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Supervisory Insights

Summer 2005 Vol. 2, Issue 1 - Table of Contents

Supervisory Insights - Summer 2005 - PDF 1,801k (PDF Help)

Letter from the Director


A Changing Rate Environment Challenges Bank Interest Rate Risk Management
Interest rate risk sensitivity is garnering attention, given shifts in rates and trends in bank balance sheet information. This article reviews the current interest rate environment, analyzes aggregate bank balance sheet composition, and identifies potential risks associated with a rising rate environment. Findings from recent bank examination reports in which sensitivity to interest rate risk was considered problematic are reviewed, and identified weaknesses in risk measurement and modeling practices are highlighted. Examination findings generally indicate that the vast majority of insured institutions are managing exposure to interest rate sensitivity effectively.

Enforcement Actions Against Individuals in Fraud-Related Cases: An Overview
First in a series about the enforcement action process as it applies to individuals, this article focuses on fraud and other misconduct by insiders and discusses internal control weaknesses that contribute to the perpetration of fraud. An overview of the statutory authority and policies that form the basis for FDIC enforcement actions in these instances is included.

Fair Lending Implications of Credit Scoring Systems
Insured institutions have increased their use of credit scoring systems significantly. Although the proper use of these systems can help minimize the potential for unlawful discrimination, improper use can result in overt discrimination or disparate treatment, which could lead to fair lending violations. This article provides an overview of credit scoring systems and a conceptual framework for conducting a fair lending examination when a credit score is a factor in the lending decision.

The Changing Landscape of Indirect Automobile Lending
Federal bank regulatory agencies and internal loan review departments traditionally have relied on a delinquency-based approach to evaluate automobile loan portfolios. However, heightened competition, combined with lax underwriting standards and lending controls, may require closer internal review and regulatory scrutiny. This article addresses risk management and consumer compliance risks associated with indirect auto lending programs and uses case studies to identify processes and procedures to control and mitigate those risks.

Regular Features

From the Examiner’s Desk... Enhancing Examiner Review of Technology Service Providers
In light of the increasing use of outsourcing arrangements for information technology services, this article provides an overview of the potential risks posed by technology service providers (TSPs) to insured institutions and offers a framework for analyzing these companies that incorporates publicly available information into the examination planning process. Combining supervisory information with carefully mined information and data from public sources will strengthen the development and maintenance of accurate and meaningful TSP risk profiles.

Accounting News: Other-Than-Temporary Impairment of Investment Securities
Questions about the circumstances in which investors should recognize other-than-temporary impairments of investment securities have been a recent focus of financial institutions, their auditors, and the Financial Accounting Standards Board. This article discusses currently applicable accounting literature on impairment and its relationship to the examination process.

Regulatory and Supervisory Roundup
This feature provides an overview of recently released regulations and supervisory guidance.

Supervisory Insights is published by the Division of Supervision and Consumer Protection of the Federal Deposit Insurance Corporation to promote sound principles and best practices for bank supervision.

Donald E. Powell

Michael J. Zamorski
Director, Division of Supervision
and Consumer Protection

Steven D. Fritts
Executive Editor

Journal Executive Board
Donna J. Gambrell, Deputy Director
John M. Lane, Deputy Director
Sandra L. Thompson, Deputy Director
Ronald F. Bieker, Regional Director
John F. Carter, Regional Director
Nancy E. Hall, Regional Director
Scott M. Polakoff, Regional Director
Mark S. Schmidt, Regional Director
Christopher J. Spoth, Regional Director

Journal Staff
Kim E. Lowry
Managing Editor

Brett A. McCallister
Financial Writer

April G. Schwab
Financial Writer

Supervisory Insights is available online by visiting the FDIC’s website at To provide comments or suggestions for future articles, or to request print copies, contact Managing Editor Kim Lowry at 202-898-6635 or

The views expressed in Supervisory Insights are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance Corporation. In particular, articles should not be construed as definitive regulatory or supervisory guidance. Some of the information used in the preparation of this publication was obtained from publicly available sources that are considered reliable. However, the use of this information does not constitute an endorsement of its accuracy by the Federal Deposit Insurance Corporation.

Last Updated 6/16/2005

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