I. Management's Discussion and Analysis - The Year in Review
Effective Management of Strategic Resources
The FDIC recognizes that it must effectively manage its human, financial, and technological
resources in order to successfully carry out its mission and meet the performance goals and
targets set forth in its annual performance plan. The Corporation must align these strategic
resources with its mission and goals and deploy them where they are most needed in order to
enhance its operational effectiveness and minimize potential financial risks to the DIF. Major
accomplishments in improving the Corporation's operational efficiency and effectiveness during
2006 are described on the following pages.
Human Capital Management
The FDIC's employees are its most important resource. The intellectual capital supplied by
FDIC employees is the single most important contributor to achieving the Corporation's mission
of maintaining public confidence in our nation's financial system. As such, the FDIC strives to
be the best employer within the financial regulatory community and pursues human capital
programs and strategies that will enable it to attract, develop and retain a highly skilled, diverse,
and results-oriented workforce.
The FDIC has a human capital framework that guides its human capital activities. Using this
framework as a guide, the Corporation continues to develop and maintain a workforce that is
highly functional and cross-trained in multiple disciplines and stands ready to redirect its
attention and efforts in response to changes in the banking industry or changes in workload
During 2006, the FDIC completed the last of its currently-planned workforce restructuring
activities. Through the strategic use of voluntary early retirement authority and voluntary
separation incentive payments, most of the remaining restructuring was accomplished
voluntarily. The Corporation also completed a very successful internal placement process that
reassigned remaining surplus staff to vacancies in other FDIC organizations.
Corporate Employee Program
Development and implementation of the new Corporate Employee Program (CEP) continued in
2006. The program emphasizes cross-training of employees at all levels to provide greater
flexibility to be able to respond to changes in workload as well as unexpected external events.
During the past year, the primary focus was on the implementation of a new recruiting strategy
for entry-level employees and refinement of the first-year training program under which new
employees are exposed to each of the Corporation's three major business lines. By the end of
2006, almost 200 employees had begun the three-year career internship and training program that
is the core component of the CEP and will in the future constitute the primary source of new
employees for the Corporation's business divisions.
Employee Learning and Growth
The Corporation emphasizes continuous employee learning and growth. During 2006, the
Corporation finalized plans for the 2007 implementation of the new Professional Learning
Account program that will give employees a greater role in planning their career development
and provide substantially increased funding for external training. The Corporation also began to
increase its emphasis on industry-recognized professional certifications and completed pilot tests
of two new internally-developed certificate programs covering Bank Secrecy Act/Anti-Money
Laundering, and Resolutions and Receivership Claims. A career path for large complex bank
specialists will be explored, and training requirements for this specialty will be evaluated. As
these and other programs are implemented, a database of FDIC employee skills will track and
monitor the availability of specialized human capital resources.
Corporate University expanded its support of external certificate programs to provide staff the
opportunity to build skills as well as earn professional credentials. The FDIC now pays exam
fees and preparation class fees for eligible students pursuing the following external certificate
The FDIC will have the opportunity over the next decade to substantially reshape its workforce
in conjunction with the projected retirements of a large number of employees from the "baby
boom" generation. To proactively plan for and address these projected retirements, the FDIC
developed two succession management programs in 2006: the Executive Talent Review and the
Corporate Executive Development Program. These programs were designed to assess executive
leadership strength, identify potential skill set shortages or gaps and then institute strategies for
closing these gaps, including rigorous leadership development programs. In late 2006, the
FDIC's senior leadership conducted an initial "talent review" of all of its executive managers to
determine where there may be gaps in the availability and skills of qualified successors for key
executive positions. This process identified a number of "at risk" positions – those in which the incumbents were likely to leave in the near future with no or few obvious internal candidates
available to replace them. In 2007, the Corporation will develop strategies to fill these potential
succession gaps for positions with a high risk of loss in the near term. The talent review process
will also be extended to assess potential succession in management gaps for supervisory and
managerial positions as well as senior technical professionals.
In January 2006, the FDIC began implementation of the new 2006-2009 Compensation
Agreement that had been negotiated with its employee union during 2005. This included a
revised pay-for-performance (PFP) system that provides for graduated base pay increases and
potential lump sum bonuses based exclusively on assessments of total employee performance.
The PFP system is entirely performance-based; only those employees who meet all of their
performance standards are eligible for pay increases.
The FDIC's human capital programs and strategies are continually evaluated to ensure that the
FDIC remains an employer of choice and that all employees feel engaged and aligned with the
Corporation's mission critical functions. To help assess workload alignment and employee
engagement, all FDIC employees were encouraged to participate in the 2006 Federal Human
Capital Survey administered by the Office of Personnel Management. This survey provides
relative measures of employee satisfaction and engagement on a number of dimensions. In 2007,
the FDIC will analyze the results and implement action plans to address any potential issues that
employees identify as inhibitors to strong employee engagement.
Management of Financial Resources
The FDIC's operational expenses are largely paid from the DIF, and the Corporation seeks to
operate in a consistently efficient and cost effective manner in order to fulfill its fiduciary
responsibilities. To that end, the Corporation engages annually in a rigorous planning and
budgeting process that is designed to ensure that budgeted resources are properly aligned with
projected workload and business priorities. In 2006, the FDIC continued to enhance the cost
management information available to managers in conjunction with the implementation of the
New Financial Environment, its new accounting system. In 2007, the FDIC will continue to
explore how best to utilize this enhanced cost management data to promote good stewardship of
the Corporation's resources.
Managing Facility-Related Costs
In the first quarter of 2006, the Corporation completed construction of its Virginia Square Phase
II facility in Arlington, VA. The project was completed on time and under budget.
Approximately 800 employees in three leased facilities in Washington, DC, were relocated to the
expanded facility in Arlington. Successful completion of this initiative to build and relocate staff
to owned space will save the Corporation an estimated $89 million (net present value) over 20
years, compared to the projected cost of extending the previous leasing agreements.
Information Technology Management
Information technology (IT) resources are one of the most valuable assets available to the FDIC
in fulfilling its corporate mission. The FDIC operates a nationwide computing network and
maintains approximately 270 application systems through which employees perform their duties.
For the past several years, the Corporation has been engaged in a major effort to transform and
improve its IT program. In 2006, the IT program continued to evolve as it continued to
implement key elements of its transformation plan:
The organization fully adopted the Rational Unified Process® as its new system development life cycle methodology and customized it to meet the FDIC's unique IT project environment.
The Division of Information Technology (DIT) adopted a new internal control framework based upon the international standard known as CobiT (Control Objectives for Information and Related Technology).
DIT continued implementing a new sourcing strategy in which it partnered with the private sector and other federal agencies to provide IT support services using performance-based, results-driven contracts.
In 2006, the FDIC also implemented an e-Exam Policy, including related security procedures, for
use in conducting examination activities at institutions utilizing an electronic exchange of
documents/data with the FDIC. A significant component of the e-Exam Policy involves the
flexibility to increase the amount of examination work conducted off-site. Factors considered in
the decision to utilize this program include the type and extent of the information available, the
institution's risk profile, and management's willingness to transfer examination documents
The FDIC continued to collect quality and timely information in 2006 with the use of
FDICconnect, the secure Web site that facilitates electronic communication with FDIC-insured
institutions. In 2006, over 400,000 transactions were completed by financial institutions using
Central Data Repository
The Federal Financial Institutions Examination Council (FFIEC), which includes the FDIC, won
a 2006 award from Government Computer News for outstanding and innovative use of IT in
government for the successful launch of the new Central Data Repository (CDR) to collect Call
Report data using XBRL (eXtensible Business Reporting Language). The CDR project was also
awarded the Chief Information Officer's Top 100 award for its outstanding work using XBRL
for financial reporting.
Enhanced Information Security Program
The FDIC's information security program seeks to proactively assure the integrity,
confidentiality and availability of corporate information requiring an ongoing commitment by
employees throughout the organization. In 2006, the information security program continued its
ongoing cycle for assessing risks, developing and implementing effective security procedures
and monitoring the effectiveness of those procedures.
Corporate Privacy Program
The FDIC continued to enhance its IT Privacy Program in 2006 with an emphasis on protecting
personally identifiable information (PII) from unauthorized use, access, disclosure or sharing,
and protecting associated information systems from unauthorized access, modification,
disruption or destruction. Initiatives undertaken during the year included the following:
Developing an overarching privacy directive.
Developing a strategy for the protection of PII processed, stored, transmitted or accessed by FDIC contractors, and ensuring appropriate assessment of the security of data.
Continuing the review and remediation of PII in FDIC application systems.
Identifying all contracts that process or use PII or other sensitive information, ensuring that updated privacy and nondisclosure clauses are included.
Continuing to participate in the Office of Management and Budget Privacy Work Group.
Emergency Preparedness Program
During 2006, the FDIC continued work on its Emergency Preparedness Program, and made
improvements to the Emergency Response Plan (ERP) and Business Continuity Plan (BCP).
Completed initiatives included the development of a computer-based instruction module on
emergency preparedness for all FDIC personnel to be activated in early 2007; expansion and
improvement of FDIC alternate site facilities; expansion of FDIC emergency notification
systems to all regional and area offices; revision of both the ERP and BCP; and participation in
the Federal government's Forward Challenge simulation exercise. Other accomplishments
included the conduct of additional classroom training on emergency preparedness for employees,
contractors and floor marshals; shelter-in-place and evacuation drills; and tabletop exercises at
all headquarters and regional office locations. Disaster recovery testing of FDIC's key
information technology resources was also performed.