FDIC 2010 ANNUAL REPORT 5

During 2010, the FDIC met the 

challenge of protecting a record $6.2 

trillion of insured deposits in over 

half a billion accounts held by approximately 

7,700 FDIC-insured institutions. Our guarantee 

has protected depositors since 1933, with none 

ever losing so much as a penny of insured 

funds. The FDIC’s mission remains one of the 

most important and compelling across all of 

government, especially as we continue working 

through the fallout from the recent financial 

crisis. Our mission—promoting and maintaining 

the public’s confidence in our nation’s financial 

system by protecting insured depositors—

motivates each of us on a daily basis to engage 

meaningfully in our work for the betterment of 

the American public.

Our commitment to the FDIC’s mission and the 

pride and ownership displayed by our employees, 

resulted in our being recognized as the third best 

place to work among large federal agencies in the 

Partnership for Public Service’s 2010 Best Places to 

Work in the Federal Government. These rankings 

are the most comprehensive and authoritative 

rating and analysis of federal employee 

satisfaction. The rankings reflect the sentiments 

of more than 263,000 federal employees who 

completed the survey, and were driven by 

responses to questions about whether employees 

would recommend their agency as a good place 

to work, how satisfied they are with their jobs, 

and how satisfied they are with their agency on an 

overall basis.

Message from 

the Chairman

Daniel Rosenbaum/The New York Times/Redux
6 FDIC 2010 ANNUAL REPORT

The year 2010 was a year of transition in 

dealing with the aftermath of the financial 

crisis that began in 2008 and of major change 

in the financial regulatory system. The FDIC 

continued to focus on cleaning up failed banks, 

strengthening bank supervision, ensuring the 

financial capacity of the Deposit Insurance 

Fund (DIF), and beginning the huge task of 

implementing regulatory reforms passed by the 

Congress that are intended to prevent another 

financial meltdown.

During 2010, 157 banks failed, up from 140 

the previous year and the highest number since 

1992. However, fewer banks failed than we had 

projected, and failures likely peaked in 2010, 

although the number of problem institutions—

those with the two lowest supervisory ratings—

rose to 884, which was the highest year-end total 

since 1992. Historically, the vast majority of 

problem institutions do not fail.

While we expect 2010 to have been the peak 

year for problem and failed institutions, as the 

economy recovers, substantial residual workload 

remains from the failures that occurred in prior 

years. Accordingly, we have been adding to our 

operational resources. The FDIC workforce grew 

to 8,150 full-time equivalent positions at yearend 2010, up from 6,557 at year-end 2009, and 

is authorized to increase by another 13 percent 

during 2011 as we move some contracting work 

in-house to achieve cost savings. In recognition 

of anticipated lower projected bank failure 

resolution costs, the FDIC Board approved a 2011 

Corporate Operating Budget of $3.9 billion, a 

slight decrease from 2010.

Reforming the 

Regulatory Structure

Congress passed and President Obama signed the 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) in late July. The 

new law includes far-reaching changes to restore 

market discipline, internalize the costs of risktaking, and make our regulatory process more 

attuned to systemic risks. It greatly expands the 

FDIC’s regulatory responsibilities. It also made 

permanent the $250,000 standard maximum 

deposit insurance limit that had been raised 

temporarily from $100,000 during the crisis.

One of the objectives of the Dodd-Frank Act 

is to restore market discipline by repudiating 

the doctrine that certain large, complex, 

interconnected financial institutions are simply 

too big to fail; hence, the law gave the FDIC the 

power to resolve these institutions when they 

get into trouble. The new law also created the 

Financial Stability Oversight Council (FSOC)—

of which the FDIC was made one of the 10 

voting members—to identify and respond to 

the threat of systemic risks, such as the housing 

bubble that triggered the recent financial crisis. 

The new law also created an independent 

consumer watchdog, the Consumer Financial 

Protection Bureau (CFPB).

In carrying out our many new responsibilities, 

we were authorized to write 44 rulemakings, 

some of which are discretionary, including 18 

independent and 26 joint rulemakings. We 

were also granted new or enhanced enforcement 

authorities. In addition, we are subject to 

new reporting requirements and are required 

to undertake numerous studies and other 

actions. Implementation will require extensive 

coordination among the regulatory agencies and 

will fundamentally change the way we regulate 

larger complex financial institutions. Work began 

on a number of these rules in 2010.

The most significant rulemakings include 

implementation of:

Q the new resolution plan requirement;

Q the new capital floor requirement;
FDIC 2010 ANNUAL REPORT 7

Q the new orderly liquidation authority;

Q the change to the deposit insurance 

assessment base;

Q the so-called Volcker Rule that imposes 

trading restrictions on financial institutions;

Q source of strength requirements for bank and 

thrift holding companies; and

Q credit risk retention requirements for 

securitizations.

Reorganization of the

Supervision Function

In addition to issuing rulemakings, we reorganized 

our banking supervisory function to help 

carry out our new responsibilities under the 

Dodd-Frank Act. We created the new Office of 

Complex Financial Institutions to focus on the 

FDIC’s expanded responsibilities to implement 

a comprehensive risk analysis and assessment 

program for the largest, systemically important 

financial institutions. This office will perform 

continuous review and oversight of bank holding 

companies with more than $100 billion in assets 

as well as nonbank financial companies designated 

as systemically important by the new FSOC and 

will be responsible for establishing relationships 

and agreements with the relevant foreign 

jurisdictions involved in the supervision of these 

large firms. The new office will also be responsible 

for ensuring that the resolution plans developed 

by these firms are credible.

We also split our Division of Supervision and 

Consumer Protection into two separate divisions: 

the Division of Risk Management Supervision 

and the Division of Depositor and Consumer 

Protection. The new consumer division will 

allocate our resources more effectively while 

maintaining the cooperation and information 

sharing between consumer protection and safety 

and soundness examiners that are critical to an 

integrated supervisory approach. It will also 

complement, and work closely with, the 

new CFPB. 

Keeping the DIF Strong 

as Banks Recover

The Dodd-Frank Act requires that the DIF reserve 

ratio reach 1.35 percent by September 30, 2020. 

It also removed the upper limit on the designated 

reserve ratio (DRR) and therefore, on the size 

of the fund. The law also changed the insurance 

premium assessment base from domestic deposits 

to assets minus tangible equity.

In carrying out these changes, the FDIC Board 

proposed a comprehensive, long-term plan for 

fund management based on the new law and 

an FDIC historical analysis of DIF losses. This 

analysis demonstrates that to maintain a positive 

fund balance and steady, predictable assessment 

rates, the reserve ratio must be at least 2 percent 

before a period of large fund losses and average 

assessment rates over time must be approximately 

8.5 basis points of domestic deposits to achieve 

this ratio.

Protecting Depositors and 

Resolving Failed Institutions

As the number of failed institutions rose during 

the year, the FDIC continued using strategies 

instituted in 2009 to protect the depositors 

and customers of these institutions at the least 

possible cost to the DIF. The FDIC continued 

aggressively marketing failing institutions leading 

to the sale of the vast majority of these failed 

entities to healthier acquirers. These strategies 

helped to preserve banking relationships in 

many communities and provided depositors 

and customers with uninterrupted access to 

essential banking services. To this end, analysis 

is performed on every failing institution to 

identify branches located in low- and moderateincome areas to minimize the effect that any 
8 FDIC 2010 ANNUAL REPORT

proposed resolution transaction may have on these 

customers. Moreover, the FDIC’s use of loss-share 

agreements, where failed bank assets are passed 

to the acquirer—thus remaining in the private 

sector—with the FDIC sharing in any potential 

losses on the assets, is expected to save the FDIC 

$39.0 billion over the cost of liquidation.

Balanced Supervision under 

Adverse Conditions

As supervisor for approximately 4,700 community 

banks, the FDIC saw its workload rise in 2010 

with the increase in the number of FDICsupervised problem institutions. The FDIC 

responded to these challenges by prioritizing 

examination activities, increasing staffing levels, 

and making greater use of off-site monitoring 

and on-site visitations between examinations. 

We actively communicated with bankers through 

a variety of outreach activities, including a 

Community Bank Advisory Committee, now 

in its second year. This Advisory Committee 

provides real-time advice and guidance on a broad 

range of small community bank issues, as well as 

local conditions in communities throughout the 

country. We have also worked closely with other 

bank regulatory agencies to issue a number of 

Financial Institution Letters on risk management 

and compliance issues, including the Secure and 

Fair Enforcement for Mortgage Licensing Act of 

2008. Striking a balanced approach to bank 

supervision during a period of adversity for the 

industry remains essential to ensuring that credit is 

made available to finance the economic recovery. 

Preventing Unnecessary 

Foreclosures

Once again, the FDIC was at the forefront of 

efforts to stem the sharp rise in home foreclosures 

caused by unaffordable mortgages and high 

unemployment. In addition to advocating wider 

adoption of streamlined and sustainable loan 

modifications, we required failed-bank acquirers 

under loss-share agreements to modify qualifying 

at-risk mortgages by cutting interest rates and, in 

some cases, deferring principal. The FDIC also 

worked to expand the availability of principal 

write-downs as the erosion of homeowner equity 

may increase the likelihood of delinquencies and, 

in the case of loss-share agreements, losses to 

the DIF.

Reviving Mortgage 

Securitization

Mortgage securitization and the “originate to 

distribute” model of mortgage lending played 

leading roles in the buildup to the financial crisis. 

After the crisis, private securitization virtually 

shut down as investors lost confidence in market 

practices that were insufficiently transparent and 

ineffective in aligning their interests with those 

of originators and underwriters. After seeking 

and reviewing public comment, the FDIC Board 

approved new standards for its existing “safe 

harbor” protections for securitizations by banks 

that are later placed into receivership. These rules 

are designed to foster better risk management 

by strengthening underwriting, providing better 

disclosure, and requiring issuers to retain a 

financial interest in the securities while supporting 

profitable and sustainable securitizations by 

insured banks and thrifts. The goal is to improve 

industry standards in these areas in order to avoid 

future losses to the DIF and to support a revival of 

mortgage securitization on a sounder footing. 

Protecting Consumers 

and Expanding Access to 

Banking Services

The FDIC has traditionally played a leading role 

in shielding consumers from predatory practices 

and promoting access to mainstream financial 

services for all segments of the population. 

We accomplish this through a special website 

(www.economicinclusion.gov), our Advisory 

Committee on Economic Inclusion, our Alliance 
FDIC 2010 ANNUAL REPORT 9

for Economic Inclusion, our Money Smart

financial literacy program, and our National 

Survey of Unbanked and Underbanked Households.

A new initiative under way to improve access 

to mainstream banking services for low-income 

families is the Model Safe Accounts Pilot program 

approved by the FDIC Board in August. This 

program is designed to evaluate the feasibility of 

insured depository institutions offering basic, “no 

frills” transactional and savings accounts. The 

accounts will be FDIC-insured, have low rates and 

fees, and be subject to consumer protection laws, 

regulations, and guidance. 

We are also committed to ensuring that banks 

monitor their overdraft programs to protect 

consumers from excessive fees as well as protect 

their own reputations as stewards of customer 

trust. In late November, we issued final guidance 

on how to reduce problems and avoid hefty fees 

associated with automatic overdraft programs. 

A 2008 FDIC study found that some people 

were chronically using overdraft programs as a 

way to obtain short-term—and very expensive—

loans. While many community banks already 

prudently manage their overdraft programs, some 

banks operate automated programs that lead to 

inappropriate use of these high-cost, short-term 

credit products. The new guidelines provide 

consumers with better information about the cost 

of automatic overdraft programs and require banks 

to intervene when customers use the backstop too 

frequently.

Basel Committee on 

Banking Supervision: 

Capital and Liquidity

To meet the challenges of the future and to 

protect insured depositors, the FDIC actively 

participated in the Basel Committee’s efforts to 

raise global capital standards and institute new 

liquidity requirements. In December 2010, the 

Basel Committee released Basel III: A global 

regulatory framework for more resilient banks and 

banking systems, which increases the quality of 

capital, introduces a Tier 1 common equity ratio, 

requires banks to hold capital conservation and 

countercyclical buffers, increases the minimum 

Tier 1 capital ratio from 4 to 6 percent, and 

increases risk weights for certain bank exposures 

such as counterparty credit risk. The Basel 

Committee also agreed for the first time to 

institute an international leverage ratio and 

new quantitative liquidity thresholds, including 

both a short-term threshold and a longer-term 

structural metric. These capital standards and 

liquidity requirements will improve the ability of 

internationally active banks to meet funding needs 

and lend during periods of stress. 

The FDIC: An Enduring Symbol 

of Confidence

The year 2010 was another very busy and 

challenging year for the FDIC, and hopefully 

the peak year for bank failures. These are 

unprecedented times for our economy and the 

FDIC, but we are prepared to meet the demands 

of our times and committed to carrying out our 

mission of maintaining confidence and stability 

in the American financial system. I am especially 

grateful for the hard-working, dedicated, can-do 

men and women of the FDIC for all they have 

done to respond to the demands of the crisis and 

help put the nation’s financial system back on the 

road to recovery.

Sincerely,

Sheila C. Bair