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2003 Annual Report
I. Management's Discussion and Analysis –
Supervision and Consumer Protection
Supervision and consumer protection are the cornerstones of the FDIC's efforts to ensure the stability of and public confidence in the nation's financial system. At year-end 2003, the Corporation was the primary federal regulator for 5,340 FDIC-insured, state-chartered institutions that are not members of the Federal Reserve System (generally referred to as "State Nonmember" institutions). Through safety and soundness, consumer compliance, and Community Reinvestment Act (CRA) examinations of these FDIC-supervised institutions, the FDIC assesses their operating condition, management practices and policies as well as their compliance with applicable laws and regulations. The FDIC also educates bankers and consumers on matters of interest to bank customers and addresses consumers' questions and concerns.
Safety and Soundness Examinations
During 2003, the Corporation conducted 2,421 statutorily required safety and soundness examinations. The number and total assets of FDIC-supervised institutions identified as "problem" institutions (defined as having a composite CAMELS1 rating of "4" or "5") decreased during 2003. As of December 31, 2003, 73 institutions with total assets of $8.2 billion had been identified as problem institutions, compared to 84 institutions with total assets of $12.8 billion on December 31, 2002. These changes represent a decrease of 13.1 percent and 35.9 percent in the number and assets of problem institutions, respectively. During 2003, 58 institutions were removed from problem institution status due to composite rating upgrades, mergers, consolidations or sales, and 47 were newly identified as problem institutions. The FDIC is required to conduct follow-up examinations of all designated problem institutions within 12 months of the last examination. As of December 31, 2003, all follow-up examinations for problem institutions had been performed on schedule.
Compliance and Community Reinvestment Act (CRA) Examinations
The FDIC conducted 1,610 comprehensive compliance-CRA examinations, 307 compliance-only examinations2, and two CRA-only examinations in 2003, compared to 1,334 comprehensive compliance-CRA examinations, 493 compliance-only examinations, and 13 CRA-only examinations in 2002. One institution was assigned a composite "4" rating for compliance as of year-end 2003. None were assigned a composite "5" rating. The "4" rated institution has entered into a Memorandum of Understanding (MOU) with the FDIC to correct compliance issues. The ratings for institutions with CRA-only examinations were rated "Satisfactory." (See the accompanying table for details about the FDIC Examinations.)
Examination Program Efficiencies
Since its introduction in July 2001, the Money Smart program has generated a great deal of interest. Primarily designed to help adults with little or no banking experience develop positive relationships with insured depository institutions, the program has been widely cited in over 100 national and local publications. Requests for the program have been received from Mexico, Thailand and Canada. During 2003, the FDIC continued to expand the public's access to Money Smart by translating the program into Chinese and Korean and expanding membership in the Money Smart Alliance. By year-end 2003, the FDIC had trained over 5,000 volunteer instructors, taught over 100,000 consumers and supplied more than 111,000 copies of the Money Smart training curriculum to various groups, including government, community, financial and faith-based organizations.
Consumer Complaints and Inquiries
The FDIC investigates and responds to complaints and inquiries from consumers, financial institutions and other parties about potential violations of consumer protection and fair lending laws, as well as deposit insurance matters. As of December 31, 2003, the FDIC had received 8,026 complaints, of which 4,047 were against state-chartered nonmember banks. Approximately fifty percent of the state nonmember bank consumer complaints concerned credit card accounts. The most frequent complaints involved loan denials, billing disputes and account errors, terms and conditions, collection practices, reporting of erroneous information, and credit card fees and service charges. The FDIC's centralized Consumer Response Center (CRC) is responsible for investigating all types of consumer complaints about FDIC-supervised institutions and for answering consumer inquiries about consumer protection laws and banking practices.
During 2003, the FDIC received over 100,000 inquiries from consumers and members of the banking community. The FDIC Central Call Center serves as the primary telephone point of contact for questions on deposit insurance coverage from the banking community and the public. (For more information on the Call Center, which can be reached at 1-877-ASK-FDIC, or 1-877-275-3342, toll free, see page 129.)
The FDIC has long recognized the importance of good corporate governance in maintaining the integrity and stability of the nation's banking system. The Sarbanes-Oxley Act of 2002 (Act) imposes new reporting, corporate governance, and auditor independence requirements on companies including insured depository institutions and bank and thrift holding companies with securities registered under the federal securities laws. In response to questions about the applicability of the Act to insured depository institutions that are not public companies, the FDIC issued comprehensive guidance in March 2003, describing significant provisions of the Act and related rules of implementation adopted by the Securities and Exchange Commission. The guidance explained how adopting sound corporate governance practices outlined in the Act may benefit banking organizations, including those that are not public companies, and how several of the Act's requirements mirror existing banking agency policy guidance related to corporate governance.
1 The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to market risk, and ranges from "1" (strongest) to "5" (weakest).
2 Compliance-only examinations are conducted for most institutions at or near the mid-point between comprehensive CRA-compliance examinations under the Gramm-Leach-Bliley Act of 1999, which amended the Community Reinvestment Act of 1977. CRA examinations at small financial institutions with aggregate assets of $250 million or less are subject to a CRA examination no more than once every five years if they receive a CRA rating of "Outstanding" and no more than once every four years if they receive a CRA rating of "Satisfactory."
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