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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

2015-2019 Strategic Plan

Supervision Program

Program Description

Although the FDIC is the insurer for all insured depository institutions in the United States, it is the primary federal supervisor only for state-chartered banks and savings institutions that are not members of the Federal Reserve System.6 Nonetheless, the FDIC’s roles as an insurer and primary supervisor are complementary, and many activities undertaken by the FDIC support both the insurance and supervision programs. Through review of examination reports, use of off-site monitoring tools, and participation in examinations conducted by other federal regulators (either through agreements with these regulators or, in limited circumstances, under the exercise of the FDIC’s authority to conduct special (backup) examination activities), the FDIC regularly monitors the potential risks at all insured institutions, including those for which it is not the primary federal supervisor. The FDIC also takes into account supervisory considerations in the exercise of its authority to review and approve applications for deposit insurance from new institutions and other applications from IDIs, regardless of the chartering authority.

In 2010, the Dodd-Frank Act expanded the FDIC’s statutory responsibilities beyond IDIs to bank holding companies with more than $50 billion in assets and to nonbank financial companies that are designated as systemically important by the Financial Stability Oversight Council (FSOC).  The Act designates the FRB as the primary consolidated supervisor of these companies and assigns to the FDIC and the FRB joint responsibility for reviewing and assessing resolution plans developed by these companies that demonstrate how they would be resolved in a rapid and orderly manner under the U.S. Bankruptcy Code in the event of financial distress.  In carrying out this responsibility, the FDIC has established on- and off-site monitoring and risk assessment programs that are integral to the FDIC’s review of the resolution plans submitted by these companies.  In reviewing these plans, the FDIC uses multidisciplinary teams that include both supervisory and receivership management expertise to evaluate the resolvability of these companies through bankruptcy and to direct necessary improvements.  The FDIC also collaborates closely with the primary federal supervisors for the affected IDIs in the review of these plans.

The FDIC pursues the following three strategic goals in fulfilling its supervisory responsibilities as the primary federal supervisor for state non-member banks and savings institutions, the backup supervisor for other FDIC-insured institutions, and the reviewer of resolution plans submitted by companies covered by Title I of the Dodd-Frank Act:

The FDIC promotes safe and sound financial institution practices through regular risk management examinations, publication of guidance and policy, ongoing communication with industry officials, and the review of applications submitted by FDIC-supervised institutions to expand their activities or locations.  When appropriate, the FDIC has a range of informal and formal enforcement options available to resolve safety-and-soundness problems identified at these institutions.  The FDIC also has staff dedicated to administering off-site monitoring programs and to enhancing the Corporation’s ability to timely identify emerging safety-and-soundness issues.

The FDIC promotes compliance by FDIC-supervised institutions with consumer protection, fair lending, and community reinvestment laws through a variety of activities, including ongoing communication with industry officials, regular compliance and Community Reinvestment Act (CRA) examinations, dissemination of information to consumers about their rights and required disclosures, and investigation and resolution of consumer complaints regarding FDIC-supervised institutions.  The FDIC also has a range of informal and formal enforcement options available to resolve compliance problems identified at these institutions.

 


6 This includes state-licensed insured branches of foreign banks. As of 9/30/14, the FDIC had primary supervisory responsibility for 4,217 FDIC-insured state-chartered commercial banks and savings institutions that are not members of the Federal Reserve System (generally referred to as “state non-member” institutions).


Supervision Program – Risk Management

Strategic Goal 2

FDIC-insured institutions are safe and sound.

Strategic Objective

2.1 The FDIC exercises its statutory authority, in cooperation with other primary federal regulators and state agencies, to ensure that all FDIC-insured institutions appropriately manage risk.

    Means & Strategies:   As noted above, the FDIC is the primary federal supervisor for all state non-member banks and state-chartered savings institutions.  For those institutions, the FDIC performs risk management (safety and soundness), trust, Bank Secrecy Act/Anti-Money Laundering, and information technology (IT) examinations in cooperation with state banking regulators.  Most state banking agencies participate in an examination program under which certain examinations are performed on an alternating basis by the state agency and the FDIC.  In addition, the FDIC, the OCC, and the FRB conduct IT examinations of third-party technology service providers that provide a range of services to IDIs.  As the threat of cyberattacks has grown in recent years, the FDIC has begun to use simulations and tabletop exercises to prepare for these risks.

    Risk management examinations are conducted according to statutorily-established timeframes.  These examinations assess an institution’s overall financial condition, management practices and policies, compliance with applicable laws and regulations, and the adequacy of management and internal control systems to identify, measure, and control risks.  Examination procedures may also disclose the presence of fraud or insider abuse.  In addition, the FDIC reviews the risk management capabilities of those FDIC-supervised institutions that apply for permission to engage in new or expanded business activities.

    Communication and corrective action are important components of the FDIC’s strategy for ensuring the safety and soundness of the institutions it supervises.  Risks identified during an examination are discussed with the institution’s management and board of directors.  If an examination reveals serious weaknesses in the operations of the institution or indicates that the institution is operating in a weakened financial condition, the FDIC may issue formal or informal enforcement actions that remain in effect until corrective actions are taken and the identified weaknesses are addressed.  In the case of severe problems, the institution may be instructed to seek additional capital, merge with another institution, or liquidate.

    The FDIC’s statutory authority also gives it a degree of supervisory responsibility, in its role as insurer, for insured depository institutions for which it is not the primary federal supervisor.  The Corporation has staff in each of its regional offices that regularly review examination reports and other available information from the primary federal regulators for those institutions.

    The FDIC also performs off-site monitoring of those institutions on an ongoing basis, particularly for institutions with more than $10 billion in assets.  In addition, the FDIC has the authority to conduct special (backup) examination activities for institutions for which is not the primary federal regulator with the approval of either the primary federal regulator or the FDIC Chairman.  Under a 2010 agreement with the OCC and the FRB, the FDIC has the ongoing consent of the other regulators to participate in examinations of certain IDIs that present heightened risk to the Deposit Insurance Fund and designated large, complex IDIs.  Under this agreement, the FDIC has dedicated examiners participating in continuous examination activities at every IDI that has more than $100 billion in total assets.

    Ensuring the safety and soundness of FDIC-insured institutions over the next four years will require an effective supervisory program that incorporates the lessons learned from the recent financial crisis, identifies potential new risks that emerge, and responds quickly to such issues.  Cybersecurity is one risk area that will receive particular attention during the next several years.  During this period, the FDIC will enhance its IT examination program for insured institutions and major technology service providers and substantially increase the staff resources that are dedicated to that program.  Where necessary, staff will be hired to address any technical skill gaps that are identified in the IT examination workforce.  In addition, in light of the risks posed to the DIF by large and complex banks and the FDIC’s new responsibilities for systemically important financial institutions, the Corporation will continue to enhance its supervisory monitoring program for large and complex banks.

    Another area that will receive increased attention over the next several years is interest rate risk.  An extended period of historically low interest rates and tightening net interest margins has created incentives for IDIs to reach for yield in their investment portfolios by extending portfolio durations, heightening their vulnerability to interest rate risk.  Given the uncertain direction and timing of changes in market interest rates, the FDIC will continue to provide expanded supervisory coverage of interest rate risk over the next several years.  It will use off-site monitoring to identify institutions with outsized interest rate risk exposure and follow up with individual institutions to better understand their rate sensitivity position, internal measurement and monitoring efforts, and conformance with supervisory guidelines.  Through regular on-site examinations and interim contacts with state non-member institutions, FDIC staff will actively engage in a constructive dialogue with banks to ensure that their interest rate risk policies and oversight are effective, and, where appropriate, FDIC staff will work closely with institutions that have significant exposure to rising interest rates and encourage them to take steps to mitigate the risk.

    The FDIC also has an organizational unit that is specifically dedicated to the identification of emerging issues.  It regularly reviews supervisory information from the thousands of examinations that are conducted annually as well as information from a variety of external data sources to identify and, where appropriate, initiate supervisory responses to newly identified areas of risk.

    The FDIC has established and consults regularly with the Advisory Committee on Community Banking, which advises the FDIC on the impact of FDIC supervisory policies and practices on community banks.  Members of the Advisory Committee have a wide range of knowledge and experience related to community banks.

    External Factors:   Several factors outside of the FDIC’s control could affect the successful achievement of this strategic objective.  In accordance with statutorily established time frames, most risk management examinations of well-capitalized and well-managed state non-member institutions are point-in-time examinations that occur at 18-month intervals.  Between examinations, institutions may enter new lines of business, extend their lending programs into riskier areas, or implement new technologies without the knowledge of the FDIC or state regulatory agencies.  Major changes in economic conditions could also affect institutions between examinations.  The FDIC will continue to improve off-site tools to monitor potential risks in institutions on a continuing basis between examinations.

    Under the alternating examination program, certain examinations are conducted in alternating periods by the state supervisory authority.  Resource constraints outside of the FDIC’s control sometimes affect the timely completion of examinations by these state authorities.  In such cases, the FDIC will conduct the examination itself within a reasonable timeframe after the originally scheduled examination date if the state agency is unable to do so.

     


Supervision Program – Compliance and Consumer Protection

Strategic Goal 3

Consumers’ rights are protected, and FDIC-supervised institutions invest in their communities.

Strategic Objectives

3.1

FDIC-supervised institutions comply with consumer protection, CRA, and fair lending laws and do not engage in unfair or deceptive practices.

   
3.2 Consumers have access to accurate and easily understood information about their rights and the disclosures due them under consumer protection and fair lending laws.
   
3.3 The public has fair access to banking services and is treated equitably by FDIC-supervised institutions.
   

The means and strategies used to achieve these strategic objectives and the external factors that could impact their achievement are described below.

3.1 FDIC-supervised institutions comply with consumer protection, CRA, and fair lending laws and do not engage in unfair or deceptive practices.

    Means & Strategies:   The FDIC pursues this strategic objective primarily through compliance and CRA examinations of all FDIC-supervised institutions.  CRA examinations are subject to statutory timelines while compliance examinations are conducted according to timeframes established by FDIC policy.  These examinations evaluate the compliance of institutions with consumer protection, privacy, CRA, and fair lending laws and regulations.  As with risk management examinations, if an examination reveals serious violations, the FDIC may implement either formal or informal enforcement actions to correct the identified violations.  In unusual cases, non-compliance with consumer laws may subject the institution to significant legal risk, which may in turn seriously harm the institution’s standing in the community and could result in civil monetary penalties and private liability.  In addition, when the FDIC has reason to believe that a “pattern or practice” of violations of fair lending laws has occurred at an institution, the FDIC is required by statute to refer the matter to the Department of Justice.  An institution’s failure to comply with consumer protection, CRA, or fair lending laws and regulations might also affect the application of an FDIC-supervised institution seeking to engage in new or expanded business activities.

    For institutions that are Home Mortgage Disclosure Act data reporters, the FDIC reviews the information submitted by the institution to determine whether any approval or pricing disparities exist in one or more product areas on the basis of race or gender, or whether institutions have failed to adequately serve the demand for credit in minority communities compared to their peers. In instances where such pricing disparities are identified, the FDIC will conduct a full fair lending review of the institution to determine if the identified disparity represents unlawful discrimination or is attributable to non-discriminatory factors.

    The FDIC sponsors or participates in numerous outreach and technical assistance activities designed to facilitate better understanding of and compliance with CRA, consumer protection, and fair lending laws and regulations by FDIC-supervised institutions.  In addition, it actively participates in interagency policy development efforts to identify and address unfair and deceptive acts and practices through the issuance of policy guidance to examiners and the industry.  It focuses its examinations and other supervisory activities on those industry products, services, and practices that have the highest potential risk for violations of law that may result in potential harm to consumers.

    External Factors:   As with risk management examinations, most compliance and CRA examinations are point-in-time examinations that occur at scheduled intervals in accordance with FDIC policy.  Between examinations, institutions may implement new products, services, or practices that hold significant potential risk for consumer harm without the knowledge of the FDIC.  In addition, major changes in economic conditions could also affect institutions between examinations.  During economic downturns, institutions sometimes elect to reduce costs by decreasing their internal resources dedicated to compliance.

3.2 Consumers have access to accurate and easily understood information about their rights and the disclosures due them under consumer protection and fair lending laws.

    Means & Strategies:    The FDIC provides information about consumer protection and fair lending laws and regulations to help consumers understand their rights.  This information is disseminated through brochures and other media, including the FDIC’s website (www.fdic.gov).  In addition, the FDIC frequently conducts or participates in educational seminars and conferences on consumer protection and fair lending issues to help both consumers and insured institutions better understand consumer protection, CRA, and fair lending laws and regulations.

    The FDIC maintains a toll-free call center for consumer complaints and inquiries about FDIC-supervised institutions and has established target timeframes for investigating and responding to these complaints.  It is also a leader in promoting greater financial literacy, primarily through its award-winning Money Smart curriculum.  The Corporation will continue to enhance its outreach with this product over the next several years by updating the curriculum to address new consumer products and services and adapting the basic curriculum to additional target audiences.

    External Factors:   Although the FDIC makes information available to a broad array of consumers, individual consumers may not always use it.  In addition, increasing complexity and aggressive and targeted marketing increase the challenges consumers face in evaluating alternatives in the marketplace.

3.3 The public has fair access to banking services and is treated equitably by FDIC-supervised institutions.

    Means & Strategies:   The FDIC has played a national leadership role in recent years in promoting broader economic inclusion within the nation’s banking system.  In pursuit of this objective, the FDIC sponsors or conducts research and demonstration projects, develops policy proposals, facilitates partnerships, and participates in targeted outreach and technical assistance activities with both the institutions it supervises and various community-based organizations.  In 2009, the Corporation conducted, jointly with the U.S. Census Bureau, the first comprehensive nationwide research survey of unbanked and underbanked households in the United States.  That groundbreaking survey, which is repeated biennially, documented for the first time the extent to which U.S. households are underserved by the banking industry.7

    The FDIC has established an advisory committee and formed numerous local partnerships to promote broader access to mainstream financial services by underserved households.

    • The Advisory Committee on Economic Inclusion supports research, demonstrations, and pilot projects and promotes sound supervisory and public policies to help ensure that underserved households have access to mainstream financial products and services that are affordable, easy to understand, and not subject to unfair or unforeseen fees.
    • The Alliance for Economic Inclusion is a network of local partnerships in 14 cities across the country through which almost 1,300 banks and community organizations as well as public officials and other stakeholders work collaboratively to identify products and services and marketing strategies to reach the underserved market.

    Over the next several years, the Corporation will continue to pursue several multi-year initiatives to promote broader economic inclusion.  It will continue to promote adoption of its model transaction account product (SAFE accounts); pursue strategies to improve financial resilience such as affordable small-dollar loan products, building savings, and improving credit records; and evaluate whether mobile financial services and other new technologies can be responsibly used to expand banking services to the unbanked and underbanked population.  The FDIC will also continue to work with NeighborWorks America and similar organizations to facilitate neighborhood revitalization through affordable housing, small business development, and related initiatives.

    External Factors:   The access of underserved households to credit from mainstream financial institutions could be disproportionately affected during economic downturns or periods of economic stress in which the overall supply of credit diminishes.

     


    7 FDIC National Survey of Unbanked and Underbanked Households (December 2009).


Supervision Program – Resolution Planning

Strategic Goal 4

Large and complex financial institutions are resolvable in an orderly manner under bankruptcy.

Strategic Objective

4.1 Large and complex financial institutions are resolvable under the Bankruptcy Code.

    Means & Strategies:   The Dodd-Frank Act expanded the FDIC’s statutory responsibilities beyond IDIs to bank holding companies with more than $50 billion in assets and nonbank financial companies designated as systemically important by the FSOC.  Title I of the Act requires bank holding companies with more than $50 billion in assets and nonbank financial companies designated by the FSOC to prepare and submit annually to the FRB and the FDIC resolution plans, or “living wills,” demonstrating that they could be resolved in a rapid and orderly manner under the Bankruptcy Code (or other applicable insolvency regime) in the event of material financial distress or failure.  Among other things, the resolution plans must identify each firm’s critical operations, core business lines, and the key obstacles to a rapid and orderly resolution.  The FDIC and the FRB share responsibility for reviewing the plans, assessing informational completeness and resolvability under the Bankruptcy Code, identifying and requiring firms to address any shortcomings, and providing firms with guidance on the submission of future plans. The FDIC has a complementary rule that requires IDIs with more than $50 billion in assets to periodically submit resolution plans that would enable the FDIC, as receiver, to resolve their failure in an orderly, least-costly manner.

    The FDIC’s review of resolution plans is intended to improve the resolvability of bank holding companies (and other designated financial companies) through the bankruptcy process and their subsidiary IDIs through the FDIC’s traditional resolution processes as deposit insurer.  These reviews enhance the FDIC’s ability to prepare for possible large resolutions and its understanding of how the FDIC’s resolution authorities could be best used.  The FDIC has established on- and off-site monitoring and risk assessment programs that support the FDIC’s review of the resolution plans submitted by these companies.  In addition, the FDIC employs multidisciplinary teams that include both supervisory and receivership management expertise in the review of these plans.  The FDIC also collaborates closely with the primary federal supervisors for the affected IDIs in the review of these plans.

    External Factors:   The rapid and orderly resolution of a large and complex financial institution under either bankruptcy or Orderly Liquidation Authority may be complicated by legal and operational concerns that stem from the cross-border operations of many large, complex financial institutions. The FDIC actively works with foreign authorities to address these issues. In addition, the sheer size and complexity of these firms pose legal and operational challenges to their resolution. Preplanning and structural and operational reforms by these companies are essential to achieving a rapid and orderly resolution under any legal framework.