Congress created the FDIC in the Banking Act of 1933 to maintain stability and public confidence in the nation’s banking system. The statute provided a federal government guarantee of deposits in U.S. depository institutions so that depositors’ funds, within certain limits, would be safe and available to them in the event of a financial institution failure. In addition to its role as insurer, the FDIC is the primary federal regulator of federally insured state-chartered banks that are not members of the Federal Reserve System. The FDIC also acts as receiver for insured depository institutions (IDIs) that fail and has resolution planning responsibilities (jointly with the Federal Reserve Board) for large and complex financial companies.
The FDIC carries out its mission through three major programs: insurance, supervision, and receivership management.
|Primary Federal Regulator||Number of Institutions||Total Assets
(Dollars in Millions)
|Source: Quarterly Banking Profile. Data as of 9/30/2017|
In addition, the FDIC and the FRB have joint responsibility for reviewing resolution plans submitted by large bank holding companies and designated nonbank financial companies that demonstrate how they would be resolved in a rapid and orderly manner under the U.S. Bankruptcy Code in the event of financial distress.
Over the next four years, the FDIC will face numerous issues and challenges in each of these major programs due to changing economic conditions, continuing changes in the nature of the financial services industry, expected changes in financial services regulation, and emerging consumer protection issues that affect the financial services industry. Some of the major issues and challenges are addressed in more detail below.
The Impact of the Economy
The performance of the economy directly affects the performance of individual financial institutions and the overall banking industry. Interest rates, inflation, unemployment, the business cycle, and shocks to specific sectors like agriculture, energy, housing, or commercial real estate all influence lending and funding strategies of IDIs. Economic and financial conditions abroad also have an impact on the U.S. economy and on the performance of banks.
The United States is in the midst of one of the longest recorded economic expansions. Economic growth has been subdued but sustained since the last recession ended in mid-2009. Household balance sheets have recovered from the financial crisis, as household wealth has increased from rising home prices and stock market valuations. While residential fixed investment remains below pre-crisis levels, business investment has returned to long-term trends. The economic outlook is for continued moderate growth, although downside risks remain.
Banks generally have improved their asset quality, and capital and liquidity ratios. Although annual loan growth has slowed in recent quarters, all major loan categories continue to grow. Industry-wide profitability (as measured by return on assets) has been trending up, and the majority of banks report year-over-year growth in their quarterly net income. The number of problem institutions has fallen dramatically from the post-crisis high and is at its lowest level since 2008.
While the banking industry continues to perform well, the interest-rate environment and competitive lending conditions continue to pose challenges for many institutions. Some banks have responded to this environment by investing in longer-term or higher-risk assets. In some cases, banks may be entering unfamiliar business lines or offering new products to increase profitability. For these reason, banking institutions remain vulnerable to interest-rate risk when interest rates eventually normalize to their longer-run levels. Overall, the industry must manage interest-rate risk, liquidity risk, and credit risk carefully to remain on a long-run, sustainable growth path.
Other Major Strategic Challenges
In addition to the challenges posed by the economy, the FDIC expects to face other challenges that will shape its priorities over the next four years.
1 Based on the definition of community banks in the FDIC Community Banking Study, 2012.
2 2015 National Survey of Unbanked and Underbanked Households, October 2016. The survey reported that 7. 0 percent of U.S. households (9.0 million households) had no relationship with a mainstream financial institution and that another 19.9 percent of U.S. households (24.5 million households) were underbanked (“underbanked” households were defined as those that had a bank account but had also obtained during the 12-month period prior to the survey financial services or products from alternative financial services providers outside of the banking system).
3 The FDIC has issued (and updates annually) a Diversity and Inclusion Strategic Plan that guides its effort in this area.