2014 Annual Report
I. Management’s Discussion and Analysis
The Year in Review
In 2014, the FDIC continued to play a leading role in supporting and promoting the global development of effective deposit insurance, bank supervision, and effective resolution regimes as integral components of the financial safety net. The FDIC worked with several standard-setting, regulatory, supervisory, and multi-lateral organizations such as the Association of Supervisors of Banks of the Americas (ASBA), the Basel Committee on Banking Supervision (BCBS), the Financial Services Volunteer Corps (FSVC), the International Association of Deposit Insurers (IADI), the International Monetary Fund (IMF), and the World Bank. FDIC staff also facilitated the training of several hundred bank supervisors and regulators, technical assistance missions around the world, and secondment programs to further the international community’s understanding
and implementation of best practices in bank supervision and regulation.
International Association of Deposit Insurers
The International Association of Deposit Insurers (IADI) contributes to global financial stability by promoting international cooperation in the field of deposit insurance and providing guidance for establishing new, and enhancing existing, deposit insurance systems, and by encouraging wide international contact among deposit insurers and other interested parties. It is recognized as the standard-setting body for deposit insurance by major international financial institutions, including the FSB, the G-20, the BCBS, the E.C., the IMF, and the World Bank. Since its founding in 2002, IADI has grown from 26 founding members to 79 deposit insurers from 76 jurisdictions. FDIC Chairman Gruenberg served as the President of IADI and Chair of its Executive Council from November 2007 to October 2012. FDIC Vice Chairman Thomas Hoenig currently serves on IADI’s Executive Council.
In 2009, IADI and the BCBS jointly issued the Core Principles for Effective Deposit Insurance Systems and completed the accompanying Compliance Assessment Methodology for the Core Principles in 2010 (together, the Core Principles). The FSB included the Core Principles in its Compendium of Key Standards for Sound Financial Systems. The IMF and World Bank use the Core Principles in the context of the Financial Sector Assessment Program (FSAP) reviews, to assess the effectiveness of jurisdictions’ deposit insurance systems and practices. This represents an important milestone in the growing global acceptance of the role of effective deposit insurance systems in maintaining financial stability. To-date, IADI has trained more than 280 staff members from over 70 jurisdictions in conducting self-assessments for compliance with the Core Principles.
In 2014, a Joint Working Group, comprising key representatives from the FDIC, the Canada Deposit Insurance Corporation, the BCBS, the European Forum of Deposit Insurers, the IMF, the World Bank, the E.C., and the FSB, revised the Core Principles and presented the revision to the IADI Executive Council, which approved it in October 2014. Subsequently, IADI submitted the updated Core Principles to the FSB for inclusion in its Periodic Report to the Plenary, and acceptance by the IMF and World Bank is expected in the near term. Complementing FDIC efforts with IADI and the Core Principles, the FDIC in partnership with the Financial Stability Institute (FSI), developed an online tutorial to assist jurisdictions in completing self-assessments of compliance with the Core Principles in preparation for the IMF/World Bank FSAP review.
FDIC executives and subject-matter experts partnered with IADI to make significant contributions to the development and delivery of several key international programs in 2014. Vice Chairman Hoenig and division executives joined global bank resolution and deposit insurance leaders in exploring key issues related to the use of bail-in as a resolution tool in Warsaw, Poland. The FDIC partnered with FSI to develop a seminar on bank resolution and crisis management hosted by the Bank for International Settlements in Basel, Switzerland. In collaboration with the Kenya School of Monetary Studies, the FDIC led a workshop in Nairobi, Kenya, in May 2014 for jurisdictions interested in establishing new deposit insurance systems. The FDIC helped modernize IADI’s information technology infrastructure and its research capabilities and supported IADI in many leadership capacities. In addition to the Vice Chairman’s role on the Executive Council, an FDIC executive chairs the IADI Training and Conference Committee (TCC), which is responsible for setting IADI’s training strategy, advancing the Core Principles capacity building programs, and forging effective partnerships with multilateral agencies that contribute to IADI’s training capabilities. One of the TCC’s marquee programs is its Executive Training Seminars. In July 2014, the FDIC led a seminar on Deposit Insurance Funding for 70 participants from 35 jurisdictions.
Association of Supervisors of Banks of the Americas
The FDIC has been a member of ASBA since its founding in 1999 and supports ASBA’s mission of promoting sound bank supervision and regulation throughout the Western Hemisphere. ASBA represents bank supervisors from 36 jurisdictions. The FDIC strives to lead the development of strong supervisory policies in this hemisphere through active engagement with the Association’s Board, chairing the ASBA’s Training and Technical Committee, and by providing leadership in many of the Association’s research and guidance working groups.
Senior FDIC staff chair the ASBA Training and Technical Committee, which is responsible for designing and implementing ASBA’s training strategy that advances the adoption of sound bank supervision policies and practices among members. In support of ASBA’s Continental Training Program, the FDIC led two technical assistance training missions in 2014, including Supervision of Operational Risk in San Salvador, El Salvador, and Financial Institution Analysis in Tegucigalpa, Honduras. The FDIC continued to provide subject-matter experts as instructors and speakers to support ASBA-sponsored training programs, seminars, and conferences.
Basel Committee on Banking Supervision
The FDIC supported the development of sound regulatory policy through effective participation in the BCBS and its relevant subgroups. FDIC senior managers represented the FDIC in quarterly meetings of the BCBS and its Policy Development Group. Throughout the year, the FDIC was active in a number of BCBS subgroups that developed proposals for international minimum standards for capital adequacy, resolution regimes, liquidity and funding, and trading and derivatives activities for internationally active banks. These groups include the Task Force on Simplicity and Comparability, the Leverage Ratio Group, the Accounting Experts Group, the Working Group on Liquidity, the Working Group on Margining Requirements, the Cross-Border Bank Resolution Group, and the Standards Implementation Group, among others. FDIC staff contributed to active work streams and quantitative impact studies for BCBS subgroups, providing substantial support and in some instances leading the work.
International Capacity Building
The FDIC’s international efforts supporting the development of effective deposit insurance systems, bank supervisory practices, and bank resolution regimes continued to grow in 2014. FDIC staff contributed to international capacity building by providing study tours, secondments, and technical assistance to foreign counterparts. These engagements resulted in an enhanced dialogue between the FDIC and foreign bank supervisors, deposit insurers, and lawmakers on significant areas such as bank supervision and regulatory development post crisis, depositor preference and resolution functions of the deposit insurance system, and optimal funding strategies for deposit insurers.
FDIC management and staff hosted study tours for 288 individuals, representing 26 jurisdictions during the year. Additionally, the FDIC’s Corporate University provided training in bank supervision and information technology to 294 foreign delegates from 20 jurisdictions. In support of the FDIC’s long-term partnership with the U.S. Department of State, the FDIC hosted training sessions for 111 individuals from 15 jurisdictions on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) in 2014. These training sessions assisted participating jurisdictions in implementing AML/CFT standards, and in providing law enforcement with financial investigative skills, as well as a suite of skills necessary to combat money laundering, terrorist financing, and fraud.
The FDIC contributes to global and domestic initiatives by providing staff to support long-term projects and technical assistance missions led by the IMF, U.S. Treasury Department, the FSVC, and the World Bank. In 2014, senior FDIC staff served on long-term assignments at the U.S. Treasury Department’s Office of International Bank and Securities Markets. The FDIC led six technical assistance missions sponsored by the U.S. Treasury and the FSVC. In collaboration with the U.S. Treasury Office of Technical Assistance, the FDIC advised the Banque de la République du Burundi on the development of a risk-based supervision program. In partnership with the FSVC, the FDIC participated in several technical assistance missions including assisting the Albania Deposit Insurance Agency in developing an automated system to verify deposit insurance premiums and payouts, providing expertise on the topic of savings mobilization in the financial sector to the East African Community Financial Services Providers’ Council in Tanzania, and providing senior Bank of Uganda examiners with an opportunity to strengthen its supervision framework by observing an FDIC risk-management examination. The FDIC partnered with the World Bank to provide technical assistance to the Nigerian Deposit Insurance Corporation on developing a targeted fund ratio for their deposit insurance fund. The FDIC also provided technical assistance and consultation to the Central Bank of Curaçao on the disposition of larger troubled banks and strengthening its bank supervision framework.
The FDIC expands and strengthens international engagement by providing secondment opportunities to foreign officials to engage in long-term consultation with FDIC subject-matter experts in areas related to bank supervision, deposit insurance, and resolutions. In 2014, two officials from the Deposit Insurance Corporation of Japan and the Korea Deposit Insurance Corporation concluded their secondments to the FDIC, and two new secondees from these agencies joined the FDIC, each for one-year assignments.
Key International Engagements
In 2014, the FDIC took important steps to strengthen its relationships with key jurisdictions worldwide. In February, FDIC executives attended the U.S.-India Financial Regulatory Dialogue, hosted by the Securities and Exchange Bureau of India (SEBI) in Mumbai. U.S. representatives from the Treasury Department, FRB, SEC, Commodity Futures Exchange Commission, and the Federal Insurance Office met with the Indian Ministry of Finance, Reserve Bank of India, the Forward Markets Commission, and the Insurance Regulatory and Development Authority to discuss banking sector developments, commodity market and capital market issues, insurance and pension regulation, and financial regulatory reform in each country. The FDIC discussed the U.S. bank resolution regime and new resolution powers for nonbank resolutions. The Reserve Bank of India, in turn, explained its proposed banking reform legislation that would dissolve the current Deposit Insurance and Credit Guarantee Corporation and create a new resolution corporation responsible for the resolution of bank and nonbank financial institutions in India.
In July 2014, Secretary of the Treasury Jacob Lew and Secretary of State John Kerry led a delegation of senior U.S. officials to Beijing, China, to participate in the 6th U.S.-China Strategic and Economic Dialogue. Secretary Lew and Vice Premier Wang Yang led the Economic Track discussion. The FDIC was represented at the meetings, alongside a high-level delegation of Cabinet members, ministers, agency heads, and senior officials from both countries. Among key outcomes, such as commitments by China to liberalize its exchange rate regime, reduce barriers to trade, and further open its markets, China also committed to accelerate the establishment of a deposit insurance system and improve the resolution mechanism for financial institutions through issuing regulations on bank resolution.