Each depositor insured to at least $250,000 per insured bank

Supervision Program

The FDIC’s Supervision Program promotes the safety and soundness of FDIC-supervised insured depository institutions, protects consumer rights, and promotes community investment initiatives by FDIC-supervised institutions.  In 2012, the FDIC will continue its efforts to increase the effectiveness and efficiency of all of its supervisory programs in light of ongoing industry consolidation, new technologies, and product innovation, which have resulted in larger, more complex banking organizations.  The FDIC will continue to increase the resources dedicated to analyzing the risks posed by these larger, more complex financial institutions, particularly those that are systemically important.  The FDIC also will continue to assess and modify, as appropriate, its examination procedures for all institutions given the changing risk profiles of the industry and individual institutions.

The FDIC is the primary federal regulator for state-chartered banks and savings institutions that are not members of the Federal Reserve System, generally known as state nonmember banks and state-chartered thrifts.  This includes state-licensed insured branches of foreign banks and state-chartered savings institutions.  As insurer, the FDIC also has special (back-up) examination authority for state member banks that are supervised by the Federal Reserve Board (FRB) and national banks and thrift institutions that are supervised by the Office of the Comptroller of the Currency (OCC). The FDIC’s roles as an insurer and primary supervisor are complementary, and many activities undertaken by the FDIC support both the insurance and supervision programs.  Through the review of examination reports, off-site monitoring tools, participation in examinations conducted by other federal regulators, and, where appropriate, special (back-up) examination activities, the FDIC regularly monitors the potential risks at all insured institutions, including those for which it is not the primary federal regulator.

DFA expanded the FDIC’s statutory responsibilities beyond insured depository institutions to bank holding companies with more than $50 billion in assets and nonbank financial companies that are designated as systemically important financial institutions (SIFIs) by the Financial Stability Oversight Council (FSOC).  DFA designates the FRB as the primary supervisor of these companies, but the FDIC has established on- and off-site monitoring programs and has statutory back-up examination authority for these companies in much the same way that it does for insured financial institutions supervised by other federal regulators.  The purpose of FDIC monitoring and risk assessment activities for these institutions is, where possible, to mitigate identified risks and to be prepared, if necessary, to conduct an orderly liquidation of the company. 

As the primary federal regulator of all insured state nonmember banks and state-chartered thrifts, the FDIC performs periodic risk management examinations of these institutions to assess their overall financial condition, management policies and practices, and compliance with applicable laws and regulations.  Through the examination process, the FDIC also assesses the adequacy of management and internal control systems to identify and control risks and to detect the risks of fraud or insider abuse.  In addition, the FDIC uses off-site monitoring programs to enhance its ability to promptly identify emerging safety-and-soundness issues.

The FDIC conducts separate examinations to assess an institution’s compliance with consumer protection statutes and regulations for all state nonmember banks that are not subject to the primary jurisdiction of the Consumer Financial Protection Bureau (CFPB).  The FDIC also conducts separate Community Reinvestment Act (CRA) examinations for all state nonmember banks. As part of the compliance examination process, the FDIC reviews substantive compliance issues as well as the accuracy and completeness of information and disclosures that institutions provide to consumers.

If weaknesses are identified through the examination process, the FDIC promptly takes appropriate supervisory action.  Formal and informal enforcement actions may be issued for institutions identified as having significant weaknesses or found to be operating in a deteriorated financial condition.  The institution must operate under the action until these weaknesses are remedied.  Noncompliance with consumer protection or fair lending laws can result in civil liability and negative publicity as well as the imposition of formal or informal enforcement actions by the FDIC to correct the identified violations.

The FDIC also investigates consumer complaints about FDIC-supervised insured depository institutions.  Consumers write or electronically submit to the FDIC complaints and inquiries regarding consumer protection and fair lending issues.  Through its investigation of and response to consumer complaints and inquiries, the FDIC attempts to help consumers better understand their rights under federal consumer protection and fair lending laws.  The FDIC monitors the level of public satisfaction with its responses to consumer complaints and inquiries.

Information about the FDIC’s supervisory program, including laws, regulations, and regulatory guidance, is available at www.FDIC.gov. The FDIC’s semiannual Supervisory Insights journal provides information about bank supervision for bankers, bank examiners, and other practitioners.

The following table depicts the strategic goal, strategic objective and annual performance goals for the Risk Management component of the Supervision Program.

The following table depicts the strategic goal, strategic objectives and annual performance goals for the Compliance and Consumer Affairs components of the Supervision Program.

Strategic Goal 2:
FDIC-insured institutions are safe and sound.

Strategic Objective 2.1
The FDIC exercises its statutory authority, in cooperation with primary federal regulators and state agencies, to ensure that all FDIC-insured institutions appropriately manage risk.

Annual Performance Goal 2.1-1
Conduct on-site risk management examinations to assess the overall financial condition, management practices and policies, and compliance with applicable laws and regulations of FDIC-supervised depository institutions.

Indicator and Target

1. Percentage of required examinations conducted in accordance with statutory requirements and FDIC policy
• Conduct all required risk management examinations within the timeframes prescribed by statute and FDIC policy.

Means and Strategies

Operational Processes (initiatives and strategies):
Risk management examinations assess the overall financial condition, management practices and policies, and compliance with applicable laws and regulations of FDIC-supervised depository institutions.  The FDIC performs safety and soundness, Bank Secrecy Act, and information technology (IT) reviews at each risk management examination of an FDIC-supervised insured depository institution.  As applicable, the FDIC also conducts reviews of trust, registered transfer agent, municipal securities dealer, and government security dealer activities at these examinations.

In 2012, the FDIC projects that it will conduct more than 2,700 risk management examinations required under statute, FDIC policy, or agreements with state supervisors.  The FDIC follows a risk-focused approach to examinations, which allows examiners to focus resources on those areas with the greatest potential risk.  The FDIC has several analytical models to identify higher-risk financial institutions by considering factors such as rapid growth, fluctuating earnings, economic downturns, and concentrations in vulnerable industry sectors.  Examiners use these off-site tools to help them risk-focus during on-site examinations. These models are also used to identify the need for inquiries or on-site visits to FDIC-supervised institutions outside of the regular examination cycle.

The FDIC also continues to focus on the risks posed by technology.  On-site examinations review technology-related activities to determine how each FDIC-supervised depository institution manages its IT risks.

The FDIC proactively monitors indicators of technology risk that may affect FDIC-supervised institutions and provides information to the industry about risks associated with technology outsourcing practices (e.g., contracting for computer services).  The FDIC regularly talks with technology vendors, bank trade associations, and standards and rule-setting entities to identify and promote effective risk management practices for emerging technologies.

During 2012, the FDIC will continue to work closely with state and other federal agencies to monitor institutions most affected by the downward trend in the real estate market through on-site and off-site programs.  Declines in the availability of subprime and nontraditional mortgages have adversely affected construction and development loan portfolios, which are concentrated in one-to-four family residential development loans at numerous institutions.  Commercial property markets are also showing signs of overbuilding and weakness, with high concentration levels at many institutions.

The number of risk management examinations conducted during 2012 may fluctuate as the number of FDIC-supervised insured depository institutions changes due to mergers, closings, newly approved charters, and other actions.  In addition, increases in asset size or changes to an institution’s condition or capital levels may accelerate examination cycles and increase the number of required examinations.

Human Resources (staffing and training):
The FDIC has 2,131 authorized positions (1,469 permanent, 102 nonpermanent) in its field examination workforce for risk management in 2012.  Staffing and training needs are reviewed regularly to ensure that the staff resources supporting the risk management examination program are adequate to conduct a high quality examination program and that employees possess the skills and knowledge to effectively identify existing and emerging risks.

The FDIC has cooperative agreements with most states to conduct joint or alternating risk management examinations.  However, resource constraints at the state level may affect the completion of scheduled examinations by state agencies in 2012.  If a state supervisor handling an examination has scheduling, staffing, or other resource constraints, the statutory examination requirement may not be met.  In such cases, the FDIC will work with the state supervisor to make sure that any delinquent examination is quickly scheduled and completed.  When appropriate, the FDIC may conduct the examination instead of the state supervisor.

Information Technology:
The FDIC’s Virtual Supervisory Information on the Net (ViSION) system is used to schedule and track the completion of risk management examinations.  In addition, the FDIC uses various automated tools, such as the General Examination System, Examination Documentation modules, Interest Rate Risk Standard Analysis software, and the Automated Loan Examination and Review Tool (ALERT), to support the risk management examination process. 

The FDIC is in the midst of a multi-year project to develop a new Examination Tools Suite (ETS) that will increase the efficiency of some of these existing applications and address the risk of technological obsolescence.  In 2012, the first phase of ETS will be implemented and will replace ALERT.

Verification and Validation
The number and timing of examinations are tracked through the ViSION system and reported through established management processes.

2011 Performance Results
This annual performance goal and the associated performance indicator and target are unchanged from 2011. In 2011, the FDIC successfully met this performance target.

Annual Performance Goal 2.1-2
For all institutions that are assigned a composite Uniform Financial Institutions Rating of 3, 4, or 5, conduct on-site visits within six months after implementation of a corrective program.  Ensure during these visits and subsequent examinations that the institution is fulfilling the requirements of the corrective program that has been implemented and that the actions taken are effectively addressing the underlying concerns identified during the examination.

Indicator and Target

1. Percentage of follow-up examinations and on-site visits of 3-, 4- or 5-rated institutions conducted within required time frames
• Conduct 100 percent of required on-site visits within six months after implementation of a corrective program.

Means and Strategies

Operational Processes (initiatives and strategies):
Troubled and problem institutions (those with a composite rating of 3, 4, or 5) are identified primarily through the examination process.  While reason and moral suasion are the primary corrective tools, the FDIC has broad enforcement powers to correct practices, conditions, or violations of law that threaten an institution’s financial condition.  The FDIC may use informal and formal enforcement actions against an institution or responsible individuals to address identified problems.

The examination report identifies the corrective actions to be taken by the institution.  If deemed necessary, a formal or informal enforcement action is sent to the financial institution with the report of examination.  To ensure that supervisory actions are taken promptly, the FDIC monitors the time it takes to provide examination reports to FDIC-supervised institutions after the completion of an examination.

Except in rare instances where it is determined by FDIC management to be unnecessary, a follow-up examination or on-site visit is conducted to review compliance with supervisory actions for each institution that receives a composite Uniform Financial Institutions Rating of 3, 4, or 5.  Additional follow-up action is taken when the corrective program is determined to have been insufficient in addressing the identified problem.

The responsible regional office case manager and senior regional officials closely monitor each troubled and problem depository institution.  In addition to an on-site visit and a subsequent examination, progress in complying with an enforcement action is assessed through progress reports from the institution, use of off-site monitoring tools, and direct communication with management of the financial institution.

Human Resources (staffing and training):
Case managers and other regional office officials finalize and monitor compliance with enforcement programs.  Field examination staff conduct on-site visits.  Staffing and training needs are reviewed regularly to ensure that resources available for this function are adequate and that employees possess the required skills and knowledge.

Information Technology:
The ViSION system is used to monitor all enforcement activity and other significant events at troubled institutions and to schedule on-site visits and follow-up examinations of 3-, 4-, and 5-rated institutions.

Verification and Validation
Enforcement actions and the timing of required on-site visits are tracked through the ViSION system.  The FDIC also uses its Regional Office Internal Control Review program to make sure that regions effectively monitor the compliance of FDIC-supervised institutions with formal and informal enforcement actions.  This review incorporates various components of the supervisory process, including assessment of the appropriateness of, and implementation monitoring and follow-up on, formal and informal corrective actions.  Any material exceptions noted during the reviews are brought to management’s attention for appropriate action.

2011 Performance Results
This annual performance goal and the associated performance indicator and target are unchanged from 2011. In 2011, the FDIC successfully met this performance target.

Annual Performance Goal 2.1-3
Assist in protecting the infrastructure of the U.S. banking system against terrorist financing, money laundering, and other financial crimes.

Indicator and Target

1. Percentage of required examinations conducted in accordance with statutory requirements and FDIC policy
• Conduct all Bank Secrecy Act examinations within the timeframes prescribed by statute and FDIC policy.

Means and Strategies

Operational Processes (initiatives and strategies):
The FDIC conducts Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examinations and Office of Foreign Assets Control (OFAC) reviews to assess the BSA/AML and OFAC compliance programs of supervised financial institutions.  These examinations and reviews cover sound risk management, compliance with recordkeeping requirements, and the ability of the institution to identify and report suspicious activity.  BSA/AML examinations and OFAC reviews are performed as a part of all risk management examinations of FDIC-supervised insured depository institutions.  The FDIC also completes BSA exams for states that do not conduct these exams.  The FDIC follows a risk-focused approach to BSA/AML examinations and OFAC reviews, which allows examiners to focus resources on those areas with the greatest potential risk.

Guidance is provided to risk management staff through written memoranda, participation in the FFIEC BSA/AML Examination Workshop, and attendance at the Advanced BSA/AML Specialists Conference.

Human Resources (staffing and training):
The FDIC has 339 examiners who are designated as BSA/AML subject matter experts, including 80 with advanced certifications for this discipline. Staffing and training needs are reviewed regularly to ensure that the staff resources supporting the BSA/AML examination program are adequate and that employees possess the skills and knowledge to effectively and successfully assess compliance with BSA/AML requirements and detect any emerging risks.

Information Technology:
The ViSION system is used to track the number and timing of required BSA/AML examinations.  Other risk management and compliance supervisory systems are also used to obtain dates for these examinations.  In addition, BSA/AML reference materials are available on the FDIC’s website at http://www.fdic.gov/regulations/examinations/index.html for use by the banking industry and the regulatory community.³ 

Verification and Validation
The number and timing of BSA/AML examinations are tracked in the ViSION system and reported through established management processes.

2011 Performance Results
This annual performance goal and its associated performance indicator and target are unchanged from 2011. The FDIC successfully met this performance target in 2011.

³This link provides the banking industry and the regulatory community with centralized access to BSA/AML resources. The link also provides updated information and instructions about BSA/AML examination procedures, interpretive guidance, websites of related agencies, instructions for reporting suspicious activity and terrorist-financing activity, and an overview of governing rules and regulations. Along with the interagency FFIEC BSA/AML Examination Manual, the federal banking agencies have also made available through the FFIEC website (www.ffiec.gov) a BSA/AML Examination Manual InfoBase. It includes the interagency BSA/AML Examination Manual, BSA regulations, and guidance provided by each federal banking agency.

Annual Performance Goal 2.1-4
More closely align regulatory capital with risk and ensure that capital is maintained at prudential levels.

Indicator and Targets

1. Issuance by the federal banking agencies of rules implementing alternative standards of creditworthiness for credit ratings in risk-based capital rules
   • Complete by December 31, 2012, final rules addressing alternative standards of creditworthiness for credit ratings in the risk-based capital rules.


2. Issuance by the federal banking agencies of rules to implement internationally agreed upon enhancements to regulatory capital standards
   • Complete by December 31, 2012, a final rule for the Basel III capital standards.
   • Complete by July 31, 2012, a final rule on the Market Risk Amendment, including finalizing alternatives to the use of credit ratings in accordance with DFA requirements.

Means and Strategies

Operational Processes (initiatives and strategies):
The FDIC seeks to make sure that banks build and maintain capital adequate to withstand a difficult financial environment by revising the capital framework, enhancing off-site monitoring capabilities, and bolstering examination support.

The objective of Basel III is to strengthen the capital and liquidity rules for banking organizations with the goal of promoting a more resilient banking industry.  The Basel III enhancements to the capital adequacy framework are designed to improve the banking industry’s ability to absorb the effects of financial or economic stress.  In 2012, the FDIC will work with the other federal bank regulatory agencies to implement the enhanced Basel III standards.

Also in 2012, in accordance with the requirements of DFA, the FDIC and the other federal bank regulatory agencies will finalize alternative standards of creditworthiness to replace the use of credit ratings in the risk-based capital rules.  Currently, the agencies use credit ratings to assign risk-based capital for certain exposure types.

The FDIC will work closely with the other agencies to finalize alternative standards of creditworthiness while ensuring that minimum risk-based capital requirements remain at prudentially sound levels.

In addition, the FDIC will continue to promote strong international bank capital standards by participating in meetings and activities of the Financial Stability Board; the Basel Committee and its various groups and subgroups, including the Policy Development Group, the Trading Book Group, the Standards Implementation Group, the Working Group on Margin Requirements; and other international groups and forums.

Although pursuit of this annual performance goal will extend over several years, 2012 will be another year of intensive work.  Key efforts include participating in Basel’s numerous quantitative impact studies, including those that are designed to monitor the new international liquidity requirements; participating in the Basel Committee’s fundamental review of the trading book and further work on counterparty credit risk; implementing international standards for over-the-counter (OTC) derivative margin requirements; participating in the Basel Committee’s review of the capital requirements for securitization exposures; and developing a regulatory capital charge for systemically important financial institutions.

Human Resources (staffing and training):
The breadth and depth of knowledge among FDIC staff on bank capital and capital markets matters has expanded in recent years, partly through their continued participation and active involvement in Basel policy development groups.  In 2012, the FDIC will continue to increase the number of staff with expertise on bank capital by providing internal and external training.

Information Technology:
The FDIC will use existing technology to accomplish this annual performance goal.

Verification
Progress in meeting this annual performance goal will be tracked through periodic meetings and established reporting processes.

2011 Performance Results
This annual performance goal is unchanged from 2011.  The performance targets and one of the associated performance indicators have been updated for 2012.  In 2011, one performance target for this goal was successfully met, one was not fully achieved, and three were deferred.

Annual Performance Goal 2.1-5
Identify and address risks in financial institutions designated as systemically important.

Indicator and Targets

1. Issuance of rules and policy guidance (with other financial regulatory agencies) to implement provisions of DFA applicable to systemically important institutions and markets
   • Take all steps necessary to facilitate timely issuance of implementing regulations and related policy guidance on proprietary trading and other investment restrictions (also known as the Volcker Rule).
   • Take all steps necessary to facilitate timely issuance of implementing regulations and related policy guidance on restrictions on federal assistance to swap entities.
   • Take all steps necessary to facilitate timely issuance of implementing regulations and related policy guidance on capital and margin and other requirements for OTC derivatives.
   • Take all steps necessary to facilitate timely issuance of implementing regulations and related policy guidance on credit risk retention requirements for securitizations.
   • Take all steps necessary to facilitate timely issuance of implementing regulations and related policy guidance on enhanced compensation structure and incentive compensation requirements.

2. Establishment of institution monitoring and resolution planning programs for systemically important institutions
   • Monitor risk within and across large, complex firms to assess the potential need for, and obtain the information that would be required to carry out, if necessary, an FDIC resolution of the institution.
   • Establish by June 30, 2012, with the FRB, policies and procedures for collecting, processing, and reviewing for completeness and sufficiency holding company and insured depository institution (IDI) resolution plans submitted under Section 165(d) of DFA.

3. Completed reviews of resolution plans
   • Complete, with the FRB and in accordance with prescribed timeframes, the review of holding company and IDI resolution plans submitted under Section 165(d) of DFA.

Means and Strategies

Operational Processes (initiatives and strategies):
DFA expanded the FDIC’s statutory responsibilities for the resolution of failed financial institutions beyond IDIs to the orderly liquidation, if necessary, of bank holding companies with more than $50 billion in assets.
With this new responsibility, the FDIC (with the FRB) is responsible for ensuring that sound resolution plans are in place for these companies and for managing their orderly liquidation, if that becomes necessary.

DFA requires joint or coordinated rulemakings in several areas.  Although substantial progress was made in implementing required regulations in 2011, much important rulemaking remains to be completed in 2012.  FDIC staff will prepare, or help prepare, summaries of comments received on proposed rules and will work (with other regulatory agencies, where required) to finalize those rules after careful consideration of the comments received.  FDIC staff also will identify issues for interagency discussion and will lead or facilitate those discussions, as necessary.  In particular, the FDIC will consult with the FRB to finalize the rulemaking on Enhanced Prudential Standards and Early Remediation, which includes stress testing.  In addition, it will continue discussions to establish the credit exposure requirements for SIFIs.  As a member of the FSOC, the FDIC also will actively participate in the completion of rulemaking and guidance to establish the process and criteria the FSOC will use to designate selected nonbank financial companies as systemically important.

In 2011, the FDIC initiated both institution-specific and cross-institution risk monitoring programs for companies subject to DFA. During 2012, the FDIC will enhance these programs to monitor risks posed by the largest and most complex financial companies and will work with them and their primary federal regulators to mitigate identified risks.  This will include a specific focus on institutions that have international operations and pose potential global systemic risk.  The FDIC will actively participate in international regulatory initiatives to reduce systemic risk and the impact of cross-border institution failures.

In addition to its risk monitoring activities, the FDIC will review (with the FRB) the resolutions plans submitted by covered companies under Section 165(d) of DFA.  These reviews will give the FDIC and the FRB the opportunity to mitigate identified risks.  The reviews also will provide the FDIC with the information needed to prepare for and, if necessary, carry out the orderly liquidation of specific companies to avoid future disruptions to the U.S. economy or world financial markets.  Covered companies with more than $250 billion in assets are expected to submit initial draft resolution plans for review in mid-2012.

Human Resources (staffing and training):
Over the past two years, the FDIC has worked to make sure that it is prepared to carry out its new responsibilities under DFA for the orderly liquidation of SIFIs.  To that end, it established a new Office of Complex Financial Institutions (CFI) in early 2011 to provide a focal point for its efforts to monitor the risks posed by the largest and most complex financial institutions and to plan for their resolution, if that became necessary.  New organizational units were also established in the Division of Risk Management Supervision (RMS), the Division of Resolutions and Receiverships (DRR), and the Legal Division to help carry out the FDIC’s new responsibilities.

In 2012, the staffing and other resources devoted to risk analysis and resolution planning for large and potentially systemically important financial companies have been increased in each of these organizations.

CFI’s authorized 2012 staffing level was increased to 181 to ensure that it had sufficient resources to perform both institution-specific and cross-institutional risk analysis; coordinate broad-based reviews of resolution plans submitted under Section 165(d) of DFA; and plan for the orderly liquidation of covered companies, including those with substantial international operations.  Authorized 2012 staffing in RMS, DRR, and the Legal Division was also increased to support these new functions. Total authorized FDIC staffing now exceeds 200 for these new functions.

The FDIC expects to fill some of these new positions with current FDIC employees but will fill most of them with expertise from outside the Corporation.  The FDIC expects to be fully staffed to carry out these new responsibilities by the end of 2012.  A comprehensive training needs assessment also will be completed in 2012, and training will be designed and delivered to employees performing these functions on an as-needed basis.

Information Technology:
Existing technology will initially be used to accomplish this goal.  In addition, current FDIC systems are being examined to identify databases and systems that can be used to support the FDIC’s new risk monitoring functions.  The FDIC plans to undertake several new technology projects (e.g., data marts and integration/interfaces with existing systems) to support the risk monitoring function in 2012.

Verification and Validation
Progress in meeting this annual performance goal will be tracked through periodic meetings and established reporting processes.

2011 Performance Results
This annual performance goal is unchanged from 2011, but its associated performance indicators and targets have been updated for 2012. In 2011, the FDIC successfully met the performance targets for this goal.

Strategic Goal 3:
Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

Strategic Objective 3.1
FDIC-supervised institutions comply with consumer protection, Community Reinvestment Act (CRA), and fair lending laws and do not engage in unfair or deceptive practices.

Annual Performance Goal 3.1-1
Conduct on-site CRA and compliance examinations to assess compliance with applicable laws and regulations by FDIC-supervised depository institutions.

Indicator and Target

1. Percentage of examinations conducted in accordance with the timeframes prescribed by FDIC policy
• Conduct 100 percent of required examinations within the time frames established by FDIC policy.

Means and Strategies

Operational Processes (initiatives and strategies):
The FDIC conducts CRA and compliance examinations of FDIC-supervised depository institutions to determine compliance with consumer protection and fair lending laws and performance under CRA.  The frequency of compliance examinations is specified by FDIC policy.  For CRA examinations, the FDIC’s examination frequency policy conforms to applicable provisions of the Gramm-Leach-Bliley Act (GLBA), which establishes the CRA examination cycle for most small banks. In 2012, the FDIC estimates that it will conduct 1,750-1,800 compliance and/or CRA examinations.

The FDIC’s compliance examination approach emphasizes an institution’s compliance risk-management practices as opposed to exhaustive transactional testing.  This approach involves an expanded review of an institution’s systems and compliance policies so that transaction testing can be better targeted and focused on the areas of greatest risk exposure.  This approach creates a more efficient and effective use of examination resources, especially in financial institutions with high compliance risk profiles.

Human Resources (staffing and training):
The FDIC has 572 authorized positions (470 permanent, 102 nonpermanent) in its field examination workforce for compliance and consumer protection in 2012.  Staffing and training needs are reviewed regularly to ensure that staff resources supporting the compliance examination program are adequate to conduct a high quality examination program and that employees possess the skills and knowledge to effectively implement this program.

Information Technology:
The System of Uniform Reporting of Compliance and CRA Examinations (SOURCE) is used to schedule and track financial institution compliance examinations, support pre-examination planning, and provide management information.

Verification and Validation
The FDIC will analyze examination-related data collected in SOURCE to determine whether the performance target for this goal is achieved during the reporting period. Results will be reported through established management processes.

2011 Performance Results
This annual performance goal and the associated performance indicator and target are unchanged from 2011. In 2011, the FDIC successfully met this performance target.

Annual Performance Goal 3.1-2
Take prompt and effective supervisory action to address problems identified during compliance examinations of FDIC-supervised institutions that receive a composite 3, 4, or 5 rating for compliance with consumer protection and fair lending laws.  Ensure that each institution is fulfilling the requirements of any corrective program that has been implemented and that the actions taken are effectively addressing the underlying concerns identified during the examination.

Indicator and Target

1. Percentage of follow-up examinations or on-site visits of 3-, 4- and 5-rated institutions conducted within required time frames
• Conduct follow-up examinations or on-site visits for any unfavorably rated (3, 4, or 5) institution within 12 months of completion of the prior .

Means and Strategies

Operational Processes (initiatives and strategies):
Institutions with compliance deficiencies are identified primarily through the examination process.  While discussions with bank management are usually sufficient to correct these deficiencies, the FDIC has broad enforcement powers to correct practices, conditions, or violations of law that threaten an institution’s compliance with consumer protection and fair lending laws or a consumer’s rights under those laws.  The FDIC may address identified problems through the use of formal or informal enforcement actions against the institution or responsible individuals.

The responsible review examiner and senior regional officials closely monitor each 3-, 4-, and 5-rated institution for compliance with consumer protection and fair lending laws.

Except in rare instances where FDIC management determines it is unnecessary, a follow-up examination or on-site visit is conducted to review compliance with supervisory actions for each institution that receives a composite rating of 3, 4, or 5. Additional follow-up action is taken when the initial corrective program is determined to have been insufficient in addressing the identified problem. In addition, progress in complying with an enforcement action is assessed through quarterly progress reports from, and direct communication with, management of the financial institution.

Human Resources (staffing and training):
Regional office review examiners make sure that institutions comply with established corrective programs.  Field Supervisors, Supervisory Examiners, and examination staff conduct follow-up examinations and on-site reviews.  During 2012, a Knowledge Management Plan will be implemented to ensure that training needs are reviewed regularly, the resources supporting these functions are adequate, and employees possess the required skills and knowledge to successfully carry out these functions.

Information Technology:
The SOURCE system is used for examination scheduling and processing. The ViSION system is used to monitor all enforcement activity.

Verification and Validation
Enforcement actions and the timing of required on-site visits are tracked through the ViSION system.  The FDIC also uses its Regional Office Internal Control Review program to make sure that regions effectively monitor the compliance of FDIC-supervised institutions with formal and informal enforcement actions.  This review incorporates various components of the supervisory process, including assessment of the appropriateness of, and implementation monitoring and follow-up on, formal and informal corrective actions.  Any material exceptions noted during the reviews are brought to management’s attention for appropriate action.

2011 Performance Results
The wording of this annual performance goal and its associated performance target is revised somewhat from 2001, but the associated performance indicator is unchanged.  In 2011, the FDIC successfully met the performance target for this annual performance goal.

Annual Performance Goal 3.1-3
Establish an effective working relationship with the new Consumer Financial Protection Bureau (CFPB).

Indicator and Target

1. Transfer of complaint processing responsibilities
• Complete the transfer of consumer complaint processing responsibilities within the purview of the CFPB within approved timeframes.

Means and Strategies

Operational Processes (initiatives and strategies):
The CFPB was established by DFA and began operations on July 21, 2011.  The CFPB has primary supervisory responsibility for certain enumerated consumer protection laws and regulations for institutions with assets over $10 billion and their affiliates.  The FDIC worked with the CFPB throughout 2011 to ensure an orderly transfer of supervisory responsibility for 41 institutions to the CFPB.  However, the CFPB chose to defer until 2012 the full transfer of related complaint processing functions for those institutions.  Instead, the FDIC has transferred complaint processing responsibilities to the CFPB in phases by complaint type, based on timeframes established by the CFPB.  This transfer will be completed in 2012.

Human Resources (staffing and training):
Existing staff in the FDIC’s Consumer Response Center will work collaboratively with the CFPB on this goal.

Information Technology:
The FDIC uses the Specialized Tracking and Reporting System (STARS) to track the processing of consumer complaints.  Transfer of complaints for CFPB-supervised institutions will be tracked in STARS.

Verification and Validation
Progress in meeting this annual performance goal will be tracked through established management reporting processes.

2011 Performance Results
This annual performance goal and the associated performance indicator and target are new for 2012.

Strategic Objective 3.2
Consumers have access to easily understood information about their rights and the disclosures due them under consumer protection and fair lending laws.

Annual Performance Goal 3.2-1
Effectively investigate and respond to written consumer complaints and inquiries about FDIC-supervised financial institutions.

Indicator and Target

1. Timely responses to written consumer complaints and inquiries
   • Respond to 95 percent of written consumer complaints and inquiries within time frames established by policy, with all complaints and inquiries receiving at least an initial acknowledgement within two weeks.

Means and Strategies

Operational Processes (initiatives and strategies):
The FDIC investigates and responds to written complaints regarding consumer protection and fair lending issues, including those received electronically through the Customer Assistance Form on the FDIC’s website.  FDIC staff investigates complaints regarding FDIC-supervised institutions and refers complaints regarding institutions with other primary federal regulators to those agencies.  Target response times vary by the type of complaint.  The FDIC also provides consumer protection information to financial institutions and the public.  When performed effectively, these activities help consumers better understand their rights under consumer protection and federal fair lending laws.

Human Resources (staffing and training):
The FDIC’s Consumer Response Center responds to consumer complaints and inquiries about consumer protection matters.  Consumer Affairs staff located in the Washington, D.C., office support the Consumer Response Center by providing guidance and assistance with consumer complaints and inquiries that involve new or unusual issues or sensitive matters.

Information Technology:
The FDIC uses STARS to capture and report information, including response time, on complaints.  In 2012, work will continue on development and testing of a replacement system that uses more up-to-date technology.

Verification and Validation
Progress in meeting this annual performance goal will be monitored through established management reporting processes.  The FDIC closely monitors the timeliness of its acknowledgment letters and responses through STARS.  In addition, surveys are sent to a sample of consumers who have filed written consumer protection and fair lending complaints to assess their satisfaction with the FDIC’s investigations and responses.  Accepted survey research methods are used to ensure the validity and reliability of the survey instrument and results.

2011 Performance Results
This annual performance goal and its associated performance indicator and target are unchanged from 2011. In 2011, the FDIC successfully met this performance target.

Strategic Objective 3.3
The public has fair access to banking services and is treated equitably by FDIC-supervised institutions.

Annual Performance Goal 3.3-1
Promote economic inclusion and access to responsible financial services through supervisory, research, policy, and consumer/community affairs initiatives.

Indicator and Targets

1. Completion of planned initiatives
   • Complete and publish results of the second biennial National Survey of Unbanked and Underbanked Households and Banks’ Efforts to Serve the Unbanked and Underbanked.
   • Plan and hold meetings of the Advisory Committee on Economic Inclusion to gain feedback and advice on FDIC efforts to promote inclusion.
   • Coordinate 25 CRA community forums nationwide to facilitate community development opportunities for financial institutions.

Means and Strategies

Operational Processes (initiatives and strategies):
More than 25 percent of U.S. households, with 60 million adults residing in them, are underserved by the banking industry.  This includes both “unbanked” households—those with no checking or savings accounts—and “underbanked” households—those with checking or savings accounts who still rely on nonbank alternative financial services and providers, such as money orders, check cashing services, payday loans, rent-to-own agreements, pawn shops, or refund anticipation loans.  Certain racial and ethnic groups are more likely to be underserved than the population as a whole.  Almost 54 percent of African American households, 45 percent of American Indian/Alaskan Native households, and 43 percent of Hispanic households are underserved.

The FDIC’s Advisory Committee on Economic Inclusion supports research, demonstrations, and pilot projects and promotes sound supervisory and public policies to improve the “appropriate engagement” of underserved households with mainstream financial institutions.  Appropriate engagement means that households are using financial products and services that are affordable, easy to understand, and not subject to unfair or unforeseen fees.

Banks would appear to have a strong financial incentive for pursuing underserved consumers, given the sheer size of the alternative financial services industry.  However, according to the FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked (February 2010), fewer than 18 percent of banks identify expansion of their services to these consumers as a priority in their business strategies.

By issuing reports in 2012 on the 2011 FDIC Survey of Unbanked and Underbanked Households and the 2011 FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked, the FDIC will provide an important set of references that help assess progress and remaining challenges for economic inclusion.  In addition, by studying opportunities to expand access to mainstream financial services, identifying the role that community banks play in meeting community needs, and increasing awareness of communities that are currently underserved or at risk of becoming underserved, the FDIC will be better positioned to identify strategies that promote economic inclusion.

The Advisory Committee’s work is divided into six program areas: transactional accounts, savings, affordable credit, financial education, incentives, and mortgages.  The Advisory Committee may recommend to the FDIC specific measures of improvement in each of the six program areas.  It recognizes, however, that certain of these measures are national objectives that require the participation and cooperation of multiple stakeholders, including other federal agencies; federal, state, and local policy makers; the financial services industry; nonprofit and philanthropic groups; and consumer groups, in addition to the FDIC.

During 2012, FDIC working groups will conduct research and develop policy proposals related to expanding access to mainstream banking services for underserved consumers.  The FDIC may present these proposals to the Advisory Committee for advice and recommendations.

Human Resources (staffing and training):
This annual performance goal will be carried out largely by existing staff in the FDIC’s consumer research and consumer affairs functions.  The activities of the Advisory Committee are supported by staff in several FDIC divisions. Employees in those divisions provide staff support for the Advisory Committee, as needed, including support for its research and demonstration activities.

Information Technology:
Existing technology will be used to accomplish this goal. The FDIC broadcasts the Advisory Committee’s public meetings on the Internet.

Verification and Validation
Progress in completing the initiatives planned for this annual performance goal will be monitored through periodic reporting through established management reporting processes from the assigned work groups.

2011 Program Results
This annual performance goal and its associated performance indicator and targets are new for 2012.