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2000 Annual Report


Operations of the Corporation – The Year in Review

The year 2000 may well be remembered as a watershed in the history of the FDIC. The Corporation undertook a comprehensive review of the deposit insurance system with an eye toward addressing its weaknesses. As part of that effort, the Corporation commissioned a national household survey, conducted by the Gallup Organization, to measure public understanding of–and support for– the deposit insurance program. Also, the FDIC sponsored global efforts to establish or improve deposit insurance systems. In May, for example, the Corporation and the Financial Stability Institute co-hosted a seminar on these issues in Basel, Switzerland – a seminar that drew approximately 150 people who represented more than 60 countries. And in June the Corporation hosted a meeting in Washington, DC, of the Financial Stability Forum’s (FSF) Working Group on Deposit Insurance. The FSF was created in 1999 by the finance ministers and other officials of the G-7 industrial nations as a way to promote international financial stability through information exchange and international cooperation.

Photograph: FDIC participants in the "Seminar on Establishing a Deposit Insurance System" in Basel, Switzerland, were: (l to r) JamesMcFadyen, Christie Sciacca, George Hanc, Rose Kushmeider, Detta Voesar, Claude Rollin, Stanley Ivie and Christine Blair.

FDIC participants in the "Seminar on Establishing a Deposit Insurance System" in Basel, Switzerland, were: (l to r) James McFadyen, Christie Sciacca, George Hanc, Rose Kushmeider, Detta Voesar, Claude Rollin, Stanley Ivie and Christine Blair.

In addition to deposit insurance, the year 2000 might be considered a watershed in other ways. Concerns began to grow about the condition of the industry, which had experienced unprecedented profitability during the 1990s. And, though industry conditions did not significantly affect the deposit insurance funds, the Corporation in 2000 undertook several safety and soundness initiatives to address emerging risks. It also developed contingency plans for the failure of a very large institution, or an institution that operates on the Internet. It addressed the effects of evolving technology, both internally and externally. The Corporation invested in its employees through its diversity program. And–working with other bank regulators–it dealt with many of the demands of the landmark financial modernization legislation enacted in 1999, the Gramm-Leach-Bliley Act. In summary, the FDIC spent the year 2000 responding to changes in the industry it insures and supervises, and in doing so prepared itself for the new financial world technology continues to create.

Overview of the Industry and the Deposit Insurance Funds
During 2000, insured commercial banks and savings institutions reported a slight decline in earnings performance from the record levels of 1999, higher levels of provision expenses, and an increase in loan losses from commercial and industrial borrowers.

Commercial banks’ eight consecutive years of record earnings came to an end in 2000, as net income of $71.2 billion fell $380 million (0.5 percent) short of 1999’s record total. The industry’s earnings decline was mostly attributable to problems at a few large banks. The average return on assets (ROA) of 1.19 percent was down from the record 1.31 percent registered in 1999. Even so, 2000 marks the eighth consecutive year that the industry had an ROA above one percent. The industry’s net interest margin of 3.95 percent was the lowest level since 1990. In 2000, securities sales produced net losses and provision expenses rose sharply with loan-loss provisions totaling $29.3 billion, an increase of $7.4 billion (34.1 percent) over 1999. Noninterest income growth was sluggish in 2000; however, this was aided by slower growth in noninterest expenses. From 1999 to 2000, the annualized net charge-off rate on commercial and industrial (C&I) loans rose to 1.15 percent, from 0.79 percent a year ago. Noncurrent loans during 2000 increased by $9.9 billion (30.0 percent), with C&I loans accounting for $6.1 billion (61.4 percent) of the increase.

Insured savings institutions earned $10.7 billion in 2000, down $126 million from the record earnings of 1999. This was the third year in a row that industry earnings were over $10 billion. The average ROA was 0.92 percent, down from 1.00 percent in 1999. Increased noninterest expenses negated improvements in noninterest income, while an inverted yield curve continued to put downward pressure on thrifts’ net interest margins. Net charge-offs, at 0.20 percent of loans, were $349 million (29 percent) higher than in 1999, but provisions for loan losses exceeded these charges by over 30 percent in both years.

The FDIC administers two deposit insurance funds–the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)–and manages the FSLIC Resolution Fund (FRF), which fulfills the obligations of the former Federal Savings and Loan Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC). The following summarizes the condition of insured institutions and the FDIC’s insurance funds.

Deposit insurance assessment rates remained unchanged from 1999 for both the BIF and the SAIF, ranging from 0 to 27 cents annually per $100 of assessable deposits. Under the assessment rate schedule, 92.7 percent of BIF-member institutions and 88.8 percent of SAIF-member institutions were in the lowest risk-assessment rate category and paid no deposit insurance assessments for the first semiannual period of 2001.

Selected Statistics

Bank Insurance Fund (BIF)
Dollars in millions For the year ended December 31
  2000 1999 1998
Financial Results
Revenue $ 1,906 $ 1,816 $ 2,000
Operating Expenses 773 730 698
Insurance Losses and Expenses (128) 1,192 (6)
Net Income 1,261 (106) 1,309
Comprehensive Income 1 1,561 (198) 1,319
Insurance Fund Balance $ 30,975 $ 29,414 $ 29,612
Fund as a Percentage of Insured Deposits 1.35% 1.36% 1.38%
Selected Statistics
Total BIF-Member Institutions 2 8,572 8,834 9,031
Problem Institutions 74 66 68
Total Assets of Problem Institutions $ 11,000 $ 4,000 $ 5,000
Institution Failures 6 7 3
Total Assets of Current Year Failed Institutions $ 378 $ 1,424 $ 370
Number of Active Failed Institution Receiverships 51 101 219
 
Savings Association Insurance Fund (SAIF)
Dollars in millions For the year ended December 31
  2000 1999 1998
Financial Results
Revenue $ 664 $ 601 $ 584
Operating Expenses 111 93 85
Insurance Losses and Expenses 189 31 32
Net Income 364 477 467
Comprehensive Income 1 478 441 472
Insurance Fund Balance $ 10,759 $ 10,281 $ 9,840
Fund as a Percentage of Insured Deposits 1.43% 1.45% 1.39%
Selected Statistics
Total SAIF-Member Institutions 3 1,333 1,387 1,430
Problem Institutions 20 13 16
Total Assets of Problem Institutions $ 13,000 $ 6,000 $ 6,000
Institution Failures 1 1 0
Total Assets of Current Year Failed Institutions $ 30 $ 63 $ 0
Number of Active Failed Institution Receiverships 3 3 2
1 Comprehensive Income is added to conform with SFAS No. 130, "Comprehensive Income."

2 Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

3 Savings institutions and commercial banks.

Deposits insured by the FDIC moved past the $3 trillion level in 2000, to $3.05 trillion, despite the number of insured institutions falling below the 10,000 mark for the first time. Insured deposits rose by 2.1 percent in the final three months of 2000, bringing the growth rate for 2000 to 6.5 percent. This annual growth rate for federally insured deposits is the highest since 1986, when deposits insured by the FDIC and the FSLIC increased by eight percent. Insured deposits reported by the 9,924 FDIC-insured institutions rose by $185 billion in 2000, including a $73 billion increase (81 percent) in insured brokered deposits. About half of the latter amount was attributable to two insured banks with brokerage affiliates that "sweep" cash management account balances into FDIC-insured bank accounts.

By year-end 2000, deposits insured by the BIF grew at seven percent and reached $2.3 trillion. This annual growth rate for BIF-insured deposits was the highest since 1989. The BIF balance was $31 billion at year-end 2000, or 1.35 percent of estimated insured deposits. This was down from the year-end 1999 reserve ratio of 1.36 percent as the $1.6 billion growth of the fund’s balance during 2000 was more than offset by the growth of insured deposits.

Photograph: Research by FDIC staff, including (l to r) senior financial analyst Thomas Murray, senior analyst Charles Collier and economist Daniel Nuxoll, identifies potential risks to banks and cities from commercial real estate development.  

Research by FDIC staff, including (l to r) senior financial analyst Thomas Murray, senior analyst Charles Collier and economist Daniel Nuxoll, identifies potential risks to banks and cities from commercial real estate development.

The reserve ratio of the SAIF was 1.43 percent at year-end 2000, down slightly from 1.45 percent at year-end 1999. The balance of the SAIF was $10.8 billion on December 31, 2000. SAIF-insured deposits were $753 billion at year-end 2000, having grown 5.8 percent for the year. The annual growth rate was the highest since the inception of the SAIF in 1989.

Despite the relatively rapid growth of insured deposits, insured institutions continued to rely increasingly on other funding alternatives. Insured deposits as a percentage of domestic liabilities continued a steady, nine-year decline, falling to 51.7 percent at the end of 2000, compared to 52.6 percent a year earlier and 70 percent in 1992. At year-end 2000, the ratio was 46.4 percent for institutions with total assets greater than $1 billion, and 74 percent for smaller institutions.

During 2000, seven FDIC-insured institutions failed. Six of those institutions were insured by the BIF and one was insured by the SAIF. The failed institutions had combined assets of approximately $408 million. Losses for the seven failures are estimated at $40 million. In 1999, there were eight failures of insured institutions, with total assets of $1.5 billion and estimated losses of $839 million. The contingent liability for anticipated failures of BIF- and SAIF-insured institutions as of December 31, 2000, was $141 million and $234 million, respectively.

Responding to Emerging Risks
In the first quarter of 2000, the FDIC announced enhancements to the Risk-Related Premium System that will provide a more flexible, forward-looking system that keeps pace with new and emerging risks to the insurance funds. The enhancements focus on "outliers"–institutions with atypically high-risk profiles among those in the best-rated premium category–to ensure that the FDIC is making all possible efforts within the existing deposit insurance system to maintain the insurance funds’ strong condition. Refinements were made to identify the outlier institutions among those in the best-rated premium category, and to determine whether there are unresolved supervisory concerns regarding the risk-management practices of these institutions. Where such concerns are present, the institutions are given an opportunity to address the deficiencies in their risk-management practices before higher premiums are assessed.

Keith Ligon, chief of FDIC supervision policy for bank securities, capital markets and trust activities, discusses proposed capital rules at an interagency staff meeting.

 

 

Keith Ligon, chief of FDIC supervision policy for bank securities, capital markets and trust activities, discusses proposed capital rules at an interagency staff meeting.


FDIC-Insured Deposits (estimated year-end through 2000)

Dollars in billions

Bar Chart showing FDIC-Insured Deposits (estimated year-end through 2000)

Source: Commercial Bank Call Reports and Thrift Financial Reports
Note:  For more details, See pages (BIF) and (SAIF)

Dollars in Millions
Year BIF  SAIF 
2000 $2,301,604  $752,756 
1999 2,157,536  711,345 
1998 2,141,268  708,959 
1997 2,055,874  690,132 
1996 2,007,447  683,090 
1995 1,952,543  711,017 
1994 1,896,060  692,626 
1993 1,906,885  695,158 
1992 1,945,623  729,458 
1991 1,957,722  776,351 
1990 1,929,612  830,028 
1989 1,873,837  882,920 
1988 1,750,259  empty cell
1987 1,658,802  empty cell
1986 1,634,302  empty cell
1985 1,503,393  empty cell
1984 1,389,874  empty cell
1983 1,268,332  empty cell
1982 1,134,221  empty cell
1981 988,898  empty cell
1980 948,717  empty cell
1979 808,555  empty cell
1978 760,706  empty cell
1977 692,533  empty cell
1976 628,263  empty cell
1975 569,101  empty cell
1974 520,309  empty cell
1973 465,600  empty cell
1972 419,756  empty cell
1971 374,568  empty cell
1970 349,581  empty cell
1969 313,085  empty cell
1968 296,701  empty cell
1967 261,149  empty cell
1966 234,150  empty cell
1965 209,690  empty cell
1964 191,787  empty cell
1963 177,381  empty cell
1962 170,210  empty cell
1961 160,309  empty cell
1960 149,684  empty cell

New "screens," or models designed to flag outlier statistics and ratios, based on quarterly financial data, were added to the process for assigning assessment risk classifications. These screens identify institutions in the best-rated category with atypically high-risk profiles. The screens flag combinations of rapid loan growth, high-yielding loan portfolios, concentrations in high-risk assets, and recent changes in business mix. For the institutions identified, a supervisory review is conducted to determine if concerns exist regarding risk-management practices. If so, the institution is notified that unless actions are taken to address the concerns before the next semiannual assessment period, a higher premium may be assessed.

During the year, the FDIC developed a training program to instruct examiners in methods of fraud detection and investigation, desirable skills when technology makes fraud ever easier to commit and harder to detect. The FDIC also participated in a number of local, state and national working groups relating to financial institution fraud and money laundering. These groups seek to improve information sharing and to develop uniform policies and approaches to deterring and detecting fraud.

Stephen M. Cross, Director of the FDIC's Division of Compliance and Consumer Affairs

Stephen M. Cross, Director of the FDIC's Division of Compliance and Consumer Affairs

In September 2000, the FDIC, along with the other banking and thrift agencies, proposed a revision to the capital treatment for residual interests in securitizations or other transfers of assets. Residual interests are typically the assets an institution retains in connection with its securitization activities. The proposed rule would require an institution to hold a dollar of capital for every dollar in residual interests, and would make related changes in Tier 1 capital.

Lastly, to keep pace with the evolving banking industry, the FDIC continued its contingency planning for possible future failures. In light of the banking industry’s increasing consolidation and reliance on and use of the Internet and electronic commerce, the FDIC focused its planning in 2000 on the need to address possible technological failures and large insured depository institution failures. As a result, the FDIC began modifying its resolution procedures to address issues associated with larger, more complex, institutions and electronic banking and commerce. Additionally, the FDIC began implementing a core training program to cross-train personnel to maintain its readiness capacity.

Liquidation Highlights 1998-2000
Dollars in billions
  2000 1999 1998
Total Failed Banks 6 7 3
Assets of Failed Banks .38 1.42 .37
Total Failed Savings Associations 1 1 0
Assets of Failed Savings Associations .03 .06 0
Net Collections from Assets in Liquidation 1 .60 .98 3.55
Total Assets in Liquidation 1 .54 1.98 2.38
Net Collections from Assets Not in Liquidation 1 .16 .21 .38
Total Assets Not in Liquidation1 2.80 5.20 6.71
1Also includes assets from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the Resolution Trust Corporation.

 

Technology
In late 1999, Chairman Tanoue initiated a project to evaluate the FDIC’s preparedness in continuing to keep pace with the dynamics of bank technology. The project concluded in early 2000 with the establishment of an internal Bank Technology Group to help ensure that the FDIC adopts an integrated approach to risks and opportunities associated with emerging bank technologies, such as Internet banking, electronic cash, electronic lending, and wireless banking.

Photograph: The FDIC in March hosted an interageny forum on the privacy of consumer financial information that was attended by bankers, consumer advocates, regulators and others.  Chairman Tanoue (far right) is shown here with other audience members.

The FDIC in March hosted an interagency forum on the privacy of consumer financial information that was attended by bankers, consumer advocates, regulators and others.  Chairman Tanoue (far right) is shown here with other audience members.

Significant growth in electronic banking or "E-Banking" was evidenced by the 64 percent increase in the number of FDIC-insured banks offering transactional services over the Internet (1,850 institutions at year-end 2000 compared to 1,130 a year earlier), as well as the increasing sophistication of technology used in E-banking activities. The FDIC at year-end 2000 had 288 specially trained electronic banking examiners and similar specialists nationwide, and it established the Electronic Banking Branch in its Division of Supervision. This newly created branch will provide oversight of information systems and E-banking activities for all state nonmember banks. The FDIC also worked with the Federal Reserve to enhance the risk-focused examination module for electronic banking used in bank examinations. In addition, general electronic banking training also was provided to examiners.

And, the FDIC continued to use technology to improve the failed-bank resolution and asset marketing processes. In 2000, the FDIC conducted its first teleconference with prospective acquirers for a failed bank at five locations across the country; established a secure Web site allowing for the rapid sharing of confidential information with prospective acquirers of a failed institution; and conducted its first sale of financial assets over the Internet, with approximately $12.3 million of loans at a recovery that was 16 percent higher than expected.

FDIC Examinations 1998-2000

  2000 1999 1998
Safety and Soundness:
State Nonmember Banks 2,232 2,289 2,170
Savings Banks 235 241 221
National Banks 17 3 1
State Member Banks 2 7 6
Savings Associations 0 0 1
Subtotal 2,486 2,540 2,399
Compliance/Community Reinvestment Act 2,257 2,368 1,989
Trust Departments 533 452 542
Data Processing Facilities 1,585 1,446 1,335
Total 6,861 6,806 6,265

Gramm-Leach-Bliley Act
Under the Gramm-Leach-Bliley Act (GLBA), banking organizations may more freely provide a full range of financial services including brokerage, underwriting, and even sponsoring and distributing mutual funds. During 2000, the FDIC took many steps to deal with its demands.

For example, the Corporation began working with the National Association of Insurance Commissioners to explore ways that information can be shared among the banking and insurance regulators to improve regulation. Similar arrangements will be explored with securities regulators.

The Corporation also revised its regulatory standards to reflect aspects of GLBA that require separate adequate capital for a bank and its securities subsidiary, and restrict financial dealings between the bank and its securities affiliate or subsidiary.

GLBA also made Federal Home Loan Bank (FHLB) membership available to more institutions and permitted certain FHLB-member institutions to obtain more advance funding. In response to these changes, the FDIC issued supplemental examination guidance in August 2000. The guidance provides an overview of FHLB advance strategies and presents a framework for examining the effects of these strategies when determining the adequacy of an institution’s policies, practices and financial condition.

Lastly, the FDIC and the other banking agencies implemented regulations protecting consumers purchasing insurance products and annuities through the bank. The new rules govern the sale and solicitation of insurance products and annuities made by the bank as well as by others selling on the bank’s behalf. These protections include customer disclosures, advertising requirements, standards regarding the physical location where sales may occur, and prohibitions against tying the purchase of insurance products to the use of any bank product.This regulation will go into effect late in 2001.

Diversity Initiatives
In 2000, the FDIC advanced many of the goals and strategies of its first corporate Diversity Strategic Plan, which reflects the Corporation’s commitment to a fair and inclusive work environment. To gauge employee opinion about the FDIC’s work environment and culture, the FDIC engaged the Gallup Organization to design an organizational assessment survey that was administered in 2000. The survey results provided baseline data for planning and instituting a range of programs and policy initiatives promoting and maintaining the FDIC’s position as an employer of choice.

Photograph: Directors Mickey Collins (left) of the FDIC's Office of Diversity and Economic Opportunity and Arleas Upton Kea (center) of the Division of Administration accept an award on behalf of the FDIC from the Federal Asian Pacific American Council for the agency's excellence in diverstiy programs. Left:

Directors Mickey Collins (left) of the FDIC's Office of Diversity and Economic Opportunity and Arleas Upton Kea (center) of the Division of Administration accept an award on behalf of the FDIC from the Federal Asian Pacific American Council for the agency's excellence in diverstiy programs.

Right:

In Washington, DC, and around the nation, FDIC employees gather to discuss the agency's first Diversity Strategic Plan.

Photograph: In Washington, DC, and around the nation, FDIC employees gather to discuss the agency's first Diversity Strategic Plan.

Also in 2000, the Corporation:

  • Provided diversity training to 6,315 employees, representing about 95 percent of all headquarters and field staff.

  • Established new guidelines ensuring that groups making selections for merit promotions represent our diverse workforce.

  • Sponsored 200 employees in a mentoring program in which more-experienced employees are paired with less-experienced ones to share their knowledge and skills.

  • Instituted a permanent Career Management Program to help employees assess and develop their career plans.

  • Expanded its Employee Advisory Resources program with a LifeWorks program–a one-stop resource for consultation, information, direction and referrals to help employees balance the demands of work with their personal lives.


Compliance, Enforcement and Other Related Legal Actions 1998-2000

  2000 1999 1998
Total Number of Actions Initiated by the FDIC 87 111 143
Termination of Insurance
Involuntary Termination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition 1 0 0
Voluntary Termination
Sec.8a By Order Upon Request 0 0 0
Sec.8p No Deposits 6 3 5
Sec.8q Deposits Assumed 5 9 4
Sec. 8b Cease-and-Desist Actions
Notices of Charges Issued 4 1 5 2
Consent Orders 26 19 21
Sec. 8e Removal/Prohibition of Director or Officer
Notices of Intention to Remove/Prohibit 3 2 4 2
Consent Orders 17 22 15
Sec. 8g Suspension/Removal When Charged With Crime 0 3 0
Civil Money Penalties Issued
Sec.7a Call Report Penalties 3 15 41
Sec.8i Civil Money Penalties 11 20 35
Sec. 10c Orders of Investigation 7 4 6
Sec. 19 Denials of Service After Criminal Conviction 1 2 3 3
Sec. 32 Notices Disapproving Officer/Director's Request for Review 0 1 0
Truth in Lending Act Reimbursement Actions
Denials of Requests for Relief 0 1 1
Grants of Relief 0 0 0
Banks Making Reimbursement 4 127 134 161
Suspicious Activity Reports  (Open and Closed Institutions) 4 20,720 22,015 20,229
Other Actions Not Listed 3 2 8
1 Two actions included Sec. 8 (c) temporary orders.

2 One action included a Sec. 8 (e) suspension order.

3 One action involved a denial of request to waive 10-year ban under Sec. 19 (a) (2).

4 These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total number of actions inititated.


FDIC Applications 1998-2000

  2000 1999 1998
Deposit Insurance 205 295 296
Approved 205 295 296
Denied 0 0 0
New Branches 1,286 1,347 1,450
Approved 1,286 1,347 1,450
Denied 0 0 0
Mergers 316 341 390
Approved 316 341 390
Denied 0 0 0
Requests for Consent to Serve 1 249 210 304
Approved 248 207 299
Section 19 15 42 145
Section 32 233 165 154
Denied 1 3 5
Section 19 1 1 3
Section 32 0 2 2
Notices of Change in Control 28 31 34
Letters of Intent Not to Disapprove 28 31 34
Disapproved 0 0 0
Brokered Deposit Waivers 25 16 10
Approved 25 16 9
Denied 0 0 1
Savings Association Activities 2 80 83 0
Approved 80 83 0
Denied 0 0 0
State Bank Activities/Investments 3 36 24 23
Approved 36 24 23
Denied 0 0 0
Conversions of Mutual Institutions 8 16 30
Non-Objection 8 15 30
Objection 0 1 0
1 Under Section 19 of the Federal Deposit Insurance Act, an insured institution must receive FDIC approval before employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must approve any change of directors or senior executive officers at a state nonmember bank that is not in compliance with capital requirements or is otherwise in troubled condition.

2 Amendments to Part 303 of the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.

3 Section 24 of the FDI Act, generally,  precludes an insured state bank from engaging in an activity not permissible for a national bank and requires notices to be filed with the FDIC.

Consumer Complaints and Inquiries
The FDIC investigates and responds to consumer complaints of unfair or deceptive acts or practices by financial institutions. The agency also responds to inquiries from consumers, financial institutions and other parties about consumer protection and fair lending matters and deposit insurance. The FDIC’s Consumer Affairs Program informs depositors, financial institutions and others about the FDIC’s responsibilities for enforcing consumer protection and fair lending laws and regulations.

In 2000, the FDIC received nearly 4,500 written consumer complaints against state-chartered nonmember banks. The agency tracks the volume and nature of complaints to monitor trends and identify emerging issues. Nearly two-thirds of these complaints concerned credit card accounts. The most frequent complaints involved billing disputes and account errors; loan denials; credit card fees and service charges; and collection practices.

The FDIC also received over 2,000 written inquiries from consumers and over 200 written inquiries from bankers as to whether specific financial institutions are insured by the FDIC, or questions about FDIC deposit insurance coverage. Other common inquiries were requests for copies of FDIC consumer publications, questions about banking practices and consumers’ rights under federal consumer protection laws, and questions related to obtaining a personal credit report.



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