17

2016

MANAGEMENT’S 

DISCUSSION AND 

ANALYSIS

I.
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2016

 19

THE YEAR IN REVIEW

OVERVIEW

The FDIC continued to fulfill its mission-critical 

responsibilities during 2016. Insuring deposits, 

examining and supervising financial institutions, and 

managing receiverships are the core responsibilities of 

the FDIC. The agency adopted and issued final rules 

on key regulations under the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank 

Act) and engaged in several community banking and 

community development initiatives. Cybersecurity 

remained a high priority for the FDIC in 2016; the 

agency worked to strengthen cybersecurity oversight, 

help financial institutions mitigate increasing risks, 

and respond to cyber threats. The sections below 

highlight these and other accomplishments during 

the year.

IMPLEMENTATION OF 

KEY REGULATIONS 

Alternatives to Credit Ratings in the FDIC’s 

International Banking Regulations

In June 2016, the FDIC issued a Notice of Proposed 

Rulemaking (NPR) to conform the FDIC’s 

international banking regulations (Part 347) to the 

requirements of Section 939A of the Dodd-Frank 

Act, which directs each federal agency to review and 

modify regulations that reference credit ratings. The 

NPR would replace references to credit ratings in Part 

347’s definition of “investment grade” with a standard 

of creditworthiness that has been adopted in other 

federal regulations. The NPR would also amend the 

FDIC’s asset pledge requirement for insured U.S. 

branches of foreign banks by revising the eligibility 

criteria for the types of assets that may be pledged to 

the FDIC.

Banking Activities and Investments

In September 2016, the FDIC, OCC, and FRB 

submitted to Congress and the Financial Stability 

Oversight Council (FSOC), a study required under 

Section 620 of the Dodd-Frank Act of investments 

and activities that a banking entity may engage in 

under federal and state law. The study considers 

the types of activities in which banking entities may 

engage and investments they may make, associated 

risks, and risk mitigation activities undertaken 

by the banking entities with regard to those risks. 

In addition, each of the federal banking agencies 

provided recommendations and considerations for 

future regulatory action or supervisory guidance. 

Minimum Reserve Ratio

In March 2016, the FDIC approved a final rule to 

implement Section 334 of the Dodd-Frank Act, 

which increased the minimum reserve ratio of the 

Deposit Insurance Fund from 1.15 percent to 1.35 

percent, requires that the reserve ratio reach that level 

by September 30, 2020, and mandates that the FDIC 

offset the effect of the increase on insured depository 

institutions (IDIs) with assets of less than $10 billion. 

The final rule imposes surcharges on IDIs with $10 

billion or more in assets and provides credits to IDIs 

with assets below $10 billion for the portion of their 

regular assessments that contribute to growth in the 

reserve ratio between 1.15 percent and 1.35 percent. 

This rule is discussed in greater detail in the section on 

Deposit Insurance. 

FDIC Chairman Martin J. Gruenberg talks with an attendee at 

FDIC’s Community Banking Conference, one of several FDIC 

community banking initiatives.

MANAGEMENT’S DISCUSSION AND ANALYSIS
ANNUAL REPORT

20 MANAGEMENT’S DISCUSSION AND ANALYSIS

Volcker Rule Frequently Asked Questions

The “Volcker Rule” is a provision of the Dodd-Frank 

Act that contains restrictions and prohibitions on 

the ability of banks and their affiliates to engage 

in proprietary trading and have interests in, or 

relationships with, a hedge fund or a private equity 

fund. Banking entities that are subject to the 

rule are permitted to retain investments in certain 

collateralized debt obligations (CDOs) backed 

primarily by trust preferred securities. In March 

2016, the FDIC, Office of the Comptroller of the 

Currency (OCC), Federal Reserve Board (FRB), 

Securities and Exchange Commission (SEC), and 

Commodity Futures Trading Commission (CFTC) 

updated their Frequently Asked Questions (FAQs) 

about the Volcker Rule to clarify the capital treatment 

of permitted investments in those CDOs. 

External Audits of Internationally 

Active U.S. Financial Institutions

In January 2016, the FDIC, OCC, and FRB issued 

an advisory to indicate their support for the principles 

and expectations set forth in the Basel Committee 

on Banking Supervision’s (BCBS) March 2014 

guidance on “external audits of banks.” The advisory 

also explains the agencies’ supervisory expectations 

regarding how internationally active U.S. financial 

institutions should address differences between the 

standards and practices followed in the United States 

and the principles and expectations in the BCBS 

external audit guidance. For purposes of the advisory, 

internationally active U.S. financial institutions 

include insured depository institutions with 

consolidated total assets of $250 billion or more or 

consolidated total on-balance-sheet foreign exposure 

of $10 billion or more.

Expanded Eligibility of 

18-Month Examination Cycle

In December 2016, the FDIC, OCC, and FRB 

jointly finalized the interim final rule that increased 

the number of small banks and savings associations 

eligible for an 18-month examination cycle rather 

than a 12-month cycle. Under the final rules, 

qualifying well-capitalized and well-managed banks 

and savings associations with less than $1 billion in 

total assets are eligible for an 18-month examination 

cycle. Previously, only banks and savings associations 

with less than $500 million in total assets could be 

eligible for the expanded examination cycle. The 

examination cycle changes also apply to qualifying 

well-capitalized and well-managed U.S. branches and 

agencies of foreign banks with less than $1 billion in 

total assets. 

The final rules increase the number of institutions 

that may qualify for an 18-month examination cycle 

by more than 600 to approximately 4,800 banks 

and savings associations. In addition, the final rules 

increase the number of U.S. branches and agencies 

of foreign banks that may qualify for an 18-month 

examination cycle by 30 branches and agencies, to a 

total of 89.

Use of Evaluations in Certain Real 

Estate-Related Financial Transactions

In March 2016, the FDIC, OCC, and FRB issued an 

advisory to clarify expectations for the use of property 

evaluations by banking institutions. The advisory 

responds to questions about the use of evaluations and 

appraisals that were raised during outreach meetings 

held by the agencies pursuant to the Economic 

Growth and Regulatory Paperwork Reduction Act. 

Among other things, the advisory states that regardless 

of the approach or method used to estimate the 

market value of real property, an evaluation report 

should contain sufficient information and analysis 

to support the value conclusion and the institution’s 

decision to engage in the transaction.

Issuance of Prepaid Cards

In March 2016, the FDIC, OCC, FRB, National 

Credit Union Administration (NCUA), and the 

Financial Crimes Enforcement Network (FinCEN) 

developed and issued guidance to clarify the 

requirements for customer identification programs 

(CIPs) and regulatory expectations for depository 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 21

institutions that issue certain prepaid cards. The 

guidance addresses the establishment of a formal 

account relationship and when the depository 

institution is responsible for collecting CIP 

information. 

Funds Transfer Pricing Related to Funding 

and Contingent Liquidity Risk

In March 2016, the FDIC, OCC, and FRB issued 

joint guidance on Funds Transfer Pricing (FTP) 

to banks with assets of $250 billion or more. The 

guidance describes four key principles that should 

comprise an FTP framework and includes examples 

for implementing these principles. 

Net Stable Funding Ratio

In May 2016, the FDIC, OCC, and FRB jointly 

issued a proposed rule that would implement a 

liquidity requirement consistent with the net stable 

funding ratio agreed to by the Basel Committee 

on Banking Supervision and complementary to 

the Liquidity Coverage Ratio rule issued by the 

agencies in 2014. The proposal would require 

large, internationally active banking organizations 

to maintain a minimum level of stable funding 

over a one-year time horizon. This measure would 

reduce the likelihood that disruptions to a banking 

organization’s regular sources of funding would 

compromise its liquidity position. The proposal also 

would promote improvements in the measurement 

and management of liquidity risk and enhance 

financial stability. The comment period closed on 

August 5, 2016, and the agencies are collaborating on 

a final rulemaking.

Margin and Capital Requirements 

for Covered Swaps 

In August 2016, the FDIC, OCC, FRB, Federal 

Housing Finance Agency, and Farm Credit 

Administration issued a final rule that exempts certain 

commercial and financial end users from margin 

requirements for certain swaps not cleared through 

a clearinghouse. Specifically, the final rule exempts 

non-cleared swaps of small banks, savings associations, 

Farm Credit System institutions, and credit unions 

with $10 billion or less in total assets. This exemption 

parallels an exemption from a mandate in the DoddFrank Act to clear standardized swaps. 

New Accounting Standard on Financial 

Instruments – Credit Losses

In June 2016, the FDIC, OCC, FRB, and NCUA 

issued a joint statement on the new accounting 

standard released by the Financial Accounting 

Standards Board (FASB) regarding Financial 

Instruments – Credit Losses. The statement 

summarizes key elements of the new standard, 

which introduces the current expected credit losses 

methodology for estimating allowances for credit 

losses. It also provides initial supervisory views 

regarding the implementation of the new 

accounting standard.

Qualified Master Netting Agreements 

In October 2016, the FDIC issued a final rule that 

changes the regulatory capital and liquidity coverage 

ratio (LCR) rules to ensure consistency with new 

International Swaps and Derivatives Association 

(ISDA) Resolution Stay Protocols. The protocols 

impose a stay on cross-default and early termination 

rights within standard ISDA derivatives contracts. 

The final rule also revised the definition of “qualifying 

master netting agreement” and other related 

definitions, under the regulatory capital rules and 

the LCR, to reflect the recent changes to the ISDA 

Master Agreement. The FDIC action followed earlier 

rulemakings by the OCC and FRB. 

Fact Sheet on Foreign Correspondent Banking 

In August 2016, the U.S. Department of the Treasury 

issued a Fact Sheet developed jointly with the FDIC, 

OCC, FRB, and NCUA that outlines the agencies’ 

anti-money laundering and economic sanctions 

positions with respect to foreign correspondent 

banking. The Fact Sheet summarizes the U.S. 

regulators’ existing expectations regarding foreign 

correspondent banking relationships, the supervisory 
ANNUAL REPORT

22 MANAGEMENT’S DISCUSSION AND ANALYSIS

examination process, and instances in which 

enforcement actions might be taken.

Enhanced Cyber Risk Management Standards

In October 2016, the FDIC, OCC, and FRB issued 

a joint Advance Notice of Proposed Rulemaking 

(ANPR) seeking comment on enhanced cybersecurity 

risk-management and resilience standards that would 

apply to large and interconnected entities under 

their supervision. The standards also would apply 

to services provided by third parties to these firms. 

The agencies are considering applying the enhanced 

standards to depository institutions and depository 

institution holding companies with total consolidated 

assets of $50 billion or more, the U.S. operations 

of foreign banking organizations with total U.S. 

assets of $50 billion or more, and financial market 

infrastructure companies and nonbank financial 

companies supervised by the FRB. The standards 

would be tiered, with an additional set of higher 

standards for systems that provide critical functionality 

to the financial sector. For these sector-critical 

systems, the agencies are considering requiring firms 

to mitigate substantially the risk of a disruption or 

failure due to a cyber event. The comment period 

will close on February 17, 2017, and the agencies will 

collaborate in the review of comments received. 

Recordkeeping for Deposit Accounts 

In November 2016, the FDIC approved a rule 

establishing recordkeeping requirements for FDICinsured institutions with a large number of deposit 

accounts to facilitate rapid payment of insured deposits 

to customers if the institutions were to fail. The FDIC 

anticipates that the rule will become effective on April 

1, 2017. The FDIC will work closely with institutions 

as they develop new capabilities, and intends to issue 

functional design assistance for system programming 

prior to the effective date to aid in this process.

Proposed Guidelines for Appeals of 

Material Supervisory Determinations

In July 2016, the FDIC published for public 

comment a proposal to amend its Guidelines for 

Appeals of Material Supervisory Determinations. 

The amendments were proposed to give institutions 

additional avenues of redress with respect to 

supervisory determinations and to make the FDIC’s 

appeals process more consistent with those of the 

other federal banking agencies. The comment period 

ended on October 3, 2016. The comments have been 

reviewed by the FDIC, and final action is anticipated 

in early 2017.

DEPOSIT INSURANCE

As insurer of bank and savings association deposits, 

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 (DIF).

Long-Term Comprehensive 

Fund Management Plan 

In 2010 and 2011, the FDIC developed a 

comprehensive, long-term DIF management plan 

designed to reduce the effects of cyclicality and 

achieve moderate, steady assessment rates throughout 

economic and credit cycles, while also maintaining 

a positive fund balance, even during a banking 

crisis. That plan complements the Restoration Plan, 

originally adopted in 2008 and subsequently revised, 

designed to ensure that the reserve ratio (the ratio of 

the fund balance to estimated insured deposits) reaches 

1.35 percent by September 30, 2020, as required by 

the Dodd-Frank Act. The plan includes a reduction 

in assessment rates to take effect when the reserve ratio 

reaches 1.15 percent, which occurred in the second 

quarter of 2016 (as discussed in the Deposit Insurance 

Fund Reserve Ratio section). 

Under the long-term DIF management plan, to 

increase the probability that the fund reserve ratio 

will reach a level sufficient to withstand a future crisis, 

the FDIC Board set the Designated Reserve Ratio 

(DRR) of the DIF at 2.0 percent. In September 2016, 

the Board voted to maintain the 2.0 percent ratio 

for 2017. The FDIC views the 2.0 percent DRR as 

a long-term goal and the minimum level needed to 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 23

withstand future crises of the magnitude of past crises. 

Additionally, as part of the long-term DIF 

management plan, the FDIC has suspended dividends 

indefinitely when the fund reserve ratio exceeds 1.5 

percent. Instead, the plan prescribes progressively 

lower assessment rates that will become effective when 

the reserve ratio exceeds 2.0 percent and 2.5 percent. 

These lower assessment rates serve much the same 

function as dividends, but provide more stable and 

predictable effective assessment rates over time.

State of the Deposit Insurance Fund 

Estimated losses to the DIF from bank failures that 

occurred in 2016 totaled $47 million. The fund 

balance continued to grow through 2016, as it has 

every quarter after the end of 2009. Assessment 

revenue was the primary contributor to the increase in 

the fund balance in 2016. The fund reserve ratio rose 

to 1.18 percent at September 30, 2016, from 1.09 

percent a year earlier. 

Deposit Insurance Fund Reserve Ratio

On June 30, 2016, the DIF reserve ratio rose to 1.17 

percent from 1.13 percent on March 31, 2016. FDIC 

regulations provide for three major changes to deposit 

insurance assessments the quarter after the reserve 

ratio first reaches or exceeds 1.15 percent. Beginning 

the third quarter of 2016: 

♦ the range of initial regular assessment rates for all 

institutions declined (from 5-35 basis points to 

3-30 basis points) based on final rules approved 

by the FDIC Board on February 7, 2011, and 

April 26, 2016; 

♦ surcharges on insured depository institutions 

with total consolidated assets of $10 billion or 

more (large banks) began, pursuant to a final 

rule approved by the Board on March 15, 2016 

(discussed in the Minimum Reserve Ratio section 

below); and 

♦ a revised method to calculate risk-based 

assessment rates for established small banks went 

into effect, pursuant to the final rule approved by 

the FDIC Board on April 26, 2016, (discussed in 

the Deposit Insurance Assessment System section).

Minimum Reserve Ratio

Section 334 of the Dodd-Frank Act, which increased 

the minimum reserve ratio of the DIF from 1.15 

percent to 1.35 percent, requires that the reserve ratio 

reach that level by September 30, 2020. Section 

334 also mandates that the FDIC “offset the effect 

of [the increase in the minimum reserve ratio] on 

insured depository institutions (IDIs) with total 

consolidated assets of less than $10 billion.” In 

March 2016, the FDIC approved a final rule to 

implement these requirements. The final rule imposes 

surcharges on the quarterly assessments of IDIs with 

total consolidated assets of $10 billion or more. 

The surcharges will continue through the quarter 

in which the reserve ratio first reaches or exceeds 

1.35 percent. The surcharge equals an annual rate 

of 4.5 basis points applied to an institution’s regular 

quarterly deposit insurance assessment base after 

subtracting $10 billion, with certain exceptions for 

banks with affiliated insured depository institutions. 

The FDIC expects that eight quarterly surcharges will 

be needed for the reserve ratio to reach 1.35 percent. 

If, contrary to the FDIC’s expectations, the reserve 

ratio does not reach 1.35 percent by December 

31, 2018 (but is still at least 1.15 percent), under 

the final rule the FDIC will impose a shortfall 

assessment on IDIs with total consolidated assets 

of $10 billion or more on March 31, 2019. 

Because the Dodd-Frank Act requires that the FDIC 

offset the effect of the increase in the reserve ratio 

from 1.15 percent to 1.35 percent on IDIs with 

total consolidated assets of less than $10 billion, 

the final rule exempts these smaller banks from 

the surcharges and provides assessment credits to 

these institutions for the portion of their regular 

assessments that contribute to growth in the reserve 

ratio between 1.15 percent and 1.35 percent. Credits 

will be automatically applied to these small banks’ 

assessments when the reserve ratio is at or above 

1.38 percent. 
ANNUAL REPORT

24 MANAGEMENT’S DISCUSSION AND ANALYSIS

Deposit Insurance Assessment System

In April 2016, the FDIC approved a final rule to 

improve the risk-based deposit insurance assessment 

system applicable to established small banks to reflect 

risk more accurately. The final rule incorporates data 

from the recent financial crisis and bases assessment 

rates for all established small banks (generally, those 

with less than $10 billion in total assets that have been 

federally insured for at least five years) in a statistical 

model that estimates a bank’s probability of failure 

within three years. The revisions went into effect the 

third quarter of 2016. The final rule maintains the 

previously adopted ranges of assessment rates that 

apply once the DIF reserve ratio reaches 1.15 percent, 

2 percent, and 2.5 percent, and was implemented 

so that aggregate assessment revenue collected from 

established small banks under the final rule was 

approximately the same as would have been collected 

under the small bank pricing method being replaced.

SUPERVISION 

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 financial 

institutions, protects consumers’ rights, and promotes 

community investment initiatives. 

Examination Program 

The FDIC’s strong bank examination program is the 

core of its supervisory program. As of December 31, 

2016, the FDIC was the primary federal regulator 

(PFR) for 3,790 FDIC-insured, state-chartered 

institutions that were not members of the Federal 

Reserve System [generally referred to as “state 

nonmember” (SNM) institutions]. Through risk 

management (safety and soundness), consumer 

compliance and the Community Reinvestment 

Act (CRA), and other specialty examinations, the 

FDIC assesses an institution’s operating condition, 

management practices and policies, and compliance 

with applicable laws and regulations. 

As of December 31, 2016, the FDIC conducted 

1,727 statutorily required risk management 

examinations and all required follow-up examinations 

for FDIC-supervised problem institutions within 

prescribed time frames. The FDIC also conducted 

1,311 statutorily required CRA/compliance 

examinations (709 joint CRA/compliance 

examinations, 594 compliance-only examinations, 

and 8 CRA-only examinations). In addition, the 

FDIC performed 3,854 specialty examinations 

(which include reviews for Bank Secrecy Act (BSA) 

compliance within prescribed time frames).

The table on page 25 compares the number of 

examinations by type, conducted from 2014 

through 2016.

Risk Management

All risk management examinations have been 

conducted in accordance with statutorily-established 

timeframes. As of September 30, 2016, 132 insured 

institutions with total assets of $24.9 billion were 

designated as problem institutions for safety and 

soundness purposes (defined as those institutions 

having a composite CAMELS1

 rating of 4 or 5), 

compared to the 203 problem institutions with total 

assets of $51.1 billion on September 30, 2015. This 

is a 35 percent decline in the number of problem 

institutions and a 51 percent decrease in problem 

institution assets. For the 12 months ending 

September 30, 2016, 82 institutions with aggregate 

assets of $27.1 billion were removed from the list of 

problem financial institutions, while 11 institutions 

with aggregate assets of $2.3 billion were added to 

the list. The FDIC is the PFR for 91 of the 132 

problem institutions, with total assets of $15.7 billion. 

In 2016, the FDIC’s Division of Risk Management 

Supervision initiated 170 formal enforcement actions 

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).
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 25

and 121 informal enforcement actions. Enforcement 

actions against institutions included, but were not 

limited to, 23 actions under Section 8(b) of the FDI 

Act (22 consent orders and 1 notice of charges), and 

121 MOUs. Of these enforcement actions against 

institutions, 20 consent orders, and 22 MOUs were 

based, in whole or in part, on apparent violations 

of BSA and anti-money laundering (AML) laws 

and regulations. In addition, enforcement actions 

were also initiated against individuals. These actions 

included, but were not limited to, 95 removal and 

prohibition actions under Section 8(e) of the FDI 

Act (87 consent orders and 8 notices of intention to 

remove/prohibit), 3 actions under Section 8(b) of 

the FDI Act (1 notice of charges to pay restitution 

and 2 personal cease and desist orders), and 28 civil 

money penalties (CMPs) (25 orders to pay and 

3 notices of assessment).

The FDIC has heightened its focus on forwardlooking supervision aimed at ensuring that risks are 

mitigated before they lead to financial deterioration. 

Compliance

As of December 31, 2016, 50 insured SNM 

institutions, about 1 percent of all supervised 

institutions, with total assets of $72 billion, were 

problem institutions for compliance, CRA, or 

both. All of the problem institutions for compliance 

were rated “4” for compliance purposes, with none 

rated “5.” For CRA purposes, the majority were 

rated “Needs to Improve,” and only four were rated 

“Substantial Noncompliance.” As of December 

31, 2016, all follow-up examinations for problem 

institutions were performed on schedule.

As of December 31, 2016, the FDIC conducted 

all required compliance and CRA examinations 

FDIC EXAMINATIONS 2014-2016

2016 2015 2014

Risk Management (Safety and Soundness): 

State Nonmember Banks 1,563 1,665 1,881

Savings Banks 164 206 206

State Member Banks 0 0 0

Savings Associations 0 0 0

National Banks 0 0 0

Subtotal – Risk Management Examinations 1,727 1,871 2,087

CRA/Compliance Examinations:

Compliance/Community Reinvestment Act 709 859 1,019

Compliance-only 594 478 376

CRA-only 8 10 11

Subtotal – CRA/Compliance Examinations 1,311 1,347 1,406

Specialty Examinations:

Trust Departments 351 365 428

Information Technology and Operations 1,742 1,886 2,113

Bank Secrecy Act 1,761 1,906 2,126

Subtotal – Specialty Examinations 3,854 4,157 4,667

TOTAL 6,892 7,375 8,160
ANNUAL REPORT

26 MANAGEMENT’S DISCUSSION AND ANALYSIS

and, when violations were identified, completed 

follow-up visits and implemented appropriate 

enforcement actions in accordance with FDIC policy. 

In completing these activities, the FDIC substantially 

met its internally established time standards for 

the issuance of final examination reports and 

enforcement actions.

Overall, banks demonstrated strong consumer 

compliance programs. The most significant 

consumer protection issue that emerged from the 

2016 compliance examinations involved banks’ 

failure to adequately monitor third-party vendors. 

For example, the FDIC found violations involving 

unfair or deceptive acts or practices relating to issues 

such as failure to disclose material information 

about product features and limitations, deceptive 

marketing and sales practices, and misrepresentations 

about the costs of products. As a result, the FDIC 

issued orders requiring the payment of CMPs.

As of December 31, 2016, the FDIC’s Division 

of Depositor and Consumer Protection initiated 

15 formal enforcement actions and 23 informal 

enforcement actions to address compliance concerns 

(see chart on page 140). This included 4 consent 

orders, 2 removal and prohibition orders addressing 

safety and soundness concerns and breaching 

fiduciary duty, 9 CMPs, and 23 MOUs. Restitution 

orders are formal actions that require institutions 

to pay restitution in the form of consumer refunds 

for different violations of law. As of December 31, 

2016, there were no restitution orders that required 

institutions to refund consumers. The CMPs totaled 

over $332,654.

Large Bank Supervision Program

The FDIC also established the Large Bank 

Supervision Program within the Division of Risk 

Management Supervision to address the growing 

complexity of large banking organizations with 

assets exceeding $10 billion and not assigned to the 

CFI Program. This group is responsible for both 

supervisory oversight and ongoing monitoring, and 

resolution planning, while supporting the insurance 

business line. For SNM banks over $10 billion, the 

FDIC generally applies a continuous examination 

program, whereby dedicated staff conducts ongoing 

onsite supervisory examinations and institution 

monitoring. At institutions where the FDIC is not 

the primary federal regulator, FDIC has dedicated 

onsite examination staff at select banks, working 

closely with other financial institution regulatory 

authorities to identify emerging risks and assess the 

overall risk profile of large institutions. 

The Large Insured Depository Institution (LIDI) 

Program remains the primary instrument for off-site 

monitoring of IDIs with $10 billion or more in total 

assets. The LIDI Program provides a comprehensive 

process to standardize data capture and reporting 

through nationwide quantitative and qualitative risk 

analysis of large and complex institutions. In 2016, 

the LIDI Program covered 92 institutions with total 

assets of $5.4 trillion. The comprehensive LIDI 

Program supports effective large bank supervision 

because it aids the Division in using individual 

institution information to deploy resources most 

effectively to high-risk areas, determine the need for 

supervisory action, and support insurance assessments 

and resolution planning. 

The Shared National Credit (SNC) Program is an 

interagency initiative administered jointly by the 

FDIC, OCC, and FRB to ensure consistency in the 

regulatory review of large, syndicated credits, as well 

as identify risk in this market, which comprises a 

large volume of domestic commercial lending. In 

2016, outstanding credit commitments identified 

in the SNC Program totaled $4.1 trillion. The 

FDIC, OCC, and FRB issued a joint press release 

detailing the results of the review in July 2016. The 

latest review showed the level of adversely rated 

assets remained higher than in previous periods of 

economic expansion, raising the concern that future 

losses and problem loans could rise considerably 

in the next credit cycle. The elevated level of risk 

observed during the recent SNC examination 

stems from the high inherent risk in the leveraged 

loan portfolio and growing credit risk in the oil 

and gas portfolio. Notwithstanding the riskiness 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 27

of the existing portfolio, the agencies noted 

improved underwriting and risk management 

practices related to the most recent leveraged loan 

originations, as underwriters continued to better 

align practices with regulatory expectations, and 

as investor risk appetite moderated away from 

transactions at the lower end of the credit spectrum.

Information Technology, Cyber Fraud, 

and Financial Crimes 

To address the specialized nature of technologyand operations-related supervision, cyber risks, and 

controls in the banking industry, the FDIC routinely 

conducts information technology (IT) and operations 

examinations at FDIC-supervised institutions. 

IT Examinations

The FDIC conducts regular IT and operations 

risk examinations at all FDIC-supervised financial 

institutions and assigns an examination rating based 

on the Federal Financial Institutions Examination 

Council’s (FFIEC’s) Uniform Rating System for 

Information Technology (URSIT). The URSIT rating 

is incorporated into the Management component 

of the Safety and Soundness rating in Reports 

of Examination. In 2016, the FDIC conducted 

1,742 IT and operations examinations at financial 

institutions and technology service providers (TSPs). 

In 2016, the FDIC continued to enhance its IT 

supervision and improve its programs to fight cyber 

fraud and financial crimes more generally. This year, 

the FDIC released updated IT and operations risk 

examination procedures that are more efficient and 

risk-focused, include a cybersecurity preparedness 

assessment, and provide more detailed examination 

results to institutions. This enhanced Information 

Technology Risk Examination program, or InTREx, 

helps ensure that financial institution management 

promptly identifies and effectively addresses IT and 

cybersecurity risks. The InTREx work program and 

training was completed on June 24, 2016, and fully 

implemented by September 30, 2016.

Supervision for Technology Service Providers 

The FDIC and other banking agencies also conduct 

IT and operations risk examinations of TSPs, that 

support financial institutions. During 2016, the 

FDIC, OCC, and FRB piloted the newly developed 

Interconnectivity Horizontal Review Program with 

three of the largest TSPs. The program focused on the 

IT risks of large and complex supervised institutions 

and TSPs. This new program will help strengthen the 

FDIC’s supervision of TSPs that present the most risk 

to the banking industry.

Other Activities

The FDIC continues to provide resources to raise 

awareness of cyber risks and to encourage practices 

that help protect the financial institutions it 

supervises. For example, in 2016, the FDIC hosted 

an industry webinar titled “Cybersecurity Resources 

to Help Your Customers Protect Themselves,” and 

made available brochures with tips on how to conduct 

business safely online. Financial institutions can 

reprint these brochures for their retail banking and 

business customers. 

Additionally, the FDIC monitors cybersecurity 

issues in the banking industry through regulatory 

and intelligence reports. The FDIC works with the 

Financial and Banking Information Infrastructure 

Committee, the Financial Services Sector 

Coordinating Council for Critical Infrastructure 

Protection, Homeland Security, the Financial Services 

Information Sharing and Analysis Center (FSISAC), other regulatory agencies, law enforcement, 

and others to share information regarding 

emerging issues and to coordinate responses. 

During 2016, the FDIC served as chair of the 

Cybersecurity and Critical Infrastructure Working 

Group (CCIWG) of the FFIEC Task Force on 

Supervision. The CCIWG serves as a forum to 

address policy related to cybersecurity and critical 

infrastructure, enables members to communicate 

and collaborate on activities to support and 

strengthen the resilience of the financial services 
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28 MANAGEMENT’S DISCUSSION AND ANALYSIS

sector, and provides input to FFIEC principal 

members regarding cybersecurity matters.

Major interagency accomplishments as a member of 

the FFIEC included the following:

♦ Collaborated with the FRB and OCC to develop 

a Cybersecurity Evaluation Tool to be used 

during TSP examinations, and piloted the tool 

during the first quarter of 2016.

♦ Served as the event manager for a conference 

of IT supervisors from more than 20 countries. 

Participants provided updates and national 

perspectives on three IT supervision themes: 

FinTech, cybersecurity, and supervision of 

third-party providers.

♦ Conducted a workshop to consider the 

value and merits of cyber insurance as a risk 

transfer vehicle.

♦ Published a joint statement on safeguarding 

the cybersecurity of interbank messaging and 

wholesale payment networks. 

♦ Issued an appendix to the Retail Payment 

Systems booklet of the FFIEC Information 

Technology Examination Handbook entitled 

“Mobile Financial Services.” The booklet is 

part of the IT Examination Handbook series. 

The appendix contains guidance on the risks 

associated with mobile financial services and 

emphasizes an enterprise-wide risk management 

approach to effectively manage and mitigate 

those risks.

♦ Revised the Information Security booklet 

of the FFIEC IT Examination Handbook to 

provide an overview of information security 

operations, including the need for effective threat 

identification, assessment and monitoring, and 

incident identification, assessment, and response.

♦ Hosted two industry webinars in recognition of 

October as National Cybersecurity Awareness 

Month. The first webinar, Mobile Financial 

Services, Appendix E of the Retail Payment System 

Booklet, provided information about the risks 

associated with mobile financial services and risk 

management approaches, and answered related 

questions from participants. The second webinar, 

Executive Leadership of Cybersecurity: Threat 

Intelligence and Getting the Most Out of Your 

FS-ISAC Membership, provided insight on how 

financial institutions can strengthen their use of 

cyber intelligence.

♦ Improved information sharing on technology 

risks among the IT examination workforces 

of the FFIEC member agencies through 

discussions at the March 2016 annual 

Supervisory Strategy Meeting.

Enhancing the FDIC’s IT Security 

Information security is critical to the FDIC’s ability 

to carry out its mission of maintaining stability 

and public confidence in the nation’s financial 

system. In 2016, the FDIC implemented policies 

and technologies to strengthen its own cybersecurity 

posture by initiating an aggressive 60-day plan to 

improve information security and an FDIC IT Action 

Plan to lay the foundation for modernizing the 

agency’s IT services to ensure scalability and resilience. 

Steps taken included:

♦ completely revised the Data Breach Management 

Guide to incorporate policy guidance 

promulgated in the Office of Management and 

Budget Memorandum (M-16-03);

♦ phased in a new incident tracking system that 

automates, centralizes, and greatly enhances 

management and oversight of incident response 

and breach-related activities;

♦ discontinued individuals’ ability to copy 

information to removable media such as CD’s, 

DVDs, external hard drives, and thumb drives;

♦ implemented new controls to limit printing 

of sensitive information and better monitor 

information printed in the highest risk areas;

♦ signed a memorandum of understanding to 

migrate to an intrusion prevention, detection, 

and monitoring system from the Department 

of Homeland Security that will help detect and 

block outside cyber threats;
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 29

♦ initiated efforts to implement Digital Rights 

Management software to protect the most 

sensitive FDIC data; and

♦ engaged an independent, third-party firm to 

conduct an end-to-end assessment of the FDIC’s 

information security and privacy programs. This 

assessment encompassed key areas of the FDIC’s 

information security program including network 

security, software security, host security, data 

protection, etc.

These actions are in addition to protections that were 

already in place, such as:

♦ encryption of some of our most sensitive 

information; 

♦ encrypted laptop hard drives; and 

♦ a Data Loss Prevention program that monitors 

information in emails, information being 

transferred to websites, and information printed.  

The FDIC requires employees to take annual security 

and privacy training so they are aware of FDIC 

security standards. This is supplemented by periodic 

phishing tests to help ensure employees stay watchful 

to possible outside threats.

The FDIC will remain alert and continue to adjust 

security controls in light of the changing threat 

landscape.

Access Control Program and Personal Identity 

Verification Card Implementation

The FDIC’s Access Control Program (ACP) was 

established to ensure the agency’s compliance with the 

Homeland Security Presidential Directive 12 (HSPD12): Policy for a Common Identification Standard for 

Federal Employees and Contractors. HSPD-12 requires 

the use of Personal Identity Verification (PIV) cards—

smart card credentials containing data that allow 

the cardholder to be granted access to facilities and 

information systems—to assure appropriate levels of 

security and offer enhanced protection by requiring 

multifactor authentication (MFA). MFA requires two 

or more of the following verification mechanisms to 

access a user’s work station or network:

♦ something one knows (e.g., password, personal 

identification number, secret question/answer),

♦ something one has (e.g., PIV card, security 

token, cell phone), or

♦ something one is (e.g., biometrics such as 

fingerprints, retina pattern). 

In 2016, the FDIC expanded use of MFA for securely 

downloading assessment invoices and official FDIC 

correspondence, and performing other secure file 

exchanges.

This year, the FDIC successfully issued PIV 

cards to more than 5,300 eligible employees and 

contractors by partnering with the General Services 

Administration (GSA) USAccess program. In order to 

track and manage the rollout of the PIV card issuance 

effectively, the agency developed an Inventory 

Executive Dashboard by division, region, and office. 

By year-end 2016, approximately 94 percent of 

eligible FDIC employees and contractors have been 

issued a PIV card.

The FDIC also enforced the use of PIV cards to access 

the FDIC network (i.e., logical access). As of yearend 2016, PIV-based authentication is required to 

access the FDIC network across the agency. ACP’s 

global communications and organizational change 

management efforts have resulted in approximately 

90 percent of FDIC staff and contractors using their 

cards for logical access. 

Insider Threat Program

During 2016, in support of the National Insider 

Threat Policy, the FDIC established an Insider 

Threat and Counterintelligence Program (ITCIP) 

to strengthen and develop new processes and 

technologies to combat insider threats. 

An insider threat is a concern or risk posed to the 

FDIC that involves an individual who misuses or 

betrays, wittingly or unwittingly, his or her authorized 

access to FDIC resources. This individual may have 

access to sensitive, personally identifiable information 

and/or privileged access to critical infrastructure and/

or business sensitive information (e.g., bank data). 
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30 MANAGEMENT’S DISCUSSION AND ANALYSIS

The ITCIP blends both physical and logical safeguards 

to minimize the risk, likelihood, and impact of an 

executed insider threat.

An ITCIP Working Group was established to focus 

on detecting, identifying, assessing, mitigating, and 

preventing insider threat or external threat activity 

through the centralized and integrated analysis of 

threat information. An ITCIP Executive Committee 

also was established to support planning and provide 

oversight in the implementation of the program.

Further, the FDIC designated a senior Executive as 

the Senior Agency Official principally responsible for 

establishing a process to gather, integrate, centrally 

analyze, and respond to relevant information 

indicative of a potential insider threat.

Bank Secrecy Act/Anti-Money Laundering 

In 2016, the Financial Action Task Force (FATF) 

completed a mutual evaluation of the U.S. antimoney laundering (AML) regime. The FDIC 

provided input through on-site discussions regarding 

the U.S. banking industry’s AML supervision and 

enforcement and provided comments on final 

documents addressing the U.S. banking industry’s 

compliance with the FATF AML standards.

Examiner Development

The FDIC has undertaken a multi-year project to 

expand and strengthen its examiner development 

programs for specialty examinations, such as 

information technology, BSA/AML, trust, capital 

markets, accounting, and anti-fraud. Due to the 

increased complexity of institutions, specialty skills 

are becoming paramount in risk assessment. In 

addition, this initiative is an important component of 

succession planning; proactively addressing knowledge 

transfer will enable the FDIC to mitigate the impact 

of the future retirement of senior technical experts. 

The goal of this project is to standardize nationwide 

the skills needed to examine banks of varying levels 

of risk and complexity in each specialty area, and 

then to develop on-the-job training programs to 

provide opportunities for examiners to develop higher 

level competencies in these specialty areas. This 

initiative will:

♦ offer a road map to assist employees in 

career planning;

♦ identify the skills needed for career development 

and potential advancement;

♦ provide tools to support career development;

♦ deliver structured training programs that 

include assignments designed to develop higher 

level competencies;

♦ enhance the value of a subject matter expert 

designation by creating a consistent definition 

and application; and 

♦ provide more observable, objective, and 

measurable criteria for job descriptions in 

specialty areas. 

In 2016, the FDIC validated competency models 

in the BSA/AML, trust, and capital markets 

areas, began developing specialty on-the-job 

training programs in BSA/AML and trust, 

and made progress in developing information 

technology and accounting competency models.

Minority Depository Institution Activities 

The preservation of minority depository institutions 

(MDIs) remains a high priority for the FDIC. In 

2016, the FDIC continued to support MDI and 

Community Development Financial Institution 

(CDFI) industry-led strategies for success. These 

strategies include: increased collaboration between 

MDI and CDFI bankers; partnering to share costs, 

raise capital, or pool loans; and making innovative 

use of federal programs. The FDIC supports this 

effort by providing technical assistance to MDI and 

CDFI bankers.

In 2016, the FDIC sponsored a discussion between 

trade groups representing MDIs and CDFIs and 

representatives of potential bank partners, focusing on 

CRA partnerships. In addition, the FDIC provided 

technical assistance to a group seeking to develop a 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 31

private equity fund to invest in MDIs. The FDIC’s 

assistance addressed how the proposed structure might 

be considered under the Basel Capital Rules as well as 

the CRA. Both community banks and larger insured 

financial institutions have valuable incentives under 

the CRA to undertake ventures with MDIs, including 

capital investment and loan participations.

In 2016, the FDIC, OCC, and FRB co-hosted 

a webinar on strategic planning attended by 

approximately 50 MDIs, and began planning the 

2017 Interagency MDI and CDFI Bank Conference, 

which the agencies will co-sponsor. The conference 

will be held in Los Angeles where there is a significant 

concentration of MDIs. The conference will feature 

an interactive panel with FDIC Chairman Martin J. 

Gruenberg, a Federal Reserve Board Governor, and 

Comptroller of the Currency Thomas J. Curry. 

The FDIC continued its efforts to improve 

communication and interaction with MDIs and to 

respond to the concerns of minority bankers. The 

FDIC maintains active outreach with MDI trade 

groups and offers to arrange annual meetings between 

FDIC regional management and each MDI’s board 

of directors to discuss issues of interest. The FDIC 

routinely contacts MDIs to offer return visits and 

technical assistance following the conclusion of 

FDIC safety and soundness, compliance, CRA, and 

specialty examinations to assist bank management 

in understanding and implementing examination 

recommendations. These return visits, normally 

conducted 90 to 120 days after the examination, 

are intended to provide useful recommendations or 

feedback for improving operations, not to identify 

new issues. The FDIC’s website encourages and 

provides contact information for any MDI to request 

technical assistance at any time. 

In 2016, the FDIC provided 135 individual 

technical assistance sessions on approximately 66 risk 

management and compliance topics, including:

♦ accounting;

♦ Bank Secrecy Act and Anti-Money Laundering;

♦ Basel III Capital Rules;

♦ brokered deposits/waivers;

♦ capital planning;

♦ commercial real estate concentrations;

♦ Community Reinvestment Act;

♦ funding and liquidity;

♦ high volatility commercial real estate;

♦ information technology risk management 

and cybersecurity;

♦ interest-rate risk;

♦ loan underwriting and administration; 

♦ mortgage lending rules;

♦ strategic planning; and

♦ third-party risk management.

The FDIC’s regional offices also held outreach, 

training, and educational programs for MDIs through 

conference calls and regional banker roundtables. In 

2016, topics of discussion for these sessions included 

many of those listed above, as well as the FDIC’s 

National MDI Program, the FDIC’s Community 

Banking Initiative, and the availability of Technical 

Assistance Videos on corporate governance, strategic 

planning, director responsibilities, community 

banking initiatives, compliance guidance, 

concentration risk management, and bank merger 

and acquisition.

Mutual Institutions

In August 2016, the FDIC and OCC co-hosted the 

Joint Agency Mutual Forum, which was open to all 

mutual banking institutions regardless of charter 

type. Mutually-owned related institutions represent 

about 9 percent of all FDIC-insured institutions and 

are among the oldest form of depository institution. 

Attended by approximately 125 participants, the 

forum provided an opportunity for the mutual 

bankers to learn about current trends and engage in 

a dialogue on the strengths of and challenges facing 

mutual institutions. The forum featured presentations 

and banker panels covering topics of interest relating 

to the mutual industry, including an economic 

outlook, strategic planning, cyber challenges, 
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32 MANAGEMENT’S DISCUSSION AND ANALYSIS

regulatory compliance update, and an opportunity 

for each agency to hold an agency-specific session 

to address other current matters and respond to 

banker inquiries. 

Cyber Fraud and Financial Crimes

The Cyber Fraud and Financial Crimes Section 

leads the FDIC’s efforts to protect the banking 

industry from criminal financial activities. These 

efforts include managing the FDIC’s background 

investigations for banking applications, leading 

financial crimes-related training programs, and 

assisting financial institutions in identifying and 

shutting down “phishing” websites that attempt 

to obtain fraudulently and use an individual’s 

confidential personal or financial information. 

This Section serves a leading role in education and 

outreach, including through the development of 

webinars and informational publications. During 

2016, the Cyber Fraud and Financial Crimes 

Section hosted a banking industry webinar (titled 

“Cybersecurity Resources to Help Your Customers 

Protect Themselves”) held in conjunction with 

National Consumer Protection Week, and authored 

a special edition of the FDIC’s Consumer News

focused on consumer cybersecurity awareness. The 

Department of Homeland Security shared the 

Consumer News edition with more than 58,000 

partners during October 2016 in observation of 

National Cybersecurity Awareness Month. 

Supervision Policy

Brokered Deposits

In June 2016, the FDIC finalized updates to its 

FAQs regarding brokered deposits. The FAQs were 

updated in response to numerous questions regarding 

brokered deposit determinations. The FAQs address 

supervisory expectations for identifying, accepting, 

and reporting broked deposits. The answers are 

based on Section 29 of the FDI Act and Section 

337.6 of the FDIC Rules and Regulations, as well 

as explanations provided to the industry through 

published advisory opinions and the FDIC’s Study 

on Core Deposits and Brokered Deposits, issued in 

July 2011. 

Applications for Deposit Insurance

In April 2016, the FDIC issued guidance in the form 

of supplemental “Questions and Answers” (Q&As) 

to aid applicants in developing applications for 

deposit insurance. The supplemental Q&As provide 

additional transparency to the application process 

and supplement guidance previously issued in 

November 2014.

Prudent Risk Management of Oil 

and Gas Exposures

In July 2016, the FDIC issued guidance to remind 

FDIC-supervised institutions with direct or indirect 

oil and gas exposures to maintain sound underwriting 

standards, strong credit administration practices, and 

effective risk management strategies. When oil and 

gas related borrowers experience financial difficulties, 

the FDIC encourages financial institutions to work 

constructively with borrowers to strengthen the credits 

and to mitigate losses where possible. 

Third-Party Lending

In July 2016, the FDIC issued a request for public 

comment on proposed guidance for third-party 

lending. The proposed guidance sets forth safety and 

soundness and consumer compliance measures FDICsupervised institutions should follow when lending 

through a business relationship with a third party. 

The proposed guidance is intended to supplement the 

FDIC’s existing Guidance for Managing Third-Party 

Risk, which is applicable to a number of third-party 

arrangements, including lending through a third 

party. Public comments are being evaluated as part of 

the process of developing the final guidance. 

FDIC Examination Findings

In July 2016, the FDIC issued guidance to emphasize 

the importance of open communication regarding 

supervisory findings. An open dialogue with bank 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 33

management is critical to ensuring the supervisory 

process is effective in promoting an institution’s strong 

financial condition and safe and sound operation. 

The FDIC encourages bank management to provide 

feedback on FDIC supervisory activities and engage 

FDIC personnel in discussions to ensure a full 

understanding of the FDIC’s supervisory findings and 

recommendations. If an institution disagrees with 

examination findings, there are several informal and 

formal avenues available to raise its concerns.

Regulatory Relief 

During 2016, the FDIC issued 11 financial 

institution letters providing guidance to help 

financial institutions and to facilitate recovery in areas 

affected by tornadoes, flooding, wild fires, landslides, 

mudslides, and other severe events. In these letters, 

the FDIC encouraged banks to work constructively 

with borrowers experiencing financial difficulties as 

a result of natural disasters. The letters also clarified 

that prudent extensions or modifications of loan terms 

in such circumstances can contribute to the health 

of communities and serve the long-term interests of 

lending institutions. 

COMMUNITY BANKING INITIATIVE

Community banks provide traditional, relationshipbased banking services in their local communities. As 

defined in recent FDIC research, community banks 

made up almost 93 percent of all FDIC-insured 

institutions at mid-year 2016. While they hold just 

13 percent of banking industry assets, community 

banks are of critical importance to the U.S. economy 

and local communities across the nation. Community 

banks hold 43 percent of the industry’s small loans 

to farms and businesses, making them the lifeline to 

entrepreneurs and small enterprises of all types. They 

also hold the majority of bank deposits in U.S. rural 

counties and micropolitan counties with populations 

up to 50,000. In fact, as of June 2016, community 

banks held more than 75 percent of deposits in 

more than 1,200 U.S. counties. In more than 600 of 

these counties, the only banking offices available to 

consumers were those operated by community banks.

The FDIC is the primary federal supervisor for 

the majority of community banks, in addition to 

being the insurer of deposits held by all U.S. banks 

and thrifts. Accordingly, the FDIC has a particular 

responsibility for the safety and soundness of 

community banks, as well as a particular interest 

in and a commitment to the role they play in the 

banking system and the challenges and opportunities 

they face. In 2012, the FDIC launched a Community 

Banking Initiative focused on publishing new research 

on issues of importance to community banks and 

providing resources that will be useful to their 

efforts to manage risks, enhance the expertise of 

their staff, and better understand changes in the 

regulatory environment.

Community Banking Research

The FDIC continues to pursue an agenda of research 

and outreach focused on community banking issues. 

Since the 2012 publication of the FDIC Community 

Banking Study, FDIC researchers have published 

10 additional studies on topics ranging from small 

business financing to the factors that have driven 

industry consolidation over the past 30 years. The 

Community Bank Performance section of the 

FDIC Quarterly Banking Profile (QBP), first 

introduced in 2014, continues to provide a detailed 

statistical picture of the community banking sector 

that can be accessed by analysts, other regulators, and 

bankers themselves. The most recent report shows 

that net income at community banks continued to 

grow at a healthy annual rate through the first three 

quarters of 2016, while total loans and leases at these 

institutions grew at a rate that was 2.9 percentage 

points higher than the rate for noncommunity banks.

Community Banking Conference

In April 2016, the FDIC hosted a community 

banking conference entitled “Strategies for LongTerm Success.” About 250 community bankers and 

industry participants took part in a daylong discussion 

about what the future holds for community banks in 

the United States. In addition to addresses by FDIC 

Chairman Martin J. Gruenberg and Vice Chairman 
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34 MANAGEMENT’S DISCUSSION AND ANALYSIS

Thomas M. Hoenig, the conference featured four 

expert panels that covered, in turn, the community 

banking model, regulatory developments, managing 

technology challenges, and ownership structure and 

succession planning. 

De Novo Banks

The FDIC is committed to working with, and 

providing support to, any group with interest in 

starting a community bank. In his remarks at the 

Community Banking Conference, FDIC Chairman 

Gruenberg discussed the FDIC’s efforts to facilitate 

the formation of de novo banks. The FDIC has:

♦ Designated professional staff in each regional 

office to serve as subject matter experts for 

deposit insurance applications. These individuals 

are points of contact to FDIC staff, other 

banking agencies, industry professionals, and 

prospective organizing groups. These specialists 

serve as an important industry resource to address 

the FDIC’s processes, generally, and to respond 

to specific questions. 

♦ Reduced from seven years to three years the 

period of enhanced supervisory monitoring 

of newly insured depository institutions. The 

FDIC had established the seven-year period 

during the financial crisis in response to the 

disproportionate number of newly insured 

institutions that were experiencing difficulties or 

failing. In the current environment, and in light 

of strengthened, forward-looking supervision, the 

FDIC determined it was appropriate to return to 

the three-year period.

As an outgrowth from the conference, the FDIC 

expanded on existing initiatives to facilitate the 

formation of de novos and undertook two new 

initiatives to support the long-term success of 

community banks. 

During the fall, the FDIC held de novo outreach 

meetings in San Francisco, New York, and Atlanta to 

ensure that interested parties and industry participants 

are well informed about the FDIC’s application 

process and the tools and resources available to 

assist organizing groups. Each of the outreach 

meetings addressed FDIC requirements for new bank 

applications, and highlighted strategies for successful 

formation. Based on a recommendation from 

the FDIC’s Advisory Committee on Community 

Banking, the FDIC incorporated into each outreach 

meeting a roundtable discussion with Chief Executive 

Officers (CEOs) of successful de novo institutions. 

These CEO discussions were a highlight of each 

outreach meeting, as the CEOs provided the 

attendees with practical advice based on their personal 

experiences. Similar outreach meetings will be held in 

the remaining three regions during 2017. 

In December 2016, the FDIC issued for public 

comment a publication entitled Applying for Deposit 

Insurance – A Handbook for Organizers of De Novo 

Institutions that is intended to help organizers become 

familiar with the deposit insurance application process 

and describe the path to obtaining deposit insurance. 

The handbook incorporates information on topics 

raised during the de novo outreach meetings, including 

advice from the CEO panels.

Continuing Community Banking 

Initiative Activities

To learn more about how educators and bankers can 

partner in developing the next generation of bankers, 

the FDIC hosted a roundtable discussion with 

more than a dozen institutions of higher education 

FDIC Chairman Martin J. Gruenberg gave the opening and closing 

remarks at the Community Banking Conference in April 2016.
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 35

and other industry representatives. The roundtable 

explored community banking educational programs 

and discussed challenges and best practices of these 

programs with the goal of exploring strategies for the 

industry’s long-term success.

Community Bank Advisory Committee

The FDIC’s Advisory Committee on Community 

Banking is an ongoing forum for discussing current 

issues and receiving valuable feedback from the industry. 

The committee, which met three times during 2016, 

is composed of 13 community bank CEOs from 

around the country. It is a valuable resource for input 

on a wide variety of topics, including examination 

policies and procedures, capital and other supervisory 

issues, credit and lending practices, deposit insurance 

assessments and coverage, and regulatory compliance 

issues. To learn more about how community banks 

could attract the next generation of customers, the 

FDIC conducted a panel discussion with millennial 

FDIC employees at the July 2016 meeting. The 

employees discussed how community banks can 

successfully address millennial preferences.

Community Bank Resource Kit

In preparation for the Community Banking 

Conference, the FDIC developed a Community 

Bank Resource Kit for distribution to the conference 

attendees. The Resource Kit contains: a copy of the 

FDIC’s Pocket Guide for Directors; Supervisory Insights

articles related to corporate governance, interest-rate 

risk, and cybersecurity; two cybersecurity brochures 

that banks may reprint and share with their customers 

to enhance cybersecurity savvy; a copy of the FDIC’s 

Cyber Challenge exercise; and several pamphlets 

that provide information about the FDIC resources 

available to bank management and board members. 

The Community Bank Resource Kit was subsequently 

distributed to all FDIC-supervised institutions. 

Technical Assistance Program

As part of the Community Banking Initiative, the 

FDIC continued to provide an extensive technical 

assistance program for bank directors, officers, and 

employees to improve communication generally and 

provide technical training on a range of topics. The 

technical assistance program includes Directors’ 

College events held across the country, industry 

teleconferences, and a video program.

In 2016, the FDIC hosted Directors’ College 

events in each of its six regions. These events 

were typically conducted jointly with state trade 

associations and addressed issues such as corporate 

governance, regulatory capital, community banking, 

concentrations management, consumer protection, 

the Bank Secrecy Act, and interest-rate risk, 

among others. 

In addition, the FDIC hosted 12 industry 

teleconferences or webinars on a range of topics 

of interest to community bankers, including 

cybersecurity, overdraft protection rules, mobile 

financial services, commercial real estate, and the 

Real Estate Settlement Procedures Act. In addition, 

the FDIC offered 11 deposit insurance coverage 

seminars for bank officers and employees in 2016. 

These free seminars, which were offered nationwide, 

particularly benefitted smaller institutions that have 

limited training resources. The FDIC also released 

three deposit insurance seminar training videos on the 

FDIC’s website and YouTube channel.

The FDIC offers a series of banker events, intended 

to maintain open lines of communication to keep 

bank management and staff up-to-date on important 

banking regulatory and emerging issues in the 

At the April 2016 Community Banking Conference, FDIC Chief Economist 

Richard Brown (second from left) summarizes findings of a recent 

FDIC study.
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36 MANAGEMENT’S DISCUSSION AND ANALYSIS

compliance and consumer protection area. In 

2016, the FDIC offered three interagency webinars 

focused on the following topics: requirements and 

best practices regarding bank overdraft programs; 

interagency Community Reinvestment Act questions 

and answers; and Military Lending Act regulations.

The FDIC released six videos as part of its Technical 

Assistance Video Program, which offers in-depth 

technical training for bank directors, officers, and 

employees to view at their convenience. Updated 

videos were published relating to interest-rate risk 

(two videos), corporate governance, the ability-torepay/qualified mortgages rule, and flood insurance. 

During 2016, the FDIC released a new video on 

outsourcing technology services. 

Economic Growth and Regulatory 

Paperwork Reduction Act

During 2016, the FDIC, along with the other 

federal banking agencies and the FFIEC, continued 

a cooperative, three-year effort to review all of their 

regulations. The purpose of the regulatory review, 

which is mandated no less frequently than once every 

10 years by the Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 (EGRPRA), is to 

identify and eliminate, as appropriate, outdated or 

otherwise unnecessary regulatory requirements that 

are imposed on insured depository institutions.

To facilitate the review, the agencies categorized their 

regulations into 12 separate groups. Over the course 

of two years, the groups of regulations were published 

for comment, through a series of Federal Register

notices, providing industry participants, consumer 

and community groups, and other interested parties 

an opportunity to respond and identify regulatory 

requirements they believe are no longer needed or 

should be modified. The agencies also held six public 

outreach meetings across the country to provide 

an opportunity for individual bankers, consumer 

and community group representatives, and other 

interested persons to present their views directly to 

agency senior management and staff of the FFIEC 

and the federal banking agencies on any of the 

regulations subject to EGRPRA review. 

The agencies received 234 comment letters directly 

in response to the Federal Register notices and also 

received a number of additional oral and written 

comments from panelists and the public at the 

outreach meetings. The agencies have reviewed these 

comments and comments received during outreach 

meetings and will summarize the significant issues 

raised and the relative merits of such issues in a report 

that will be issued through the FFIEC to Congress. 

In addition, due in part to feedback received during 

the EGRPRA review, the FDIC and the other FFIEC 

member entities are undertaking a community 

bank Call Report burden-reduction initiative. The 

objective of this initiative, which comprises actions 

in five areas, is to streamline and simplify regulatory 

reporting requirements for community banks. 

As an initial step, the banking agencies, under the 

auspices of the FFIEC, published proposed Call 

Report revisions in September 2015. The agencies 

began implementing these revisions, which include a 

limited set of burden-reducing changes, in the third 

quarter of 2016. 

As a second action, the banking agencies accelerated 

the start of a statutorily mandated review of the 

existing Call Report data items, which otherwise 

would have commenced in 2017. In support of 

this review, users of Call Report data at the FFIEC 

member entities are participating in a series of nine 

surveys of groups of Call Report schedules conducted 

over the 19-month period from mid-July 2015 until 

early February 2017. Users participating in these 

surveys have been asked to explain fully the need for 

each Call Report item they deem essential. 

A third action for the FFIEC members is to 

understand better, through industry dialogue, the 

aspects of community banks’ Call Report preparation 

processes that are significant sources of reporting 

burden. This outreach effort included on-site visits 

to nine community banks during the third quarter 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 37

of 2015. In the first quarter of 2016, two bank 

trade groups organized conference call meetings 

with small groups of community bankers in which 

representatives from the FFIEC members participated. 

During these bank visits and conference call meetings, 

the bankers explained how they prepare their Call 

Reports, identified which schedules or data items take 

a significant amount of time or manual processes to 

complete, and described the reasons for this. 

Fourth, building on the outcomes of the preceding 

two actions, the FFIEC and its member entities 

developed a separate, shorter, and more streamlined 

Call Report to be completed by eligible small 

institutions, as well as certain burden-reducing 

revisions to two other existing versions of the Call 

Report. The banking agencies, under the auspices 

of the FFIEC, published the proposal on August 15, 

2016, with a proposed effective date of March 31, 

2017. After considering the comments received, the 

FDIC and the other FFIEC members made certain 

modifications to the proposal. The FFIEC notified 

institutions about the outcome of the proposal on 

December 30, 2016. 

Finally, the FFIEC and the agencies will offer periodic 

banker training by teleconference and webinar to 

explain upcoming reporting changes and provide 

guidance on Call Report requirements that bankers 

find challenging.

The FDIC also streamlined and clarified certain 

regulations through the Office of Thrift Supervision 

(OTS) rule integration process. Under Section 316(b) 

of the Dodd-Frank Act, rules transferred from the 

former OTS to the FDIC and other successor agencies 

remain in effect “until modified, terminated, set aside, 

or superseded in accordance with applicable law’’ by 

the relevant successor agency, by a court of competent 

jurisdiction, or by operation of law. When the 

FDIC republished the transferred OTS regulations 

as new FDIC regulations applicable to state savings 

associations, the FDIC stated in the Federal Register 

notice that its staff would evaluate the transferred 

OTS rules and might later recommend incorporating 

the transferred OTS regulations into other FDIC 

rules, amending them, or rescinding them. This 

process began in 2013 and continues, involving 

publication in the Federal Register of a series of NPRs 

and final rules. In 2016, the FDIC issued an NPR to 

remove one transferred OTS rule, Minimum Security 

Procedures, and to make technical amendments to 

related FDIC rules for applicability to state savings 

associations. The FDIC removed a former OTS rule, 

Frequency of Safety and Soundness Examination, 

because it became unnecessary after FDIC rules 

were amended to bring insured state savings 

associations within its scope. Finally, in November 

2016, the FDIC’s Board approved the issuance of 

an NPR that proposes the removal of another OTS 

rule, Consumer Protection in Sales of Insurance, and 

corresponding revisions to the FDIC’s rule at 12 CFR 

Part 343 to ensure that Part 343 applies to FDICsupervised state banks and savings associations.

ACTIVITIES RELATED TO SYSTEMICALLY 

IMPORTANT FINANCIAL INSTITUTIONS

The FDIC is committed to addressing the unique 

challenges associated with the supervision, insurance 

with respect to the related insured depository 

institutions, and potential resolution of large and 

complex financial institutions. The FDIC’s ability to 

analyze and respond to risks in these institutions is 

particularly important, as they comprise a significant 

share of banking industry assets and deposits. The 

FDIC’s programs provide for a consistent approach to 

large and complex bank supervision nationwide, allow 

for the identification and analysis of industry-wide 

and institution-specific risks and emerging issues, 

and enable a quick response to these risks. The FDIC 

has segregated these activities in two groups to both 

ensure that supervisory attention is risk-focused and 

tailored to the risks presented by the nation’s largest 

banks and meet the FDIC’s responsibilities under the 

FDI Act and the Dodd-Frank Act. 

Complex Financial Institutions Program

The Dodd-Frank Act expanded the FDIC’s 

responsibilities pertaining to systemically important 
ANNUAL REPORT

38 MANAGEMENT’S DISCUSSION AND ANALYSIS

financial institutions (SIFIs) and nonbank financial 

companies designated by the FSOC.  The FDIC’s 

Complex Financial Institution (CFI) program within 

the Division of Risk Management Supervision 

(RMS) performs ongoing risk monitoring of SIFIs 

and FSOC-designated nonbank financial companies, 

provides backup supervision of the firms’ related 

insured depository institutions (IDIs), and evaluates 

the firms’ required resolution plans.  The CFI program 

also performs certain analyses that support the FDIC’s 

role as an FSOC member. 

Resolution Plans – Living Wills

Title I of the Dodd-Frank Act requires that certain 

large banking organizations and nonbank financial 

companies designated by the FSOC for supervision 

by the FRB periodically submit resolution plans to 

the FRB and the FDIC. Each Title I resolution plan, 

commonly known as a living will, must describe the 

company’s strategy for rapid and orderly resolution 

under the U.S. Bankruptcy Code in the event of 

material financial distress or failure of the company. 

Large Bank Holding Companies with Substantial 

Nonbank Assets 

Companies subject to the rule are divided into three 

groups: companies with $250 billion or more in 

nonbank assets, companies with nonbank assets 

between $100 billion and $250 billion, and all other 

companies with total consolidated assets of $50 billion 

or more. Companies in the first and second group 

were required to submit their resolution plans by 

July 1, 2015. These firms included Bank of America 

Corporation, Bank of New York Mellon Corporation, 

JP Morgan Chase & Co., State Street Corporation, 

Wells Fargo & Company, Goldman Sachs Group, 

Inc., Morgan Stanley, and Citigroup, Inc. 

In April 2016, the FDIC and FRB jointly announced 

determinations and provided firm-specific feedback 

on the resolution plans submitted in July 2015. 

The agencies also made public the Resolution Plan 

Assessment Framework, which explains the resolution 

plan requirement, provides further information on 

the determinations, and demonstrates the agencies’ 

processes for reviewing the plans. Additionally, the 

agencies released new guidance for the July 2017 

submissions.

Regarding the July 2015 submissions, the FDIC and 

FRB jointly determined that each of the resolution 

plans of Bank of America Corporation, Bank of 

New York Mellon Corporation, JP Morgan Chase 

& Co., State Street Corporation, and Wells Fargo & 

Company was not credible or would not facilitate an 

orderly resolution under the U.S. Bankruptcy Code, 

the statutory standard established in the Dodd-Frank 

Act. The agencies issued joint notices of deficiencies 

to these five firms detailing the deficiencies in 

their plans and the actions the firms must take to 

address them. Each firm was required remediate its 

deficiencies by October 1, 2016. Failure to remedy 

the deficiencies could subject the firms to more 

stringent capital, leverage, or liquidity requirements, 

or restrictions on the growth, activities, or operations 

of the firms as provided in the statute. 

The agencies jointly identified weaknesses in the 

2015 resolution plans of Goldman Sachs Group, 

Inc. and Morgan Stanley that the firms must address, 

but did not make joint determinations regarding the 

plans and their deficiencies. The FDIC determined 

that the plan submitted by Goldman Sachs Group, 

Inc. was not credible or would not facilitate an 

orderly resolution under the U.S. Bankruptcy Code, 

and identified deficiencies. The FRB identified a 

deficiency in Morgan Stanley’s plan and found that 

the plan was not credible or would not facilitate an 

orderly resolution under the U.S. Bankruptcy Code.

Neither agency found that Citigroup, Inc.’s 2015 

resolution plan was not credible or would not 

facilitate an orderly resolution under the U.S. 

Bankruptcy Code, although the agencies did identify 

shortcomings that the firm must address. 

All of the banking organizations that received 

feedback in April provided updates to their plans in 

October 2016. The FDIC and the FRB determined 

in December that Bank of America Corporation, 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 39

Bank of New York Mellon Corporation, JP Morgan 

Chase & Co., and State Street Corporation adequately 

remediated the deficiencies cited in their 2015 

resolution plans. 

The agencies jointly determined that Wells Fargo 

& Company did not adequately remedy two of the 

firm’s three deficiencies. In light of the nature of the 

deficiencies and the resolvability risks posed by the 

firm’s failure to remedy them, the agencies imposed 

restrictions on the growth of international and 

nonbank activities of Wells Fargo & Company and 

its subsidiaries. The firm is expected to file a revised 

submission addressing the remaining deficiencies 

by March 31, 2017. If, after reviewing the March 

submission, the agencies jointly determine that the 

deficiencies have not been adequately remedied, the 

agencies will limit the size of the firm’s nonbank and 

broker-dealer assets to levels in place on September 

30, 2016. If Wells Fargo & Company has not 

adequately remedied the deficiencies within two years, 

the statute provides that the agencies, in consultation 

with the FSOC, may jointly require the firm to divest 

certain assets or operations to facilitate an orderly 

resolution of the firm in bankruptcy.

Four foreign banking organizations (FBOs) also filed 

resolution plans in July 2015. The FDIC and FRB 

are currently reviewing those plans. 

Other Large Bank Holding Company Filers 

In December 2015, the third group of filers 

represented by 122 firms with total consolidated assets 

of $50 billion or more submitted resolution plans 

to the agencies. Of these, 34 resolution plans were 

either full or tailored plans that were required to take 

into account guidance provided by the agencies. The 

FDIC and FRB are jointly developing letters with 

feedback to these firms and guidance for their next 

resolution plan submissions on December 31, 2017.

The remaining 88 resolution plans were streamlined 

plans that required the firms to focus on material 

changes to their 2014 resolution plans, actions taken 

to strengthen the effectiveness of those plans, and, 

where applicable, actions to ensure any subsidiary 

insured depository institution would be adequately 

protected from the risk arising from the activities 

of nonbank affiliates of the firm. In May 2016, 

the agencies notified 84 firms that they would be 

permitted to file streamlined resolution plans for yearends 2016 through 2018.

In December 2016, the agencies received 86 

resolution plans from new filers or filers of 

streamlined plans. These plans include four full or 

tailored plans and 82 streamlined plans. 

Nonbank Firms 

Nonbank financial firms designated as systemically 

important by FSOC also are required to submit 

resolution plans for review by the FDIC and FRB. 

During December 2015, three nonbank firms—

American International Group, Inc. (AIG), General 

Electric Capital Corporation, Inc. (GECC), and 

Prudential, Inc.— submitted their resolution plans 

for review. On June 28, 2016, GECC’s systemically 

important financial institution designation was 

rescinded, and the joint review of its plan ceased. 

The agencies are expected to provide feedback on the 

remaining plans in early 2017.

In August 2016, the FDIC and FRB, in order to 

afford adequate time for the agencies to provide 

thorough feedback to the firms, and for the firms 

to develop responsive submissions, jointly in letters 

to AIG and Prudential, Inc., stated the agencies’ 

decision to extend their 2016 annual resolution 

plan submission date to December 31, 2017, and 

indicated that their 2016 resolution plan requirement 

would be satisfied by the submission of the 2017 

resolution plan. 

MetLife, which was designated as systemically 

important on December 18, 2014, challenged its 

designation in federal court and won a ruling on 

March 30, 2016, that rescinded its designation. The 

Department of Justice on behalf of the FSOC has 

appealed that decision. The U.S. Court of Appeals 

heard oral arguments in October 2016. MetLife will 

not be required to submit a resolution plan unless its 

designation is reinstated.
ANNUAL REPORT

40 MANAGEMENT’S DISCUSSION AND ANALYSIS

Extended Deadline for Submissions 

for Certain Organizations’ Plans 

In April 2016, the FDIC and FRB jointly announced 

determinations and provided firm-specific feedback 

on the 2015 resolution plans of eight systemically 

important, domestic banking institutions. The 

deadline for the next full plan submission for all eight 

domestic SIFIs is extended to July 1, 2017.

In July 2016, the FDIC and FRB jointly granted oneyear filing extensions to four FBOs. These FBOs will 

be required to submit their next resolution plans on 

July 1, 2017.

In August 2016, the FDIC and FRB jointly granted 

one-year filing extensions to 36 domestic bank 

holding companies and foreign banking organizations, 

as well as two nonbank financial companies designated 

by the FSOC. These firms will be required to submit 

their next resolution plans on December 31, 2017. 

Insured Depository Institution 

Resolution Plans

Part 360.10 of the FDIC Rules and Regulations 

requires an IDI with total assets of $50 billion or 

more to periodically submit to the FDIC a plan for its 

resolution in the event of its failure (IDI Rule). The 

IDI Rule requires each IDI meeting the criteria to 

submit a resolution plan that should allow the FDIC, 

as receiver, to resolve the IDI under Sections 11 and 

13 of the Federal Deposit Insurance Act (FDI Act) 

in an orderly manner that enables prompt access to 

insured deposits, maximizes the return from the sale 

or disposition of the failed IDI’s assets, and minimizes 

losses realized by creditors. The resolution plan must 

also describe how a selected strategy will be least costly 

to the Deposit Insurance Fund. 

In September 2015, the FDIC received 10 IDI 

resolution plans and in December 2015, an additional 

26 resolution plans. The FDIC’s review of these 

plans focused on the insolvency scenario, strategy 

and funding, readiness, corporate governance, and 

the guidance that the FDIC issued in December 

2014 for resolution plans required by the IDI Rule. 

Under the guidance, a covered IDI must provide a 

fully developed discussion and analysis of a range of 

realistic resolution strategies. To assist IDIs in writing 

their plans, the guidance includes direction regarding 

the elements that should be discussed in a fully 

developed resolution strategy and the cost analysis, 

clarification regarding assumptions made in the plan, 

and a list of significant obstacles to an orderly and 

least costly resolution that IDIs should address. The 

guidance applies to the resolution plans of the IDIs 

covered by the IDI Rule, as well as any new IDI 

meeting the threshold, commencing with the 2015 

resolution plan submissions.

In August 2016, the FDIC extended the deadline 

for 10 IDI resolution plans from September 1, 2016 

to October 1, 2017, and extended the deadline for 

26 IDI resolution plans from December 31, 2016 

to December 31, 2017. The FDIC is developing 

letters to these firms with feedback on their plans and 

guidance for their next resolution plan submissions.

In December 2016, the FDIC received two IDI plans 

from banks that are new filers. 

Orderly Liquidation Authority – 

Resolution Strategy Development

Under the Dodd-Frank Act, failed or failing financial 

companies are expected to file for reorganization or 

liquidation under the U.S. Bankruptcy Code, just as 

any failed or failing nonfinancial company would file. 

If resolution under the Bankruptcy Code would result 

in serious adverse effects to U.S. financial stability, the 

Orderly Liquidation Authority (OLA) set out in Title 

II of the Dodd-Frank Act provides a backup authority 

to the bankruptcy process. There are strict parameters 

on its use, however, and it can only be invoked 

under a statutorily prescribed recommendation and 

determination process, coupled with an expedited 

judicial review process.

The FDIC has been developing resolution strategies 

to carry out its orderly liquidation authorities. Firmspecific resolution strategies are under development 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 41

and are informed by the Title I plan submissions. In 

addition, preliminary work has begun to develop 

resolution strategies for the nonbank resolution plan 

filers and financial market utilities, particularly central 

counterparties (CCPs). 

In September 2016, the FDIC conducted a second 

operational exercise to validate the steps involved in 

carrying out a Title II resolution.  The first operational 

exercise conducted in December of 2015, focused 

on the initial appointment of the FDIC as receiver 

of a SIFI and the stabilization phase immediately 

following appointment.  This year’s exercise covered 

the operation of the bridge financial company and 

the wind down and liquidation of the firm.  Both 

operational exercises validated the systemic resolution 

framework and identified areas for further work. 

Monitoring and Measuring 

Systemic Risks 

The FDIC monitors risks related to SIFIs both 

at the firm level and industry wide, to inform 

supervisory planning and response, policy and 

guidance considerations, and resolution planning 

efforts. As part of this monitoring, the FDIC 

analyzes each company’s risk profile, governance 

and risk management capabilities, structure and 

interdependencies, business operation and activities, 

management information system capabilities, 

and recovery and resolution capabilities. 

The FDIC continues to work closely with other 

Federal regulators to analyze institution-specific and 

industry-wide conditions and trends, emerging risks 

and outliers, risk management, and the potential risk 

posed to financial stability by SIFIs and nonbank 

financial companies. To support risk monitoring that 

informs supervisory and resolution planning efforts, 

the FDIC has developed systems and reports that 

make extensive use of structured and unstructured 

data. SIFI monitoring reports are prepared on a 

routine and ad-hoc basis and cover a variety of aspects 

that include risk components, business lines and 

activity, market trends, and product analysis. 

Additionally, the FDIC has implemented and 

continues to expand upon various monitoring 

systems, including the Systemic Monitoring System 

(SMS). The SMS provides an individual risk profile 

and assessment for each SIFI by evaluating the 

level and change in metrics that serve as important 

barometers of overall risk. The SMS supports the 

identification of emerging risks within individual 

firms and the prioritization of supervisory and 

monitoring activities. The SMS also serves as an early 

warning system of financial vulnerability by gauging 

a firm’s proximity and speed to resolution event. 

Information from FDIC-prepared reports and systems 

are used to prioritize activities relating to SIFIs 

and to coordinate and communicate with the FRB 

and OCC. 

The FDIC also has conducted semi-annual 

“Day of Risk” meetings to present, discuss, and 

prioritize the review of emerging risks. For each 

major risk, executive management discussed the 

nature of the risk, exposures of SIFIs, and planned 

supervisory efforts.

Backup Supervision Activities for IDIs of 

Systemically Important Financial Institutions

Risk monitoring is enhanced by the FDIC’s backup 

supervision activities. In its backup supervisory role, 

as outlined in Sections 8 and 10 of the FDI Act, 

the FDIC has expanded resources and developed 

and implemented policies and procedures to guide 

backup supervisory activities. These activities include 

performing analyses of industry conditions and 

trends, insurance pricing support, participating in 

supervisory activities with other regulatory agencies, 

and exercising examination and enforcement 

authorities when necessary. At institutions for which 

the FDIC is not the primary federal regulator, staff 

works closely with other regulatory authorities to 

identify emerging risk and assess the overall risk 

profile of large and complex institutions. The FDIC, 

OCC, and FRB operate under a Memorandum 

of Understanding that establishes guidelines for 

coordination and cooperation to carry out their 
ANNUAL REPORT

42 MANAGEMENT’S DISCUSSION AND ANALYSIS

respective responsibilities, including the FDIC’s role 

as insurer. Under this agreement, the FDIC has 

assigned dedicated staff to IDI subsidiaries of 

systemically important financial institutions to 

enhance risk-identification capabilities and facilitate 

the communication of supervisory information. 

These individuals work with the staff of the FRB 

and OCC in monitoring risk at their assigned 

institutions. In 2016, staff from the FDIC’s Division 

of Risk Management Supervision participated in 

102 targeted examination activities with the FRB and 

53 targeted examination activities with the OCC. 

The reviews included, but were not limited to, 

engagement in Comprehensive Capital Analysis 

and Reviews, Dodd-Frank Act Stress Testing, 

quantitative model reviews, swaps margin model 

reviews, credit risk-related reviews, and the Shared 

National Credit Reviews.

Cross-Border Efforts

Advance planning and cross-border coordination 

for the resolution of Global-SIFIs (G-SIFIs) is 

essential to minimizing disruptions to global financial 

markets. Recognizing that the resolution of a G-SIFI 

creates complex international legal and operational 

concerns, the FDIC continues to work with foreign 

regulators to establish frameworks for effective crossborder cooperation. 

In October 2016, the FDIC hosted the second in 

an ongoing series of planned exercises to enhance 

coordination on cross-border resolution. The exercise 

was the culmination of planning since late 2015 and 

built on ongoing work by the international authorities 

in the area of cross-border resolution, including 

a staff-level exercise conducted earlier in July 

2016. The exercise also coincided with the annual 

international meetings in Washington, DC, sponsored 

by the World Bank and International Monetary Fund. 

Participants in the exercise included senior financial 

officials representing authorities in the United States, 

United Kingdom, and Europe, including the U.S. 

Department of Treasury, FRB, OCC, SEC, CFTC, 

Federal Reserve Bank of New York, HM Treasury, 

Bank of England (BOE), U.K. Prudential Regulation 

Authority, the Single Resolution Board, European 

Commission, and European Central Bank. 

The FDIC serves as a co-chair for all of the crossborder crisis management groups (CMGs) of 

supervisors and resolution authorities for the United 

States. In addition, the FDIC participates as a host 

authority in CMGs for foreign G-SIFIs. The FDIC 

and the European Commission continued their 

engagement through the joint Working Group, 

which is composed of senior executives at the FDIC 

and European Commission who meet to focus on 

both resolution and deposit insurance issues. In 

2016, the Working Group discussed cross-border 

bank resolution and resolution of CCPs, among 

other topics. FDIC staff also participated in the 

Joint EU-US Financial Regulatory Forum (formerly 

the Financial Markets Regulatory Dialogue) with 

representatives of the European Commission and 

other participating European Union authorities, 

including the Single Resolution Board and the 

European Banking Authority, and staffs of the 

Treasury Department, FRB, SEC, CFTC, and other 

participating U.S. agencies.

The FDIC continued to advance its working 

relationships with other jurisdictions that regulate 

G-SIFIs, including those in Switzerland, Japan, and 

Germany. In 2016, the FDIC had significant stafflevel engagements with these countries to discuss 

cross-border issues and potential impediments that 

could affect the resolution of a G-SIFI. 

Systemic Resolution Advisory Committee

The FDIC created the Systemic Resolution 

Advisory Committee (SRAC) in 2011 to receive 

advice and recommendations on a broad range 

of issues regarding the resolution of systemically 

important financial companies pursuant to the 

Dodd-Frank Act. Over the years, the SRAC has 

provided important advice to the FDIC regarding 

systemic resolutions and advised the FDIC on 

a variety of issues, including the following:
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 43

♦ the effects on financial stability and economic 

conditions resulting from the failure of a SIFI;

♦ the ways in which specific resolution strategies 

would affect stakeholders and their customers; 

♦ the tools available to the FDIC to wind down the 

operations of a failed organization; and

♦ the tools needed to assist in cross-border relations 

with foreign regulators and governments 

when a systemically important company has 

international operations. 

Members of the SRAC have a wide range of 

experience, including managing complex firms, 

administering bankruptcies, and working in the 

legal system, accounting field, and academia. The 

SRAC met on April 14, 2016, and worked through 

an agenda that addressed the status of Title I Living 

Wills, an update on Title II Orderly Liquidation 

Authority, and developments in the European Union. 

The SRAC heard from Dr. Elke König, the first Chair 

of the European Union’s Single Resolution Board, on 

developments within the EU and efforts to collaborate 

with the United States. and other jurisdictions. 

Financial Stability Oversight Council 

The FSOC was created by the Dodd-Frank Act in 

July 2010 to promote the financial stability of the 

United States. It is composed of 10 voting members, 

including the Chairperson of the FDIC, and five 

non-voting members. 

The FSOC’s responsibilities include the following:

♦ identifying risks to financial stability, responding 

to emerging threats in the financial system, and 

promoting market discipline;

♦ identifying and assessing threats that institutions 

may pose to financial stability and, if appropriate, 

designating a nonbank financial company to be 

supervised by the FRB and subject to heightened 

prudential standards;

♦ designating financial market utilities and 

payment, clearing, or settlement activities 

that are, or are likely to become, systemically 

important;

♦ facilitating regulatory coordination and 

information-sharing regarding policy 

development, rulemaking, supervisory 

information, and reporting requirements;

♦ monitoring domestic and international financial 

regulatory proposals and advising Congress 

and making recommendations to enhance the 

integrity, efficiency, competitiveness, and stability 

of U.S. financial markets; and

♦ producing annual reports describing, among 

other things, the Council’s activities and potential 

emerging threats to financial stability.

In 2016, the FSOC issued its sixth annual report. 

Generally, at each of its meetings, the FSOC discusses 

various risk issues. In 2016, the FSOC meetings 

addressed, among other topics, U.S. fiscal issues, 

interest-rate risk, credit risk, the FRB and European 

bank stress tests, the United Kingdom’s vote to leave 

the European Union (i.e., Brexit), cybersecurity, 

nonbank financial company designations, and 

housing reform.

DEPOSITOR AND 

CONSUMER PROTECTION

A major component of the FDIC’s mission is to 

ensure that financial institutions treat consumers 

and depositors fairly and operate in compliance with 

federal consumer protection, anti-discrimination, 

and community reinvestment laws. The FDIC 

also promotes economic inclusion to build and 

strengthen positive connections between insured 

financial institutions and consumers, depositors, 

small businesses and communities. 

Guidance

Loans in Areas Having Special Flood Hazards

In April 2016, the FDIC, OCC, FRB, NCUA, and 

Farm Credit Administration jointly issued interagency 
ANNUAL REPORT

44 MANAGEMENT’S DISCUSSION AND ANALYSIS

examination procedures pertaining to force placement 

of flood insurance, escrowing of flood insurance 

premiums and fees, exemptions to the mandatory 

flood insurance purchase requirement for detached 

structures, and civil money penalties.

Uniform Interagency Consumer 

Compliance Rating System

In 2016, the FFIEC finalized changes to the Uniform 

Interagency Consumer Compliance Rating System 

to reflect regulatory, supervisory, technological, and 

market changes since the system was established. 

The Consumer Compliance Rating System is a 

supervisory policy for evaluating financial institutions’ 

adherence to consumer compliance requirements. 

The revisions are designed to align the rating system 

more fully with the FFIEC agencies’ current riskbased, tailored examination approaches. The FFIEC 

new rating system will apply to all exams starting after 

March 31, 2017. 

Interagency Guidance on 

Deposit-Reconciliation Practices

In May 2016, the FDIC, OCC, FRB, NCUA, and 

Consumer Financial Protection Bureau (CFPB) issued 

guidance to alert financial institutions to supervisory 

expectations regarding deposit-reconciliation practices 

that may be detrimental to customers. This guidance 

addresses a set of situations in which customers 

make deposits to accounts and the dollar amount 

that the financial institution credits to that account 

differs from the total of the items deposited. Such 

discrepancies may arise in a variety of situations, 

including inaccuracies on the deposit slip, encoding 

errors, or poor image-capture. The result may be 

a detriment to the customer and a benefit to the 

financial institution if not appropriately reconciled.

Community Reinvestment Act

In July 2016, the FDIC, OCC, and FRB (i.e., the 

federal bank regulatory agencies with responsibility 

for CRA rulemaking) published final revisions to 

“Interagency Questions and Answers Regarding 

Community Reinvestment.” The Q&A provides 

additional guidance to financial institutions and the 

public regarding the agencies’ CRA regulations in 

the following areas: availability and effectiveness of 

retail banking services; innovative or flexible lending 

practices; community development-related issues; and 

responsiveness and innovativeness of an institution’s 

loans, qualified investments, and community 

development services.

Privacy of Consumer Financial Information 

In October 2016, the FDIC released revised 

interagency examination procedures for privacy 

of consumer financial information that reflect 

the statutory amendments made by the Fixing 

America’s Surface Transportation Act (FAST Act) 

to the Gramm-Leach-Bliley Act annual privacy 

notice requirements. The procedures contain new 

guidance on an exception to the annual privacy 

notice requirement.

Military Lending Act

In October 2016, the FDIC released revised 

interagency examination procedures that reflect the 

Department of Defense’s 2015 amendments to the 

implementing regulations of the Military Lending 

Act of 2006 (MLA) and its August 2016 interpretive 

rule that provides guidance on compliance with the 

MLA rule. The FDIC also provided accompanying 

guidance on its initial supervisory expectations 

in connection with its examinations of financial 

institutions for compliance with the MLA rule.

Promoting Economic Inclusion

The FDIC is strongly committed to promoting 

consumer access to a broad array of banking products 

to meet consumer financial needs. To promote 

financial access to responsible and sustainable 

products offered by IDIs, the FDIC:

♦ conducts research on the unbanked 

and underbanked;
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 45

♦ engages in research and development on 

models of products meeting the needs of 

lower-income consumers;

♦ supports partnerships to promote consumer 

access and use of banking services;

♦ advances financial education and literacy; and

♦ facilitates partnerships to support community 

and small business development.

Advisory Committee on Economic Inclusion 

The Advisory Committee on Economic Inclusion 

(ComE-IN) provides the FDIC with advice and 

recommendations on important initiatives focused on 

expanding access to mainstream banking services to 

underserved populations. This may include reviewing 

basic retail financial services such as low-cost, safe 

transaction accounts, affordable small-dollar loans, 

savings accounts, and other services that promote 

individual asset accumulation and financial stability. 

In May 2016, ComE-IN met to discuss payment 

system modernization, banks’ efforts to serve the 

unbanked and underbanked, new savings accounts 

designed to assist individuals with disabilities, and 

next steps planned to explore the potential of mobile 

financial services to further economic inclusion.

FDIC National Survey of Unbanked and 

Underbanked Households and Related Research

As part of its ongoing commitment to expanding 

economic inclusion in the United States, the FDIC 

works to fill the research and data gap regarding 

household participation in mainstream banking and 

the use of nonbank financial services. In addition, 

Section 7 of the Federal Deposit Insurance Reform 

Conforming Amendments Act of 2005 mandates that 

the FDIC regularly report on underserved populations 

and bank efforts to bring individuals and families 

into the conventional banking system. In response, 

the FDIC regularly conducts and reports on surveys 

of households and banks to inform the public and 

enhance the understanding of financial institutions, 

policymakers, regulators, researchers, academics, 

and others.

During 2016, the FDIC prepared a report on 

the 2015 FDIC National Survey of Unbanked and 

Underbanked Households, in partnership with the U.S. 

Census Bureau. The survey focused on basic checking 

and savings account ownership, but it also explored 

household use of alternative financial services to better 

understand the extent to which families are meeting 

their financial needs outside of mainstream financial 

institutions. In addition, the survey incorporated 

questions designed to assess the typical monthly 

financial services consumption patterns and to better 

understand households’ use of bank and nonbank 

consumer credit instruments. A full report was issued 

by the FDIC to the public on October 20, 2016. 

Those results are available on economicinclusion.gov. 

In 2016, the FDIC also published two qualitative 

research projects to develop further understanding of 

this area. In the first, the FDIC studied the economic 

inclusion potential of mobile financial services. The 

findings confirmed and provided more detailed 

insights into the opportunity of mobile financial 

services to improve the sustainability of banking 

relationships. As a follow-up to this report, the FDIC 

requested comments on opportunities to demonstrate 

empirically the benefits of mobile financial services. 

In the second project, the FDIC interviewed bankers 

At the 16th Annual Bank Research Conference, FDIC Chairman 

Martin J. Gruenberg presented findings from the 2015 National Survey 

of Unbanked and Underbanked Households.
ANNUAL REPORT

46 MANAGEMENT’S DISCUSSION AND ANALYSIS

and other stakeholders to understand better the 

programs, products, and strategies that banks are 

finding useful for attracting and retaining unbanked 

households as customers. In addition to summarizing 

findings from these interviews, the paper suggests 

several implications that banks and their partners can 

use to enhance these efforts.

Community and Small Business Development 

and Affordable Mortgage Lending 

In 2016, the FDIC provided technical assistance 

to banks and community organizations through 

61 outreach events designed to increase shared 

knowledge and support collaboration between 

financial institutions and other community, housing, 

and small business development resources and 

to improve knowledge about the Community 

Reinvestment Act. 

The FDIC’s work particularly emphasized sharing 

information to support bank efforts to provide 

prudent access to responsible, affordable mortgage 

credit. In 2016, the FDIC released the Affordable 

Mortgage Lending Guide and launched the Affordable 

Mortgage Lending Center, an online resource. These 

resources are designed to provide a comprehensive 

overview of the programs and services available to 

community banks to support affordable mortgage 

lending, particularly to low- and moderate-income 

borrowers. By year-end 2016, the Guide had already 

been downloaded more than 3,500 times, and 

more than 20,000 visitors have viewed the online 

Affordable Mortgage Lending Center. 

Also in 2016, the FDIC, other federal regulators, 

and federal and state housing agencies hosted 10 

affordable mortgage lending forums to offer technical 

assistance to help expand access to mortgage credit 

for low-or moderate-income (LMI) households. 

During these events, banks and program managers 

shared experiences with federal mortgage guarantee 

and secondary market programs and state and local 

down payment assistance and counseling programs. 

They offered details of their work so that audiences 

could gain a better understanding of how to address 

challenges and identify opportunities for expanding 

participation in these programs.

In addition, the FDIC sponsored sessions with 

interagency partners covering basic and advanced 

CRA training for banks. The agencies also offered 

CRA basics for community-based organizations 

as well as seminars on establishing effective 

bank-community collaborations for community 

development in more than 45 communities. The 

FDIC had a particular focus on encouraging 

community development initiatives in rural 

communities, including workshops that highlighted 

housing needs and programs, economic development 

programs, and community development financial 

institution collaborations, including those serving 

Native American communities.

Advancing Financial Education 

Financial education helps consumers understand 

and use bank products effectively and sustain 

a banking relationship over time. The FDIC 

continued to be a leader in developing high-quality, 

free financial education resources and pursuing 

collaborations to use those tools to educate the 

public. The FDIC’s work during 2016 dealt 

primarily with young people, consistent with the 

Financial Literacy and Education Commission 

focus on Starting Early for Financial Success.

Money Smart for Young People

Money Smart for Young People, a standards-aligned 

curriculum designed to involve teachers, students, 

and parents/caregivers in the learning process about 

money, was downloaded more than 39,000 times 

since its launch. In addition, 189 educators from 26 

school districts received professional development 

training to assist them in using Money Smart for Young 

People as part of a small pilot project. The FDIC used 

stakeholder input to enhance the curriculum, such as 

by making it available to download on a lesson-bylesson basis. 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 47

Money Smart for Older Adults

The FDIC also worked with the CFPB to launch an 

enhanced version of Money Smart for Older Adults, a 

free financial education curriculum first released in 

2013 to help prevent elder financial exploitation. The 

2016 enhancements include technical updates and 

revisions to the material based on input from trainers. 

The newly updated resource includes an expanded 

discussion on common types of elder financial 

exploitation such as tax, charity, debt collection, 

and grandchild imposter scams. The resource also 

incorporates federal resources that can be helpful on 

topics such as how to research an investment advisor.

Money Smart for Small Business

The FDIC continues to strengthen collaboration with 

the Small Business Administration (SBA) and other 

small business resources beyond training. In 2016, 

each of the six FDIC regional Community Affairs 

teams sponsored regional events for banks, the SBA, 

and the SBA Resource Partner Network (comprised 

of SCORE, Small Business Development Centers, 

Women’s Business Centers, and Veteran’s Business 

Outreach Centers) to convene and collaborate or 

provide technical assistance to small business leaders. 

Moreover, new training resources were released to 

encourage expanded use of Money Smart for Small 

Business, and the group of training providers identified 

as Money Smart for Small Business Alliance members 

continued to grow, reaching 143 at year-end. 

Youth Savings Pilot Program

The FDIC continues to collaborate with the CFPB 

to promote youth financial capability by giving 

teachers trusted resources to teach financial education, 

empowering parents and caregivers to discuss financial 

topics with their children, and emphasizing hands-on 

activities. To promote hands-on learning, the FDIC 

completed a report on the two-year Youth Savings 

Pilot Program in 2016. The pilot was designed 

to identify and highlight promising approaches 

to linking financial education to opportunities 

for school-aged children to open safe, low-cost 

savings accounts. The report, which draws from 

the experiences of 21 participating banks, describes 

three model approaches that have been used to build 

financial education programs and can be a resource for 

banks, schools, and others. Lessons learned from the 

pilot also were presented at the October 20 meeting of 

ComE-IN. In addition, FDIC hosted a symposium 

on October 21 to bring together representatives 

of the banks, schools, and non-profit partners that 

participated in the Youth Savings Pilot to discuss 

lessons learned and promising practices. 

The FDIC also developed and began to implement 

strategies to improve financial education and access to 

mainstream financial services for youth participating 

in youth employment programs funded through the 

Workforce Innovation and Opportunity Act (WIOA). 

For workforce providers and their partners teaching 

financial education, FDIC developed a tool to map 

Money Smart to WIOA’s financial education element, 

and drafted a Money Smart supplement to prepare 

youth to open their first accounts. The FDIC also led 

three webinars in collaboration with the Department 

of Labor to increase awareness of Money Smart among 

organizations that receive federal funding for youth 

employment. In addition, FDIC participated in three 

regional events in collaboration with the Department 

of Labor and FRB to strengthen the capacity of 

workforce development organizations to work with 

financial institutions on financial capability initiatives. 

Financial Education Webinars for Teachers

In 2016, the FDIC enhanced its Teacher Online 

Resource Center, a repository of resources from the 

FDIC and CFPB, to help teachers provide youth 

financial education. Five new videos that overview 

the key features of the curriculum were added. 

There were more than 27,000 visits to the site during 

the year. The FDIC continued to collaborate with 

strategic partners to increase awareness of the FDIC’s 

free resources. For example, more than 600 people 

participated in four conference call/webinars held in 

collaboration with the Jump$tart Coalition to make 

educators feel more comfortable using the curriculum. 
ANNUAL REPORT

48 MANAGEMENT’S DISCUSSION AND ANALYSIS

Partnerships for Access to 

Mainstream Banking 

The FDIC supports broadening access to mainstream 

banking for consumers and small business through 

work with the Alliances for Economic Inclusion 

(AEI), Bank On initiatives, local and state 

governments, and in collaboration with federal 

partners and many local and national organizations. 

The FDIC also collaborates with other financial 

regulatory agencies to provide information and 

technical assistance on community development to 

banks and community leaders across the country.  

Local collaborations are many and diverse. The FDIC 

sponsored or co-sponsored more than 125 events 

during 2016 that provided opportunities for partners 

to collaborate on increasing access to bank accounts 

and credit services, opportunities to build savings and 

improve credit histories, and initiatives to strengthen 

significantly the financial capability of community 

service providers who directly serve LMI consumers 

and very small businesses.

During 2016, the FDIC helped convene financial 

institutions, community organizations, local, state, 

and federal agencies, and other partners to support 

coalitions that bring unbanked and underbanked 

consumers and owners of small businesses into 

the financial mainstream through a wide range 

of partnership organizations. In the 14 AEI 

communities and in other areas, the FDIC helped 

committees and working groups of bankers and 

community leaders develop responses to the financial 

capability and services needs in their communities. To 

integrate financial capability into community services 

more effectively, the FDIC supported seminars and 

training sessions for community service providers and 

asset building organizations, workshops for financial 

coaches and counselors, promotion of savings 

opportunities for LMI people and communities, 

initiatives to expand access to savings accounts 

for all ages, outreach to bring larger numbers of 

people to expanded tax preparation assistance sites, 

and education for business owners to help them 

become bankable. 

The FDIC also provided information and technical 

assistance in the development of safe and affordable 

transaction and savings accounts and worked to 

connect unbanked consumers to those accounts. The 

FDIC provided technical assistance to local Bank 

On initiatives and asset-building coalition activities 

designed to reduce barriers to banking and increase 

access to the financial mainstream in more than 

28 communities and in 23 states. For example, the 

FDIC collaborated with the Cities for Financial 

Empowerment Fund to support its national efforts 

to work with local government and other partners 

to increase the access of LMI consumers to safe and 

affordable financial products and services. During 

2016, in collaboration with Cities for Financial 

Empowerment and local coalitions, the FDIC 

worked in seven Bank On cities to convene 14 forums 

and roundtables designed to advance strategies to 

expand access to safe deposit accounts. The FDIC 

also supported efforts to link consumers to financial 

education and savings through activities organized for 

designated Money Smart or “financial fitness” weeks 

or months, involving hundreds of consumer outreach 

events. Moreover, working with the national, local, 

state, and targeted (i.e., youth, military, and minority 

consumer-focused) America Saves campaigns, the 

FDIC continued to link banking companies to active 

efforts for engaging consumers with setting savings 

goals at tax time and year-round. 

The FDIC designed strategies to reach two particular 

segments of the population that the National Survey 

of Unbanked and Underbanked Consumers revealed 

are disproportionately unbanked and underbanked: 

people with disabilities and low- and moderateincome young people. The Advisory Committee 

on Economic Inclusion was engaged in discussions 

of financial education and outreach initiatives 

to promote economic inclusion of people with 

disabilities. The FDIC discussed its efforts to work 

with federal, nonprofit, and bank partners on the 

tax-advantaged savings accounts (known as ABLE 

Accounts), being launched by state governments. 

The FDIC also expanded efforts with local 

partners through 14 community events to bring 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 49

banks and organizations representing people with 

disabilities together at the state and local level. 

Youth benefiting from employment programs under 

the WIOA, who are generally low- or moderateincome, are required to be offered financial education. 

To support grantees of the Department of Labor 

and local initiatives, the FDIC developed trainthe-trainer resources and delivered webinars to 

enhance the capability of youth-serving employment 

organizations. Workforce development organizations, 

banks, the FRB and other partners convened in two 

communities to expand opportunities for young 

people to become financially capable and banked. 

Consumer Complaints and Inquiries

The FDIC helps consumers by receiving, 

investigating, and responding to consumer complaints 

about FDIC-supervised institutions and answering 

inquiries about banking laws and regulations, FDIC 

operations, and other related topics. In addition, the 

FDIC provides analytical reports and information 

on complaint data for internal and external use, and 

conducts outreach activities to educate consumers. 

The FDIC recognizes that consumer complaints and 

inquiries play an important role in the development 

of strong public and supervisory policy. Assessing 

and resolving these matters helps the agency identify 

trends or problems affecting consumer rights, 

understand the public perception of consumer 

protection issues, formulate policy that aids 

consumers, and foster confidence in the banking 

system by educating consumers about the protection 

they receive under certain consumer protection laws 

and regulations.

Consumer Complaints by Product and Issue

The FDIC receives complaints and inquiries by 

telephone, fax, U.S. mail, email, and online through 

the FDIC’s website. In 2016, the FDIC handled 

19,251 written and telephonic complaints and 

inquiries. Of this total, 10,884 related to FDICsupervised institutions. The FDIC responded 

to nearly 98 percent of these complaints within 

time frames established by corporate policy, and 

acknowledged 100 percent of all consumer complaints 

and inquiries within 14 days. As part of the 

complaint and inquiry handling process, the FDIC 

works with the other federal financial regulatory 

agencies to ensure that complaints and inquiries are 

forwarded to the appropriate agencies for response.

The FDIC carefully analyzes the products and issues 

involved in complaints about FDIC-supervised 

institutions. The number of complaints received 

about a specific bank product and issue can serve as a 

red flag to prompt further review of practices that may 

raise consumer protection or supervisory concerns. 

In 2016, the four most frequently identified consumer 

product complaints and inquiries about FDICsupervised institutions concerned credit cards 

(24 percent), consumer loans (14 percent), residential 

real estate (12 percent), and checking accounts 

(11 percent). Credit card complaints and inquiries 

most frequently described issues with collection 

practices and billing disputes, while the issues most 

commonly cited in correspondence about consumer 

loans were concerns with the reporting of erroneous 

information. Complaints and inquiries on residential 

real estate related to repossession/foreclosure and loan 

modification. The largest share of correspondence 

about checking accounts cited discrepancies in 

deposit accounts and refusal to cash checks or 

provide services. 

The FDIC also investigated 84 Fair Lending 

complaints alleging discrimination during 2016. The 

number of discrimination complaints investigated 

has fluctuated over the past several years but averaged 

approximately 84 complaints per year between 2011 

and 2016. Over this period, nearly 45 percent of 

the complaints investigated alleged discrimination 

based on the race, color, national origin, or ethnicity 

of the applicant or borrower; 24 percent related to 

discrimination allegations based on age; nearly 9 

percent involved the sex of the borrower or applicant; 

and roughly 5 percent concerned disability.
ANNUAL REPORT

50 MANAGEMENT’S DISCUSSION AND ANALYSIS

Consumer refunds generally involve the financial 

institution offering a voluntary credit to the 

consumer’s account, often as a direct result of 

complaint investigations and identification of a 

banking error or violation of law. In 2016, consumers 

received more than $531,349 in refunds from 

financial institutions as a result of the assistance 

provided by the FDIC’s Consumer Affairs Program.

Public Awareness of Deposit 

Insurance Coverage

An important part of the FDIC’s deposit insurance 

mission is to ensure that bankers and consumers have 

access to accurate information about the FDIC's 

rules for deposit insurance coverage. The FDIC has 

an extensive deposit insurance education program 

consisting of seminars for bankers, electronic tools for 

estimating deposit insurance coverage, and written 

and electronic information targeted to both bankers 

and consumers. 

The FDIC continued its efforts to educate bankers 

and consumers about the rules and requirements for 

FDIC insurance coverage during 2016. For example, 

as of December 31, 2016, the FDIC conducted six 

telephone seminars for bankers on deposit insurance 

coverage, reaching an estimated 5,282 bankers 

participating at approximately 1,509 bank sites 

throughout the country. The FDIC also created 

deposit insurance training videos that are available on 

the FDIC’s website and YouTube channel.

As of December 31, 2016, the FDIC received and 

answered approximately 90,412 telephone inquiries 

from consumers and bankers regarding deposit 

insurance-related inquiries. The FDIC Call Center 

addressed 40,374 of these inquiries, and deposit 

insurance subject matter experts handled the other 

50,038. In addition to telephone inquiries about 

deposit insurance coverage, the FDIC received 1,966 

written inquiries from consumers and bankers. Of 

these inquiries, 99 percent received responses within 

two weeks, as required by corporate policy.

Center for Financial Research 

The FDIC’s Center for Financial Research (CFR) 

encourages and supports innovative research on topics 

that are important to the FDIC’s roles as deposit 

insurer and bank supervisor. Research from CFR 

staff was accepted during the year for publication in 

leading banking, finance, and economics journals, 

and was presented at banking and finance seminars 

at major conferences, regulatory institutions, and 

universities. 

In 2016, the CFR and the Journal of Financial 

Services Research jointly sponsored the 16th Annual 

During the height of the financial crisis, more than three million copies of Bank Research Conference. The conference 

the brochure “Your Insured Deposits” were distributed across the nation.

FDIC Division of Insurance Director Diane Ellis opens the 16th Annual 

Bank Reserch Conference.
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 51

organizers received more than 550 submissions for the 

20 available presentation slots. Douglas Diamond, 

the Merton H. Miller Distinguished Service Professor 

of Finance at the University of Chicago, was the 

keynote speaker. CFR researchers also produced a 

number of new working papers in 2016. In addition, 

the CFR is administering the Small Business Lending 

Survey. Analysis and results of this survey will be 

made available in 2017.

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 his or her deposits in an FDICinsured institution due to a failure. When an 

institution closes, its chartering authority—the state 

for state-chartered institutions and the OCC for 

national banks and federal savings associations—

typically appoints the FDIC receiver, responsible for 

resolving the failed institution.

The FDIC employs a variety of strategies and 

business practices to resolve a failed institution. 

These strategies and practices are typically associated 

with either the resolution process or the receivership 

process. Depending on the characteristics of 

the institution, the FDIC may utilize several of 

these methods to ensure the prompt and smooth 

payment of deposit insurance to insured depositors, 

to minimize the impact on the DIF, and to speed 

dividend payments to uninsured depositors and other 

creditors of the failed institution.

The resolution process involves evaluating and 

marketing a failing institution, soliciting and 

accepting bids for the sale of the institution, 

determining which bid (if any) is least costly to the 

DIF, and working with the acquiring institution 

through the closing process.

To minimize disruption to the local community, 

the resolution process must be performed as quickly 

and efficiently as possible. The FDIC uses two 

basic resolution methods: purchase and assumption 

transactions and deposit payoffs.

The purchase and assumption (P&A) transaction 

is the most commonly used resolution method. 

Typically, in a P&A transaction, a healthy institution 

purchases certain assets and assumes certain liabilities 

of the failed institution. However, a variety of P&A 

transactions can be used. Because each failing bank 

situation is different, P&A transactions provide 

flexibility to structure deals that result in obtaining 

the highest value for the failed institution. For each 

possible P&A transaction, the acquirer may acquire 

either all of the failing institution’s deposits or only 

the insured portion of the deposits. 

From 2008 through 2013, loss sharing was offered by 

the FDIC in connection with P&A transactions. In 

a loss-share transaction, the FDIC, as receiver, agrees 

to share losses on certain assets with the acquirer, 

absorbing a significant portion (typically 80 percent) 

of future losses on assets that have been designated 

as “shared-loss assets” for a specific period of time 

(e.g., five to 10 years). The economic rationale 

for these transactions is that keeping assets in the 

banking sector and resolving them over an extended 

period of time can produce a better net recovery 

than the FDIC’s immediate liquidation of these 

assets. However, in recent years, as the markets have 

improved and begun to function more normally with 

both capital and liquidity returning to the banking 

industry, acquirers have become more comfortable 

with bidding on failing bank franchises without the 

protection of loss share. 

The FDIC continues to monitor compliance 

with shared-loss agreements by validating the 

appropriateness of loss-share claims; reviewing 

acquiring institutions’ efforts to maximize recoveries; 

ensuring consistent application of policies and 

procedures across both shared-loss and legacy 

portfolios; and confirming that the acquirers have 

sufficient internal controls, including adequate staff, 

reporting, and recordkeeping systems. At year-end 

2016, there were 148 receiverships with active 

shared-loss agreements and $20.8 billion in total 

shared-loss covered assets remained.
ANNUAL REPORT

52 MANAGEMENT’S DISCUSSION AND ANALYSIS

Deposit payoffs are only executed if all bids received 

for a P&A transaction (if any) are more costly to 

the DIF than liquidation. In the instance where no 

acceptable bids are received, the FDIC in its corporate 

capacity, makes sure that the customers of the failed 

institution receive the full amount of their insured 

deposits “as soon as possible.” 

The receivership process involves performing 

the closing functions at the failed institution; 

liquidating any remaining failed institution assets; 

and distributing any proceeds of the liquidation to 

the FDIC, uninsured depositors, and other creditors 

of the receivership. In its role as receiver, the FDIC 

uses a wide variety of strategies and tools to manage 

and sell retained assets. These include, but are not 

limited to, asset sales, securitizations, and structured 

transactions.

Financial Institution Failures

During 2016, there were five institution failures 

compared to eight failures in 2015. 

In all five transactions, the FDIC successfully 

contacted all known, qualified, and interested bidders 

to market these institutions, and also made insured 

funds available to all depositors within one business 

day of the failure. There were no losses on insured 

deposits, and no appropriated funds were required to 

pay insured deposits.

The following chart provides a comparison of failure 

activity over the past three years. 

FAILURE ACTIVITY 2014–2016

Dollars in Billions

2016 2015 2014

Total Institutions 5 8 18

Total Assets of 

Failed Institutions* $0.3 $6.7 $2.9

Total Deposits of 

Failed Institutions* $0.3 $4.9 $2.7

Estimated Loss to the DIF $0.05 $0.9 $0.4

*Total assets and total deposits data are based on the last quarterly 

Call Report or Thrift Financial Report (TFR) filed by the institution prior 

to failure.

Asset Management and Sales

As part of its resolution process, the FDIC tries to 

sell as many assets-in-liquidation as possible to an 

assuming institution. Assets that are retained by 

the receivership are promptly valued and liquidated 

in order to maximize the return to the receivership 

estate. For 95 percent of failed institutions, at least 

90 percent of the book value of marketable assets is 

marketed for sale within 90 days of an institution’s 

failure for cash sales and within 120 days for 

structured sales.

Cash sales of assets for banks that failed in 2016 

totaled $28.0 million in book value. 

As a result of the FDIC’s marketing and collection 

efforts, the book value of assets in inventory decreased 

by $1.5 billion (31 percent) in 2016.

The following chart shows the assets-in-liquidation 

inventory of these assets by asset type.

ASSETS-IN-LIQUIDATION INVENTORY 

BY ASSET TYPE

Dollars in Millions

Asset Type 12/31/16 12/31/15 12/31/14

Securities $183 $393 $470

Consumer Loans 8 22 36

Commercial Loans 19 62 123

Real Estate Mortgages 85 173 697

Other Assets/

Judgments 268 398 957

Owned Assets 40 113 120

Net Investments 

in Subsidiaries 100 122 123

Structured and 

Securitized Assets 2,614 3,524 5,150

TOTAL $3,317 $4,807 $7,676

Receivership Management Activities

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 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 53

uninsured depositors and other creditors by reducing 

overhead and other holding costs. Once the assets of 

a failed institution have been sold and its liabilities 

extinguished, the final distribution of any proceeds is 

made, and the FDIC terminates the receivership. In 

2016, the number of receiverships under management 

decreased by 68 (15 percent) to 378. The significant 

increase in termination activity from 2015 was driven 

by the early termination of shared-loss agreements.

The following chart shows overall receivership activity 

for the FDIC in 2016.

RECEIVERSHIP ACTIVITY

Active Receiverships as of 12/31/15 446

New Receiverships 5

Receiverships Terminated 73

Active Receiverships as of 12/31/16 378

Protecting Insured Depositors 

The FDIC’s ability to attract healthy institutions 

to assume deposits and purchase assets of failed 

banks and savings associations at the time of failure 

minimizes the disruption to customers and allows 

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 receivership creditors, including 

depositors whose accounts exceeded the insurance 

limit. During 2016, the FDIC paid dividends of 

$1.0 million to depositors whose accounts exceeded 

the insurance limit.

Professional Liability and 

Financial Crimes Recoveries 

The FDIC works to identify potential claims against 

directors, officers, securities underwriters and issuers, 

fidelity bond insurance carriers, appraisers, attorneys, 

accountants, mortgage loan brokers, title insurance 

companies, and other professionals who may have 

caused losses to an insured depository institution. 

Once a claim is determined to be meritorious and 

is expected to be cost-effective, the FDIC pursues 

those claims against the appropriate parties. 

During 2016, the FDIC recovered $463 million from 

professional liability claims and settlements. The 

FDIC also authorized lawsuits related to one failed 

institutions against six individuals for director and 

officer liability, and authorized another lawsuit for 

fidelity bond, liability insurance, attorney malpractice, 

appraiser malpractice, and securities law violations 

for residential mortgage-backed securities. As of 

December 31, 2016, the FDIC’s caseload included 

28 professional liability lawsuits (down from 50 at 

year-end 2015), 42 residential mortgage malpractice 

and fraud lawsuits (down from 87), and 173 open 

investigations (down from 264). The FDIC seeks 

to complete professional liability investigations and 

make decisions expeditiously on whether to pursue 

potential professional liability claims. During 2016, 

it completed investigations and made decisions on 91 

percent of the investigations related to failures that 

reached the 18-month point after the institution’s 

failure date, exceeding its annual performance target.

As part of the sentencing process for those convicted 

of criminal wrongdoing against an insured institution 

that later failed, a court may order a defendant to 

pay restitution or to forfeit funds or property to the 

receivership. The FDIC, working with the U.S. 

Department of Justice, collected $7.1 million from 

criminal restitution and forfeiture orders through 

December 31, 2016. Also as of that date, there were 

3,991 active restitution and forfeiture orders (up from 

3,831 at year-end 2015). This includes 111 orders 

held by the Federal Savings and Loan Insurance 

Corporation (FSLIC) Resolution Fund, (i.e., orders 

arising out of failed financial institutions that were in 

receivership or conservatorship by the FSLIC or the 

Resolution Trust Corporation).

MINORITY AND WOMEN INCLUSION

Consistent with the provisions of the Dodd-Frank 

Act, the FDIC continues to enhance its longstanding 

commitment to promote diversity and inclusion in 
ANNUAL REPORT

54 MANAGEMENT’S DISCUSSION AND ANALYSIS

employment opportunities and all business areas 

of the agency. The Office of Minority and Women 

Inclusion supports the FDIC’s mission through 

outreach efforts to ensure the fair inclusion and 

utilization of minority- and women-owned businesses, 

law firms, and investors in contracting and investment 

opportunities.

The FDIC relies on contractors to help meet 

its mission. In 2016, the FDIC awarded 287 

(24 percent) contracts to minority- and womenowned businesses (MWOBs) out of a total of 

1,181 issued. The FDIC awarded contracts with a 

combined value of $509 million in 2016, of which 

18 percent ($94 million) were awarded to MWOBs, 

compared to 25 percent for all of 2015. The FDIC 

paid $112 million of its total contract payments 

(27 percent) to MWOBs, under 461 active contracts. 

Referrals to minority- and women-owned law firms 

(MWOLFs) accounted for 44 percent of all legal 

referrals in 2016. Total payments to MWOLFs 

were $11 million in 2016 which is 14 percent of all 

payments to outside counsel, compared to 12 percent 

for all of 2015. 

In 2016, the FDIC participated in five minority bar 

association conferences and two stakeholder events in 

support of maximizing the participation of MWOLFs 

in FDIC legal contracting. Pursuant to Section 342 

of the Dodd-Frank Act, which requires an assessment 

of legal contractors’ internal workforce diversity 

practices, the Legal Division refined and continued 

to implement a system of compliance reviews of 

the top ten billing law firms (both majority-owned 

and MWOLFs). In addition, the FDIC advised 

the National Association of Credit Unions, the 

Federal Home Loan Bank Board, and State Farm 

Life Insurance Company on developing MWOLF 

outreach programs that mirror the FDIC’s.

In 2016, the FDIC participated in a total of 38 

business expos, one-on-one matchmaking sessions, 

and panel presentations. At these events, FDIC 

staff provided information and responded to 

inquiries regarding FDIC business opportunities 

for minorities and women. In addition to targeting 

MWOBs and MWOLFs, these efforts also targeted 

veteran-owned and small, disadvantaged businesses. 

Vendors were provided with the FDIC’s general 

contracting procedures, prime contractors’ contact 

information, and forecasts of possible upcoming 

solicitations. Also, vendors were encouraged 

to register through the FDIC’s Contractor 

Resource List (a principal database for vendors 

interested in doing business with the FDIC).

During 2016, the FDIC’s Office of Minority and 

Women Inclusion (OMWI) and the Division of 

Resolutions and Receiverships (DRR) collaborated 

to present three FDIC-sponsored asset purchaser 

workshops that were marketed extensively to 

minority- and women-owned investors and companies 

interested in learning about DRR’s sales processes. 

DRR speakers with strong backgrounds in their 

respective programs provided details on the various 

tools used by DRR to market assets and presented 

information to attendees on how to participate in the 

transactions and bid on assets offered for sale.

The asset purchaser workshops were held in San 

Juan, PR, Memphis, TN, and Jackson, TN. The 

events were attended by 76 prospective investors and 

included a special focus on owned real estate (ORE) 

investment opportunities to support a DRR auction 

of real estate properties scheduled after the outreach 

workshop. A segment regarding contracting services 

was also part of the event. Information regarding 

the Minority and Women Outreach Program can be 

found on the FDIC’s website at www.fdic.gov/mwop.

In addition, OMWI worked closely with the 

OMWIs of the OCC, FRB, CFPB, NCUA, and 

SEC to implement further Section 342(b)(2)(C) of 

the Dodd-Frank Act, which requires the agencies to 

develop standards to assess the diversity policies and 

practices of the entities they regulate. After finalizing 

of the Interagency Policy Statement Establishing Joint 

Standards for Assessing the Diversity Policies and 

Practices of Entities Regulated by the Agencies, the 

OMWI agencies received approval from the Office 

of Management and Budget (OMB) on February 

18, 2016, as required by the Paperwork Reduction 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 55

Act of 1995, to collect information from their 

regulated entities. Regulated entities were notified of 

the collection approval through the Federal Register

on July 13, 2016, and they may now submit selfassessments of their diversity policies and practices to 

the OMWI Director of their primary federal financial 

regulator. 

To facilitate uniform and systematic collection of 

information, OMWI developed and sought public 

comment on a diversity self-assessment template for 

regulated entities to use as they voluntarily assess 

their diversity policies and practices. When the 

comment period closed, OMWI requested approval 

to use the template from OMB. In the meantime, 

some regulated entities began submitting voluntary 

self-assessments to the FDIC OMWI Director in 

October 2016. The FDIC plans to use self-assessment 

information provided by its regulated entities to 

monitor progress and trends in the financial services 

industry, and to identify and publicize promising 

diversity policies and practices. 

INTERNATIONAL OUTREACH 

In 2016, the FDIC continued to play a leading role 

in supporting and promoting the global development 

of effective deposit insurance, bank supervision, 

and resolution regimes as integral components of 

the financial safety net. The FDIC worked with 

several standard-setting, regulatory, supervisory, and 

multi-lateral organizations, such as the Association of 

Supervisors of Banks of the Americas (ASBA), BCBS, 

Financial Services Volunteer Corps (FSVC), Financial 

Stability Board (FSB), International Association of 

Deposit Insurers (IADI), International Monetary 

Fund (IMF), and World Bank. FDIC staff also: 

facilitated training for several hundred participants 

from counterpart agencies around the world; 

participated in technical assistance missions to several 

countries; and conducted secondment programs to 

further the international community’s understanding 

and implementation of best practices in deposit 

insurance, bank supervision, and failure resolutions.

International Association of Deposit Insurers 

The IADI contributes to global financial stability by 

promoting international cooperation in the field of 

deposit insurance; providing guidance for establishing 

new, and enhancing existing, deposit insurance 

systems; and encouraging wide international contact 

among deposit insurers and other interested parties. 

IADI is now recognized as the standard-setting body 

for deposit insurance by major international financial 

institutions, including the FSB, BCBS, IMF, World 

Bank, and the European Community. Since its 

founding in 2002, IADI has grown from 26 members 

to 83 deposit insurers from nearly 80 jurisdictions. 

FDIC Chairman Martin J. Gruenberg served as the 

President of IADI and Chair of its Executive Council 

from November 2007 to October 2012. In October 

2015, FDIC Vice Chairman Thomas M. Hoenig was 

elected to a two-year term to serve as President of 

IADI and Chair of its Executive Council. 

IADI and the BCBS jointly issued the Core Principles 

for Effective Deposit Insurance Systems in 2009 and 

completed the accompanying Compliance Assessment 

Methodology for the Core Principles in 2010 (together, 

the Core Principles). The FSB later included the Core 

Principles as part of its Compendium of Key Standards 

for Sound Financial Systems. During the fall of 2014, 

IADI’s Executive Council and the FSB approved a 

revised set of Core Principles that replaced the original 

(2009) version. 

Subsequently, an IADI drafting team, led by FDIC 

staff, revised the Handbook for the Assessment of 

Compliance with the Core Principles. The handbook, 

which was approved by IADI in early 2016, is 

designed as a “how-to” guide, providing additional 

guidance on assessing a jurisdiction’s compliance with 

the Core Principles and includes lessons learned from 

collaboration with IMF and World Bank Financial 

Sector Assessment Program (FSAP) review teams, 

IADI Core Principles Regional Workshops, and 

IADI Self-Assessment Technical Assistance Program 

(SATAP) reviews. 
ANNUAL REPORT

56 MANAGEMENT’S DISCUSSION AND ANALYSIS

The IMF and World Bank use the Core Principles

and handbook in the context of the FSAP reviews, 

to assess the effectiveness of jurisdictions’ deposit 

insurance systems and practices. This represents an 

important milestone in the growing global acceptance 

of the role of effective deposit insurance systems 

in maintaining financial stability. IADI, under 

FDIC leadership of the Training and Conference 

Committee, has trained more than 300 staff members 

from more than 74 jurisdictions in conducting selfassessments for compliance with the Core Principles. 

FDIC executives and subject-matter experts partnered 

with IADI to develop and deliver several international 

programs in 2016. In April 2016, for example, 

Vice Chairman Thomas M. Hoenig joined global 

bank resolution and deposit insurance leaders at a 

conference jointly hosted by IADI’s North American, 

Latin American, and Caribbean Regional Committees 

entitled the “First Americas Deposit Insurance 

Forum.” The conference explored key issues related to 

safety net relationships and resolution. In addition, 

as IADI President and Chair of its Executive Council, 

the Vice Chairman led IADI’s 15th Annual General 

Meeting and Conference in October 2016, in Seoul, 

Korea. In supporting the Vice Chairman in this 

role, FDIC staff provides strategic guidance and 

leadership to multiple IADI standing committees, 

subcommittees, and working groups.

Association of Supervisors 

of Banks of the Americas 

The FDIC has been a member of ASBA since its 

founding in 1999 and supports ASBA’s mission of 

promoting sound bank supervision and regulation 

throughout the Western Hemisphere. ASBA 

represents bank supervisors from 36 jurisdictions. 

The FDIC strives to lead the development of strong 

supervisory policies in this hemisphere through 

actively engaging with the ASBA Board, chairing 

ASBA’s Training and Technical Committee, and 

providing leadership in many of the Association’s 

research and guidance working groups. 

In 2016, senior FDIC staff chaired the ASBA Training 

and Technical Committee, which is responsible for 

designing and implementing ASBA’s training strategy 

that advances the adoption of sound bank supervision 

policies and practices among members. ASBA’s 

training program reaches more than 600 members 

annually, with FDIC support, both as chair and 

training provider. 

Basel Committee on Banking Supervision 

The FDIC supported the development of sound 

regulatory policy through effective participation in the 

BCBS and its relevant groups, subgroups, and task 

forces. Major work areas for the BCBS include those 

conducted by the:

♦ Policy Development Group (PDG) and its:

• Coherence and Calibration Task Force

• Working Group on Capital

• Trading Book Group

• Leverage Ratio Group

• Working Group on Liquidity

• Risk Measurement Group

• Ratings and Securitization Work Stream

• Task Force on Standardized Approaches

• Task Force on Interest Rate Risk in the 

Banking Book

• Task Force on Scope of Regulatory 

Consolidation

• Research Task Force

• Quantitative Impact Study Working Group

♦ Supervision and Implementation Group and its:

• Working Group on Operational Risk

• Standards Implementation Group – 

Banking Book

• Standards Implementation Group – 

Trading Book

• Task Force on Supervisory Colleges

• Task Force on Pillar 2

♦ Macroprudential Supervision Group

♦ Accounting Experts Group and its:

• Audit Subgroup
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 57

♦ Anti-Money Laundering Expert Group

♦ Task Force on Simplicity and Comparability

♦ Task Force on Sovereign Exposures

♦ Working Group on Margining Requirements

♦ Over-the-Counter (OTC) Derivatives Regulators’ 

Forum

♦ OTC Derivatives Supervisor Group

♦ OTC Derivatives Assessment Team 

♦ Joint Central Counterparties Task Force

♦ Task Force on Securitization Markets

International Derivatives Work 

For many years, the FDIC has been actively engaged, 

in cooperation with market, prudential, and financial 

stability authorities, in policy development and 

regulatory activities in the derivatives markets. The 

FDIC also participates in the work of Derivatives 

Regulators’ Forum and the OTC Derivatives 

Supervisors Group.

International Capacity Building

The FDIC’s international efforts supporting the 

development of effective deposit insurance systems, 

bank supervisory practices, and bank resolution 

strategies continued to grow in 2016. FDIC staff 

contributed to international capacity building by 

providing study tours, secondments, and technical 

assistance to foreign counterparts. These engagements 

resulted in an enhanced dialogue between the FDIC 

and foreign counterparts in significant areas such as 

bank supervision and regulatory developments post 

crisis, the legal framework and operations for bank 

resolutions, and optimal funding strategies for 

deposit insurers.

FDIC management and staff hosted study tours 

for 267 individuals representing 28 jurisdictions 

during the year.  In addition, the FDIC’s Corporate 

University provided training in bank supervision 

and information technology to 78 foreign delegates 

from 16 jurisdictions.  In 2015, the FDIC launched a 

new training program for foreign regulatory officials, 

FDIC 101: An Introduction to Deposit Insurance, Bank 

Supervision, and Resolutions (FDIC 101), designed 

to provide a structured and comprehensive view of 

how the FDIC executes its key business functions.  

The FDIC held two sessions of FDIC 101 in 2016, 

which were attended by 62 students representing 31 

jurisdictions and the World Bank.

The FDIC contributes to global and domestic 

bank supervision, deposit insurance, and resolution 

initiatives by providing staff to support long-term 

projects and technical assistance missions led by the 

IMF, U.S. Treasury Department, FSVC, and World 

Bank. The FDIC continued longstanding programs 

for staffing details with the Treasury Department’s 

Office of International Banking and Securities 

Markets and secondments with FSVC to assist other 

Participants in the FDIC 101 class held in October 2016.
ANNUAL REPORT

58 MANAGEMENT’S DISCUSSION AND ANALYSIS

countries with financial regulation development. 

While at Treasury, FDIC detailees lend expertise in 

supervision, resolutions, deposit insurance, policymaking, and regulation for international banking. 

FSVC programs are often funded by other U.S. 

government offices and included project work on antimoney laundering during the year. 

The FDIC also completed short-term technical 

assistance missions to Greece and Kosovo to provide 

consultative assistance. The FDIC partnered with 

the World Bank to provide technical assistance to 

the Indonesia Deposit Insurance Corporation and 

with the Association of Supervisors of Banks of the 

Americas to provide training in deposit insurance and 

resolution systems to ASBA member countries.

The FDIC expands and strengthens international 

engagement by providing secondment opportunities 

to foreign officials to engage in long-term consultation 

with FDIC subject matter experts in areas related to 

bank supervision, deposit insurance, and resolutions. 

In 2016, two officials from the Deposit Insurance 

Corporation of Japan and the Korea Deposit 

Insurance Corporation concluded their secondments 

to the FDIC, and two new secondees from these 

agencies joined the FDIC, each for one-year 

assignments. Singapore also began a secondment with 

the FDIC in 2016.

Key International Engagements

The FDIC continued to advance policy making 

priorities and strengthen its relationships with key 

jurisdictions worldwide through its participation 

in a number of interagency dialogues in 2016. 

Jurisdictions participating in these dialogues included 

China, India, and member countries of the North 

American Free Trade Agreement (NAFTA).

EFFECTIVE MANAGEMENT OF 

STRATEGIC RESOURCES

The FDIC recognizes that it must effectively manage 

its human, financial, and technological resources 

to carry out its mission successfully and meet the 

performance goals and targets set forth in its annual 

performance plan. The FDIC must align these 

strategic resources with its mission and goals and 

deploy them where they are most needed to enhance 

its operational effectiveness and minimize potential 

financial risks to the DIF. Following are the FDIC’s 

major accomplishments in improving operational 

efficiency and effectiveness during 2016. 

Human Capital Management 

The FDIC’s human capital management programs 

are designed to attract, train and develop, reward, 

and retain a highly skilled, diverse, and resultsoriented workforce. In 2016, the FDIC workforce 

planning initiatives emphasized the need to plan for 

employees to fulfill current and future capabilities 

and leadership needs. This focus ensures that the 

FDIC has a workforce positioned to meet today’s core 

responsibilities and prepared to fulfill its mission in 

the years ahead. 

Strategic Workforce Planning and Readiness 

During 2016, the FDIC continued to develop and 

implement the Workforce Development Initiative, 

an integrated strategy to address workforce challenges 

and opportunities. The effort is focused on four 

broad objectives: 

1. attract and develop talented employees across 

the agency; 

2. enhance the capabilities of employees through 

training and diverse work experiences; 

3. encourage employees to engage in active career 

development planning and seek leadership roles 

in the FDIC; and 

4. build on and strengthen the FDIC’s operations 

to support these efforts. 

In 2016, the FDIC continued to develop the 

infrastructure, governance, programs, and processes 

to help meet its long-term workforce and leadership 

needs. The FDIC is committed to building and 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 59

expanding its talent pipeline to ensure succession 

challenges are met. To that end, the agency expanded 

its succession planning review process in 2016 

to include all managers. The effort began with a 

survey to assess the level of aspiration among current 

managers. More than two-thirds of current managers 

reported that they were interested in seeking higherlevel positions at the FDIC, demonstrating their 

ongoing interest in leadership development. Senior 

FDIC leaders from across the agency then convened 

to discuss leadership needs and strategies to address 

them, including efforts to develop the pipeline of the 

FDIC’s aspiring leadership pool. 

As a result of the succession planning review process, 

FDIC managers received recommendations to 

participate in diverse programs to enhance their 

leadership capabilities, including the Leadership 

Mentoring Program, external educational 

opportunities through Harvard’s Kennedy School 

of Government, executive coaching, and enriched 

management training. 

The FDIC also continued to focus on ensuring the 

availability of a workforce equipped to meet today’s 

responsibilities, while simultaneously preparing 

for future capability needs. The FDIC furthered 

development of a Career Paths initiative, targeted 

at non-supervisory employees at all levels, to 

promote the acquisition of cross-organizational skills 

and knowledge. Additional support is provided 

to employees seeking professional development 

opportunities through expanded career management 

services. 

The FDIC’s strategic workforce planning initiatives 

require a long-term and sustained focus to identify 

future workforce and leadership needs, assess current 

capabilities, support aspiration to management and 

leadership roles, and develop and source the talent 

to meet emerging workforce needs. Through further 

development of its human capital strategies, the FDIC 

will work to ensure that the future FDIC workforce 

is as prepared, capable, and dedicated as the one it 

has today.

Corporate Employee Program 

The FDIC’s Corporate Employee Program (CEP) 

sponsors the development of newly hired Financial 

Institution Specialists (FISs) in entry-level positions. 

The CEP encompasses major FDIC divisions where 

FISs are trained to become part of a highly effective 

workforce. During the first-year rotation within the 

program, FISs gain experience and knowledge in the 

core business of the FDIC, including the Division 

of Depositor and Consumer Protection (DCP), the 

Division of Risk Management Supervision (RMS), 

the Division of Resolutions and Receiverships 

(DRR), and the Division of Insurance (DIR). At 

the conclusion of the rotation period, FISs are placed 

within RMS, DCP, or DRR, where they continue 

FDIC’s Workplace Development Initiative Ambassadors meet at headquarters, joining a nationwide outreach effort.
ANNUAL REPORT

60 MANAGEMENT’S DISCUSSION AND ANALYSIS

their career path to become commissioned examiners 

or resolutions and receiverships specialists.

The CEP is an essential part of the FDIC’s ability 

to provide continual cross-divisional staff mobility. 

Since the CEP’s inception in 2005, 1,600 individuals 

have joined the FDIC through this multi-discipline 

program, and more than 770 have become 

commissioned examiners after successfully completing 

the program’s requirements.

The FDIC continues to sponsor the Financial 

Management Scholars Program (FMSP), an 

additional hiring source for the CEP. Participants 

in the FMSP complete an internship with the 

FDIC the summer following the conclusion of 

their junior year in college. The program serves 

as an additional venue to recruit talent.

Employee Learning and Development 

The FDIC is committed to the learning and 

development of its employees throughout their 

careers to enrich technical proficiency and leadership 

capacity, supporting career progression and succession 

management. In 2016, the FDIC focused on 

developing and implementing comprehensive 

curricula for its business lines to prepare employees to 

meet new challenges. Such training, which includes 

both classroom and online instruction for maximum 

flexibility, is a critical part of workforce and succession 

planning as more experienced employees become 

eligible for retirement.

The FDIC also offers a comprehensive leadership 

development program that combines core courses, 

electives, and other enrichment opportunities to 

develop employees at all levels. From new employees 

to new executives, the FDIC provides employees 

with targeted leadership development opportunities 

that align with key leadership competencies. In 

addition to a broad array of internally developed 

and administered courses, the FDIC also provides its 

employees with funds and/or time to participate in 

external training to support their career development. 

Corporate Risk Management 

During 2016, the Office of Corporate Risk 

Management (OCRM) worked with divisions and 

offices to advance common agency-wide processes 

for identifying, managing, and mitigating risks 

to the FDIC. OCRM assisted and supported the 

Enterprise Risk Committee, Executive Management 

Committee, External Risk Forum, and Management 

Risk Roundtable in reviewing risks across the agency. 

OCRM monitors material risks and mitigation 

activities, including the following:

♦ Risks posed by national and international 

economic, regulatory, and technological trends 

and developments that could potentially affect 

consumers, depositors, and the safety and 

soundness of the financial services industry.

♦ Risks to the agency’s ability to conduct its 

mission essential functions under all threats and 

conditions, as described in its Continuity of 

Operations Plan and Business Continuity Plan.

♦ Risks to the financial system posed by the 

extended current low level of interest rates.

♦ Risks posed by the analytical models used by 

the FDIC in identifying and managing risk. 

During 2016, OCRM and FDIC model owners 

developed tailored validation programs for all 

corporate models and began a series of model 

validations to assure soundness and mitigate 

model risk.

♦ Risks associated with governance and 

development of large-scale IT projects. 

♦ Risks posed to the agency and to the financial 

services industry by concerted attempts to 

penetrate, compromise, and disrupt the 

information systems that are essential to their 

effective operation. 

Employee Engagement 

The FDIC continually evaluates its human capital 

programs and strategies to ensure that the agency 

remains an employer of choice and that all of its 
2016

MANAGEMENT’S DISCUSSION AND ANALYSIS 61

employees are fully engaged and aligned with the 

mission. The FDIC uses the Federal Employee 

Viewpoint Survey mandated by Congress to solicit 

information from employees, and takes an agencywide approach to address key issues identified in the 

survey. In December 2016, the FDIC received an 

award from the Partnership for Public Service for 

being ranked number one among mid-sized federal 

agencies on the Best Places to Work in the Federal 

Government® list. Effective leadership is the primary 

factor driving employee satisfaction and commitment 

in the federal workplace, according to a report by the 

Partnership for Public Service. 

The FDIC’s Workplace Excellence (WE) program 

plays an important role in helping the FDIC engage 

employees. The WE program is composed of a 

national-level WE Steering Committee and Division/

Office WE Councils that are focused on maintaining, 

enhancing, and institutionalizing a positive workplace 

environment throughout the agency. In addition 

to the WE program, the FDIC-National Treasury 

Employees Union Labor Management Forum serves 

as a mechanism for the union and employees to have 

pre-decisional input on workplace matters. The WE 

program and Labor Management Forum enhances 

communication, provides additional opportunities 

for employee input and engagement, and improves 

employee empowerment.

Photo credit: Audrey Lew Photography

Director of the Division of Administration Arleas Upton Kea and Deputy 

to the Chairman and Chief Operating Officer Barbara A. Ryan accept 

the award for Best Places to Work in the Federal Government for midsized federal agencies from Max Stier, President and CEO of Partnership 

for Public Service.
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