Federal Deposit Insurance Corporation
Oklahoma State Business Forum held in Tulsa
January 9, 1997
Not too long ago, a friend of mine returned to college for
his twenty-fifth class reunion. He found out that his favorite
economics professor was still teaching the freshman course.
Stopping by the professor's office to say hello, he glanced at the
papers on his desk and found that the professor was giving his
students the same final examination that he had given him
almost thirty years before.
He teased the professor: "You're not using the same
questions on your tests now that you did when I was here, are
And the professor replied: "Yes I am -- but these days,
I'm looking for new answers."
Times change and old solutions may no longer be the
answers to the problems we face. One of the values of
education is that it teaches us to look for new answers.
The people who settled Oklahoma before the turn of the
century held a profound belief in education -- a belief they
acted upon. In 1890 -- just months after the land run of 1889
-- the first Territorial legislature of Oklahoma established three
territorial institutions of higher learning -- a university in
Norman, a normal school in Edmond for training teachers, and
a land grant university in Stillwater that would become the
sponsor of this event today: Oklahoma State University.
When the first 45 students assembled for class in Stillwater, the
college had no buildings, no books, and no curriculum. For
two-and-a-half years, classes were held in a local church. The
faculty, however, clearly felt a deep sense of responsibility for
the future, and they labored to create a knowledgeable
leadership for the new Territory.
About the time that these institutions of higher learning
were founded, a new type of learning about business began to
appear. This new learning would transform the economy of
the United States and, ultimately, the economy of the world. It
was only a little more than a century ago when astute observers
began to analyze how we do our work -- breaking it down to
constituent elements in order to improve efficiency and
productivity. From that beginning, the modern concept of
"management" developed. By observing and analyzing the
activities of managers at various organizations, researchers
were able to find the similarities that made some organizations
enduring and successful. They found that successful managers
were those who coordinated the resources of their
organizations to meet clearly defined objectives. Without this
coordination, success appeared to be a matter of luck. As all of
you in business will know, they also found that successful
managers were those who performed four functions.
Successful managers first chose their objectives and created
formal plans to achieve them. Second, they organized their
businesses to achieve these goals. Third, they directed their
employees toward those goals. Fourth, they controlled their
operations to stay on course.
At the Federal Deposit Insurance Corporation, we take
a deep interest in management.
The FDIC was created in the Great Depression to
restore and maintain stability in the financial system. We
assure that stability in two ways. One, we insure deposits in
the nation's approximately 11,500 banks and thrift institutions
-- nearly 350 of which are here in Oklahoma. The insured
deposits in America's banks and thrifts today total an
estimated $2.7 trillion.
Second, we examine and directly regulate about 6,400
commercial and savings banks to promote their safe and sound
operation -- including 189 banks here in Oklahoma. One of
the factors that our examiners use when assessing the condition
of an institution is the quality of management -- the others are
capital, asset quality, earnings, liquidity, and the sensitivity to
risks the institution faces. Bank examiners view management
as the most important of the six factors -- and the most difficult
to grade. Inept management can lead to bank failures, and
bank failures have often resulted in losses to the FDIC
Moreover, as Chairman of the FDIC, and its chief
executive officer, I am of course particularly interested in the
quality of management within the agency. There are two
primary reasons for this focus.
The first is that I have the responsibility for the
operations of a large organization. At the FDIC, we have
slightly more than 9,000 employees, more than 100 offices
around the country, and two insurance funds. One fund -- the
Bank Insurance Fund -- has just over $26 billion in assets and
the other -- the Savings Association Insurance Fund -- has
nearly $9 billion in assets. We are different from other
government agencies, however, in that we are generally funded
-- not by tax dollars -- but by premium assessments on the
institutions that we insure.
The second reason I as FDIC Chairman am deeply
interested in the quality of management in our organization is
less obvious than the first, but more important. How well we
manage ourselves affects how we at the FDIC monitor the
strength of banks and the stability of the banking system.
Given the harm that bank failures can cause communities
throughout America and the damage that too many failures
can do to the economy, how we manage ourselves has the
potential to affect every American.
The FDIC's record of service to the nation is
unsurpassed. In the 63 years of the FDIC's existence, no
taxpayer has ever paid a cent for the FDIC's deposit insurance.
Moreover, no one has ever lost even a cent in a deposit insured
by the FDIC.
We halted a banking crisis after our creation in the
1930s. In 1933, the year we were established, there were 4,000
bank failures in the United States. In 1934, only nine insured
More recently, in the 1980s and early 1990s, we
contained a banking crisis involving nine percent of the banks
in the United States -- nearly 1-out-of-10 -- or more than 1,600
-- which either failed altogether or received FDIC financial
assistance to stay open. These failures severely strained the
FDIC insurance fund, but it has been recapitalized. During
the same period, nearly 1,300 savings and loan associations
failed, which directly cost the taxpayers of America $125
billion. The old savings and loan insurance fund failed. It was
not an FDIC fund, but we have since been given responsibility
by the Congress for overseeing a new thrift fund, and
legislation enacted last year has fully capitalized that fund.
The FDIC was very successful in containing the most
recent banking crisis -- and we learned a number of lessons
from that difficult experience. In particular, two lessons have
shaped many of our internal actions over the past two years.
First, we learned that the FDIC should monitor and assess
risks in the banking industry -- where change is constantly
occurring -- in a way that lets us anticipate future problems in
the industry so we can deal with them before they cause larger
problems, rather than waiting to react when problems occur.
Second, we learned that we needed to take a more systematic
approach to managing ourselves in order to assure continued
success in the future. That means we needed to adopt modern
business management techniques -- the techniques taught at
OSU and by business school faculties across the country:
planning, organizing, directing and controlling what we do to
meet our objectives. In short, we needed to manage ourselves
as businesses do by becoming more effective in responding to
As Peter Drucker, the mavin of management, spent a
career pointing out, businesses (1) produce goods or services
and (2) change in response to their customers' demands. Most
of the time, these demands are not explicitly stated -- rather,
they are telegraphed by marketplace decisions -- by what
customers buy and by what they do not buy. This sensitivity to
change makes business an instrument of change.
Indeed, Drucker argues that "of all social institutions, it
is the only one created for the express purpose of making and
managing change." A business that does not change with
market conditions is one that is headed toward problems and
failure. Profits and losses provide business with a test of
performance. Systematic management provides a business
with the tools to modify its operations in order to respond to
changes in the marketplace.
It was my judgment that if this systematic approach to
management can provide business with greater sensitivity to
change and the flexibility to adapt to the demands of the
marketplace, it could also benefit a government agency and
enhance its ability to perform its mission. Unlike a business,
the FDIC does not operate in a marketplace where change is
telegraphed by every dollar -- or lira or yen -- that changes
hands. We do not have the test of performance that profits
and losses provide. We can, however, through thoughtful
analysis and strong attention to weighing the costs and benefits
of everything we do, achieve a responsiveness to change and a
discipline that the marketplace provides business.
We began with planning, a function of management
that establishes objectives. All other functions of management
rest on planning.
For the first time in our history, two years ago the FDIC
formulated and adopted a corporate strategic plan. This plan
defines -- as our business -- identifying and addressing
potential problems within the financial industry that may
cause losses to the insurance funds. The strategic plan will
guide the agency in developing and evaluating our policies,
programs, and budgets for the remainder of the decade.
We have also, for the first time, put into effect a
corporate-wide operating plan, which is implementing the
general goals of the strategic plan through approximately 150
specific projects, most of which were formulated by our middle
management. Every division and office in our organization
contributes to, and is guided by, our operating plan.
Moreover, every division in our organization now has a
business plan. Nothing at the FDIC is budgeted unless it is in
one of these plans. That means that nothing is budgeted unless
there is a good reason to pay for it.
Our planning process guided us directly into the second
function of management: organizing operations to achieve
We divided all the activities of the FDIC into three
areas: operations, policy, and finance. Each area is the
responsibility of a deputy to the Chairman, who reports
directly to me. The Deputy for Policy is Leslie A. Woolley.
Leslie, who is here with me today, is a native of Ada,
Oklahoma, and holds B.S. and M.B.A. degrees from Oklahoma
State University. In fact, she is a third generation OSU
graduate -- her mother, her father, and her maternal
grandfather went to college in Stillwater -- where her
grandfather graduated in 1914 at the age of 16.
As part of our reorganization at the FDIC, I asked an
executive who ran the financial operations of a private
financial institution to join the FDIC to help us initiate reforms
in our financial management practices and internal controls, a
subject I will discuss in greater detail later.
In addition, we have organized our operations to use
our resources more effectively to meet our objectives.
In that regard, one of the products of our dual
operation as a bank insurer and a bank regulator is a treasury
of data on banks and thrift institutions -- current data, as well
as historical data. This data gives us a comprehensive
perspective on the industry and on the economic and other
trends that affect it. In a way, this data is similar to public
health statistics, which have been collected over decades. Our
examiners assess the financial condition of an individual bank,
in much the same way that a doctor examines a patient.
Historically, bank regulators have not been particularly
successful at using comprehensive data to help assess the risks
to which individual banks are exposed -- or, at the converse,
using national or regional economic trends to predict problems
for individual institutions. We created a new Division of
Insurance to analyze these and other financial and economic
data so that we can alert the banking industry to monitor and
assess emerging and existing risks more effectively in their
An example of this prospective approach occurred early
last summer, when the FDIC began to highlight problems in
consumer credit cards at banks. We pointed out the
connections between the rising level of personal bankruptcies
and rising credit card losses. We want banks to pay attention
to such trends in looking at their own underwriting standards
and to adjust them if necessary, to take account of the higher
risk of loss. We want banks to give attention to small problems
before they become large problems that could cause losses to
the deposit insurance fund.
Two years ago, we began to collect and to organize the
information on bank and thrift failures during the crisis.
Research on this data may assist us in avoiding significant
problems for insured financial institutions in the future.
The third function of management is directing people in
the organization to work toward its goals. That means
accountability throughout the organization.
We at the FDIC are extremely fortunate in having
employees who are motivated by their dedication to public
service. It was that dedication that inspired the men and
women of the FDIC to work long hours, often away from their
homes and families, during the banking crisis. It was that
dedication that brought many of them to the FDIC in the first
Our strategic goal is to assess the risks that institutions
pose to the insurance funds in order to keep banks open and
serving their customers and their communities. Our
examiners, analysts, economists and lawyers all in their
different ways contribute to that goal. The men and women of
the FDIC have welcomed the innovations in risk assessment
that we have instituted over the past two years -- and continue
to institute -- as ways to meet our common strategic goal.
Indeed, FDIC staff suggested many of those innovations in the
process of developing the operating and business plans.
Holding the organization accountable to those plans --
and the budget that grows from the plans -- involves
demonstrating why and how we can build an even better
agency. The drive for excellence is there in our dedicated
employees. Channeling that drive into productive, effective
avenues is the job of management.
The fourth, and last, function of management is
"controlling" -- the process through which managers compare
where they are in performance with where they should be
according to their plans and their fiscal responsibilities based
on sound internal controls. Because accounting data and
statistics are often used to make comparisons, this function is
the reason for the managerial axiom: "What cannot be
measured, cannot be managed."
Under the direction of the chief financial officer, we did
much to enhance our accounting and financial reporting
systems and the control function. I want to highlight three
organizational changes, however, that institutionalize the focus
we have placed on the control function.
First, we have created an Office of Internal Control
Management that is designed to assure that we have sound
financial management practices at the agency.
Second, we have established a board-level audit
committee, which monitors the internal control systems of the
Corporation, giving these systems the level of attention they
Third, we have restructured our budget process to
assure stronger financial accountability as an organization.
For example, in the budgeting process, each one of our
divisions and offices must justify its staffing levels by workload.
Our workload has declined significantly in the past five years,
as the economy and the condition of the banking industry have
improved dramatically. In 1992, 120 FDIC-insured
institutions, with assets of more than $44 billion, failed. In all
of 1996, six FDIC-insured institutions, with assets of $220
million, failed. At its peak in 1993, the Corporation had over
15,600 employees. As of year-end 1996, we had approximately
9,100. Staffing is down approximately 40 percent from the
peak in 1993 -- despite the fact that we took more than 2,000
employees from the Resolution Trust Corporation before it
closed at the end of 1995, as required by law. These reductions
have been made only after detailed analyses of our continuing
responsibilities and of what jobs are necessary to meet them.
No one welcomes these painful reductions, which affect
people who have devoted years of service to the FDIC and the
nation. Without doubt, the most difficult part of my job as
Chairman in the past 27 months has been dealing with the
need to reduce significantly the number of employees at the
FDIC. We have offered our staff two buyout programs and
have created a detailed placement program to assist our people
in finding jobs. We have a strong commitment to help them
move into other opportunities in life because of the service they
have given to the Corporation and to the nation.
As a government agency, however, we have a duty to be
financially responsible in everything that we do. Our statutory
mission and our workload determine what we can spend in
every aspect of our work. Our enhanced reporting and control
systems will help assure that we are more efficient and more
productive. In increasing our efficiency and productivity, we
increase our effectiveness.
The people of Oklahoma know how destructive bank
failures can be. From 1980 through 1994, 122 commercial
banks in Oklahoma failed. Their combined assets totaled $5.7
billion. During that same period, there were 40 savings and
loan failures here with total assets of $9 billion. Both
industries have turned around and are healthy and profitable
in Oklahoma today.
If -- through the actions we are taking at the FDIC -- we
can avoid repeating the banking crisis that swept through
Oklahoma -- and large parts of the country -- our success will
be measured, not just in dollars and cents, but by the economic
security we provide to fellow Americans.
Most government agencies do not go out of business.
Those that continue operating without strong management,
however, can lose their edge -- reacting to events instead of
anticipating them. For more than two years, we have been
working to assure that the FDIC will keep its edge and will
retain that most valued of all assets: its reputation for
excellence. As a government agency, we at the FDIC were
given a mission: to maintain the stability of the banking
system. In the 1980s and 1990s, we were faced with the
prospect of cleaning up bank failures. In the past two years,
we have focused on helping banks stay open to serve their
communities safely and soundly. We are enhancing the
FDIC's ability to do that by using time-tested principles of
Like the professor I mentioned at the outset, we grapple
with enduring questions. Like the professor, we search for new
answers, knowing that the financial system changes, and we,
too, must change to meet our responsibilities to every
American and to this country.