2017 Annual Performance Plan
Program Resource Requirements
The chart below breaks out the 2017 FDIC 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 2017 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 early 2015, the FDIC Board of Directors approved a new FDIC Strategic Plan, 2015–2019, that reflected the addition of strategic goals and objectives related to the FDIC’s new responsibilities for resolution planning for large and complex banks and bank holding companies under the DFA.
In developing its Strategic and Annual Performance Plans, the FDIC uses an integrated planning process in which senior management provides guidance and direction on FDIC goals and priorities. Plans and budgets are developed to achieve those goals and priorities 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, the findings of 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 its internal website and internal communications, such as videos, 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 website (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.Since the beginning of the financial crisis, the FDIC has expanded the range of issues receiving close management scrutiny to encompass crisis-related challenges. Management continues to pay particular attention to the areas of cybersecurity, failed bank data, the development of IT systems supporting FDIC operations, infrastructure development for new operational areas, as well as process mapping and development of performance metrics in several areas. In 2017, risk-based reviews will continue to be performed in each of the FDIC’s strategic program areas. Results of these reviews will assist management by confirming that these programs are strategically aligned or by identifying changes that need to be made.
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 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 FRB and the OCC—to address issues and programs that transcend the jurisdiction of each agency. Regulations are, in many cases, interagency efforts. For example, interagency rules have been developed to address implementation of Basel III; revisions to risk-based and leverage capital requirements; the liquidity coverage ratio; credit risk retention; and other supervisory guidance policies, including policies addressing capital adequacy, information technology and cybersecurity risks, leveraged lending, and liquidity risk management. In addition, the 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 the majority of 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 Government-Sponsored Enterprises and the Federal Home Loan Banks.
The Federal Financial Institutions Examination Council (FFIEC)
The 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, FRB, OCC, NCUA, and 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, FRB, and OCC work with the Conference of State Bank Supervisors (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 is a member of 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; ensure that the regulatory capital framework for internationally active banks is risk-sensitive and includes appropriate constraints on the use of financial leverage; and promote enhanced risk management practices among large, internationally active banking organizations. Other areas of significant focus include liquidity and funds management, market risk exposure, and derivatives activities. The FDIC and the other federal banking agencies have worked closely with the BCBS to improve the Basel III Capital Accord to strengthen the resiliency of the banking sector and improve liquidity risk management.
In 2016, the BCBS published a number of final documents to continue this progress, including a Total Loss Absorbing Capacity (TLAC) holdings standard; a consultative document on the regulatory treatment of accounting provisions, answers to Frequently Asked Questions (FAQs) about the supervisory framework for measuring and controlling large exposures, answers to FAQs about the Net Stable Funding Ratio, revisions to the securitization framework, standards for Interest-Rate Risk in the Banking Book, answers to FAQs about the leverage ratio framework, a consultative document on reducing variation in credit risk-weighted assets, a consultative document on the Pillar 3 disclosure requirements framework, a consultative document on the Standardized Measurement Approach for operational risk, and a revised market risk framework.
The FDIC also provides substantial support on various BCBS quantitative impact studies, which are used to monitor the impact of proposed and final standards on banking 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 that discuss initiatives on derivative reforms mandated by the Group of Twenty (G-20) and FSB.
The group is heavily involved in assuring international consistency on the development of trade repositories and central counterparty clearing. It 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 changing the infrastructure of the largest dealer banks. The group is composed of supervisors of the G-SIFIs. 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, FRB, and 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 leading role in developing IADI into a global standard setter and the world’s premier provider of technical assistance and training for deposit insurance. IADI contributes to the stability of the financial system by promoting international cooperation in the field of deposit insurance. Through IADI, the FDIC builds strong bilateral and multilateral relationships with foreign deposit insurers, resolution authorities, 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 plays a leadership role in the Association of Supervisors of Banks of the Americas (ASBA) and 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 contributing to ASBA’s research and guidance initiatives, technical training and cooperative endeavors, and leadership building programs.
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 (i.e., the FRB, OCC, and NCUA) along with the CFPB, the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Department of Justice, and the Federal Trade Commission. The agencies exchange information about fair lending issues, examination and investigation techniques, 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), CFPB, FRB, NCUA, OCC, Securities and Exchange Commission (SEC), Department of the Treasury, and 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 Bank Secrecy Act Advisory Group 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, foreign correspondent banking activities, money services businesses, 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, Internal Revenue Services (IRS), and 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 is responsible for monitoring AML/CFT issues that have a bearing on banking supervision, coordinating with the Financial Stability Board, and serving as a forum for AML/CFT experts from banking supervisory agencies.
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 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 workgroups emphasizing integrating financial education into youth programs and those engaged in workforce development initiatives.
Financial Education Partnerships
The FDIC collaborates with other federal, state, and local government agencies to promote financial education and capability initiatives for consumers and small businesses. During 2016, the FDIC continued to implement the Youth Savings pilot in local schools to demonstrate how to link financial education with safe savings accounts at banks. The FDIC also continued collaboration with the CFPB to implement and enhance age-appropriate financial education curricula for teachers and related parent guides. In addition, the FDIC continued to collaborate with the U.S. Small Business Administration to expand awareness of Money Smart for Small Business and rolled out a new train-the-trainer resource during 2016.
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 14 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 services include savings accounts, affordable remittance products, targeted financial education programs, small-dollar loan programs, 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 develop 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.
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, SEC, and 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 agencies 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.
U.S. Small Business Administration Strategic Alliance Memorandum
The FDIC partners with the U.S. Small Business Administration (SBA) to encourage financial institutions to prudently serve entrepreneurs and small business owners. Through a Strategic Alliance Memorandum (SAM), the FDIC and SBA collaborate by co-sponsoring events and activities to help banks become fully aware of SBA capital access programs and connect banks to opportunities to address small business training, counseling, and financial service needs.
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 fluctuates 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 U.S. economy continued to grow moderately in 2016, but risks to the outlook remain. U.S. economic activity picked up in mid-2016 after slowing for several quarters as the adverse effects of a strong dollar and low energy prices abated. Expectations are for continued growth of about 2 percent annually. Business investment remains weak, but steady gains in the labor market have supported consumer spending. The unemployment rate has been low and stable at 4.9 percent for much of 2016, and the tighter labor market has led to a modest increase in wage growth. Continuing improvements in economic activity and an increase in inflation have raised expectations that the Federal Reserve will continue on a path to normalize monetary policy.
The U.S. economy faces a number of key risks and challenges, both ongoing and emerging. As the economy improves and the Federal Reserve acts to raise rates, it will seek to do so in a manner that supports both economic growth and price stability. Financial markets may encounter periods of volatility, which may adversely affect bank profitability. Even modest increases in interest rates and shifts in the yield curve can affect asset valuations and the earnings potential of depository institutions. A strong dollar continues to affect manufacturing and exports, and low commodity prices are affecting energy and agriculture producing regions. Globally, European banks face significant income and balance-sheet challenges that may adversely affect financial markets. Uncertainty about the future of global trade agreements and a slowdown of China’s growth could weigh on the global economy and financial markets. If U.S. growth and monetary policy continue to diverge from those of other major countries, then the resulting dollar appreciation would exacerbate existing trade imbalances and challenge manufacturing and export sectors.
Steady expansion of the U.S. economy should continue to support the performance of FDIC-insured institutions. However, the post-crisis environment still poses unique challenges and risks that merit continued attention by regulators.
Insured institution performance showed mixed results through the four quarters of 2016. The 5,913 FDIC-insured commercial banks and savings institutions that filed financial results for 2016 reported net income of $171.3 billion, up $8.0 billion (4.9 percent) from 2015. The increase was mainly attributable higher net interest income. More than 65 percent of institutions reported higher net income in 2016 than in the same period in 2015, and only 4.2 percent reported negative net income compared to 4.8 percent a year earlier.
The average return on assets (ROA) was 1.04 percent, unchanged from a year earlier. Net operating revenue—the sum of net interest income and total noninterest income—was $714 billion, up $29 billion from a year earlier. Noninterest income declined $779 million (0.3 percent) in 2016 from the same period in 2015, due to a slight decrease in servicing fee and securitization income. Interest rates rose at year-end; however, realized gains on securities were $157 million (4.3 percent) higher for the full year. The low interest rate environment bolstered net interest margins at many banks, as they invested in longer-term, higher-yielding assets funded with short-term liabilities. Net interest income was $29.8 billion (6.9 percent) higher than in 2015.
Loan loss provisions were higher in 2016 than in 2015. Insured institutions set aside $47.8 billion in provisions for loan and lease losses, a $10.7 billion (28.8 percent) increase compared to a year earlier. Noninterest expenses were $5.1 billion (1.2 percent) higher than in 2015, as salary expenses rose $6.3 billion (3.3 percent).Asset quality indicators continued to improve in 2016. At year-end 2016, noncurrent loan balances—those that were 90 days or more past due or in nonaccrual status—declined by $6.3 billion (4.6 percent). Noncurrent 1-to-4 family residential mortgage loans fell by $15.3 billion (19.0 percent), while noncurrent nonfarm nonresidential real estate loans declined by $2.1 billion (20.3 percent). Noncurrent real estate construction and land development loans were $794 million (25.8 percent) lower, and noncurrent commercial and industrial (C&I) loans increased by $10.2 billion (70.9 percent). The rise in noncurrent C&I loans may be due to weaknesses in the oil, gas, and mining sector caused by prolonged low commodity prices.
Net charge-offs (NCOs) of loans and leases totaled $42.5 billion in 2016, up $5.2 billion (14.1 percent) from a year earlier. NCOs of 1-to-4 family residential mortgages were $1.6 billion (57.1 percent) lower than in 2015, while NCOs of home equity lines of credit declined by $635 million (34.2 percent). NCOs of real estate loans secured by nonfarm nonresidential real estate properties fell by $665 million (76.8 percent), and C&I NCOs increased by $3.8 billion (80.5 percent).
Asset growth was relatively strong in 2016. At year-end 2016, total assets of insured institutions were $813 billion (5.1 percent) higher than a year earlier. Since year-end 2015, banks increased their investment securities portfolios by $205 billion (6.1 percent), as holdings of mortgage-backed securities rose by $133 billion (7.1 percent). Insured institutions decreased their balances with Federal Reserve banks by $85.8 billion (7.2 percent). Total loan and lease balances increased by $466 billion (5.3 percent), led by growth in C&I loans (up $95 billion, or 5.1 percent). Real estate loans secured by nonfarm nonresidential properties increased by $93.0 billion (7.5 percent), while real estate loans secured by multifamily residential properties rose by $38.6 billion (11.2 percent).
Much of the growth in assets was funded by increased deposit balances. Deposits in domestic offices increased by $742.1 billion (6.8 percent) in the twelve months ended December 31. The growth occurred in both large- and small-denomination accounts, as estimated insured and uninsured deposits increased by $388 billion and $317 billion, respectively. Nondeposit liabilities increased by $39 billion (1.9 percent), as advances from Federal Home Loan Banks increased by $68.2 billion (13.8 percent). Equity capital rose by $70.3 billion (3.9 percent).
As of December 31, 2016, 123 insured institutions with total assets of $27.6 billion were on the FDIC’s “Problem Bank List.” This is down from 183 problem institutions with combined assets of $47 billion on the Problem Bank List at year-end 2015. Problem banks are those institutions with financial, operational, or managerial weaknesses that threaten their viability, although historical analysis shows that most problem institutions do not fail.Over the twelve months of 2016, five banks failed with combined assets of $278.8 million. The Deposit Insurance Fund balance stood at $83.2 billion with a reserve ratio of 1.20 percent on December 31, 2016, up from $72.6 billion and a reserve ratio of 1.11 percent at year-end 2015.