2013 Annual Report
Supervision and Consumer Protection
Supervision and consumer protection are cornerstones of the FDIC's efforts to ensure the stability of, and public confidence in, the nation's financial system. The FDIC's supervision program promotes the safety and soundness of FDIC-supervised IDIs, protects consumers' rights, and promotes community investment initiatives.
The FDIC's strong bank examination program is the core of its supervisory program. As of December 31, 2013, the FDIC was the primary federal regulator for 4,316 FDIC-insured, state-chartered institutions that were not members of the Federal Reserve System (generally referred to as "state nonmember" institutions). Through risk management (safety and soundness), consumer compliance and the Community Reinvestment Act (CRA), and other specialty examinations, the FDIC assesses an institution's operating condition, management practices and policies, and compliance with applicable laws and regulations. The FDIC also educates bankers and consumers on matters of interest and addresses consumer questions and concerns.
As of December 31, 2013, the FDIC conducted 2,284 statutorily required risk management examinations, including a review of Bank Secrecy Act (BSA) compliance, and all required follow-up examinations for FDIC-supervised problem institutions, within prescribed time frames. The FDIC also conducted 1,986 statutorily required CRA/compliance examinations (1,585 joint CRA/compliance examinations, 396 compliance-only examinations, and 5 CRA-only examinations) and 5,057 specialty examinations. As of December 31, 2013, all CRA/compliance examinations were conducted within the time frame established by policy. The following table compares the number of examinations, by type, conducted from 2011 through 2013.
|FDIC EXAMINATIONS 2011 - 2013|
|Risk Management (Safety and Soundness):|
|State Nonmemember Banks||
|State Member Banks||
|Subtotal - Risk Management Examinations||
|Compliance/Community Reinvestment Act||
|CRA - only||
|Subtotal - CRA/Compliance Examinations||
|Information Technology and Operations||
|Bank Secrecy Act||
|Subtotal - Specialty Examinations||
As of December 31, 2013, there were 467 insured institutions with total assets of $152.7 billion designated as problem institutions for safety and soundness purposes (defined as those institutions having a composite CAMELS1 rating of "4" or "5"), compared to the 651 problem institutions with total assets of $232.7 billion on December 31, 2012. This constituted a 28 percent decline in the number of problem institutions and a 34 percent decrease in problem institution assets. In 2013, 238 institutions with aggregate assets of $78.7 billion were removed from the list of problem financial institutions, while 54 institutions with aggregate assets of $13.9 billion were added to the list. First National Bank, located in Edinburg, Texas, was the largest failure in 2013, with $3.1 billion in assets. The FDIC is the primary federal regulator for 306 of the 467 problem institutions, with total assets of $93.2 billion.
During 2013, the FDIC issued the following formal and informal corrective actions to address safety and soundness concerns: 51 Consent Orders and 207 Memoranda of Understanding (MOUs). Of these actions, 22 Consent Orders and 27 MOUs were issued, based in whole or in part, on apparent violations of the BSA.
As of December 31, 2013, 66 insured state nonmember institutions, about 2 percent of all supervised institutions, with total assets of $64 billion, were problem institutions for compliance, CRA, or both. All existing problem institutions for compliance were rated "4" for compliance purposes. For CRA purposes, the majority are rated "Needs to Improve," and four are rated "Substantial Noncompliance." As of December 31, 2013, all follow-up examinations for problem institutions were performed on schedule.
Overall, banks demonstrated strong consumer compliance programs. The most significant consumer protection issue that emerged from the 2013 compliance examinations involved banks' failure to adequately monitor third-party vendors. For example, we found violations involving unfair or deceptive acts or practices relating to issues such as failure to disclose material information about new products being offered, deceptive marketing and sales practices, and misrepresentations about the costs of products. As a result, the FDIC issued consumer restitution and civil money penalty actions.
During 2013, the FDIC issued the following formal and informal corrective actions to address compliance concerns: 19 Consent Orders and 55 MOUs. In certain cases, the Consent Orders issued by the FDIC contain requirements for institutions to pay restitution in the form of refunds to consumers for different violations of laws. During 2013, over $45 million was refunded to consumers by institutions subject to Consent Orders. These refunds primarily related to unfair or deceptive practices by institutions, as discussed above. Additionally, in 2013, the FDIC issued 54 Civil Money Penalties (CMPs) relating to consumer compliance.
Bank Secrecy Act/Anti-Money Laundering
The FDIC pursued a number of BSA, Anti-Money Laundering (AML), and Counter-Terrorist Financing (CTF) initiatives in 2013.
The FDIC held a symposium for approximately one-third of the agency's 300 BSA/AML subject matter experts. Training topics covered electronic payments, suspicious activity monitoring, third-party payment processor relationships, foreign correspondent banking, money service businesses, and other higher-risk topics. In addition, a teleconference was held to discuss activity observed by the Office of Foreign Assets Control related to foreign correspondent transactions.
The FDIC conducted an International AML and CTF training session in November 2013, in the Dominican Republic, for members of the Association of Supervisors of Banks of the Americas (ASBA). The training focused on AML/CTF controls, the AML examination process, customer due diligence, and suspicious activity monitoring, as well as AML compliance issues related to higher risk institutions, products, services, customers, and geographical locations.
Information Technology, Cyber Fraud, and Financial Crimes
To address the specialized nature of technology-related supervision, cyber risks, and controls in the banking industry, the FDIC routinely conducts information technology (IT) examinations at FDIC-supervised institutions. The FDIC and other banking agencies also conduct IT examinations of major technology service providers (TSPs) that support financial institutions. The result of an IT examination is a rating under the Federal Financial Institutions Examination Council (FFIEC) Uniform Rating System for Information Technology (URSIT).
In 2013, the FDIC conducted 2,323 IT and operations risk examinations at financial institutions and TSPs. Further, as part of its ongoing supervision process, the FDIC monitors significant events, such as data breaches and natural disasters that may affect financial institution operations or customers.
In addition to the FDIC's operations and technology examination program, the FDIC monitors cybersecurity issues in the banking industry on a regular basis through on-site examinations, regulatory reports, and intelligence reports. The FDIC works with groups such as the Financial and Banking Information Infrastructure Committee (FBIIC), the Financial Services Sector Coordinating Council for Critical Infrastructure Protection and Homeland Security (FSSCC), the Financial Services Information Sharing and Analysis Center (FS-ISAC), other regulatory agencies, law enforcement and others to share information regarding emerging issues and coordinate responses.
Throughout 2013, FDIC staff participated in workshops, sponsored by the National Institute of Standards and Technology (NIST), to develop the Cybersecurity Framework required by Executive Order 13636. The goal of the workshops was to create the initial body of standards, guidelines, best practices, tools, and procedures that will be used to populate the first draft of the Cybersecurity Framework. Also, the FDIC has actively engaged through the FBIIC to participate in interagency discussions associated with various elements of the Executive Order.
Other major accomplishments during 2013 to promote IT security and combat cyber fraud and other financial crimes included the following:
- Held a Financial Crimes Conference for staff that focused on all types of financial fraud, and how the law enforcement community and regulators can effectively respond. The conference was co-sponsored by the U.S. Department of Justice and held in June 2013.
- Coordinated a nationwide video conference about distributed denial of service (DDoS) attacks with the FBI,financial regulatory agencies, large financial institutions,largest technology service providers. There were over300 participants in 35 field offices.
- Published a Consumer News article about using technology to manage personal finances in the Spring 2013 edition.
- Published a Supervisory Insights article on "The Evolution of Bank Information Technology Examinations"in the Summer 2013 edition.
- Hosted the FFIEC IT Examiners Conference that federal financial regulatory agencies.
- Assisted financial institutions in identifying and shutting down "phishing" Websites that attempt to fraudulently obtain and use an individual's confidential personal or financial institution.
- Issued a Consumer Alert pertaining to emails fraudulently claiming to be from the FDIC.
Minority Depository Institution Activities
The preservation of minority depository institutions (MDIs) remains a high priority for the FDIC. In June 2013, the FDIC hosted the 2013 Interagency Minority Depository Institution and Community Development Financial Institution Bank Conference. Every two years, the FDIC, the Office of the Comptroller of the Currency (OCC), and the FRB host this important interagency conference for FDIC-insured MDIs to help preserve and promote their mission. The 2013 conference explored "Strategies for Success through Collaboration," and encouraged interactive discussion among those who believe MDIs and Community Development Financial Institutions (CDFI) are uniquely positioned to create positive change in their communities. Nearly 120 MDI and CDFI bankers, representing 77 banks, attended.
In December 2012, the FDIC initiated a research-based study on MDIs. The study, conducted in earnest in 2013, sought to better understand the role MDIs play in our financial system and in our communities. It also addressed the types of challenges MDIs face in the post-crisis environment. The study followed a methodology similar to that used in the FDIC's 2012 Community Banking Study, dividing institutions into groups of "community banks" and "non-community banks." The study focused on structural changes in MDIs; their geography; the financial performance of MDIs over time; capital formation; and the broader community impact of these institutions. The FDIC anticipates that the study will be published in early 2014.
The FDIC continued to seek ways to improve communication and interaction with MDIs and to respond to the concerns of minority bankers. Many MDIs took advantage of FDIC technical assistance on nearly 60 bank supervision, compliance, and resolution and receivership topics, including, but not limited to, the following:
- Corporate Governance.
- New Capital Rules.
- New Mortgage Rules.
- Loan Underwriting and Administration.
- Troubled Debt Restructuring.
- Investment Policy and Investment Securities Monitoring.
- Funds Management.
- Interest Rate Risk Modeling/Stress Testing.
- Third-Party Risk.
- Internal Audit Programs.
- Information Technology Risk Assessment, Strategic Planning and Business Continuity Planning.
- Home Mortgage Disclosure Act.
- Community Reinvestment Act.
- Bank Secrecy Act and Anti-Money Laundering.
- Branch Opening and Closing Requirements.
- Prompt Corrective Action.
- FDIC Loss Share Agreements.
The FDIC continued to offer the benefit of having an examiner or a member of regional office management return to FDIC-supervised MDIs from 90 to 120 days after an examination, to provide technical assistance to management regarding examination recommendations, or to discuss other issues of interest. Several MDIs took advantage of this initiative in 2013. Also, the FDIC regional offices held outreach training efforts and educational programs for MDIs through conference calls and banker roundtables. Topics of discussion for these sessions included both compliance and risk management matters. Additional discussions included the economy, overall banking conditions, Basel III capital rules, new mortgage rules, and other bank examination issues.
Capital Rulemaking and Guidance
In July 2013, the FDIC acted on two important regulatory capital rulemakings. First, the FDIC joined the FRB and OCC in issuing rulemakings that significantly revise and strengthen risk-based capital regulations through implementation of the Basel III international accord (Basel III rulemaking). Second, these agencies also issued an NPR that would strengthen leverage capital requirements for the eight largest U.S. bank holding companies and their insured banks.
Basel III Rulemaking
The Basel III rulemaking adopts with revisions the notices of proposed rulemaking (NPRs) that the banking agencies proposed in June 2012 regarding the Basel Committee on Banking Supervision capital framework, the standardized approach for risk-weighted assets, and the advanced approaches for risk-based capital. The rule strengthens the definition of regulatory capital, increases risk-based capital requirements, and makes selected changes to the calculation of risk-weighted assets. It introduces a capital conservation buffer that, if breached, would trigger limitations on a bank's capital distributions and certain other discretionary payments. The rule also incorporates standards of creditworthiness other than external credit ratings, consistent with the Dodd-Frank Act, and establishes due diligence requirements for securitization exposures.
Banking organizations subject to the advanced approaches risk-based capital rule also must meet a 3 percent supplementary leverage ratio requirement and a countercyclical capital buffer. Additionally, several enhancements to the advanced approaches risk-based capital rule are included in the rule to incorporate aspects of Basel III, as well as requirements introduced by the Basel Committee on Banking Supervision in the "Enhancements to the Basel II Framework" (2009 Enhancements).
The rule significantly changes aspects of the NPRs to address a number of community bank comments. Specifically, unlike the NPR, the rule retains the current risk-weighting approach for residential mortgages. It allows for an opt-out from the regulatory capital recognition of accumulated other comprehensive income (AOCI), except for large banking organizations that are subject to the advanced approaches capital requirements. Finally, the FRB has adopted the grandfathering provisions of Section 171 of the Dodd-Frank Act for trust preferred securities issued by smaller bank holding companies.
The rule becomes effective January 1, 2015, for banking organizations not subject to the advanced approaches risk-based capital rule. For banking organizations that are subject to the advanced approaches capital requirements, the effective date is January 1, 2014. For all banking organizations, the interim final rule includes a phase-in period for certain aspects of the rule including the new capital ratios and adjustments to and deductions from regulatory capital.
Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository Institutions
In July 2013, the federal banking agencies issued an NPR that would raise the supplementary leverage requirements for the largest, most systemically important banking organizations and their subsidiary insured depository institutions (IDIs). The new requirements would apply to the largest, most interconnected banking organizations with at least $700 billion in total consolidated assets at the top-tier bank holding company or at least $10 trillion in assets under custody [covered Bank Holding Companies (BHCs)] and any IDI subsidiary of these bank holding companies (covered IDIs). For covered IDIs, the proposed rule would establish a supplementary leverage ratio of 6 percent as a "well-capitalized" threshold for prompt corrective action. For covered BHCs, the proposed rule establishes a capital conservation buffer composed of tier 1 capital of 2 percent of total leverage exposure; therefore, these BHCs would need to maintain a supplementary leverage ratio of 5 percent to avoid restrictions on capital distributions.
The Enhanced Supplementary Leverage Ratio NPR was published in the Federal Register on August 20, 2013, and the comment period ended October 21, 2013. The FDIC is reviewing public comments and is working with the other federal banking agencies to develop a final rule.
Regulatory Reporting Under the Interim Final Capital Rule
In August 2013, the FDIC and the other federal banking agencies issued for comment the first stage of proposed revisions to the Consolidated Reports of Condition and Income (Call Report), which would align the regulatory capital components and ratios portion of the regulatory capital schedule with the Basel III revised regulatory capital definitions. The agencies also proposed to make similar changes to the Federal Financial Institutions Examination Council - FFIEC 101 regulatory capital report for advanced approaches institutions and to revise nine risk-weighted assets schedules in this report consistent with the revised advanced approaches regulatory capital rules. These proposed regulatory capital reporting changes would take effect as of the March 31, 2014, report date for advanced approaches banking organizations. The Call Report revisions would be applicable to all other institutions as of March 31, 2015. The second stage of Call Report revisions would update the risk-weighted assets portion of the regulatory capital schedule to reflect the standardized approach to risk weighting in the Basel III final rules effective as of the March 31, 2015, report date. The risk-weighted assets reporting proposal is expected to be published for comment in 2014.
Stress Testing Guidance
In July 2013, the FDIC, along with the other federal banking agencies, issued guidance that outlines high-level principles for implementation of Section 165(i) (2) of the Dodd-Frank Act stress tests for companies with $10 billion to $50 billion in consolidated assets.
The guidance discusses supervisory expectations for the Dodd-Frank Act stress test practices and offers additional details about methodologies that should be employed by these companies. It also underscores the importance of stress testing as an ongoing risk management practice that supports a company's forward-looking assessment of its risks and better equips the company to address a range of macroeconomic and financial outcomes.
The comment period on this joint proposed guidance ended on September 25, 2013, and the final guidance is being developed.
Other Rulemaking and Guidance under the Dodd-Frank Act
The Dodd-Frank Act required various agencies to establish goals for the completion of rules and/or policy guidance on several topics. Although these goals were not included in the FDIC's 2013 Annual Performance Plan, rules and guidance on these various topics were finalized or progressed in 2013. These topics include:
- Proprietary trading and other investment restrictions(often referred to as the "Volcker Rule").
- Credit risk retention requirements for securitizations.
- Appraisal requirements for higher-priced mortgages.
- Examination standards for the classification and appraisal of securities.
- Capital, margin, and other requirements for over-the-counter (OTC) derivatives.
- Mortgage rules.
On December 10, 2013, the FDIC, along with the other federal banking agencies, the Commodities Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC), approved a joint final rule to implement the provisions of Section 619 of the Dodd-Frank Act, also known as the "Volcker Rule." The Volcker Rule, which added new Section 13 to the BHC Act, generally prohibits any banking entity from engaging in proprietary trading or acquiring or retaining an interest in, sponsoring, or having certain relationships with, a hedge fund or private equity fund, subject to certain exemptions.
Based on comments received after issuance of the final rule, the agencies issued a joint interim final rule with request for comment on January 14, 2014, to permit banking entities to retain interests in and sponsorship of certain collateralized debt obligations backed primarily by trust preferred securities issued by community banks. Under the final rule, these investments would have met the definition of "covered funds" and would have been subject to investment prohibitions. The agencies also released a non-exclusive list of qualified collateralized debt obligations backed primarily by trust preferred securities to help banks determine compliance with the new interim final rule.
The final rule becomes effective April 1, 2014; the interim final rule would take effect on the same date. The FRB extended the conformance period until July 21, 2015. In the final rule, the agencies tailored the compliance program for banking entities engaged in covered activities based on asset size and amounts in trading assets and liabilities, and provided a phase-in of reporting of quantitative measures for covered trading activities. Beginning June 30, 2014, banking entities with $50 billion or more in consolidated trading assets and liabilities will be required to report quantitative measurements. Banking entities with at least $25 billion, but less than $50 billion, in consolidated trading assets and liabilities will become subject to this requirement on April 30, 2016. Those banking entities with at least $10 billion, but less than $25 billion, in consolidated trading assets and liabilities will become subject to the requirement on December 31, 2016. The agencies will review the data collected prior to September 30, 2015, and revise the collection requirement as appropriate. For ease of reference, the FDIC maintains a page on its Website dedicated to information on the Volcker Rule.
Credit Risk Retention for Securitizations
In August 2013, the FDIC, jointly with the OCC, the FRB, the Department of Housing and Urban Development (HUD), the SEC, and the Federal Housing Finance Agency (FHFA), approved an NPR to implement the securitization credit risk retention provisions of Section 941 of the Dodd-Frank Act (Section 941), which added Section 15G to the Securities and Exchange Act of 1934. This was the second NPR to implement that provision. Section 15G generally requires securitizers of asset-backed securities (ABS) to retain not less than 5 percent of the credit risk of assets collateralizing ABS issuances and generally prohibits a securitizer from directly or indirectly hedging or otherwise transferring the credit risk the securitizer is required to retain. Similar to the prior NPR, the current NPR provides the sponsors of ABSs with various options for meeting the risk retention requirements. As required by the Dodd-Frank Act, the proposed rule defines a "qualified residential mortgage" (QRM), that is, a mortgage which is statutorily exempt from risk retention requirements. The NPR would align the definition of QRM with the definition of "qualified mortgage" (QM) as prescribed by the Consumer Financial Protection Bureau (CFPB) in 2013 and asked for comment on an alternative definition. In addition, the proposed rule would: provide an exemption for securitizations solely collateralized by commercial mortgages, commercial real estate loans, or automobile loans, if such loans meet certain underwriting standards; and provide various securitization structure-specific risk retention options. The public comment period ended on October 30, 2013, and comments are under review.
Appraisal Requirements for Higher-Priced Mortgages
In January 2013, the FDIC, jointly with the OCC, FRB, National Credit Union Administration (NCUA), FHFA, and CFPB, issued the final rule that establishes new appraisal requirements for higher-priced mortgage loans. Under the Dodd-Frank Act, mortgage loans are higher-priced if they are secured by a consumer's home and have interest rates above certain thresholds. The final rule became effective on January 18, 2014.
In July 2013, the FDIC, along with the OCC, FRB, NCUA, FHFA, and CFPB, issued a proposed rule that would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The comment period ended on September 9, 2013. The rule was finalized in December 2013 and is effective January 18, 2014. The final rule provides that the following three types of higher-priced mortgage loans would be exempt from the Dodd-Frank Act appraisal requirements: loans of $25,000 or less; certain "streamlined" refinancings; and certain loans secured by manufactured housing.
Uniform Agreement on the Classification and Appraisal of Securities Held by Financial Institutions
In October 2013, the FDIC issued interagency guidance with the OCC and the FRB that revised examination standards for the adverse classification of securities held in bank investment portfolios. The guidance reiterates the importance of a robust investment analysis process and the agencies' longstanding asset classification definitions. It also addresses Section 939A of the Dodd-Frank Act, which directed the agencies to remove any reference to, or requirement of reliance on, credit ratings in regulations and replace them with appropriate standards of creditworthiness. State nonmember institutions are expected to perform an investment security creditworthiness assessment that does not rely solely on external credit ratings. FDIC examiners will use the statement to determine whether an asset should be adversely classified during supervisory reviews.
The U.S. regulators, including the FDIC, in their capacity as members of the Basel Committee on Banking Supervision, negotiated with international regulators to develop international standards that will be used to implement the margin requirements for uncleared OTC derivatives. The international convergence document was published in early September 2013, and U.S. rulemaking activities are continuing.
In January 2013, the CFPB issued, after required consultation with the FDIC and the other financial regulatory agencies, a number of final rules to implement various provisions of the Mortgage Reform and Anti-Predatory Lending Act, i.e., Title XIV of the Dodd-Frank Act. Key areas of the new rules include: (1) determining a consumer's ability to repay and the qualified mortgage safe harbor; (2) loan originator compensation; (3) mortgage loan servicing; (4) new escrow requirements; (5) new requirements and expanded coverage under the Home Ownership and Equity Protection Act (HOEPA); (6) new requirements under the Equal Credit Opportunity Act (ECOA); and (7) implementing Regulation B. In addition, the CFPB issued or proposed several supplemental rules during 2013 to clarify certain aspects of many of the rules. To ensure examiner preparedness and to assist FDIC-supervised institutions in their compliance planning for this significant overhaul of mortgage regulation, throughout 2013, the FDIC worked extensively to develop and issue training materials for its examiners in advance of January 2014, when the rules generally were effective. The FDIC also hosted a series of banker outreach calls, providing overviews of the new rules and answering questions, in collaboration with the CFPB.
On December 13, 2013, the FDIC, along with the OCC, FRB, and NCUA, issued a statement to clarify safety-and-soundness expectations and CRA considerations for regulated institutions engaged in residential mortgage lending in light of the CFPB's Ability-to-Repay and Qualified Mortgage (QM) Standards Rule, which was issued January 10, 2013, and was effective on January 10, 2014. The agencies recognize that many institutions may originate both QM and non-QM residential mortgage loans, based on the institution's business strategy and risk appetite. The agencies will not subject a residential mortgage loan to regulatory criticism based solely on the loan's status as a QM or a non-QM.
Liquidity and Funds Management Rulemaking and Guidance
Liquidity Coverage Ratio
In October 2013, the FDIC, together with the OCC and the FRB, issued an interagency proposed rule to implement the Liquidity Coverage Ratio (LCR). The proposed rule would implement a quantitive liquidity requirement consistent with the LCR established by the Basel Committee on Banking Supervision. The requirement would apply to large, internationally active banking organizations and their consolidated subsidiary depository institutions with $10 billion or more in total consolidated assets. The proposal requires banks to hold a minimum level of liquid assets to support contingent liquidity events and provides a standard way of expressing a bank's on-balance sheet liquidity position to stakeholders and supervisors. The proposal establishes a transition schedule that is more accelerated than the Basel standard as it would require covered companies to fully meet the minimum LCR by January 1, 2017, two years earlier than Basel requires.
The LCR proposal was published in the Federal Register on November 29, 2013, and comments were due by January 31, 2014.
Depositor and Consumer Protection Rulemaking and Guidance
Guidance on Social Media
In December 2013, the FFIEC, on behalf of its members (the FDIC, CFPB, FRB, NCUA, OCC, and State Liaison Committee), issued final supervisory guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by banks, savings associations, and credit unions, as well as nonbank entities supervised by the CFPB and state regulators. The final guidance is intended to help financial institutions understand and manage the potential consumer compliance, legal, reputation, and operational risks associated with the use of social media. It provides considerations that financial institutions may find useful in conducting risk assessments and crafting and evaluating policies and procedures regarding social media.
Revisions to Interagency Questions and Answers Regarding Community Reinvestment
In November 2013, the FDIC, FRB, and OCC published revisions to "Interagency Questions and Answers Regarding Community Reinvestment." The Questions and Answers document provides additional guidance to financial institutions and the public on the agencies' CRA regulations. The revisions focus primarily on community development.
Guidance on Reporting Financial Abuse of Older Adults
In September 2013, the FDIC, CFPB, CFTC, Federal Trade Commission (FTC), NCUA, OCC, and SEC issued guidance to clarify that the privacy provisions of the Gramm-Leach-Bliley Act generally permit financial institutions to report suspected elder financial abuse to appropriate authorities. The Act generally requires that a financial institution notify consumers and give them an opportunity to opt out before providing nonpublic personal information to a third party. The guidance clarifies that it is generally acceptable under the law for financial institutions to report suspected elder financial abuse to appropriate local, state, or federal agencies.
Other Rulemaking and Guidance Issued
During 2013, the FDIC issued and participated in the issuance of other rulemaking and guidance in several areas as described below.
Guidance on Deposit Advance Products
In November 2013, the FDIC published supervisory guidance to FDIC-supervised financial institutions that offer or may consider offering deposit advance products. The guidance is intended to ensure that banks are aware of a variety of safety and soundness, compliance, and consumer protection risks posed by deposit advance loans. It supplements the FDIC's existing guidance on payday loans and subprime lending, and encourages banks to respond to customers' small-dollar credit needs.
FDIC Supervisory Approach to Payment Processing Relationships with Merchant Customers That Engage in Higher-Risk Activities
In September 2013, the FDIC issued guidance clarifying its policy and supervisory approach related to facilitating payment processing services directly, or indirectly through a third party, for merchant customers engaged in higher-risk activities. Facilitating payment processing for these types of merchant customers can pose risks to financial institutions; however, those that properly manage these relationships and risks are neither prohibited nor discouraged from providing payment processing services to customers operating in compliance with applicable law.
Modifications to the Statement of Policy for Section 19 of the Federal Deposit Insurance Act
On February 8, 2013, the FDIC modified the Statement of Policy for Section 19 of the Federal Deposit Insurance Act. Section 19 of the Act prohibits, without prior written consent of the FDIC, a person convicted of a criminal offense involving dishonesty, breach of trust, money laundering, or who has entered into a pretrial diversion program, from participating in the affairs of an FDIC-insured institution. The updated Statement of Policy included modifications to the de minimis exceptions regarding the potential fine and the number of days of imprisonment. These modifications to the de minimis criteria are expected to reduce the number of Section 19 applications and regulatory burden, consistent with safety and soundness.
Recordkeeping and Confirmation Requirements for Securities Transactions
On September 4, 2013, the FDIC published an NPR regarding the removal of Part 390, Subpart K (formerly OTS Part 551), which governs recordkeeping and confirmation requirements for securities transactions effected for customers by state savings associations. The FDIC carefully reviewed Part 390, Subpart K, and compared it with Part 344, a substantially identical FDIC regulation governing recordkeeping and confirmation requirements for securities transactions effected for customers by state nonmember banks. Although the two rules are substantively the same, one difference between Part 390, Subpart K and Part 344 concerned the number of securities transactions that could be effected by an IDI without triggering certain reporting and confirmation requirements (Small Transaction Exception). The threshold for Part 390, Subpart K's Small Transaction Exception is an average of 500 or fewer transactions over the prior three calendar year period. The NPR proposed amending Part 344 to increase the threshold for the Small Transaction Exception applicable to all FDIC-supervised institutions effecting securities transactions for customers from an average of 200 transactions to 500 transactions per calendar year over the prior three calendar year period. The FDIC supports the idea that increasing the number of securities transactions to which the Small Transaction Exception would apply will ensure parity for all FDIC-supervised institutions. Increasing the threshold for the Small Transaction Exception also recognizes that the securities activities of FDIC-supervised depository institutions have increased over the three decades since the FDIC established the original scope of the Small Transaction Exception. The comment period for the NPR ended on November 4, 2013, with no comments having been received. Consequently, on December 10, 2013, the FDIC issued a final rule as proposed in the NPR without change; the Final Rule was effective January 21, 2014.
Guidance on Interest Rate Risk Management
In October 2013, the FDIC issued a Financial Institution Letter (FIL) reiterating expectations for institutions to prudently manage their interest rate risk exposure, particularly in a challenging interest rate environment. The guidance reminds institutions that interest rate risk management should be viewed as an ongoing process that requires effective measurement and monitoring, clear communication of modeling results, conformance with policy limits, and appropriate steps to mitigate risk. The guidance states that a number of institutions report a significantly liability-sensitive balance sheet position, which means that in a rising interest rate environment, the potential exists for adverse effects to net income and, in turn, earnings performance. Additionally, for a number of FDIC-supervised institutions, the potential exists for material securities depreciation relative to capital in a rising interest rate environment.
Advisory on Mandatory Clearing Requirements for Over-the-Counter Interest Rate and Credit Default Swap Contracts
On June 7, 2013, the FDIC completed a supervisory advisory on mandatory clearing requirements for over-the-counter interest rate and credit default swap contracts. This guidance was issued as an advisory because the requirements are Commodity Futures Trading Commission regulations that could impact FDIC-supervised institutions.
Qualified and Non-Qualified Mortgage Loans
On December 13, 2013, the FDIC, along with the OCC, FRB, and NCUA, issued a statement to clarify safety-and-soundness expectations and CRA considerations for regulated institutions engaged in residential mortgage lending in light of the CFPB's Ability-to-Repay and Qualified Mortgage (QM) Standards Rule, which was issued January 10, 2013, and was effective on January 10, 2014. The agencies recognize that many institutions may originate both QM and non-QM residential mortgage loans, based on the institution's business strategy and risk appetite. The agencies will not subject a residential mortgage loan to regulatory criticism based solely on the loan's status as a QM or a non-QM.
Interagency Guidance on Leveraged Lending
On March 26, 2012, the FDIC and the other federal banking agencies proposed revisions to the 2001 interagency guidance on leveraged financing. The proposal's purpose was to update the existing guidance and clarify regulatory expectations in light of significant growth in the leveraged lending market, and incorporate lessons learned from the recent financial crisis. The proposal describes expectations for the sound risk management of leveraged lending activities, including well-defined underwriting standards, effective management information systems, a prudent credit limit and concentration framework, and strong pipeline management policies. In March 2013, the OCC, the FRB, and the FDIC issued final guidance on leveraged lending. This guidance outlined for agency-supervised institutions high-level principles related to safe-and-sound leveraged lending activities, including expectations for the content of credit policies, the need for well-defined underwriting and valuation standards, and the importance of credit analytics and pipeline management. This guidance was effective on March 22, 2013.
Director and Officer Liability Insurance Policies
On October 12, 2013, the FDIC issued an Advisory Statement on Director and Officer Liability Insurance Policies, Exclusions, and Indemnification for Civil Money Penalties. The advisory discusses the importance of thoroughly reviewing and understanding the risks associated with coverage exclusions contained in director and officer liability insurance policies and serves as a reminder that an insured depository institution or depository institution holding company may not purchase an insurance policy that would indemnify institution-affiliated parties (IAPs) for CMPs assessed against them. Even if the IAP agrees to reimburse the depository institution for the cost of such coverage, the purchase of the insurance policy by the depository institution is prohibited.
Interagency Supervisory Guidance on Troubled Debt Restructurings
On October 24, 2013, the FDIC and the other federal financial institution regulatory agencies jointly issued supervisory guidance clarifying certain issues related to the accounting treatment and regulatory classification of commercial and residential real estate loans that have undergone troubled debt restructurings (TDRs). The agencies' guidance reiterates key aspects of previously issued guidance and discusses the definition of a collateral-dependent loan and the classification and charge-off treatment for impaired loans, including TDRs. It also encourages institutions to work constructively with borrowers and reaffirms that the agencies view prudent loan modifications as positive actions when they mitigate credit risk. The guidance explains that when modified loans are determined to be TDRs for accounting purposes, the TDR label does not mean that the loan is automatically required to be in nonaccrual status, or to be adversely classified, for its remaining life.
Income Tax Allocation in a Holding Company Structure
In December 2013, the FDIC and the other federal banking agencies issued for comment a proposed Addendum to the 1998 Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure. Since the beginning of the financial crisis, many disputes have occurred between holding companies in bankruptcy and failed IDIs regarding the ownership of tax refunds generated by the IDIs. Certain court decisions have found that holding companies in bankruptcy own tax refunds created by failed IDIs based on language in their tax-sharing agreements that the courts interpreted as creating a debtor-creditor relationship as opposed to acknowledging an agency relationship. The proposed Addendum seeks to remedy this problem by requiring IDIs to clarify that their tax sharing agreements acknowledge that an agency relationship exists between the holding company and its subsidiary IDI with respect to tax refunds, and provides a sample paragraph to accomplish this goal. The proposed Addendum would also clarify how certain requirements of Sections 23A and 23B of the Federal Reserve Act apply to tax allocation agreements between IDIs and their affiliates. The comment period closed on January 21, 2014.
During 2013, the FDIC issued six FILs that provide guidance to help financial institutions and facilitate recovery in areas damaged by wildfires and other natural disasters. In these FILs, the FDIC encouraged banks to work constructively with borrowers experiencing financial difficulties as a result of natural disasters, and clarified that prudent extensions or modifications of loan terms in such circumstances can contribute to the health of communities and serve the long-term interests of lending institutions.
On February 19, 2013, FDIC-supervised institutions were informed that they could begin submitting interagency bank merger applications, notices of change in control, and notices of change of director or senior executive officer through FDICconnect, a secure transaction-based Website for FDIC-insured institutions.
On July 25, 2013, the FDIC issued, jointly with the other federal banking agencies, a Statement to Encourage Financial Institutions to Work with Student Loan Borrowers Experiencing Financial Difficulties. In addition, on October 9, 2013, the FDIC along with other federal regulatory agencies issued a Statement to Encourage Institutions to Work with Borrowers Affected by Government Shutdown.
In 2013, the FDIC hosted a series of banker teleconferences to maintain open lines of communication and update supervised institutions about related rulemakings, guidance, and emerging issues in risk management supervision, and compliance and consumer protection. Participants of the teleconferences included bank directors, officers, staff, and other banking industry professionals.
For the risk management supervision series, four teleconferences were held in 2013. The topics discussed included: (1) the Financial Accounting Standards Board's proposal to change the accounting for credit losses, (2) leveraged lending guidance, (3) the interim final capital rule, and (4) emerging technology issues for banks and servicers.
For the compliance and consumer protection series, five teleconferences were held in 2013. The topics discussed included: (1) the CFPB's final rules on the ability to repay, qualified mortgage standards, escrow requirements, and the loan originator compensation requirements involving the prohibition on mandatory arbitration clauses and single premium credit insurance, (2) the CFPB's final rules on mortgage servicing, (3) the CFPB's final rules on loan originator compensation and changes to the HOEPA, ( 4) consumer complaints and their role in institutions' compliance management systems; and 5) the FFIEC social media guidance.
Promoting Economic Inclusion
The FDIC is strongly committed to promoting consumer access to a broad array of banking products to meet consumer financial needs. To promote financial access to responsible and sustainable products offered by IDIs, the FDIC:
- Conducts research on the unbanked and underbanked.
- Engages in research and development on models of products meeting the needs of lower-income consumers.
- Supports partnerships to promote consumer access and use of banking services.
- Advances financial education and literacy.
- Facilitates partnerships to support community and small business development.
Advisory Committee on Economic Inclusion
Chairman Gruenberg emphasizes a point during the May 2013 ComE-IN meeting.
The Advisory Committee on Economic Inclusion (ComE-IN) provides the FDIC with advice and recommendations on important initiatives focused on expanding access to banking services to underserved populations. This may include reviewing basic retail financial services such as check cashing, money orders, remittances, stored value cards, small-dollar loans, savings accounts, and other services that promote individual asset accumulation and financial stability. During 2013, the Committee met in May and October to discuss savings initiatives; Safe Accounts, including bank prepaid cards, and mobile financial services. During the October meeting, staff presented to the Committee a plan for producing a white paper on IDIs' use of mobile financial services (MFS) to better serve the unbanked and underbanked. The presentation outlined three goals for the use of this technology: access to the banking system for the unbanked, sustainability for the underbanked or new entrants to the system, and growth of consumers' ability to deepen banking relationships and fulfill financial goals.
FDIC National Survey of Unbanked and Underbanked Households and Survey of Banks' Efforts to Serve the Unbanked and Underbanked
As part of its ongoing commitment to expanding economic inclusion in the United States, the FDIC works to fill the research and data gap regarding household participation in mainstream banking and the use of nonbank financial services. In addition, Section 7 of the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (Reform Act) mandates that the FDIC regularly report on banks' efforts to bring individuals and families into the conventional finance system. In response, the FDIC regularly conducts and reports on surveys of households and banks to inform the efforts of financial institutions, policymakers, regulators, researchers, academics, and others.
During 2013, the FDIC revised the household survey instrument and conducted the third nationwide survey in partnership with the U.S. Census Bureau. The survey focuses on basic checking and savings account ownership, but it also explores households' use of alternative financial services to better understand the extent to which families are meeting their financial needs outside of mainstream financial institutions. Results of the survey will be published in 2014.
The FDIC's planned initiation of work on a new survey of banks about their efforts to serve unbanked and underbanked customers was delayed until 2014. During 2013, the FDIC explored alternative methods for gathering this information from banks, including the possible incorporation of this data collection into a larger survey of banks on the challenges and opportunities they are facing (an outgrowth of the FDIC's Community Banking Initiative).
Partnership to Promote Consumer Access: 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 underbanked consumers and owners of small businesses into the financial mainstream.
During 2013, the FDIC supported 16 AEI programs across the nation. Many AEIs formed committees and work groups to address specific challenges and financial services needs of their communities. These included retail financial series for underserved populations, savings initiatives, affordable remittance products, small-dollar loan programs, targeted financial education programs, and other asset-building programs.
In 2012, the FDIC launched AEI initiatives in two additional markets: the Appalachian region of West Virginia and Northeastern Oklahoma. In 2013, these new efforts expanded focus in two particular areas of need: small business and tribal organizations. The West Virginia AEI, working in collaboration with the Appalachian Regional Commission, collaborates with state-wide and local service providers to support financial access for small business and microenterprise in the state. The AEI partners hosted three Small Business Resource Summits in Wheeling, Huntington, and Fairmont to provide resources and educational opportunities to the small business community. The Northeast Oklahoma AEI (NEOK AEI) serves a significant Native American community as well as the City of Tulsa, Oklahoma. Oklahoma has a larger Native American population than any state other than California, and about 60 percent of the state's Native Americans lives in the northeastern quadrant. In 2013, the NEOK AEI initiated work to support consumers interested in improving their credit profile and worked with America Saves in supporting the first Oklahoma Saves campaign.
The FDIC also provided program guidance and technical assistance in the expansion of 52 Bank On programs. Bank On initiatives are designed to reduce barriers to banking and increase access to the financial mainstream.
Advancing Financial Education
The FDIC expanded its financial education efforts during 2013 through a strategy that included providing access to timely and high-quality financial education products, sharing best practices, and working through partnerships to reach consumers.
The existing suite of Money Smart products for consumers was enhanced with the release of Money Smart for Older Adults in partnership with the CFPB. This stand-alone training module developed by both agencies provides information to raise awareness among older adults (age 62 and older) and their caregivers on how to prevent, identify, and respond to elder financial exploitation, plan for a secure financial future, and make informed financial decisions. The instructor-led module offers practical information that can be implemented immediately. Money Smart for Older Adults is designed to be delivered by representatives of financial institutions, adult protective service agencies, senior advocacy organizations, law enforcement, and others that serve this population. Between its release on June 12, 2013, and December 31, 2013, more than 15,000 copies were released.
A group of dedicated individuals within both the FDIC and the CFPB joined forces to deliver a new product designed to help older Americans make informed financial decisions and avoid exploitation. Members of the FDIC team, shown here from left, are Cassandra Duhaney, Debra Stabile, Irma Matias, Lekeshia Frasure, Luke Reynolds, Ron Jauregui, James Williams, Evelyn Manley, and Glenn Gimble.
Through training and technical assistance, the FDIC emphasizes the importance of pairing education with access to appropriate banking products and services. The FDIC conducted more than 173 outreach events to promote the Money Smart program, including 68 train-the-trainer workshops with approximately 1,200 participants. More than 35,000 Money Smart instructor-led curriculum copies were distributed, and more than 50,000 people used the computer-based curriculum, exemplifying effective results from the outreach sessions. The FDIC also entered into 23 new collaborative agreements with financial institutions and nonprofit organizations, to facilitate the use of the Money Smart program.
A series of webinars for bankers on community development and economic inclusion topics were piloted during 2013. Five webinars were conducted during 2013 and each averaged more than 400 participants.
Leading Community Development
In 2013, the FDIC provided professional guidance and technical assistance to banks and community organizations in outreach activities and events designed to foster an understanding and connection between financial institutions and other community stakeholders. As such, the FDIC conducted 49 community development forums linking bank and community partners to facilitate opportunities for banks and community stakeholders to address community credit and development needs, including interagency resource forums with the OCC and the Federal Reserve Banks and other stakeholders in the recovery efforts of communities in the Northeast impacted by Superstorm Sandy. The FDIC also conducted 50 CRA roundtables that provided market-specific training for bankers and 32 workshops for nonprofit stakeholders on CRA, effectively engaging with financial institutions to promote community development.
Community Banking Initiatives
The FDIC is the lead federal regulator for the majority of community banks, and the insurer of all. As such, the FDIC has an ongoing responsibility to better understand the challenges facing community banks, and to share that knowledge with bankers and the general public. Community banks play a crucial role in the American financial system. These institutions account for about 14 percent of the banking assets in our nation, but they provide nearly 46 percent of all the small loans that FDIC-insured depository institutions make to businesses and farms. They also hold the majority of industry deposits in banking offices located in rural counties and micropolitan counties with populations up to 50,000.
In 2012, the FDIC issued a comprehensive study of the evolution of community banking in the United States over the past 25 years, and commenced a review of its examination, rulemaking, and guidance processes with a goal of identifying ways to make the supervisory process more efficient, consistent, and transparent. Our 2012 activities under this initiative included a national conference on the Future of Community Banking and a series of roundtables with community bankers in each of the FDIC's six regions.
These efforts under the Community Banking Initiative continued on a number of fronts in 2013. First, the results of the 2012 FDIC Community Banking Study were presented to a range of industry and academic audiences, furthering our dialogue with key stakeholder groups as to the trends that are shaping this key sector of our financial system. Using our research definition of the community bank, we published updated community bank reference data on fdic.gov to reflect year-end 2012 data. Employing these data, our researchers found that community banks experienced a significant decline in problem loans, loan loss provisions, and failures during 2012, while they expanded their loan portfolios and were more profitable than in any year since 2007.
FDIC staff look at video monitors of the set during filming of the bank director videos. From left: Lou Bervid, Rob Moss, Vince Moore, and Arnie Kunkler.
FDIC researchers applied the analytical framework developed for our Community Banking Study to the case of MDIs. While MDIs represent a fairly small share of banking industry charters and assets, they were found to be highly effective in reaching the minority and low- and moderate-income communities that they have been chartered to serve. Preliminary research results were presented in June at the 2013 Interagency Minority Depository Institution and CDFI Bank Conference, and a written report is forthcoming.
Ongoing research topics include the effects of rural depopulation on community banks and the contribution of community banks to small business lending. In October 2013, FDIC researchers presented a paper entitled "Do Community Banks Increase New Firms' Access to Credit?" at the "Community Banking in the 21st Century," conference co-sponsored by the FRB and the Conference of State Bank Supervisors (CSBS). These and other research initiatives will continue in 2014.
The FDIC also has continued and enhanced its examination and rulemaking review. Based on feedback received at community banker roundtables and our ongoing review of the FDIC's bank examination process, the FDIC implemented enhancements to our supervisory and rulemaking processes in 2013. The FDIC developed a Web-based tool to tailor information requests for risk management examinations to the characteristics of the institution being examined. As a result, information requests have generally been shorter than previous examination request lists. In addition, more business transactions have been made available through FDICconnect, a secure, transactions-based Website, which ensures better access for bankers and supervisory staff.
The FDIC also has enhanced its efforts to actively communicate with the institutions it supervises. The FDIC developed an information package to be sent to the institution prior to the start of the pre-examination phase of compliance examinations to improve communication with the field manager and to offer resources that are available to the institution at any time throughout the examination process. The FDIC has also developed a brochure for community bankers entitled "Technical Assistance for Managing Consumer Compliance Responsibilities," highlighting ways in which examiners can provide assistance to community banks.
The Directors' Resource Center, a special section of the FDIC's Website, is dedicated to providing useful information to bank directors, officers, and employees on areas of supervisory focus and regulatory changes. One key element of this resource center is a Technical Assistance Video Program. Three series of videos were released during 2013. The first series is the new director education videos; these videos cover director responsibilities and fiduciary duties as well as the FDIC examination process. The second series is a virtual version of the FDIC's Directors' College Program; these videos address interest rate risk, third-party risk, the CRA, the BSA, corporate governance, and information technology. The third series of videos provides more in-depth technical training on a variety of issues, including interest rate risk, appraisals and evaluations, flood insurance, the evaluation of municipal securities, fair lending, the allowance for loan and lease losses, and troubled debt restructurings.
The FDIC's Website also has a section dedicated to the Regulatory Capital Interim Final Rule. This section contains links to the rule, pertinent FILs, instructions for regulatory reporting, and other items. The FDIC conducted comprehensive outreach to community banks to inform them about the new requirements. Several resources targeted to community institutions include an educational video, an interagency community bank guide, and an expanded guide for FDIC- supervised institutions. The FDIC also responds to questions submitted to email@example.com, a dedicated mailbox for questions on the new rule. Additionally, to supplement the online informational resources, staff hosted outreach sessions in each regional office to discuss the new requirements and address bankers' questions and concerns. On August 15, 2013, staff held a national conference call that had wide participation from bankers as well as FDIC supervisory and examination team members, with nearly 1,700 lines used for the call. In November 2013, the FDIC, with the other federal banking agencies, released an estimation tool to help community bankers evaluate the potential effects on their capital ratios from the revised capital approaches.
In addition, the FDIC's Advisory Committee on Community Banking continued to provide timely information and input to the FDIC on a variety of community bank policy and operational issues throughout 2013. The Committee held three meetings in 2013 and provided input on a number of key issues and initiatives, including the FDIC's community bank study and report, community bank outreach and technical assistance, proposed improvements to the FDIC's regulatory and supervisory processes, mobile banking issues, payment system developments and implications, information technology examination issues, vendor management issues, troubled debt restructuring guidance, the Uniform Agreement on Classification and Appraisal of Securities, bank cybersecurity issues, the Money Smart for Small Businesses Program, flood insurance issues, the interagency social media guidance, as well as the potential effects of various regulatory and legislative developments on community banks.
Looking forward, the FDIC will continue to make community bank issues a high priority by following up on the Community Banking Study; pursuing additional research relating to the continued viability of community banks; and continuing our review of examination and rulemaking processes with the goal of identifying additional ways to make the supervisory process more efficient, consistent, and transparent, consistent with safe and sound banking practices. The FDIC will also be commencing a comprehensive review of all of its regulations, as required by the Economic Growth and Regulatory Paperwork Reduction Act, to identify any regulations that are outdated, unnecessary or unduly burdensome, with a focus on community banking issues.
Consumer Complaints and Inquiries
The FDIC assists consumers by receiving, investigating, and responding to consumer complaints about FDIC-supervised institutions and answering inquiries about banking laws and regulations, FDIC operations, and other related topics. In addition, the FDIC provides analytical reports and information on complaint data for internal and external use and conducts outreach activities to educate consumers.
The FDIC recognizes that consumer complaints and inquiries play an important role in the development of strong public and supervisory policy. Assessing and resolving these matters helps to identify trends or problems affecting consumer rights, understand the public perception of consumer protection issues, formulate policy that aids consumers, and foster confidence in the banking system by educating consumers about the protection they receive under certain consumer protection laws and regulations.
Consumer Complaints by Product and Issue
The FDIC receives complaints and inquiries by telephone, fax, mail, email, and online through the FDIC's Website. Between January 1, 2013, and December 31, 2013, the FDIC handled 16,887 written and telephone complaints and inquiries. Of this total, 8,271 related to FDIC-supervised institutions. The FDIC responded to over 97 percent of these complaints within time frames established by corporate policy, and acknowledged 100 percent of all consumer complaints and inquiries within 14 days. As part of the complaint and inquiry handling process, the FDIC works collaboratively with the other federal financial regulatory agencies to ensure that complaints and inquiries are forwarded to the appropriate agencies for response.
The FDIC carefully analyzes the products and issues involved in complaints about FDIC-supervised institutions. The number of complaints received about a specific bank product and issue can serve as a red flag to prompt further review of practices that may raise consumer protection or supervisory concerns.
Between January 1, 2013, and December 31, 2013, the five most frequently identified consumer product complaints about FDIC-supervised institutions concerned checking accounts (18 percent), unsecured credit cards (15 percent), residential real estate loans (14 percent), bank operations (9 percent), and business and commercial loans (7 percent). The issues most commonly cited in checking account complaints related to banks' overdraft fees and service charges. Unsecured credit card complaints most frequently described billing disputes and error resolution. The largest share of complaints about residential real estate loans related to loan modifications, while business and commercial loan complaints usually involved repossession and foreclosure. Many complaints regarding bank operations raised issues about bank management and staff.
The FDIC investigated 80 complaints alleging discrimination between January 1, 2013, and December 31, 2013. The number of discrimination complaints investigated has fluctuated over the past several years but averaged approximately 104 complaints per year between 2007 and 2013. Over this period, 37 percent of these complaints investigated alleged discrimination based on the race, color, national origin, or ethnicity of the applicant or borrower. Twenty-five percent related to discrimination allegations based on age, 8 percent involved the sex of the borrower or applicant, and 3 percent concerned a handicap or disability.
Consumer refunds generally involve the financial institution offering a voluntary credit to the consumer's account that is often a direct result of complaint investigations and identification of a banking error or violation of law. Between January 1, 2013, and December 31, 2013, consumers received a total of nearly $5.6 million in refunds from financial institutions as a result of the FDIC's consumer response program.
Public Awareness of Deposit Insurance Coverage
The FDIC provides a significant amount of education for consumers and the banking industry on the rules for deposit insurance coverage. An important part of the FDIC's deposit insurance mission is to ensure 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 to both bankers and consumers.
The FDIC continued its efforts to educate bankers and consumers about the rules and requirements for FDIC insurance coverage. As of December 31, 2013, the FDIC conducted 15 telephone seminars for bankers on deposit insurance coverage, reaching an estimated 28,000 bankers participating at approximately 8,000 bank locations throughout the country. The FDIC also updated its deposit insurance coverage publications and educational tools for consumers and bankers, including brochures, resource guides, videos, and the Electronic Deposit Insurance Estimator (EDIE).
As of December 31, 2013, the FDIC received and answered approximately 94,677 telephone deposit insurance-related inquiries from consumers and bankers. The FDIC Call Center addressed 44,541 of these inquiries, and deposit insurance coverage subject-matter experts handled the other 50,136. In addition to telephone inquiries about deposit insurance coverage, the FDIC received 2,499 written inquiries from consumers and bankers. Of these inquiries, 99 percent received responses within two weeks, as required by corporate policy.
Center for Financial Research
The Center for Financial Research (CFR) was founded by the FDIC in 2004 to encourage and support innovative research on topics that are important to the FDIC's role as deposit insurer and bank supervisor. During 2013, the CFR co-sponsored two major research conferences.
The CFR organized and sponsored the 23rd Annual Derivatives Securities and Risk Management Conference jointly with Cornell University's Johnson Graduate School of Management and the University of Houston's Bauer College of Business. The conference was held in March 2013 at the FDIC's Seidman Center and attracted over 100 researchers from around the world. Conference presentations included credit default swap markets, term structure and credit risk, credit and contagion risk, and commodity markets.
The CFR also organized and sponsored the 13th Annual Bank Research Conference jointly with the Journal for Financial Services Research (JFSR), in October 2013. The conference was attended by more than 120 participants and included over 20 presentations on topics related to global banking, financial stability, and the financial crisis.
1 The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to market risk, and ranges from "1" (strongest) to "5"