Federal Deposit Insurance Corporation
Women in Housing and Finance
May 20, 1997
By blood and upbringing, I am heir to a long tradition in
American life, the tradition of populism, and particularly that
strain of populism that arose in Tennessee, where I was raised.
Populism is the civic philosophy that the government belongs to
all the people -- not just to the entrenched and well-financed
establishment. To borrow a phrase, government is "of the people,
by the people, for the people."
We Tennessee populists recognize that there are things
government must do, but we demand that government be effective,
efficient and responsive -- that government get the job done well
with the least cost. The Tennessee gloss on populism is a bias
toward independent thinking -- a willingness, even a passion, to
confront conventional wisdom and to reexamine every assumption.
Populism is not a political ideology. What links us together is
a shared vision of the open relationship that should exist
between citizen and state.
Why would a populist such as myself want to head a large
government agency -- and particularly an agency that was -- of
necessity -- undergoing a difficult period of transition? I gave
the answer two-and-a-half years ago in my first speech to Women
in Housing and Finance: I wanted to serve at the Federal Deposit
Insurance Corporation (FDIC) in order to help an important
American institution move from an illustrious past to an even
more illustrious future.
I wanted to be at the FDIC because I believe it is among the
most valuable public assets we -- the American people -- have.
It has brought peace of mind to tens of millions of Americans
over three generations by protecting their savings. In fact, it
is the one Federal banking agency created by popular demand. By
insulating banks from runs and panics, it has stabilized the
financial system of the United States.
In fact, it has contained the two greatest banking crises
this country has experienced in this century. Nevertheless, the
FDIC needed to transform itself from the crisis management and
damage control that it had, of necessity, focused on in the 1980s
into an organization devoted to identifying risks to the
insurance funds and trying to prevent significant problems from
occurring. For me, who had spent a career dealing with banking
issues, the attraction of heading the FDIC at this critical time
For me, as a populist, the challenge of shaping the FDIC so
that it could do an even better job of assuring economic
stability for the American people in the future was magnetic.
Before this group, which includes friends of many years, I
set out the FDIC's priorities. These priorities would bring
change at the FDIC -- and they would also assure continuity with
the more than 60-year mission of the FDIC in providing stability
to the financial system.
These priorities are: one, assuring the integrity of the
deposit insurance system; two, helping banks stay open and
serving their customers and communities, rather than closing
them; three, managing the FDIC the way that businesses are
managed; and four, keeping the FDIC independent. With the
dedication and hard work of the outstanding men and women of the
FDIC, with whom I am honored to have served, the Corporation has
achieved the goals we identified.
We put the crisis of the past behind us and prepared for the
Last September, Congress addressed the last significant
issue remaining from the banking and thrift crisis of the 1980s
and early 1990s: capitalization of the Savings Association
Insurance Fund (SAIF). In capitalizing the SAIF, Congress
repaired a structural defect in the deposit insurance system that
threatened not only that insurance fund, but the strength of the
deposit insurance system as well.
The legislation last September assured Americans that their
deposits would be protected -- that the words "insured by the
FDIC" would continue to provide certainty in an uncertain
financial world, just as they have for more than sixty years.
Achieving a solution to the problems of the SAIF was critical to
the FDIC's mission. Today, both FDIC funds -- and the deposit
insurance system -- are strong, with the combined total for both
the SAIF and the Bank Insurance Fund (BIF) of just under $36
billion, the largest reserves in FDIC history.
I thank all of you here who worked to be a part of that
For those of you who heard last year -- during the
legislative debate over capitalizing the SAIF -- that I devoted
too much attention to the merits of the issue -- as one lobbyist
told me -- I have one answer. For important issues of public
policy affecting many Americans, the merits should be where we
start, and, if we are lucky, as we were last year, where we end
The second priority at the FDIC has been helping to keep
banks open and serving their communities rather than closing
them. Given the 1,617 bank failures we experienced from 1980
through 1994, the need for enhanced bank supervision, including
better risk assessment, could not have been clearer.
Nevertheless, in recent years there have been questions
about the value of bank supervision.
Given our current, extraordinarily stable economic
environment -- and the tremendous profits that banks have been
able to make as a result -- this criticism should come as no
surprise for memories can be short in good times. Strong and
effective supervision and regulation may appear to some people as
less necessary when banks are prosperous. After all, a high
tide lifts all ships, but when the tide runs out and economic
strains reveal weaknesses, no one questions the need for banking
In fact, quite often, there are calls for more supervision
and regulation -- sometimes the result seems a lot like closing
the barn door after the cows got out, as we say in Tennessee.
For that reason, I continue to have reservations about
legislation enacted in 1991 that limits the discretion of bank
regulators to deal with prudential problems in individual
institutions during times of stress. I believe strong banking
supervision -- like sound banking -- involves good judgment and
common sense. Limiting the exercise of that judgment prevents
the application of common sense when it is most needed.
The research that FDIC economists and analysts have done in
connection with a project analyzing the lessons we should have
learned from the banking and thrift crises of the 1980s and early
1990s shows that as many as 143 institutions that remain open and
are healthy today could have failed before 1991 if the prompt
corrective action standards (PCA) for closing banks in the
Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) had then been in place.
It is even more difficult to contemplate what would have
happened in the financial system in 1983, when more than 100
percent of the capital of the ten largest U.S. banks was exposed
to sovereign borrowers that could not meet debt service
obligations on their loans, if PCA standards had then been
imposed on bank regulators. We worked our way out of the
sovereign debt crisis because bank regulators had the discretion,
judgment, common sense and time to address the problems. Today,
the ten largest U.S. banks are among the best capitalized
multinational banks in the world!
FDICIA was right, however, in requiring the FDIC to use the
least costly method for resolving bank failures because that
requirement imposes more obligation on shareholders and large
creditors to discipline problem institutions, and reduces the
moral hazard of deposit insurance.
Our goal at the FDIC of course is to build a system that
will allow us to address problems before they cause significant
losses to the insurance funds.
To achieve that goal, we created a Division of Insurance,
staffed with analysts and economists in Washington and in each of
our eight regions. They identify, monitor, and assess risks in
the financial system and the economy and provide economic and
financial data to our examiners, as well as early warnings to
bankers of negative trends in the industry and the economy
through quarterly reports covering each of the eight FDIC regions
in the nation.
Moreover, our research division is exploring the use of bank
performance data to enhance our efforts for monitoring banks off-site
-- and particularly determining whether we can improve
models for monitoring bank performance by aligning banking data
and data on economic markets more closely. In that way, we might
be better able to forecast regulatory downgrades.
In addition, we established a diagnostic approach to bank
examinations that monitors and assesses existing and emerging
risks at insured institutions, in part by developing a tiered-examination
approach that targets risk management practices at
institutions under examination. This approach factors economic
and other data into risk evaluations of those institutions. We
also automated a substantial portion of the examination process,
which allows us to improve the quality and efficiency of
examinations, while reducing the time we spend in banks on
examinations by a third.
As I noted earlier, to give us a base of knowledge from
which to understand future problems, we initiated a systematic
analysis into the causes of bank and thrift failures between 1980
and 1994. Draft papers were reviewed by outside experts at a
symposium in January and the final report on this analysis will
be published later this year. This will give everyone who cares
about safety and soundness in banks a basis in fact for future
research and assessments of risk to the banking industry and the
deposit insurance funds.
The third priority has been managing the FDIC as businesses
Managing government does not have to be an oxymoron. In the
past two-and-a half years, we have introduced practices that are
common at successful private sector corporations.
Why is this important?
Given the harm that bank failures can cause communities and
the damage that too many failures can have on the economy, how
the FDIC manages itself has the potential to affect every
Successful managers perform four functions: One, they choose
their objectives and create formal plans to achieve them. Two,
they organize their businesses to achieve their goals. Three,
they enlist the support of their employees in achieving the
goals. Four, they control their operations to stay on course
with the plans that were developed.
For the first time in its history, the FDIC two years ago
adopted a five-year, corporate strategic plan. At the FDIC,
nothing is paid for through the budget unless it has been
approved in the operating and business plans that implement the
strategic plan. All decisions are made using stringent
cost/benefit analyses. This link between planning and budgeting
is new to the FDIC.
Our planning guided us directly into the second function of
management: organizing operations to achieve strategic
The greatest change in the organization over the past two-and-
a-half years does not appear on an organizational chart.
Rather, it has been a change in corporate culture, which today
enlists everyone who can contribute to the resolution of a
problem or the development of a policy, regardless of their
division or office.
The third function of management is enlisting people in the
organization to work toward achieving its goals. The staff of
the FDIC in offices across the country suggested many of the
operational innovations we have instituted in implementing our
strategic plan. The executives and management officials of the
Corporation are now held explicitly accountable for channeling
the staff's drive for achievement into productive, effective
The fourth, and last, function of management is controlling
operations to stay on course. Our managers are required to
compare where they are with where they should be to meet their
financial responsibilities using sound internal controls and to
meet their operational objectives using benchmarks of progress in
the corporate plans.
We established a board-level Audit Committee, which monitors
the internal control systems of the FDIC, to make certain that
financial standards are met.
We created an Office of Internal Control Management to
assure that any operational problems are discovered and addressed
quickly. We became one of the few large government agencies to
incorporate all income and expense flows into one general ledger.
In the process we incorporated into a single integrated financial
management system more than 100 separate accounting systems from
both the FDIC and the Resolution Trust Corporation (RTC), which
was merged into the FDIC at the end of 1995, as required by law.
At that time, we absorbed more than 2,000 employees and $7.7
billion in assets to be liquidated from the RTC, with little or
no disruption to FDIC operations.
Just as a well-managed business would do, we required that
each one of our divisions and offices justify staffing levels by
workload. The FDIC's workload has declined significantly over
the past five years as the economy and the condition of the
banking industry have improved dramatically.
Accordingly, it was necessary to break our work down into
its elements, analyze the staff needed to do the work well, and
then reduce the staff of the FDIC significantly based on workload
indicators that are regularly reevaluated. Since late 1994, when
I came to the FDIC, we have downsized staff by 36 percent to just
under 9,000 today. We sought to do this in the most humane way
that we could -- through two generous buyouts that would help our
staff in their transition from the FDIC to their next jobs or to
retirement and through individual job placement assistance.
We have also reduced FDIC expenditures from $1.8 billion in
1994 to $1.1 billion in 1996 -- not counting money appropriated
by Congress to complete the resolution of past thrift failures --
a decline of 40 percent.
In business, many of the steps the FDIC has taken would be
routine; in a governmental setting, however, they were not. The
FDIC has found that sound management leads not just to cost
savings but to improvements in the service we provide the public,
including a vast increase in information available to the public
on the Internet on all insured financial institutions..
I have been told that the saying "it's good enough for
government work," harkens back to the early industrial era. At
that time, government was an innovator, a research resource, and
a customer of private enterprise. Government's purchasing
standards then were as high or higher than those of business.
When contractors produced products that met the government's
standards, they would say that the products were "good enough for
The story may be apocryphal, but it suggests an important
point: In my view, nothing but the best is good enough for
government work. The public deserves nothing less. With proper
management, government can be a low cost provider of high quality
The fourth priority that I have had has been assuring the
Our ability to do our job rests on our independence.
Independence gives us legitimacy and credibility.
We must make unbiased assessments of risk in the financial
system -- and act upon them without fear or favor. Moreover, the
integrity of our two insurance funds rests ultimately on the
integrity of the people who manage them and of the people who
assess the risks to which the funds are exposed.
When bank regulators speak -- particularly the FDIC as
insurer -- we should do so straightforwardly and without bias or
When we point out a problem, we want people to believe it is
a problem. That belief must rest on trust -- and that trust must
rest on integrity. Our actions affect the well-being of every
American. Therefore, the only interest the bank regulatory
agencies should serve is the public interest.
As I said at the beginning, I am a populist.
The link that joins all populists is the shared vision of
the relationship between citizen and state -- the vision that
there are areas in which the government can make the lives of
people better than they otherwise would be, if government is
effective and efficient. Where government is not the best
vehicle to accomplish a goal, it can nevertheless encourage
effective responses to problems in the private sector.
My model has always been Andrew Jackson -- the essence of a
Tennessee populist -- who, as one of his biographers wrote, left
Washington a better place than he found it.
Jackson once said: "Our government is founded upon the
intelligence of the people."
I believe that government officials insult that intelligence
only at their peril.
Jackson once wrote: "If [government] would confine itself to
equal protection, and, as Heaven does its rains, shower its
favors alike on the high and the low, the rich and the poor, it
would be an unqualified blessing." That is, government should
serve all Americans, not just those with well-financed lobbyists.
I realize that I am talking about the merits of issues here
-- but I believe that for Americans -- government should be about
the merits. Why else does government exist?