2014 Annual Report
I. Management’s Discussion and Analysis
The Year in Review
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, 2014, the FDIC was the PFR for 4,138 FDIC-insured, state-chartered institutions that were not members of the Federal Reserve System [generally referred to as “state nonmember” (SNM) 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, 2014, the FDIC conducted 2,087 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 1,406 statutorily required CRA/compliance examinations (1,019 joint CRA/compliance examinations, 376 compliance-only examinations, and 11 CRA-only examinations), and 4,667 specialty examinations.
|Risk Management (Safety and Soundness):|
|State Nonmemember Banks||1,881||2,077||2,310|
|State Member Banks||0||4||2|
|Subtotal - Risk Management Examinations||2,087||2,284||2,563|
|Compliance/Community Reinvestment Act||1,019||1,201||1,044|
|CRA - only||11||4||10|
|Subtotal - CRA/Compliance Examinations||1,406||1,576||1,665|
|Information Technology and Operations||2,113||2,323||2,642|
|Bank Secrecy Act||2,126||2,328||2,585|
|Subtotal - Specialty Examinations||4,667||5,057||5,673|
The table above compares the number of examinations, by type, conducted from 2012 through 2014.
As of December 31, 2014, 291 insured institutions with total assets of $86.7 billion were 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 467 problem institutions with total assets of $152.7 billion on December 31, 2013. This constituted a 38 percent decline in the number of problem institutions and a 43 percent decrease in problem institution assets. In 2014, 202 institutions with aggregate assets of $64.4 billion were removed from the list of problem financial institutions, while 26 institutions with aggregate assets of $6.3 billion were added to the list. The National Republic Bank of Chicago, located in Chicago, Illinois, was the largest failure in 2014, with $843 million in assets. The FDIC is the PFR for 202 of the 291 problem institutions, with total assets of $58.7 billion.
During 2014, the FDIC issued the following formal and informal corrective actions to address safety and soundness concerns: 41 Consent Orders and 180 MOUs. Of these actions, 20 Consent Orders and 23 MOUs were issued, based in whole or in part, on apparent violations of the BSA.
All risk management exams were conducted in accordance with statutorily-established time frames, and related enforcement actions for newly-identified 4- and 5- rated institutions were issued in accordance with the time frames established by FDIC policy. The FDIC was slightly below its performance standard for timeliness in the issuance of enforcement actions for newly-identified 3-rated institutions.
As of December 31, 2014, 56 insured SNM institutions, about 1 percent of all supervised institutions, with total assets of $61 billion, were problem institutions for compliance, CRA, or both. Most of the existing problem institutions for compliance were rated “4” for compliance purposes, with only one rated “5.” For CRA purposes, the majority are rated “Needs to Improve,” and only three are rated “Substantial Noncompliance.” As of December 31, 2014, all follow-up examinations for problem institutions were performed on schedule.
During 2014, the FDIC conducted all required compliance and CRA examinations and, when violations were identified, completed follow-up visits and implemented appropriate enforcement actions in full accordance with FDIC policy. In completing these activities, the FDIC substantially met its internally-established time standards for the issuance of final examination reports and enforcement actions.
Overall, banks demonstrated strong consumer compliance programs. The most significant consumer protection issue that emerged from the 2014 compliance examinations involved banks’ failure to adequately monitor third-party vendors. For example, the FDIC found violations involving unfair or deceptive acts or practices relating to issues such as failure to disclose material information about new product features being offered, deceptive marketing and sales practices, and misrepresentations about the costs of products. As a result, the FDIC issued orders requiring consumer restitution and civil money penalty (CMP) actions.
During 2014, the FDIC issued the following formal and informal corrective actions to address compliance concerns: 14 Consent Orders and 42 MOUs. In certain cases, the Consent Orders contain requirements for institutions to pay restitution in the form of consumer refunds for different violations of laws. During 2014, institutions subject to Consent Orders refunded over $105 million to consumers. These refunds primarily related to unfair or deceptive practices by institutions, as discussed above. Additionally, in 2014, the FDIC issued 24 CMPs relating to consumer compliance, totaling just over $9.5 million in CMPs.
Large and Complex Financial Institutions
The FDIC established the Complex Financial Institutions and Large Bank Supervision Groups (Groups) within its Division of Risk Management Supervision in response to the growing complexity of large banking organizations. These Groups are responsible for supervisory oversight and ongoing monitoring, and support the insurance and resolutions business lines. For SNM banks over $10 billion, the FDIC generally applies a continuous examination program whereby dedicated staff conduct ongoing onsite supervisory examinations and institution monitoring, as previously discussed. At institutions where the FDIC is not the PFR, staff works closely with other financial institution regulatory authorities to identify emerging risk and assess the overall risk profile of large and complex institutions.
The Large Insured Depository Institution (LIDI) Program remains the primary instrument for off-site monitoring of IDIs with $10 billion or more in total assets. The LIDI Program provides a comprehensive process to standardize data capture and reporting through nationwide quantitative and qualitative risk analysis of large and complex institutions. In 2014, the LIDI Program encompassed 106 institutions with total assets of $12.4 trillion. The comprehensive LIDI Program is essential to effective large bank supervision because it captures information on the risks and utilizes that information to best deploy resources to high-risk areas, determine the need for supervisory action, and support insurance assessments and resolution planning.
The Shared National Credit (SNC) Program is an interagency initiative administered jointly by the FDIC, the FRB, and the OCC to ensure consistency in the regulatory review of large, syndicated credits, as well as identify risk in this market, which comprises a large volume of domestic commercial lending. In 2014, outstanding credit commitments identified in the SNC Program totaled $3.4 trillion. The FDIC, the FRB, and the OCC issued a joint release detailing the results of the review in November 2014.
In 2014, the FDIC implemented various initiatives to expand knowledge and expertise related to large bank supervisory matters. For example, a long-term program was established to expand on-the-job training and provide mentoring of select staff regarding examination processes and risk analysis at large banks. The FDIC is also focused on hiring and developing additional staff with quantitative skill sets to facilitate the evaluation of complex modeling used by the largest banks. Additionally, several training initiatives were developed and implemented in 2014 that focused on large bank supervisory risks, structures, vulnerabilities, and processes.
Bank Secrecy Act/Anti-Money Laundering
The FDIC pursued a number of BSA, Anti-Money Laundering (AML), and Counter Financing of Terrorism (CFT) initiatives in 2014.
In January and June 2014, the FDIC conducted International AML/CFT training sessions for 61 government officials from Afghanistan, Algeria, Azerbaijan, Kazakhstan, Mali, Nigeria, Pakistan, and Yemen. Additionally, in March 2014, the FDIC conducted an International AML and CFT training session in Kuala Lumpur, Malaysia, the first such training session held outside of the United States. The training was coordinated with Bank Negara Malaysia and included 59 participants representing financial regulatory agencies from Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand, and Vietnam. These training sessions assisted participating jurisdictions in implementing AML/CFT standards and providing law enforcement with financial investigative and other skills necessary to combat money laundering, terrorist financing, and fraud. Specifically, each of the training sessions focused on AML/CFT controls, the AML examination process, customer due diligence, and suspicious activity monitoring. Additionally, in August 2014, the FDIC hosted the Office of Foreign Assets Control (OFAC) for an interagency teleconference to discuss recent changes to existing U.S. economic sanctions programs, as well as OFAC compliance expectations and enforcement case studies.
In December 2014, the FFIEC released the 2014 Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (BSA/AML Manual). The revised BSA/AML Manual provides current guidance on risk-based policies, procedures, and processes for banking organizations to comply with the BSA and safeguard operations from money laundering and terrorist financing. It also reflects regulatory changes and clarifies supervisory expectations that have occurred since the BSA/AML Manual was last updated. The 2014 revisions incorporate feedback from the banking industry and examination staff.
Information Technology, Cyber Fraud, and Financial Crimes
To address the specialized nature of technology- and operations-related supervision, cyber risks, and controls in the banking industry, the FDIC routinely conducts information technology (IT) and operations examinations at FDIC-supervised institutions. The FDIC and other banking agencies also conduct IT and operations examinations of technology service providers (TSPs), which support financial institutions. The result of an IT and operations examination is a rating under the FFIEC Uniform Rating System for Information Technology, which is incorporated into the Management component of the Safety and Soundness rating and the Safety and Soundness Report of Examination.
In 2014, the FDIC conducted 2,113 IT and operations 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 regularly monitors cybersecurity issues in the banking industry through on-site examinations, regulatory reports, and intelligence reports. The FDIC works with groups, such as the Financial and Banking Information Infrastructure Committee, the Financial Services Sector Coordinating Council for Critical Infrastructure Protection and Homeland Security, 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. Further, the FDIC actively participates in the FFIEC’s Cybersecurity and Critical Infrastructure Working Group (CCIWG). The CCIWG was formed in 2013 and serves as a forum to address policy related to cybersecurity and critical infrastructure. It enables members to communicate and collaborate on activities to support and strengthen the resilience of the financial services sector and provides input to FFIEC principal members regarding cybersecurity matters.
In 2014, the FDIC continued a multi-year effort begun in 2010 to strengthen IT and cyber-related educational and professional development programs for the examination workforce. As part of this effort, newly commissioned examiners must complete four IT-related courses – an IT examination course as well as courses on payment systems; risk assessment, IT audit and business continuity planning; and information security. Once this course work is completed, these examiners are able to conduct IT examinations at the FDIC’s least technologically complex supervised financial institutions and better understand the risks associated with the FDIC’s more complex financial institution IT examinations conducted by specialized IT examiners. The FDIC now has nearly 300 commissioned examiners who have completed all four post-commission IT schools and more than 500 who have completed at least one of these schools. An additional facet of this multi-year effort is an on-the-job training program to develop additional examiners with more advanced IT examination skills. In 2014, 18 examiners received advanced certifications in IT, bringing the total of examiners with advanced IT certifications to 116.
The FDIC’s major accomplishments during 2014 to promote IT security, assess risk management practices, and combat cyber fraud and other financial crimes included the following:
- Developed and distributed to all FDIC-supervised banks the FDIC’s Cyber Challenge simulation exercise to encourage community banks to discuss operational risk issues and the potential impact of information technology disruptions. The exercise contained four videos that depict various operational disruptions and materials to facilitate discussion about how the bank would respond to the disruptions. Lists of reference materials where banks could obtain additional information were also included.
- Published two FDIC Consumer News articles: “More About How to Protect Yourself From Data Breaches” and “When People Face Tough Time, Crooks Try to Profit.”
- Re-issued, as a FIL, three documents that contain practical ideas for community banks to consider when they engage in technology outsourcing.
- Hosted the FFIEC IT Examiners Conference that addressed technology and operational issues facing the federal financial regulatory agencies.
- Commenced planning a Financial Crimes Conference for staff that will focus on all types of financial fraud, and how the law enforcement community and regulators can effectively respond. The conference is co-sponsored by the U.S. Department of Justice (DOJ) and will be held in June 2015.
- Assisted financial institutions in identifying and shutting down “phishing” websites that attempt to fraudulently obtain and use an individual’s confidential personal or financial information.
Major interagency accomplishments as a member of the FFIEC included the following:
- Collaborated on the development of an FFIEC cybersecurity assessment pilot program conducted at more than 500 community banks and TSPs. The pilot program was designed to assess how well community financial institutions manage cybersecurity and their preparedness to mitigate cyber risks. The results of the assessment are instructive and will help FFIEC members make informed decisions about how they prioritize actions to enhance the effectiveness of cybersecurity-related supervisory programs, guidance, and examiner training.
- Published FFIEC statements on Cyber Attacks on ATM and Card Authorization Systems, as well as Distributed Denial of Service (DDoS) Attacks.
- Published an FFIEC Technology Alert on IT vulnerabilities.
- Co-sponsored and conducted an interagency webinar for community banks addressing senior management’s role in cybersecurity. Over 5,000 chief executive officers (CEOs) and senior managers participated in the webinar.
- Issued a press release and FFIEC statement providing financial institutions with information on available resources to mitigate potential cyber threats and recommending that institutions of all sizes participate in cyber-related information sharing forums, such as the FS-ISAC.
Minority Depository Institution Activities
The preservation of minority depository institutions (MDIs) remains a high priority for the FDIC. In July 2014, the FDIC released a study specifically on MDIs entitled, Minority Depository Institutions: Structure, Performance, and Social Impact. The study explores the role of MDIs in the U.S. financial system: how the industry has changed over time, how MDIs have performed financially, and how they have served their communities. The report notes that MDIs underperform non-MDIs in terms of standard industry measures of financial performance, but it concludes that MDIs often promote the economic viability of minority and underserved communities. Compared with community banks, the markets served by MDI offices include a higher share of the population living in low- or moderate-income (LMI) census tracts, as well as a higher share of minority populations. In addition, among institutions that reported data under the Home Mortgage Disclosure Act, MDIs originated a larger share of their mortgages to borrowers who live in LMI census tracts and to minority borrowers than did non-MDI community banks. These findings demonstrate the essential role MDIs play in their local communities and their high level of commitment to the populations they serve.
In 2014, the FDIC continued to advocate for MDI and Community Development Financial Institution (CDFI) industry-led strategies for success, building on the results of the 2013 Interagency Minority Depository Institution and CDFI Bank Conference. These strategies include industry-led solutions; MDI and CDFI bankers working together to tell their story; collaborative approaches to partnerships to share costs, raise capital, or pool loans; technical assistance; and innovative use of federal programs. The FDIC has begun working with the OCC and the FRB to plan for the 2015 Interagency Conference for MDI and CDFI Banks and to build upon these strategies.
The FDIC continually pursued ways to improve communication and interaction with MDIs and to respond to the concerns of minority bankers. In addition to active outreach with MDI trade groups, the FDIC annually offers to arrange meetings between regional management and each MDI’s board of directors to discuss issues of interest. In addition, the FDIC routinely contacts FDIC-supervised MDIs to offer return visits and technical assistance following the conclusion of each safety and soundness, compliance, CRA, and specialty examination to assist bank management in understanding and implementing examination recommendations. These return visits, normally conducted 90 to 120 days after the examination, are to provide recommendations or feedback for improving operations, not to identify new problems or issues. MDIs also may initiate contact with the FDIC to request technical assistance at any time. In 2014, the FDIC provided 119 individual technical assistance sessions on approximately 80 risk management and compliance topics, including, but not limited to, the following:
- Bank Secrecy Act and Anti-Money Laundering.
- Basel III Capital Rules.
- Branch Opening and Closing Requirements.
- CRE Concentrations.
- Community Reinvestment Act.
- Information Technology.
- Interest Rate Risk.
- Loan Underwriting and Administration.
- New Mortgage Rules/Ability to Repay.
- Sensitivity to Market Risk.
- Third-Party Risk Management.
- Troubled Debt Restructurings.
The FDIC regional offices also held outreach, training, and educational programs for MDIs through conference calls and banker roundtables. In 2014, topics of discussion for these sessions included many of those listed above, as well as the FDIC’s Technical Assistance Video Program, Capital Raising, and PCA.
Other Rulemaking and Guidance Issued
During 2014, the FDIC issued and participated in the issuance of other rulemaking and guidance in several areas as described below.
Registration of Municipal Advisors
In January 2014, the FDIC issued a FIL to advise FDIC-supervised financial institutions on the registration requirements for those institutions that meet the definition of “municipal advisor.” Section 975 of the Dodd-Frank Act amended Section 15B(a) of the Securities Exchange Act of 1934 to make it unlawful for “municipal advisors,” as defined in the Dodd-Frank Act, to provide certain advice to or solicit municipal entities or certain other persons without registering with the SEC. In September 2013, the SEC issued a final rule establishing a permanent registration system for municipal advisors.
Paying Agent Notification Requirements
In February 2014, the FDIC issued a FIL to alert bankers to the SEC’s amendment to the Exchange Act Rule 17Ad-17 to implement the requirements of Section 929W of the Dodd-Frank Act. The amendments add a requirement that “paying agents” send a one-time notification to “unresponsive payees” stating that the agent has sent a security holder a check that has not yet been negotiated.
Income Tax Allocation in a Holding Company Structure
In June 2014, the FDIC and the other federal banking agencies issued an addendum to the 1998 Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure. Since the beginning of the 2008 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 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 attributable to income earned, taxes paid, and losses incurred by the IDI, and provides a sample paragraph to accomplish this goal. The addendum also clarifies how certain requirements of Sections 23A and 23B of the Federal Reserve Act apply to tax allocation agreements between IDIs and their affiliates. Those IDIs and their holding companies subject to the 1998 Interagency Policy Statement were expected to implement the addendum no later than October 31, 2014. The FDIC will review compliance with the guidance in upcoming examinations of affected IDIs.
Economic Growth and Regulatory Paperwork Reduction Act
The FDIC, along with the other banking regulatory agencies, launched a cooperative, three-year effort to review all of their regulations. The purpose of the review, which is mandated by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), is to identify and eliminate any regulatory requirements that are outdated or otherwise unnecessary.
For the purpose of this review, the agencies categorized their regulations into 12 separate groups. Over the next two years, groups of regulations will be published for comment, providing industry participants, consumer and community groups, and other interested parties an opportunity to identify regulatory requirements they believe are no longer needed or should be modified. The agencies will then analyze the comments and propose amendments to their regulations where appropriate.
In June 2014, the agencies issued the first three groups of regulations for comment: Applications and Reporting, Powers and Activities, and International Operations. During the 90-day comment period, which ended September 2, 2014, 40 letters were received. Staff is reviewing and analyzing the comments.
One such comment letter resulted in the FDIC’s issuance of a FIL in November 2014, which eliminates application requirements for state-chartered banks engaging in activities or investments permissible for a national bank if the bank maintains certain documentation, including that the activity is permissible under relevant state law. The FIL clarifies that this change applies to unincorporated subsidiaries of state-chartered banks operating as a limited liability company (LLC), a limited partnership, or a similar entity wishing to engage in activities permissible for a national bank. In addition, in November 2014, the FDIC issued guidance through a FIL to aid applicants in developing proposals for deposit insurance and to provide transparency to the application process.
As a part of the regulatory burden reduction effort, the agencies hosted a banker outreach meeting in December 2014, in Los Angeles, California, to facilitate awareness of the EGRPRA project and to listen to stakeholder comments and suggestions. FDIC Chairman Martin J. Gruenberg, FRB Governor Lael Brainard, and Comptroller Thomas J. Curry were featured speakers at the meeting. Staff from each of the federal banking agencies, as well as regional representatives of the major industry trade groups and community advocates, attended the meeting. The agencies plan to hold additional roundtable discussions with bankers and interested parties and will publish details about these sessions at http://www.fdic.gov/EGRPRA/index.html and http://egrpra.ffiec.gov as they are finalized.
FDIC Clarifying Supervisory Approach to Institutions Establishing Account Relationships with Third-Party Payment Processors
In July 2014, the FDIC issued guidance clarifying its supervisory approach to institutions establishing account relationships with third-party payment processors (TPPPs). The focus of the FDIC’s supervisory approach to institutions establishing account relationships with TPPPs is to ensure that institutions have adequate procedures for conducting due diligence, underwriting, and ongoing monitoring of these relationships. The guidance stressed that insured institutions that properly manage customer relationships are neither prohibited nor discouraged from providing services to any customer operating in compliance with applicable law.
Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Period
In July 2014, the FDIC, jointly with the OCC, the FRB, the NCUA, and the Conference of State Bank Supervisors, issued home equity lines of credit (HELOC) guidance, which recognizes that some institutions and borrowers may face challenges as HELOCs near their end-of-draw period. Many borrowers will have the financial capacity to meet their contractual obligations as HELOCs transition from the draw period to an amortizing or balloon payment. However, some borrowers may have difficulty meeting higher payments resulting from principal amortization or an interest rate reset, while others may encounter problems refinancing an existing loan due to changes in financial circumstances, or declines in property values since the HELOC’s origination date. The HELOC guidance provides a framework for managing HELOCs nearing their end-of draw period and communicating and prudently working with HELOC borrowers experiencing financial difficulties.
Prudent Management of Agricultural Credits through Economic Cycles
In July 2014, the FDIC issued a FIL reminding institutions engaged in agricultural lending to maintain sound underwriting standards, strong credit administration practices, and effective risk management strategies. The FIL encourages financial institutions to work constructively with borrowers to strengthen the credit and mitigate loss when agricultural borrowers experience financial difficulties.
During 2014, the FDIC issued six FILs that provide guidance to help financial institutions and to facilitate recovery in areas affected by tornadoes, flooding, and other severe storms. 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.
Frequently Asked Questions for Implementing the Interagency Guidance on Leveraged Lending
In November 2014, the FDIC, jointly with the FRB and the OCC, issued Frequently Asked Questions (FAQs) through a FIL to provide clarification on the implementation and interpretation of the leveraged lending guidance issued in March 2013. The guidance is intended to help institutions strengthen risk management frameworks to ensure that leveraged lending activities do not heighten risk in the banking system through the origination and distribution of poorly underwritten and low-quality loans. The responses contained in the FAQs foster industry and examiner understanding and promote consistent application and implementation of the guidance.
Depositor and Consumer Protection Rulemaking and Guidance
Guidance on Increased Maximum Flood Insurance Coverage for “Other Residential Buildings”
The FDIC, the OCC, the FRB, the NCUA, and the Farm Credit Administration (collectively, the agencies) issued an interagency statement in May 2014 regarding the new National Flood Insurance Program (NFIP) maximum limit of flood insurance coverage for non-condominium residential buildings designed for use for five or more families (classified by the NFIP as “Other Residential Buildings”). The guidance discusses agency’ expectations and financial institution responsibilities when, as a result of the increase in the maximum limit of building coverage for such properties, a financial institution determines that a building securing a designated loan is covered by flood insurance in an amount less than the amount required under federal flood insurance law.
Guidance on Unfair or Deceptive Credit Practices
In August 2014, the FDIC, the FRB, the CFPB, the NCUA, and the OCC issued guidance regarding certain consumer credit practices. This guidance was prompted by the Dodd-Frank Act’s repeal of the authority to issue credit practices rules for banks, savings associations, and federal credit unions. The guidance cautioned institutions not to construe the repeal of rulemaking authority under the Federal Trade Commission Act (FTC Act) to indicate that the unfair or deceptive practices described in these former regulations are permissible. The guidance made clear that the credit practices described in these former regulations remain subject to Section 5 of the FTC Act. As such, depending on the facts and circumstances, if banks engage in the unfair or deceptive practices described in the former credit practices rules, such conduct may violate the prohibition against unfair or deceptive practices in Section 5 of the FTC Act, and Sections 1031 and 1036 of the Dodd-Frank Act.
Proposed Revisions to Interagency Question and Answers on Community Reinvestment
In September 2014, the FRB, the FDIC, and the OCC requested public comments on proposed revisions to the “Interagency Questions and Answers Regarding Community Reinvestment.” The Questions and Answers provide additional guidance to financial institutions and the public on agency regulations that implement the CRA. The proposed new and revised guidance address questions raised by bankers, community organizations, and others regarding agency CRA regulations, including access to banking service, innovative or flexible lending practices, qualitative assessment factors, and community development. The new round of CRA Questions and Answers is a follow-up to final revisions to earlier Questions and Answers published in the Federal Register in November 2013.
Proposed Rulemaking on Flood Insurance Rule
In October 2014, the FDIC, the FRB, the NCUA, the OCC, and the Farm Credit Administration issued a proposed rule to amend regulations pertaining to loans secured by property located in special flood hazard areas. The proposed rule would implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. HFIAA amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).
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
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 2014, the ComE-IN met in April and October to discuss safe banking products, mobile financial services, financial education opportunities for young people, consumer demand for small dollar credit, Bank On programs, and the results from the FDIC National Survey of Unbanked and Underbanked Households.
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 bank 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 2014, the FDIC published a report on the 2013 FDIC National Survey of Unbanked and Underbanked Households, based on data collected 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. In addition, the report identified opportunities to better include or retain consumers as bank customers, including opportunities associated with economic transitions such as gaining or losing a job. The report was presented to the ComE-IN members in October. Also, to enhance transparency and utility of the data, the FDIC developed a web-based resource to allow bankers and other members of the public to specify and generate reports that reflect their particular interests.
The FDIC continued planning for new research to learn about bank efforts to serve unbanked and underbanked customers. During 2014, the FDIC advanced work to develop new survey questions and established relationships with external vendors that may be called upon to assist with qualitative research efforts, such as in-depth interviews with a limited number of bankers.
Partnerships to Promote Consumer Access
The FDIC, through work with Alliances for Economic Inclusion, Bank On initiatives, and in collaboration with many local and national organizations, supports consumer financial education and access. 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 2014, the FDIC supported 16 AEI programs across the nation. Many AEIs formed committees and working groups to address specific challenges and financial services needs in their communities. These included retail financial services for underserved populations, savings initiatives, affordable remittance products, small-dollar loan programs, targeted financial education programs, and other credit and asset-building programs.
The FDIC continued to work with a wide range of banks and nonprofit organizations in all of the AEI markets. For example, in March 2014, the FDIC, with the Small Business Administration’s support, conducted a Small Business Resource Summit and Entrepreneurial Cafe in Fairmont, West Virginia. This event brought together an array of banks, training providers, nonprofit organizations, and state and federal agencies to connect small businesses with the resources they need. In January and June 2014, the Northeast Oklahoma AEI (NEOK AEI) membership conducted credit building events in Tahlequah and Tulsa. At these events, consumers reviewed their credit reports in one-on-one sessions with credit counselors, lenders, and underwriters who assisted them in interpreting, correcting and improving their credit histories. Other events in 2014 that were co-sponsored by the FDIC in four AEI markets included training sessions on the importance of credit scores and the potential for enhancing credit profiles. AEI members collaborated with the Credit Builders Alliance, a nonprofit organization that works to facilitate credit reporting for community development lenders, to train more than 200 representatives of social service organizations, local governments and banks, in greater Los Angeles, California; Milwaukee, Wisconsin; and Wilmington, Delaware, on the role of credit building for low- and moderate-income consumers.
The FDIC also provided information and technical assistance in the development of safe and affordable transaction and savings accounts and other products and services designed to meet the needs of low- and moderate-income consumers. In over 50 markets, the FDIC provided technical assistance to local Bank On initiatives and to asset building coalition activities designed to reduce barriers to banking and increase access to the financial mainstream. The FDIC also supported efforts to link consumers to financial education and savings through engagement in activities organized around designated “Money Smart” or “Financial Fitness” weeks or months that involved hundreds of consumer outreach events. Moreover, working with the national, local, state, and targeted (youth, military, and minority consumer-focused) America Saves campaigns, FDIC community affairs teams continued to link banking companies to active efforts for engaging consumers with setting savings goals at tax time and year round.
In 2014, 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 compliance and consumer protection. Teleconference participants included bank directors, officers, staff, and other banking industry professionals.
Three teleconferences were held in 2014. The topics discussed included (1) revisions to the “Interagency Questions and Answers Regarding Community Reinvestment, (2) Common Questions and Answers Pertaining to Implementation of the CFPB’s Ability-to-Repay and Loan Originator Compensation Final Rules, and (3) an update on flood insurance matters.
Advancing Financial Education
The FDIC expanded its financial education efforts during 2014 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. In particular, the FDIC took steps to more closely align its financial education activities with the Starting Early for Financial Success focus of the Financial Literacy and Education Commission.
The FDIC signed a multi-year MOU with the CFPB in April 2014, which leverages each agency’s strengths to improve financial education and decision-making skills among American youth from pre-kindergarten through age 20. Early results of the new partnership include tailored financial education resources for teachers, youth, and parents/caregivers.
As part of the new partnership, the FDIC began to develop a new instructor-led Money Smart curriculum series for young people, to be used as a resource for teachers. Bankers can also use these tools as they work with schools, non-profit organizations, and other youth-based audiences. The age-appropriate series, targeted for release in early 2015, will consist of four free standard-aligned curriculums that empower teachers with engaging activities to integrate financial education instruction into subjects such as math, English, and social studies. Each curriculum includes a new parent resource guide with information about the topics being covered in class, as well as at-home activities. The curriculum will be made available through the new Teacher Online Resource Center (TORC) website. (https://www.fdic.gov/consumers/education/teachers.html) that was launched in September 2014. The TORC is a central location for teachers to access resources from across the FDIC and CFPB that can support financial literacy instruction.
Also, as part of the new partnership, in August 2014, the FDIC and CFPB launched a campaign to encourage parents and caregivers to help their children build knowledge on financial matters. More than 13,000 visitors accessed the website which provides resources that parents and caregivers can use to talk about money with young people.
In August 2014, the FDIC launched a Youth Savings Pilot Program (Pilot) to identify and highlight promising approaches to offering financial education tied to the opening of safe, low-cost savings accounts for K-12 school-aged children. The FDIC selected nine institutions from a pool of bank applicants. The Pilot’s first phase covers existing partnerships between institutions and schools that are in place during the 2014–15 school year. In 2015, the FDIC plans to solicit banks that intend to carry out new programs and partnerships during the 2015–16 school year to participate in the second phase of the Pilot. The Pilot will culminate in a report later in 2015 that will communicate lessons learned about ways banks may work with schools or other organizations to effectively combine financial education with access to a savings account.
The existing suite of Money Smart products for consumers was also enhanced with the release of a Spanish language translation of Money Smart for Older Adults, in partnership with the CFPB. This stand-alone training module developed by both agencies was initially released in English in 2013 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.
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 150 outreach events to promote the Money Smart program. More than 38,000 copies of the Money Smart instructor-led curriculum were distributed or downloaded, and more than 49,000 people used the computer-based or podcast curriculum, exemplifying effective results from the outreach sessions.
An example of FDIC outreach with leading organizations to achieve shared objectives is the FDIC’s participation in the 2014 America Saves Week, which took place from February 24 to March 1. The FDIC hosted six webinars that reached more than 300 financial institutions to discuss opportunities to participate in America Saves Week. In addition, the FDIC supported local America Saves coalitions in many communities around the country by conducting financial education workshops and providing resources.
In 2014, the FDIC provided professional guidance and technical assistance to banks and community organizations through outreach activities and events designed to foster understanding and practical relationships between financial institutions and other community development and economic inclusion stakeholders. As part of this effort, the FDIC conducted over 135 community development events linking bank and community partners with opportunities to address community credit and development needs. A particular emphasis was on low- and moderate-income consumers and small businesses.
The FDIC provided support to strategic partnering between community banks and Community Development Financial Institutions (CDFIs). In May 2014, the FDIC released a guide entitled “Strategies for Community Banks to Develop Partnerships with Community Development Financial Institutions” in an effort to strengthen outreach to encourage partnerships with CDFIs to meet community credit needs.
The FDIC also co-sponsored the 2014 National Interagency Community Reinvestment Conference in Chicago, Illinois. FDIC Chairman Gruenberg, as a plenary speaker, addressed the importance of economic inclusion and community development in his remarks. FDIC staff moderated a number of the sessions covering small business lending, CRA 101 for Community Based Organizations, financial capability, affordable housing, and economic inclusion. More than 900 bankers and community development practitioners attended the biennial conference.
Community Banking Initiatives
Community banks are those institutions that provide traditional, relationship-based banking services in their local communities. They account for about 13.3 percent of the banking assets in the United States but provide nearly 45.1 percent of the small loans that FDIC- IDIs make to businesses and farms. The FDIC is the lead federal supervisor for the majority of community banks, and the insurer of all. The FDIC has a particular responsibility for the safety and soundness of community banks, and for understanding and communicating the role they play in the banking system.
Efforts under the Community Banking Initiative continued on a number of fronts in 2014. The FDIC continued to conduct targeted research on key community banking issues, and published or presented findings related to the resilience of community banks amid banking industry consolidation, de novo institutions and their performance over time, the effects of long-term rural depopulation on community banks, the performance and social impact of Minority Depository Institutions (MDIs), and long-term trends in the physical banking offices operated by FDIC-insured institutions.
Another important development during the year was the introduction of a new section in the FDIC Quarterly Banking Profile (QBP) that focuses specifically on community banks. This new section of the FDIC’s flagship statistical report highlights the structure, activities, and performance of community banks as distinct from the results for larger institutions, and should provide a useful barometer by which smaller institutions can compare their own results. Combined with the FDIC’s special reports on community banking topics, this enhancement to the QBP represents an ongoing commitment to an active program of research and analysis on community banking.
In response to concerns about pre- and post-examination processes, the FDIC developed a web-based tool in 2013 that generates a pre-examination document and information request tailored to a specific institution’s operations and business lines. In 2014, the regional and Washington offices continued to monitor banker feedback on the enhanced pre-examination process and adjusted the tool based on banker and examiner feedback.
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 that provides in-depth, technical training for bankers to view at their convenience. A new video released during 2014 focused on the new mortgage rules that became effective in 2013. The video is targeted to bank compliance officers to facilitate bank implementation of and compliance with the CFPB’s ability-to-repay/qualified mortgage regulations. In addition, the FDIC’s Cyber Challenge: A Community Bank Cyber Exercise was added to the Technical Assistance Video Program in 2014.
Throughout 2014, the FDIC continued to offer additional technical training opportunities on subjects of interest to community bankers. As part of this ongoing effort, the FDIC hosted Director Colleges in each region. These Colleges are typically conducted jointly with state trade associations and address topics of interest to community bankers. The FDIC hosted a banker call-in on new mortgage rules and participated in an FFIEC call-in regarding Call Report changes. The FDIC also offered a series of Deposit Insurance Coverage seminars for bank officers and employees. These free seminars, which were offered nationwide, particularly benefited smaller institutions that have limited training resources. Further, the FDIC conducted a series of roundtables with community bankers in each of its six regions. Community bank outreach and training initiatives will continue in 2015.
Additionally, in June 2014, the FDIC mailed an information packet to the chief executive officers (CEOs) of all FDIC-supervised banks. In addition to an introductory letter to the CEOs, the packet contained brochures highlighting the content of key resources and programs; a copy of the Cyber Challenge, a technical assistance product designed to assist with the assessment of operational readiness capabilities; and other information of interest to community bankers.
The FDIC’s Advisory Committee on Community Banking is an ongoing forum for discussing critical issues and receiving valuable feedback and input from the industry. The advisory committee met three times during 2014. The Committee, which is composed of 15 senior leaders of community banks from around the country, is a valuable resource for input on a wide variety of topics, including examination policies and procedures, capital and other supervisory issues, credit and lending practices, deposit insurance assessments and coverage, and regulatory compliance issues.
Finally, the FDIC and the OCC co-hosted a Joint Agency Mutual Forum (Forum) on July 24, 2014, which was the first conference conducted for all mutual banking institutions, regardless of charter type. Mutually-related institutions represent about 9 percent of all FDIC-insured institutions and are among the oldest form of depository institution. Attended by approximately 125 mutual bankers, the Forum provided an opportunity for the participants to learn about current trends and engage in a dialogue on the opportunities and challenges facing mutual institutions. In June 2014, the FDIC created a new website dedicated to mutual institutions, with helpful resources, guidance, and the first ever published comprehensive listing of mutual banks and institutions owned by mutual holding companies.
Consumer Complaints and Inquiries
The FDIC helps 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, U.S. Mail, email, and online through the FDIC’s website. In 2014, the FDIC handled 17,559 written and telephone complaints and inquiries. Of this total, 9,358 related to FDIC-supervised institutions. The FDIC responded to nearly 98 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 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.
In 2014, the five most frequently identified consumer product complaints and inquiries about FDIC-supervised institutions concerned credit cards (18 percent), checking accounts (14 percent), residential real estate loans (12 percent), consumer loans (13 percent), and prepaid cards (8 percent). Credit card complaints and inquiries most frequently described issues with collection practices, while the issues most commonly cited in correspondence about checking accounts related to bank overdraft fees and service charges. The largest share of complaints and inquiries about residential real estate loans related to loan modifications and foreclosures. Consumers most often identified concerns with collection practices regarding consumer loans, and a large number of complaints also involved issues related to prepaid cards.
The FDIC also investigated 76 complaints alleging discrimination during 2014. The number of discrimination complaints investigated has fluctuated over the past several years but averaged approximately 121 complaints per year between 2008 and 2014. Over this period, 36 percent of the complaints investigated alleged discrimination based on the race, color, national origin, or ethnicity of the applicant or borrower; 23 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. In 2014, consumers received more than $801,000 in refunds from financial institutions as a result of the assistance provided by the FDIC’s Consumer Affairs Program.
Public Awareness of 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 during 2014. For example, the FDIC conducted 12 telephone seminars for bankers on deposit insurance coverage, reaching an estimated 20,108 bankers participating at approximately 5,745 bank locations throughout the country. In 2014, the FDIC also completed a comprehensive update of its deposit insurance coverage publications and educational tools for consumers and bankers. This included a complete revision of the FDIC’s website including brochures, resource guides, and videos. In addition, new outreach materials were developed to assist depositors, including infographic diagrams for revocable and irrevocable trust deposits.
As of December 31, 2014, the FDIC received and answered approximately 88,315 telephone deposit insurance-related inquiries from consumers and bankers. The FDIC Call Center addressed 40,522 of these inquiries, and deposit insurance coverage subject-matter experts handled the other 47,793. In addition to telephone inquiries about deposit insurance coverage, the FDIC received 1,879 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 FDIC’s Center for Financial Research (CFR) encourages and supports innovative research on topics that are important to the FDIC’s role as deposit insurer and bank supervisor. During 2014, the FDIC’s CFR co-sponsored two major conferences. Approximately 60 regulatory staff attended an Interagency Risk Quantification Forum, co-sponsored by the FDIC, the OCC, and the Federal Reserve Bank of Philadelphia, which addressed topics including securitization and creditor recovery, loss given default, and the identification of systemic risk in the banking industry.
The CFR also organized and sponsored the 14th Annual Bank Research Conference jointly with the Journal for Financial Services Research (JFSR), in October 2014. More than 120 participants attended the conference that included more than 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" (weakest).