDIC established the Temporary Liquidity Guarantee Program (TLGP) on
October 13, 2008, in response to credit market disruptions, which reduced
banks’ liquidity and impaired their ability to lend. The TLGP has
two components, the Debt Guarantee Program (DGP) and the Transaction
Account Guarantee Program (TAGP). The DGP guaranteed certain new,
senior unsecured debt issued by banks or thrifts and bank holding companies,
as well as most thrift holding companies and ended on October 31,
2009.
In all, over $618 billion in guaranteed debt was issued under the
DGP, and the program generated almost $10 billion in fees paid by participating
institutions. The TAGP was extended through June 2010. It provides
a
full guarantee of all deposits in noninterest-bearing transaction
accounts. Under the TAGP, the FDIC guaranteed an estimated $834 billion
of deposits
in noninterest-bearing transaction accounts that would not have
otherwise been insured, and collected approximately $639 million in fees
under
the program.
Communication
and coordination with the other bank regulatory agencies are top priorities.
As the insurer, the FDIC by statute has special examination authority
for all insured depository institutions. If significant emerging risks
or other serious concerns are identified for an insured depository institution
for which the FDIC is not the primary federal supervisor, the FDIC and
the institution’s primary federal supervisor work together to address
those risks or concerns.1
The FDIC seeks to increase
public awareness and understanding of deposit insurance rules and coverage.
The FDIC and other federal regulatory agencies ensure that insured depository
institutions make accurate disclosures about uninsured products. The
FDIC also provides information to depositors and financial institution
staff about the application of deposit insurance rules.
This provides the FDIC with tools to assist financial institution
employees in interpreting the rules for deposit insurance coverage
and responds to deposit insurance questions received from the public
and the banking industry through the FDIC Call Center, the Internet
and regular mail.
1 An
institution’s charter and its Federal Reserve System membership
status determine which federal banking agency is the institution’s
primary federal supervisor.
The table below depicts the strategic goal, strategic
objectives and annual performance goals for the Insurance Program.
Strategic
Goal
|
Strategic
Objectives
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Annual
Performance Goals
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Insured depositors are protected from loss without
recourse to taxpayer funding.
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Customers
of failed insured depository institutions have timely access
to insured funds and financial services.
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Respond
promptly to all insured financial institution closings and
related emerging issues.
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The FDIC promptly identifies and responds to potential
risks to the DIF.
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Disseminate
data and analyses on issues and risks affecting the financial
services industry to bankers, supervisors, the public and
other stakeholders. |
The DIF and the deposit insurance system remain
strong and adequately financed.
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Set
assessment rates to restore the insurance fund reserve ratio
to the statutory minimum of at least 1.15% of estimated insured
deposits by year-end 2016, in accordance with the Amended
Restoration Plan.
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Expand
and strengthen the FDIC’s participation and leadership
role in supporting robust international deposit insurance
systems.
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The
FDIC resolves the failure of insured depository institutions
in the manner least costly to the DIF. |
Market
failing institutions to all known qualified and interested
potential bidders. |
The
public and FDIC-insured depository institutions have access
to accurate and easily understood information about federal
deposit insurance coverage. |
Provide
educational information to insured depository institutions
and their customers to help them understand the rules for determining
the amount of insurance coverage on deposit accounts. |
Strategic
Goal 1:
Insured
depositors are protected from loss without recourse to taxpayer funding.
Strategic
Objective 1.1
Customers of failed insured depository institutions
have timely access to insured funds and financial services.
Annual
Performance Goal 1.1-1
Respond promptly to all insured financial institution closings
and related emerging issues.
Indicator
and Targets
- Number
of business days after an institution failure that depositors
have access to insured funds either through transfer of deposits
to the successor insured depository institution or depositor
payout
- Depositors have access to insured
funds within one business day if the failure occurs
on a Friday.
- Depositors have access to insured
funds within two business days if the failure occurs
on any other day of the week.
- Insured depositor losses resulting from a financial institution failure
- There are
no depositor losses on insured deposits.
- No appropriated
funds are required to pay insured depositors.
Means and
Strategies
Operational
Processes (initiatives and strategies):
When an insured institution is identified as a potential failure, the FDIC
prepares a plan to handle the possible resolution of the institution. The
FDIC begins the resolution process with an assessment of the institution’s
assets and liabilities. The FDIC then develops an information package that
is used as a marketing tool and is provided to all interested potential assuming
institutions. The FDIC solicits proposals from approved bidders to find a
buyer for the deposit franchise.
If the federal or state
supervisor chooses to close the institution, the FDIC takes control of
the failed institution and determines which deposits are insured. Once
the FDIC is appointed receiver, it initiates the resolution process for
the failed institution and provides the insured depositors with access
to their accounts within one or two business days.
The FDIC works with the assuming institution so that the insured deposit
accounts are transferred to it as soon as possible. If no assuming institution
is found during the resolution process, the FDIC disburses insured deposit
balances directly to customers of the failed institution.
As banking industry practices
and technologies evolve, the FDIC continues to review and enhance existing
plans, processes and systems in response to potential risks that might
impact the resolution process.
Human
Resources (staffing and training):
The 2010 Corporate Operating Budget provides for significant
increases in authorized staffing in the Division of Resolutions
and Receiverships (DRR) to address potentially elevated resolutions
and receivership management workload. Most of the staffing increases
will be non-permanent. Authorized 2010 DRR staffing is proposed
to increase to 2,310 positions.
Information
Technology:
Technology is critical to improving the efficiency of deposit
insurance determinations and payments. The FDIC is in the midst
of a multi-year effort to redesign and automate its deposit insurance
claims and payment processes. This project, approved in late
2006, will provide an integrated solution that meets the Corporation’s
current and future deposit insurance determination needs and
will be based on adaptable technology that is compatible with
industry standards. In 2010, the Corporation will deploy the
new Claims Administration System to replace current systems used
for this purpose.
Verification
and Validation
In the case of a transfer
of insured deposits to a successor institution, the number of business
days for depositors to have access to their insured funds will be verified
by comparing the date of failure with the date that the successor insured
depository institution opens for business and makes insured funds available
to the failed institution’s depositors. In the case of a depositor
payout, this will be verified by comparing the date of failure with the
date that deposit insurance checks are mailed to depositors or made available
for pickup at the premises of the failed institution.
2009
Performance Results
This annual performance
goal and its associated performance indicators and targets are unchanged from
2009. There were 140 insured financial institution failures during 2009, and
the FDIC successfully met the performance targets for each failure.
Strategic
Objective 1.2
The FDIC promptly
identifies and responds to potential risks to the DIF.
Annual
Performance Goal 1.2-1
Disseminate data
and analyses on issues and risks affecting the financial services industry
to bankers, supervisors, the public and other stakeholders.
Indicator
and Targets
- Scope and timeliness
of information dissemination on identified or potential issues and risks
- Disseminate
results of research and analyses in a timely manner through regular
publications, ad hoc reports and other means.
- Undertake industry
outreach activities to inform bankers and other stakeholders about
current trends, concerns and other available
FDIC resources.
Means
and Strategies
Operational
Processes (initiatives and strategies):
The
FDIC maintains a vigorous research and publications program on
issues and topics of importance to the banking industry. Much
of this research is conducted in collaboration with the academic
community through the Center for Financial Research (CFR). Research
findings are disseminated through CFR working papers, articles
in professional journals and presentations at conferences and
other events. The FDIC also disseminates information and analyses
on industry risks through periodic reports, publications (e.g.,
the FDIC Quarterly Banking Profile and the FDIC Quarterly), Financial
Institution Letters and participation in industry events and
other outreach activities.
The FDIC conducts outreach
sessions several times each year throughout the country. In addition,
FDIC employees regularly attend conferences and meet with industry analysts
and trade groups to exchange views and analyses. They also present Directors’ College
outreach sessions to local bank board members. During these sessions,
information on current risks, new regulations and other emerging issues
is communicated to bank directors. In addition, banker roundtable events
are conducted by local FDIC offices nationwide to provide a forum for
bankers to receive information and raise questions about new regulatory
guidance or emerging risks.
Human
Resources (staffing and training):
The FDIC
employs economists, financial analysts and other staff members who
monitor risks within the banking industry and communicate those risks
to FDIC management, other regulators, the industry, the public and
other stakeholders through a variety of media and forums. In addition,
outside scholars participate in the Corporation’s risk analysis
program, and risk-focused examination training has been incorporated
into the FDIC’s examination schools. The FDIC also maintains
a cadre of staff members throughout the country to conduct banker
outreach sessions.
Information
Technology:
The FDIC’s
website (www.FDIC.gov) is a centralized
source of information on FDIC research and analysis on potential areas
of risk for the industry,
the public and other regulators. The data is in eXtensible Business
Reporting Language (XBRL) to provide faster access to financial institution
information for all users of the data, including financial institutions,
bank regulators and the public.
Verification
and Validation
Timely analyses of banking
industry risks are included in regular publications or as ad hoc reports.
Industry outreach activities aimed at the banking community and industry
trade groups promote discussion of current trends and concerns, and inform
bankers about available FDIC resources. Publications and outreach events
are documented through established reporting processes.
2009
Performance Results
This annual performance
goal and its associated performance indicator and targets are unchanged
from 2009. In 2009, the FDIC successfully met these performance targets.
Annual
Performance Goal 1.3
Strategic
Objective 1.3
The DIF and the deposit
insurance system remain strong and adequately financed.
Annual
Performance Goal 1.3-1
Set assessment rates
to restore the insurance fund reserve ratio to the statutory minimum of
at least 1.15 percent of estimated insured deposits by year-end 2016, in
accordance with the Amended Restoration Plan.
Indicator
and Targets
- Update projections and recommend changes for assessments, as necessary
- Provide
updated fund projections to the FDIC Board of Directors by June 30,
2010, and December 31, 2010.
- Recommend
deposit insurance assessment rates for the DIF to the FDIC Board
as necessary.
- Monitor progress in achieving the Amended Restoration Plan
- Provide
updates to the FDIC Board by June 30, 2010, and December
31, 2010.
Means
and
Strategies
Operational
Processes (initiatives and strategies):
The FDIC’s Financial Risk Committee (FRC) develops quarterly failure
projections and loss estimates to establish contingent loss reserves for the
DIF. The FRC continues to enhance the techniques and methodologies used to analyze
the nature of risk exposure, including scenario analysis and stress testing.
Models that forecast failures and failure resolution costs are maintained and
enhanced, as necessary. The FRC regularly reviews adverse events to identify
lessons or implications for monitoring and addressing risks and consults with
the other federal banking agencies in its deliberations. Based on an analysis
of projected failed bank assets and other pertinent information, the FRC recommends
to the Chief Financial Officer the level of the contingent loss reserve for the
DIF, as determined by the FDIC’s reserving methodology. FDIC staff also
uses the information provided by the FRC on projected insurance losses as one
factor in determining the level of assessment revenue necessary to maintain adequate
funding in the DIF. Projected insurance losses, as well as projections of investment
revenue, operating expenses and insured deposit growth, are key elements in estimating
assessment revenue needs.
As noted above, the FDIC
Board adopted a Restoration Plan in October 2008 to restore the reserve
ratio to at least 1.15 percent within five years. The continued decline
in the DIF balance throughout 2009 and an increase in FDIC’s projections
for future losses, however, necessitated amendments to the Restoration Plan
in February and September 2009. The Amended Restoration Plan adopted by
the FDIC Board on September 29, 2009, projects that the DIF will be returned
to a reserve ration of 1.15 percent within eight years, absent extraordinary
circumstances.
Human
Resources (staffing and training):
Staff in the FDIC’s Washington, D.C., office administers and performs
the analytical work associated with deposit insurance pricing. The FDIC will
continue to expand its ties to the academic community to broaden the information
and analytical perspectives available to the Corporation as steward of the
DIF. In 2010, the FDIC will engage an independent consultant to review and
evaluate the methodologies and assumptions used by the Corporation to calculate
the five-year projections of loss to the DIF and to make recommendations for
enhancing the accuracy and reliability of the projections.
Information
Technology:
The Risk-Rated Premium System (RRPS), the information system supporting
the assessment process, calculates the premiums that financial institutions
are assessed for deposit insurance. RRPS is updated and tested with any changes
in the insurance assessment pricing structure.
Verification
and Validation
To ensure that the RRPS
identifies higher risk institutions and appropriately assesses higher insurance
premiums, a Federal Information Security Management Act (FISMA) self-assessment
of RRPS is conducted annually. In addition, the Government Accountability Office
annually reviews the methodology used to determine the contingent loss reserve.
In 2010, the FRC will again conduct semiannual reviews of the contingent loss
reserve methodology through an analysis of the variance between projected and
actual losses.
Staff will report semiannually to the FDIC Board of Directors on the FDIC’s
progress in meeting the goals of the Amended Restoration Plan.
2009
Performance Results
This annual performance
goal was revised from 2009 to focus on the Amended Restoration Plan and the
Corporation’s efforts to return the reserve ratio to 1.15 percent within
eight years. The performance indicator and targets have also been updated for
2010. The FDIC successfully met the performance targets established for the
goal in 2009.
Annual
Performance Goal 1.3-2
Expand and strengthen the
FDIC’s participation and leadership role in supporting robust international
deposit insurance systems.
Indicator
and Targets
- Scope of information
sharing and assistance available to international governmental bank regulatory
and deposit insurance entities
- Undertake
outreach activities to inform and train foreign bank regulators and
deposit insurers.
- Foster strong
relationships with international banking regulators and associations
that promote sound banking supervision and regulation, failure resolution
and deposit insurance practices.
- Develop methodology for assessing compliance with implementation
of the Core Principles for Effective Deposit Insurance Systems.
Means
and
Strategies
Operational
Processes (initiatives and strategies):
The FDIC demonstrates its leadership role in promoting sound deposit insurance,
bank supervision, and bank resolution practices by providing technical guidance,
training, consulting services and information to international governmental banking
and deposit insurance organizations in many countries around the world. The global
crisis that began in the summer of 2007 and intensified in 2008 led many international
authorities, including deposit insurers, to take a series of unprecedented actions
to restore public confidence and financial stability. In response to this crisis,
the International Association of Deposit Insurers (IADI), the FDIC, and the Basel
Committee on Bank Supervision (BCBS) jointly led an effort to establish a set
of deposit insurance core principles. The collaborative effort culminated in
the issuance of the Core Principles for Effective Deposit Insurance Systems in
June 2009. This was a significant milestone for improving deposit insurance systems
worldwide. The Core Principles were subsequently recognized by the Financial
Stability Board (formerly the Financial Stability Forum) at its inaugural meeting
in June 2009.
The FDIC will collaborate with IADI, the International Monetary Fund and the
BCBS to develop a methodology for assessing compliance with the Core Principles
for Effective Deposit Insurance Systems.
Human
Resources (staffing and training):
The FDIC will consider each international request for assistance from a strategic
perspective and will appropriately leverage its resources to address these
requests. The FDIC’s Office of International Affairs (OIA) plans and
coordinates the FDIC’s role in the international program. Resources include
a small permanent OIA staff and employees on temporary detail assignments.
In 2010, the FDIC will continue to balance permanent and temporary staff to
support the international program and enhance the FDIC’s leadership role
in international bank supervision, failure resolution, and international deposit
insurance organizations.
Information
Technology:
Information about international governmental bank regulatory or deposit
insurance activities and the FDIC’s international program are communicated
through the FDIC’s website.
Verification
and Validation
Achievement of this annual
performance goal will be demonstrated in the development of the methodology
for assessing compliance with the Core Principles for Effective Deposit Insurance
Systems and through enhanced FDIC participation and leadership roles in key
international organizations. Progress in meeting this annual goal will be tracked
by the FDIC’s International Affairs Working Group through established
reporting processes.
2009
Performance Results
This annual performance
goal has been slightly revised and its associated performance indicator and targets
changed from 2009. In addition, a performance target was added on developing
the assessment methodology. The FDIC successfully met the performance targets
for the predecessor goal in 2009.
Strategic
Objective 1.4
The FDIC resolves the
failure of insured depository institutions in the manner least costly to
the DIF.
Annual
Performance Goal 1.4-1
Market failing
institutions to all known qualified and interested potential bidders.
Indicator
and Targets
- Scope of qualified and interested bidders solicited
- Contact
all known qualified and interested bidders.
Means
and Strategies
Operational
Processes (initiatives and strategies):
The FDIC markets
the deposits and assets of failing institutions to all known qualified and
interested potential bidders to stimulate as much competition as possible.
The FDIC maintains an inventory of qualified financial institutions that
may potentially be interested in bidding to purchase a failing institution.
In preparing a list of potential bidders for each failing institution, the
FDIC takes into account the failed institution’s geographic location,
competitive environment, minority-owned status, financial condition, asset
size, capital level, and regulatory ratings. The FDIC contacts these potential
bidders and holds an informational meeting and/or uses the Internet to provide
information on the failing institution. Potential bidders are then given
the opportunity to perform due diligence on the failing institution’s
assets and liabilities before determining whether to submit bids.
Human
Resources (staffing and training):
Franchise marketing is carried out primarily by specialized FDIC personnel
with support, as needed, from staff in other disciplines. Staffing requirements
are continually assessed within the context of current and projected workload
to ensure that the FDIC is appropriately staffed. The FDIC also uses contractor
support, non-permanent employees, and employees temporarily assigned from
divisions and offices within the Corporation to meet workload demands and
mission responsibilities in this area. The Corporation is in the midst of
developing a new Resolutions and Receiverships Commissioning Program to ensure
the future availability of qualified personnel to handle all of its insurance
and receivership management responsibilities, including the resolution of
failed institutions.
Information
Technology:
The FDIC implemented a new asset management and servicing system (4-C) in
2007 that replaced a number of legacy systems with more current and secure
technology. In August 2008, the FDIC implemented enhancements to 4-C that
added franchise and asset marketing capabilities. These enhancements replaced
several standalone applications that were used to support those functions.
Franchise marketing activities are now tracked through 4-C.
Verification
and Validation
The franchise marketing
process is tracked in 4C, and data from this system are used to report on marketing
and sales progress.
2009
Performance Results
This annual performance
goal and its associated performance indicator and target are unchanged from
2009. The performance target was successfully met for the 140 failures that
occurred in 2009.
Strategic
Objective 1.5
The public and FDIC-insured
depository institutions have access to accurate and easily understood
information about federal deposit insurance coverage.
Annual
Performance Goal 1.5-1
Provide educational
information to insured depository institutions and their customers to help
them understand the rules for determining the amount of insurance coverage
on deposit accounts.
Indicator
and Targets
- Timeliness of responses to deposit insurance coverage inquiries
- Respond
within two weeks to 90 percent of written inquiries from consumers
and bankers about FDIC deposit insurance coverage.
- Initiatives to increase
public awareness of deposit insurance coverage changes
- Conduct
at least three sets of the Deposit Insurance Seminars/teleconferences
per quarter for bankers.
Means
and Strategies
Operational
Processes (initiatives and strategies):
The FDIC uses a
variety of means to educate insured financial institution employees and depositors
about FDIC deposit insurance coverage. In addition to conducting seminars
for bank employees, the FDIC encourages the dissemination of educational
information through the banking industry and the media. During 2010, the
FDIC will update all deposit insurance coverage educational resources to
reflect statutory and regulatory changes made in 2009. The FDIC works with
insured financial institutions to encourage them to use these resources and
to make them available to bank employees and customers. The FDIC also operates
a toll-free call center (877-ASK-FDIC) that answers basic deposit insurance
inquiries and refers more complex inquiries to deposit insurance specialists,
maintains deposit insurance coverage educational resources on the FDIC’s
website, publishes articles on insurance coverage rules in the FDIC Consumer
News (a quarterly newsletter for consumers published by the FDIC), and works
to raise awareness of deposit insurance coverage through the national and
regional news media.
Human
Resources (staffing and training):
The FDIC has a dedicated staff of deposit insurance specialists that respond
to inquiries and administer public education programs on deposit insurance.
Staffing and training needs are reviewed on an ongoing basis to ensure that
the resources supporting deposit insurance educational initiatives are adequate
and that employees possess the skills and knowledge to implement this program
effectively and successfully.
Information
Technology:
The FDIC tracks the receipt of and response to written banker and public
inquiries about the FDIC’s deposit insurance program through the Specialized
Tracking and Reporting System (STARS). During 2010, the FDIC will update
the Electronic Deposit Insurance Estimator (EDIE) to ensure that all enhancements
in support of statutory and regulatory changes have been applied, as well
as enhancing STARS to address the tracking and reporting of tens of thousands
of consumer and banker inquiries. The FDIC will also continue to use the
Internet and audio technology to reach large audiences of financial institution
employees and to deliver deposit insurance educational tools and materials
to the banking community and the public.
Verification
and Validation
Progress in meeting
the performance targets for this goal will be tracked through STARS and established
reporting processes.
2009
Performance Results
This annual performance
goal is unchanged for 2010, but the associated performance indicators and targets
have been slightly revised. The FDIC successfully met this performance goal
and the associated performance targets for 2009.
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