I. Management’s Discussion and Analysis

The Year in Review

During 2006, the FDIC faced many 

high-profile policy issues, ranging 

from deposit insurance reform, to 

capital reform, to the appropriate 

role of industrial loan companies. 

In addressing these issues the 

Corporation published numerous 

notices of proposed rulemaking 

throughout the year, seeking 

comment from the public and 

issued final rules to implement 

most of the components of deposit 

insurance reform legislation enacted 

early in the year. The Corporation also 

maintained its emphasis on a strong 

supervisory program, and pursued 

financial education and outreach 

initiatives focusing primarily on those 

adversely affected by Hurricanes 

Katrina and Rita and those not 

participating in the banking system. 

For the second year in a row, there 

were no insured institution failures, 

reflecting the continued strong health 

of the banking and thrift industry. 

Highlighted in this section are the 

Corporation’s 2006 accomplishments

in each of its three major business 

lines – Insurance; Supervision 

and Consumer Protection; and 

Receivership Management – as 

well as its program support areas. 

Insurance

The FDIC insures bank and savings 

association deposits. As insurer, the 

FDIC must continually evaluate and 

effectively manage how changes in 

the economy, the financial markets 

and the banking system affect the 

adequacy and the viability of the 

deposit insurance fund.

Deposit Insurance Reform

In February 2006, the President 

signed into law the Federal Deposit 

Insurance Reform Act of 2005 

and the Federal Deposit Insurance 

Reform Conforming Amendments 

Act of 2005. These new statutes 

instituted most of the key changes 

in the deposit insurance system that 

the FDIC had been pursuing for the 

previous five years. The Reform Act:

• Merges the Bank Insurance Fund 

 (BIF) and the Savings Association 

 Insurance Fund (SAIF) into the 

 new Deposit Insurance Fund (DIF).

• Permits the FDIC's Board of 

 Directors to price deposit insurance

 according to risk for all insured 

 institutions, regardless of the level 

 of the reserve ratio.

• Grants a one-time initial assess-

 ment credit of approximately 

 $4.7 billion to recognize institu-

 tions' past contributions to the 

 combined fund.

• Establishes a range for the 

 Designated Reserve Ratio (DRR) 

 of 1.15 percent to 1.50 percent, 

 and allows the FDIC to manage 

 the reserve ratio within this range. 

 Also requires that, if the reserve 

 ratio falls below 1.15 percent or 

 is expected to do so within six 

 months, the FDIC must adopt 

 a restoration plan that provides 

 that the DIF will return the reserve 

 ratio to 1.15 percent within five 

 years.

• Generally mandates dividends 

 to the industry of one-half of any 

 amount above the 1.35 percent 

 level and of all amounts in the 

 fund above the 1.50 percent 

 level.

• Increases the coverage limit for 

 certain retirement accounts to

 $250,000 but leaves the basic 

 insurance limit for other deposits 

 at $100,000. 

• Indexes both coverage limits for 

 inflation, and allows the FDIC 

 (in conjunction with the National 

 Credit Union Administration) to 

 increase the limits every five years 

 beginning January 1, 2011, if 

 warranted. 

President George W. Bush in the Oval Office, 

signs the Federal Deposit Insurance Reform 

Act of 2005. Signing ceremony participants 

(l to r): Rep. Spencer Bachus, Sen. Tim Johnson, 

Sen. Paul Sarbanes, Sen. Richard Shelby, 

Rep. Mike Oxley, Rep. Darlene Hooley, 

Sen. Mike Enzi, and Martin Gruenberg, 

Vice Chairman – FDIC.

12

2006 Annual Report
Implementation of deposit insurance 

reform was a major initiative for the 

FDIC in 2006. On March 14, 2006, 

the Board adopted an interim 

final rule implementing the substantive changes to the FDIC's 

insurance coverage rules, effective 

April 1, 2006. (A final rule was 

adopted on September 5, 2006.) In 

addition, the FDIC merged the BIF 

and SAIF into the newly-created DIF, 

effective March 31, 2006, prior to 

the statutory deadline effective 

date of July 1, 2006.

On October 10, 2006, after considering comments on a notice of 

proposed rulemaking (NPR) published 

in May 2006, the Board adopted a 

final rule governing the distribution 

and use of the $4.7 billion one-time 

assessment credit. After considering 

comments on another NPR published 

in May 2006, the FDIC Board also 

adopted on October 10, 2006, 

a temporary final rule governing 

dividends from the DIF. Under this 

temporary rule, any dividend will be 

distributed based upon an institution’s 

portion of the December 31, 1996, 

assessment base. In 2007, the FDIC 

will undertake a more comprehensive 

rulemaking on dividends to replace 

the temporary rule. 

On November 2, 2006, after 

considering comments on an NPR 

published in July 2006, the Board 

adopted a final rule setting the DRR 

at 1.25 percent. The Board also 

adopted two final rules governing 

assessments after considering 

comments on NPRs published in 

May and July 2006. One of these 

rules makes operational changes to 

the assessment system. Under that 

rule, assessments will be determined 

and collected after the end of each 

quarter, which will permit consideration of more current supervisory 

information and capital data. Among 

its other provisions, the rule requires 

larger institutions to use average 

daily deposit balances as the basis 

for assessments. 

The other rule establishes new 

assessment rates based on four 

new risk categories. Effective 

January 1, 2007, assessment rates 

will range from 5 to 7 basis points 

for Risk Category I institutions 

and will be 10 basis points for Risk 

Category II institutions, 28 basis 

points for Risk Category III institutions 

and 43 basis points for Risk Category 

IV institutions. Base assessment 

rates range from 2 to 4 basis points 

for Risk Category I institutions and 

are 7 basis points for Risk Category II 

institutions, 25 basis points for Risk 

Category III institutions and 40 basis 

points for Risk Category IV institutions. 

The Board retains the flexibility to 

adjust rates in the future, within 

limits, without further notice-andcomment rulemaking.

In addition to the extensive rulemaking required in conjunction 

with the implementation of deposit 

insurance reform, fundamental 

changes were made in the FDIC’s 

business functions including 

modification to major application 

systems such as the Risk-Related 

Premium System, Electronic Deposit 

Insurance Estimator, the Corporate 

Business Information System 

and the Assessment Information 

Management System. As part of the 

implementation, the FDIC also made 

available online new tools such as 

the One-Time Assessment Credit 

Search Tool and the Assessment Rate 

Calculator for insured institutions. 

System changes in support of 

deposit insurance reform will 

continue in 2007.

13

The new FDIC official teller sign reflects changes 

from deposit insurance reform.
Risk-Related Premiums

The accompanying table shows the 

number and percentage of institutions 

insured by the Deposit Insurance 

Fund (DIF) as of September 30, 2006, 

according to risk classifications 

effective for the second semi-annual 

assessment period of 2006. Each 

institution is categorized based on 

its capital group (1, 2, or 3) and 

supervisory subgroup (A, B, or C), 

which is generally determined by 

on-site examinations. Assessment 

rates are basis points, cents per 

$100 of assessable deposits, per 

year.

Capital Standards

The FDIC, as insurer, has a substantial 

interest in ensuring that bank capital 

regulation effectively serves its function of safeguarding the federal bank 

safety net against excessive loss. 

During 2006, the FDIC participated 

on the Basel Committee on Banking 

Supervision and many of its subgroups. The FDIC also participated in 

various U.S. regulatory efforts aimed 

at interpreting international standards 

and establishing sound policy and 

procedures for implementing these 

standards. 

One of the FDIC’s key objectives 

has been to ensure the adequacy 

of insured institutions’ capital under 

Basel II. In 2006, the FDIC devoted 

substantial resources to domestic and 

international efforts to ensure that the 

new capital rules are designed and 

implemented appropriately. These 

efforts included the publication in 

September 2006 of an NPR seeking 

comment on draft rules for Basel II 

and revisions to the Market Risk 

Rule and the continued development 

of examination guidance, which is 

intended to provide the industry 

with regulatory perspectives on 

implementation. 

The findings of the fourth quantitative 

impact study (QIS-4), which were 

completed in 2005, suggested that, 

without modification, the Basel II 

framework could result in a significant 

decline in minimum risk-based capital 

requirements. As a result, several 

safeguards were incorporated into 

the Basel II NPR to protect against 

a significant decline in minimum riskbased capital requirements. These 

safeguards included a one-year delay 

in the targeted effective date of the 

regulation, a longer transition period, 

limitations on the amount that riskbased capital at individual banks 

could decline during the transition 

period, the retention of the U.S. 

leverage ratio and Prompt Corrective 

Action requirements, and a 10 percent 

downward limit on the aggregate 

reduction in minimum risk-based 

capital that could result from the 

implementation of Basel II. Through 

continuing on-site and off-site reviews 

of all FDIC-supervised institutions 

that have indicated possible plans 

to operate under the new Basel 

Capital Accord, the Corporation has 

confirmed that those institutions are 

making satisfactory progress towards 

meeting the expected requirements.

The FDIC is actively involved in efforts 

to revise the existing risk-based capital 

standards for those banks that will 

not be subject to Basel II. These 

efforts, referred to as Basel IA, are 

intended to modernize the risk-based 

capital rules for non-Basel II banks to 

ensure that the framework remains a 

relevant and reliable measure of the 

risks present in the banking system 

and to minimize potential competitive 

inequities that may arise between 

banks that adopt Basel II and those 

banks that remain under the existing 

capital rules. The revisions proposed 

in the Basel IA NPR are anticipated 

to be finalized by domestic bank and 

thrift regulatory authorities in 2007 

for implementation in January 2008. 

The Basel IA NPR was published 

in the Federal Register for public 

comment in December 2006.

Regulatory Burden Reduction

Pursuant to Section 2222 of the 

Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 

(EGRPRA), federal banking regulators are required to review existing 

regulations to identify and eliminate 

Risk-Related Premiums

 Supervisory Risk Subgroup 

Capital Group A B C

 1. Well Capitalized: 

 Assessment Rate 0 3 17

 Number of Institutions 8,324 (95.1%) 345 (4.0%) 38 (0.4%)

 2. Adequately Capitalized: 

 Assessment Rate 3 10 24

 Number of Institutions 39 (0.5%) 3 (0.0%) 1 (0.0%)

 3. Undercapitalized:

 Assessment Rate 10 24 27

 Number of Institutions 2 (0.0%) 0 (0.0%) 3 (0.0%)

14
1 The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity 

 to market risk, and ranges from “1” (strongest) to “5” (weakest). 

Center for Financial Research

The FDIC’s Center for Financial 

Research (CFR) co-sponsored two 

research conferences during 2006. 

The 16th annual Derivatives Securities 

and Risk Management Conference, 

which the FDIC co-sponsored with 

Cornell University’s Johnson Graduate 

School of Management and the 

University of Houston’s Bauer College 

of Business, was held in April 2006. 

In addition, the CFR and the Journal

for Financial Services Research (JFSR) 

sponsored their sixth annual research 

conference in September 2006. 

The conference attracted academics 

from U.S. and foreign universities, 

U.S. and foreign bank supervisors, 

congressional staff, consultants and 

bankers. As a part of the conference, 

the CFR sponsored a symposium 

entitled “U.S. Implementation of 

Basel II,” at which academics and 

U.S. and foreign bank regulators 

presented 12 research papers 

analyzing the potential effects 

of the new capital standards. 

In addition to these conferences, 

the CFR and Harvard University 

jointly sponsored a brainstorming 

symposium to advance research on 

consumer finance in October 2006. 

Individuals from academia, businesses,

public policy, consumer advocacy and 

philanthropy groups discussed and 

proposed a research agenda in the 

field of consumer finance.

those that are outdated, unnecessary 

or unduly burdensome on insured 

depository institutions. An interagency 

EGRPRA work group completed 

a comprehensive three-year review 

in 2006, analyzing the comments 

received on the last sets of regulations 

and publishing a summary of those 

comments. The interagency working 

group also prepared a report to 

Congress, which identified significant 

issues raised during the public 

comment period.

The Financial Services Regulatory 

Relief Act of 2006 was enacted into 

law in October 2006. This Act requires 

the SEC and FRB to jointly issue a rule 

to implement the exceptions to the 

definition of broker in accordance with 

section 3(a)(4)(F) of the Securities 

Exchange Act of 1934, permits the 

Federal Reserve to pay interest on 

balances kept at the Federal Reserve 

Banks, increases the Federal Reserve 

Board's flexibility in setting certain 

reserve requirements, reduces some

redundant bank filing requirements 

and makes numerous changes 

designed to enhance banking agency 

efficiency and effectiveness. The 

new law also expands eligibility for 

inclusion in the 18-month safety 

and soundness examination cycle to 

insured institutions with CAMELS1

"1" ratings with up to $500 million 

in assets (an increase from the 

previous threshold of $250 million). 

Congress subsequently enacted 

legislation expanding eligibility for 

the 18-month examination cycle to 

insured institutions with CAMELS "2" 

ratings up to $500 million in assets.

Thirteen CFR working papers were 

completed and published in 2006 on 

topics dealing with risk measurement,

capital allocation, deposit insurance, 

community development or 

regulations related to these topics.

The CFR Senior Fellows met in 

January 2006 to discuss ongoing 

CFR research on Basel II, deposit 

insurance reform, developments in 

the area of consumer finance and 

CFR activities for the coming year. 

Central Data Repository 

The FDIC continued to leverage its 

investment in the Federal Financial 

Institutions Examination Council’s 

(FFIEC) Central Data Repository (CDR).

The CDR streamlines the collection, 

validation and publication of financial 

institutions’ Call Report data. The 

CDR was used to successfully collect 

Call Report data from approximately 

8,000 reporting institutions for each 

quarter of 2006. The FFIEC also began

work during 2006 on enhancing the 

CDR to publish data to the public and 

produce bank performance reports, 

and an interagency team began work 

on modifications that will increase 

the flexibility of the CDR to process 

additional data series. 

The FDIC also continued to lead 

in the promulgation of the CDR’s 

underlying financial reporting standard, XBRL (eXtensible Business 

Reporting Language), to increase 

financial transparency. Early in 2006, 

the FDIC formed an XBRL Advisory 

Group to build upon the success of 

the CDR program. Leveraging the 

FDIC's demonstrated expertise and 

15
leadership in the field, the group will 

expand the use of XBRL technologies 

and promote their use among other 

FDIC business partners. Internal and 

external collaboration Web sites were 

established to allow the exchange 

of information and to disseminate 

lessons learned. 

Risk Analysis Center

The Risk Analysis Center (RAC) 

was established in 2003 to provide 

information about current and 

emerging risk issues. It is staffed 

with employees on detail from each 

of the FDIC’s three business lines. 

The RAC uses interdivisional teams to 

analyze selected risk areas and carry 

out special projects which culminate 

in presentations and reports regarding these risk issues. The activities 

of the RAC are guided by the National 

Risk Committee, which is chaired by 

the Chief Operating Officer. In 2006, 

major projects of the RAC focused 

on collateralized debt obligations, 

operational risk, and the housing 

sector/alternative mortgage products.

The RAC also reported to the National

Risk Committee on a variety of other 

topics, including economic conditions,

industry risk exposure, credit underwriting practices, and consumer 

protection issues.

Other Risk Identification Activities

During 2006, the FDIC continued to 

research and analyze trends in the 

banking sector, financial markets, 

and the overall economy to identify 

emerging risks to the banking industry 

and the DIF. The identified risks were 

highlighted throughout the year in 

presentations and written reports. 

The FDIC prepared summary analyses

semiannually on the condition of large

insured financial institutions, mainly 

based on information provided by 

FDIC examiners and these institutions’

primary federal regulators. Institutionspecific concerns were directed to 

FDIC regional offices for appropriate 

action. Additionally, the FDIC continued to analyze the regional economies 

adversely affected by hurricanes 

Katrina and Rita throughout the year. 

The FDIC published a variety of 

studies in quarterly FDIC Outlook

issues and periodic FYI reports that 

addressed a range of current topics in 

the banking sector, financial markets

and the economy. In addition, quarterly

FDIC State Profiles were released 

for each state during 2006. The FDIC 

also published the Quarterly Banking 

Profile, which discusses current 

conditions, trends and changes in 

the performance of insured institutions, and Supervisory Insights, which 

discusses implementation of regulatory policy, shares best practices and 

communicates emerging issues in 

bank supervision.

Throughout the year, the FDIC conducted numerous outreach activities 

addressing economic and banking 

risk analysis. Presentations were 

made to financial institutions and 

related trade groups, bank directors’ 

colleges, community groups, foreign 

visitors and other regulators. The 

FDIC also sponsored a roundtable 

discussion that addressed possible 

scenarios for the next recession. 

Supervision and 

Consumer Protection

Supervision and consumer protection

are cornerstones of the FDIC’s efforts 

to ensure the stability of and public 

confidence in the nation’s financial 

system. The FDIC’s supervision 

program promotes the safety and 

soundness of FDIC-supervised 

insured depository institutions, 

protects consumers’ rights, and 

promotes community investment 

initiatives. In addition to carrying out 

its established examination program 

and other supervisory activities, the 

FDIC initiated in 2006 a substantial 

expansion of its programs to promote 

economic inclusion and confronted 

difficult policy issues regarding 

industrial loan companies.

Examination Program 

The FDIC’s strong bank examination 

program is the core component of 

its supervisory program. At year-end 

2006, the Corporation was the primary

federal regulator for 5,237 FDICinsured state-chartered institutions 

that are not members of the Federal 

Reserve System (generally referred 

to as "state nonmember" institutions). 

Through safety and soundness, 

consumer compliance and the 

Community Reinvestment Act (CRA), 

and various specialty examinations, 

the FDIC assesses their operating 

condition, management practices 

and policies, and compliance with 

applicable laws and regulations. 

The FDIC also educates bankers 

and consumers on matters of 

interest and addresses consumers' 

questions and concerns.

16
Memoranda of Understanding are 

currently being finalized to address 

the FDIC’s examination findings. 

In addition, the FDIC developed and 

began using new screening tools in 

2006 to identify those FDIC-supervised 

institutions with mortgage lending 

disparities, based upon “higher rate” 

pricing information supplied by these 

institutions under the Home Mortgage 

Disclosure Act (HMDA), and to assess 

whether the disparities in loan pricing 

and denial rates resulted from 

discriminatory lending or reflected 

other factors, such as creditworthiness, underwriting or other nondiscriminatory criteria.4

 Compliance 

examinations were scheduled for 

all of the institutions with identified 

lending disparities to determine 

In 2006, the Corporation conducted 

2,388 statutorily-required safety and 

soundness examinations, including 

a review of Bank Secrecy Act compliance, and all required follow-up 

examinations for FDIC-supervised 

problem institutions within prescribed 

time frames. The FDIC also conducted

1,959 CRA/Compliance examinations

(777 joint compliance-CRA examinations, 1,177 compliance-only examinations,2 and five CRA-only examinations) 

and 3,052 specialty examinations. All

compliance/CRA examinations were 

also conducted within the time frames

established by FDIC policy, including 

required follow-up examinations 

of problem institutions. The accompanying table compares the number 

of examinations conducted in 2004, 

2005 and 2006 by type. 

As of December 31, 2006, there 

were 51 insured institutions with 

total assets of $8.5 billion designated 

as problem institutions for safety 

and soundness purposes (defined as 

those institutions having a composite

CAMELS3

 rating of “4” or “5”), 

compared to the same number of 

problem institutions with total assets 

of $6.6 billion on December 31, 2005. 

This constituted a 28.7 percent yearover-year increase in the total assets 

in problem institutions. During 2006, 

38 institutions with aggregate assets 

of $4.7 billion were removed from the

list of problem financial institutions, 

while 38 institutions with aggregate 

assets of $7.8 billion were added 

to the list of problem financial 

institutions. The FDIC is the primary 

federal regulator for 27 of the 51 

problem institutions.

During 2006, the Corporation issued 

the following formal and informal 

corrective actions to address safety 

and soundness concerns: 29 Cease 

and Desist Orders; one Written 

Agreement; and 146 Memoranda 

of Understanding. Of these actions 

issued, eight Cease and Desist 

Orders, one Written Agreement and 

21 Memoranda of Understanding 

were issued based on apparent 

violations of the Bank Secrecy Act.

As of December 31, 2006, four 

FDIC-supervised institutions were 

assigned a “4” rating for compliance; 

no institutions were assigned a “5” 

rating. All of the “4”-rated institutions

were examined in 2006, and 

2006 2005 2004

Safety and Soundness:

 State Nonmember Banks 2,184 2,198 2,276

 Savings Banks 201 199 236

 Savings Associations 2 1 0

 National Banks 0 0 0

 State Member Banks 1 1 3

Subtotal - Safety and Soundness Examinations 2,388 2,399 2,515

CRA/Compliance Examinations: 

 Compliance-Community Reinvestment Act 777 815 1,459

 Compliance-only 1,177 1,198 673

 CRA-only 5 7 4

Subtotal CRA/Compliance Examinations 1,959 2,020 2,136

Specialty Examinations: 

 Trust Departments 468 450 534

 Data Processing Facilities 2,584 2,708 2,570

Subtotal-Specialty Examinations 3,052 3,158 3,104

Total 7,399 7,577 7,755

FDIC Examinations 2004-2006

2

 Compliance-only examinations are conducted for most institutions at or near the mid-point between joint compliance-CRA examinations under the Community Reinvestment Act of 1977, as amended 

 by the Gramm-Leach-Bliley Act of 1999. CRA examinations of fi nancial institutions with aggregate assets of $250 million or less are subject to a CRA examination no more than once every fi ve years 

 if they receive a CRA rating of “Outstanding” and no more than once every four years if they receive a CRA rating of “Satisfactory” on their most recent examination. 

3

 The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the quality and level of Earnings, the adequacy of Liquidity, and the 

 Sensitivity to market risk, and ranges from “1” (strongest) to “5” (weakest).

4 The Federal Reserve Board began requiring covered institutions to report “higher rate” pricing information in their HMDA reports in 2004.

17
whether those disparities were 

the result of discriminatory lending. 

Although those examinations

indicated that the majority of the 

institutions were not engaging in 

discriminatory lending, a small number

of institutions were referred to 

the U.S. Department of Justice for 

engaging in an apparent pattern and 

practice of discriminatory lending. 

Large Complex Financial 

Institution Program

The FDIC’s Large Bank Program was 

established to address the unique 

challenges associated with supervising and insuring the deposits of large 

and complex institutions. A significant

share of the assets and insured 

deposits of the banking industry are 

today held in a small number of large 

institutions. The Program ensures 

a consistent approach to large bank 

supervision and risk analysis on a 

national basis by compiling key data 

and performing analyses of largebank operations for use by various 

FDIC divisions and offices and by 

providing specialists to support 

supervisory activities for large banks. 

In 2006, guidelines were developed 

to enhance the FDIC’s risk-monitoring 

program for large banks with assets 

greater than $50 billion. Monitoring 

and assessment activities also 

continued in 2006 to ensure internal 

and industry preparedness for the 

implementation of Basel II. Training 

on credit and operational risk was 

conducted for regional and interagency 

personnel, and numerous “supervisory 

working group” meetings were held 

with foreign regulatory authorities 

to address Basel II home-host and 

cross-border issues.

Industrial Loan Companies

In 2006, an application for deposit 

insurance filed by a very large retailer 

on behalf of a proposed Utah industrial 

loan company (ILC) generated 

significant public interest. In April, 

the FDIC held three days of public 

hearings on the application. Nearly 

70 representatives of financial 

institutions, trade associations, 

advocacy groups, the retailer, and 

others made presentations at 

the hearing. In addition, the FDIC 

received written statements from 

16 parties who did not request an 

opportunity to present during the 

hearings. 

As a result of that interest as well as 

congressional interest and reviews by 

the GAO and OIG, the FDIC initiated 

a comprehensive policy review of 

ILCs. On July 28, 2006, the Board 

imposed a moratorium extending 

through January 31, 2007, on the 

acceptance, approval, or denial of 

deposit insurance applications and 

change in control notices submitted 

by, or on behalf of, any ILC. The 

purpose of the moratorium was to 

permit the Corporation to evaluate 

industry developments; the various 

issues, facts and arguments raised 

regarding the ILC charter; whether 

there are emerging safety and soundness issues or policy issues involving 

ILCs or other risks to the insurance 

fund; and whether statutory, regulatory 

or policy changes should be made in 

the FDIC’s oversight of ILCs in order 

to protect the Deposit Insurance 

Fund or important congressional 

objectives.

The FDIC believes that public participation provides valuable insight into 

the issues presented by the recent 

trends and changes in the ILC 

industry. Accordingly, in order to 

obtain the public’s insights, the FDIC 

invited comments on the ILC industry 

during a 45-day period that ended 

on October 10, 2006. In its Request 

for Public Comment, the FDIC posed 

12 questions that sought public 

input on various topics, including the 

current legal framework of ILCs as 

well as the possible benefits, risks 

and supervisory issues associated 

with ILCs. At year-end 2006, eight 

ILC-related applications for deposit 

insurance and two change in control 

notices were pending. 

18

Sandra Thompson, John Bovenzi, 

and Douglas Jones at an ILC hearing.
Promoting Economic Inclusion

The FDIC pursued a number of 

new initiatives in 2006 to promote 

broader access to banking services by 

traditionally underserved populations 

and to ensure adequate consumer 

protection in the provision of these 

services.

Advisory Committee 

on Economic Inclusion

On November 2, 2006, the FDIC 

announced the establishment of an 

Advisory Committee on Economic 

Inclusion. The Committee will provide 

the FDIC with advice and recommendations on important initiatives 

focused on expanding access to 

banking services by underserved 

populations. It will also explore ways 

to encourage the banking industry 

to adopt suitable products and 

marketing strategies to compete 

with alternative high-cost providers. 

The Committee members will 

represent a cross section of interests 

from the banking industry, state 

regulatory authorities, government, 

academia, consumer or public 

advocacy organizations, communitybased groups and others impacted 

by banking-related practices.

Alliance for Economic Inclusion 

In 2006, the FDIC created the 

Alliance for Economic Inclusion (AEI), 

a broad-based coalition of banks, 

community organizations, foundations, 

educators, and local, state, and federal 

agencies in each of the FDIC’s six 

regions. The goal of the AEI initiative 

is to work with financial institutions 

and other partners to bring those 

currently unbanked and underserved 

into the financial mainstream. The 

AEI will focus on expanding banking 

services in all underserved markets, 

including low- and moderate-income 

neighborhoods, minority communities 

and rural areas. 

Affordable Small-Dollar Loan 

Guidelines

To help meet consumer demand 

for affordable small-dollar loans, the 

FDIC issued a draft of its Affordable 

Small-Dollar Loan Guidelines, targeted 

to the banking industry, for public 

comment on December 4, 2006. 

Many consumers with bank accounts 

turn to high-cost payday or other 

non-bank lenders because they are 

accessible and can quickly provide 

small loans to cover unforeseen 

circumstances. The draft guidelines 

suggest ways the banking industry 

can make affordable short-term loan 

products more accessible to these 

customers, helping to build long-term, 

profitable multiple-account relationships. The guidelines focus on 

product development and underwriting, and include information 

on tools such as consumer financial 

education and savings that may 

address longer term financial issues. 

The FDIC expects to finalize the 

guidelines in early 2007.

Military Bank Initiative

In late 2006, the FDIC began working

closely with the banking industry 

to explore ways to make affordable

short-term loan products more 

accessible to military personnel who 

frequently turn to high-cost providers 

for their financial services needs and 

to encourage individual and household savings by these borrowers. 

The FDIC established contact with 

the Association of Military Banks of 

America (AMBA) and more than 125 

banks located near military bases. 

Many of these banks have indicated 

a willingness to work with the 

FDIC in developing and providing 

an affordable small-denomination 

loan product, possibly with a savings 

component. 

The FDIC hosted a conference with

these banks in December 2006 in

Washington, DC, to provide information and share ideas on successful 

product and marketing strategies

for consumers in the military. 

Approximately 60 banks and more 

than 150 other participants – including

press, bankers, trade associations

and representatives of the Department

of Defense – attended the conference

on " Affordable, Responsible Loans 

for the Military: Programs and 

Prototypes." The program was 

organized with the assistance of the 

AMBA and featured Congressman 

Barney Frank and Kelvin Boston, host 

of PBS’ Moneywise. The main focus 

of the event was the discussion of 

loan products targeted to or that have 

features that would benefit military 

borrowers. Following a discussion 

of regulatory issues, the participants 

attended workshops aimed at 

developing an affordable loan template. The FDIC intends to distribute 

this template to FDIC-supervised 

institutions in 2007 for use as a 

possible prototype in developing 

their own affordable loan programs.

19
Nontraditional Mortgage Products

In 2006, the FDIC became increasingly concerned with the expansion 

of nontraditional mortgage products 

and the potential risk posed by these 

products to the DIF. While these 

products, which are also referred to 

as “alternative” or “exotic” mortgage 

loans, have been available for many 

years, the number of institutions 

offering them has expanded rapidly 

in recent years. To address these 

concerns, the FDIC implemented 

certain enhancements to the 

supervisory oversight of nontraditional 

mortgage banking activities and, 

with the other financial institution 

regulatory agencies, developed and 

issued guidance to address the 

growing risks associated with these 

loan products. The agencies are 

concerned that some borrowers 

may not fully understand the risks 

of these products. The agencies 

are also concerned about the lack 

of principal amortization and the 

potential for negative amortization. 

Moreover, institutions are increasingly 

combining these loans with other 

features that may compound risk. 

The guidance covers three primary 

areas: loan terms and underwriting 

standards, portfolio and risk management practices, and consumer 

protection issues. It focuses on 

qualification standards for borrowers,

and portfolio management and 

communication with consumers and 

makes clear that the FDIC and the 

other regulatory agencies expect 

institutions to effectively assess 

and manage the risks posed by 

nontraditional mortgage products. 

The guidance recommends that promotional materials and other product 

descriptions provide consumers with 

full and balanced information about 

the costs, terms, features and risks –

particularly payment shock and 

negative amortization – of nontraditional mortgage products. To help

consumers shop wisely and decide 

whether such a product is right for 

them, the FDIC also published information about nontraditional mortgages 

in its quarterly FDIC Consumer News

and joined the other regulatory 

agencies in publishing a consumer 

handbook on interest-only and 

payment-option mortgages.

Guidance on Concentrations in 

Commercial Real Estate Lending

The federal banking regulatory 

agencies (agencies) recognized that 

financial institutions serve a vital role 

in their communities by supplying 

credit for business and real estate 

development. However, the agencies 

have observed that commercial real 

estate (CRE) concentrations have 

been rising over the past several 

years and may expose institutions 

to earnings and capital volatility in 

the event of economic downturn. 

To address these concerns, the 

agencies published for comment 

the proposed interagency Guidance 

on Concentrations in Commercial 

Real Estate Lending, Sound Risk 

Management Practices (CRE 

Guidance) on January 10, 2006. 

After carefully reviewing over 

4,400 comment letters, the agencies issued the final CRE Guidance

on December 12, 2006. The CRE 

Guidance reminded institutions 

that strong underwriting standards, 

portfolio management practices, and 

capital levels are important elements 

of a sound CRE lending program. 

Hurricane Recovery Assistance

Since the Gulf Coast hurricanes of 

2005, the FDIC has worked with 

other federal and state regulatory 

agencies to address policy issues 

that arose due to the severity and 

Erica Bovenzi and 

Sandra Thompson at 

a community bank 

forum in New Orleans.

20
counseling program will assist 

individuals to plan carefully and 

make informed decisions to avoid 

costly mistakes at this difficult time 

in their lives. The FDIC envisions that 

the counseling program will become 

a template for consumers to “navigate 

the road to housing recovery” in 

other areas of the country following 

major natural disasters or other 

catastrophic events.

Minority Depository Institutions 

The FDIC has long recognized the 

importance of minority depository

institutions in promoting the economic

viability of minority and underserved 

communities. As a reflection of the

FDIC’s commitment to minority 

depository institutions, the FDIC 

issued a “Policy Statement Regarding

Minority Depository Institutions” on 

April 9, 2002. The policy statement 

implements an outreach program 

designed to preserve and encourage 

minority ownership of financial 

institutions. 

Since the adoption of that policy 

statement, the FDIC has maintained 

contact with various minority depository institution trade associations; 

met periodically with the other federal

banking regulators to discuss initiatives

underway at the FDIC and identify 

opportunities for the federal banking 

agencies to work together to assist 

minority institutions; held regional 

outreach meetings and five Minority 

Bankers Roundtables; and extended 

offers to each FDIC-supervised 

minority depository institution to 

meet and discuss issues of interest.

In August 2006, the FDIC hosted the 

first “National Minority Depository 

Institution Conference” in Miami, FL, 

scale of those events. In 2006, the 

agencies issued examiner guidance 

that outlines examination procedures 

for assessing the financial condition 

of institutions adversely affected 

by the hurricanes. Working through 

the Federal Financial Institutions 

Examination Council (FFIEC), the 

agencies also published and distributed to insured financial institutions 

a booklet entitled Lessons Learned 

from Hurricane Katrina: Preparing 

Your Institution for a Catastrophic 

Event. This booklet compiles the 

experiences of bank officials in 

the aftermath of these hurricanes 

and offers insights to those who 

are responsible for devising and 

implementing an institution’s 

disaster recovery and business 

continuity plans.

In October 2006, the FDIC and 

NeighborWorks® America jointly 

released a new homeownership 

and financial counseling guide called 

Navigating the Road to Housing 

Recovery in the Gulf Coast. The 

guide is designed for evacuees who 

are now beginning to receive federal 

and state financial assistance to 

rebuild or relocate. It was a focal 

point of two conferences held in 

late 2006, the "Gulf Coast Housing 

Summit–Strategies for Redeveloping 

Communities and Rebuilding Lives," 

jointly sponsored by the FDIC 

and NeighborWorks® America in 

New Orleans, LA, and another 

housing conference sponsored by 

Back Bay Mission in Biloxi, MS. 

More than 400 bankers, housing 

experts, homeownership counselors 

and others attended the two conferences to discuss local issues, match 

development resources with needs, 

and learn more about the “just-intime” counseling program.

The FDIC, in cooperation with 

NeighborWorks® and an array of 

local partners, will schedule trainthe-trainer sessions through early 

2007 to develop 300 potential homeownership counselors. Counselor 

trainees will be drawn from banks, 

churches, government agencies, 

employers, nonprofits and other 

groups working with hurricane 

evacuees. This comprehensive 

Vice Chairman Gruenberg 

at a Gulf Coast forum in 

New Orleans.

21
with attendance from more than 

100 bankers; representatives from 

the Office of the Comptroller of the 

Currency, the Federal Reserve and 

the Office of Thrift Supervision; and 

several private-sector and industry 

trade group representatives. The conference addressed topics of interest 

to the minority banking community, 

with particular emphasis on a shared 

commitment to expanding financial 

services available to minority and

underserved communities; developing

coalitions to improve minority 

community infrastructures by 

partnering with organizations such 

as NeighborWorks® America; and 

fostering a better understanding 

by the regulatory community of the 

unique challenges minority depository

institutions face. A second national 

conference is planned for 2007. 

During 2006, an FDIC task force also 

assisted three minority institutions 

headquartered in New Orleans, LA, 

and severely impacted by Hurricane 

Katrina in improving their liquidity 

by securing $22 million in deposit 

pledges from Utah-based ILCs. 

The ILCs also provided $123,000 in 

direct cash donations to assist these 

institutions in meeting the housing 

and other needs of their employees. 

Homeland Security 

The FDIC has taken a leadership role 

in ensuring that the financial sector– 

a critical part of the infrastructure of 

the United States–is prepared for a 

financial emergency. As a member of 

the Financial and Banking Information 

Infrastructure Committee (FBIIC), the 

FDIC has sponsored a series of outreach meetings titled “Protecting the 

Financial Sector: A Public and Private 

Partnership.” During 2006, these 

Homeland Security meetings were 

held in 22 cities across the United 

States. These meetings provided 

members of the financial sector 

with the opportunity to communicate 

with senior government officials, law 

enforcement personnel, emergency 

management personnel and private 

sector leaders about emergency 

preparedness. Homeland Security 

meetings are planned for 11 cities 

in 2007.

Bank Secrecy Act

The FDIC chairs the FFIEC Bank 

Secrecy Act/Anti-Money Laundering 

(BSA/AML) Working Group. Under 

the auspices of the BSA/AML 

Working Group, the FDIC, the 

other federal banking agencies, and 

FinCEN updated the FFIEC BSA/AML 

Examination Manual in July 2006. 

The revised manual reflects the 

ongoing commitment of the federal 

banking agencies and FinCEN to 

provide current and consistent guidance on risk-based policies, procedures, and processes for banking 

organizations to comply with the 

BSA and safeguarding operations 

from money laundering and terrorist 

financing. Following the release of 

the manual, the FDIC coordinated 

and hosted four interagency conference calls for the banking industry 

and examination staff regarding 

changes to the manual. Over 1,500 

examiners and 10,650 bankers and 

industry representatives participated 

in those outreach events. During 

2006, the FDIC also participated in 

more than 145 additional industry 

outreach and regulatory training 

events nationwide relating to 

BSA/AML topics.

The FDIC continued in 2006 to play 

a critical role in the international 

fight against money laundering 

and terrorist financing. Its efforts 

included the following:

• With the other federal banking 

 agencies, negotiated and 

 signed an information-sharing 

 memorandum of understanding 

 (MOU) with the Office of Foreign 

 Assets Control (OFAC) in April 

 2006. 

• Conducted AML/Counter-Financing

 of Terrorism (CFT) training for 

 20 central bank representatives 

 from Afghanistan, Iraq, Kenya, 

 South Africa, and Yemen in 

 September 2006. 

• Provided guidance and resources 

 for the international AML/CFT

 financial system assessments 

 and training. The FDIC participated 

 in reviews of South Africa’s 

 existing AML policies and Paraguay

 draft AML legislation; provided 

 technical assistance in Bosnia 

 to evaluate AML controls and 

 existing legislation; delivered 

 a presentation at the Eurasian 

 Group (Financial Action Task 

 Force-style regional body) 

 seminar in Russia; and provided 

 guidance to the Russian central 

 bank, financial intelligence 

 unit, and legislature regarding 

 amendments to Russia’s AML 

 law.

22
• Continued to enhance the skills 

 of its BSA/AML subject-matter 

 experts, with 34 BSA/AML 

 subject-matter experts attaining 

 certification during 2006 under 

 the Association of Certified 

 Anti-Money Laundering Specialist 

 certification program.

• Conducted AML examination 

 training courses for representatives

 from the Albanian financial intel-

 ligence unit, the Indian financial 

 intelligence unit, and Malaysian

 government officials.

Cyber Fraud and Financial Crimes

The FDIC continued to take a leadership role in consumer education 

initiatives related to identity theft 

with a public education campaign 

that included sponsoring identity 

theft symposia focusing on 

e-commerce. The symposia, held 

in San Francisco, CA, Mesa, AZ, 

and Miami Beach, FL, brought 

together representatives from 

federal and state governments, 

industry, consumer and community 

organizations, and law enforcement 

to discuss issues related to identity 

theft and e-commerce.

Other major accomplishments during

2006 in combating identity theft 

included the following:

• Assisted financial institutions 

 in identifying and shutting down 

 approximately 900 “phishing” 

 Web sites. The term “phishing”– 

 as in fishing for confidential 

 information–refers to a scam 

 that encompasses fraudulently 

 obtaining and using an individual’s 

 personal or financial information.

• Issued 342 special alerts of 

 reported cases of counterfeit 

 or fraudulent bank checks.

• Released an online training tool 

 entitled “Don't Be an On-line 

 Victim: How to Guard Against 

 Internet Thieves and Electronic 

 Scams” (available through the 

 FDIC’s Web site and on CD-ROM).

• Participated in the President’s 

 Identity Theft Task Force and five 

 of its primary subgroups.

Office of International Affairs

Increasing globalization and interdependence heighten the potential 

for financial and economic instability

to transcend national geographic 

boundaries. The promotion of sound, 

stable banking systems abroad is 

a key ingredient for greater global 

prosperity and stability which, in turn, 

will benefit the U.S. financial system 

and the banking public. The FDIC 

created the Office of International 

Affairs in 2006 to coordinate the 

FDIC’s international activities with 

a focus on building strong relationships with foreign regulators and 

deposit insurers, other U.S. government entities and international 

organizations. The programs overseen by the office provide training, 

expert consultation, and technical 

assistance to foreign deposit insurers,

bank supervisory authorities and 

other foreign government agencies 

to support the development and 

maintenance of effective deposit 

insurance programs and stable, 

sound banking systems worldwide.

Consumer Complaints 

and Inquiries 

The FDIC investigates consumer 

complaints about FDIC-supervised 

institutions and answers inquiries 

from the public about consumer 

protection laws and banking practices. 

In 2006, the FDIC received 9,652 

written complaints, of which 3,442 

were against state nonmember institutions. The Corporation responded

to over 97 percent of these complaints 

within corporate timeliness standards.

The FDIC also responded to 3,870 

written and 4,188 telephone inquiries 

from consumers and members of the 

banking community about consumer 

protection issues. 

In April 2006, the FDIC hosted the 

first Interagency Consumer Affairs 

Conference in Arlington, VA, 

with approximately 140 attendees, 

including representatives from 

the Federal Reserve Board, Office 

of Thrift Supervision, Office of 

the Comptroller of the Currency, 

National Credit Union Administration, 

and the Federal Trade Commission. 

Discussions included best practices 

for investigating and responding 

to consumer complaints, banking 

practices, and financial trends that 

have and will continue to challenge 

consumers in 2006 and beyond. 

Deposit Insurance Education

An important part of the FDIC's role 

in insuring deposits and protecting 

the rights of depositors is its responsibility to ensure that bankers and 

consumers have access to accurate 

information about the FDIC's deposit 

insurance rules. The FDIC has an 

extensive deposit insurance education

program consisting of seminars for 

bankers, electronic tools for estimating 

deposit insurance coverage, and 

23
written and electronic information 

targeting both bankers and consumers.

The FDIC also responds directly to 

inquiries from bankers and the public

about deposit insurance. During 

2006, the FDIC responded to over 

86,134, or 99 percent, of written and 

telephone inquiries from bankers and 

consumers about the FDIC's deposit 

insurance program and insurance 

coverage issues within the time 

frames established by policy. This 

was an increase of approximately 

34 percent over the number of 

inquiries received in 2005, in large 

part due to the enactment of new 

coverage limits as part of deposit 

insurance reform.

Following enactment of deposit 

insurance reform legislation, the 

FDIC initiated a multi-pronged effort 

to inform the public and banking 

industry about the increase in coverage

for retirement savings. As part of this 

effort, the FDIC updated its numerous 

publications and educational tools 

for consumers and bankers on FDIC 

insurance coverage, including updated 

editions of Insuring Your Deposits, 

the FDIC’s basic deposit insurance 

brochure for consumers; Your Insured 

Deposit, the FDIC’s comprehensive

deposit insurance guide; and 

the Electronic Deposit Insurance 

Estimator (EDIE), the FDIC’s userfriendly Internet application that helps 

bank customers calculate insurance 

coverage on their deposit accounts 

at FDIC-insured institutions. The 

FDIC also published other promotional

materials, including a special edition 

of the FDIC Consumer News that 

included information on the new 

coverage limits, and worked with 

the banking industry, national 

consumer organizations and the 

media to publicize the availability 

of this information. More than 8,200 

bankers participated in a series of 

national teleconferences on the new 

coverage limits conducted by the 

FDIC during the summer of 2006. In 

addition, the FDIC used a variety of 

formats to conduct 28 seminars for 

financial institution employees and 

consumer organizations on changes 

to deposit insurance coverage rules 

that were effective on April 1, 2006.

In 2006, the FDIC also completed 

development of Spanish-language 

versions of two of its most popular 

educational resources for consumers 

and bankers, a Spanish language 

version of EDIE (available on the 

FDIC’s Web site beginning in early 

2007) and a 30-minute Spanishlanguage video for bank employees 

and customers (now available on 

the FDIC’s Web site) that provides 

an overview of the FDIC’s rules and 

requirements for deposit insurance 

coverage, with specific emphasis on 

the most common account ownership categories used by individuals 

and families. 

The FDIC continued publication of 

its quarterly consumer newsletter, 

FDIC Consumer News, which covers 

a wide range of financial topics of 

interest to consumers. Three special 

age-based issues of FDIC Consumer 

News – for seniors, young adults 

and teens – were published during 

the year. The how-to financial guide 

for seniors won an Achievement in 

Consumer Education Award from 

the National Association of Consumer 

Agency Administrators. Current and 

past issues of FDIC Consumer News

are available online at 

www.fdic.gov/consumernews.

Financial Education and 

Community Development

Five years ago, the FDIC–recognizing

the need for enhanced financial 

education across the country–

inaugurated its award-winning 

Money Smart curriculum, which 

is now available in seven languages 

as well as in a computer-based 

instruction version. In 2006, the 

FDIC introduced the Russian 

language, large print and Braille 

versions of Money Smart. The large 

print and Braille versions are the 

first financial education program 

specifically targeted for individuals 

with visual impairments. Since its 

inception, over 864,000 individuals 

(including approximately 207,000 

in 2006) have participated in Money 

Smart classes and approximately 

128,000 of these participants have 

subsequently established new 

banking relationships. 

During 2006, the FDIC also undertook 370 community development, 

technical assistance and outreach 

activities. These activities were 

designed to promote: awareness of 

investment opportunities to financial 

institutions, access to capital within 

communities, knowledge-sharing 

among the public and private sector, 

and wealth building opportunities for 

families. Representatives throughout 

the financial industry and their stakeholders collaborated with FDIC on a 

broad range of initiatives structured 

to meet local and regional needs 

for financial products and services, 

credit, asset-building, affordable 

housing, small business and 

micro-enterprise development 

and financial education.

24
Large Bank Contingency Planning

The FDIC must ensure that it has 

the tools and strategies necessary to 

fulfill its missions as deposit insurer 

and receiver for all insured banks and 

thrifts. As the banking industry has 

become more concentrated and 

as larger insured institutions have 

grown significantly, the FDIC has 

undertaken a number of concrete 

steps to enhance its capabilities

to manage the resolution of a large 

bank. Some of the initiatives involved 

in this ongoing process are contingency planning exercises, system 

and process improvements for 

determination of deposit insurance 

claims and management of failing 

bank assets, consultations with 

domestic and international regulators, improvements to the FDIC’s 

supervisory program for larger 

banks, and the designation of 

internal and external expertise to 

focus on larger bank issues. The 

Claims Administration System 

(CAS), described in the following 

section, is one of these initiatives. 

This effort will continue and evolve 

as the challenges change in the 

future. 

Claims Modernization Project

The FDIC is taking advantage of the 

hiatus in resolution activity by modernizing the way it determines the 

insurance status of depositors in the 

event of failure by streamlining its 

business processes and modernizing 

the internal systems used to facilitate 

a deposit insurance determination 

through improved use of current 

technology. This includes development 

and implementation of a new 

insurance determination system 

called the Claims Administration 

System (CAS) to be implemented 

in 2008, which will provide an 

integrated solution that will meet the 

current and future deposit insurance 

determination needs of the FDIC. 

The new system will minimize the 

potential for FDIC losses, reduce any 

spillover effects that could lead to 

systemic risks, preserve franchise 

value, and produce deposit insurance 

results in a timely manner in order to 

quickly provide funds to claimants.

Receivership Management

The FDIC has the unique mission 

of protecting depositors of insured 

banks and savings associations. 

No depositor has ever experienced 

a loss on the insured amount of their 

deposit in an FDIC-insured institution 

due to a failure. Once an institution 

is closed by its chartering authority –

the state for state-chartered institutions, the Office of the Comptroller of 

the Currency (OCC) for national banks 

and the Office of Thrift Supervision 

(OTS) for federal savings associations –

the FDIC is responsible for resolving 

that failed bank or savings association.

The FDIC gathers data about the 

troubled institution, estimates the 

potential loss to the insurance fund 

from various resolution alternatives, 

solicits and evaluates bids from 

potential acquirers, and recommends 

the least-costly resolution method 

to the FDIC’s Board of Directors.

Resolving Financial Institution 

Failures 

For the second consecutive calendar

year, there was no failure of an insured 

depository institution in 2006, further 

extending the longest period in the 

history of the FDIC during which 

no insured institution failed – a 

record 31 months. The Corporation’s 

remaining receivership management 

workload also continued to decline. 

The accompanying chart provides 

liquidation highlights and trends 

for the past three years.

2006 2005 2004

Total Resolved Banks 0 0 3

Assets of Resolved Banks $ 0.00 $ 0.00 $ 0.15

Total Resolved Savings Associations 0 0 1

Assets of Resolved Savings Associations $ 0.00 $ 0.00 $ 0.01

Net Collections from Assets in Liquidation■$ 0.17 $ 0.37 $ 0.38

Total Assets in Liquidation■$ 0.35 $ 0.44 $ 0.61

Total Dividends Paid ■$ 0.17 $ 0.44 $ 0.38

Savings Over Cost of Liquidation▼ $ 0 $ 0 $ 11.6 million

No failures in 2005 and 2006.

Includes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the 

Resolution Trust Corporation. 

Least Cost Test Savings.

Dollars in billions (except where noted)

Liquidation Highlights 2004-2006

●

■

▼

● ●

25
The Corporation is also seeking 

cooperation from the largest insured 

institutions to assist in the insurance

determination process in the event 

of failure. During 2006, the FDIC 

reviewed 28 comment letters received

in response to an advance notice of 

proposed rulemaking (ANPR) published in December 2005, requesting 

input on three options that could be 

applied to the largest 145 insured 

institutions. Based on this review, 

a new ANPR was published in 

December 2006, seeking comment 

on a new option and strategy for 

this purpose. The FDIC is currently 

awaiting comments on this revised 

proposal.

Receivership Management

The FDIC, as receiver, manages failed 

banks and their subsidiaries with the 

goal of expeditiously winding up their 

affairs. The oversight and prompt 

termination of receiverships help 

to preserve value for the uninsured 

depositors and other creditors by 

reducing overhead and other holding 

costs. Once the assets of a failed 

institution have been sold and all 

impediments to termination have 

been resolved, the FDIC makes the 

final distribution of any proceeds and 

terminates the receivership estate. 

In 2006, the number of receiverships 

under management was reduced by 

15.4 percent (from 65 to 55), while 

the book value of assets under management was reduced by 20.2 percent 

(from $441 million to $352 million). 

The ten receiverships terminated 

in 2006 were all terminated within 

90 days of the resolution of all 

impediments.

Professional Liability Recoveries

The FDIC works to identify potential 

claims against directors and officers, 

accountants, appraisers, attorneys 

and other professionals who may 

have contributed to the failure of 

an insured financial institution. Once 

a claim is deemed viable and costeffective to pursue, the FDIC initiates 

legal action against the appropriate 

parties. The FDIC strives to make a 

decision to close or pursue 80 percent of all potential claims within 

18 months of the failure date.5

 

During 2006, the FDIC recovered 

approximately $36.2 million from 

these professional liability suits. In 

addition, as part of the sentencing 

process for those convicted of criminal 

wrongdoing against failed institutions, 

the court may order a defendant to 

pay restitution to the receivership. 

The FDIC, working in conjunction 

with the U.S. Department of Justice, 

collected approximately $10.5 million

in criminal restitution payments during

the year. The FDIC’s caseload at the 

end of 2006 included investigations, 

lawsuits and ongoing settlement 

collections involving 13 claims and 

95 other active collection matters, 

down from 127 at the beginning 

of 2006. At the end of 2006, there 

were 814 pending restitution orders, 

down from 995. This includes 

orders won by the former Resolution 

Trust Corporation for which the 

FDIC assumed responsibility on 

January 1, 1996.

Protecting Insured Depositors 

Although the FDIC’s focus in recent 

years has shifted from resolving 

large numbers of failed institutions 

to addressing existing and emerging 

risks in insured depository institutions, 

the FDIC continues to protect depositors and other stakeholders of those 

institutions that fail. The FDIC’s 

ability to attract healthy institutions 

to assume deposits and purchase 

assets of failed banks and savings 

associations minimizes the disruption 

to customers and allows some assets 

to be returned to the private sector 

immediately. Assets remaining 

after resolution are liquidated by the 

FDIC in an orderly manner, and the 

proceeds are used to pay creditors, 

including depositors whose accounts 

exceeded the insured limit. During 

2006, the FDIC paid dividends of 

80.2 percent of the deposit amount 

exceeding the insured limit, which 

represents an increase of 2.3 percent 

from 2005.

Effective Management 

of Strategic Resources

The FDIC recognizes that it must 

effectively manage its human, 

financial, and technological resources 

in order to successfully carry out its 

mission and meet the performance 

goals and targets set forth in its 

annual performance plan. The 

Corporation must align these strategic 

resources with its mission and goals 

and deploy them where they are 

most needed in order to enhance 

its operational effectiveness and 

minimize potential financial risks to 

the DIF. Major accomplishments in 

improving the Corporation’s operational efficiency and effectiveness 

during 2006 are described on the 

following pages. 

5 This performance target did not apply in 2006, because no failures occurred during the 18-month period prior to the start of the year.

26
Human Capital Management

The FDIC’s employees are its most 

important resource. The intellectual 

capital supplied by FDIC employees 

is the single most important contributor to achieving the Corporation’s 

mission of maintaining public 

confidence in our nation’s financial 

system. As such, the FDIC strives 

to be the best employer within the 

financial regulatory community and 

pursues human capital programs 

and strategies that will enable it to 

attract, develop and retain a highly 

skilled, diverse, and results-oriented 

workforce.

The FDIC has a human capital framework that guides its human capital 

activities. Using this framework as 

a guide, the Corporation continues 

to develop and maintain a workforce 

that is highly functional and crosstrained in multiple disciplines and 

stands ready to redirect its attention 

and efforts in response to changes 

in the banking industry or changes 

in workload priorities. 

During 2006, the FDIC completed 

the last of its currently-planned 

workforce restructuring activities. 

Through the strategic use of 

voluntary early retirement authority 

and voluntary separation incentive 

payments, most of the remaining 

restructuring was accomplished 

voluntarily. The Corporation also 

completed a very successful internal 

placement process that reassigned 

remaining surplus staff to vacancies 

in other FDIC organizations.

Corporate Employee Program

Development and implementation 

of the new Corporate Employee 

Program (CEP) continued in 2006. 

The program emphasizes crosstraining of employees at all levels 

to provide greater flexibility to be able 

to respond to changes in workload as 

well as unexpected external events. 

During the past year, the primary focus 

was on the implementation of a new 

recruiting strategy for entry-level 

employees and refinement of the 

first-year training program under 

which new employees are exposed 

to each of the Corporation’s three 

major business lines. By the end 

of 2006, almost 200 employees 

had begun the three-year career 

internship and training program that 

is the core component of the CEP 

and will in the future constitute the 

primary source of new employees 

for the Corporation’s business 

divisions. 

Employee Learning and Growth

The Corporation emphasizes continuous employee learning and growth. 

During 2006, the Corporation finalized 

plans for the 2007 implementation 

of the new Professional Learning 

Account program that will give 

employees a greater role in planning 

their career development and provide 

substantially increased funding for 

external training. The Corporation 

also began to increase its emphasis 

on industry-recognized professional 

certifications and completed pilot 

tests of two new internally-developed 

certificate programs covering Bank 

Secrecy Act/Anti-Money Laundering, 

and Resolutions and Receivership 

Claims. A career path for large complex bank specialists will be explored, 

and training requirements for this 

specialty will be evaluated. As these 

and other programs are implemented, 

a database of FDIC employee skills 

will track and monitor the availability of 

specialized human capital resources.

Corporate University expanded its 

support of external certificate programs to provide staff the opportunity 

to build skills as well as earn professional credentials. The FDIC now pays 

exam fees and preparation class fees 

for eligible students pursuing the 

following external certificate programs:

• Certified Anti-Money Laundering 

 Specialist (CAMS);

• Certified Fraud Examiner (CFE);

• Certified Information Systems 

 Auditor ® (CISA ® ) ;

• Certified Regulatory Compliance 

 Manager (CRCM); 

• Chartered Financial Analyst®

 (CFA ®); and

• Financial Risk Manager® (FRM ®). 

Succession Management

The FDIC will have the opportunity 

over the next decade to substantially 

reshape its workforce in conjunction 

with the projected retirements of 

a large number of employees from 

the “baby boom” generation. To 

proactively plan for and address 

these projected retirements, the 

FDIC developed two succession 

management programs in 2006: 

the Executive Talent Review and 

the Corporate Executive Development 

Program. These programs were 

designed to assess executive leadership strength, identify potential 

skill set shortages or gaps and then 

institute strategies for closing these 

gaps, including rigorous leadership 

27
development programs. In late 

2006, the FDIC’s senior leadership 

conducted an initial “talent review” 

of all of its executive managers to 

determine where there may be gaps 

in the availability and skills of qualified successors for key executive 

positions. This process identified a 

number of “at risk” positions – those 

in which the incumbents were likely 

to leave in the near future with no 

or few obvious internal candidates 

available to replace them. In 2007, 

the Corporation will develop strategies to fill these potential succession 

gaps for positions with a high risk 

of loss in the near term. The talent 

review process will also be extended 

to assess potential succession in 

management gaps for supervisory 

and managerial positions as well as 

senior technical professionals. 

Pay-for-Performance

In January 2006, the FDIC began 

implementation of the new 2006-

2009 Compensation Agreement that 

had been negotiated with its employee

union during 2005. This included 

a revised pay-for-performance (PFP) 

system that provides for graduated 

base pay increases and potential 

lump sum bonuses based exclusively 

on assessments of total employee 

performance. The PFP system is 

entirely performance-based; only 

those employees who meet all 

of their performance standards 

are eligible for pay increases.

Employee Engagement

The FDIC’s human capital programs 

and strategies are continually evaluated to ensure that the FDIC remains 

an employer of choice and that all 

employees feel engaged and aligned 

with the Corporation’s mission critical 

functions. To help assess workload 

alignment and employee engagement, 

all FDIC employees were encouraged 

to participate in the 2006 Federal 

Human Capital Survey administered by 

the Office of Personnel Management.

This survey provides relative measures 

of employee satisfaction and engagement on a number of dimensions. 

In 2007, the FDIC will analyze the 

results and implement action plans 

to address any potential issues that 

employees identify as inhibitors to 

strong employee engagement.

Management of 

Financial Resources

The FDIC’s operational expenses 

are largely paid from the DIF, and 

the Corporation seeks to operate 

in a consistently efficient and cost 

effective manner in order to fulfill its 

fiduciary responsibilities. To that end, 

the Corporation engages annually 

in a rigorous planning and budgeting 

process that is designed to ensure 

that budgeted resources are properly 

aligned with projected workload 

and business priorities. In 2006, the 

FDIC continued to enhance the cost 

management information available 

to managers in conjunction with the 

implementation of the New Financial 

Environment, its new accounting 

system. In 2007, the FDIC will continue to explore how best to utilize 

this enhanced cost management data 

to promote good stewardship of the 

Corporation’s resources.

Managing Facility-Related Costs

In the first quarter of 2006, the 

Corporation completed construction 

of its Virginia Square Phase II facility 

in Arlington, VA. The project was 

completed on time and under budget. 

Approximately 800 employees in three 

leased facilities in Washington, DC,

were relocated to the expanded 

facility in Arlington. Successful 

completion of this initiative to build 

and relocate staff to owned space will 

save the Corporation an estimated 

$89 million (net present value) over 

20 years, compared to the projected 

cost of extending the previous 

leasing agreements.

Information Technology 

Management

Information technology (IT) resources 

are one of the most valuable assets 

available to the FDIC in fulfilling its 

corporate mission. The FDIC operates 

a nationwide computing network 

and maintains approximately 270 

application systems through which 

employees perform their duties. 

IT Transformation

For the past several years, the 

Corporation has been engaged 

in a major effort to transform and 

improve its IT program. In 2006, 

the IT program continued to evolve 

as it continued to implement key 

elements of its transformation plan:

• The organization fully adopted the 

 Rational Unified Process® as its 

 new system development life cycle 

 methodology and customized it 

 to meet the FDIC’s unique IT 

 project environment.

• The Division of Information 

 Technology (DIT) adopted a new 

 internal control framework based 

 upon the international standard 

 known as CobiT (Control Objectives

 for Information and Related 

 Technology).

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• DIT continued implementing a 

 new sourcing strategy in which 

 it partnered with the private 

 sector and other federal agencies 

 to provide IT support services 

 using performance-based, results-

 driven contracts. 

E-Exam Programs

In 2006, the FDIC also implemented 

an e-Exam Policy, including related 

security procedures, for use in 

conducting examination activities 

at institutions utilizing an electronic 

exchange of documents/data with 

the FDIC. A significant component 

of the e-Exam Policy involves the 

flexibility to increase the amount of 

examination work conducted off-site. 

Factors considered in the decision 

to utilize this program include the 

type and extent of the information 

available, the institution’s risk profile,

and management’s willingness to 

transfer examination documents 

electronically.

E-Government

The FDIC continued to collect quality 

and timely information in 2006 with 

the use of FDICconnect, the secure 

Web site that facilitates electronic 

communication with FDIC-insured 

institutions. In 2006, over 400,000 

transactions were completed 

by financial institutions using 

FDICconnect.

Central Data Repository

The Federal Financial Institutions 

Examination Council (FFIEC), which 

includes the FDIC, won a 2006 award 

from Government Computer News

for outstanding and innovative use of 

IT in government for the successful 

launch of the new Central Data 

Repository (CDR) to collect Call 

Report data using XBRL (eXtensible 

Business Reporting Language). The 

CDR project was also awarded the 

Chief Information Officer’s Top 100 

award for its outstanding work using 

XBRL for financial reporting.

Enhanced Information Security 

Program

The FDIC’s information security 

program seeks to proactively assure 

the integrity, confidentiality and 

availability of corporate information

requiring an ongoing commitment by 

employees throughout the organization. In 2006, the information security 

program continued its ongoing cycle 

for assessing risks, developing 

and implementing effective security 

procedures and monitoring the 

effectiveness of those procedures.

Corporate Privacy Program 

The FDIC continued to enhance its 

IT Privacy Program in 2006 with an 

emphasis on protecting personally 

identifiable information (PII) from 

unauthorized use, access, disclosure 

or sharing, and protecting associated 

information systems from unauthorized access, modification, disruption 

or destruction. Initiatives undertaken 

during the year included the following: 

• Developing an overarching privacy 

 directive. 

• Developing a strategy for the 

 protection of PII processed, 

 stored, transmitted or accessed 

 by FDIC contractors, and ensuring 

 appropriate assessment of the 

 security of data. 

• Continuing the review and reme-

 diation of PII in FDIC application 

 systems. 

• Identifying all contracts that 

 process or use PII or other 

 sensitive information, ensuring 

 that updated privacy and nondis-

 closure clauses are included.

• Continuing to participate in the 

 Office of Management and Budget 

 Privacy Work Group. 

Emergency Preparedness Program

During 2006, the FDIC continued 

work on its Emergency Preparedness 

Program, and made improvements to 

the Emergency Response Plan (ERP) 

and Business Continuity Plan (BCP). 

Completed initiatives included the 

development of a computer-based 

instruction module on emergency 

preparedness for all FDIC personnel 

to be activated in early 2007; expansion and improvement of FDIC 

alternate site facilities; expansion 

of FDIC emergency notification 

systems to all regional and area 

offices; revision of both the ERP 

and BCP; and participation in the 

Federal government’s Forward 

Challenge simulation exercise. 

Other accomplishments included 

the conduct of additional classroom 

training on emergency preparedness 

for employees, contractors and 

floor marshals; shelter-in-place 

and evacuation drills; and tabletop 

exercises at all headquarters and 

regional office locations. Disaster 

recovery testing of FDIC’s key 

information technology resources 

was also performed.

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