Federal Deposit Insurance Corporation
American Bankers Association
San Francisco, CA
October 10, 1995
One year ago, I was sworn in as Chairman of the Federal
Deposit Insurance Corporation. Recently, I was asked what I thought
had been the two major events thus far during my term. I replied
that one was being able to lower the deposit insurance premiums that
the best managed and best capitalized banks pay to four cents for
every $100 in insured deposits. Nine out of every ten banks in
America are paying that four-cent premium. This reduction will help
banks be more competitive and will put more money back into the
economy. The second event was being able to return a billion and a
half dollars in assessments with interest to the banking industry.
I trust you received your refund. If you did not, I am sure you
would have let me know. Both actions will allow you to serve your
stockholders, customers, and communities better.
I enjoyed being able to stamp on your assessments: return to
sender. Let me ask you: When was the last time that any money you
sent to Washington was returned, with interest, and at the same rate
that the government agency earned?
It has been a good year. I am pleased to be able to celebrate
my first anniversary as Chairman here with you in California.
Someone once said that -- to be creative -- you have to view
the familiar as if you have never seen it before. California has
certainly been blessed with creative people -- with visionary and
innovative men and women. From computers to wine-making to
entertainment to research, California has contributed greatly to
making our economy the world leader.
That, however, is not news. Consider Henry J. Kaiser, who, in
the early 1940s and under the demands of war, revolutionized
shipbuilding by welding together prefabricated parts on assembly
lines in San Francisco, Stockton, Napa and elsewhere. Ships rolled
out in record times, often in less than two weeks for total
construction. One ship appeared in four-and-a-half days. Over four
years, his shipyards turned out an astounding 1,500 ships -- an even
more impressive number when you take into account that there were no
merchant shipbuilding yards in the state when he started up -- and
when you realize that he had never built a ship before 1942. He had
to look at shipbuilding as if he had never seen it before because,
in fact, he had not.
At the FDIC these days we also are viewing the familiar as if
we had never seen it before. We are examining all the ways we need
to adapt to a changing financial industry and economy.
The FDIC has a distinguished history of assuring the stability
of the financial system for 60 years. We know, however, that if we
are to continue to serve the nation by maintaining public confidence
in the banking system, we must adapt to changing circumstances.
I became FDIC Chairman a year ago with the intention of
retooling and repositioning the organization. I knew that our focus
could not be largely on liquidating failed banks -- our major role
not too many years ago. It is far better to keep failures from
happening -- so we have to find ways to help banks stay open,
operating safely and soundly, and serving your customers and
At the same time, I seek to run the FDIC the way a business
operates -- by striving for greater productivity and enhanced
performance, by using rigorous cost/benefit analysis, by relying on
up-to-date management concepts and technology. Incidentally, that
was the way we approached setting deposit insurance premiums several
weeks ago -- on the basis of fact, giving great weight to the
condition of the industry and its outlook for the coming months.
For an industry that continues to make record profits, that
analytical approach portends well for your premium costs in the
And we are quite aware that premiums are a cost for you. In
fact, I know that virtually everything we do translates into a cost
for insurance fund members. A biographer of my fellow Tennessean
Andrew Jackson wrote: "He believed government is best which spends
least." It must be something in the Tennessee soil, but I believe
Consequently, I have spent the last year looking at ways for
the organization to become more efficient in terms of getting
greater productivity and more return for every dollar spent in day-
to-day operations. To a great extent, efficiency means using the
resources of the FDIC more effectively. We are reviewing everything
we do -- as supervisor, insurer, liquidator, and employer -- to
increase the efficiency of the FDIC as an organization -- and to
Initially, I knew that to succeed, we had to set a new
direction for the organization and to make sure that necessary,
specific initiatives were undertaken to move the organization in
that new direction. In business, these objectives are often
achieved through the use of a strategic plan, an operating plan, and
a reorganization. Together, these three elements form a foundation
for change. Those were three elements that I have devoted
considerable time to defining and initiating.
We developed and implemented a strategic plan -- for the first
time in the 60-year history of the FDIC. There is an old saying:
"If you don't know where you are going, any road will take you
there." With the strategic plan as a guide, everyone at the FDIC
knows where the organization should be going. We are enhancing the
FDIC's skills at identifying, monitoring, and addressing risks to
which depository institutions -- and their insurance funds -- are
exposed, while at the same time finding ways to increase
productivity, efficiency, and cost savings.
Our mission is just the same today as it was when Congress
created us in 1933: to maintain stability and public confidence in
the nation's banking system. It is, however, the way in which we
are accomplishing that mission that is changing.
We put together an operating plan -- the specific initiatives
that will get us to where must go. As of now, we have initiated
approximately 150 projects under that operating plan.
One of those projects is to define the FDIC's "core" staffing
level -- that is to say, the number of people we will need to
operate the organization once we have liquidated the remaining
assets from the bank and thrift failures of the late 1980s and early
1990s and instituted management reforms to make the organization
more efficient. I cannot say today precisely what the core number
of staff will be, but it will be far less than the number of staff
we now have.
Finally, we reorganized the FDIC, first, by establishing a
management team to supervise the projects in the operating plan and
to assure that all parts of the FDIC work together, and, second, by
creating a Division of Insurance to monitor risks and recommend
responses to problems, so that you will have information on risks to
banks early enough to do something about it before there are losses
to the insurance funds.
Part of this new direction is reviewing supervision and
examinations. I want to reduce the burden of regulation that falls
disproportionately on smaller banks. One way to do that is to
eliminate or reduce requirements that are not essential to doing our
job. With 41 complete regulations and 76 written policy statements
with many subparts, that is no small task, but we are looking at
every one of them. Another way to reduce the burden is to get our
examiners in and out of your banks faster, while still assuring the
thoroughness of our examinations.
I want to spend a few minutes describing our efforts to do just
On the safety and soundness side, we have already made a solid
start. In the first eight months of 1995, we reduced hours for FDIC
safety and soundness examinations on average by almost 10 percent.
That is a solid start, but only a start.
We are investigating and introducing less intrusive examination
techniques, primarily through the use of computers. Off-site
supervision can never replace on-site examinations, but it can
complement them and reduce the time spent on-site. In doing so, we
can make the examination less burdensome for you.
We will soon field test an automated loan review program. This
initiative will reduce the amount of time examiners spend evaluating
loan quality while at the same time assuring a thorough review. The
program will capture relevant loan data in a standardized electronic
format from a bank's EDP servicer. It will then import these
records into an automated loan review package. This method of
evaluating the loan function will reduce the number of specialized
loan reports requested from you by the field examiner and will
reduce on-site examination time because the electronic record will
be analyzed away from the bank.
Further, we are investigating the use of the Internet to permit
electronic submission of applications -- and to make available
research materials, such as Financial Institution Letters, our
examination manuals, and our rules and regulations. We were the
first banking agency to receive comments on proposed rules through
the Internet. We have been putting statistics on banks and thrifts
in our Quarterly Banking Profile on the Internet since early this
year so you have access to that information.
On the compliance and CRA side, we have also been working since
the beginning of the year to reduce the average number of hours for
our examinations -- and have made measurable progress. As of mid-
year, we had cut 10 hours off the average compliance examination and
more than five hours off the average CRA exam. Not enough yet, but
a start in the right direction.
We will continue to reduce on-site examination hours in this
area, again through the use of automation and through pre-
examination planning. In our pre-exam planning, we will rely more
on demographic data, and in particular mapping software, to
streamline the examination process. The mapping software we are
beginning to use combines census demographic data with a bank's loan
portfolio, which allows an examiner to analyze lending activities
comprehensively -- off-site in FDIC field offices.
I also want to emphasize that we put a great deal of stress on
communications with banks. Examinations should not be games of
"gotcha." We all benefit from having an open dialogue that
identifies and addresses problems.
You can see, we have had a busy year at the FDIC. Two measures
show just how busy. This year, I will reduce the FDIC staff by
about one-seventh and FDIC expenses by about one-fifth. That means
that, by the end of the year, FDIC staff will be down more than a
third from its peak of 15,611 in mid-1993. There is more we need
to do to reduce staff and expenses as the remaining assets of failed
banks and thrift institutions are disposed of -- and we will do it.
In addition, I want to note here that one of my first actions as
Chairman was to eliminate the bonus program for FDIC executives,
with the result that no executive bonuses have been paid since 1993.
In our manual of examination policy, we tell our examiners:
"The quality of management is probably the single most important
element in the successful operation of a bank." I also believe that
the quality of management is probably the single most important
element in the success of a bank supervisor -- and I have no doubt
that the quality of management is the single most important element
in the success of a deposit insurer. Management, however, is not a
As Alfred Chandler and Peter Drucker have discussed so
eloquently, business management has experienced two revolutions in
the concept and structure of organizations. The first took place
around the turn of the century. It distinguished management from
ownership and defined management as a function. It started when
Georg Siemans at Deutsche Bank threatened to cut off the bank's
loans to an electrical apparatus company his cousin founded unless
the owners turned the floundering company over to professional
managers. The second took place in the 1920s with the introduction
of command-and-control organization -- the organization of
departments and divisions -- throughout American corporations.
The analysts tell us that we are now well into a third period
of change: The shift from command-and-control organizations to one
in which everyone is connected through information technology. With
computer networks linking all employees to top management, we are
experiencing a transformation in what management means -- from
command to coordination, from hierarchy to team building. No
one can say exactly what is to come from this shift. As my favorite
philosopher Yogi Berra observed, "the future isn't what it used to
be." It seems to me, however, that the people and organizations who
are innovative, visionary, and creative -- who look at what they do
with fresh eyes and an open mind -- have what it takes to manage
change successfully. I intend for the FDIC be among them.