2015 Annual Performance Plan
Program Resource Requirements
The chart below breaks out the 2015 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 2015 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 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 website 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 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 2015, 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 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 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, rules were written on an interagency basis to address implementation of Basel III; revisions to risk-based and leverage capital requirements; the liquidity coverage ratio; and 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 Housing Enterprises and the Federal Home Loan Banks.
The Federal Financial Institutions Examination Council
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, 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 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, make regulatory capital more risk-sensitive, 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. In 2014, the FDIC and the other federal banking agencies 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. As a result, the BCBS published a final leverage ratio standard, a final framework for securitization exposures, a proposal for a revised standardized approach, and a final standard for the Basel III liquidity metric known as the Net Stable Funding Ratio. The FDIC also provides substantial support on various BCBS qualitative 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 and Financial Stability Board (FSB).
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 to the infrastructure of the largest dealer banks. The group is composed of supervisors of the 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 builds 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, coordinating with the Financial Action Task Force, and serving as a forum for AML/CFT experts from banking supervisory agencies.
- 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 Payments Fraud Working Group, co-chaired by the FDIC and DOJ, and composed of the federal bank regulatory agencies, 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 the 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 and the CFPB collaborated to enhance financial education among school-age children by providing resources for teachers and parents/caregivers.
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 15 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, consumer 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 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, 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 U.S. economy gained momentum in 2014, but challenges remain. Real gross domestic product (GDP) has grown at a relatively tepid pace each year since 2010, but it gained momentum in 2014 and is now well above its pre-recession peak. The slow pace of recovery is consistent with the aftermath of previous financial crises around the world. The unemployment rate has declined from a peak of 10 percent in 2009 to below 6 percent at the end of 2014. Going forward, the Blue Chip consensus forecasts expect real GDP growth to continue at a near-trend pace in 2015, as the labor market improves and personal consumption strengthens. Monetary policy remains accommodative, as the Federal Reserve is expected to keep interest rates near zero through late 2015 and then increase rates gradually.
The U.S. economy continues to face a number of risks. As the economy improves, the Federal Reserve faces challenges normalizing monetary policy in a manner that supports both economic growth and price stability. Financial markets may encounter periods of volatility as monetary policy normalizes, which may adversely affect bank profitability. Even modest increases in interest rates can affect asset valuations and earnings potential of depository institutions. In addition, fiscal challenges for federal, state and local governments have the potential to weigh on economic growth. Globally, the recovery in Europe remains tenuous and slowing growth in some of the major advanced and emerging market economies could adversely affect trade and financial markets. If U.S. growth and monetary policy continue to diverge from those of other major countries, then the resulting dollar appreciation could exacerbate existing trade imbalances and potentially create volatility in global capital flows and financial markets. Financial crises in Greece, Puerto Rico, and China have the potential to further unsettle markets.
The steady expansion of the U.S. economy should continue to support the performance of 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 challenges and risks that merit continued attention by regulators.
Insured institution performance showed mixed results in 2014. The 6,509 FDIC-insured commercial banks and savings institutions that filed financial results for the full year of 2014 reported net income of $152.7.0 billion, down $1.7 billion (1.1 percent) from 2013. This is the first year that earnings have posted a year-over-year decrease since 2009. The decline was mainly attributable to litigation expenses at a few larger institutions and lower noninterest income. Despite the overall decline, more than 60 percent of institutions reported higher net income in 2014 than in 2013 and only 6.1 percent reported negative net income compared to 8.2 percent a year ago.
The average return on assets (ROA) was 1.01 percent, down from 1.07 percent a year ago. However, a majority of banks–56 percent–reported higher ROAs. Net operating revenue (the sum of net interest income and total noninterest income) was $669 billion, relatively unchanged from a year ago, with over two-thirds of all banks (67.4 percent) reporting year-over-year net operating revenue growth. Noninterest income was $5.5 billion (2.2 percent) lower than in 2013, as a sharp increase in medium- and long-term interest rates in May 2013 has led to a continued drop-off in income from mortgage refinancing. Noninterest income from the sale, securitization, and servicing of 1-4 family residential mortgages was $9.1 billion (35.2 percent) lower in 2014 than in 2013. Higher interest rates meant lower market values for securities portfolios, and realized gains on securities were $1.3 billion (28 percent) lower. However, the increase in longer-term interest rates was a positive development for net interest margins of institutions that invested in longer-term assets and funded these investments with short-term liabilities. More than half of all banks–52.9 percent–reported higher net interest margins than a year earlier. Net interest income was $5.5 billion (1.3 percent) higher than in 2013, as almost 72.1 percent of all banks reported year-over-year increases.
For a fifth consecutive year, loan-loss provisions were lower for the full year than the previous year. Insured institutions set aside $29.7 billion in provisions for loan and lease losses, a $2.7 billion (8.4 percent) decline compared to a year earlier and the smallest total since 2006. Noninterest expenses were $5.2 billion (1.2 percent) higher than in 2013, as “other” noninterest expenses were $6.5 billion (3.8 percent) higher. This increase is largely attributable to the fact that itemized litigation expenses at three of the largest banks were $7.3 billion (327 percent) higher than a year ago.
Asset quality indicators continued to improve in 2014. In the 12 months ended December 31, noncurrent loan balances—those that were 90 days or more past due or in nonaccrual status—declined by $44.6 billion (21.5 percent). Noncurrent 1-4 family residential mortgage loans fell by $29.8 billion (22.3 percent), while noncurrent nonfarm nonresidential real estate loans declined by $5.9 billion (27.9 percent). Noncurrent real estate construction and land development loans were $3.5 billion (40.9 percent) lower, and noncurrent commercial and industrial (C&I) loans declined by $1.4 billion (13.8 percent).
Net charge-offs (NCOs) of loans and leases totaled $39.6 billion in 2014, down $14.2 billion (26.4 percent) from a year earlier. This is the fifth year in a row that total NCOs have been less than a year earlier. NCOs of 1-4 family residential mortgages were $5.6 billion (60.1 percent) lower than in 2013, while NCOs of home equity lines of credit declined by $2.7 billion (48 percent). NCOs of real estate loans secured by nonfarm nonresidential real estate properties fell by $1.8 billion (60.6 percent), and credit card NCOs declined by $1.6 billion (7.1 percent).
Asset growth was relatively strong in 2014. At the end of December, total assets of insured institutions were $822 billion (5.6 percent) higher than a year earlier. Banks increased their investment securities portfolios by $217.3 billion (7.2 percent), as holdings of U.S. Treasury securities rose by $212.7 billion (110.4 percent). Insured institutions also increased their balances with Federal Reserve banks by $215 billion (18.4 percent). Total loan and lease balances increased by $416.4 billion (5.3 percent), led by growth in C&I loans (up $148.9 billion, 9.5 percent). Real estate loans secured by nonfarm nonresidential properties increased by $40.7 billion (3.7 percent), while real estate loans secured by multifamily residential properties rose by $34.5 billion (13.1 percent).
Much of the growth in assets was funded by increases in deposit balances. Deposits in domestic offices increased by $576.9 billion (5.9 percent) in the 12 months ended December 31. Most of the growth occurred in large-denomination accounts, as estimated insured deposits increased by only $192.7 billion (3.2 percent). Nondeposit liabilities increased by $163.1 billion (8.7 percent), as advances from Federal Home Loan Banks rose by $58.1 billion (14.3 percent). Equity capital increased by $91.4 billion (5.6 percent).
At the end of December, 291 insured institutions on the FDIC’s “Problem List,” with total assets of $87 billion were on the FDIC’s “Problem Bank List”. A year earlier, 467 problem institutions with combined assets of $153 billion were on the Problem Bank List. Problem banks are identified as institutions with financial, operational, or managerial weaknesses that threaten their viability, although historical analysis shows that most problem institutions do not fail.In 2014, 18 banks with combined assets of $2.9 billion failed. At the end of December, the Deposit Insurance Fund (DIF) balance stood at $62.8 billion, up from $47.2 billion a year earlier. The reserve ratio was 1.01 percent, compared to 0.79 percent on December, 31, 2013.