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2008-2013 Strategic Plan
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Supervision Program

Program Description
Although the FDIC is the insurer for all insured depository institutions in the U.S., it is the primary federal supervisor only for state non-member banks.3 Nonetheless, 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 review of examination reports, off-site monitoring tools, participation in examinations conducted by other federal regulators, and where appropriate, special (backup) examination activities, the FDIC regularly monitors the potential risks at all insured institutions, including those for which it is not the primary federal supervisor. The FDIC also takes into account supervisory considerations in the exercise of its authority to review and approve applications for deposit insurance from new institutions, regardless of the chartering authority.

The FDIC pursues two strategic goals in fulfilling its supervisory responsibilities as the primary federal supervisor for state non-member banks:

  • FDIC-insured institutions are safe and sound, and
  • Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

The FDIC promotes safe and sound financial institution practices through regular risk management examinations, publication of guidance and policy, ongoing communication with industry officials, and the review of applications submitted by FDIC-supervised institutions to expand their activities or locations. When appropriate, the FDIC has a range of informal and formal enforcement options available to resolve safety and soundness problems identified at these institutions. The FDIC also has staff dedicated to offsite monitoring programs and enhancing the Corporation’s ability to identify emerging safety-and-soundness issues in a timely manner.

The FDIC also promotes institution compliance with consumer protection, fair lending, and community reinvestment laws through a variety of activities, including regular compliance and Community Reinvestment Act (CRA) examinations, the dissemination of information to consumers about their rights and required disclosures, and the investigation and resolution of consumer complaints regarding FDIC-supervised institutions. The FDIC also has a range of informal and formal enforcement options available to resolve compliance problems identified at these institutions.


3 As of 9/30/08, the FDIC had primary supervisory responsibility for 5,134 FDIC-insured state-chartered commercial banks that are not members of the Federal Reserve System and state-chartered savings banks.


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

Strategic Objective

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

    Means & Strategies:
    As noted above, the FDIC is the primary federal supervisor for all state non-member banks. For those institutions and their technology service providers, the FDIC performs risk management (safety and soundness), trust, Bank Secrecy Act (BSA)/Anti-Money Laundering (AML), and information technology examinations in cooperation with their state banking regulators (the majority of state banking agencies participate in an examination program under which certain examinations are performed on an alternating basis by the state agency and the FDIC). Risk management examinations are conducted in accordance with statutorily-established time frames and assess an institution’s overall financial condition, management practices and policies, compliance with applicable laws and regulations, and the adequacy of management and internal control systems to identify, measure and control risks. Examination procedures may also disclose the presence of fraud or insider abuse. In addition, the FDIC reviews the risk management capabilities of those FDIC-supervised institutions that apply for permission to engage in new or expanded business activities.

    Communication and corrective action are important components of the FDIC’s strategy for ensuring the safety and soundness of the institutions it supervises. Risks identified during an examination are discussed with the institution’s management and board of directors. If an examination reveals serious weaknesses in the operations of the institution or indicates that the institution is operating in a weakened financial condition, the FDIC may issue formal or informal enforcement actions that remain in effect until corrective actions are taken and the identified weaknesses are addressed. In the case of severe problems, the institution may be instructed to seek additional capital or merge with another institution.

    The FDIC’s statutory authority also gives it a degree of supervisory responsibility, in its role as insurer, for insured depository institutions for which it is not the primary federal supervisor. The Corporation has staff in each of its regional offices that regularly review examination reports from primary federal regulators and other available information on those institutions. The FDIC also performs off-site monitoring of those institutions on an ongoing basis, particularly for institutions with more than $10 billion in assets. In addition, at the invitation of the primary federal supervisor, FDIC examiners may participate in examinations of such institutions. When deemed necessary, the FDIC also has the authority to undertake special (backup) examination activities for institutions for which it is not the primary federal supervisor.

    Ensuring the safety and soundness of FDIC-insured institutions over the next six years will require an effective supervisory response to current economic and market turmoil, and alertness to potential new issues that may lie ahead. The FDIC is currently devoting a relatively greater share of risk-management examination resources to geographic areas, loan types and specific banks perceived to be of higher risk. The supervisory response includes staffing initiatives described below under “External Factors.” The FDIC also has staff dedicated to the identification of emerging issues. In this regard, strategies include enhancing tools to glean supervisory information from the thousands of examinations conducted annually, as well as from a variety of external data sources.

    Because an important part of the risk to the DIF comes from exposures to large and complex banks, the Corporation continues to enhance its supervisory monitoring program for these institutions. The FDIC will continue to add staff resources that have the advanced knowledge and skills necessary to analyze the operations of these banks and associated risks. The Corporation will also pursue strategies to develop and retain existing personnel with those skills.

    External Factors:
    There are a number of factors outside of the control of the FDIC that could affect the successful achievement of this strategic objective. In accordance with statutorily-established time frames, most risk management examinations of well-capitalized and well-managed state non-member institutions are point-in-time examinations that occur at 18-month intervals. Between examinations, institutions may enter new lines of business, extend their lending programs into riskier areas, or implement new technologies without the knowledge of the FDIC or state regulatory agencies. Major changes in economic conditions also can impact institutions between examinations. The FDIC will continue to improve offsite monitoring tools to monitor institutions on a continuing basis between examinations.

    Examinations of an increasing number of troubled institutions require more time and resources. It is difficult to add experienced examiner resources to the workforce quickly because of the multi-year time frame required to train a new examiner. During the 18 months ending June 30, 2008, the FDIC hired 235 new examiner trainees to address a shortfall in examiner resources. The FDIC also is hiring mid-career professionals and, on a temporary basis, retired examiners and loan review specialists, to help address the workload associated with the increase in the number of troubled insured institutions.

    Under the alternating examination program, certain examinations are conducted in alternating periods by the state supervisory authority. Resource constraints outside of the FDIC’s control sometimes affect the timely completion of examinations by these state authorities. In such cases, the FDIC will conduct the examination itself within a reasonable time frame after the originally scheduled examination date if the state agency is unable to do so.

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

Strategic Objectives

  3.1 FDIC-supervised institutions comply with consumer protection, CRA and fair lending laws and do not engage in unfair and deceptive practices.
     
  3.2 Consumers have access to accurate and easily understood information about their rights and the disclosures due them under consumer protection and fair lending laws.
     
  3.3 The public has fair access to banking services and is treated equitably by FDIC-supervised institutions.
     

3.1 FDIC-supervised institutions comply with consumer protection, CRA and fair lending laws and do not engage in unfair and deceptive practices.

    Means & Strategies:
    The FDIC pursues this strategic objective primarily through compliance and CRA examinations of all FDIC-supervised institutions. CRA examinations are subject to statutory timelines while compliance examinations are conducted in accordance with time frames established by FDIC policy. These examinations evaluate the compliance of institutions with consumer protection, privacy, CRA, and fair lending laws and regulations. They also seek to identify unfair or deceptive practices that violate consumer protection laws. Over the past three years, the FDIC has substantially increased the number of compliance examiners in its workforce and has delivered advanced compliance training to most commissioned compliance examiners in an effort to enhance the quality and effectiveness of its compliance examination program.

    As with risk management examinations, if an examination reveals serious violations, the FDIC may take either formal or informal enforcement actions to correct the identified violations. In extreme cases, non-compliance with consumer laws may seriously damage the institution’s reputation and could result in civil monetary liability. In addition, when the FDIC finds a "pattern or practice" of violations of fair lending laws at an institution, the matter is referred to the Department of Justice. An institution’s failure to comply with consumer protection, CRA, and fair lending laws and regulations might also impact the application of an FDIC-supervised institution seeking to engage in new or expanded business activities.

    For institutions that are Home Mortgage Disclosure Act (HMDA) data reporters, the FDIC reviews the pricing information submitted by the institution to determine whether any pricing disparities exist for minorities or females in one or more product areas. In instances where such a pricing disparity is identified, the FDIC will conduct a full fair lending review of the institution to determine if the disparity represented unlawful discrimination or was attributable to non-discriminatory factors.

    The FDIC also has staff that is dedicated to the identification and analysis of emerging consumer protection issues related to marketing activities and new industry products, services, and practices. The FDIC participates actively in interagency policy development efforts to identify and address unfair and deceptive acts and practices through the issuance of policy guidance to examiners and the industry.

    Finally, the FDIC sponsors or participates in numerous outreach and technical assistance activities that are designed to facilitate better understanding of and compliance with CRA, consumer protection, and fair lending laws and regulations by FDIC-supervised institutions.

    External Factors:
    The current economic and market turmoil has increased the demands on the FDIC workforce in the areas of risk-management examinations and receivership-related activity. In some cases, compliance or CRA examiners with relevant expertise may be called on to assist with this additional workload. Moreover, the wave of foreclosures and the decline in housing prices that is underway is generally attributed in part to a multi-year period of unsound or irresponsible lending practices and deficiencies in certain areas of regulation. Implementing new mortgage lending regulations, and possibly other new regulations, will be an additional responsibility for the compliance examination program. The FDIC manages these workload challenges through its hiring strategies and by prioritizing examination resources on areas of highest potential risk for violations of law or potential harm to consumers.

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

    Means & Strategies:
    The FDIC provides information about consumer protection and fair lending laws and regulations to help consumers understand their rights. This information is disseminated through brochures and other media, including the FDIC’s website (www.fdic.gov). In addition, the FDIC frequently conducts or participates in focus groups, educational seminars, and conferences on consumer protection and fair lending issues in an effort to help both consumers and insured institutions better understand consumer protection, CRA, and fair lending laws and regulations.

    The FDIC maintains a toll-free call center for consumer complaints and inquiries about FDIC-supervised institutions and has established target time frames for investigating and responding to these complaints. It is also a leader in promoting greater financial literacy, primarily through its award winning Money Smart curriculum. The Corporation will continue to expand its outreach with this product over the next several years by adapting the basic curriculum to additional target audiences.

    External Factors:
    The current economic and market turbulence has increased the number of troubled and failing banks. While the rate of mortgage foreclosures, other forms of credit distress, and problem and failing banks remain elevated, a substantial increase in the number of consumer complaints and inquiries could temporarily challenge the FDIC’s capacity to respond within targeted time frames. In such cases, the FDIC would augment its staff resources for this function as quickly as possible.

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

    Means & Strategies:
    The FDIC has played a national leadership role in recent years in promoting broader economic inclusion within the nation’s banking system. In pursuit of this objective, the FDIC sponsors or participates in targeted outreach and technical assistance activities with both the institutions it supervises and various community-based organizations. These efforts are designed to encourage financial institutions to develop programs to serve those segments of the population that are currently unbanked or underserved by mainstream financial institutions. The FDIC is completing its first biennial survey of insured depository institutions and underserved consumers to identify obstacles to banking services and ways to overcome them. The FDIC also established an Alliance for Economic Inclusion in 11 cities across the country, comprised of more than 800 banks, community organizations, public officials and others to identify products and services and marketing strategies to reach into the underserved market. In addition, the FDIC is sponsoring a two-year pilot program, to be completed in 2010, to assess the feasibility of various small-dollar loan programs to provide affordable loans to those who have not traditionally participated in the banking system. Other FDIC outreach and technical assistance initiatives are designed to help develop and implement effective foreclosure prevention strategies, such as a national partnership with NeighborWorks America. These initiatives will facilitate neighborhood revitalization through affordable housing, small business development, and related initiatives.

    External Factors:
    During this period in which many financial institutions are experiencing losses and reassessing their exposure to credit risk, the overall supply of credit could diminish. If institutions were to make credit decisions in these more challenging times based on prohibited factors, there could be a risk of loss of access to credit or other banking services by underbanked segments of the population.




Last Updated 12/08/2008 Finance@fdic.gov