Hurricane Recovery Assistance
The federal banking regulatory agencies (agencies) worked cooperatively with
state banking regulatory agencies and other organizations to determine the
operating status of financial institutions located in the areas affected by
Hurricanes Katrina and Rita. The agencies quickly released regulatory relief
guidance to help rebuild areas affected by these hurricanes and encouraged
bankers to work with consumers and business owners experiencing difficulties
due to the storms. Exercising their authority under Section 2 of the Depository
Institutions Disaster Relief Act of 1992 (DIDRA), the agencies made exceptions
to statutory and regulatory requirements relating to appraisals for transactions
involving real property in major disaster areas when the exceptions would facilitate
recovery from the disaster and would be consistent with principles of safety
In the wake of the 2005 hurricane season, the agencies confirmed that the
banking industry is resilient in the face of tremendous devastation. There
were 280 financial institutions, with approximately $270 billion in total assets,
operating in the area impacted by Hurricane Katrina. Only a handful of smaller
institutions remain as supervisory concerns. The majority of institutions operating
in the path of Hurricane Katrina were well-run, had strong management teams,
implemented sound back-up contingency plans, and were well capitalized.
The FFIEC established a
formal Katrina Task Force to address policy issues that continue to arise
due to the severity
and scale of these natural disasters.
The Katrina Task Force established a user-friendly, Web-based, frequently asked
questions forum on the FFIEC’s Web site at www.ffiec.gov. The task force
will also publish examiner guidance to clarify expectations with respect to
the assessment of credit risk and other supervisory issues.
In addition to interagency
efforts, the FDIC established a 24-hour hotline and a Web page devoted to
hurricane victims to obtain information
about their financial institution’s operating status, as well as tips
on other financial matters, such as replacing identification documents, checks
and credit cards.
Safety and Soundness Examinations
of December 31, 2005, the Corporation had conducted 2,399, or 100 percent of
the statutorily required safety and soundness examinations. The number and
total assets of FDIC-supervised institutions identified as "problem" institutions
(defined as having a composite CAMELS1 rating
of "4" or "5")
declined during 2005. As of December 31, 2005, 29 institutions with total assets
of $2.9 billion were identified as problem institutions, compared to 44 institutions
with total assets of $5.4 billion on December 31, 2004. These changes represent
a decrease of 34.1 percent and 46.3 percent, respectively, in the number and
assets of problem institutions. During 2005, 36 institutions were removed from
problem institution status due to composite rating upgrades, mergers, consolidations
or sales and 19 institutions were newly identified as problem institutions.
Additionally, two problem institutions converted to State non-member charters
and are now under FDIC supervision. The FDIC is required to conduct follow-up
examinations of all designated problem institutions within 12 months of the
last examination. As of December 31, 2005, 100 percent of all follow-up examinations
for problem institutions had been performed on schedule.
Compliance and Community Reinvestment Act (CRA) Examinations
FDIC conducted 815 comprehensive compliance-CRA examinations, 1,198 compliance-only
examinations2, and seven CRA-only examinations
in 2005, compared to 1,459 joint compliance-CRA examinations, 673 compliance-only
examinations, and four
examinations in 2004. The FDIC conducted 100 percent of all joint and comprehensive
examinations within established time frames. As of December 31, 2005, three
institutions were assigned a "4" rating for compliance, and no
institutions were rated "5." The first "4" -rated
institution is currently under an outstanding Cease and Desist Order and
an on-site examination
was underway at year-end. Management of the second institution executed a
Memorandum of Understanding on October 5, 2005. The third institution was
2005 and the Regional Office is currently finalizing a Cease and Desist Order
to address the FDIC examination findings.
Relationship Manager Program
On October 1, 2005, the Corporation implemented the Relationship Manager Program
for all FDIC-supervised institutions. The program, which was piloted in 390
institutions during 2004, is designed to strengthen communication between bankers
and the FDIC, as well as improve the coordination, continuity and effectiveness
of regulatory supervision. Each FDIC-supervised institution was assigned a
relationship manager, who serves as a local point of contact over an extended
period and will often participate in or lead examinations for his or her assigned
institution. The program will allow for flexibility in conducting examination
activities at various times during the 12- or 18-month examination cycle based
on risk or staffing considerations.
FDIC has updated its risk-focused information technology (IT) examination
procedures for FDIC-supervised financial
institutions under its new Information
Technology Risk Management Program (IT-RMP). IT-RMP procedures were issued
to examiners on August 15, 2005. The new procedures focus on the financial
institution's information security program and risk-management practices
for securing information assets. The program integrates with the Relationship
Manager Program by embedding the IT examination within the Risk Management
Report of Examination for all FDIC-supervised financial institutions, regardless
of size, technical complexity or prior examination rating. IT-RMP eliminates
reporting of IT component ratings and reports only a single technology rating.
The financial sector is a critical part of the infrastructure in the United
States, and the FDIC has taken a leadership role in assisting the financial
sector to prepare for emergencies. As a member of the Financial and Banking
Information Infrastructure Committee (FBIIC), the FDIC sponsored a series
of outreach meetings titled "Protecting the Financial Sector: A
Public and Private Partnership." From 2003 to early 2005, the homeland security
meetings were held in 29 cities across the United States with the last meeting
held in New York City, NY. These meetings provided members of the financial
sector with the opportunity to communicate with senior government officials,
law enforcement, emergency management personnel and private sector leaders
about emergency preparedness. A second round of homeland security meetings
started in late 2005 with four meetings held during this timeframe. Homeland
Security meetings are planned for 21 cities in 2006.
The FDIC served as the FBIIC's liaison with the Department of Homeland
Security (DHS) during 2005 and assisted DHS with items relating to the financial
Bank Secrecy Act
The FDIC is committed to assisting in efforts designed to thwart the inappropriate
use of the banking system through activities conducted by terrorists and other
criminals. In 2005, the Division of Supervision and Consumer Protection established
a new Anti-Money Laundering (AML) and Financial Crimes Branch to focus important
resources and attention on our increasing responsibilities in these areas.
The new branch brings together specialists to address issues related to Bank
Secrecy Act (BSA) compliance, money laundering, financial crimes, terrorist
financing, and cyber-fraud.
FDIC has long recognized the importance of minority depository institutions
and their importance in promoting
the economic viability of minority and under-served
communities. As a reflection of the FDIC's commitment to minority depository
institutions, on April 9, 2002, the FDIC issued a Policy Statement Regarding
Minority Depository Institutions. The policy, which can be found at www.fdic.gov/regulations/resources/index.html,
implements an outreach program designed to preserve and encourage minority
ownership of financial institutions.
In 2005, the FDIC provided
technical assistance, training and educational programs and held interagency
to address the unique challenges faced
by minority depository institutions. Training and educational programs for
minority depository institutions included the FDIC’s Director’s
College Program and the FDIC’s Money Smart Program. The FDIC
co-hosted Regional Forums with the America’s Community Bankers Association and
the National Bankers Association in 2005. FDIC also participated in and/or
co-sponsored conferences with America’s Community Bankers, National Bankers
Association, National Association of Chinese American Bankers, Western Independent
Bankers, and Puerto Rico Bankers Association.
FDIC also supported the preservation of minority depository institutions in
its response to Hurricane Katrina. The FDIC Task Force on Minority Community
Banking and Non-Branch Banking met with representatives from the Utah industrial
loan company industry to facilitate their assistance to minority depository
institutions in the Gulf Coast region affected by Hurricane Katrina. The result
has been that as of year-end 2005, the Utah industrial loans companies have
pledged more than $18 million in deposits and over $120,000 in direct grants
to this effort. Efforts similar to these made by this FDIC task force will
continue in 2006.
recognition of the increasing concentration of risk exposure in large insured
institutions, as well as
new challenges posed by the implementation of the
Basel II Capital Accord, the FDIC enhanced its large-bank supervision and risk
assessment efforts in 2005 by creating two branches—the Large Bank Supervision
Branch and the International and Large Bank Policy Branch.
The Large Bank Supervision
Branch is responsible for supporting supervisory activities in large banks
minimum standards and supervisory
strategies necessary to ensure a consistent approach to large-bank supervision
on a national basis. In 2005, Branch staff was actively involved in domestic
and international discussions intended to ensure effective implementation of
the Basel II Capital Accord, which included participation in numerous "supervisory
working group" meetings with foreign regulatory authorities to address
Basel II home-host issues.
The International and Large Bank Policy Branch is responsible for supporting
supervisory activities in the areas of risk model assessment, economic capital
processes, examination work related to market risk under Part 325 Appendix
C of the FDIC rules and regulations and other processes that are dependent
on quantitative methods. The purpose of Part 325 Appendix C is to ensure that
banks with significant exposure to market risk maintain adequate capital to
support that exposure. In addition, the International and Large Bank Policy
Branch is responsible for policy development regarding large-bank supervision
and international matters.
Identity Theft and Consumer Privacy
In 2005, the FDIC continued to take a leading role in helping
banks combat identity theft. The FDIC solicited public comment on its study Putting
an End to Account Hijacking Identity Theft published in December 2004 and in
June 2005, published a study supplement. The study and the supplement took an
in-depth look at identity theft, focusing on account hijacking (the unauthorized
use of deposit accounts).
The FDIC is one of several federal agencies charged with implementing the
provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act),
which substantially amended the Fair Credit Reporting Act, particularly in
the areas of consumer access to and quality of credit information, privacy,
and identity theft. Consistent with the privacy requirements of the FACT Act,
the FDIC worked with other federal agencies to finalize rules in 2005 that
permit creditors to obtain, use and share medical information only to the degree
necessary to facilitate legitimate operational needs. The FDIC is training
its examiners on the concepts underlying the entire FACT Act, and is developing
examination procedures to evaluate industry compliance.
Consistent with the identity theft provision of the FACT Act, the FDIC worked
with other federal agencies in 2004 to propose rules that would require banks
to implement a written identity theft protection program which includes procedures
to evaluate red flags that might indicate identity theft. The FDIC, with the
other agencies, also finalized rules requiring institutions to properly dispose
of consumer information derived from credit reports in order to prevent identity
theft and other fraud. The rules on disposal of consumer information became
effective on July 1, 2005.
Consumer Complaints and Inquiries
The FDIC's centralized Consumer Response Center (CRC) is responsible
for investigating all types of consumer complaints about FDIC-supervised institutions
and for answering inquiries about consumer protection laws and banking practices.
During 2005, the FDIC received 8,851 complaints, of which 3,307 were against
state non-member institutions. Approximately 36 percent of the state non-member
bank consumer complaints concerned credit card accounts, with the most frequent
complaints involving billing disputes and account errors, loan denials, terms
and conditions, collection practices, reporting of erroneous information, credit
card fees and service charges, interest rates, and disclosures. The FDIC responded
to over 97 percent of written complaints on a timely basis.
The FDIC also responded
to 4,042 written and 9,395 telephone inquiries from consumers and members
of the banking
community about consumer protection issues.
In addition, the FDIC responded to over 64,000 written and telephone inquiries
from bankers and consumers about the FDIC's deposit insurance program
and insurance coverage issues.
Deposit Insurance Education
An important part of
the FDIC’s role in insuring deposits and protecting
the rights of depositors is its responsibility to ensure that bankers and consumers
have access to accurate information about FDIC’s deposit insurance rules.
To that end, the FDIC has an expansive deposit insurance education program consisting
of seminars for bankers, electronic tools for estimating deposit insurance coverage,
and written and electronic information targeting both bankers and consumers.
During 2005, the FDIC completed
development of a major update of its popular Electronic Deposit Insurance
Estimator (EDIE) for consumers, an Internet application
located on FDIC’s Web site that estimates insurance coverage for users’ deposit
accounts at insured institutions. The new Consumer EDIE offers two different
approaches for calculating coverage, one for novice users and one for frequent
users. The new Consumer EDIE application is available for public use starting
The FDIC conducted a nationwide
series of telephone/Internet seminars for bankers and a nationwide survey
of insured institutions to gather information
about current awareness of, and opinions about, the FDIC’s existing educational
resources on the deposit insurance rules. The FDIC also initiated an effort
to encourage more bank trade organizations to sponsor FDIC deposit insurance
seminars for their members.
In 2005, the FDIC released several new job aids for bankers. The FDIC also
released its two most popular brochures for bank customers -- Insuring
Your Deposits (a basic primer on deposit insurance coverage) and Your
Insured Deposits (a comprehensive guide to deposit insurance coverage) in Chinese and Korean.
The FDIC conducted 27 seminars
for financial institution employees and consumer organizations on the rules
deposit insurance coverage. These seminars,
which were conducted in a variety of formats, including Internet, teleconference
and classroom, provided a comprehensive review of how FDIC insurance works,
including the FDIC’s rules for coverage of different types of deposit