2008 Annual Report Highlights
During 2008, the FDIC issued and participated in the issuance of guidance in several areas as described below:
- Commercial Real Estate Guidance — the FDIC issued “Managing Commercial Real Estate Concentrations in a Challenging Environment” which re-emphasizes the importance of strong capital and allowance for loan and lease loss levels and robust credit risk management practices for institutions with concentrated commercial real estate exposures.
- Liquidity Risk Management — the FDIC issued guidance highlighting the importance of liquidity riskmanagement at FDIC-supervised institutions. This guidance noted that institutions using wholesale funding, securitizations, brokered deposits and other high-rate funding strategies should measure liquidity risk using pro forma cash flows/scenario analysis and should have contingency funding plans in place that address relevant bank-specific and systemic stress events.
- Third-Party Risk — the FDIC issued “Guidance for Managing Third-Party Risk” which identifies sound practices that can help banks avoid significant safety-and-soundness and compliance problems that may be associated with some third-party relationships. On November 7, 2008, the FDIC issued “Guidance on Payment Processor Relationships,” which identifies potential risks and recommended controls associated with relationships with entities that process payments for telemarketers and other merchant clients.
- Trust — the FDIC completed significant revisions and additions to the FDIC Trust Examination Manual. Most notably, substantial material was added to the sections covering employee benefit plans, the Employee Retirement Income Security Act of 1974, the Gramm-Leach-Bliley Act, and Regulation R exceptions and exemptions for banks from the definition of “broker” in the Securities Exchange Act of 1934.
- Government-Sponsored Enterprises — The Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship. The FDIC believes these government-sponsored enterprises are important to the home mortgage market and, along with the other federal banking agencies, issued a statement on September 7, 2008, indicating that it will work with institutions with significant holdings of Fannie Mae or Freddie Mac common and preferred shares in relation to their capital.
- Home Equity Lines of Credit — the FDIC issued “Home Equity Lines of Credit: Consumer Protection and Risk Management Considerations When Changing Credit Limits and Suggested Best Practices” to remind FDIC-supervised financial institutions that if, for risk management purposes, they decide to reduce or suspend home equity lines of credit, certain legal requirements designed to protect consumers must be followed.
- Other Real Estate — the FDIC issued “Other Real Estate: Guidance on Other Real Estate” to remind bank management of the importance of developing and implementing policies and procedures for acquiring, holding, and disposing of other real estate.
- Hope for Homeowners — the FDIC joined the Departments of Housing and Urban Development and Treasury and the Federal Reserve in establishing requirements and standards for the Program that are not otherwise specified in the legislation, and prescribing necessary regulations and guidance to implement those requirements and standards.
- Regulatory Relief — the FDIC issued 12 Financial Institution Letters that provided guidance to help financial institutions and facilitate recovery in areas damaged by severe storms, tornadoes, flooding, and other natural disasters.
- Other Guidance Issued — the FDIC also contributed to the release of guidance on Subprime Mortgage Product Illustrations and on Identity Theft Red Flags regulations and examination procedures, and changes to the Truth in Lending Act and the Home Mortgage Disclosure Act regulations relating to higher-priced mortgages.
Monitoring Potential Risks from New Consumer Products and
Developing a Supervisory Response Program
The FDIC is revising the former Underwriting Survey, completed by examiners at the conclusion of each examination to aid in identifying new products and emerging risks. This will provide examiners the opportunity to submit information to a central database at the conclusion of each examination. Policy staff will monitor and analyze this real-time examiner input and use the information to formulate policy guidance to allow supervisory strategies as appropriate.
Regulatory Reporting Revisions
The FDIC, jointly with the Office of the Comptroller of the Currency and the Federal Reserve Board, implemented revisions to the Consolidated Reports of Condition and Income (Call Report) in first quarter 2008. These revisions included new data related to residential mortgages (such as restructured troubled mortgages, mortgages in foreclosure, and mortgage repurchases and indemnifications) and expanded data on trading assets and liabilities and fair value measurements. In November 2008, the FDIC and the other banking agencies obtained emergency approval from the U.S. Office of Management and Budget to collect data in the regulatory reports for all insured institutions beginning in December 2008 to support the quarterly assessment process for the FDIC’s Transaction Account Guarantee Program.
Promoting Economic Inclusion
The FDIC pursued a number of initiatives in 2008 to facilitate underserved populations using mainstream banking services rather than higher cost, non-bank alternatives and to ensure protection of consumers in the provision of these services.
Alliance for Economic Inclusion
The goal of the FDIC’s Alliance for Economic Inclusion (AEI) initiative is to collaborate with financial institutions, community organizations, local, state and federal agencies, and other partners in select markets to launch broad-based coalitions to bring unbanked and underserved consumers into the financial mainstream.
The FDIC expanded its AEI efforts during 2008 to increase measurable results in the areas of new bank accounts, small-dollar loan products, remittance products, and delivery of financial education to more underserved consumers. During 2008, over 200 banks and organizations joined AEI nationwide, bringing the total number of AEI members to 924. More than 56,000 new bank accounts were opened during 2008, bringing the total number of bank accounts opened through the AEI to 90,000. During 2008 approximately 43,000 consumers received financial education through the AEI, bringing the total number of consumers educated to 73,000. Also, 53 banks were in the process of offering or developing small-dollar loans as part of the AEI and 34 banks were offering remittance products at the end of 2008.
During 2008, the FDIC included a component of its foreclosure prevention efforts within the AEI. The FDIC sponsored or co-sponsored more than 164 local outreach and training events, many in partnership with NeighborWorks® America and its affiliates. These sessions were designed to educate at-risk homeowners about the availability of foreclosure prevention counseling services and other resources. A new Web page was also launched to provide resources, tools and technical assistance to consumers and others at risk of foreclosure or involved in foreclosure prevention efforts.
Forum on Mortgage Lending for Low- and Moderate-Income (LMI) Households
On July 8, 2008, the FDIC held a “Forum on Mortgage LMI Households.” The purpose of the forum was to explore a framework for LMI mortgage lending in the future, in light of current problems in the mortgage market. The forum examined ways to encourage profitable, responsible, and sustainable mortgage lending to lower-income households and strategies to rejuvenate the secondary market for these loans. Speakers at the forum included Treasury Secretary Henry M. Paulson, Federal Reserve Chairman Ben S. Bernanke, and JPMorgan Chase Chairman and CEO James Dimon.
FDIC Study of Bank Overdraft Programs
In 2008, the FDIC completed a Study of Bank Overdraft Programs, a two-part study that gathered empirical data on the types, characteristics, and use of overdraft programs operated by FDIC-supervised banks. The study was undertaken in response to the growth in automated overdraft programs, defined as programs in which the bank honors a customer’s overdraft obligations using standardized procedures to determine whether the non-sufficient fund (NSF) transaction qualifies for overdraft coverage. Data and information for the FDIC’s study were gathered through a survey collection representative of 1,171 FDIC-supervised institutions, and a separate data request of customer account and transaction-level data from a smaller set of 39 institutions. A final report was released in February 2009. The FDIC believes that objective information on these programs will help policymakers make better-informed policy decisions and will help the public better understand the features and costs related to automated overdraft programs.
National Survey of Banks’ Efforts to Serve the Unbanked and Underbanked
In 2008, the FDIC conducted the first of a series of national surveys on banks’ efforts to serve the unbanked and underbanked. For the purposes of this survey effort, unbanked individuals and families are those who rarely, if ever, held a checking account, savings account, or other type of transaction or check cashing account at an insured depository institution in the conventional finance system. Underbanked individuals and families are those who have an account with an insured depository institution but also rely on non-bank alternative financial service providers for transaction services or high-cost credit products. The survey was conducted in response to a mandate under section 7 of the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (Reform Act) which calls for the FDIC to conduct ongoing surveys on efforts by insured depository institutions to bring unbanked individuals and families into the conventional finance system.
The study involved a survey of insured depository institutions and development of a limited number of case studies. The survey was administered to a sample that was representative of all FDIC-insured commercial banks and savings institutions having standard retail banking operations. In-depth case studies were conducted of 16 surveyed institutions that were identified as offering innovative approaches to serving unbanked and underbanked individuals. The report was transmitted to Congress in early 2009.
Household Survey of the Unbanked and Underbanked
In January 2009, the U.S. Bureau of the Census conducted, on behalf of the FDIC, the first National Household Survey of the Unbanked and Underbanked. The survey was conducted as a supplement to Census’ Current Population Survey. In addition to collecting accurate estimates of the number of unbanked and underbanked households in the U.S., the survey was designed to provide insights into their demographic characteristics and reasons why the households are unbanked and/or underbanked. This effort is being undertaken in response to the Reform Act, which calls for the FDIC to provide an estimate of the size of the U.S. unbanked market and to identify issues that cause individuals and families to be unbanked. The FDIC plans to release survey results during 2009.
Information Technology, Cyber Fraud and Financial Crimes
The President’s Identity Theft Task Force, of which the FDIC is a member, submitted its follow-up report to the President in September 2008. The report documents the efforts of the Task Force to implement the 2007 Strategic Plan’s 31 recommendations concerning strengthening data protection, improving consumer authentication, assisting identity theft victims, and investigating, prosecuting, and punishing identity thieves.
Other major accomplishments during 2008 in combating identity theft included the following:
- Assisted financial institutions in identifying and shutting down approximately 1,223 “phishing” Web sites. The term “phishing” – as in fishing for confidential information – refers to a scam that encompasses fraudulently obtaining and using an individual’s personal or financial information.
- Utilized a brand protection service provider in taking down instances of abuse of the FDIC name or logo. In 2008, 14 active sites were closed (sites claiming to be FDIC or FDIC authorized).
- Issued 219 Special Alerts to FDIC-supervised institutions of reported cases of counterfeit or fraudulent bank checks.
- Issued, in conjunction with the other Federal Financial Institution Examination Council (FFIEC) agencies, examination procedures for “Identity Theft Red Flags, Address Discrepancies, and Change of Address Regulations.” These procedures are designed to assist financial institutions in complying with these new regulations and to provide examiners with a consistent methodology for assessing compliance. Examiners began reviewing bank compliance with the new regulations on the mandatory compliance date of November 1, 2008.
Consumer Complaints and Inquiries
The FDIC investigates consumer complaints concerning FDIC-supervised institutions and answers inquiries from the public about consumer protection laws and banking practices. As of December 31, 2008, the FDIC had received 14,169 written complaints, of which 6,267 involved complaints against state non-member institutions. The FDIC responded to over 96 percent of these complaints within timeliness standards established by corporate policy. The FDIC also responded to 3,588 written inquiries, of which 502 involved state non-member institutions. In addition, the FDIC responded to 4,789 written inquiries, of which 595 involved state non-member institutions. The FDIC also responded to 7,536 telephone calls from the public and members of the banking community in which 4,211 were regarding state non-member institutions.
Deposit Insurance Education
An important part of the FDIC’s deposit insurance mission is ensuring that bankers and consumers have access to accurate information about the FDIC’s rules for deposit insurance coverage. The FDIC has an extensive deposit insurance education program consisting of seminars for bankers, electronic tools for estimating deposit insurance coverage, and written and electronic information targeted for both bankers and consumers. The FDIC also responds to thousands of telephone and written inquiries each year from consumers and bankers regarding FDIC deposit insurance coverage.
Economic conditions in 2008 helped to spur a significant interest by bank customers in learning more about FDIC deposit insurance coverage. To meet the increased public demand for deposit insurance information, the FDIC implemented two major initiatives to help raise public awareness of the benefits and limitations of FDIC deposit insurance coverage:
- On June 16, 2008, in connection with the observation of the FDIC’s 75th anniversary, the FDIC embarked on a campaign to raise public awareness regarding FDIC deposit insurance coverage. As part of this effort, the FDIC facilitated a series of ads in selected national newspapers and magazines encouraging consumers to learn more about their FDIC insurance coverage. In addition, the FDIC sent all insured institutions a Portfolio of Deposit Insurance Coverage Resources for Bankers, containing copies of several education tools and publications on deposit insurance coverage; these products are designed to help bank employees who answer depositor questions about FDIC coverage.
- In September 2008, the FDIC launched a second major initiative to raise public awareness of the benefits and limitations of federal deposit insurance. The goal of this campaign, which involves a series of public service announcements (PSAs) for television, radio and print media, is to encourage bank customers to visit myFDICinsurance.gov, where they can use “EDIE the Estimator.” “EDIE the Estimator” is an online deposit insurance calculator that has been available to the public for a number of years but was simplified and made more accessible as part of this campaign. The PSAs feature personal finance expert Suze Orman, who donated her time to this initiative. This campaign has been highly successful and prompted the FDIC to launch a Spanish language campaign, which also includes an updated deposit insurance calculator, in late 2008.
Deposit Insurance Coverage Inquiries
During 2008, the FDIC received 18,953 written deposit insurance inquiries from consumers and bankers. Of these inquiries, 99 percent received responses from the FDIC within the timeframes required by policy. This activity represents a 360 percent increase over 2007, where the FDIC received 4,125 written deposit insurance inquiries.
In addition to written deposit insurance inquiries, the FDIC received and responded to 81,979 telephone inquiries from consumer and bankers during 2008. In contrast, the FDIC replied to 15,899 deposit insurance telephone inquiries for the entire year in 2007. The 2008 activity represents a 416 percent increase over 2007.
Financial Education and Community Development
In 2001, the FDIC — recognizing the need for enhanced financial education across the country — inaugurated its award-winning Money Smart curriculum, which is now available in six languages, large print and Braille versions for individuals with visual impairments and a computer-based instruction version. Since its inception, over 1.8 million individuals (including approximately 235,000 in 2008) had participated in Money Smart classes and self-paced computer-based instruction. Approximately 300,000 of these participants subsequently established new banking relationships.
The FDIC extended the Money Smart program to the age 12-21 audience with the creation of a complementary program, “Money Smart for Young Adults.” All eight modules of the new curriculum are aligned with state educational standards, as well as Jump$tart national financial literacy standards and the National Council on Economics Education national economics standards. Through year-end 2008, the FDIC had received orders for more than 20,000 copies of the new curriculum since its launch on April 14, 2008. Over 40 outreach activities have taken place to specifically promote the curriculum, ranging from presentations and resource tables at events targeted at teachers, outreach activities to school district curriculum directors, and train-the-trainer sessions. Two new nationwide partnerships were also signed to facilitate the delivery of the new curriculum, one with Operation Hope and the other with Campfire USA, in addition to 33 local/regional partnerships. Additionally, the FDIC developed a portable audio format version of Money Smart that will be ready for launch near mid-2009.