2014 Annual Performance Plan
Program Resource Requirements
The chart below breaks out the 2014 Corporate Operating Budget by the FDIC’s three major program areas: insurance, supervision, and receivership management. It shows the budgetary resources that the FDIC estimates it will spend on these programs during 2014 to pursue the strategic goals and objectives and the annual performance goals in this plan and to carry out other program-related activities. The estimates include each program’s share of common support services that are provided on a consolidated basis.
The FDIC's Planning Process
The FDIC has a long-range Strategic Plan that identifies goals and objectives for its three major programs: insurance, supervision, and receivership management. It also develops an Annual Performance Plan that identifies annual goals, indicators, and targets for each strategic objective.
In developing its Strategic and Annual Performance Plans, the FDIC uses an integrated planning process in which guidance and direction are provided by senior management, and plans and budgets are developed with input from program personnel. Business requirements, industry information, human capital, technology, and financial data are considered in preparing annual performance plans and budgets. Factors influencing the FDIC’s plans include changes in the financial services industry, program evaluations and other management studies, and past performance.
The FDIC communicates its strategic goals and objectives and its annual performance goals, indicators, and targets to employees through the internal Web site and internal communications, such as newsletters and staff meetings. Pay and recognition programs are structured to reward employee contributions to the achievement of the FDIC’s annual performance goals.Throughout the year, FDIC senior management reviews progress reports. At the end of the year, the FDIC submits its Annual Report to Congress. That report, which is posted on the FDIC’s Web site (www.fdic.gov), compares actual performance results to the performance targets for each annual performance goal.
The Corporate Management Control Branch in the Division of Finance (DOF) coordinates the evaluation of the FDIC’s programs and issues follow-up reports. Program evaluations are interdivisional, collaborative efforts, and they involve management and staff from all affected divisions and offices. Division and office directors use the results of the program evaluations to assure the Chairman that operations are effective and efficient, financial data and reporting are reliable, laws and regulations are followed, and internal controls are adequate. These results are also considered in strategic planning for the FDIC.
The FDIC has productive working relationships with agencies at the state, federal, and international levels. It leverages those relationships to achieve the goals outlined in this plan and to promote confidence in the U.S. banking system. Listed below are examples of the many important relationships that the FDIC has built with other agencies, seeking to promote strength, stability, and confidence in the financial services industry.
Other Federal Financial Institution Regulatory Agencies
The FDIC works closely with other federal financial institution regulators—principally the Board of Governors of the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC)—to address issues and programs that transcend the jurisdiction of each agency. Regulations are, in many cases, interagency efforts. For example, rules were written on an interagency basis to address accounting changes for securitization and most other supervisory policies, including policies addressing capital adequacy, structured products, liquidity risk management, fraud information-sharing, and off-site monitoring systems. In addition, the Comptroller of the Currency (OCC) is a member of the FDIC Board of Directors, which facilitates crosscutting policy development and consistent regulatory practices between the FDIC and the OCC.
The FDIC also works closely with the Consumer Financial Protection Bureau (CFPB) to address consumer protection issues. The CFPB is responsible for issuing consumer protection rules and regulations. However, the CFPB is required to consult with the FDIC, the FRB, and the OCC on these matters. Enforcement jurisdiction for insured, state nonmember banks with less than $10 billion in assets remains with the FDIC, unless the institution is an affiliate of another insured institution with $10 billion or more in assets that is supervised by the CFPB. The CFPB Director is also a member of the FDIC Board of Directors. As with the OCC, participation on the FDIC Board facilitates crosscutting policy development and consistent regulatory practices among the FDIC, the CFPB, and the OCC.
The FDIC, the FRB, and the OCC also work closely with the National Credit Union Administration (NCUA), which supervises and insures credit unions; the Conference of State Bank Supervisors (CSBS), which represents the state regulatory authorities; and individual state regulatory agencies. Finally, the FDIC collaborates with the Federal Housing Finance Agency (FHFA), which is the rule-writer and supervisor for the Housing Enterprises and the Federal Home Loan Banks,
The Federal Financial Institutions Examination Council
The Federal Financial Institutions Examination Council (FFIEC) is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions and to make recommendations to promote uniformity in the supervision of financial institutions. The member agencies of the FFIEC are the FDIC, the FRB, the OCC, the NCUA, and the CFPB. In addition, the Chair of the FFIEC State Liaison Committee serves as a member of the FFIEC (The State Liaison Committee is composed of five representatives of state supervisory agencies). To foster interagency cooperation, the FFIEC has established interagency task forces on consumer compliance, examiner education, information sharing, regulatory reports, surveillance systems, and supervision. The FFIEC has statutory responsibilities to facilitate public access to data that depository institutions must disclose under the Home Mortgage Disclosure Act of 1975 (HMDA) and the aggregation of annual HMDA data for each metropolitan statistical area. It also publishes handbooks, catalogs, and databases that provide uniform guidance and information to promote a consistent examination process among the agencies and make information available to the public. This includes maintenance of a central data repository for CRA ratings and public evaluations. The FFIEC also provides an online Consumer Help Center that connects consumers with the appropriate federal regulator for a particular financial institution.
State Banking Departments
The FDIC, the FRB, and the OCC work cooperatively with the CSBS and with individual state regulatory agencies to make the bank examination process more efficient and uniform. In most states, alternating examination programs reduce the number of examinations that are conducted at insured financial institutions, thereby reducing regulatory burden. Joint examinations of larger financial institutions also optimize the use of state and FDIC resources in the examination of large, complex, and problem state nonmember banks and state-chartered thrift institutions.
Basel Committee on Banking Supervision
The FDIC participates on the Basel Committee on Banking Supervision (BCBS), a forum for international cooperation on matters relating to financial institution supervision, and on numerous subcommittees of the BCBS. The BCBS aims to improve the consistency of capital regulations internationally, make regulatory capital more risk-sensitive, and promote enhanced risk management practices among large, internationally active banking organizations. In 2011, the FDIC and the other federal banking agencies worked closely with the BCBS to improve the Basel II Capital Accord to strengthen the resiliency of the banking sector and improve liquidity risk management. As a result, the BCBS published Basel III, a global regulatory framework for more resilient banks and banking systems. Basel III aims to improve the banking sector’s ability to absorb shocks arising from financial and economic stress while improving risk management and governance and increasing transparency. The FDIC also has established working relationships with various international regulatory authorities to ensure effective supervision of domestic insured institutions that are wholly owned by foreign entities.
International Colleges of Regulators
The FDIC participates in several groups of international regulators to address international consistency in the implementation of over-the-counter (OTC) derivatives reforms. The OTC Derivatives Regulators’ Forum is a college of regulators where initiatives on derivative reforms mandated by the Group of Twenty and Financial Stability Board (FSB) are discussed. The group is heavily involved in assuring international consistency on the development of trade repositories and central counterparty clearing. The group then makes recommendations to standing committees, including the Committee on Payment and Settlement Systems, International Organization of Securities Commissions, BCBS, and FSB, for rulemakings. The OTC Supervisors’ Group is primarily involved in making changes in the infrastructure of the largest dealer banks. The group is composed of supervisors of the global systemically-important banks (GSIFIs). Current efforts are focused on data repositories, dispute resolution, and client clearing. The group obtains commitments from the dealer community to make recommended changes and monitors implementation.
Interagency Country Exposure Review Committee
The Interagency Country Exposure Review Committee (ICERC) was established by the FDIC, the FRB, and the OCC to ensure consistent treatment of the transfer risk associated with the exposure of banks to both public and private sector entities outside the United States. The ICERC assigns ratings based on its assessment of the degree of transfer risk inherent in U.S. banks’ foreign exposure.
International Association of Deposit Insurers
The FDIC plays a leadership role in the International Association of Deposit Insurers (IADI) and participates in associated activities. IADI contributes to the stability of the financial system by promoting international cooperation in the field of deposit insurance. Through IADI, the FDIC focuses its efforts to build strong bilateral and multilateral relationships with foreign deposit insurers, resolution authorities, U.S. government entities, and international organizations. The FDIC also provides technical assistance and conducts outreach activities with foreign entities to help develop and maintain sound banking and deposit insurance systems.
Association of Supervisors of Banks of the Americas
The FDIC exercises a leadership role in the Association of Supervisors of Banks of the Americas (ASBA) and actively participates in the organization’s activities. ASBA develops, disseminates, and promotes sound bank supervisory practices and resilient financial systems throughout the Americas and the Caribbean in line with international standards. The FDIC supports the organization’s mission and activities by actively contributing to ASBA’s research and guidance initiatives and its capacity and leadership building programs. The FDIC chairs the Association’s Technical Training and Cooperation Committee, and participates on the Working Groups on Corporate Governance, Risk Management, and Anti-Money Laundering.
Shared National Credit Program
The FDIC participates with the other federal financial institution regulatory agencies in the Shared National Credit Program, an interagency program that performs a uniform credit review annually of financial institution loans that exceed $20 million and are shared by three or more financial institutions. The results of these reviews are used to identify trends in industry sectors and the credit risk management practices of banks. The reviews, which are typically published in September of each year, help the industry better understand economic and credit risk management trends.
Joint Agency Task Force on Discrimination in Lending
The FDIC participates on the Joint Agency Task Force on Discrimination in Lending with several other federal financial institution regulators (FDIC, FRB, OCC, and NCUA) along with the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Department of Justice (DOJ), and the Federal Trade Commission. The agencies exchange information about fair lending issues, examination and investigation techniques, and interpretations of statutes, regulations, and case precedents.
European Forum of Deposit Insurers
The FDIC and the European Forum of Deposit Insurers share similar interests, and the FDIC supports the organization’s mission to contribute to the stability of financial systems by promoting European cooperation in the field of deposit insurance. The FDIC openly shares its expertise and experience in deposit insurance and failed bank resolution through discussions and exchanges on issues that are of mutual interest and concern (e.g., cross-border issues, bilateral and multilateral relations, and customer protection).
Finance and Banking Information Infrastructure Committee
The FDIC works with the Department of Homeland Security and the Office of Cyberspace Security through the Finance and Banking Information Infrastructure Committee (FBIIC) to improve the reliability and security of the financial industry’s infrastructure. Other members of FBIIC include the Commodity Futures Trading Commission (CFTC), the FRB, the NCUA, the OCC, the Securities and Exchange Commission (SEC), the Department of the Treasury, and the National Association of Insurance Commissioners (NAIC).
Bank Secrecy Act (BSA), Anti-Money Laundering (AML), Counter-Financing of Terrorism (CFT), and Anti-Fraud Working Groups
The FDIC participates in several interagency groups, described below, to help combat money laundering, terrorist financing, and fraud:
- The Anti-Money Laundering Task Force, chaired by the Department of the Treasury (Treasury), includes high-level representatives from the FDIC, OCC, FRB, NCUA, SEC, CFTC, DOJ, the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS). The purpose of the Task Force is to consider the effectiveness of the AML statutory, regulatory, supervisory, enforcement, and communication framework.
- The Bank Secrecy Act Advisory Group (BSAAG) is a public/private partnership of agencies and organizations that meets to discuss strategies and industry efforts to address money laundering, terrorist financing and other illicit financial activities. Areas of focus include information technology, prepaid access/cards, cross border activities, suspicious activity reporting, and other emerging risks.
- The FFIEC BSA/AML Working Group is composed of representatives from the federal bank regulatory agencies, FinCEN, and the CSBS to coordinate BSA/AML policy matters, training, and improve communications among the agencies. The BSA/AML working group builds on existing activities and works to strengthen the ongoing initiatives of other formal and informal interagency groups that oversee various BSA/AML issues. This working group meets monthly and invites other agencies, such as the SEC, CFTC, Treasury, IRS, and Office of Foreign Assets Control (OFAC), on a quarterly basis to ensure broader coordination of BSA/AML and sanctions efforts.
- The Basel Anti-Money Laundering/Counter Financing of Terrorism (“AML/CFT”) Expert Group (“AMLEG”) is responsible for monitoring AML/CFT issues that have a bearing on banking supervision, coordinate with the Financial Action Task Force, and serve as a forum for AML/CFT experts from banking supervisory agencies.
- The ASBA/AML Working Group strives to strengthen the AML/CFT regulatory framework and supervision techniques in the Americas.
- The Terrorist Finance Working Group is sponsored by the State Department to assist in the AML/CFT training effort internationally and to assess the financial structures of foreign countries for potential money laundering and terrorist financing vulnerabilities.
- The National Bank Fraud Working Group is sponsored by the DOJ to share information on fraud detection. It has two subgroups in which the FDIC actively participates (1) The Check Fraud Working Group, co-chaired by the FDIC and the Federal Bureau of Investigation (FBI), and composed of the federal bank regulatory agencies, DOJ, the FBI, FinCEN, the IRS, the Bureau of Public Debt (BPD), and the U.S. Postal Service; and (2) The Cyber Fraud Working Group, composed of the federal bank regulatory agencies, DOJ, the FBI, FinCEN, the IRS, and the BPD.
Financial Literacy and Education Commission
The FDIC is a member of the Financial Literacy and Education Commission (FLEC), which was established by the Fair and Accurate Credit Transactions Act of 2003. The FDIC actively supports the FLEC’s efforts to improve financial literacy in America by assigning experienced staff to provide leadership and support for FLEC initiatives, including leadership of FLEC workgroup.
Financial Education Partnerships
The FDIC launched the Money Smart initiative in 2001 to help individuals outside the financial mainstream enhance their money skills and create positive banking relationships. The FDIC has partnered with several federal agencies on this initiative. For example, in 2008, the FDIC signed a partnership agreement with the U.S. Office of Personnel Management to collaborate in providing financial literacy and education resources and training to more than 300 federal government benefits officers and 1,500 benefits specialists nationwide. More recently, the FDIC partnered with the U.S. Department of Education and the NCUA to promote youth savings and related financial education efforts.
Alliance for Economic Inclusion
The FDIC established and leads the Alliance for Economic Inclusion (AEI), a national initiative to bring all unbanked and underserved populations into the financial mainstream. The AEI is composed of broad-based coalitions of financial institutions, community-based organizations, and other partners in numerous markets across the country. These coalitions work to increase banking services for underserved consumers in low- and moderate-income neighborhoods, minority and immigrant communities, and rural areas. These expanded services include savings accounts, affordable remittance products, targeted financial education programs, short-term loans, alternative delivery channels, and other asset-building programs.
The Financial Stability Board (FSB)
The FDIC actively participates in the work of the Financial Stability Board (FSB), an international body established by the G-20 leaders in 2009. As a member of the FSB’s Resolution Steering Group and its Cross-Border Crisis Management Group, the FDIC has helped in the development of international standards and guidance on issues relating to the resolution of G-SIFIs. Much of this work has related to the operationalization of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes). The Key Attributes, endorsed by the G-20 in 2011, set out the core elements necessary for an effective resolution regime, including the ability to manage the failure of a G-SIFI in a way that minimizes systemic disruption and avoids the exposure of taxpayers to the risk of loss.
Federal Trade Commission, National Association of Insurance Commissioners, and the Securities and Exchange Commission
The Gramm-Leach-Bliley Act (GLBA), which was enacted in 1999, permits insured financial institutions to expand the products they offer to include insurance and securities. GLBA also includes increased security requirements and disclosures to protect consumer privacy. The FDIC and other FFIEC agencies coordinate with the FTC, the SEC, and the NAIC to develop industry research and guidelines relating to these products.
GLBA also requires the SEC to consult and coordinate with the appropriate federal banking agency on certain loan-loss allowance matters involving public bank and thrift holding companies. The SEC and the agencies have an established consultation process designed to fully comply with this requirement while avoiding unnecessary delays in processing holding company filings with the SEC and providing these institutions access to the securities markets.In addition, the accounting policy staffs of the FDIC and the other FFIEC agencies and the SEC’s Office of the Chief Accountant (OCA) meet quarterly to discuss accounting matters of mutual interest and maintain ongoing communications on accounting issues relevant to financial institutions. Other meetings are held with the OCA, as necessary, either on an individual agency or interagency basis.
External Factors: The Economy and Its Impact on the Banking
Industry and the FDIC
Economic conditions at the national, regional, and local levels affect banking strategies and the industry’s overall performance. Business activity tends to be cyclical, and as business and household spending fluctuate over time, these trends influence loan growth and credit performance for the banking industry. Business conditions and macroeconomic policies combine to determine the rate of inflation, domestic interest rates, the exchange value of the dollar, and equity market valuations, which in turn influence the lending, funding, and off-balance sheet activities of FDIC-insured depository institutions.
The recent financial crisis and the associated deep recession of 2007–2009 highlighted the critical links between the health of the banking sector and the performance of the real economy. Not only do economic trends affect the performance of the banking industry, but as the events of late 2008 prove, a systemic breakdown in the functioning of financial markets and institutions can have serious adverse consequences for real economic activity. Inevitably, when conditions deteriorate in the economy and the banking industry, banks are examined more frequently, failures increase, and resolution costs rise. These trends have important operational implications for the FDIC, often requiring an increase in staff or the diversion of staff from other activities to meet the increased demand for resources in bank supervision and resolutions.
The U.S. economy has made progress since the recovery began over four years ago but still faces headwinds. Real gross domestic product (GDP) has grown—albeit at a below-trend pace—in each year since 2010 and has surpassed its pre-recession peak. The unemployment rate has declined from a peak of 10 percent in 2009 to below 7 percent at the end of 2013. The slow pace of recovery is consistent with the aftermath of previous financial crises around the world. Going forward, consensus forecasts expect real GDP growth to accelerate to a near-trend pace in 2014, as fiscal policy exerts less restraint. Monetary policy remains accommodative, as rates are expected to remain near zero for some time even as the Federal Reserve begins to taper asset purchases in January 2014.
The U.S. economy continues to face a number of risks. Fiscal policy continues to pose some headwinds for the recovery. As the economy improves, the Federal Reserve faces challenges implementing its exit strategy in a manner that supports both economic growth and price stability. Globally, the recovery in Europe remains subdued and slowing growth in emerging markets could adversely impact trade and financial markets.
The expected path for the U.S. economy is a slow but steady expansion that should continue to support the gradual repair of balance sheets at FDIC-insured depository institutions as well as other institutions and sectors hard hit by the financial crisis. However, the post-crisis environment continues to pose unique risks and challenges that merit continued attention by regulators.
Insured institution performance showed further improvement in 2013. The 6,812 FDIC-insured commercial banks and savings institutions that filed financial results for full year 2013 reported net income of $154.7 billion, an increase of 9.6 percent compared to 2012. This is the fourth consecutive year that industry earnings have registered a year-over-year increase. The improvement in earnings was primarily attributable to lower expenses for loan-loss provisions, reduced noninterest expenses, and increased noninterest income. More than half of all institutions—54.2 percent—reported year-over-year increases in net income, and the percentage of institutions with negative net income for the year fell to 7.8 percent, down from 11 percent a year earlier.
The average return on assets (ROA) was 1.07 percent, up from 1.00 percent in 2012. This is the highest annual ROA for the industry since 2006. However, fewer than half of insured institutions—45.3 percent—had higher ROAs in 2013 than in 2012. Insured institutions set aside $32.1 billion in provisions for loan and lease losses during 2013, a decline of $25.7 billion (44.4 percent) compared to 2012. This is the smallest annual loss provision since 2006. The industry’s total noninterest expenses fell by $4.5 billion (1.1 percent), as itemized litigation expenses declined by $4.5 billion. Noninterest income rose by $3.2 billion (1.3 percent), as trading revenue was $4.3 billion (23.7 percent) higher, servicing fee income was up by $3.9 billion (27.5 percent), and income from trust activities rose by $2.2 billion (7.7 percent). Noninterest income from changes in the fair values of financial instruments accounted for under a fair value option was $6.5 billion lower than in 2012. Realized gains on securities were $5.2 billion (53.7 percent) lower, as higher interest rates in 2013 reduced the market values of banks’ securities portfolios.
A challenging interest-rate environment contributed to a decline in the industry’s net interest income in 2013. Net interest income registered a third consecutive annual decline, falling by $3.7 billion (0.9 percent), as interest income declined more rapidly than interest expense. Total interest income was $16 billion (3.3 percent) lower than in 2012, even though average interest-earning asset balances were $487.3 billion (4 percent) higher, as older, higher-yield assets matured and were replaced by lower-yielding current investments. The average net interest margin fell from 3.42 percent in 2012 to 3.28 percent, the lowest annual average since 2008.
Indicators of asset quality continued to improve in 2013. In the 12 months ended December 31, 2013, total noncurrent loans and leases—those that were 90 days or more past due or in nonaccrual status—declined by $69.7 billion (25.2 percent). Loans secured by real estate properties accounted for the largest share of the reduction in noncurrent loans ($64.9 billion). Noncurrent 1-4 family residential real estate loans fell by $44.5 billion (23.2 percent), noncurrent nonfarm nonresidential real estate loans declined by $9.5 billion (31.1 percent), and noncurrent real estate construction loans fell by $8.6 billion (50.6 percent). Noncurrent balances in all other major loan categories declined, led by loans to commercial and industrial (C&I) borrowers (down $3.3 billion, or 24.8 percent).
Net charge-offs (NCOs) of loans and leases totaled $53.2 billion in 2013, a decline of $29 billion (35.3 percent) compared to 2012. Real estate loans secured by 1-4 family residential properties registered the largest year-over-year decline, with NCOs falling by $15.9 billion (51.7 percent). Net charge-offs of credit card loans were $3.2 billion (12.5 percent) lower, while NCOs of nonfarm nonresidential real estate loans declined by $3 billion (51.4 percent), and NCOs of real estate construction and development loans were $2.8 billion (73 percent) lower than in 2012. NCOs in all other major loan categories also posted significant declines.
Asset growth remained modest in 2013. During the 12 months ended December 31, total assets of insured institutions increased by $272.1 billion (1.9 percent). Loans and leases accounted for more than half of the increase in total assets, rising by $197.3 billion (2.6 percent). C&I loans increased by $101.5 billion (6.8 percent), nonfarm nonresidential real estate loans rose by $36.1 billion (3.4 percent), and auto loans increased by $33.2 billion (10.4 percent). In contrast, home equity lines of credit fell by $44 billion (7.9 percent), and other real estate loans secured by 1-4 family residential properties declined by $63.5 billion (3.4 percent).
Growth in deposits outpaced the increase in total assets. In the 12 months ended December 31, total deposits of insured institutions increased by $374.7 billion (3.5 percent). Deposits in domestic offices rose by $343.9 billion, (3.6 percent), while foreign office deposits increased by $30.7 billion (2.2 percent). Much of the increase in domestic deposits occurred in balances in large-denomination accounts. Deposits in accounts with denominations greater than $250,000 increased by $269.4 billion (5.9 percent). Nondeposit liabilities declined by $128.2 billion (6.4 percent), while equity capital rose by $29.8 billion (1.8 percent).
At the end of 2013, there were 467 institutions on the FDIC’s “Problem List,” down from 651 “problem” institutions a year earlier. Total assets of problem institutions declined to $153 billion from $174 billion. Although these institutions are identified as having financial, operational, or managerial weaknesses that threaten their viability, historical analysis shows that most problem institutions do not fail.
In 2013, there were 24 bank failures with a combined $6.0 billion in assets. At year-end 2013, the Deposit Insurance Fund (DIF) balance stood at $47.2 billion, up from $33.0 billion at year-end 2012 and up from the low point of negative $20.9 billion at the end of 2009. The reserve ratio was 0.79 percent at year-end 2013, up from 0.44 percent at year-end 2012. On October 14, 2010, the FDIC adopted an amended Restoration Plan that will restore the DIF reserve ratio to 1.35 percent by September 2020, as required by the Dodd-Frank Act. For the period 2013 to 2017, the FDIC projects losses of $4 billion to the DIF from bank closings.The banking industry has the capacity to provide the necessary backing to the DIF, given its historically strong capital levels. At the end of 2013, almost 98 percent of all FDIC-insured institutions, representing nearly 100 percent of all insured-institution assets, met or exceeded the requirements to be well-capitalized according to the regulatory capital definition for Prompt Corrective Action. This capacity, together with the backing of the full faith and credit of the U.S. government, ensures that the FDIC will continue to have the resources necessary to protect insured depositors.