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2010 Annual Report

I. Management's Discussion and Analysis

The Year in Review

The year 2010 was relatively challenging for the FDIC. In addition to the normal course of business, the Corporation continued to resolve failed insured depository institutions (IDIs), increasing resources as needed. The FDIC also started initial steps in the implementation of the Dodd-Frank Act, continued its work on highprofile policy issues, and published numerous Notices of Proposed Rulemaking (NPRs) throughout the year, seeking comment from the public. The Corporation also continued to focus on a strong supervisory program. The FDIC made enhancements to several versions of the Money Smart education curriculum. The FDIC also sponsored and co-sponsored major conferences and participated in local and global outreach initiatives.

Highlighted in this section are the Corporation’s 2010 accomplishments in each of its three major business lines—Insurance, Supervision and Consumer Protection, and Receivership Management—as well as its program support areas.

Insurance

The FDIC insures bank and savings association deposits. As insurer, the FDIC must continually evaluate and effectively manage how changes in the economy, the financial markets, and the banking system affect the adequacy and the viability of the Deposit Insurance Fund (DIF).

State of the Deposit Insurance Fund

During 2009 and 2010, losses to the DIF were high. As of December 31, 2010, both the fund balance and the reserve ratio were negative after reserving for probable losses for anticipated bank failures. For the year, assessment revenue and lower-than-anticipated bank failures resulted in an increase in the reserve ratio to negative 0.12 percent as of December 31, 2010, up from negative 0.39 percent at the beginning of the year.

Long-Term Comprehensive Fund Management Plan

As a result of the Dodd-Frank Act revisions, the FDIC developed a comprehensive, long-term management plan for the DIF designed to reduce the pro-cyclicality in the existing system and achieve moderate, steady assessment rates throughout economic and credit cycles while also maintaining a positive fund balance even during a banking crisis, by setting an appropriate target fund size and a strategy for assessment rates and dividends. The FDIC set out the plan in a proposed rulemaking adopted in October 2010. The plan was finalized in rulemakings adopted in December 2010 and February 2011.

New Restoration Plan

Pursuant to the comprehensive plan, in October 2010, the FDIC adopted a new Restoration Plan to ensure that the reserve ratio reaches 1.35 percent by September 30, 2020. Because of lower expected losses over the next five years than previously anticipated, and the additional time provided by the Dodd-Frank Act to meet the minimum (albeit higher) required reserve ratio, the new Restoration Plan elected to forego the uniform 3 basis point increase in assessment rates scheduled to go into effect on January 1, 2011.

Setting the Designated Reserve Ratio

Using historical fund loss and simulated income data from 1950 to the present, the FDIC undertook an analysis to determine how high the reserve ratio would have had to have been before the onset of the two crises that occurred since the late 1980s to have maintained both a positive fund balance and stable assessment rates throughout the period. The analysis concluded that a moderate, long-term average industry assessment rate, combined with an appropriate dividend or assessment rate reduction policy, would have been sufficient to have prevented the fund from becoming negative during the crises, though the fund reserve ratio would have had to exceed 2.0 percent before the onset of the crises.

Therefore, pursuant to provisions in the Federal Deposit Insurance Act that require the FDIC Board to set the DRR for the DIF annually, the FDIC Board proposed in October 2010 to set the 2011 Designated Reserve Ratio (DRR) at 2.0 percent of estimated insured deposits. The Board approved a final rule adopting this DRR on December 14, 2010. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises. However, the FDIC’s analysis shows that a reserve ratio higher than 2.0 percent would increase the chance that the fund will remain positive during a future economic and banking downturn similar to or more severe than past crises. Thus, the 2.0 percent DRR should not be viewed as a cap on the fund.

Long-Term Assessment Rate Schedules and Dividend Policies

Once the reserve ratio reaches 1.15 percent, the FDIC believes that assessment rates can be reduced to a moderate level. Therefore, pursuant to its statutory authority to set assessments, in October 2010, the FDIC Board proposed a lower assessment rate schedule to take effect when the fund reserve ratio exceeds 1.15 percent. To increase the probability that the fund reserve ratio will reach a level sufficient to withstand a future crisis, the FDIC also proposed suspending dividends permanently when the fund reserve ratio exceeds 1.5 percent. In lieu of dividends, the FDIC Board proposed to adopt progressively lower assessment rate schedules when the reserve ratio exceeds 2.0 percent and 2.5 percent. These lower assessment rate schedules will serve much the same function as dividends, but will provide more stable and predictable effective assessment rates. The FDIC finalized these long-term assessment rate and dividend changes in February 2011 in concert with the changes to the assessment base and large-bank pricing system described below.

Change in the Deposit Insurance Assessment Base

Change in the Assessment Base

The Dodd-Frank Act requires the FDIC to amend its regulations to define the assessment base as average consolidated total assets minus average tangible equity, rather than total domestic deposits (which, with minor adjustments, it has been since 1935). The Act allows the FDIC to modify the assessment base for banker’s banks and custodial banks. In November 2010, the FDIC approved a proposed rulemaking that would implement these changes to the assessment base. The FDIC finalized this rulemaking in February 2011.

The Dodd-Frank Act also requires that, for at least five years, the FDIC must make available to the public the reserve ratio and the DRR using both estimated insured deposits and the new assessment base. As of December 31, 2010, the FDIC estimates that the reserve ratio would have been negative 0.06 percent using the new assessment base (as opposed to negative 0.12 percent using estimated insured deposits) and that the 2.0 percent DRR using estimated insured deposits would have been 1.0 percent using the new assessment base.

Conforming Changes to Risk-Based Premium Rate Adjustments

The changes to the assessment base necessitated changes to existing risk-based assessment rate adjustments. The current assessment rate schedule incorporates adjustments for types of funding that either pose heightened risk to the DIF or that help to offset risk to the DIF. Because the magnitude of these adjustments and the cap on the adjustments have been calibrated to a domestic deposit assessment base, the rule changing the assessment base also recalibrates the unsecured debt and brokered deposit adjustments. Since secured liabilities will be included in the assessment base, the rule eliminates the secured liability adjustment.

The assessment rate of an institution would also increase if it holds unsecured debt issued by other IDIs. The issuance of unsecured debt by an IDI lessens the potential loss to the DIF in the event of the institution’s failure; however, when the debt is held by other IDIs, the overall risk in the system is not reduced.

Conforming Changes to Assessment Rates

The new assessment base under the Dodd-Frank Act will be larger than the current assessment base. Applying the current rate schedule to the new assessment base would result in larger total assessments than are currently collected. Accordingly, the rule changing the assessment base also established new rates to take effect in the second quarter of 2011 that will result in collecting approximately the same amount of assessment revenue under the new base as under the current rate schedule using the existing (domestic deposit) base. These schedules also incorporate the changes from the proposed large bank pricing rule that was finalized in February 2011 along with the change in the assessment base. The initial base rates for all institutions will range from 5 to 35 basis points.

The initial base assessment rates, range of possible rate adjustments, and minimum and maximum total base rates are shown in the table below.

Changes to the assessment base, assessment rate adjustments, and assessment rates will take effect April 1, 2011. As explained above, the rate schedules will decrease when the reserve ratio reaches 1.15, 2.0, and 2.5 percent.

Proposed Initial and Total Base Assessment Rates¹

Risk
Category I
Risk
Category II
Risk
Category III
Risk
Category IV
Large and Highly
Complex Institutions
Initial base
assessment rate
5–9 14 23 35 5-35
Unsecured debt
adjustment²
(4.5)–0 (5)–0 (5)–0 (5)–0 (5)–0
Brokered deposit
adjustment
…… 0–10 0–10 0–10 0–10
Total Base
Assessment Rate
2.5–9 9–24 18–33 30-45 2.5–45

¹ Total base assessment rates do not include the proposed depository institution debt adjustment.
² The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an IDI’s initial base assessment rate; thus, for example, an IDI with an initial base assessment rate of 5 basis points would have a maximum unsecured debt adjustment of 2.5 basis points and could not have a total base assessment rate lower than 2.5 basis points.

Changes to the Large Bank Assessment System

The FDIC continued its efforts to reduce the pro-cyclicality of the deposit insurance assessment system by issuing a proposed rule in November 2010, that was finalized in February 2011, and revises the assessment system applicable to large IDIs to better reflect risk at the time a large institution assumes the risk, to better differentiate large institutions during periods of good economic conditions, and to better take into account the losses that the FDIC may incur if such an institution fails.

The rule eliminates risk categories for large institutions. As required by the Dodd-Frank Act, under the rule, the FDIC will no longer use long-term debt issuer ratings to calculate assessment rates for large institutions. The rule combines CAMELS¹ ratings and financial measures into two scorecards—one for most large institutions and another for the remaining very large institutions that are structurally and operationally complex or that pose unique challenges and risks in case of failure (highly complex institutions). In general, a highly complex institution is an institution (other than a credit card bank) with more than $50 billion in total assets that is controlled by a parent or intermediate parent company with more than $500 billion in total assets, or a processing bank or trust company with at least $10 billion in total assets.

Both scorecards use quantitative measures that are readily available and useful in predicting an institution’s long-term performance to produce two scores—a performance score and a loss severity score—that will be combined and converted to an initial assessment rate. The performance score measures an institution’s financial performance and its ability to withstand stress. The loss severity score quantifies the relative magnitude of potential losses to the FDIC in the event of the institution’s failure. The rule will take effect in the second quarter of 2011.

Temporary Liquidity Guarantee Program

On October 14, 2008, the FDIC announced and implemented the Temporary Liquidity Guarantee Program (TLGP). The TLGP consists of two components: (1) the Debt Guarantee Program (DGP)—an FDIC guarantee of certain newly issued senior unsecured debt; and (2) the Transaction Account Guarantee Program (TAGP)—an FDIC guarantee in full of noninterest-bearing transaction accounts.

Under the DGP, the FDIC initially guaranteed in full, through maturity or June 30, 2012, whichever came first, the senior unsecured debt issued by a participating entity between October 14, 2008, and June 30, 2009, although in 2009 the issuance period was extended through October 31, 2009. The FDIC’s guarantee on each debt instrument also was extended in 2009 to the earlier of the stated maturity date of the debt or December 31, 2012.

The FDIC charged a fee based on the amount and term of the debt issued. Fees ranged from 50 basis points on an annualized basis for debt with a maturity of 180 days or less, increasing to 75 basis points on an annualized basis for debt with a maturity of 181 to 364 days and 100 basis points on an annualized basis for debt with maturities of 365 days or greater. In conjunction with the program extension in 2009, the FDIC assessed an additional surcharge on debt with a maturity of one year or greater issued after April 1, 2009. Unlike the other TLGP fees, which were reserved for possible TLGP losses and not generally available for DIF purposes, the surcharge was deposited into the DIF and used by the FDIC when calculating the reserve ratio of the Fund. The surcharge varied depending on the type of institution issuing the debt, with IDIs paying the lower fees.

The TAGP initially guaranteed in full all domestic noninterest-bearing transaction deposits held at participating banks and thrifts through December 31, 2009. This deadline was extended twice and expired on December 31, 2010. The guarantee also covered negotiable order of withdrawal (NOW) accounts at participating institutions—provided the institution initially committed to maintain interest rates on the accounts of no more than 0.50 percent (later reduced to 0.25 percent) for the duration of the program—and Interest on Lawyers Trust Accounts (IOLTAs) and functional equivalents. Participating institutions were initially assessed a 10 basis point surcharge on the portion of covered accounts that were not otherwise insured. The fees for the TAGP were increased at the first extension to either 15 basis points, 20 basis points, or 25 basis points, depending on the institution’s deposit insurance assessment category.

Program Statistics

Institutions were initially required to elect whether to participate in one or both of the programs. More than half of the over 14,000 eligible entities elected to opt in to the DGP, while over 7,100 banks and thrifts, or 86 percent of FDIC-insured institutions, initially opted in to the TAGP. Most of the institutions that opted out of the DGP had less than $1 billion in assets and issued no appreciable amount of senior unsecured debt.

Over the course of the DGP’s existence, 121 entities issued TLGP debt. At its peak, the DGP guaranteed almost $350 billion of debt outstanding (see chart below). As of December 31, 2010, the total amount of remaining FDIC-guaranteed debt outstanding was $267 billion.

The FDIC collected $10.4 billion in fees and surcharges under the DGP. As of December 31, 2010, the FDIC paid $8 million on seven claims that were filed when four participating entities (all holding companies) defaulted on debt issued under the DGP. Further claims on notes issued by one entity are expected, since some of the notes issued by this entity have not yet matured. Losses through the end of the DGP guarantee period in 2012 are expected to be limited.

OUTSTANDING TLGP DEBT BY MONTH
OUTSTANDING TLGP DEBT BY MONTH Chart

Under the TAGP, the FDIC guaranteed an average of $114 billion of deposits during the fourth quarter of 2010. As of December 31, 2010, the last day of the program, over 5,100 FDIC-insured institutions reported having guaranteed deposits. As of December 31, 2010, the FDIC has collected $1.1 billion in fees under the TAGP². Cumulative estimated TAGP losses on failures as of December 31, 2010, totaled $2.3 billion.

Overall, TLGP fees are expected to exceed the losses from the program. Remaining TLGP fees will be added to the DIF balance at the conclusion of the program. If fees are insufficient to cover the costs of the program, the difference will be made up through a systemic risk special assessment.


¹ The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of
Management, the quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to market risk,
and ranges from “1” (strongest) to “5” (weakest).
² This figure reflects fees assessed through September 30, 2010, and collected as of December 30, 2010.

Transaction Account Guarantee Program Phase-Out

The TAGP was designed to eliminate potentially disruptive shifts in deposit funding and thus preserve bank lending capacity. The program proved effective. However, because bank failures continued to grow during 2009 and 2010, the FDIC remained concerned that terminating the TAGP too quickly could reverse the progress made in restoring financial markets to more normal conditions. To help transition institutions out of the TAGP, therefore, the FDIC Board, on August 26, 2009, approved a final rule that extended the TAGP for an additional six months, through June 30, 2010, with higher assessment fees for institutions participating in the extension period. The final rule also provided an opportunity for participating entities to opt out of the TAGP extension. Over 6,400 institutions (or 93 percent of institutions participating at year-end) elected to continue in the TAGP.

In June 2010, the FDIC remained concerned that, because of the lingering effects of the financial crisis and recession, terminating the TAGP too quickly could lead to liquidity problems for a number of community banks. The Board therefore approved a final rule authorizing another six-month extension, until December 31, 2010, of the TAGP. The FDIC did not increase assessment fees with the second extension, but the final rule reduced the permissible interest rate for the NOW accounts covered by the guarantee to no higher than 0.25 percent in order to better align the program with prevailing market rates. The FDIC provided institutions still participating in the TAGP in the second quarter of 2010 with a one-time opportunity to opt out of the second TAGP extension, effective July 1, 2010. Almost 6,000 institutions (or 93 percent of those institutions that were participating at the time) remained in the TAGP. The final rule authorizing the second extension also gave the FDIC Board the authority to further extend the TAGP, without further rulemaking, should economic conditions warrant an additional extension, for a period of time not to extend beyond December 31, 2011. However, the passage of the Dodd-Frank Act eliminated the need for such an extension of the TAGP.

Temporary Unlimited Coverage for Noninterest-Bearing Transaction Accounts under the Dodd-Frank Act

The Dodd-Frank Act provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts from December 31, 2010 through December 31, 2012, regardless of the balance in the account and the ownership capacity of the funds. The unlimited coverage is available to all depositors, including consumers, businesses, and government entities. The coverage is separate from, and in addition to, the standard insurance coverage provided for a depositor’s other accounts held at an FDIC-insured bank.

A noninterest-bearing transaction account is a deposit account where:

  • Interest is neither accrued nor paid;
  • Depositors are permitted to make transfers and withdrawals; and
  • The bank does not reserve the right to require advance notice of an intended withdrawal.

The Act’s temporary unlimited coverage also includes trust accounts established by an attorney or law firm on behalf of clients, commonly known as IOLTAs, or functionally equivalent accounts.

Money market deposit accounts (MMDAs) and NOW accounts are not eligible for this temporary unlimited insurance coverage, regardless of the interest rate, even if no interest is paid.

Complex Financial Institution Program

The FDIC’s Complex Financial Institution (CFI) Program addresses the unique challenges associated with the supervision, insurance, and potential resolution of large and complex insured institutions. The FDIC’s ability to analyze and respond to risks in these institutions is of particular importance, as they make up a significant share of the banking industry’s assets. The Program provides for a consistent approach to large-bank supervision nationwide, allows for the analysis of financial institution risks on an individual and comparative basis, and enables a quick response to risks identified at large institutions. The Program’s objectives are achieved through extensive cooperation with the FDIC’s regional offices, other FDIC divisions and offices, and the other bank and thrift regulators. Given the heightened risk levels stemming from continued adverse economic and market conditions, the FDIC has expanded its presence at the nation’s largest and most complex institutions through additional and enhanced on-site and off-site monitoring.

The Program expanded coverage at large and complex institutions from eight to ten in 2010 and increased its on-site presence, as designated by the FDIC Board, to assess risk, monitor liquidity, and participate in targeted reviews with the primary federal regulators. In July 2010, the FDIC entered into an interagency memorandum of understanding (MOU) which allows FDIC examiners to conduct special examinations of certain institutions covered by the MOU. The MOU should enhance the FDIC’s access to those institutions and encourage ongoing effective communication among the federal regulators. The Large Insured Depository Institution (LIDI) Program remains the primary instrument for off-site monitoring of IDIs with $10 billion or more in total assets, or under this threshold at regional discretion. The LIDI Program provides a comprehensive process to standardize data capture and reporting through nationwide quantitative and qualitative risk analysis of large and complex institutions. As of June 30, 2010, the LIDI Program encompassed 110 institutions with total assets of $10.3 trillion. The LIDI Program was refined again in 2010 to better quantify risk to the insurance fund in all large banks. This was accomplished, in collaboration with other divisions and offices, through a revision to the LIDI Scorecard, which better aligns with and supports the FDIC’s large-bank deposit insurance pricing responsibilities. The LIDI Scorecard is designed to weigh key risk areas and provide a risk ranking and measurement system that compares IDIs on the basis of both the probability of failure and exposure to loss at failure. The comprehensive LIDI Program is essential to effective large bank supervision by capturing information on the risks and utilizing that information to best deploy resources to high-risk areas, determine the need for supervisory action, and support insurance assessments and resolution planning.

Office of Complex Financial Institutions

The Office of Complex Financial Institutions (OCFI) was created in 2010 to focus on the expanded responsibilities of the FDIC by the Dodd-Frank Act for the assessment of risk in the largest, systemically important financial institutions. The OCFI is responsible for oversight and monitoring of large, systemically important financial institutions (SIFIs). Specifically, through both on-site and off-site monitoring, OCFI will develop an in-depth understanding of the operations and risk profiles of all IDIs and bank holding companies with assets over $100 billion and other companies designated as systemically important by the Financial Stability Oversight Council (FSOC).

Additionally, in conjunction with the Federal Reserve, OCFI will develop regulations governing the preparation, approval, and monitoring of resolution and recovery plans developed by SIFIs commonly referred to as “living wills.” OCFI will be responsible for developing detailed resolutions plans and strategies for assigned institutions. OCFI will also identify and manage international and cross-border issues that might complicate the resolution process, and, accordingly, will build and maintain relationships with key international stakeholders.

In 2010, OCFI focused on creating and staffing senior management positions. Work also began on developing resolution strategies for specific SIFIs and more broadly scoping a process, strategies, and data needs for ongoing risk assessment at SIFIs.

Center for Financial Research

The Center for Financial Research (CFR) was founded by the Corporation in 2004 to encourage and support innovative research on topics important to the FDIC’s role as deposit insurer and bank supervisor. During 2010, the CFR co-sponsored three major conferences.

The 20th Annual Derivatives Securities and Risk Management Conference, which the FDIC co-sponsored with Cornell University’s Johnson Graduate School of Management and the University of Houston’s Bauer College of Business, was held in April 2010 at the Seidman Center. The two-day conference attracted over 100 researchers from around the world. Conference presentations focused on issues such as credit risk measurement, equity option pricing, commodity market speculation, and risk management.

In October 2010, the FDIC and the Federal Reserve hosted a two-day symposium on mortgages and the future of housing finance. Over 300 experts from the public, private, and academic sectors participated in discussions of mortgage finance, foreclosures, loan modifications, and securitizations. Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair spoke at the symposium regarding the need for reform to restore stability to the housing finance system and to aggressively examine the incentives of the U.S. system of mortgage finance to ensure that the problems that contributed to the financial crisis are addressed.

The CFR and the Journal for Financial Services Research (JFSR) hosted the 10th Annual Bank Research Conference: Finance and Sustainable Growth in October. The two-day conference included the presentation of 17 papers and was attended by over 100 participants. Experts discussed a range of topics, including the global financial crisis, credit derivatives and the default risk of large complex financial institutions, and bank capital adequacy.

International Outreach

The past year has been defined by broad international efforts to respond effectively to the causes of the global financial crisis. One of the important lessons of the crisis is that effective systems of deposit insurance are important not only for the protection of individual depositors but also for overall financial stability. Inadequate systems of deposit insurance place individual depositors at risk and can have a significant negative impact on public confidence in the financial system as a whole. The FDIC has provided leadership and support to international standard-setting organizations and international financial institutions, and has established bilateral agreements with other bank supervisory and deposit insurance governmental organizations, resulting in significant advancements in promoting sound financial systems.

In 2009, the International Association of Deposit Insurers (IADI) and the Basel Committee on Banking Supervision (BCBS) jointly published Core Principles for Effective Deposit Insurance Systems (Core Principles). The Core Principles were later adopted by the Financial Stability Board (FSB), which added them to its Compendium of Standards. Under the FDIC’s leadership, IADI, BCBS, the International Monetary Fund (IMF), the European Forum of Deposit Insurers (EFDI), the World Bank, and the European Commission collaborated in developing a methodology for assessing compliance with the Core Principles. The methodology was submitted for approval by the executive governing boards of IADI, EFDI, and BCBS and presented to the FSB in December 2010. Together, the Core Principles and the methodology will be considered for inclusion among the FSB’s 12 Key Standards for Sound Financial Systems. Once adopted, the Core Principles methodology is expected to be used to assess deposit insurance systems by the IMF in its Financial Sector Assessment Program, and by the FSB in its peer review of deposit insurance systems, which is scheduled for 2011. The leadership of IADI under Martin J. Gruenberg, the Vice Chairman of the FDIC, has been instrumental in advancing the establishment of the Core Principles as the standards for deposit insurance. Vice Chairman Gruenberg was re-elected to serve as President of IADI and Chair of the Executive Council in November 2010. During his tenure as President, the membership of IADI has grown from 48 to 62 deposit insurance members, including new members from Germany, Italy, Poland, Belgium, Switzerland, Australia, and Paraguay.

The FDIC is integrally involved with the FSB’s Cross Border Crisis Management Working Group (CBCM). The group has been tasked with evaluating options and making recommendations on how to address issues related with the too-big-to-fail issue. In particular, the CBCM has been focused on recovery and resolution (R&R) for SIFIs. FSB member countries have been working on preparing R&R plans for SIFIs domiciled in their jurisdictions. The FDIC has been involved in R&R planning for the top five U.S. firms and has participated in Crisis Management Group meetings hosted by foreign regulators. The FDIC has also provided input and leadership to the CBCM’s development of technical work streams related to obstacles encountered in a SIFI resolution. These work streams are focused on booking practices, intragroup guarantees, payments and settlement systems and legal entities/management information systems.

Since January 2009, international regulators have been meeting periodically to exchange views and share information on developments related to central counterparties (CCPs) for over-the-counter (OTC) credit derivatives. Based on the success of this cooperation, the OTC Derivatives Regulators’ Forum was formed to provide regulators with a means to cooperate, exchange views, and share information related to OTC derivatives, CCPs, and trade repositories. FDIC staff has an active role in the OTC Derivatives Regulators’ Forum and the OTC Derivative Supervisors’ Group. Work streams of particular interest include collateral safekeeping practices, dispute resolution, and the build out of the central clearing platforms. Additionally, staff is completing a data access/user agreement MOU to assure ready access to data in trade repositories.

Throughout 2010, the FDIC participated in Governors and Heads of Supervision and BCBS meetings and contributed to the work streams, task forces, and the Policy Development Group that developed and refined regulatory forms to address a new definition of capital, treatment of counterparty credit risk, an international leverage ratio, capital conservation and countercyclical buffers, liquidity requirements, and surcharges on SIFIs. The BCBS published the final capital and liquidity reforms in December 2010, along with the results of the comprehensive quantitative impact study and an assessment of the macroeconomic impact of the transition to stronger capital and liquidity requirements. In addition to these capital and liquidity reforms, the FDIC also participated in BCBS initiatives related to surveillance standards, remuneration, supervisory colleges, operational risk, accounting issues for consistency, and corporate governance.

The FDIC finalized a resolution and crisis management MOU with the China Banking Regulatory Commission (CBRC) in 2010. The FDIC is currently in the process of negotiating a similar MOU with the Swiss Financial Market Supervisory Authority (FINMA). The MOU with FINMA is expected to be finalized by the end of 2011. The FDIC has reached out to other strategic countries including India, and has been met with enthusiasm by Indian officials. In 2011, the FDIC will review its resolution MOU with the Bank of England to determine what, if any, changes need to be made in light of regulatory developments both in the U.S. and the United Kingdom.

The 2010 Strategic and Economic Dialogue (S&ED) was held in Beijing, China, in May and was the second such event held under President Obama’s administration. President Barack Obama and Chinese President Hu Jintao agreed to the S&ED in April 2009 to deepen and promote mutually beneficial cooperation between the U.S. and China in key economic and strategic areas. Chairman Bair and staff participated in this year’s S&ED and also met with leaders of the People’s Bank of China and the CBRC in side meetings to further strengthen the FDIC’s relationship with these bank regulatory agencies. During the meeting with the CBRC, CBRC Chairman Liu and Chairman Bair signed an MOU enhancing cooperation in times of financial instability and in cases of cross-border resolution.

Chairman Bair and staff visited New Delhi and Mumbai, India, in June to meet with senior representatives of public and private sector organizations, including the Ministry of Finance, the Reserve Bank of India (RBI), the Deposit Insurance and Credit Guarantee Corporation, and the National Bank for Agriculture and Rural Development to discuss financial inclusion efforts in the U.S. and India and to explore possible areas of future cooperation between the two countries. Chairman Bair was the keynote speaker at an event hosted by the RBI, which was attended by senior RBI officials, bankers, and financial industry representatives. The Chairman’s speech addressed U.S. financial regulatory reform, the importance of promoting financial inclusion and education, and the efforts made by both the U.S. and India to reach their unbanked population. Chairman Bair also announced plans to translate the FDIC’s Money Smart program into Hindi for use in India.

The FDIC continued to provide technical assistance through training, consultations, and briefings to foreign bank supervisors, deposit insurance authorities, and other governmental officials.

  • The FDIC, on behalf of IADI, provided the content and technical subject matter expertise in the development of four tutorials released through the Financial Stability Institute’s FSI Connect: Premiums and Fund Management, Deposit Insurance – Reimbursing Depositors – Parts I and II, and Liquidation of Failed Bank Assets. FDIC hosted two IADI executive training seminars: Resolution of Problem Banks (April) and Claims Management: Reimbursement to Insured Depositors (July). Over 125 deposit insurance and bank regulatory officials from more than 35 countries attended the training programs. The FDIC developed the IADI Capacity Building Program website for organizations to use for identifying available technical expertise resources from IADI members. The website was released in the fall of 2010.
  • The FDIC hosted 87 visits with 580 visitors from approximately 60 countries in 2010. In July, Chairman Bair met with members of the European Parliament’s Committee on Economic and Monetary Affairs to discuss U.S. financial regulatory reform and the FDIC’s new authorities, SIFIs, and Basel II reform. FDIC staff met with representatives of Chinese authorities and banks on multiple occasions throughout the year. Topics of these meetings included discussions about the health of the U.S. banking industry, financial reform, FDIC supervision of banks, the bank resolution process, and the FDIC’s management of the distressed assets of failed banks. The FDIC hosted a multi-day study tour for the Board of Directors of the Nigeria Deposit Insurance Corporation (NDIC) in October. NDIC guests also traveled to the New York Regional Office to learn about the role of the regional offices and their relationship with headquarters. The FDIC hosted secondees, one from each of the following organizations during 2010: the Korea Deposit Insurance Corporation, the Financial Services Commission in Korea, and the Savings Deposit Insurance Fund of Turkey.
  • June marked the three-year anniversary of the secondment program agreed upon between the Financial Services Volunteer Corps (FSVC) and the FDIC to place one or more FDIC employees full-time in FSVC’s Washington, DC, office. Between September 2009 and August 2010, FSVC hosted four secondees who participated in 20 projects that took place in Albania, Algeria, Egypt, Jordan, Malawi, and Morocco. Additionally, the secondees provided services for their counterparts in Albania, Egypt, Libya, and Malawi from Washington, DC, and completed a project for the Central Bank of Iraq in Jordan. The secondees worked directly with eight overseas regulatory counterparts and trained almost 440 individuals. In these efforts, they spent over 1,850 hours providing direct technical assistance.
  • The FDIC continues to support the work and mission of the Association of Supervisors of Banks of the Americas (ASBA). In furtherance of the FDIC’s commitment to ASBA leadership and strategic development, in July 2010, FDIC staff participated in ASBA’s board of directors and technical committee meetings. To facilitate ASBA’s research and guidance initiatives, a senior bank examiner will participate in ASBA’s Stress Testing Working Group, and FDIC staff is responding to ASBA’s review of the implementation of International Financial Reporting Standards. These research and guidance efforts are intended to promote sound bank supervisory practices among ASBA members.
Last Updated 5/5/2011 communications@fdic.gov