(Final)Change and Continuity
Ricki Tigert Helfer
Federal Deposit Insurance Corporation
Women in Housing and Finance
January 25, 1995
It is just not a cliche for me to say what a pleasure it is
for me to speak with you today.
In fact, my colleagues and friends, I feel confident that no
other federal official has felt as honored to speak before this
group as I am.
I joined this organization in 1980 -- near its infancy. I
enjoyed having the regular opportunity to discuss issues
involving the banking and financial industries with other
members. I made a number of friends over the years. Indeed, I
met my Deputy for Policy -- Leslie Woolley -- at a Women in
Housing and Finance meeting just after I joined, and I am
exceedingly pleased that she agreed to bring her years of
experience on financial issues, her good judgment, and winning
personality to the FDIC.
It is hard for some people to believe it today, but in the
early years Women in Housing and Finance was something of a
novelty. Now, it is an institution, and its name is something of
an anachronism, because many men are members. I guess that I am
something of a novelty, too, as the first woman to head a federal
banking agency, but I simply consider myself to be a banking
professional who has more hair than some of my predecessors.
Today I want to talk with you about my four priorities as
Chairman of the Federal Deposit Insurance Corporation. Three of
these priorities involve change and one involves continuity. If
you are familiar with the FDIC, the combination will not surprise
you. In fact, Change and Continuity would not be a bad title for
a history of the FDIC. Change and Continuity suggests the
innovation and professionalism that have marked the FDIC's
response to new market developments and statutory mandates
throughout its history.
During our sixty years of distinguished service to the
nation -- in calm and in crisis -- the FDIC has provided the
public with solid grounds for confidence in the banking system.
In a changing banking environment, the FDIC has represented
continuity. In a financial system built on risk, the FDIC has
We at the FDIC can say with pride that no bank depositor has
lost a penny of insured money and that no U.S. taxpayer has paid
a single cent for this depositor protection.
As you know, the FDIC was born in 1933 to address the
banking crisis of the early 1930s. It was successful in
accomplishing its mission of maintaining stability and public
confidence in the nation's financial system beyond anyone's
expectations, in large part because of the dedication of FDIC
employees and the credibility that arose from the FDIC's status
as an independent agency. Over time, the means used by the FDIC
to accomplish its mission changed -- and so did the organization.
That should be expected. Much has happened in the last 60 years.
When the FDIC was created, many Army officers considered cavalry
to be an essential component of military preparedness. Things
have changed, but the military's mission of insuring the nation's
security remains the same now as it was then. So, too, is ours.
In its first year the FDIC's staff examined more than 7,500
institutions to qualify them for deposit insurance. The first
major change the FDIC faced occurred as it entered its second
year -- transforming itself from a crisis management and damage
control operation into a permanent force for stability in the
financial marketplace. It was a big change, but one that was
made smoothly and effectively. Four thousand banks failed in 1933,
while nine banks failed in 1934.
For the next ten years or so, the FDIC paid out depositors
when banks failed, as they did occasionally. In the 1940s,
however, the FDIC went through another period of change, in part
to assure economic stability. Instead of using payouts to
address bank failures, it switched entirely to selling failed
institutions to other banks without closing the bank.
Communities benefitted from this practice because their banking
services continued uninterrupted. With a sense of pride, the
FDIC highlighted the switch in its 1949 annual report -- which
brought a storm of protest from Congress. The lawmakers sent the
very clear message that the FDIC could facilitate a merger only
if it were less costly than a payout. For the next several years
the FDIC found that payouts were always the less costly course.
Another change occurred in the mid-1960s, when the FDIC
discovered the market and started calling for competitive bids on
the purchase of a closed bank, rather than negotiating with a
In the later 1970s, the size of the FDIC began to balloon,
as more people were needed to take care of problems emerging in
the banking system -- a big change toward crisis management
again. The staff shrank somewhat in the early 1980s, as problems
seemed to subside, only to balloon again to address the most
That crisis is now behind us.
Thirteen banks insured by the FDIC Bank Insurance Fund
failed in 1994, compared to the historical high of 206 in 1989.
These thirteen banks held about $1.6 billion in assets, compared
to the historical high of $63 billion in failed bank assets in
Indeed, after repeated earnings records, the banking
industry as a whole has never been in better financial condition.
Given the ending of the banking and thrift crises, we are
about to write another chapter on change at the FDIC, and the
first item on my agenda concerns a big change involving the Bank
From 1982 through 1993, almost 1,500 banks, with assets of
more than $235 billion, failed. In response to these failures,
and the drain on the insurance fund they represented, insurance
premiums for banks increased dramatically. In 1981, the FDIC
received about $1 billion in assessment income from banks. Last
year, we received close to $6 billion, following $5.8 billion in
1993, $5.6 billion in 1992, and $5.1 billion in 1991.
As a result of record bank earnings, the banking industry
has been able to pay these premiums and replenish BIF much faster
than had been anticipated only three years ago. The Fund will
likely be recapitalized at or near midyear.
When the Fund is recapitalized, I expect that well-capitalized
and well-managed banks -- about nine-out-of-ten banks
in America today -- will see their deposit insurance premiums
drop substantially. For the last three years, these premiums
have been major operating expenses for the industry. For the
best banks, that will no longer be true. These banks will be
able to compete more effectively in the domestic and global
financial marketplaces -- and that benefits U.S. businesses, the
U.S. economy and all of us.
Nevertheless, we still need to take into account potential
risks to the Bank Insurance Fund from those institutions that are
less well-managed and less well-capitalized. As many of you
know, Congress instructed the FDIC to set our insurance premiums
for banks to reflect the risks that individual banks pose to the
insurance fund. As the Fund nears recapitalization, we must
decide just how great the spread in premiums should be to reflect
the risks of less well-capitalized and less well-managed
institutions to the Fund and to motivate the management of those
institutions to improve their financial condition.
Today, there is an eight basis point spread between the
premiums the best banks pay and the premiums the worst banks pay.
There are nine gradations in that range. Given the
recapitalization of the Fund and Congressional intent, it would
seem to make sense for the eight basis point spread to widen --
probably considerably. While I cannot say by just how much --
that is a matter for the FDIC Board as a whole to decide -- I can
say that the premiums must be large enough to be a real incentive
for banks to improve their condition, without being so large that
they cause more problems than risk-based premiums would resolve.
These are the kinds of issues discussed in a regulatory
proposal that the staff will make to the FDIC Board. In the next
several days, the Board will consider issuing that proposal for
Another item on my agenda involves management issues arising
from the end of the banking crisis.
FDIC staff levels declined dramatically in 1994. From an
historical high of 15,585 employees in the second quarter of
1993, staffing declined to 11,627 employees at year-end 1994,
about 25 percent. FDIC staff will decline to fewer than 10,000
by year-end 1995 -- and there will need to be further reductions.
Making this downsizing more difficult is our need to assimilate
RTC staff into the FDIC, an assimilation that must
occur over the next 11 months, as the RTC approaches its sunset
date. This could potentially involve some 1,500 RTC employees
with reemployment rights at the FDIC.
In a way, we face the same types of challenges here as the
military faces in shifting from war to peace. These challenges
involve more than cutting workforce. They involve a redefinition
of our mission and our role. Therein lies new opportunities,
which relate to my third agenda item: transforming the FDIC into
an organization dedicated to identifying and addressing risks to
the banking industry and the deposit insurance funds.
Between 1985 and 1993, the FDIC's principal job was to
resolve failed banks. Going forward, we must concentrate on the
goal of helping banks and other financial institutions stay open.
Given the changes in the financial marketplace over the last
decade, banks and savings associations are exposed to types and
levels of risk different from anything the financial system has
before experienced. New categories of risk seem to emerge every
day. The FDIC must broaden its focus and increase its expertise
to understand and address these risks.
I have begun several initiatives that will lead us toward an
FDIC that is dedicated to identifying and addressing risk -- in
order to keep banks open instead of closing them.
We are near the end of drafting a strategic plan that aims
toward that goal. This will be the first formal strategic plan
the FDIC has adopted in its history.
I have created an internal Task Force on Capital Markets to
analyze the potential risks posed by capital markets activities
and instruments, such as financial derivatives, and to make
recommendations on the ways the FDIC can be more prepared to
analyze and manage the potential risks that these instruments
pose to individual institutions, the banking system, and the
insurance funds. Let me say here that derivative instruments can
be exceedingly useful for hedging risks. We also need to
understand when they pose risks that are not well known or
effectively monitored by market participants. The Task Force is
expected to begin reporting its findings and recommendations to
me this spring.
We have begun processing data on bank failures from the past
12 years into a form that will enable us to develop more
effective failure models and to have a better understanding of
what factors led to losses to the insurance funds.
We are implementing a new survey of examiners on credit
underwriting practices of banks in our eight supervisory regions.
This survey, which we are field-testing this month, could serve
as an "early warning" system for banking problems. Now is the
time to set such systems in place -- when the banking industry is
Clearly, the purpose of concentrating on risk is to change
the FDIC from an organization skilled in crisis management to an
organization dedicated to crisis prevention. Because this shift
in focus will require enhancing and building upon many of the
functions the FDIC has long performed -- rather than exploring
unknown territory -- the transition will involve retooling rather
than reconfiguring the agency.
I also want to note that the focus on risk cuts another way
-- to eliminating or reducing regulation where it no longer
reflects risk to the insurance funds. Again, banks will be more
effective competitors in the marketplace if they are freed from
outdated laws -- like Glass-Steagall Act restrictions -- and
The fourth and most important item on my agenda is my
determination to keep the FDIC an independent agency, in fact as
well as name.
As the deposit underwriter for all banks and savings
associations, the FDIC must be able to make underwriting
Before 1991, the FDIC was required to insure any bank
chartered by another federal bank regulator -- in effect paying
for other people's mistakes by having to insure institutions
insufficiently prepared to meet the risks of the marketplace.
Congress changed that four years ago: We now have the authority
to make the initial underwriting decisions independently of the
chartering authority for new national banks and new state member
We also have the responsibility to assure that the
institutions we insure are operated in a safe and sound manner.
To meet that responsibility, we need meaningful -- I did not say
duplicative or burdensome -- back-up authority. As former-FDIC
chairman Bill Isaac recently wrote in the American Banker: "Two
sets of eyes looking at things from different perspectives tend
to produce better results than one set of eyes." Two sets of
eyes are not necessary in every case but they may be necessary
in problem situations, changing circumstances, and where there are
other risks to the deposit insurance funds.
For those few of you who are not close observers of the bank
regulatory scene, the independence issue must seem rather
Byzantine. Let me state it simply: Two of the three bank
regulatory agencies -- the FDIC and the Federal Reserve System --
are independent agencies created by Congress to achieve public
policy objectives in addition to bank regulation -- objectives
that, at the time of the agencies' creation, were considered to
be so essential to the public interest that the agencies were
made accountable directly to the Congress. Having served at the
Federal Reserve, I can say that independence works.
The FDIC's independence often has been tested, but it has
never been compromised. Congress has made it absolutely clear
that it intends for the FDIC to have the necessary power to
protect the Bank Insurance Fund -- and by extension, the American
taxpayer -- from the kinds of losses that depleted it -- and that
decimated the savings and loan fund -- in the 1980s.
To protect the insurance funds -- and to retain the public's
trust -- we at the FDIC must play it straight -- we must make
unbiased judgments and we must act upon them -- without fear or
favor. Independence gives us credibility and legitimacy.
The integrity of the insurance funds rests ultimately on the
integrity of the people who manage them and who assess the risks
in the financial system to which the funds are exposed. Whether
intentional or unintentional, whether through machination or
legislation, attempts to compromise our independence are
necessarily attempts to compromise the FDIC's ability to do its
In closing, let me say that I am proud to be a part of the
long tradition of public service at the FDIC. I seek to assure
that the FDIC will perform its mission of maintaining stability
and public confidence in the financial system -- that it will
change to maintain continuity, and that it will maintain
continuity in the midst of change. That is what the logo
"insured by the FDIC" is all about.