I am pleased to present the latest in our series of online reports to the financial services industry about the issues and problems raised to the FDIC Office of the Ombudsman (OO).

During the July 1 through December 31, 2006, reporting period, a majority of bankers reported overall satisfaction with the FDIC’s regulatory process. Topics that generated banker concerns included the Bank Secrecy Act (BSA), the listing of bank rating services on FDIC’s website, and fraud involving cashier’s checks, all of which are covered in this report. Follow-up on previous issues, such as the FDIC compliance manual and keeping bankers abreast of current topics, is also included.

The OO recently added two new staff members. Sandra Jesberger is the new Regional Ombudsman for the Dallas and Kansas City Regions. Sandy is a former compliance review examiner with 18 years of risk management and compliance experience. Although based in Dallas, she will regularly travel to the Kansas City Region. Sandy reports that she looks forward to meeting industry officials in both regions and learning about what interests them. Sandy began her FDIC career in Texas so she is excited about going “home and serving the FDIC in this very important role.” In addition, Gordon Talbot has joined the headquarters OO staff as a Senior Ombudsman Specialist. Gordon has over 28 years of experience as a risk management examiner in the Salt Lake City Field Office. He has also instructed examination staff in the FDIC training center’s Loan Analysis School for a number of years.

The OO concluded its ambitious five-year industry outreach program at the end of 2006. In 2002, the OO set out to speak personally with the executives of over 5,000 FDIC-regulated institutions to introduce our program. By all accounts, we have been successful in this endeavor. Your responses to our customer satisfaction surveys have indicated an increased understanding of the FDIC’s ombudsman program and many of you have said that you find the program valuable.

During 2007, we will focus our outreach efforts on minority and de novo institutions to ensure that these unique entities are aware of FDIC resources that are available to them. Industry issues that minority and de novo institution representatives disclose during our outreach efforts will be conveyed to the senior FDIC staff confidentially. Because survey responses indicated that personal visits are more satisfactory than phone calls, we will visit as many FDIC-supervised minority and de novo banks as possible. You will receive a letter of introduction from your regional ombudsman asking to schedule a visit at your convenience.

OO employees are available to assist you with any matter regardless of your location. Visit our web site www.fdic.gov/regulations/resources/ombudsman/index.html

What You Told Us:

During the last half of 2006, 409 bankers contacted us with requests for assistance.  In addition, OO staff spoke with 789 financial industry representatives through outreach visits, telephone calls, and at industry sponsored conferences.  The following summarizes some of your comments, suggestions, and questions received by our office during this period, and provides additional information on issues addressed in previous reports.

Regulatory Burden:  The burdensome nature of regulations in general continues to be the most significant regulatory issue raised by bankers.  Specific regulations most frequently cited were the Bank Secrecy Act, USA PATRIOT Act, and the Home Mortgage Disclosure Act (HMDA).    

Bank Secrecy Act/Anti-Money Laundering (BSA/AML):  BSA issues have been the subject of most of the comments and complaints for the past several years.  During this six-month period, bankers continued to express concerns about BSA in terms of burden, the high costs of training and implementation, and their perception that bankers are being inappropriately placed in a law enforcement role.  Several bankers noted the difficulty of filling BSA officer positions because of the attendant liabilities and steep penalties for violations.  However, the OO did note a significant drop in the number of negative comments, possibly because of the Division of Supervision and Consumer Protection’s (DSC) extensive outreach and the release of the revised Bank Secrecy Act and Anti-Money Laundering Examination Manual.  

USA PATRIOT Act:  A number of bankers had questions or concerns about the regulation implementing the law, most of which related to the Customer Identification Program (CIP).  A majority of bankers were frustrated by the burdensome nature of the Act.  One banker complained that CIP “chills” business with some immigrants, a group that he felt needs banking services.  Other bankers believed that the types of questions required by CIP breach privacy rights. 

HMDA:  Bankers consider HMDA requirements to be onerous, excessive and frustrating, requiring large amounts of time and money to ensure compliance, while offering few benefits to the public.  One banker expressed frustration about being placed in a Metropolitan Statistical Area with industries and populations that are not comparable to the customers served by the bank.  Another banker complained that HMDA now requires reporting business purpose loans as refinancing. 

Compliance Examination Handbook:   DSC has issued an updated Compliance Examination Handbook and placed it on the FDIC’s website at www.fdic.gov/regulations/compliance/handbook/index.html.  Electronic availability of the new handbook was announced in FIL-10-2007, “Compliance Examination Handbook
Revised Handbook Now Available,” at www.fdic.gov/news/news/financial/2007/fil07010.html.  CD-ROM versions of the handbook were mailed early in March 2007.  DSC’s goal is to update the manual semi-annually. Bankers had been expressing concern for some time about the age of the compliance manual.   

*Bank Rating Services on the FDIC Website:  An executive of a de novo institution expressed concern about the bank rating services listed on the FDIC website.  The FDIC is prohibited by statute from releasing bank ratings.  It does, however, as a service to consumers, list on its website bank rating services, private companies that analyze publicly available financial information and rate the banks accordingly.  The banker had two concerns:  that listing services on the website implies an endorsement by the FDIC, regardless of the generic disclaimer, and that de novo institutions are negatively affected by these ratings.  OO staff worked with the FDIC library staff to make sure the disclaimer notice is prominent and to add a comment that de novo institutions have unique characteristics, such as rapid growth, poor earnings, and high capital levels that ratings formulas may not fully take into account. 

*Note: As of 2009 the FDIC discontinued listing bank rating services on its website.

Regulation CC and Cashier's Check Fraud:  This issue was first identified in 2005 when industry officials expressed a desire for regulatory reform of Regulation CC (a Federal Reserve regulation on Availability of Funds and Collection of Checks) to help reduce the losses banks suffer from counterfeit cashier’s checks.  During this reporting period, several bankers commented on the perceived contradiction between prudent safety and soundness practices and next-day availability, a concern previously expressed by other bankers.  They also believed that mounting cashier’s check losses, as evidenced by the increased number of Special Alerts issued by the FDIC, justified their concerns.  The FDIC is attempting to address these concerns in two areas.  

·         Easier Access to Special Alerts Information on the FDIC Website: Special Alerts and associated documents such as copies of fraudulent checks are posted on FDIC’s secure website for bankers, www.FDICconnect.gov.  Several bankers have noted that the increased volume of Special Alerts has made searching for individual fraud alerts increasingly difficult.  As the information is currently presented, a bank may have to search through several years of alerts listed in date order.  OO and DSC staff members have been working together to assess the feasibility of compiling a comprehensive list of Special Alerts and how the information can best be presented.  At DSC’s request, the OO conducted a short, informal survey of selected bankers to determine their preferences, e.g., sorting formats, access to copies of counterfeit items.  DSC also met with two national trade associations to discuss the survey results.  DSC is currently working with the FDIC’s information technology staff to devise a short-term solution to present the Special Alerts in a more easily searchable format, such as a sortable spreadsheet.  In addition, they are working together to design an automated solution that is expected to be available in 2008.    

·         Check Fraud Working Group:  Given the dramatic rise in check fraud, including fraud involving official and cashier’s checks in recent years, the national Bank Fraud Working Group, under the sponsorship of the Department of Justice, re-established its Check Fraud Working Group in February 2006.  The FDIC was asked to co-chair the group with the FBI.  Other federal banking and law enforcement agencies participate on the working group, which meets monthly to explore methods to reduce check fraud.  The goals and objectives of the group include: encouraging information sharing between government agencies; implementing measures to detect and prevent check fraud; and raising awareness of check fraud through education and outreach to the financial services industry, law enforcement, and consumers.

Hot Topics:  Bankers continue to want to know about “hot button issues” before examinations.  In 2004, DSC began publishing Supervisory Insights, which covers the practical application of bank regulation and policy in the field and addresses emerging issues that bank supervisors are facing.  Supervisory Insights is available at www.fdic.gov/regulations/examinations/supervisory/insights/.

Another source of information on current topics is produced by the Chicago Regional Office in a periodic one-topic bulletin called SCANS (Supervisory Compliance Advisory and Notification System).  Although the bulletin’s target audience is FDIC-supervised banks in the Chicago Region, the publication is available to all.  However, readers are encouraged to communicate with their own field or regional office staff about any issues covered in SCANS if their bank is not in the Chicago Region or with the Office of the Ombudsman if confidentiality is desired.  Readers whose banks are not supervised by the FDIC should speak with their primary regulator.  Confidentiality will also be provided by the respective ombudsmen for the other primary regulators: 

·         Federal Reserve Board:  Margaret M. Shanks, 800-337-0429

·         National Credit Union Administration:  Michael McNeill, 703-518-6572 or mmcneil@ncua.gov

·         Office of the Comptroller of the Currency:  Samuel P. Golden, 713-336-4350

·         Office of Thrift Supervision:  Randy Thomas, 202-906-7945 or ombudsman@ots.treas.gov

To subscribe to SCANS, send an e-mail request to SCANS@fdic.gov including your name, title, and e-mail address.  To view the current SCANS bulletin entitled “Automatic Holds on Cashier’s Checks,” click here; CHIRO-04-2007.pdf.

NOTE: If you have comments or suggestions about this semiannual report, please contact FDIC Ombudsman Cottrell Webster at (703) 562-6040, or by e-mail at cwebster@fdic.gov. To receive e-mail notifications of future OO semiannual reports as soon as they are posted to the FDIC's Web site, follow the instructions at www.fdic.gov/about/subscriptions/index.html .