I. Management’s Discussion and Analysis
Supervision and Consumer Protection
Supervision and consumer protection are cornerstones of the FDIC’s efforts to ensure the stability of and public confidence in the nation’s financial system. The FDIC’s supervision program promotes the safety and soundness of FDIC-supervised IDIs, protects consumers’ rights, and promotes community investment initiatives.
The FDIC’s strong bank examination program is the core of its supervisory program. As of December 31, 2011, the FDIC was the primary federal regulator for 4,626 FDIC-insured, state-chartered institutions that were not members of the Federal Reserve System (generally referred to as “state nonmember” institutions). Through risk management (safety and soundness), consumer compliance and Community Reinvestment Act (CRA), and other specialty examinations, the FDIC assesses an institution’s operating condition, management practices and policies, and compliance with applicable laws and regulations. The FDIC also educates bankers and consumers on matters of interest and addresses consumer questions and concerns.
As of December 31, 2011, the FDIC conducted 2,712 statutorily required risk management (safety and soundness) examinations, including a review of Bank Secrecy Act (BSA) compliance, and all required follow-up examinations for FDIC-supervised problem institutions within prescribed time frames. The FDIC also conducted 1,757 statutorily required CRA/compliance examinations (825 joint CRA/compliance examinations, 921 compliance-only examinations, and 11 CRA-only examinations) and 6,002 specialty examinations. As of December 31, 2011, all CRA/compliance examinations were conducted within the time frame established by policy. The following table compares the number of examinations, by type, conducted from 2009 through 2011.
FDIC Examinations 2009–2011
|Risk Management (Safety and Soundness):
|State Non-member Banks
|State Member Banks
|Subtotal – Risk Management Examinations
|Compliance/Community Reinvestment Act
|Subtotal – CRA/Compliance Examinations
|Data Processing Facilities
|Bank Secrecy Act
|Subtotal – Specialty Examinations
As of December 31, 2011, there were 813 insured institutions with total assets of $319.4 billion designated as problem institutions for safety and soundness purposes (defined as those institutions having a composite CAMELS rating of “4” or “5”), compared to the 884 problem institutions with total assets of $390.0 billion on December 31, 2010. This constituted a 5 percent decline in the number of problem institutions, and a 13 percent decrease in problem institution assets. In 2011, 196 institutions with aggregate assets of $83.2 billion were removed from the list of problem financial institutions, while 156 institutions with aggregate assets of $77 billion were added to the list. Superior Bank, Birmingham, Alabama, was the largest failure in 2011, with $3.0 billion in assets. The FDIC is the primary federal regulator for 533 of the 813 problem institutions, with total assets of $175.4 billion and $319.4 billion, respectively.
During 2011, the FDIC issued the following formal and informal corrective actions to address safety and soundness concerns: 146 Consent Orders, and 297 MOUs. Of these actions, 15 Consent Orders and 17 MOUs were issued based, in part, on apparent violations of the Bank Secrecy Act.
The FDIC is required to conduct follow-up examinations of all state nonmember institutions designated as problem institutions within 12 months of the last examination. As of October 31, 2011, all follow-up examinations for problem institutions were performed on schedule.
As of December 31, 2011, 51 insured state nonmember institutions, about 1 percent of all supervised institutions, having total assets of $37.0 billion were rated “4” or “5” for consumer compliance purposes. As of December 31, 2011, all follow-up examinations for problem institutions were performed on schedule.
Overall, banks demonstrated strong consumer compliance programs. The most significant consumer protection issue that emerged from the 2011 compliance examinations involved banks’ failure to adequately monitor third-party vendors. As a result, we found violations involving unfair or deceptive acts or practices, resulting in consumer restitution and civil money penalties. The violations involved a variety of issues including failure to disclose material information about new products being offered, deceptive marketing and sales practices, and misrepresentations about the costs of products. In many instances, the violations were the result of banks entering into new product markets through third-parties without maintaining sufficient oversight of vendors’ activities.
During 2011, the FDIC issued the following formal and informal corrective actions to address compliance concerns: 38 Consent Orders, 111 MOUs, and 163 Civil Money Penalties (CMPs). In certain cases, the Consent Orders issued by the FDIC contain requirements for institutions to pay restitution in the form of refunds to consumers for different violations of laws. During 2011, over $11 million was refunded to consumers by institutions subject to Consent Orders. These refunds primarily related to unfair or deceptive practices by institutions, mainly related to different credit card programs, as discussed above.
In the case of CMPs, institutions pay penalties to the U.S. Treasury. Approximately 90 percent of the CMPs involved repeated errors in the submission of required data under the Home Mortgage Disclosure Act (HMDA) or statutorily mandated penalties for violations of the regulations entitled Loans in Areas Having Special Flood Hazards. The average CMP for HMDA and Flood Insurance violations was $8,400.
Bank Secrecy Act/Anti-Money Laundering
The FDIC pursued a number of BSA, Counter-Terrorist Financing (CFT), and Anti-Money Laundering (AML) initiatives in 2011.
The FDIC conducted an Advanced International AML and CFT training session in 2011 for twenty-seven financial sector supervisors and regulatory staff from Ethiopia, Ghana, Kenya, Nigeria, and Tanzania. The training focused on AML/CFT controls, the AML examination process, customer due diligence, suspicious activity monitoring, and foreign correspondent banking. The session also included presentations from the Federal Bureau of Investigation (FBI), the Financial Crimes Enforcement Network (FinCEN), the Drug Enforcement Administration (DEA), and U.S. Immigration and Customs Enforcement (ICE). Topics addressed by invited speakers included combating terrorist financing, trade-based money laundering, bulk cash smuggling and investigations, law enforcement use of BSA information, and the role of financial intelligence units in detecting and investigating illegal activities.
Additionally, the FDIC met with several foreign officials from Pakistan, at the request of the FinCEN, to provide an overview of the FDIC and the AML examination process used in the United States. The FDIC also met with eleven foreign officials from United Arab Emirates as a part of the U.S. Department of State’s International Visitor Leadership Program to discuss the FDIC’s AML Supervisory Program.
Minority Depository Institution Activities
The preservation of Minority Depository Institutions (MDIs) remains a high priority for the FDIC. In 2011, the FDIC continued to seek ways to improve communication and interaction with MDIs and to respond to the concerns of minority bankers. Many of the MDIs took advantage of the technical assistance offered by the FDIC, requesting technical assistance on a number of bank supervision issues, including but not limited to, the following:
- MDI Policy Statement and Program
- Small Business Lending Fund
- Deposit insurance assessments
- FDIC Overdraft Guidance
- Guidance on prepaid cards
- Application process for change of control and shelf-charter applications
- Filing branch and merger applications
- Monitoring commercial real estate (CRE) concentrations
- Reducing adversely classified assets
- Maintaining adequate liquidity
- Compliance issues
- Community Reinvestment Act (CRA)
The FDIC continued to offer the benefit of having an examiner or a member of regional office management return to FDIC-supervised MDIs from 90 to 120 days after an examination to help management understand and implementing examination recommendations, or to discuss other issues of interest. Several MDIs took advantage of this initiative in 2011. Also, the FDIC regional offices held outreach training efforts and educational programs for MDIs.
A major highlight in 2011 was the biannual Interagency MDI Conference. The 2011 conference was held on June 14–16, 2011 in New York City. The conference theme was Preserving the Future of Minority Depository Institutions, and the activities included a session where potential investors in financial institutions had an opportunity to meet with senior managers and directors of MDIs attending the conference.
The FDIC held conference calls and banker roundtables with MDIs in the geographic regions. Topics of discussion for the calls included both compliance and risk management, and additional discussions included the economy, overall banking conditions, deposit insurance assessments, accounting, and other bank examination issues.
Capital and Liquidity Rulemaking and Guidance
OTC Derivatives Margin and Capital NPR
In April 2011, the FDIC, along with the other federal banking agencies, the Farm Credit Administration, and the Federal Housing Finance Agency (FHFA), published a proposed rule intended to enhance the stability of the financial system by preventing certain large financial firms from entering into uncollateralized derivatives exposures with each other. This proposed rule would implement certain requirements contained in Sections 731 and 764 of the Dodd-Frank Act, which provides that the largest and most active participants in the over-the-counter (OTC) derivatives market, that is, those designated as swaps dealers or major swaps participants by the Commodity Futures Trading Commission (CFTC) or the Securities Exchange Commission (SEC), to collect initial margin and variation margin. Final rulemaking is expected to be completed in 2012.
Retail Foreign Exchange Transactions
In May 2011, the FDIC Board of Directors approved the publication of a Notice of Proposed Rulemaking (NPR) that proposed disclosure, recordkeeping, capital and margin, reporting, business conduct, and documentation requirements on certain retail foreign currency transactions entered into between FDIC-supervised institutions and retail customers. The FDIC proposed these requirements in response to Section 742 of Dodd-Frank. In July 2011, the FDIC issued final regulations.
Advanced Approaches Floor Final Rule
In June 2011, the FDIC, along with the other federal banking agencies, approved a final rule to implement certain requirements of Section 171 of Dodd-Frank. Section 171 requires that the agencies' generally applicable capital requirements serve as a floor for other capital requirements the agencies may establish and, specifically, as a permanent floor for the advanced approaches risk-based capital rule.
Stress Testing Guidance
In June 2011, the FDIC along with the other federal banking agencies, issued proposed guidance on stress testing by banking organizations with more than $10 billion in total consolidated assets. The proposed guidance highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization's forward-looking assessment of its risks, and provides principles that a banking organization should follow to develop, implement, and maintain an effective stress testing framework.
Counterparty Credit Risk Guidance
In July 2011, the FDIC, along with the other federal banking agencies, issued guidance to clarify supervisory expectations and sound practices for an effective counterparty credit risk management framework. The guidance was issued primarily for banks with significant derivatives portfolios and emphasizes that such banks should use appropriate reporting metrics and limits systems, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of counterparty credit risk throughout the organization. The agencies believe this guidance will address deficiencies exposed during the financial crisis by reinforcing sound practices related to the management and ongoing monitoring of counterparty exposure limits and concentration risks.
Volcker Rule NPR
In October 2011, the FDIC, along with the other federal banking agencies, and the SEC, published a joint NPR to implement the provisions of Section 619 of Dodd-Frank, which restricts the ability of banking entities to engage in proprietary trading and limits investments in hedge funds and private equity funds. Final rulemaking is expected to be completed in 2012.
Depositor and Consumer Protection Rulemaking and Guidance
In January 2011, the FDIC along with the other federal banking agencies, issued an update related to the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The update reminded mortgage loan originators of the requirement to register with the Nationwide Mortgage Licensing System and Registry within 180 days of the date the Registry began accepting federal registrations.
In March 2011, the FDIC hosted a teleconference to discuss the 2010 Overdraft Payment Program Supervisor Guidance (Guidance) that was issued in November 2010. The Guidance encouraged institutions to monitor and oversee usage of overdraft payment programs to address the risks related to excessive and inappropriate use of automated overdraft programs as forms of high-cost, short-term credit. The teleconference was held to address many examination and implementation issues based on discussions with, and questions received from, FDIC-supervised institutions. The FDIC also published written answers to a series of Frequently Asked Questions concurrently with the teleconference. Examiners began monitoring banks' efforts to address the risks identified in the Guidance in July 2011. The FDIC will continue to monitor banks' efforts to manage risks of automated programs and assess the efficacy of the Guidance.
In August 2011, the FDIC issued revised examination procedures incorporating the model privacy notice. The Gramm-Leach-Bliley Act requires financial institutions to provide initial and annual notices to consumers with whom they have ongoing customer relationships to explain how nonpublic personal information is collected and shared. Financial institutions may use a model privacy notice issued by the federal banking agencies and the National Credit Union Administration, the Federal Trade Commission, the CFTC, and the SEC to comply with this requirement.
In December 2011, the FDIC, along with the other federal banking agencies, issued revised examination procedures for the regulations that implement the Truth in Lending Act (TILA). TILA requires various disclosures relating to the cost of consumer credit as well as several other requirements relating to credit for individual, consumer, or household purposes including residential real estate loans.
Other Guidance Issued
During 2011, the FDIC issued and participated in the issuance of other guidance in several areas as described below.
On April 14, 2011, the FDIC joined the other federal banking agencies, and the SEC and FHFA in issuing a joint NPR that would implement section 956 of Dodd-Frank (Enhanced Compensation Structure Reporting). Section 956 requires the participating agencies, as defined, to jointly: (a) prescribe regulatory reporting standards for incentive-based compensation and (b) prohibit incentive-based compensation that is "excessive" or "could lead to material financial loss" at a covered institution. Implementing this proposed rule would address a key safety and soundness issue that contributed to the recent financial crisis that poorly designed compensation structures can misalign incentives and induce excessive risk-taking at financial organizations. Importantly, this interagency proposal will apply across all types of financial institutions, limiting the opportunity for regulatory arbitrage. Per section 956, financial institutions with total assets less than $1.0 billion are exempt from this provision. Final rulemaking is expected to be completed in 2012.
Regulatory Actions Related to Foreclosure Activities by Large Servicers and Practical Implications for Community Banks
In May 2011, the FDIC published a special foreclosure edition of Supervisory Insights. This edition describes lessons learned from an interagency review of foreclosure practices at the 14 largest residential mortgage servicers, and includes examples of effective mortgage servicing practices derived from these lessons.
During 2011, the FDIC issued 31 Financial Institutions Letters (FILs) that provided guidance to help financial institutions and facilitate recovery in areas damaged by hurricanes, wildfires, tornadoes, flooding, and other natural disasters. In addition, FIL-60-2001 dated August 26, 2011, reminded institutions how to prepare for business continuity during significant storms.
Other Policy Matters
Study on Core Deposits and Brokered Deposits
As required by Section 1506 of Dodd-Frank, the FDIC completed a study on the use of core and brokered deposits and provided a written report to Congress on its findings on July 8, 2011. The FDIC solicited comments from the banking industry and the public in preparing this study. The FDIC received approximately 75 written comments and organized a roundtable discussion with representatives from bank trade groups, bank regulators, deposit brokers, banks that use brokered deposits, and the academic community. Discussions on the issues were also held with the FDIC Advisory Committee on Community Banking and in several separate meetings with banks, trade groups, and other interested parties. In addition, the FDIC undertook a statistical analysis of core and brokered deposits and conducted a literature review of academic studies on core and brokered deposits. The study evaluated the definitions of core and brokered deposits and recommended that Congress not amend or repeal the brokered deposit statute, which defines brokered deposits and prevents failing banks from increasing their brokered deposits and taking on more risk in an effort to grow out of their troubles.
Small Business Lending Forum
On January 13, 2011, the FDIC hosted a forum on "Overcoming Obstacles to Small Business Lending." The forum fostered communication among policymakers, regulators, small business owners, lenders, and other stakeholders regarding ways in which credit can be made more accessible to the small business sector. In addition to identifying common obstacles small businesses currently face, forum participants also assessed existing efforts and suggested additional policies to ensure that creditworthy small businesses have access to the credit they need to grow, create jobs, and help fuel the economic recovery. The FDIC addressed the key issues raised at the forum, including small businesses' demand for credit, banks' supply of credit, and bank regulators' approaches to evaluating small business loans.
Promoting Economic Inclusion
The FDIC has a strong commitment to promoting consumer access to a broad array of banking products to meet consumer financial needs. To promote financial access to responsible and sustainable products offered by IDIs, the FDIC:
- conducts research into the unbanked and underbanked
- engages in research and development on models of products meeting needs of lower-income consumers
- supports partnerships to promote consumer access and use of banking services
- advances financial education and literacy
- facilitates partnerships to support community and small business development.
FDIC Survey of Banks' Efforts to Serve the Unbanked and Underbanked
The FDIC is committed to ensuring that consumers have access to basic banking and other financial services, and to developing more and better data about unbanked and underbanked households, including factors that hinder them from fully utilizing the mainstream financial system. In line with this commitment, Congress mandated in Section 7 of the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (Reform Act), that the FDIC conduct periodic surveys of banks’ efforts to bring individuals and families into the conventional finance system.
Consequently, during 2011 and part of 2012, the FDIC will conduct a second set of nationwide surveys of households and FDIC-IDIs (banks survey) to assess efforts to serve unbanked and underbanked individuals and families. The first phase of the bank survey will gather information from a sample of bank headquarters and a second phase will collect data at the branch level. The 2011 survey focused on banks’ basic transaction and savings account programs, auxiliary product and service offerings, and financial education and outreach efforts.
The results will complement the previously collected data and will help banks improve their abilities to meet the diverse financial needs of U.S. households. The survey also helps to inform the public about the FDIC’s continuing economic inclusion efforts.
Model Safe Account Pilot
The FDIC began a one-year pilot program in January 2011 to determine the feasibility of IDIs offering safe, low-cost transactional and savings accounts to help meet the needs of the 25 percent of U.S. households that are unbanked and underbanked. These accounts are FDIC insured and are covered under consumer protection laws and regulations, such as Regulation E (Electronic Funds Transfer), in the same way as traditional deposit accounts. Through the pilot, nine participating institutions are offering electronic deposit accounts with product features identified in the FDIC Model Safe Accounts Template. These accounts do not allow for overdraft or nonsufficient funds fees. At the completion of the pilot, in early 2012, the FDIC will report on the findings and lessons learned.
Affordable Small-Dollar Loan Guidelines and Pilot Program
The FDIC continued to promote the results of the FDIC Small-Dollar Loan Pilot. In May 2011, the FDIC hosted a meeting of the FFIEC CRA subcommittee to examine opportunities to enhance understanding of small-dollar lending among regulated institutions and to promote consistent emphasis in CRA examinations. The meeting, attended by senior staff from the banking regulatory agencies, CSBS, the New York State Banking Department, and the National Credit Union Administration, reviewed the findings from the FDIC research and pilot, and related outreach and education work. On September 22, 2011, FDIC offered testimony on the FDIC's Small-Dollar Loan Pilot at a hearing of the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit entitled "An Examination of the Availability of Credit for Consumers." In addition, results from the pilot were discussed at several conferences throughout the year, including the Microfinance USA Conference in New York at the Association of Military Bankers of America, and in media interviews.
Safe Mortgage Lending in Low- and Moderate-Income (LMI) Communities
In early 2011, the FDIC Chairman’s Advisory Committee on Economic Inclusion held a public meeting at headquarters and discussed principles for responsible low- and moderate-income (LMI) mortgage lending, the impact of the housing crisis on LMI families, and potential future market structures to safely serve LMI borrowers. In addition, FDIC researchers presented two papers at widely attended conferences, analyzing some of the outcomes of the mortgage crisis on housing mobility, and trends in mortgage refinancing among low-income households.
Partnerships to Promote Consumer Access: Alliance for Economic Inclusion
The goal of the FDIC’s Alliance for Economic Inclusion (AEI) initiative is to collaborate with financial institutions; community organizations; local, state, and federal agencies; and other partners in select markets, to launch broad-based coalitions to bring unbanked and underserved consumers into the financial mainstream.
The FDIC expanded its AEI efforts during 2011 to increase measurable results in the areas of new bank accounts, small-dollar loan products, and the delivery of financial education to underserved consumers. Specifically, during 2011:
- More than 494 banks and organizations joined AEI nationwide, bringing the total number of AEI members to 1,613. The 2011 figure represents a 44 percent growth over the AEI membership base at the end of 2010.
- At least 171,591 consumers opened a bank account as a result of AEI efforts, an increase of 138 percent over the number of new accounts opened during 2010. Combined, more than 404,591 bank accounts have been opened through the AEI program.
- Approximately 87,476 consumers received financial education through the AEI, bringing the total number of consumers educated to 270,476. The 2011 figure is a 56 percent improvement over the 2010 figure.
Also, twenty-four banks were in the process of offering or developing small-dollar loans, and seventeen AEI banks were providing deposit accounts consistent with the FDIC Model Safe Account Template through the AEI at the end of 2011. To facilitate broader economic inclusion, FDIC leads AEI members in other work appropriate to the needs of the local market. For example, the 4th Annual AEI Small Business Conference in New Orleans reached more than 200 entrepreneurs, bankers, and small business resource providers, while the Los Angeles AEI promoted small business development through two guides (one to help small businesses save money by “greening” their business and the other to help gain access to the export market).
During 2011, FDIC also expanded the geographic reach of the AEI program. Initially in fourteen markets, the FDIC began the formation of AEI initiatives in three additional markets: Milwaukee, Wisconsin; the Appalachian region of West Virginia; and the Metro Detroit/Southeast Michigan area. These markets were selected because of their sizable concentrations of unbanked and underbanked households. In collaboration with the Wisconsin Women's Business Initiative Corporation, FDIC launched the Milwaukee AEI initiative on January 19, 2011, consisting of twenty-one financial institutions and community-based partners. And on December 19, 2011, the FDIC and the United Way of Southeast Michigan launched the Southeast Michigan AEI coalition. The launch was attended by forty-eight financial institutions and community-based organizations, including the Consulate of Mexico and Bank On Detroit representatives. The FDIC collaborated with the West Virginia Development Office and Appalachian Regional Commission on the AEI proposal for launch in West Virginia during 2012.
Additionally, the FDIC provided program guidance and technical assistance in the development, launch, and the expansion of 26 Bank On programs. In AEI markets where there is a Bank On initiative, FDIC and its AEI partners generally collaborate with representatives from the Bank On initiative towards shared objectives. For example, FDIC provided technical assistance on recruitment from the financial services industry for Bank On/Save Up Kansas City, Missouri, which is a local effort to market savings and checking accounts to the unbanked and underbanked that was launched on June 4, 2011, conducted in collaboration with the Kansas City AEI. FDIC staff also provided technical, marketing, and financial education product support for the new Bank On Chicago initiative, and the Bank On Los Angeles initiative conducted under the FDIC AEI umbrella.
Advancing Financial Education
The FDIC’s award-winning Money Smart curriculum has reached more than 2.75 million consumers in the ten years since its launch in 2001. During 2011, the FDIC reached approximately 265,000 consumers with Money Smart. The curriculum is currently available in instructor-led versions to teach adults and young adults, as well as in self-paced computer-based and audio versions.
The FDIC expanded its financial education efforts during 2011 through a multi-part strategy that included making available timely, high-quality financial education products, sharing best practices, and working through partnerships to reach consumers.
Recognizing the growing role of entrepreneurs in the economy, the Money Smart program started its second decade by expanding the reach of the curriculum to small businesses. During 2011, the FDIC collaborated with the Small Business Administration on the development of a new instructor-led financial education curriculum for small businesses. It consists of ten modules that introduce prospective or current small businesses to basic strategies to manage a small business effectively from a financial standpoint. The pilot curriculum is being refined in advance of an early 2012 launch.
On February 10, 2011, the FDIC released an enhanced version of its instructor-led Money Smart for Young Adults financial education curriculum. The updated curriculum reflects changes to the financial landscape such as amendments to the rules pertaining to credit cards, the overdraft opt-in rule, and information on financing higher education and instructional best practices since the curriculum’s release in 2008.
On November 7, 2011, the FDIC released the Money Smart curriculum for the first time in Haitian-Creole and Hindi, making the instructor-led curriculum available in nine languages, in addition to the large-print and Braille versions. Also, on this date, updated versions of the Chinese, English, Haitian-Creole, Hindi, Hmong, Korean, Russian, Spanish, and Vietnamese language versions of Money Smart were released. These updated curriculums reflect the enhancements made to the English language version of Money Smart released in November of 2010, which include the addition of a new module on financial recovery.
Improvements were also made to the self-paced versions of Money Smart. The Money Smart Computer-Based Instructions (CBI) was rewritten and significantly enhanced. For example, the new CBI includes age-appropriate tracks for adults and young adults aligned with the respective updated instructor-led curriculums. Originally launched in 2004, the new CBI also incorporates new technological enhancements and best practices in instructional design, such as a game-based design and new tools for users to retrieve previously earned certificates of completion of modules. The new CBI was piloted during 2011 with key partners in advance of a first quarter 2012 launch.
Partnerships to Support Community and Small Business Development
Through training and technical assistance to diverse organizations that use the Money Smart program, the FDIC emphasizes the importance of pairing education with access to appropriate banking products and services. Approximately 1,200 organizations are members of the FDIC’s Money Smart Alliance, 1,205 practitioners attended the 61 train-the-trainer workshops conducted during 2011, and the FDIC worked with many additional organizations to promote financial education.
During 2011, the FDIC expanded on its new² partnership with the National Credit Union Administration and the U.S. Department of Education to promote financial education and access for low- and moderate-income students. The FDIC focused its work through this partnership by promoting financial education and access resources to the U.S. Department of Education’s grantees by participating in both national and four regional/state conferences to conduct workshops to reach managers of Federal TRIO Programs³ and Gear-UP programs that reach low- and moderate-income students and their families.
Vice Chairman Martin J. Gruenberg makes a point during
the sixth Community Bank Advisory Committee meeting.
Leading Community Development
The FDIC hosted its sixth Community Bank Advisory Committee meeting in May 2011. Fourteen members, most of them heads of community banks throughout the nation, discussed trends and issues involving community banking and the future of this sector.
FDIC community affairs staff is located in each of the FDIC’s regions nationwide and lead a range of community development activities. In 2011, the FDIC undertook over 676 community development, technical assistance, financial education, and outreach activities and events. These activities were designed to promote awareness of investment opportunities to financial institutions, access to capital within communities, knowledge-sharing among the public and private sector, and wealth-building opportunities for families.
The FDIC collaborated with the Office of Comptroller of the Currency and Federal Reserve Banks to conduct 35 CRA/Community Development roundtables to help financial institutions learn how to more effectively meet community credit needs and promote compliance with CRA regulations.
Recognizing the importance of small business growth and job creation as an essential component in America’s economic recovery, the FDIC continued its emphasis on facilitating small-business development, expansion, and recovery. In 2011, the FDIC and the SBA co-sponsored 28 small-business information, resource, and capacity-building seminars. The events provided information and resources to over 2,276 small business owners, entrepreneurs, banking professionals, and others.
The FDIC also continued to help consumers and the banking industry avoid unnecessary foreclosures and stop foreclosure “rescue” scams that promise false hope to consumers at risk of losing their homes. The FDIC focused its foreclosure mitigation efforts in three areas:
- Direct outreach to consumers with information, education, counseling, and referrals. During 2011, in collaboration with NeighborWorks®America, the FDIC sponsored eight events at which 7,392 homeowners attended, 68 counseling organizations provided direct services and 18 loan servicers participated.
- Industry outreach and education targeted to lenders, loan servicers, local governmental agencies, housing counselors, and first responders (faith-based organizations, advocacy organizations, social service organizations, etc.). During 2011, the FDIC co-hosted one major loan modification scam outreach event in collaboration with NeighborWorks®America and supported several ongoing loan modification scam campaigns. These outreach activities are targeted to local agencies and nonprofits that have the capacity to educate stakeholders. These activities resulted in more than 35,372 scam complaint calls since the campaign began.
- Support for capacity-building initiatives to help expand the quantity and quality of foreclosure counseling assistance that is available within the industry. Working closely with NeighborWorks®America and other national and local counselors and intermediaries, the FDIC supported industry efforts to build the capacity of housing counseling agencies. The FDIC facilitated the development of a new course, Marketing Your Neighborhood for Stabilization and Revitalization that was offered at two NeighborWorks training institutes to approximately twenty-one homeownership professionals. Also, more than 1,680 participants from 1,071 organizations completed six community stabilization e-learning courses offered through NeighborWorks®America sponsored by FDIC. These e-learning courses include the new Introduction to Affordable Housing launched on October 10, 2011.
Information Technology, Cyber Fraud, and Financial Crimes
The FDIC, jointly with the U.S. Department of Justice, sponsored a Financial Crimes Conference in May 2011 that focused on all types of financial fraud, and how the law enforcement community and regulators can respond effectively to fraud. Other major accomplishments during 2011 in promoting information technology (IT) security and combating cyber fraud and other financial crimes included the following:
- Issued, in conjunction with the FFIEC, the Supplement to Authentication in an Internet Banking Environment guidance, which strengthens the controls banks use to protect online banking transactions.
- Issued revised guidance describing potential risks associated with relationships with third-party entities that process payments for telemarketers, online businesses, and other merchants.
- Issued a risk advisory to examiners describing the risks of mobile banking.
- Held an Emerging Technology Risk Analysis Center Event on January 12, 2011, with five industry experts who discussed emerging technologies and associated risks that may affect the banking industry.
- Established an intra-divisional FDIC Payments Risk Working Group to strengthen awareness of current and emerging payments-related supervisory issues. Representatives from all examination disciplines are participating in the Working Group.
- Assisted financial institutions in identifying and shutting down “phishing” websites. The term “phishing”—as in “fishing” for confidential information—refers to a scam that encompasses fraudulently obtaining and using an individual’s personal or financial information.
- Issued 28 Special Alerts to FDIC-supervised institutions on reported cases of counterfeit or fraudulent bank checks.
- Issued 4 Consumer Alerts pertaining to e-mails and telephone calls fraudulently claiming to be from the FDIC.
The FDIC conducts IT examinations of financial institutions and technology service providers (TSP). These examinations ensure that institutions and TSPs have implemented adequate risk management practices for the confidentiality, integrity, and availability of sensitive, material, and critical information assets. The result of the examination is a FFIEC Uniform Rating System for Information Technology (URSIT) rating. In 2011, the FDIC conducted 2,802 IT examinations at financial institutions and TSPs. Further, as part of its ongoing supervision process, the FDIC monitors significant events, such as data breaches and natural disasters that may affect financial institution operations or customers.
Consumer Complaints and Inquiries
The FDIC investigates consumer complaints concerning FDIC-supervised institutions and answers inquiries from the public about consumer protection laws and banking practices. As of December 31, 2011, the FDIC received 12,942 written complaints, of which 5,997 involved complaints against state nonmember institutions. The FDIC responded to over 98 percent of these complaints within time frames established by corporate policy, and acknowledged 100 percent of all consumer complaints and inquiries within fourteen days. The FDIC also responded to 2,608 written inquiries, of which 484 involved state nonmember institutions. In addition, the FDIC responded to 6,134 telephone calls from the public and members of the banking community, of which 4,293 concerned state nonmember institutions.
Coordination with the Consumer Financial Protection Bureau
Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) began operations on July 21, 2011. The CFPB was given primary supervisory responsibility for certain enumerated consumer protection laws and regulations for institutions with assets over $10 billion, and their affiliates. The FDIC coordinated with the CFPB throughout 2011 to ensure an orderly transfer of forty-one institutions to the CFPB’s consumer protection jurisdiction. The FDIC continues to work with the CFPB to implement other requirements, including simultaneous examinations for other laws, such as the CRA, for which the FDIC retains primary responsibility for all state chartered, nonmember banks, including those with assets over $10 billion.
Between July 21 and December 31, 2011, the FDIC received 935 complaints involving FDIC-supervised banks under the jurisdiction of the CFPB. Under the agreement between the FDIC and the CFPB, the FDIC investigated 576 of the 935 complaints and referred the remaining 359 to the CFPB.
The FDIC provided substantial resources to the CFPB during 2011 on a temporary basis. The FDIC helped the CFPB develop its consumer complaint processing functions, enforcement program, and community affairs program. Under a cooperative agreement between the FDIC and the CFPB, FDIC employees were also offered voluntary transfer opportunities to become permanent CFPB employees. A total of forty-one FDIC employees transferred to the CFPB as of July 2011.
Public Awareness of Deposit Insurance Coverage
The FDIC provides a significant amount of education for consumers and the banking industry on the rules for deposit insurance coverage. An important part of the FDIC’s deposit insurance mission is ensuring that bankers and consumers have access to accurate information about the FDIC’s rules for deposit insurance coverage. The FDIC has an extensive deposit insurance education program consisting of seminars for bankers, electronic tools for estimating deposit insurance coverage, and written and electronic information targeted for both bankers and consumers.
In 2011, the FDIC continued its efforts to educate bankers and consumers about the rules and requirements for FDIC insurance coverage. The FDIC conducted seventeen telephone seminars for bankers on deposit insurance coverage, reaching an estimated 57,000 bankers participating at over 16,000 bank locations throughout the country. The FDIC also updated its deposit insurance coverage publications and educational tools for consumers and bankers, including brochures, resource guides, videos, and the Electronic Deposit Insurance Estimator (EDIE).
During 2011, the FDIC received and answered approximately 119,300 telephone deposit insurance-related inquiries from consumers and bankers. The FDIC Call Center addressed 86,700 of these inquiries, and deposit insurance coverage subject matter experts handled the other 32,600. In addition to telephone inquiries about deposit insurance coverage, the FDIC received 2,500 written inquiries from consumers and bankers. Of these inquiries, 99 percent received responses within two weeks, as required by corporate policy.