The FDIC faced the challenge of supervising an increasingly
global banking industry during 1998. In that role, the Corporation took a number of steps
in the international arena, such as monitoring foreign economies, supervising international
banking activities, providing technical assistance to foreign supervisors and deposit insurers, and promoting
cooperation and coordination among foreign bank supervisors.
By monitoring foreign economies, the agency was able to assess the risks of current and
emerging international issues to the FDICs deposit insurance funds. The continued
deterioration in global economies, particularly in Asia and among emerging economies, was
probably the most significant international issue the FDIC monitored during 1998. In many
countries throughout the world, the economic turmoil contributed to deterioration in the
international banking sectors capital levels, asset quality and profitability. As a
result, bank failures in some countries increased and worldwide confidence in the global
economic system declined.
During 1998, the FDIC took appropriate actions to minimize any adverse impact on its
deposit insurance funds resulting from deterioration in foreign economies. For instance,
FDIC economists from the Division of Research and Statistics and Division of Insurance
studied the indirect risks to U.S. banks of international lending resulting from the
increased linkages of world economies. These linkages have become stronger in recent years
due to increased international trade and increased capital flows to and from emerging
economies around the world, particularly East Asia, Eastern Europe and Latin America.
Greater economic linkages among world economies increase the likelihood that one
countrys economic woes will adversely affect other countries. In an attempt to
quantify the effects of indirect risks caused by trade fluctuations, FDIC economists are
developing statistical models to measure the degree of international linkages and risks
among world financial markets. These models will better enable the FDIC to determine the
degree of risk to the insurance funds that may result from the international activities of
The FDIC Division of Supervisions (DOS) on-site and off-site supervisory programs
continued to focus on the increasing globalization of banking during 1998. DOS staff
conducted quarterly reviews of foreign banking operations (FBOs) that have insured
operating subsidiaries or branches in the U.S. These quarterly FBO reviews included
detailed analyses of parent institutions, financial issues and current developments in
home countries. The FDIC also closely reviewed U.S. banking organizations
cross-border exposures, which result from their issuance of debt or off-balance sheet
contracts to international entities. Along with the Board of Governors of the Federal
Reserve System and the Office of the Comptroller of the Currency, the FDIC is a member of
the Interagency Country Exposure Review Committee (ICERC), which assesses transfer risk
(the risk that a foreign debtor will not be able to obtain dollars to repay U.S.
creditors) in those countries to which U.S. banks have cross-border exposures. The FDIC
chaired the ICERC during 1998.
Over its 65-year history, the FDIC has accumulated a wealth of knowledge and experience
that it shares with bank supervisors and deposit insurers around the world. Of particular
interest is the FDICs success in resolving the banking crisis that occurred in the
1980s and early 1990s, without a single loss to an insured depositor. The FDICs
success in resolving failing institutions enabled the nation to maintain confidence in the
U.S. banking system.
The FDIC shared its expertise by providing technical advice to foreign supervisory
authorities and deposit insurers. Technical advice is a relatively low-cost method of
helping to improve the operations of foreign supervisory authorities and deposit insurers.
It may contribute to the stability of foreign markets and reduce any adverse impact that
international events may have on the FDICs deposit insurance funds. During 1998, the
FDIC met with representatives from Japan, Korea, Nigeria, Kenya, Croatia, Malaysia,
Lithuania, England, Thailand, Slovakia, the Philippines, and other countries. The FDIC
addressed a number of the foreign representatives concerns, including how to
liquidate failed-bank asset portfolios without damaging market or investor confidence.
The FDIC also provided training to supervisory personnel of foreign banking
authorities. In conjunction with the Association of Banking Supervisory Authorities of
Latin America and the Caribbean, the Corporation established a training curriculum on
internal routines and controls, and the resolution process for failing institutions. The
FDIC, through DOS, also participates in an ongoing effort with the Asian-Pacific Economic
Cooperation Forum (APEC) to improve bank supervisory training in APEC-member countries.
Further, the FDIC provided foreign supervisory authorities with the opportunity to gain
hands-on experience in U.S. bank examinations. Throughout 1998, a number of foreign bank
supervisors observed on-site examinations of banks to learn more about how the FDIC
supervises U.S. institutions.
The FDIC consistently promotes cooperation and coordination among international
supervisory authorities, resulting in stronger and more consistent supervisory standards.
This, in turn, decreases risk to the FDICs deposit insurance funds.
During 1998, the FDIC participated in a number of international efforts that promoted
cooperation and coordination among bank supervisors around the world. The FDIC is a member
of the Basle Committee on Banking Supervision, which formulates broad standards and
guidelines for each of the member countries. The FDIC is an active participant in many
facets of the Basle Committees work, including subgroups and task forces that focus
on such issues as capital, risk management and the Year 2000. During 1998, the FDIC
provided extensive input on a number of important supervisory topics, including managing
risks associated with electronic banking, improving public disclosure of international
banking organizations and implementing strong internal control systems. Throughout 1998,
DOS staff also worked with the U.S. Department of the Treasury on projects mandated by the
Group of Seven (G-7) countries and the Group of Twenty-Two (G-22) countries. The G-7 and
G-22 projects focused on strengthening international financial systems, including banking
systems, improving information-sharing between domestic and foreign regulators and
improving disclosure by banking organizations.
In September 1998, the FDIC hosted the International
Deposit Insurance Conference in Washington, DC. The conference was the first of its kind
to bring together deposit insurance authorities from around the world. Top government
officials from 62 countries, including leaders of deposit insurance agencies from more
than 20 nations, attended the conference. Keynote speakers included FDIC Chairman Donna
Tanoue; Deputy Secretary of the Treasury Lawrence H. Summers; First Deputy Managing
Director, International Monetary Fund, Stanley Fisher; and former FDIC Chairman Ricki
Helfer. Discussion focused on the role of deposit insurance in maintaining public
confidence in the worlds banking systems. Other topics addressed were past
strategies used to restore stability to various financial sectors, and the
strategies applicability in addressing problems that may arise in the international
arena in the future.
Supervising an increasingly global banking industry will likely continue to be one of
the FDICs primary challenges in the future. The Corporation will remain diligent in
its efforts to respond to international issues in order to maintain the stability of the
FDICs deposit insurance funds and further strengthen public confidence in the U.S.
Vijay Deshpande (l), Director of FDIC's Office of Internal
Control Management, talks with Central Bank officials from Sri Lanka (center)
and Malaysia at the FDIC-sponsored international conference on deposit insurance in September.