Joint Evaluation of the

Federal Financial Institutions

Examination Council

June 21, 2002

Conducted by 

Offices of Inspector General at the: 

! Department of the Treasury 

! Federal Deposit Insurance Corporation 

! Board of Governors of the Federal Reserve System 

BANKING AGENCY OFFICES 

OF INSPECTOR GENERAL 
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CONTENTS 

INTRODUCTION......................................................................................................................... 3 

BACKGROUND............................................................................................................................ 3 

FFIEC Operations, Staffing, and Funding ..................................................................... 4 

RESULTS IN BRIEF.................................................................................................................... 5 

FFIEC IS ACHIEVING ITS LEGISLATIVE MISSION ......................................................... 6 

Banking and Professional Association Views ................................................................. 8 

State Regulator Representation on the Council ............................................................. 8 

Understanding the FFIEC’s Mission and Staffing Limitations.................................... 9 

FFIEC Accomplishments, Challenges, and Responsiveness to 

Banking Industry Risks .................................................................................................. 10 

FFIEC Efforts to Achieve Uniformity........................................................................... 14 

FFIEC’S ROLE UNDER GLBA ............................................................................................... 16 

Interagency Coordination Efforts ................................................................................. 17 

CONCLUSIONS ......................................................................................................................... 19 

AGENCY COMMENTS AND OUR EVALUATION............................................................. 19 

APPENDIX I: OBJECTIVES, SCOPE, AND METHODOLOGY........................................ 21 

APPENDIX II: AGENCY COMMENTS ................................................................................. 23 

APPENDIX III: LIST OF ACRONYMS.................................................................................. 32 

APPENDIX IV: ENACTING LEGISLATION........................................................................ 33 

APPENDIX V: FFIEC CHAIRMAN’S MEMORANDUM.................................................... 36 

APPENDIX VI: OTHER EFFORTS TO COORDINATE ..................................................... 38 

TABLES 

Table 1: Banking Regulators and Types of Institutions Supervised..............................4 

Table 2: FFIEC Published Guidance Issued From 1997 Through 2001........................11 

Table 3: Responsiveness of the FFIEC and the Banking Agencies to Major Risks 

and Emerging Issues Facing the Banking Industry (1997 through 2001).......................14 
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INTRODUCTION 

The Inspectors General of the Department of the Treasury (Treasury), the Federal Deposit 

Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System 

(FRB) have completed a joint evaluation of the Federal Financial Institutions Examination 

Council (FFIEC). We initiated this review as a result of an audit survey of the FFIEC that the 

banking agency Inspector General (IG) offices conducted during early 1998.1 The 1998 survey 

recommended additional audit work in several areas including reviewing the Council’s 

effectiveness in coordinating regulatory issues and fostering its legislative mandates and goals. 

As we initiated our review objectives, we met with staff representatives from the Subcommittee 

on Oversight and Investigations (Subcommittee), Committee on Financial Services, U.S. House 

of Representatives. The Subcommittee staff asked us about the Council’s efforts to accomplish 

its mission and whether the FFIEC should have a broadened role in coordinating banking, 

insurance, and securities regulators, or whether a separate group should be developed and 

modeled after the FFIEC for coordinating interagency supervision efforts under the 

Gramm-Leach-Bliley Act (GLBA). Accordingly, the objectives of our review were to evaluate 

whether the FFIEC: 

• is meeting its mission of prescribing uniform principles and standards for the examination of 

financial institutions and 

• should have an increased coordinating role as a result of the GLBA. 

The Subcommittee staff also asked us to (1) obtain the views of banking industry associations 

regarding FFIEC effectiveness and communication efforts and (2) determine whether the FFIEC 

had issued a uniform examination report form and whether such a form would prevent banks 

from “shopping around” to find a banking regulator with lax examination standards, known as 

regulator shopping. This report addresses those two issues as part of our first objective. 

To accomplish our evaluation, we interviewed Council principals, banking agency supervision 

officials, and representatives from banking trade associations. We also reviewed documentation 

from the FFIEC and the federal banking agencies. Details of our methodology are included as 

Appendix I of this report. Appendix III contains a list of acronyms used in our report. We 

conducted our evaluation between October 2001 and March 2002, in accordance with the 

President’s Council on Integrity and Efficiency’s Quality Standards for Inspections. 

BACKGROUND 

The FFIEC was established on March 10, 1979, pursuant to Title X of the Financial Institutions 

Regulatory and Interest Rate Control Act of 1978 (Public Law 95-630, The FFIEC Act). The 

FFIEC is a formal interagency body consisting of five financial regulatory agencies empowered to 

prescribe uniform principles, standards, and report forms for the federal examination of financial 

institutions by its member agencies. The member agencies consist of the FRB, the FDIC, the 

 

1

 The banking agency IGs include the Treasury IG, which oversees the Office of the Comptroller of the Currency 

and the Office of Thrift Supervision; the FDIC IG, the FRB IG, and the National Credit Union Administration IG. 
4

National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency 

(OCC), and the Office of Thrift Supervision (OTS).2

 Table 1 presents banking regulators and the 

types of institutions that they supervise. 

Table 1: Banking Regulators and Types of Institutions Supervised 

Regulator Regulatory Responsibilities 

OCC Charters, regulates, and supervises all national banks. Also supervises the federal branches 

and agencies of foreign banks. 

OTS Primary regulator of all federal and many state-chartered thrift institutions, which include 

savings banks and savings and loan associations. 

FDIC Primary federal regulator of state-chartered "nonmember" banks--commercial and savings 

banks that are not members of the Federal Reserve System. 

FRB Primary federal regulator for state-chartered banks that are members of the Federal Reserve 

System, as well as for all bank and financial holding companies and certain operations of 

foreign banking organizations. 

NCUA Charters and supervises federal credit unions and insures the deposits in all federal and 

many state-chartered credit unions. 

State Banking 

Agencies 

Supervise state-chartered banks, savings institutions, and credit unions. 

Source: Regulator Web sites. 

The overall intent of the legislation was to promote consistency in federal examinations and 

progressive and vigilant supervision of banks. Additional responsibilities based on subsequent 

legislation included providing public access to Home Mortgage Disclosure Act (HMDA)3

 data and 

monitoring state government certification and licensing requirements for real estate appraisers 

through a separate Appraisal Subcommittee. The FFIEC is required to prepare an annual report to 

Congress covering its activities during the preceding year. Appendix IV contains excerpts from the 

enacting legislation. 

FFIEC Operations, Staffing, and Funding 

The FFIEC is comprised of the Comptroller of the Currency, the Chairman of the FDIC, a 

Governor from the FRB, the Director of the OTS, and the Chairman of the NCUA (the 

principals). The FFIEC Act established a chairmanship with a 2-year term, which rotates among 

the Council principals. The FDIC Chairman assumed the FFIEC Chairmanship in April 2001. 

The OTS Director will be the next FFIEC Chairman. 

Six interagency task forces consisting of representatives from each member agency perform the 

primary work of the Council. The task forces are functionally aligned along the following 

areas—supervision, consumer compliance, examiner training, information sharing, reports, and 

surveillance systems. In addition, the Council established a Legal Advisory Group to provide 

legal support and a State Liaison Committee (SLC), comprised of five state banking 

 

2

 FFIEC membership was established by statute. The OTS replaced the Federal Home Loan Bank Board on the 

FFIEC in 1989. 

3

 The HMDA, enacted in 1975, requires certain financial institutions to report data about home purchase and home 

improvement loans to their supervisory agencies and requires the FFIEC to produce annual tables for each 

metropolitan statistical area in the United States showing the geographic distribution of housing-related lending. 
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commissioners, to encourage the application of uniform examination principles and standards by 

the state and federal supervisory agencies. 

The FFIEC has four staff who support Council operations, two staff who coordinate the Uniform 

Bank Performance Report (UBPR), and nine staff dedicated to the examiner training function. 

FFIEC Council operations staff also share a receptionist with FFIEC’s Appraisal Subcommittee. 

The task forces research interagency projects and prepare policy statements and 

recommendations for the Council’s consideration. The task forces may approve policy 

statements under delegated authority if there is unanimous agreement by the task force members. 

The task forces also assign agency staff to subcommittees and working groups to research 

specific interagency projects. Most of the task forces meet monthly to discuss on-going projects. 

About one-half of interagency projects are originated by the Council and one-half are originated 

by the task forces. 

The FFIEC is funded through assessments of its five member agencies for operating expenses 

and tuition costs. During 2001, the FFIEC incurred expenses of about $6.2 million, most of 

which was for salaries and benefits (24 percent of total expenses) and data processing costs 

(54 percent of total expenses). 

RESULTS IN BRIEF 

The FFIEC is accomplishing its legislative mission of prescribing uniform principles, standards, 

and report forms and is achieving coordination between the banking agencies. Further, most 

officials stated the FFIEC’s role and mission were appropriate going forward. Notwithstanding, 

some officials indicated the FFIEC could accomplish its mission more effectively and noted the 

FFIEC could be bureaucratic and take too long to complete interagency projects. The Council 

has recently discussed a number of measures to improve FFIEC effectiveness, including having 

the principals more actively involved in FFIEC matters and developing annual goals, objectives, 

and work priorities for the task forces. We are suggesting the Council memorialize these ideas in 

a more permanent document, such as the FFIEC’s Rules of Operations, to better ensure that 

future Council members continue to practice those measures. 

Banking industry and professional associations indicated that the FFIEC could be more proactive 

in communicating with the industry. One representative noted there is currently no formal 

mechanism for communicating with the FFIEC. Several representatives indicated it would be 

helpful if the FFIEC published an annual agenda, task force points of contact, and status 

information about ongoing or planned projects on the FFIEC Web site. We encourage the 

FFIEC to look for opportunities to improve communication with the trade associations where 

appropriate. 

We asked agency officials to identify major risks and emerging issues facing the banking 

industry and to describe FFIEC and banking agency guidance issued in response. We concluded 

that the FFIEC and the banking agencies had issued guidance responsive to those major risks and 

emerging issues. Further, most officials indicated that the FFIEC and the banking agencies had 
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achieved uniformity in critical areas. Several such examples are the Uniform Financial 

Institutions Rating System (UFIRS), a common examination rating system, and standard 

quarterly financial reports submitted by commercial banks and savings banks to the FDIC. 

Several officials stated that such achievements mitigated the need for a uniform report of 

examination. Further, none of the officials we spoke with indicated that banks made charter 

changes based on differences in supervision between the banking agencies. 

With respect to the FFIEC’s role under the GLBA, most officials indicated that GLBA had not 

significantly impacted the FFIEC and were not in favor of broadening the FFIEC to include 

regulatory representatives from the insurance and securities industries. Further, most officials 

did not see a need for a separate coordinating entity under GLBA modeled after the 

FFIEC. The officials indicated that coordination under GLBA was occurring as needed on an ad 

hoc basis and through periodic cross-sector meetings hosted by the FRB. However, while the 

individual banking agencies had signed bilateral information sharing agreements with a number 

of state insurance commissioners, some officials indicated the relationship between the banking 

agencies and the SEC needed to be improved through better dialogue. The banking agencies and 

SEC are working on national memoranda of understanding (MOU) covering the sharing of 

information about broker-dealers in financial holding companies and have arrangements to 

ensure that critical information is shared on a case-by-case basis. 

FFIEC IS ACHIEVING ITS LEGISLATIVE MISSION 

The FFIEC is accomplishing its legislative mission of prescribing uniform principles, standards, 

and report forms, and the FFIEC’s legislative mission remains valid and appropriate. However, 

the FFIEC could accomplish its mission more effectively. Most officials we interviewed 

indicated that the FFIEC was a useful forum for achieving coordination among the banking 

agencies and was achieving its legislative mandate. One of the principals noted that as long as 

the banking industry has multiple regulators, the FFIEC was vital to achieving coordination. 

Another principal stated that the FFIEC was an effective vehicle to discuss inconsistencies 

between agencies, particularly where the banking agencies have to implement a common statute. 

However, one principal characterized the FFIEC as being extraordinarily unwieldy, in part, due 

to the formality of Council meetings and because of the number of agencies represented by the 

Council. For those reasons, the principal stated that the FFIEC was not meeting its legislative 

mission of achieving coordination. 

Virtually all of the officials we interviewed acknowledged that the FFIEC could improve its 

operations and become more effective and efficient. That being said, none of the officials were 

in favor of additional legislation to improve the FFIEC. One principal indicated there was a 

danger of building in too much bureaucracy at the FFIEC and expressed concern that additional 

legislation giving the FFIEC more authority could make the Council more cumbersome. 

Instead, most officials were in favor of the Council taking measures to improve FFIEC 

operations within the existing legislative framework. The Council Chairman took steps in that 

direction by issuing a memorandum entitled, FFIEC Effectiveness in 2002 to the other principals 

in December 2001. We have included a copy of that memorandum as Appendix V. The 
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memorandum outlined the Chairman’s ideas for how to make the FFIEC more effective, such as 

having annual goals and objectives and priority lists and time frames for project completion; the 

principals more actively involved in Council activities and in monitoring completion of projects; 

and improved communication between the principals and agency staff. The FFIEC discussed 

these items during the February 2002 Council meeting. 

We asked the other principals for their views on the Chairman’s memorandum. Most were 

supportive of the memorandum and expressed the following views: 

• One principal indicated that it was important to obtain the principals’ interest early enough in 

the process of deliberating on projects to fully understand the issues. Several principals also 

agreed that more frequent meetings were needed between them. However, they noted the 

informal meetings, such as the “Regulator Breakfasts” were the most important and provided 

opportunities for the principals to discuss on-going projects. 

• With respect to establishing goals, objectives, and priority lists, two of the principals noted 

that it might be difficult for the Council to establish and implement goals and objectives 

because the industry changes quickly and the FFIEC must be ready when new issues surface. 

Supervision officials from one agency noted that Council projects are high-priority by virtue 

of being raised at the Council level and that the individual agencies have different priorities 

based on their respective agency missions. 

• Further, one principal stated that it was a good idea for the new Chairman to assert his 

leadership; however, the principal indicated that the Council was already doing most of the 

things that the Chairman suggested. Two agency supervision directors also stated that the 

FFIEC was already addressing most of the issues that the Chairman had suggested but agreed 

the memorandum addressed important factors for the FFIEC’s continued success. 

A number of the officials noted that the Council’s success depended in large part on the 

individual principal’s interaction and level of commitment to the FFIEC. One senior agency 

official indicated that while the FFIEC exists in law, in practice the FFIEC exists at the consent 

of the Council and task force members. One principal stated that personal relationships are 

important at all levels of the FFIEC and that without good relationships there is no basis for 

completing interagency projects. The principal concluded that the existing group of principals 

had worked well together. 

We support the Chairman’s ideas for making the FFIEC more effective. However, because the 

FFIEC chairmanship is only for a 2-year term, we suggest that the FFIEC memorialize those 

ideas related to setting goals and objectives, dispute resolution, and prioritization of work in a 

more permanent document, such as the FFIEC’s Rules of Operation. By doing so, the FFIEC 

could better ensure that future Council members continue to implement those measures. 
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Banking and Professional Association Views 

Generally, representatives from banking associations4

 indicated that the banking industry 

benefited from having the FFIEC and concluded that a coordinated approach among the banking 

agencies likely yields the best product. Notwithstanding, the representatives noted that the 

interagency deliberation process was bureaucratic and slow. Representatives from one group 

indicated that the FFIEC Chairman’s memorandum to improve FFIEC effectiveness was 

appropriate. 

With respect to communications, officials told us they usually communicate directly with the 

individual banking agencies in lieu of the FFIEC. One representative noted there is no formal 

mechanism for communicating with the FFIEC and that the FFIEC has made no efforts to 

outreach or communicate with industry trade groups. Several associations indicated they would 

like the FFIEC to publish an annual agenda on the FFIEC Web site listing the major projects that 

the task forces plan to address so that the industry associations could comment on the issues. For 

example, two representatives noted that the FFIEC’s Task Force on Consumer Compliance had 

invited the industry associations to a discussion on the Community Reinvestment Act (CRA).5

 

The representatives indicated that the forum was very informative and the participants had a 

good exchange of ideas. They welcomed additional opportunities to participate in the discussion 

of interagency projects. 

One banking association representative noted that the FFIEC had greatly improved its Web site 

by including links to HMDA and CRA reporting databases and UBPR information. However, 

the representative stated that the FFIEC could improve its Web site further by including more 

information about the various task forces, contact information for the task forces, and project 

listings. The representative also indicated that it would be beneficial if the FFIEC would 

periodically solicit ideas or suggestions from the banking industry. 

The FFIEC Chairman has indicated an interest to improve communications with the industry. 

Moreover, earlier communications with the trade associations would likely surface 

disagreements sooner and result in fewer comments during Federal Register comment periods. 

As such, we encourage the FFIEC to look for ways to improve communication with the trade 

associations where appropriate. 

State Regulator Representation on the Council 

One principal and several banking industry representatives indicated that the FFIEC could be 

improved by allowing the state regulators to have voting status in deliberating Council matters. 

As discussed earlier, the FFIEC currently has the SLC, which is comprised of five 

 

4

 Groups such as the American Bankers Association and America’s Community Bankers are industry trade 

associations, while a group such as the Conference of State Bank Supervisors is a professional organization 

representing the interests of the state banking commissioners. 

5

 12 U.S.C. 2901, the Community Reinvestment Act, enacted in 1977, requires that each insured depository 

institution’s record in helping meet the credit needs of its entire community be evaluated periodically. CRA 

examinations are conducted by the federal agencies responsible for supervising depository institutions. 
9

representatives from state agencies that supervise financial institutions. The SLC attends 

Council meetings, and representatives from the SLC participate in Supervision Task Force and 

Information System Subcommittee meetings; however, the SLC does not have voting rights with 

respect to task force or Council matters. 

One principal noted that the FFIEC has enormous potential to be effective, but that the Council is 

underutilized in part because the state regulators do not have voting rights. An association 

representative suggested that the FFIEC needs to have more dialogue and better coordination 

with state banking agencies and stated the Council could be improved if it had a state presence 

with the authority to vote on interagency projects. Moreover, a representative from the 

Conference of State Bank Supervisors (CSBS) noted that CSBS had requested voting status on 

behalf of state bank regulators during discussions of H.R. 1408, the Financial Services Antifraud 

Network Act of 2001 (Antifraud Bill).6

 The Antifraud Bill passed the House of Representatives 

and was received in the Senate in November 2001. 

It appears that Congress considered the state regulators’ role when it created the FFIEC. As 

discussed earlier, the purpose of the FFIEC Act was to establish an interagency council to 

“...prescribe uniform principles and standards for the Federal examination of financial 

institutions...” Further, the Act established the SLC to “...encourage the application of uniform 

examination principles and standards by State and Federal supervisory agencies...” An FFIEC 

Special Historical Study Origin and Development of the Examination Council, dated 

February 1992 (FFIEC Historical Study), noted that the initial House and Senate Bills to 

establish an Examination Council called for a sixth Council member who would be the head of a 

state supervisory agency. However, that provision was not included in the final legislation. 

Understanding the FFIEC’s Mission and Staffing Limitations 

By statute, the FFIEC is a coordinating and policy-making entity. The Council has no 

operational or implementing authority to make rules or to monitor whether member agencies 

implement FFIEC guidance. Further, with the exception of a few administrative staff, 

representatives from the five member agencies conduct the FFIEC’s task force work. 

Interagency guidance may be issued under the auspices of the FFIEC or by one or more of the 

banking agencies as non-FFIEC joint agency guidance (joint guidance). Because the FFIEC 

does not have rulemaking authority, any projects resulting in rulemaking must be issued as joint 

guidance by the banking agencies. Several officials noted that projects are often researched as 

FFIEC projects and then issued as joint guidance either because they result in rulemaking or 

because they do not involve all of the FFIEC member agencies. Most officials did not equate a 

decision to issue joint guidance as reflecting negatively on the FFIEC. One supervision official 

characterized the decision to issue guidance under the auspices of the FFIEC as simply a 

difference in the letterhead appearing on the final policy statement. 

 

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 Among other things, the Antifraud Bill requires financial regulators to develop networking procedures for the 

sharing of antifraud information and coordinate to further improve upon antifraud efforts. According to CSBS, the 

Bill originally included language that designated the FFIEC as the coordinator of an information sharing system that 

would specifically allow supervisory information to be shared among banking, securities, and insurance regulators. 
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We also asked the Principals if they would favor having Congress consider using the FFIEC for 

implementing cross-cutting initiatives such as the anti-money laundering responsibilities 

envisioned under the USA PATRIOT Act.7

 Most of the Principals we interviewed were not in 

favor of Congress assigning such responsibilities to the FFIEC, primarily due to the staffing 

limitations discussed above. One principal told us that Congress had contemplated assigning 

responsibility to the FFIEC for implementing the Antifraud Bill; however, the Council was able 

to persuade Congress not to do so. The principal indicated that it was important to remember 

that the FFIEC has no professional staff to perform analytical work and has no authority to write 

or issue regulations. The principal indicated that assigning additional responsibilities to the 

FFIEC would require a fundamental change to the mission and staffing of the FFIEC. 

 

FFIEC Accomplishments, Challenges, and Responsiveness to Banking Industry Risks 

The FFIEC has experienced success when dealing with well-defined issues that are common to 

the banking agencies. However, the FFIEC has also been challenged in completing other critical 

projects timely. A few officials noted that not all projects are suited for review by the FFIEC. 

For example, if a project needs to be addressed immediately or does not concern all members, 

the FFIEC may not be the best forum for reviewing the project. Supervision officials of one 

agency suggested that projects suitable for the FFIEC usually involve issues that are of common 

concern to the member agencies, high-priority in nature, achievable with a firm deadline, and 

important to each of the principals. 

We reviewed FFIEC Annual Reports from 1997 through 2001 to gauge FFIEC accomplishments 

and to understand the nature of FFIEC guidance and reporting forms. Table 2 presents an 

overview of the Council’s accomplishments during our period of review. Further, a brief 

discussion of recent FFIEC accomplishments in selected categories is presented in the following 

table. 

 

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 Public Law Number 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to 

Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001. The Act includes provisions to: enhance 

domestic security against terrorism, enhance surveillance procedures, develop international counter money 

laundering and related measures, amend the Bank Secrecy Act and make related improvements, establish or increase 

penalties related to currency crimes, increase appropriations for protecting the U.S. Northern Border, and enhance 

immigration provisions. 
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Table 2: FFIEC Published Guidance Issued From 1997 Through 2001 

Task Forces 

Category Council 

Supervision Consumer 

Compliance Reports Surveillance Systems 

Total 

Guidance 

• Y2K 1 17 1 19 

• Credit 2 11 2 15 

• Capital 1 7 8 

• CRA 2 7 9 

• Information Technology 2 6 8 

• Miscellaneous 3 8 6 2 19 

Reporting 

• Call Report 4 1 3 8 

• UBPR 2 2 4 

• Other Reporting 1 1 

Total 17 49 17 5 3 91 

Source: OIG Analysis of FFIEC Annual Reports to Congress and the Council’s Web site. 

Year 2000: A number of officials we interviewed cited the FFIEC’s involvement in coordinating 

guidance for the Y2K issue as a major success for the Council. One supervision official noted 

that the FFIEC and the banking regulators raised the Y2K issue before other industries. Another 

supervision official called the FFIEC’s Y2K efforts a “huge success” and noted the banking 

agencies worked together very well in addressing Y2K. One principal suggested the Y2K efforts 

were successful because there was a known deadline, a small group of people involved, and a 

common perspective among the agencies. The FFIEC issued a number of Y2K-related 

publications including: 

• Y2K safety and soundness guidelines; 

• Interagency guidance regarding Y2K readiness and potential impact on customers; 

• Guidance to financial institutions for testing for Y2K readiness; 

• Y2K guidance on customer awareness programs and a customer brochure; 

• Guidelines to financial institutions related to Y2K fraud prevention; 

• Questions and answers concerning Y2K business contingency planning; and 

• A Y2K lessons learned document. 

Credit Risk: One supervision official we interviewed indicated the three major issues facing the 

banking industry continue to be “credit risk, credit risk, and credit risk.” The official noted that 

a number of issues, such as subprime lending, are merely subsets of credit risk. For example: 

• Allowance for Loan and Lease Losses (ALLL): Federally insured depository institutions are 

required to maintain adequate loan loss reserves to absorb estimated credit losses associated 

with their loan and lease portfolios. In July 2001, the FFIEC agencies, in consultation with 

the SEC, issued a policy statement on ALLL methodologies and documentation standards for 

financial institutions. The policy statement reflected the agencies’ research on ALLL best 

practices and included examples to assist institutions in determining and documenting loan 
12

loss allowances. 

• Subprime Lending: Subprime lending involves the extension of credit to borrowers with 

poor or minimal credit histories. Such loans usually have relatively high rates of interest or 

fees, require intensive levels of servicing and collection efforts, and carry an increased 

probability that borrowers will not make good on their obligation. In 2001, the banking 

agencies issued expanded joint guidance intended to strengthen the examination and 

supervision of institutions with significant subprime lending programs. Major issues 

addressed in this guidance included the adequacy of ALLL and capital to support subprime 

lending programs, as well as guidance for loan review and classification. The FFIEC also 

began revising its subprime lending training materials for examiners in late 2001. 

Community Reinvestment Act: CRA encourages depository institutions to help meet the needs 

of communities in which they operate, including low- and moderate-income neighborhoods. 

During 2001, the Task Force on Consumer Compliance published a revised interagency 

questions and answers document for CRA. The FFIEC also published A Guide to CRA Data 

Collection and Reporting on the Council’s Web site for use by financial institutions required to 

report CRA data. With respect to examination guidance, the task force released joint 

examination procedures for evaluating institutions’ compliance with the CRA Sunshine 

provisions of GLBA. Finally, the task force completed the transition to paperless reporting of 

HMDA data from financial institutions. 

Call Report: Consistent with its legislative mandate to prescribe uniform reporting systems, the 

FFIEC also contributed to improvements in regulatory reporting. The FFIEC requires every 

national bank, state member bank, and insured non-member bank to file a Call Report as of the 

last day of each calendar quarter. Call Report data are used extensively by the bank regulatory 

agencies for offsite bank monitoring activities and are the primary source of data for the FFIEC’s 

UBPR, an analytical tool used for bank supervisory, examination, and bank management 

purposes. During 2001, the banking agencies implemented substantial FFIEC revisions to the 

Call Report to make the report’s content more relevant to the agencies’ overall mission of 

maintaining a safe and sound banking system and to complement the agencies’ emphasis on riskfocused supervision. These revisions eliminated some information while enhancing information 

on areas of growing risk, such as asset securitization activities. 

Finally, several officials indicated that the FFIEC’s benefits are not always that easy to quantify. 

One principal indicated that the FFIEC provides a helpful forum for discussion of common 

issues, from which the member agencies benefit regardless of whether written guidance is issued 

or not. An agency supervision official noted that the Supervision Task Force will discuss 

matters without publishing guidance, but because the issue has been raised and discussed, the 

task force members are more aware of the issue and each agency’s position. The official noted 

that this forum for discussion is a valuable benefit that is not captured in FFIEC annual reports. 

FFIEC challenges 

Notwithstanding these accomplishments, the FFIEC has not always issued interagency guidance 

timely. Several officials were critical of the amount of time it takes the FFIEC to deliberate and 
13

issue guidance on some interagency projects. A number of officials mentioned the FFIEC’s 

project on recourse, direct credit substitutes, and residual interests in asset securitizations 

(Recourse Project) in particular. The Council initially assigned the Recourse Project to the 

Supervision Task Force in 1993. The banking agencies began discussing the residual interest 

issue in mid- to late-1999 and later combined this initiative with the Recourse Project. The task 

force completed the Recourse Project in late 2001 and the banking agencies issued a final rule in 

the Federal Register on November 29, 2001. 8 

The Recourse Project was a point of discussion in an October 2001 hearing before the Senate 

Banking, Housing, and Urban Affairs Committee on the failure of Superior Bank (Superior). 

During that hearing, the Committee Chairman noted that several recent banks that failed—

including the First National Bank of Keystone in 1999 and Superior in 2001—had a common 

characteristic of holding high concentrations of subprime residual assets. The Chairman also 

noted that the banking agencies had yet to issue a final rule on the Recourse Project and 

questioned why the project was taking so long to complete. 

Several officials commented on the Recourse Project and offered explanations for project time 

frames. One principal noted the subject was very complex and that the industry was changing 

too quickly for the FFIEC to stay abreast. The principal indicated that the agencies had issued 

several proposed rules for comment, but that each time, the industry had changed so much that 

the proposed rules were outdated. One supervision official characterized the delay as a function 

of the financial markets evolving and changing faster than the regulators could react. The 

official concluded that the banking agencies would have experienced the same problem 

regardless of the FFIEC’s involvement simply because the Recourse Project was a tough issue. 

Another principal said that the FFIEC eventually completed the Recourse Project when the 

principals instructed the task force to concentrate on developing broad economic directives, 

which would not be as susceptible to changes within the industry, as opposed to developing a list 

of detailed directives. 

Responsiveness to major risks facing the banking industry 

As discussed earlier in this report, interagency guidance may be issued under the auspices of the 

FFIEC or outside of the FFIEC as joint guidance. Accordingly, to fairly assess interagency 

coordination, one must review FFIEC and non-FFIEC interagency guidance. In order to 

determine FFIEC and banking agency responsiveness, we asked representatives from each 

 

8

 Treasury, FDIC, and FRB issued Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital 

Maintenance; Capital Treatment of Recourse, Direct Credit Substitutes, and Residual Interests in Asset 

Securitizations; Final Rules on November 29, 2001 in the Federal Register. Asset securitization is the process by 

which loans or other credit exposures are pooled and reconstituted into securities that may then be sold. Banks 

involved in the securitization or sale of assets often provide credit enhancements such as recourse, direct credit 

substitutes, and residual interests in order to protect investors from incurring credit losses on loans and other 

financial assets that have been sold or securitized. Recourse arises when a bank retains credit risk on assets it sells if 

the credit risk exceeds a pro rata share of the bank’s claim on the assets. In a direct credit substitute, a bank assumes 

credit risk on a third-party asset and the risk exceeds the pro rata share of the bank’s interest in the asset. A residual 

interest is an on-balance sheet asset created in an asset sale that exposes a bank to credit risk in excess of its pro rata 

claim on the asset. 
14

banking agency to identify three to five major risks and emerging issues, between 1997 and 

2001, that their agencies considered to be critical banking industry concerns, and to describe 

what guidance had been issued in response. Table 3 presents the results of this information. 

Table 3: Responsiveness of the FFIEC and the Banking Agencies to Major Risks 

and Emerging Issues Facing the Banking Industry (1997 through 2001) 

WAS GUIDANCE ISSUED BY: 

MAJOR RISK OR 

EMERGING ISSUE FFIEC? JOINT INTERAGENCY 

(NON-FFIEC)?

INDIVIDUAL BANKING 

AGENCY? 

Y2K Preparation Yes Yes Yes 

Credit Risk Yes Yes Yes 

Electronic Banking Yes Yes Yes 

Accounting Yes Yes Yes 

Capital Adequacy Yes Yes Yes 

Risk Management Yes Yes Yes 

Source: OIG analysis of information provided by individual agencies. 

Based on the information provided by each of the banking agencies, we concluded that the 

FFIEC and its member agencies had issued guidance addressing the major risks and issues that 

the banking agencies identified as critical concerns to the banking industry between 1997 

and 2001. 

FFIEC Efforts to Achieve Uniformity 

The FFIEC Act tasked the Council with establishing “... uniform principles and standards and 

report forms for the examination of financial institutions which shall be applied by the Federal 

financial institutions regulatory agencies.” An original concern of the Congress was the 

so-called “competition in laxity” or the tendency for competition among the banking agencies for 

the favor of regulated firms to result in lax regulation. In short, Congress was concerned that one 

or more of the banking agencies would practice more lenient bank supervision in order to attract 

financial institutions to its bank or thrift charter. 

The FFIEC attempted to develop joint procedures and report forms several times over the history 

of the Council, with limited success. According to the FFIEC Historical Study, after a 2-year 

effort, the Supervision Task Force reported in April 1981 that although interagency agreement 

might be reached on examination objectives and policies, it could not be reached on examination 

methods. The FFIEC Historical Study provided the following examples of examination 

objectives, policies, and methods: 

• Objectives relate to evaluating an institution’s management, policies and procedures, 

financial condition, and prospects; 

• Policies encompass the frequency and scope of coverage of examinations and the way 

problem institutions are to be supervised; and 
15

• Methods include the detailed procedures that examiners follow in on-site examinations, 

working paper format and content, and the examination report form. 

The FFIEC Historical Study noted that differences in examination methods arise from the 

different characteristics of the banking agencies; applicable laws or regulations; relationships 

with state authorities; and the nature, size, and type of institution being examined (e.g. bank, 

thrift, or credit union). 

We interviewed officials about the need for and feasibility of uniform examination procedures 

and report forms. Most of the officials noted that the UFIRS and the Call Report are critical 

areas where uniformity has been achieved.9

 Moreover, several officials indicated that a uniform 

examination report was neither feasible nor needed and observed that the FFIEC and the banking 

agencies had developed some joint procedures especially for areas common to each of the 

banking agencies. Anecdotal comments about the need for a uniform report form included the 

following: 

• One principal noted that the idea of a uniform examination report appeals to one’s sense of 

neatness but questioned the benefits of having a uniform report of examination. The 

principal stated that uniformity in the UFIRS ratings is more important than a uniform report 

form and uniformity in the data gathered from Call Reports is essential. 

• One supervision official concluded that the banking agencies would never be able to develop 

a “one-size-fits-all” examination report. However, the official noted that the FFIEC and the 

banking agencies have achieved similarities with respect to the parameters of examinations 

(i.e., what areas examinations address). The official questioned whether the idea of a 

uniform examination report was a “solution in search of a problem.” 

• A supervision official noted that the concept of a joint bank examination report form is less 

important now than 20 years ago because the banking agencies’ practice of conducting 

ongoing supervision, targeted exams, and off-site monitoring is replacing the need for a 

uniform examination report. The official also stated that the banking industry has benefited 

from banking agencies trying different approaches to supervision over the years because the 

agencies have learned from each other. 

In addition, we noted that the FFIEC and the banking agencies have taken other actions to 

comply with legislative efforts to achieve uniformity and to reduce duplicative and redundant 

policies. For example, the FDIC Improvement Act requires each federal banking and thrift 

agency to report annually to the Senate and House banking committees regarding any differences 

between the accounting or capital standards among the banking agencies. Further, the banking 

agencies submit a joint report to Congress annually as required by Section 305 of the Riegle 

Community Development and Regulatory Improvement Act discussing interagency efforts to 

improve the coordination and supervision of institutions that are subject to multiple regulators. 

Appendix VI contains a summary of the recent coordination efforts discussed in those reports. 

 

9

 The UFIRS is an internal rating system used by federal and state banking regulators for assessing the soundness of 

financial institutions on a uniform basis and for identifying institutions requiring special supervisory attention. 
16

Regulator shopping and competition in laxity 

With respect to regulator shopping, several officials acknowledged that charter changes occur. 

However, none of the officials we spoke with indicated that bank owners changed charters in an 

effort to achieve more lenient supervision. Instead, charter changes generally occur for strategic 

or business reasons. For example, a bank may wish to expand operations beyond state lines and 

would convert from a state charter to a national bank charter. Several officials also indicated that 

bank charter changes may occur because of the cost of supervision, as fees under a national 

charter are about two-and-one-half times greater than fees under a state charter. None of the 

officials indicated that a uniform examination report would prevent regulator shopping. Several 

officials noted there is not a cause and effect relationship between the concept of a uniform 

examination report and regulator shopping and that the two are not related. 

Finally, none of the officials we interviewed indicated that “competition in laxity” was occurring 

or was a problem. One principal responded that “competition in laxity” is a hypothetical 

problem and not the reality. Several officials noted that the banking regulators communicate 

with one another about problem institutions and the receiving agency would be very wary of 

welcoming a bank that is shopping for regulatory leniency. 

FFIEC’S ROLE UNDER GLBA 

GLBA, signed into law in November 1999, repealed those portions of the Glass-Stegall Act that 

prohibited banks, securities firms, and insurance companies from affiliating. Among other 

things, GLBA created a new FHC structure authorized to engage in a statutorily provided list of 

financial activities, including insurance and securities underwriting, merchant banking, and 

insurance company portfolio investment activities. GLBA incorporated the concept of functional 

regulation, that is, banking activities would continue to be regulated by bank regulators, 

securities activities by securities regulators, and insurance activities by state insurance regulators. 

GLBA also established the FRB as the umbrella supervisor of FHCs.10 

Most officials indicated that GLBA has had little impact on the FFIEC. Further, there was a 

clear consensus among the officials we interviewed that the FFIEC’s membership should not be 

expanded to include securities or insurance regulators. Several officials were skeptical of the 

benefits derived from expanding Council membership and questioned how insurance and 

securities regulators would be fairly represented on the Council since there are separate 

insurance commissioners and securities administrators for each state. Moreover, officials we 

interviewed offered the following additional reasons against expanding the Council. 

 

10 According to FRB Supervisory Letter SR 00-13, dated August 15, 2000, FRB is responsible for the consolidated 

supervision of FHCs. FRB will assess FHCs on a consolidated or group-wide basis with the objective of ensuring 

that the FHC does not threaten the viability of its depository institution subsidiaries. In a February 2002 speech, an 

FRB Governor noted that as umbrella supervisor, FRB will rely on the functional supervisor as much as possible and 

will examine functionally regulated non-bank affiliates only if it believes that their activities are creating risk for the 

bank affiliate. 
17

• There are inherent differences in the mission and responsibilities of the FFIEC and the 

demands of the GLBA. One principal noted that the FFIEC deals with banks, while the FRB 

has the responsibility for banking organizations under GLBA. Another principal indicated 

expanding the FFIEC would be an “awful idea” and it would be “disastrous” to bring 

securities and insurance regulators into the FFIEC. The principal noted that the FFIEC was 

never intended to implement GLBA and surmised the result would be an awkward, 

ponderous coordinating entity. 

Two officials expressed a concern that expanding the Council’s responsibilities to include 

GLBA coordination would suggest that FHC supervision is no different from depository 

institution supervision and might send the signal that protections afforded to banks 

(e.g., deposit insurance) would also be afforded to FHC non-bank subsidiaries. 

• Most FFIEC projects do not involve securities or insurance issues. For example, one 

agency official noted the consumer compliance issues that the Task Force on Consumer 

Compliance addresses have no relevance to the SEC. A supervision official questioned 

whether there were any issues that would require involvement from all five of the FFIEC 

member agencies and securities and insurance regulators. Another supervision official noted 

that broadening the FFIEC’s mission to include GLBA coordination would serve to dilute the 

banking-related work that the Council is already doing. 

Interagency Coordination Efforts 

Most officials we interviewed indicated that effective coordination is currently taking place 

between the banking, insurance, and securities regulators on an as-needed basis. As such, most 

officials did not favor modeling a new entity after the FFIEC to create a more formalized 

coordinating structure for implementing GLBA. Instead, officials we spoke with discussed the 

following on-going efforts for coordinating under GLBA: 

• Periodic cross-sector meetings hosted by FRB in its umbrella supervisor capacity. GLBA 

established the FRB as the umbrella supervisor of FHCs. FRB has developed a framework 

for implementing FHC supervision and intends to identify and evaluate, on a consolidated or 

group-wide basis, the significant risks that exist in a diversified holding company in order to 

assess how those risks might affect the safety and soundness of depository institution 

subsidiaries. In that regard, the FRB has hosted cross-sector meetings about three times a 

year in Washington with representatives from the federal banking agencies, the SEC, state 

securities regulators, the National Association of Insurance Commissioners (NAIC), and the 

Commodity Futures Trading Commission (CFTC). Officials characterized these meetings as 

a good forum for agency representatives to meet, establish contacts, and discuss issues of 

common concern. 

In a February 2001 speech, one principal characterized the cross-sector meetings as an 

opportunity for multiple supervisors to discuss issues relevant to various financial industries 

and noted that the meetings were useful for building cooperation and improving each 

agency’s understanding of the different supervisory authorities and objectives. The FRB has 

also held cross-sector meetings at the Federal Reserve Bank level with regional and state 
18

banking, securities, and insurance regulators. Further, the NAIC hosts quarterly meetings 

with the functional regulators that are attended by staff at the operational or working-group 

level from the banking agencies, insurance regulators, and the SEC. 

• Bilateral information sharing agreements between the banking agencies and state 

insurance commissioners. The NAIC has taken an active role in approving a model 

information-sharing agreement for use between individual banking agencies and state 

insurance commissioners. These agreements provide for the sharing of relevant regulatory 

information, including information about examinations, enforcement, and consumer 

protections. By the end of 2001, 45 states had signed agreements with the OTS, 23 states 

with the OCC, 31 states with the FDIC, and 8 states with the FRB. Further, a state banking 

regulator representative noted that approximately 30 percent of the state banking 

commissioners had signed information-sharing agreements with state insurance 

commissioners. The representative noted that a much larger number of state bank 

supervisors had informal arrangements with state insurance supervisors to share information. 

One principal indicated that the NAIC has been effective at coordinating the efforts of the 

state insurance commissioners. 

• Coordination with SEC and insurance regulators on a case-by-case basis. Several officials 

noted that interagency coordination is sufficiently occurring on a case-by-case basis. Most 

officials were in favor of keeping coordination informal instead of creating another formal 

coordinating entity. 

While officials we spoke with were generally positive about the banking agencies’ relationship 

with the NAIC and state insurance regulators, they expressed divergent views about the banking 

agencies’ relationship with the SEC. For example, one agency official noted that the FFIEC had 

coordinated with the SEC for the ALLL project and that the FDIC and SEC routinely coordinate 

on accounting issues. An agency supervision official noted that the FRB has had a long-standing 

relationship with the SEC in implementing Section 20 of the Glass-Steagall Act (which 

prohibited broad affiliations between banking, insurance, and securities industries). The official 

indicated that the FRB and SEC have worked together on examinations over the past 15 years. 

However, a supervision official noted that while his agency had successfully signed informationsharing agreements with state insurance commissioners, coordination with the SEC had not been 

as successful. A banking industry association representative indicated that there was a need for 

better dialogue between the banking agencies and the SEC. Further, one principal indicated that 

the relationship between the FRB and the SEC needed to be improved and another principal 

noted that the FRB is working with the SEC on a case-by-case basis, but to date there is no 

overall MOU for sharing information about broker-dealers in FHCs. The principal indicated that 

sharing information is the biggest challenge facing the banking agencies and the SEC because of 

privacy issues and the different missions of the agencies. 
19

CONCLUSIONS 

Congress created the FFIEC in 1979 to prescribe uniform principles, standards, and report forms 

for the federal banking agencies. The FFIEC is accomplishing its mission, and most officials we 

interviewed were not in favor of making legislative changes to the FFIEC Act. Notwithstanding, 

most officials acknowledged that the Council could operate more effectively and could complete 

interagency projects more timely. In that regard, the FFIEC Chairman has presented a number of 

suggestions for making the FFIEC more effective. We suggest that the Council memorialize 

these ideas in a more permanent document, such as the FFIEC’s Rules of Operations, to better 

ensure that future Council members continue to practice those measures. We also encourage the 

FFIEC to look for opportunities to improve communication with the trade associations, where 

appropriate. 

We concluded that the FFIEC and the banking agencies had issued guidance responsive to major 

risks and issues that the banking agencies considered to be critical banking industry concerns. 

Further, most officials indicated that the FFIEC and the banking agencies had achieved 

uniformity in critical areas. 

With respect to the FFIEC’s role under GLBA, most officials indicated that GLBA had not 

significantly impacted the FFIEC and were not in favor of expanding the Council to include 

regulatory representatives from the insurance and securities industries. Nor were most officials 

in favor of developing a separate coordinating group modeled after the FFIEC to coordinate 

GLBA activities. Finally, most officials indicated that interagency coordination required under 

GLBA was occurring as needed on a case-by-case basis. 

AGENCY COMMENTS AND OUR EVALUATION

We provided the FFIEC member agencies a draft of this report on May 7, 2002. The OTS, FRB, 

OCC, and FDIC provided written responses. The FRB, OCC, and FDIC responses concurred 

with the report’s conclusions that the FFIEC is achieving its mission of prescribing uniform 

principles and standards and that the FFIEC coordination role should not be expanded because of 

GLBA. We have summarized significant points made by each agency below and corrected 

factual inaccuracies in the text of the report. We also include copies of the agency responses in 

Appendix II. 

The OTS’s response did not specifically comment on the overall conclusions but clarified certain 

points regarding financial reporting for thrift institutions and the time period that work was 

performed by the FFIEC on the “Recourse Project.” We clarified these points in the body of the 

report. 

The FRB’s response noted that the FFIEC was not designed as a representative agent for the 

member agencies and has limited staff, resources, and expertise to carry out an expansion of its 

duties. The response also stated that communications with trade associations should come 

directly from the agencies themselves. Further, the FRB’s response stressed that the FFIEC 

primarily functions as a coordination and communication facilitating entity and that it is the 
20

responsibility of the principals of each member agency to act upon the FFIEC recommendations 

and to implement policies. Finally, the FRB’s response identified an inaccurate reference in the 

report and pointed out that the cross sector meetings were also attended by state security 

regulators and the CFTC. These final two points were clarified in the text of the report. 

The OCC’s response, in addition to providing a number of technical clarifications: 

• Stated that the informal mechanisms that agencies have in place for communicating with 

industry trade groups are appropriate and adequate and that questions about a proposed 

policy or interpretation of existing policies would be best addressed by an institution’s 

primary regulator rather than an identified FFIEC point of contact. 

• Disagreed with comments provided by agency and banking industry representatives that the 

FFIEC could be more effective if state regulators were given voting rights on Council 

matters. The response also questioned how the state voting presence would represent the 

viewpoints of all of the state regulators and how the operating costs of the FFIEC would be 

shared among the voting members. 

• Clarified that the higher fees that national banks pay, relative to state chartered institutions, 

are not because the OCC incurs higher costs in carrying out its supervision, but rather reflects 

the fact that the OCC must pass along all of its costs to its supervised institutions while most 

of the supervision costs for state chartered institutions are absorbed by the FRB and the 

FDIC. 

• Pointed out that each of the banking agencies are working to develop MOUs with the SEC 

for sharing information and that each of the banking agencies coordinate with the SEC on 

accounting issues. The response also noted that the President’s Working Group is another 

vehicle that provides an opportunity for collaboration among financial regulators. This group 

is sponsored by Treasury and includes representatives from FRB, FDIC, OCC, SEC, and the 

CFTC. 

• Indicated that the discussion of GLBA provisions was overly simplistic and that our 

discussion of FRB’s umbrella supervisor role did not adequately reflect the provisions and 

restrictions that GLBA places on the FRB relative to depository institutions. 

• Noted that the banking agencies had developed and, for many years, used a Uniform 

Common Core Report of Examination (uniform ROE). However, as the diversity of the 

banking industry increased, this report became less relevant and less helpful to bank 

management. In November 2000, the Supervision Task Force agreed with a recommendation 

from the FDIC to permit more flexibility in how the uniform ROE was used. 

Where appropriate, we modified the text of the report to reflect OCC’s comments. 

The FDIC’s response acknowledged that the FFIEC could operate more effectively and 

efficiently and noted that the FFIEC Steering Committee had commissioned a staff level FFIEC 

Review Group to evaluate the effectiveness of the FFIEC. The Review Group completed a 

report, entitled The FFIEC Operations Review Report, in May 2002, which will be presented to 

the FFIEC on June 24, 2002. This report could be a first step in addressing our suggestion that 

permanent measures be implemented consistent with the current Chairman’s initiatives to 

improve the effectiveness of the FFIEC. 

 
APPENDIX I 

21

OBJECTIVES, SCOPE, AND METHODOLOGY 

We initiated this review as a result of an audit survey of the FFIEC that the banking agency 

Inspector General offices conducted during early 1998. That review recommended additional 

work in several areas, including reviewing the Council’s effectiveness in coordinating regulatory 

issues and fostering its legislative mandates and goals. In March 31, 1999, the Treasury, FDIC, 

FRB, and NCUA Offices of Inspector General issued a report entitled, Joint Review of the 

Federal Financial Institutions Examination Council’s Training Program.

Our initial engagement letter, dated October 4, 2001, referenced the training program report and 

included an overall objective to assess the remaining aspects of the FFIEC’s mission: 

(1) prescribing uniform federal examination principles, standards, and report formats for 

examinations of financial institutions; (2) recommending uniformity in supervisory matters; and 

(3) developing uniform financial institution reporting systems. 

In November 2001, we met with staff representatives from the Subcommittee on Oversight and 

Investigations, Committee on Financial Services, U.S. House of Representatives. The 

Subcommittee staff asked us about the Council’s efforts to accomplish its mission and whether 

the FFIEC should have a broadened role in coordinating activities of banking, insurance, and 

securities regulators, or whether a separate group should be developed and modeled after the 

FFIEC for coordinating under the GLBA. The Subcommittee staff also asked us to: (1) obtain 

the views of banking industry associations regarding FFIEC effectiveness and communication 

efforts and (2) determine whether the FFIEC had issued a joint examination report form and 

whether such a form would prevent regulator shopping from occurring. 

Accordingly, we refocused the objectives of our review to evaluate whether the FFIEC: 

• is meeting its mission of prescribing uniform principles and standards for the examination of 

financial institutions and 

• should have an increased coordinating role as a result of the GLBA. 

Evaluation Scope 

To accomplish our evaluation, we interviewed Council principals, banking agency supervision 

officials, and representatives from banking trade associations. We also reviewed documentation 

from the FFIEC and member banking agencies. However, because the FFIEC does not 

currently develop goals and objectives or maintain project time frame information, we were 

unable to readily measure the FFIEC’s performance or perform a detailed analysis to assess how 

timely the Council and task forces completed individual interagency projects. 

Our evaluation addressed the views and interagency efforts of the FFIEC and its member 

agencies. We generally reviewed guidance issued by the FFIEC and its member agencies during 

the period 1997 through 2001. Because the FFIEC’s training program had been the subject of a 
22

prior OIG review, our evaluation did not address the training function, and we did not interview 

members of the FFIEC’s Examiner Education Task Force. 

We conducted our evaluation between October 2001 and March 2002, in accordance with the 

President’s Council on Integrity and Efficiency’s Quality Standards for Inspections. 

Methodology 

To meet our objectives we performed the following work: 

• Interviewed the following officials: 

• Five current or former FFIEC principals and obtained the views of the FFIEC Chairman 

through his special advisor; 

• Selected task force members and agency supervision officials; 

• FFIEC’s Executive Secretary, Deputy Executive Secretary, and UBPR Coordinator; 

• Representatives from the American Bankers Association, America’s Community 

Bankers; and Independent Community Bankers of America; and 

• Representatives from the Conference of State Bank Supervisors and the National 

Association of Insurance Commissioners. 

• We also attempted to contact representatives from the Securities and Exchange Commission, 

but were unable to obtain their views about the FFIEC and coordination under GLBA. 

• Observed an FFIEC Council meeting and monthly task force meetings held by the 

Supervision Task Force and the Task Force on Consumer Compliance. 

• Reviewed Council minutes, task force project listings, and other documentation maintained 

at FFIEC Headquarters. 

• Reviewed FFIEC Annual Reports and information maintained on the FFIEC’s Web site to 

determine FFIEC accomplishments. 

• Obtained information from the OCC, OTS, FDIC, and FRB regarding the major risks and 

emerging issues facing the banking industry and guidance issued in response. 
APPENDIX II 

23

AGENCY COMMENTS 
24
25
26
27
28
29
30
31
APPENDIX III 

32

LIST OF ACRONYMS 

ALLL Allowance for Loan and Lease Losses 

CFTC Commodity Futures Trading Commission 

CRA Community Reinvestment Act 

CSBS Conference of State Bank Supervisors 

FDIC Federal Deposit Insurance Corporation 

FFIEC Federal Financial Institutions Examination Council 

FHC Financial Holding Company 

FRB Board of Governors of the Federal Reserve System 

GLBA Gramm-Leach Bliley Act 

HMDA Home Mortgage Disclosure Act 

MOU Memorandum of Understanding 

NAIC National Association of Insurance Commissioners 

NCUA National Credit Union Administration 

OCC Office of the Comptroller of the Currency 

OTS Office of Thrift Supervision 

SEC Securities and Exchange Commission 

SLC State Liaison Committee 

UBPR Uniform Bank Performance Report 

UFIRS Uniform Financial Institutions Rating System 

Y2K Year 2000 Date Change 
APPENDIX IV 

33

ENACTING LEGISLATION
34
35
APPENDIX V 

36

FFIEC CHAIRMAN’S MEMORANDUM
37
APPENDIX VI 

38

OTHER EFFORTS TO COORDINATE 

The FFIEC and the banking agencies have also taken other actions to comply with legislative 

efforts to achieve uniformity and to reduce duplicative and redundant policies. For example, the 

FDIC Improvement Act requires each federal banking and thrift agency to report annually to the 

Senate and House banking committees regarding any differences between accounting or capital 

standards among the banking agencies. The OCC submitted the most recent report to the 

Congress in February 2001. The report noted: 

• That since the adoption of the risk-based capital guidelines in 1989, the banking agencies 

(OCC, OTS, FDIC, and FRB) have applied similar capital standards to the institutions they 

supervise. In 1995 and 1996, the banking agencies amended their capital standards to 

include an interest rate risk component and a market risk component, respectively. 

• Several remaining differences, including differences in the capital treatment of financial and 

non-financial subsidiaries, merchant banking activities, and mortgage-backed securities. 

• No significant interagency differences in accounting principles and noted that the banking 

agencies have fully adopted Generally Accepted Accounting Principles as the reporting basis 

for the Call Report and Thrift Financial Report. 

The banking agencies also submit a joint report to Congress annually as required by Section 305 

of the Riegle Community Development and Regulatory Improvement Act discussing interagency 

efforts to improve the coordination and supervision of institutions that are subject to multiple 

regulators. The banking agencies submitted the most recent report in January 2002. This report 

addressed coordination efforts by the banking agencies including: 

• Joint training efforts, seminars, and symposiums to discuss topics of mutual interest. 

• Coordination of state-chartered bank supervision to ensure a risk-focused process and reduce 

regulatory burden. The FDIC, FRB, and state regulators participate in these efforts. 

• Development of a protocol for FDIC participation in or conduct of Special Examinations of 

insured depository institutions for which the FDIC is insurer but not the primary regulator. 

• FRB-hosted cross-sector meetings. 

• Participation in global supervisory groups, including the Basel Committee on Banking 

Supervision and the Joint Forum. 

• Coordination of the supervision of U.S. operations of foreign banking organizations through 

the Foreign Banking Organizations Program. 

• Coordination of efforts and guidance related to information technology, asset securitization, 

subprime lending, the Shared National Credit program, CRA, anti-money laundering and 

terrorist measures, capital standards, ALLL, and regulatory forms and reporting.