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Federal Deposit
Insurance Corporation

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

Home > About FDIC > Financial Reports > 1996 Annual Report

1996 Annual Report

Supervision and Enforcement

The FDIC at year-end 1996 was the primary federal regulator of 5,785 state-chartered banks that are not members of the Federal Reserve System and 590 state-chartered savings banks. The FDIC also has back-up supervisory responsibility for insurance purposes over the remaining 5,077 federally insured banks and savings associations. The Division of Supervision (DOS) leads the FDIC’s supervisory efforts in conjunction with other divisions and offices. This is accomplished by examining institutions, developing regulations and issuing enforcement actions. The examination and supervision of institutions also includes on-site examinations and off-site analyses to detect poor risk management or excessive risk-taking by institutions before problems occur.

Given the continued good health of the banking industry in 1996, the FDIC took the opportunity to initiate a number of projects to enhance the supervisory process and reduce the regulatory burden on the industry.

Supervisory Initiatives

The FDIC continued to develop a more dynamic supervisory approach that combines traditional examination methods with new initiatives. In 1996, DOS reorganized its operations, continued automating its examination function, developed new examination procedures and supervisory policies for emerging technologies, and focused on interest rate risk.

Consolidation in the banking industry is changing the geographic composition of the industry. In response, DOS is making changes in its field structure and its approach to examinations. Of particular interest is the start of a case manager approach to supervision, first announced in 1995. Under this approach, case managers will oversee all the risk analysis and examination functions for an entire bank or banking company, regardless of the number of regions where its subsidiary banks and branches operate. Previously, supervision of multi-state banking organizations was broken down by geographic region, with the possibility of more than one FDIC regional office responsible for oversight of the organization. The new approach makes monitoring of banks and their affiliates more effective and efficient, and provides institutions and other regulators with a single point of contact when dealing with the FDIC. The case manager will be assisted by a core group of “specialists” with expertise in six areas: information systems, trusts, capital markets, accounting, fraud and investigations, and training.

As part of the preparation for interstate banking, the FDIC continued to participate in a State-Federal Working Group on Interstate Supervision. Other members of the group include the Federal Reserve System and state regulators, under the sponsorship of the Conference of State Bank Supervisors. The working group’s purpose is to minimize conflicts and duplication among state and federal regulators in the supervision of state-chartered banks that operate in more than one state. The group is working toward shared technologies and common application forms. Also in 1996, the FDIC and Federal Reserve signed an agreement with all the state banking departments concerning federal-state cooperation and coordination.

[Photo] Chairman Helfer at Feb. symposium
Chairman Helfer (r) joins FDIC officials and others
attending the agency's February symposium on derivatives.

In addition to the challenges and opportunities of consolidation and interstate banking, the industry is becoming more global. In response, DOS created an international branch that consolidates into one unit the FDIC’s functions and expertise involving foreign banks. The branch will intensify the FDIC’s focus on international bank supervisory matters while enabling better coordination with other agencies and greater involvement in the international Basle Committee on Banking Supervision. The unit will monitor the activities of foreign banks operating in the U.S. and the activities of U.S. banks operating abroad. Foreign banks operating in the U.S. are a significant presence and monitoring these institutions is a key responsibility of the branch. At year-end 1996, foreign banking organizations operating in this country had more than $1 trillion in assets, almost one-fifth of the total assets in the U.S. banking industry.

FDIC Examinations 1994-1996
1996 1995 1994

Safety and Soundness:
State Nonmember Banks
2,789 3,218 3,931
Savings Banks
297 294 386
National Banks
11 6 11
State Member Banks
2 4 3
Savings Associations
7 6 9
3,106 3,528 4,340
Consumer and Civil Rights
2,033 3,148 3,528
Trust Departments
637 657 684
Data Processing Facilities
1,681 1,671 1,882

Total 7,457 9,004 10,434

DOS continued development of automation tools that will enable examiners to conduct a significant amount of analysis off-site, thereby minimizing examiner time spent in a financial institution. The Automated Loan Examination Review Tool (ALERT), a software package in use since May after being field tested in late 1995, gives examiners the ability to collect loan data from institutions electronically, load the information into an application and select loans for on-site review. While ALERT enhances the review of a bank’s loan portfolio, the FDIC is developing the General Examination System (GENESYS) to automate the preparation of the entire examination report. As now envisioned, the GENESYS software package would allow examiners to access electronically financial information and prior examination reports of an institution for use in the current examination report, automate certain loan review functions, provide earnings analysis and forecasting, and automate securities pricing. It also will provide examiners with enhanced “dial-in” capability to access the FDIC mainframe computer and the Internet, enabling staff to communicate more readily and to access information not previously available. The GENESYS system is expected to be in use in early 1998.

In addition to automating portions of the review process, the FDIC has taken a number of steps to improve the quality and efficiency of examinations. The FDIC now provides a minimum two-week notice of an upcoming safety and soundness examination to bankers and savings association executives. This advance notice gives bankers more time to prepare for an examination and to respond to pre-examination requests for information from the FDIC. Also, certain traditionally on-site examination procedures (such as the review of written policies and procedures, the reconciliation of major asset and liability categories and the verification of key financial data) are now being conducted off-site. In 1996, about 30 percent of the total examination hours were spent outside of banks, compared to 12 percent two years ago. The FDIC also is minimizing the rotation of examiners to other jobs during the examination of an institution, thereby reducing the disruptions to institutions during an on-site examination.

In 1996, the FDIC and the other federal banking agencies issued a joint policy statement providing guidance on managing interest rate risk. The policy statement emphasizes each institution’s responsibility to develop and refine management practices that are appropriate and effective for its exposure to changes in interest rates. The agencies elected not to pursue a standardized measure and explicit capital charge for interest rate risk due to concerns about the burden, accuracy and complexity of that kind of approach. However, in conjunction with the joint policy statement, the FDIC issued new procedures for examining interest rate risk. These procedures will more clearly focus supervisory attention on institutions with higher potential risk profiles and, for the majority of small institutions, shift a significant portion of the interest rate risk examination off-site.

DOS also continued creating “decision flow charts” for examiners to use when reviewing other major risk areas, such as loans, securities, earnings performance, funds management and management performance. The new examination guidelines provide specific management and control standards that financial institutions are expected to maintain. The decision flow charts are designed so that an examiner can work through a core analysis to determine the presence of significant risks or deficiencies. If the examiner determines that risks are not adequately managed, then the scope of the examination would be expanded. This format focuses examiners on key aspects of risk assessment and provides standard procedures for efficiency and consistency.

Risk-Related Premiums

The following tables show the number and percentage of institutions insured by the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to their risk classification as of December 31,1996. Each institution is categorized based on its capitalization and a supervisory subgroup rating (A,B, or C), which is generally determined by on-site examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups1
Well Capitalized:
Assessment Rate
0 3 17
Number of Institutions
9,362 (95.0%) 304 (3.1%) 57 (0.6%)
Adequately Capitalized:
Assessment Rate
3 10 24
Number of Institutions
84 (0.9%) 17 (0.2%) 15 (0.2%)
Assessment Rate
10 24 27
Number of Institutions
0 (0.0%) 2 (0.0%) 11 (0.1%)
SAIF Supervisory Subgroups2
Well Capitalized:
Assessment Rate
23 26 29
Number of Institutions
1,466 (89.9%) 113 (6.9%) 19 (1.2%)
Adequately Capitalized:
Assessment Rate
26 29 30
Number of Institutions
9 (0.6%) 10 (0.6%) 9 (0.6%)
Assessment Rate
29 30 31
Number of Institutions
0 (0.0%) 2 (0.1%) 2 (0.1%)

1 BIF data exclude 88 SAIF-member “Oakar” institutions that hold BIF-insured deposits. The asessment rate reflects the rate for BIF-assessable deposits, which remained the same throughout 1996. For the first three quarters of 1996, a minimum quarterly payment of $500 was collected from institutions classified as “1A.” This requirement was rescinded for the fourth quarter.

2 SAIF data exclude 779 BIF-member Oakar institutions that hold SAIF-insured deposits. The assessment rate reflects the rate paid by SAIF members on SAIF-assessable deposits through September 30,1996. A special one-time assessment was collected for the purpose of capitalizing the SAIF as of October 1. BIF-member Oakars and “Sassers” were subject to an annual rate schedule of 0-27 basis points as of October 1, while SAIF members were not subject to this schedule until January 1,1997. Due to FICO funding requirements, SAIF members paid on an interim schedule of 18-27 basis points for the fourth quarter of 1996.

DOS has taken steps to identify and monitor risk associated with emerging technologies, such as Internet banking, electronic cash and stored-value card systems. New examination procedures on electronic banking were developed in 1996 and implemented in May 1997 after examiner training on pertinent risks and issues. Since 1995, the FDIC has sponsored an interagency working group that shares information and ideas on supervisory issues relating to electronic banking.

The FDIC and the other banking regulators in December approved a change to the Uniform Financial Institution Rating System (UFIRS), commonly referred to as the CAMEL system, used to rate the condition of banks. CAMEL originally was comprised of five components—capital, asset quality, management, earnings and liquidity. The revision adds a sixth component —“S” for sensitivity to market risks. This change marks the first major revision to the rating system since it was adopted in 1979.

In October, the FDIC became the first of the federal banking regulators to disclose to a bank its rating for each CAMEL component. Previously, only the overall or composite rating for the entire institution was disclosed to the institution’s board of directors. Starting in 1997, the FDIC also will begin to reveal the new “S” component to FDIC-supervised institutions. The other regulators plan to disclose the individual components to their institutions as well.

Throughout 1996, DOS stepped up efforts to gather and analyze information about loan underwriting practices by having FDIC examiners complete a special questionnaire after each examination. This process, started in 1995, is designed to help the FDIC monitor emerging risks in the banking system, identify troublesome underwriting trends across the country and direct supervisory efforts. The results of the questionnaires are expected to be released twice a year. Few problems were noted in 1996. DOS is actively monitoring potential problem areas.

FDIC Applications 1994-1996
1996 1995 1994
Deposit Insurance 192 146 106
New Branches 2,054 2,135 1,715
2,054 2,135 1,713
1,352 1,224 1,017
Remote Service Facilities
702 911 696
0 0 2
Mergers 392 419 451
392 419 451
0 0 0
Requests for Consent to Serve1 873 1,092 1,364
873 1,086 1,357
Section 19
77 86 127
Section 32
796 1,000 1,230
0 6 7
Section 19
0 2 1
Section 32
0 4 6
Notices of Change in Control 46 46 50
Letters of Intent Not to Disapprove
46 45 50
0 1 0
Conversions of Insurance Coverage2 0 3 10
0 3 10
0 0 0
Brokered Deposit Waivers 15 30 42
15 29 42
0 1 0
Savings Association Activities 2 0 7
2 0 7
0 0 0
State Bank Activities/Investments3 167 367 118
164 366 118
3 1 0
Conversions of Mutual Institutions 26 24 14
26 24 9
0 0 5
1 Under Section 19 of the Federal Deposit Insurance Act, an insured institution must receive FDIC approval before employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must approve any change of directors or senior executive officers at a state nonmember bank that has been chartered for less than two years, has undergone a change of control within two years, is not in compliance with capital requirements, or otherwise is in a troubled condition.

2 Applications to convert from the SAIF to the BIF or vice versa.

3 Section 24 of the FDI Act in general precludes an insured state bank from engaging in an activity not permissible for a national bank and requires notices be filed with the FDIC.

The FDIC published in May an Advance Notice of Proposed Rulemaking seeking industry opinion on restructuring and streamlining banking agency regulations for securities transactions. Several actions resulted. For example, the FDIC and the other banking agencies issued a proposed rule in December that would require bank employees who sell securities to take the same qualification examination as other brokers. The FDIC also began field testing new examination procedures for reviewing whether proper disclosures about nondeposit investment products are being given to customers. For more information on the sale of mutual funds at banks, click here.

DOS also has developed a partnership with the Division of Insurance (DOI), which was created by the Board in 1995 to analyze risks to the deposit insurance funds from a more comprehensive perspective than in the past. DOI identifies and monitors emerging and existing risks by drawing on a wide variety of sources of information, including other FDIC divisions, other bank regulatory agencies, other government economic statistics and analyses, and data from the private sector. DOI then works with DOS to translate the results into guidance for FDIC examiners. Under the agency’s risk-related premium system, managed by DOI, the CAMEL ratings assigned by DOS are an important component for determining the premium rates paid by insured institutions.

In addition, the FDIC’s Division of Research and Statistics (DRS), in cooperation with other divisions and offices, continued a major study of the 1980s and early 1990s that focuses on the causes of bank failures. The study, expected to be issued in late 1997, analyzes the effectiveness of regulatory tools designed to prevent bank failures and limit insurance losses. (The study was the subject of an FDIC-sponsored symposium on January 16, 1997, with academic and other participants.) Using data and information developed for the study, DRS is assisting DOS in developing new warning systems and new modeling tools for predicting problem institutions and failures.

Mike Jenkins & Ray Brennan Alice Beshara
Mike Jenkins (l) and Ray Brennan, both of the Division of Supervision, and Alice Beshara of the Division of Compliance and Consumer Affairs played key roles in the FDIC's efforts to streamline examination procedures.

Reduced Regulatory Burden

The Riegle Community Development and Regulatory Improvement Act of 1994 (CDRI) requires an interagency effort to reduce the cost and burden of regulations on the banking industry. As part of that effort, the FDIC reviewed 120 rules and policy statements to determine whether they are necessary to ensure a safe and sound banking system or to protect consumers. Under the leadership of FDIC Board member Joseph H. Neely, the Office of Policy Development and the Office of the Executive Secretary, the FDIC’s regulatory review during 1995 and 1996 resulted in staff recommendations to rescind or revise 71 percent of the 120 internal and interagency regulations and policy statements. Specific recommendations from 1996 included:

  • Establishing procedures to ensure that regulations undergo a rigorous cost/benefit analysis before they are issued;
  • Proposing simplification of the deposit insurance regulations;
  • Coordinating and streamlining the FDIC’s regulatory applications procedures;
  • Proposing simplification of deposit insurance assessments;
  • Proposing revision of the FDIC’s fair housing regulations;
  • Proposing revision of regulations regarding securities of state-chartered nonmember insured banks;
  • Proposing to remove inconsistencies in how regulators assign risk-based capital requirements to certain assets;
  • Revising auditing program regulations and policies; and
  • Rescinding outmoded or obsolete statements of policy.

The FDIC expects to complete its recommendations on the remainder of the regulations and policy statements by September of 1997. The FDIC, along with the Federal Reserve Board, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, submitted a Joint Report to Congress in September 1996 detailing the progress made in the review effort. For more information on regulatory action taken in 1996, click here.

Compliance, Enforcement and Other Related Legal Actions 1994-1996
1996 1995 1994
Total Number of Actions Initiated by the FDIC 186 146a 161
Termination of Insurance
Involuntary Termination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition
1 0a 3
Voluntary Termination
Sec.8a By Order Upon Request
0 7a 2
Sec.8p No Deposits
3 1a 2
Sec.8q Deposits Assumed
17 16a 9
Sec. 8b Cease-and-Desist Actions
Notices of Charges Issued
3 2a 1
Consent Orders
16 27a 41
Sec. 8e Removal/Prohibition of Director or Officer
Notices of Intention to Remove/Prohibit
7 7a 17
Consent Orders
60 35a 33
Sec. 8g Suspension/Removal When Charged With Crime 1 1a 0
Civil Money Penalties Issued
Sec.7a Call Report Penalties
19 20a 17
Sec.8i Civil Money Penalties
19 9a 10
Sec. 10c Orders of Investigation 11 8a 9
Sec. 19 Denials of Service After Criminal Conviction 1 2a 1
Sec. 32 Notices Disapproving Officer or Director 0 4a 5
Truth in Lending Act Reimbursement Actions
Denials of Requests for Relief
6 5a 3
Grants of Relief
0 0a 0
Banks Making Reimbursementb
162 320a 258
Criminal Referrals Involving Open Institutions b 8,201 19,503a 14,132
Other Actions Not Listed 22 2a 8
a One action included a Section 8c Temporary Order.
b These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total number of actions initiated.


DOS works closely with the Legal Division to initiate supervisory enforcement actions against FDIC-supervised institutions and their employees. The number of enforcement actions initiated by the FDIC in 1996 totaled 186, about half the 356 actions initiated just five years ago. This is indicative of continued improvement in the banking industry. Another sign of the improved conditions in the banking industry is that, for the second straight year, no “prompt corrective actions” (such as early intervention when an insured institution’s capital condition is eroding) were initiated by the FDIC.


Last Updated 07/09/99

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