I am pleased to present the latest in our series of online reports to the financial services industry about issues and concerns raised to the FDIC Office of the Ombudsman (OO). This report covers the period July 1 through December 31, 2007.

OO outreach efforts focused on minority and de novo institutions during this period. Representatives of minority depository institutions continued to express concern that the markets they serve present challenges in loan underwriting and BSA compliance. I have conveyed this concern to FDIC examiners and management. Unique markets often require unique solutions, and I continue to ask examiners to be open to bankers’ suggestions in the supervisory area.

Although most bankers expressed overall satisfaction with the FDIC, some bankers were troubled by a lack of communication during the application and examination process. In the regulation area, bankers’ concerns remained essentially the same as in our last report, but included a new fear that Congress will overreact to the subprime mortgage crisis. This report discusses the FDIC’s response to the subprime mortgage crisis as well as updates on Suspicious Activity Reports.

In each of the OO’s last three reports, we introduced one of our Regional Ombudsmen. Their assigned regions and contact information are summarized below. I encourage readers to contact our Regional Ombudsmen on any matter that would benefit from a neutral, independent and confidential ear.

We welcome institutions’ suggestions and concerns about the FDIC in its supervisory role. The OO summarizes these comments for FDIC senior management’s review without attribution to the institutions to eliminate the possibility of retaliation. In addition to Regional Ombudsmen, OO specialists in Washington, D.C., are available to assist on any matter, regardless of your location. Please visit our Ombudsman web site for more information

What You Told Us:

During the second half of the year, 448 bankers contacted the OO requesting assistance. In addition, OO staff spoke with 160 financial industry representatives through outreach visits, telephone calls and industry-sponsored conferences.

Subprime Mortgage Crisis: Several bankers expressed concern about possible government overreaction to the subprime mortgage crisis, including creating additional laws and increasing the regulatory burden on FDIC-supervised banks. While new regulation is possible, the FDIC has been working with other government entities and the industry on market-based ways to refinance and restructure performing subprime mortgages.

Last October, FDIC Chairman Bair proposed that the financial services industry systematically address subprime adjustable-rate mortgage loans for owner-occupied properties in which the borrowers are current on payments but unable to maintain higher payments following reset. Three common misconceptions expressed to the OO about Chairman Bair’s proposal and the FDIC’s responses are summarized below.

The Chairman’s subprime proposal, including industry and public misconceptions, is discussed in detail in documents available through the following links.

Bank Secrecy Act/Anti-Money Laundering (BSA/AML): BSA/AML remains the subject of comments and complaints. Bankers continue to express concern about BSA in terms of burden and the high costs of training and implementation. Bankers also complain of not receiving feedback about Suspicious Activity Report filings, which gives the impression that the data are not used. Since the OO’s last Report to the Industry, the FDIC published a relevant article in its Supervisory Insights journal, which is linked and summarized below.

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 .