Message from the Chairman

I am pleased to present the Federal 

Deposit Insurance Corporation’s (FDIC) 

2012 Annual Report. 

In 2012, we saw the continuation of the 

gradual but steady recovery of FDIC-insured 

institutions. Capital has increased and 

banks have bolstered their liquidity. Loan 

growth has shown improvement, and banks 

continued to strengthen their balance sheets. 

Revenue growth surpassed reductions in 

loss provisions as the principal contributor 

to earnings, although much of that growth 

came from loan sales. 

At year-end, domestic and international 

issues still presented challenges for the 

economy and the banking industry, but the 

underlying trends were positive. Indeed, 

bank performance indicators improved 

during 2012, particularly earnings and 

credit quality of loans on the books of 

FDIC-insured institutions. Much of the 

improvement in earnings over the last 

few years was driven by lower loan-loss 

provisions, refl ecting improved credit 

quality. Going forward, industry earnings 

will depend on increased lending, consistent 

with sound underwriting. 

Although challenges to the recovery remain, 

the FDIC is well positioned to carry out 

its mission of maintaining stability and 

public confi dence in the nation’s fi nancial 

system by insuring deposits, examining and 

supervising fi nancial institutions for safety 

and soundness and consumer protection, 

and managing receiverships. At the end of 

2012, the FDIC insured a record $7.4 trillion 

of deposits in over half a billion accounts at 

more than 7,000 institutions. 

Our current top priorities include:

♦ continuing implementation of FDIC’s 

systemic resolution responsibilities 

under the Dodd-Frank Wall 

Street Reform and Consumer 

Protection Act (Dodd-Frank 

Act), including resolution 

planning and promoting 

cross border cooperation and 

coordination with respect 

to an orderly resolution of a 

globally active, systemically 

important fi nancial institution;

♦ following up on the FDIC’s 

Community Banking 

Initiatives, including pursuing 

additional research relating 

to the continued viability 

of community banks, and 

continuing our review of examination 

and rulemaking processes with the 

goal of identifying additional ways to 

make the supervisory process more 

effi cient, consistent, and transparent, 

consistent with safe and sound banking 

practices; and

♦ continuing our economic inclusion 

initiatives to expand access to mainstream 

fi nancial services for all people in the 

United States.

A great strength of our agency is a highly 

dedicated and motivated workforce. The 

FDIC’s employees understand the agency’s 

mission and how it relates to what they 

do. For the second year in a row, the FDIC 

took the top spot in the Best Places to Work 

in the Federal Government rankings, this 

year in the new category for mid-sized 

federal agencies. We are very proud of this 

recognition. All of us at the FDIC share 

the responsibility for cultivating a highperformance environment with a deep sense 

of mission among our workforce. 

MESSAGE FROM THE CHAIRMAN 5
ANNUAL REPORT 2012

6 FEDERAL DEPOSIT INSURANCE CORPORATION

STRENGTHENING THE 

DEPOSIT INSURANCE 

FUND AND RESOLVING 

FAILED BANKS

The FDIC has made signifi cant 

progress in rebuilding the DIF. In 

2010, the FDIC Board approved 

a comprehensive, long-term plan 

for fund management based on 

Dodd-Frank Act requirements and 

on an FDIC historical analysis of DIF 

losses. After returning to a positive 

balance of $11.8 billion at the end of 

2011, from negative $7.4 billion a year 

earlier, the DIF balance rose to $33.0 

billion at the end of 2012. Assessment 

revenue, fewer bank failures, and 

fees transferred to the DIF from 

the Temporary Liquidity Guarantee 

Program, were the main drivers of 

fund growth in 2012. 

The number of both failed and 

problem institutions continued to 

decline in 2012. Failed institutions 

peaked in 2010 at 157, and declined to 

92 in 2011 and 51 in 2012. Similarly, 

problem banks peaked at 888 in 

March 2011 and declined to 651 by the 

fourth quarter of 2012. Although both 

trends are positive, they still represent 

highly elevated levels of failed and 

troubled banks. As a result, the FDIC 

continues to devote considerable 

resources to managing receiverships, 

examining problem institutions, 

and implementing provisions of the 

Dodd-Frank Act.

Nonetheless, as the banking industry 

continues to stabilize, the FDIC will 

require fewer resources. The FDIC’s 

authorized workforce for 2012 was 

8,713 full-time equivalent positions 

compared with 9,269 the year before. 

The 2012 Corporate Operating Budget 

was $3.3 billion, a decrease of $0.6 

billion (15 percent) from 2011. 

For 2013, the Board reduced the 

budget by 18 percent to $2.7 billion 

and reduced authorized staffi ng 

by 8 percent to 8,026 positions in 

anticipation of a further drop in bank 

failure activity in the years ahead. The 

FDIC also announced plans to close 

the last of three temporary satellite 

offi ces that were set up to handle 

crisis-related workload. The Irvine 

(California) offi ce closed in January 

2012, and the Schaumburg (Illinois) 

offi ce closed in September 2012. The 

Jacksonville (Florida) offi ce is now 

scheduled to close in 2014. Contingent 

resources are included in the budget, 

however, to ensure readiness should 

economic conditions unexpectedly 

deteriorate.

During 2012, the FDIC continued 

using successful resolution strategies 

instituted in 2009 to protect insured 

depositors of failed institutions at 

the least cost to the DIF. The FDIC 

actively marketed failing institutions, 

and the large majority of those 

institutions were sold to other 

fi nancial institutions. These strategies 

protected insured depositors and 

preserved banking relationships 

in many communities, providing 

depositors and customers with 

uninterrupted access to essential 

banking services. 

IMPLEMENTING THE 

FDIC’S NEW AUTHORITIES 

UNDER THE DODDFRANK ACT AND OTHER 

FINANCIAL REFORM

The Dodd-Frank Act included 

far-reaching changes to make 

fi nancial regulation more effective in 

addressing systemic risks and gave 

the FDIC the authority to resolve 

systemically important fi nancial 

institutions (SIFIs).

For SIFIs, the Title II – Orderly 

Liquidation Authority (OLA) of the 

Dodd-Frank Act provides the FDIC 

authority to resolve a parent holding 

company, and any fi nancial affi liate, 

as well as other nonbank SIFIs. The 

FDIC has been working for the past 

two years to develop the strategic and 

operational capability to carry out this 

new authority. 

During 2012, the FDIC developed 

internal plans for resolving a failing 

SIFI premised on utilizing the 

new Title II OLA authorities of the 

Dodd-Frank Act. If the FDIC is 

appointed as receiver of such an 

institution, it will be required to carry 

out an orderly liquidation in a manner 

that mitigates systemic risk, imposes 

losses on shareholders and creditors, 

replaces culpable management, and 

ensures, as required by the statute, 

that taxpayers bear no losses. 

The FDIC also engaged with our 

counterparts overseas on crossborder protocols for resolving failing 

SIFIs. As part of our bilateral efforts 

in this area, the FDIC and the Bank 

of England, in conjunction with 

the prudential regulators in our 

jurisdictions, have been working to 

develop contingency plans for the 

failure of Global SIFIs (G-SIFIs) that 

have operations in both the U.S. and 

the U.K. Of the 28 G-SIFIs designated 

by the Financial Stability Board of the 

G-20 countries, four are headquartered 

in the U.K., and another eight are 

headquartered in the U.S. As part of 

this effort, the FDIC and the Bank of 

England jointly released a paper in 

December 2012 discussing resolution 

strategies for G-SIFIs. In addition to 

the close working relationship with 

the U.K., the FDIC and the European 

Commission (E.C.) established a joint 

Working Group in 2012 comprised of 

6 MESSAGE FROM THE CHAIRMAN
ANNUAL REPORT 2012 7

senior staff to discuss resolution and 

deposit guarantee issues common 

to our respective jurisdictions. We 

expect that these meetings will 

enhance close coordination on 

resolution related matters between 

the FDIC and the E.C., as well as 

European Union Member States.

In addition, the Dodd-Frank Act 

requires bank holding companies with 

more than $50 billion in assets and 

other fi nancial companies, designated 

by the Financial Stability Oversight 

Council (FSOC) for heightened 

prudential supervision by the Board 

of Governors of the Federal Reserve 

System, to develop their own 

resolution plans, otherwise known as 

“living wills.” These fi rms are required 

to demonstrate how they could be 

resolved under the bankruptcy code 

without disruption to the fi nancial 

system and the economy. Bankruptcy 

remains the preferred resolution 

option for these fi rms. Only when 

bankruptcy is not a viable option 

would the FDIC’s OLA under Title II of 

the Dodd-Frank Act be considered.

The FDIC Board has adopted two 

rules regarding resolution plans. 

The fi rst rule, jointly issued with 

the Federal Reserve Board in 2011, 

requires SIFIs to develop, maintain, 

and periodically submit resolution 

plans or “living wills” to the Federal 

Reserve Board and the FDIC. The 

second rule requires any FDIC-insured 

depository institution with assets over 

$50 billion to develop, maintain, and 

periodically submit plans for rapid and 

orderly resolution under the Federal 

Deposit Insurance Act in the event of 

material fi nancial distress or failure.

Eleven institutions submitted plans in 

2012 under the rulemaking. The FDIC 

and the Federal Reserve Board are 

jointly reviewing the plans as required 

by the statute. 

Along with the other U.S. banking 

agencies, the FDIC participated in 

an intensive international effort to 

strengthen bank capital standards 

that resulted in the Basel III capital 

agreement. In broad terms, the new 

standards aim to improve the quality 

and increase the required level of bank 

capital. The FDIC Board has proposed 

implementing rules for Basel III and is 

now reviewing public comments.

Ongoing resolution planning, regular 

dialogue with potential SIFIs, stronger 

capital standards, and international 

cooperation are critical to the 

FDIC’s implementation of its new 

responsibilities under the Dodd-Frank 

Act. The FDIC’s Systemic Resolution 

Advisory Committee continues to 

advise the FDIC on a variety of issues 

including the effects on fi nancial 

stability and economic conditions 

resulting from the failure of a SIFI, 

the ways in which specifi c resolution 

strategies would affect stakeholders 

and their customers, and the tools 

available to the FDIC to wind down 

the operations of a failed organization.

COMMUNITY 

BANKING INITIATIVE

Community banks play a crucial role 

in the American fi nancial system. 

Community banks account for about 

14 percent of the banking assets in 

our nation, but they provide nearly 

46 percent of all the small loans that 

FDIC-insured depository institutions 

make to businesses and farms.

The FDIC is the lead federal regulator 

for the majority of community banks, 

and the insurer of all. As such, the 

FDIC has an ongoing responsibility 

to better understand the challenges 

facing community banks, and to share 

that knowledge with bankers and the 

general public.

In early 2012, the FDIC announced a 

series of initiatives focusing on the 

challenges and opportunities facing 

community banks. The fi rst was a 

national conference in early 2012 on 

the Future of Community Banking. 

During the year, we held a series of 

roundtables with community bankers 

in each of the FDIC’s six regions. Our 

most senior executives and I attended 

these roundtables to hear fi rsthand the 

concerns of bankers and to discuss 

what the FDIC could do in response.

We also issued a comprehensive 

study of the evolution of community 

banking in the United States over the 

past 25 years. The FDIC Community 

Banking Study is an important 

initial step in understanding the 

current state of the industry. It also 

will provide a platform for future 

research and analysis by the FDIC 

and other interested parties. Key 

areas that the study covered include: 

the defi nition of a community bank, 

structural changes among community 

and non-community banks, the 

geography of community banking, 

the performance of community banks 

compared to non-community banks, 

the performance of community bank 

lending specialty groups, and capital 

formation at community banks. The 

study is the most comprehensive 

analysis of the fi nancial performance 

and structural change in the 

community banking industry over the 

past 25 years.

We reviewed the FDIC’s bank 

examination process for both 

risk management and compliance 

supervision. We also looked at the 

rulemakings and guidance process, 

MESSAGE FROM THE CHAIRMAN 7
ANNUAL REPORT 2012

8 FEDERAL DEPOSIT INSURANCE CORPORATION

in an effort to make it more effi cient 

and transparent while maintaining 

supervisory standards. The FDIC 

solicited input from community 

bankers and incorporated that 

feedback into specifi c actions 

we took in response. Based on 

feedback received, the FDIC 

began implementing a number of 

enhancements to our supervisory 

and rulemaking processes in 

2012, including revamping the 

pre-exam process to better scope 

examinations and taking steps to 

improve communication by using 

web-based tools to provide critical 

information regarding new or 

changing rules and regulations as 

well as comment deadlines. The 

FDIC has also instituted a number 

of new outreach and technical 

assistance efforts, including increased 

direct communication between 

examinations, increased opportunities 

for attendance at training workshops 

and symposiums, and current and 

planned conference calls and training 

videos on complex subjects of interest. 

The FDIC’s review of examination 

and rulemaking processes will be 

an ongoing effort, and we plan to 

pursue additional enhancements and 

modifi cations to our processes.

Finally, our Advisory Committee on 

Community Banking is a permanent 

forum for discussing critical issues. 

The Committee, which is composed 

of 15 community bank CEOs from 

around the country, is a valuable 

source of information and input on 

a wide variety of topics, including 

the latest examination policies 

and procedures, capital and other 

supervisory issues, credit and 

lending practices, deposit insurance 

assessments and coverage, and 

regulatory compliance issues.

Our community banking initiative 

will remain an ongoing priority that 

includes outreach programs, research, 

and improvements in the examination 

process.

PROTECTING 

CONSUMERS AND 

EXPANDING ACCESS 

TO BANKING SERVICES

Deposit insurance provides security 

and peace of mind for customers 

depositing their money into fi nancial 

institutions. However, accessing 

insured institutions has proven elusive 

for millions of people across the U.S. 

In September 2012, the FDIC released 

the results of the second biennial 

survey of unbanked and underbanked 

households, conducted jointly with the 

U.S. Bureau of the Census. The survey 

was conducted in mid-2011. It found 

that one in four U.S. households (28 

percent) do not have bank accounts 

or are underbanked, a slight increase 

from the 2009 survey.

A separate survey of banks, conducted 

by the FDIC and released in 2012, 

found that four in 10 banks develop 

products and services specifi cally 

for unbanked and underbanked 

consumers, while eight in 10 provide 

free counseling. Nearly two-thirds 

said they charged no maintenance 

fees on basic checking accounts but 

some banks have account opening 

requirements that can be challenging 

for underserved populations, such as 

initial deposits of $100 or more.

At the national policy level, the 

FDIC’s Advisory Committee on 

Economic Inclusion—composed of 

bankers, community and consumer 

organizations, and academics—

explored strategies to bring 

the unbanked into the fi nancial 

mainstream. The Committee has 

pursued a number of initiatives since it 

was formed in 2007. One of its initial 

projects—the Small-Dollar Loan Pilot 

Program—demonstrated that banks 

can offer safe, affordable, small-dollar 

loans as an alternative to high-priced 

sources of emergency credit, such as 

payday loans or fee-based overdrafts.

In 2012, the Committee completed 

another pilot program, Model Safe 

Accounts, that evaluated how 

banks can offer safe, low-cost 

transaction and savings accounts 

that are responsive to the needs 

of underserved consumers. Nine 

fi nancial institutions participated in 

the pilot, which featured electronic 

and card-based accounts. The 

results indicated that Safe Accounts 

performed on par with, or better 

than, other transaction and savings 

accounts offered by the pilot 

banks. A large portion of account 

holders remained banked during 

the year, suggesting that consumers 

can maintain successful banking 

relationships using Safe Accounts. 

Most of the pilot institutions reported 

that the cost of offering Safe Accounts 

was roughly the same, if not lower, 

because the pilot accounts do not have 

paper check-related costs.

The Committee also looked at the 

role that technology and innovation, 

particularly mobile banking, can play 

in expanding access to mainstream 

fi nancial services. The Committee 

formed a Mobile Financial Services 

Subcommittee to examine ways 

in which the FDIC can support 

the ongoing development of 

mobile fi nancial services in ways 

that facilitate broader access to 

mainstream fi nancial services. The 

Committee will continue to meet 

during 2013, and mobile banking 

8 MESSAGE FROM THE CHAIRMAN
ANNUAL REPORT 2012 9

will continue to be a focus of the 

Committee and the FDIC.

At the local level, the FDIC’s Alliance 

for Economic Inclusion has organized 

coalitions of fi nancial institutions, 

community organizations, local 

government offi cials, and other 

partners in communities across 

the country to bring unbanked and 

underbanked households into the 

fi nancial mainstream. The effort 

includes better access to basic retail 

fi nancial services, such as checking 

and savings accounts, affordable 

remittance products, small-dollar 

loans, targeted fi nancial education 

programs, and asset-building 

programs. These partnerships are 

currently operating in 16 communities 

nationwide, with two new 

partnerships formed in 2012.

CONCLUSION

The banking industry made 

measurable progress in 2012, with 

stronger earnings, better asset quality, 

and fewer bank failures and problem 

institutions. Still, we remain mindful 

that challenges remain. 

The FDIC’s workforce remains 

committed to carrying out our 

mission. I am very grateful to the 

dedicated professionals of the FDIC 

for their work during the fi nancial 

crisis to maintain the stability of and 

public confi dence in the fi nancial 

system, and have full confi dence 

that this commitment to our mission 

will continue as the banking system 

recovers.

Sincerely,

Martin J. Gruenberg