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FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE OF STATE REGULATORS

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MEETING

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MONDAY,

OCTOBER 24, 2022

NEAL R. GROSS

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The Advisory Committee convened at 2:00 

p.m. EDT in the Federal Deposit Insurance 

Corporation Board Room at 550 17th Street NW, 

Washington, DC, Martin J. Gruenberg, Acting 

Chairman, presiding.
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PRESENT:

BRET AFDAHL, Director, Division of Banking, State 

of South Dakota

KEVIN R. ALLARD, Superintendent, Division of 

Financial Institutions, State of Ohio

CHARLES G. COOPER, Commissioner, Department of 

Banking, State of Texas

JAMES M. COOPER, President, Conference of State 

Bank Supervisors

THOMAS C. FITE, Director, Department of Financial 

Institutions, State of Indiana

KEVIN B. HAGLER, Commissioner, Department of 

Banking and Finance, State of Georgia

MELANIE G. HALL, Commissioner, Division of 

Banking and Financial Institutions, State of 

Montana

DAWN E. HOLSTEIN, Commissioner of Banking, 

Division of Financial Institutions, State of West 

Virginia

I. LISE KRUSE, Commissioner, Department of 

Financial Institutions, State of North Dakota

ANTONIO P. SALAZAR, Commissioner, Office of the 

Commissioner of Financial Regulation, State of 

Maryland
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ALSO PRESENT:

MARTIN J. GRUENBERG, Director, Federal Deposit 

Insurance Corporation, Acting Chairman

ROHIT CHOPRA, Director, Consumer Financial 

Protection Bureau

DOREEN EBERLEY, Director, Division of Risk 

Management Supervision

MICHAEL FARRELL, Counsel, Legal Division

ASHLEY MIHALIK, Chief, Banking and Regulatory 

Policy

JONATHAN MILLER, Deputy Director, Division of 

Depositor and Consumer Protection

SHAYNA OLESIUK, Deputy Director, Division of 

Insurance and Research

TARA OXLEY, Associate Director, Division of 

Depositor and Consumer Protection

BETTY RUDOLPH, Director, Office of Minority and 

Community Development Banking

CAMILLE SCHMIDT, Section Chief, Division of Risk 

Management Supervision

MICHAEL SPENCER, Associate Director, Division of 

Insurance and Research
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C-O-N-T-E-N-T-S

Introductory Remarks

Martin Gruenberg............................. 5 

Discussion of Banking Conditions

Shayna Olesiuk............................... 8 

Camille Schmidt............................. 12

State-Federal Coordination

Doreen Eberley.............................. 40

Tara Oxley.................................. 40

Michael Farrell............................. 74

Jonathan Miller............................. 81

Amended Restoration Plan and Deposit

Insurance Assessments

Michael Spencer.............................. 92

Minority and Community Development

Banking Update

Betty Rudolph................................ 109

Closing Remarks

Martin Gruenberg............................. 117
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P-R-O-C-E-E-D-I-N-G-S 

2:01 p.m.

ACTING CHAIRMAN GRUENBERG: Well, 

good afternoon, everybody. Nice to see you.

(Laughter.)

ACTING CHAIRMAN GRUENBERG: In 

person. My goodness. This is the rule going 

forward, by the way. I declare an end to virtual 

meetings -- 

(Laughter.)

ACTING CHAIRMAN GRUENBERG: -- if at 

all possible.

So I'd like to welcome you all to this 

meeting of the FDIC's Advisory Committee of State 

Regulators. And we have a lot to talk about. 

We've got a full agenda this afternoon. 

I feel we should begin if I may with 

an acknowledgement of our friend and colleague 

John Ryan, the former president and chief 

executive officer of the Conference of State Bank 

Supervisors. John was a very special person. It 
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was a shock to all of us when he passed away 

earlier this year and I think we'll all be 

attending the service for him later today.

And I also want to welcome my friend 

Jim Cooper to the Committee. I think CSBS was 

fortunate to have Jim available to step in to the 

role of president and CEO of CSBS. 

Thank you for your willingness to 

serve on this committee.

MEMBER J. COOPER: Appreciate it.

ACTING CHAIRMAN GRUENBERG: And we 

look forward to our continuing work and 

engagement with you.

And with that I'm going to turn the 

meeting over to Doreen Eberley, the director of 

our Division of Risk Management Supervision, who 

will start off our agenda for this afternoon. 

But before I do that let me 

acknowledge the presence today of one of our 

board members, Director Rohit Chopra, of the 

CFPB.
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Rohit, did you want to make any --

DIRECTOR CHOPRA: No, I just want to 

echo what you say. It's really good to see 

people in person again. Obviously my agency has 

day-to-day work with all of you, bank and nonbank. And really excited to see this all coming 

again together, so look forward to the 

discussion, Marty.

ACTING CHAIRMAN GRUENBERG: Thank 

you, Rohit.

Doreen?

MS. EBERLEY: Okay. Thank you. 

Thank you, Acting Chairman Gruenberg and Director 

Chopra. And welcome, everybody. It's really 

good to see everyone.

So we're going to start this afternoon 

by turning to Shayna Olesiuk, Deputy Director of 

National and Regional Risk Analysis in the 

Division of Insurance and Research, and Camille 

Schmidt, Chief of the Risk Insights and Analytic 

Section in the Division of Risk Management 
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Supervision. And Shayna and Camille are going 

to provide an economic overview and they'll touch 

on market liquidity and credit risk, to things 

we've been talking about. 

And after their brief presentation 

we'd like to hear from the Committee regarding 

whether there are any particular risks that we've 

talked about that resonate with you and whether 

there are other risks and concerns regarding 

institutions in your state that you'd like to 

highlight.

So Shayna will get us started.

MS. OLESIUK: Thank you very much, 

Doreen.

And welcome, everyone. I'm very much 

looking forward to the discussion and 

particularly hearing from all of you in response 

to our discussion today.

So we can go to the next slide. So 

Camille and I, our teams write what we call the 

FDIC's Risk Review Report, and we've been 
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publishing this report annually for the last 

several years. And so today's discussion will 

focus on three sections of the report: economic 

conditions, market and liquidity risk, and credit 

risk. 

And so we will highlight some of the 

aspects of these topics from the report. And 

then as Doreen said, we'd very much like to hear 

from all of you. We're already starting to 

brainstorm next year's report, and so we are 

always looking for additional risks that we 

should highlight.

So we can go to the next slide which 

gives a sense for the labor market conditions and 

particularly the labor market recovery from --

following the pandemic. So the states here are 

highlighted and shaded based on the share of jobs 

that were lost during the early days of the 

pandemic. The states shaded in gold are those 

that have regained more than the national share 

of jobs. And the states that are shaded in blue 
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are those that have trailed the national pace of 

recovery. Those that are darker gold have -- are 

the best performers and then the darkest blue are 

those that have lagged the most.

So a couple observations here: We 

definitely see that there are regional patterns 

that have emerged in the economic recovery. The 

Mountain West Area and the South are certainly 

the strongest areas and the Northeast and the 

Upper Midwest are relatively weaker.

So this analysis went through December 

of 2021, but looking at the most current data 

through mid-2022 we see that the national 

employment recovery has continued. The national 

rate of recovery, as you can see in the -- at the 

bottom of the legend here, as of the end of last 

year the nation had recovered 84 percent of the 

jobs that were lost during the pandemic. 

That number surpassed 100 percent this 

past summer. And the states that have recovered 

100 percent or more of the jobs that were lost is 
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now up to 24, so almost half of the country has 

now recovered all of the jobs by count that were 

lost during the pandemic. Of course there's 

industrial variation, so some industries are 

still lagging whereas other industries have done 

better.

And the unemployment rate has stayed 

very low. We are currently at 3.5 percent 

unemployment, which was the same as the prepandemic level back in February of 2020. There 

are currently about two job openings for every 

person seeking employment right now, so I think 

that really illustrates how tight the labor 

market is. And that has led to inflation, or has 

contributed to inflation.

So we can move to the next chart which 

shows a picture of the inflation. Now again this 

is from our Risk Review Report which goes through 

the end of 2021. The numbers have climbed even 

higher in 2022. Here you can see that both the 

Consumer Price Index as well as the Core Consumer 
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Price Index are both at levels that we haven't 

seen for decades. As I said, the wage inflation 

is certainly contributing to this as well as 

energy prices and housing prices. So certainly 

an area that we're watching. And the outlook for 

inflation is really quite uncertain. There are 

lots of factors that are playing into it.

So I think I'll turn it over to 

Camille, but would be very much interested in 

hearing your reactions on both of those topics 

during the discussion.

MS. SCHMIDT: Thank you, Shayna. 

It is nice to see all of you this 

afternoon.

Interest rate risk and liquidity risk, 

I'm going to talk about that a little bit. It's 

certainly been a scenario that's been evolving 

since the pandemic started. You're all aware 

that banks have been flushed with deposits since 

the beginning of the pandemic when economic 

stimulus was injected into the system and 
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consumers and businesses slowed and even stopped 

spending in some cases. So since the pandemic 

started we've really seen a steady deposit growth 

at all the banks. 

In fact it was just last quarter, in 

second quarter of '22 the deposits in aggregate 

declined for the first time in four years. But 

even then a little over half of all banks still, 

51 percent of them, reported higher deposit 

balances compared to the previous quarter. And 

community banks, that population in aggregate 

continued to report deposit growth. Albeit only 

about a half a percent, they have not seen a 

decline in deposits.

So if you move to the next slide, and 

we look at this high deposit growth combined with 

what has been slow loan demand since the pandemic 

started, we've really seen what's resulted in 

significant liquid asset growth at our banks. 

And that’s primarily securities, that gold box on 

this chart.
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So banks have more securities and in 

this low interest rate environment, or what was 

until recently, institutions were searching for 

higher yields by extending the maturities of 

their securities. Then along comes 2022 and the 

Fed started raising interest rates to combat the 

inflation that Shayna just talked about and banks 

now have fixed-rate assets including bonds that 

are declining in value.

So many banks recognized significant 

net unrealized losses in their long duration bond 

portfolios in the first and second quarters of 

2022, and they are certainly poised to report 

further net unrealized losses in the third 

quarter. In fact, early reporters -- through 

Friday I think 96 percent of all early call report 

filers are reporting net unrealized losses on 

their securities. And I apologize if I said 

gains anywhere.

Of course we know that these 

unrealized losses and debt securities could 
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reduce on-balance sheet liquidity as well as 

contingent liquidity. So this is high on our 

list of things we're watching. It's certainly a 

new environment for many bankers and examiners 

who haven't operated in a rising interest rate 

environment. We just completed our Regional Risk 

Committee processes where -- which we conduct in 

the spring and fall, and five of our six regions 

rate interest rate risks as a high risk or one of 

their top priorities.

So we've addressed this through our 

off-site review programs that are in existence. 

We've had case managers contact different banks. 

We also maintain our interest rate and liquidity 

risk monitoring programs as well as we've 

conducted examiner calls and will continue to 

develop training in this area.

So I'm certainly looking forward to 

your comments. We've discussed this topic for 

hours; I've shortened it greatly, but I'm -- so 

I'm looking forward to your comments at the end.
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MS. OLESIUK: All right. Our final 

section that we looked at in the risk review and 

that we'd like to discuss today is credit risks. 

So the report itself highlighted many aspects of 

credit risks. I will just be talking about two 

today. 

So first off we have commercial real 

estate, which is certainly an area that has seen 

a lot of change during the pandemic and in recent 

time. This first chart shows the net absorption 

as a share of inventory for four commercial real 

estate types. So basically this is a measure of 

demand for commercial real estate properties. 

And the most striking thing about this 

chart to me is the office market, the red line, 

which you can see was performing well through 

December of 2019, but then as the pandemic 

ensued, December 2020 and into 2021, we saw 

negative net absorption. So essentially more 

space being added to the market or current 

occupants of office space vacating that office 
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space. Not shown on this chart, but if we look 

at the vacancy rates you'll see vacancy rates for 

the office market rose sharply in the early days 

of the pandemic and have really stayed at that 

elevated level even now. So the commercial real 

estate market, particularly office, is certainly 

an area that we're watching closely.

If we go to the next slide, one of the 

main reasons that we're watching commercial real 

estate so closely is that banks continue to make 

more and more loans to commercial real estate 

projects. This bar chart shows the amount of

loans outstanding in each of the four types of 

commercial real estate. So you can see that the 

non-farm, non-residential, the gold segment here, 

basically existing commercial real estate 

properties, still maintains its spot as the 

largest type of outstanding commercial real 

estate. 

The multifamily segment, the red 

segments of the bars here, is an area that's 
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really grown. And at the same time the 

acquisition, development, and construction, the 

darker blue segment has really maintained its 

amount over the last several years, but as a share 

of total outstanding commercial real estate is a 

much smaller portion of total outstanding loans 

than it was back in 2008. So definitely an area 

that banks of all types, particularly community 

banks, are invested in. So we're watching 

conditions there closely.

And finally moving onto the 

residential real estate markets. Residential 

real estate is certainly an area that's been in 

the news quite a lot lately and is certainly an 

area of focus for us. So this chart shows the 

year-over-year price change for residential real 

estate in the four major segments, four major 

geographic regions of the country and the U.S. 

So through the end of 2021 we were starting to 

see the rate of price appreciation slow. That 

has continued to slow through 2022 and we're 
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watching it closely in terms of how much it will 

slow even further.

We don't do our own house price 

forecast, but we look at many different sources 

of that information, and it really varies. Some 

metro markets are expected to see outright price 

declines over the next couple of years. The most 

common forecast for the national numbers are a 

continued slowing of appreciation, but not 

dropping negative like we saw during the last 

recession. So we're going to continue to watch 

that closely.

One indicator that we are tracking, if 

you go to the next slide -- so the dark blue line 

here is the amount of homes for sale based on the 

pace of home sales. So the number for the 

balanced market is about six months, where you 

can see that dotted blue line. Through the end 

of 2021 there were so few homes for sale, that 

number had dropped to about just two months of 

inventory. Into 2022 it's climbed up above three 
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months, but it is not yet close to that six-month 

balanced market. Essentially homes are being 

taken off the market, so we are not seeing a lot 

of homes for sale on the market, which is a good 

thing to prop up home prices.

And finally, the last slide looking at 

asset quality for residential real estate at our 

banks. This bar chart shows the share of banks 

with one to four family past due rates in each of 

these different buckets. So the main takeaway 

here, if you look over to the 2021 bar, you can 

see that about half of banks had one to four 

family past due rates in the 0 to 1 percent 

category. Compare that to 2019 where that was 

about 33 percent and even lower back in 2011, 

2012. So lots of banks have very strong asset 

quality for the residential real estate market, 

so we're heading into this potential period of 

stress in really good shape it looks like from a 

credit quality standpoint.

So with that I think we are ready to 
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hear from all of you. I think we're just wanting 

to open it up to anyone that wants to react to 

either of these questions.

ACTING CHAIRMAN GRUENBERG: Shayna, 

in the in-person world how do you raise your hand 

and turn on your camera?

(Laughter.)

MS. OLESIUK: I think just push the 

button there and it should --

ACTING CHAIRMAN GRUENBERG: Okay. 

Just a question, I think. And back on page 7 and 

where it goes into 8 -- and so -- and both of you 

all said this is end of '21 data. But 

particularly on page 7 as these -- maybe I guess 

we're probably -- at least have six months of '22 

data. Do you see -- on page 7 --do you see much 

change in these lines, or is it worse than 

flattening out, so to speak?

MS. OLESIUK: So particularly with 

the office market we are not seeing much in the 

way of change. The vacancy rate remains elevated 
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and really from what we're seeing on the -- just 

companies' use of office space I think more and 

more are sort of reevaluating how much space they 

need in this new environment. So I don't think 

these lines have changed much in the past couple 

of quarters.

Now I would say particularly for the 

office market as well the office market leases 

tend to be longer term. Five years or so I think 

is the typical length of a lease for office 

property. So we might not be -- for leases that 

are not reaching that due date maybe for another 

couple of years we may see a continuing evolution 

of vacancy rates rising as these leases come due 

and tenants are actually kind of forced to make 

a decision on what they want.

MEMBER J. COOPER: Thank you.

MEMBER HAGLER: I feel like I'm the 

choir that you're preaching to largely. Out of 

122 banks all but 2 of them are shared with us 

regulatorily.
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The liquidity piece really rings home 

to me. In an environment where it seems like 

we've just been overwhelmed with liquidity it 

seems like it could turn quickly on us. As you 

pointed out, my banks are still paying well below 

one percent, yet I know that there are entities 

out there paying three percent. And what's even 

more amazing is those entities are reaching out 

to their customers and telling them that they've 

raised your rate, raised your rate, and raised 

your rate instead of you having to play the game 

of calling institutions. I mean, when was the 

last time a bank told their customers they were 

just raising it independently. So you've got 

that happening. So I think deposits are either 

running off or preparing to run off pretty 

rapidly there.

The securities holdings, absolutely 

all those are under water. So one thing that 

we're seeing is liquidity reporting to the board 

at the bank that shows a lot more than is truly 
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available because you can't really cash out those 

without taking a pretty good hit. 

And then to make it even worse, a 

number of our banks -- and I'm looking forward to 

seeing the 9/30 numbers as how many of that number 

is that are actually in a negative tangible 

equity position, which I think significantly 

impacts the Federal Home Loan Bank's ability to 

borrow. 

To the Federal Home Loan Bank of 

Atlanta's credit we've raised that issue with 

them and they have proactively been talking to 

the banks letting them know that they may not be 

able to lend to them or to a much truncated 

degree. 

So I just see -- I don't think I have 

a cake here, but I see a lot of ingredients 

swirling around in there that could change the --

we could go from a way too much liquidity, if 

there's ever such a thing, to a we've got some 

tight situations pretty quickly. 
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The CRE piece, I think you all have 

been doing a great job of telecasting out your 

concerns to the industry with the guidance and 

additional notations there. It looked like the 

South and the West, we're kind of leading the --

or driving the average up and we're both above 

average. That's what I see in the portfolio, 

too. 

Again, out of that 122 banks 45 of 

them have a pretty healthy gross CRE 

concentration. You net out the owner-occupied, 

it takes you down to about six, but I'm not so 

sure I feel how comfortable I am with that netted 

number be a really good -- I guess after what we 

went through with the Great Recession I'm just a 

little gun-shy about that still. But that does 

moderate it a good bit. Probably 16 or 17 have 

that ADC concentration out there.

That said, all those banks are being 

subjected to CRE work programs and such, so I 

think we've got a lot better insight into what's 
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going on there. Capital levels are much better 

than they were last time around. So there are 

mitigating factors. But you just can't have a 

good recession without a CRE crisis, so 

definitely keeping my eyes on that, too. 

So, but again, everything that I read 

through your package and you've presented sounds 

right on point to my view of the world.

MS. OLESIUK: Thank you.

MEMBER HALL: Shayna, as one of the 

commissioners from the West I've been enjoying 

your presentations probably longer than anyone 

else, since you were in San Francisco for a while. 

And so I have a couple comments.

Of course being from Montana housing 

prices are ludicrous at its best. Inventory is 

incredibly low. Supplies there for building new 

homes are very hard to get and also very 

expensive. Trucking costs, all of that. So new 

home building is 330, I think, something like 

that, a square foot to build a new home. It's 
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pretty astronomical. 

I would love to think -- I don't think 

it will happen in Montana, because we don't have 

like all these big office buildings, but I would 

love to -- I imagine sometimes a lot of 

repurposing of this office space into residential 

housing, which to me would make a ton of sense. 

I do -- I guess I'm appreciative of 

the rate hikes because I was getting very 

concerned about HELOCs and home equity loans due 

to people -- you know, the housing prices are 

very high and people get very excited to take out 

all of that money and do things with it. 

Sometimes that goes back into their home and 

sometimes it takes them on vacation. And so I 

was very worried about that and I'm hoping that 

the interest rate stuff will slow that down a 

little and have people keep equity in their 

homes.

One question I -- and you know, of 

course in Montana we have a terrible shortage of 
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labor, so -- but we can't get anyone to come there 

because we can't house them. So it's a 

challenging situation and the show Yellowstone is 

not helping that in any way, shape, or form.

(Laughter.)

MEMBER HALL: I'm sure you're all 

enjoying it though.

So one question I did have though on 

the CRE numbers. Have you done a comparison of 

what those are right now in comparison to like a 

2006-2007 time frame to see how -- how close are 

we to that or are we still, because we're 

measuring it, monitoring it more still 

significantly below those numbers?

MS. EBERLEY: Are you talking about 

the condition of markets or the exposures of our 

banks?

MEMBER HALL: The exposures of banks. 

Sorry. On the CRE front. Like I mean, most --

I don't think I have a single bank that is over --

maybe one or two that are over 400 percent. And 
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I think I would guess in 2007 they were more like 

in the 600 percent. I'm not certain. I'm just 

curious whether that's something that you're 

looking at.

MS. EBERLEY: It is, yes. Camille 

probably has the numbers on that.

MS. SCHMIDT: I don't have the numbers 

right hand, but concentrations are certainly 

lower than they were, but they are rising. And 

ADC is increasing. Especially we're seeing 

those -- banks with those concentrations above 

100 percent of capital rising and ADC in the 

pipeline, like unfunded commitments. So both of 

those, ADC and unfunded commitments, are going up 

and that's what's driving some of the increase in 

the CRE concentrated -- concentrations that we're 

seeing. 

MEMBER HALL: It's quite a bit lower, 

isn't it, Camille?

MS. SCHMIDT: Quite a bit lower.

MEMBER HALL: Great.
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PARTICIPANT: Yes, I had the same 

thought you did, Melanie. I was wanting this 

chart to back to '05.

(Laughter.)

MS. OLESIUK: And that chart is 

showing just outstanding dollar amounts, but when 

you look at it, it's --

(Simultaneous speaking.)

MEMBER HALL: That's why I was curious 

about the concentration percentages --

MS. OLESIUK: Yes.

MEMBER HALL: because -- yes.

MS. OLESIUK: One other thing that I 

would note though, in our quarterly banking 

profile we're looking by portfolio, and the last 

couple commercial real estate, especially for 

community banks, has been one of the areas where 

we've seen the fastest loan growth. So there 

definitely is growth continuing.

MEMBER C. COOPER: You said by 

portfolio? You're talking about portfolio in 
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your regions or portfolio in the categories of 

loans?

MS. OLESIUK: The categories of 

loans. So commercial real estate is one of the 

fastest areas of loan growth.

MS. EBERLEY: And to another point 

that Kevin raised, after the crisis we did 

implement the Commercial Real Estate Work Program 

to look at institutions that were the most 

concentrated and record our findings there and 

take a look across the agencies even. And that 

data shows improvements in underwriting and risk 

management practices really slight upturn in the 

most recent quarterly review. Not a trend; a 

little tiny upturn. But in things like board 

management oversight, stress testing, limits --

MS. SCHMIDT: Management information. 

Yes, board management oversight is the big one 

that we've seen since we implemented that program 

followed by issues with management information 

systems, portfolio management, and the stress 
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testing.

We're also seeing board management 

issues come up the most in MRBAs when we kind of 

analyze those numbers and in our credit surveys 

information. 

MEMBER J. COOPER: So just a quick 

observation: A lot of the central business 

districts, particularly in smaller mid-size 

cities, are in transition right now away from 

office space. And Melanie mentioned some of them 

are looking at transforming those into 

residential real estate. It doesn't appear that 

that has happened. I think, Shayna, your point 

about there are still leases on these properties, 

but not very many people in them. And I think 

depending on how the office space evolves could 

be risk there. So interesting in observations 

on that or how you're kind of watching that risk.

MS. OLESIUK: Yes, I think you're 

absolutely right, that I think it's going to be 

an evolution over coming three to four to five 
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years as leases come due and then we're going to 

really see kind of what decisions companies are 

going to make in terms of are they going to give 

back some of that space or they going to renew 

leases?

So we saw a big spike in the vacancy 

rate initially. That's kind of leveled off. 

It's still increasing, but at a much slower rate. 

So we're going to continue watching that over the 

next couple of years.

MEMBER J. COOPER: Yes.

MEMBER AFDAHL: See, one thing that 

hasn't been mentioned, I think the impact to the 

low to moderate-income folks. It seemed like 

during the pandemic everyone and their dog 

probably got some form of fiscal or monetary 

stimulus. But I think the folks that owned 

assets did the best between the market and 

different programs. 

And I don't have it; this is all 

anecdotal, but I received an email from our 
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school this week talking about kids that are more 

than 15 days behind on paying for lunch are no 

longer going to get lunch. And maybe this is 

just a transition risk going from the USDA paying 

for lunches the last two years and now they're 

not and people didn't budget for that. 

But any warning signs on personal 

bankruptcies or subprime auto defaults or 

anything like that you're tracking? I mean, this 

isn't an area I have great insight into, but I'm 

just locally starting to see some of that and 

people in upper income brackets are really 

feeling the pain at the grocery store and things, 

especially folks with three young boys that --

(Laughter.)

MEMBER AFDAHL: -- like eat our house 

every day. So I mean, I just can't imagine 

people down on the lower end of the wage scale --

what that's doing. They might have got a little 

increase this year, but it certainly doesn't make 

up for year-over-year inflation.
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MEMBER SALAZAR: Can I follow up on 

Bret's comments, because --

MS. OLESIUK: Of course.

MEMBER SALAZAR: -- he beat me on the 

buzzer on that point on the last slide. I was 

just going to comment from Maryland's 

perspective. And, Bret, you mentioned coming 

forward. We track foreclosures in the state of 

Maryland. We can track it down to the particular 

census area and everything. And what we're 

seeing -- I know it's not necessarily the insured 

institutions, right? They seem to be doing okay. 

But we are seeing the foreclosures are going back 

up to where they were pre-COVID and before that. 

And then to Bret's point, we're 

particularly seeing them once again in poorer 

communities, communities of color. And so 

just -- you're hearing another backing up of that 

point.

MS. OLESIUK: I completely agree with 

you both. And we were actually trimming this 
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slide deck, and the area that we trimmed was a 

look at the consumer sector. So we're certainly 

looking at that. And you're both right that the 

support that consumers got during the pandemic 

with direct payments -- that most of those 

programs have ended and we're starting to see --

and it varies by income level and income bracket, 

but we're starting to see consumers burning 

through their savings at various rates.

When we look at the banking numbers, 

the -- we've started to see credit card balances 

rise, so I think that's another indicator that 

savings are again at various levels of being 

depleted and consumers are turning back to credit 

cards to support spending.

And then one last point, in the second 

quarter quarterly banking profile we actually 

noted at the early delinquencies, not those that 

are non-current yet, but 30, 60, 90 days past due 

in consumer loans -- those are starting to tick 

up, not to levels that I would say are concerning, 
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but just as far as another trend kind of 

supporting what both of you are saying. 

MS. SCHMIDT: Yes, we've been trading 

a lot of emails, though I would say that we need 

to point out that we're starting out with 

households -- are in very strong condition. 

Mortgages have been to borrowers with high credit 

scores. Auto lending is concentrated in prime 

and super prime. 

And like I said, the government 

support, lower interest rates, some lower 

spending in all these years, combined with what 

we talked about. Higher wages have -- has 

contributed to some -- we have some charts where 

the consumer -- their excess -- they've got 

excess savings right now, but at the -- we're 

starting to see little things that are starting 

to erode that position.

DIRECTOR CHOPRA: Can I just offer a 

couple comments here, which is our view into this 

is heavily also the non-banks. So I -- and very, 
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very heavily through credit reporting data and 

our own supervision of non-banks. And I would 

say overall the story we are seeing is one of 

normalization. Delinquencies going up across 

the categories but not in a frightening way. 

There are some exceptions there. 

I do think the growth in outstanding 

auto loans is extremely significant. Obviously 

heavily driven by the cost of new and used cars. 

At the lower credit tiers of auto, which is quite 

significant outside of the insured banking 

system, we're starting to see some real trouble 

there, but again in ways that we recognize.

With respect to credit cards it's not 

clear to us how much inflation is having an impact 

there because when you look at the 

categorizations, it's very, very big spend in 

travel, dining, and entertainment. So this does 

suggest a story of some latent demand for being 

out and about again and not necessarily one where 

households are really under strain. Though of 
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course there's regional differences. There's 

obviously income differences within it. 

With respect to mortgages we are 

seeing a significant increase of share of 

adjustable rate mortgages. I have been sharing 

with many of you that the adjustable rate 

mortgages of today are very, very different than 

the ones of pre-2010. They are QM 

overwhelmingly. They do have ability to pay 

tracking over a number of years. 

My job is to be paranoid, but I'm 

trying to be realistic about it. We obviously 

do have those worries about HELOCs increasing 

very substantially, though we're not seeing 

anything too frightening yet. 

And then of course we have been in a 

payment pause on student loans for almost 40 

million people. Our data suggests that student 

loan borrowers who have been in the payment pause 

we are seeing some real delinquencies and stress 

in their other credit applications. So when the 
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payments turn on in January I do expect that that 

will be something that really affects the 

household, and obviously what ends up happening 

with the cancellation will be part of that.

But overall we are -- it's no surprise 

that because the labor market is still fairly 

strong the household is fairly strong. But 

understanding how inflation is playing into that, 

it's still a little bit cloudy in understanding.

MS. EBERLEY: Thank you. That was a 

nice wrap-up to our conversation. It's time to 

move on on the agenda. 

So thank you, Camille and Shayna.

Our next item, we're going to touch on 

a few matters. We'll start the discussion with 

an update on FDIC's return to banks. And for 

that I'm going to be joined by Tara Oxley from 

the Division of Depositor and Consumer 

Protection.

And I can go ahead and kick us off a 

little bit. I'll talk from the perspective of 
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the Division of Risk Management Supervision. And 

I think we've said this at several meetings, but 

it bears repeating because it's hard to believe 

honestly that when we all left the office in March 

of 2020 on that Friday I think we all thought we 

were going on a two-week pause, right? Two weeks 

of working from home. And here we are two-anda-half years later just getting back. 

And I do think it's very fortunate; we've 

talked about this before a little bit as well, 

that we really had laid the groundwork for 

working off site before that time. We started 

back in 2016, a real concentrated effort at FDIC, 

to try to move some additional examination work 

off site. And it was a retention move for us. 

Examiners told us the number one reason they left 

the FDIC was travel, right? And that's probably 

always been the case, but particularly with our 

newer examiners. And we needed to retain them 

to provide our pipeline.

So we started focusing very hard on 
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how could we change that? And we tried different 

things. We started using Webex to look into 

institution systems and do remote access. We 

used Project FIVE, which you'll be familiar with, 

the file image viewer for examiners to pull data 

from the loan image processors and put it in a 

standardized format. I mean we just made a 

concerted effort to talk to examiners about what 

kind of work can you do off site and take 

advantage of that? What are the obstacles? 

One of them was that they valued the 

table talk around the board room table and they 

didn't find space in our field offices to do that. 

So we went down another path of field office 

modernization to create collaborative space and 

Wi-Fi in our field offices so they weren't 

tethered to a cubicle that had a plug to connect 

to the internet. They could all sit around a 

table and have access to the internet and work 

together and have those discussions somewhere 

outside of the bank.
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And because of those efforts we 

actually had increased before the pandemic our 

off-site hours, the percentage of our exam hours 

conducted off site from about 32 percent in 2016 

to 47 percent at year-end 2019. So then we 

quickly transitioned to 100 percent. 

And I would say we operated under a 

mandatory telework until this past April when we 

moved to the second phase of our Return to Office 

Plan, which was maximum telework. And during 

that period staff were permitted to come into the 

office, but not required. And although it was 

functional and we got our work done, it's not 

been optimal. 

So we were very excited to move to a 

new hybrid work environment on September 6th. 

And we call that Phase 3 of our Return to the 

Office Plan, or RTO. That's our shorthand. And 

so as of that date each safety and soundness exam 

that was in process or started after that date 

has had an on-site component.
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I think the new hybrid work 

environment expanded flexibilities to all FDIC 

staff that examiners had enjoyed before, which 

was a home-based option which allowed staff to 

work from home when they didn't need to be in the 

bank or in the office. They didn't automatically 

have to default to working in the office if it 

wasn't necessary.

We did conduct a limited number of inperson exams over the past two-and-a-half years 

and we certainly learned from those. We actually 

collected feedback from the examiners in charge 

after each one for best practices and 

recommendations from when we made our transition. 

And we also gathered feedback from a 

couple of activities. We conducted our own 

internal lessons learned jointly with the 

Division of Depositor and Consumer Protection and 

had a team that did surveys of staff and focus 

groups and really talked about what things worked 

well, what things didn't work well, what should 
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we think about for the future, what should we 

keep, and what should we abandon? And then we 

also had a request for information where we asked 

for information from bankers about their 

thoughts.

And so we have built some of that into 

our program. A big one is cameras on for virtual 

meetings, right? We've all heard that. And that 

you -- we miss a lot when we're not face to face 

with bankers and you don't have just even what 

we're having now with looking around the room and 

you see heads nodding. You don't have that when 

it's just dots on the screen. So it's important.

A second big one was developing and 

agreeing upon communication plans up front. And 

this was with bankers, but also among team 

members. If you've got team members in different 

places, some are going to be in the bank, some 

are going to be working in the field office, some 

may be working at home. How do we make sure that 

whole team is still functioning as a team and 
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having a plan for that in addition for having a 

plan for how is that team then going to talk to 

the bank and bank management and do it in a way 

that's not burdensome and that is highly 

effective? So another big piece of our plan.

And then the third was adding some new 

technology to help us. And we're still working 

on some tweaks with that, but looking at ways to 

connect the staff that's sitting in a field 

office with the staff that's at home and the staff 

that's in the bank and creating an environment 

that feels like everybody's together.

We're still working on some tweaks and 

we're stealing this from DCP, but -- it was their 

idea and we're piggybacking, but to use Microsoft 

Teams to make collaboration easier with Teams 

Sites actually, not just Teams itself, but 

creating Teams Sites to make the collaboration 

easier with banks and with our state 

counterparts. So that's a to-come, but another 

thing that we're working on.
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So, Tara?

MS. OXLEY: Hi there. Good 

afternoon. Well, no, I like that you highlighted 

how we worked together on this because I do think 

we're trying to do things similarly and learn 

from each other. So I just wanted to highlight 

a couple things related to our consumer 

compliance examinations.

So we conducted them in a hybrid 

environment even before the pandemic. Over the 

past five years we've seen an increase in our 

off-site exam hours. We had 36 percent -- 36 

percent of our total exam hours in 2016 were off 

site and it went up to 65 percent by the end of 

2019. So now that we're returning to banks we 

expect to have roughly the same percentage, 

around 65 percent, off site, but we don't have a 

benchmark. We don't have a requirement that we 

have to perform a certain amount of activities 

off site or on site. It's really based on the 

facts and circumstances of each back.
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What I wanted to note here today was 

really that the examiner in charge is really 

going to look at the situation and decide the 

most effective examination plan. So they're 

going to consider the institution's business 

model and risk profile, look at their loan file 

imaging, seeing what records they have both in 

hard copy and electronically, looking at the 

institution's work space, talking to the banker, 

seeing what their preference is, and then looking 

also at our counterparts, both in RMS as well as 

our state agencies to see if they're going to be 

on site during the same time. So really it's 

going to depend on the facts and circumstances, 

but we're definitely moving forward and have

moved forward effective September 6th with being 

on site.

That's all I have.

MS. EBERLEY: And maybe just wrap-up 

by saying that what we hear from the regional 

directors in our regular conversations is that 
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you all are doing the same thing, but if you have 

any thoughts or other items that we should 

consider, happy to hear them.

MEMBER FITE: Definitely doing the 

same thing. So during the whole crisis it's been 

a matter of like how we keep our people working 

together internally in Indiana. How do we keep 

them training each other and keep that kind of 

flow of information going and the mentorships? 

And now I think that we transition back on site 

maybe it will move now to like how do we work 

together, right? For joint examinations how do 

the FDIC and states also go through that same 

process now to make sure we're communicating with 

each other. And I hope it goes back to where it 

was.

This is one thing I talk about a lot 

is last recession, 2008, 2009, 2010, I was 

managing a lot of field work and at that point in 

time one positive outcome we had was our people, 

FDIC people, we're one and the same. We did so 
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much joint work that it was really hard to tell 

I think where say a state person, FDIC person, 

other than a name badge, maybe that knows any 

difference, and the banker is even confused us. 

So I hope we get back to that again 

in a now-quasi virtual environment, but I think 

it will take some effort as we all go back to 

kind of a normalized environment. And I think 

our examiners when they see each other will have 

the same feelings we have today, right, when we 

see each other of good to see you again. Glad 

to be back on site. Missed seeing you. However 

there's also a group of people that started in 

the last two years that don't know each other. 

I mean how do we get them to work together as 

well might be a little bit of a challenge for a 

little bit.

MS. OXLEY: That's a very good point. 

I think people are looking forward to working 

together in person again. 

PARTICIPANT: Any idea how many 
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employees you have who have never been in the 

bank? I mean I know we have several at this 

point.

MS. OXLEY: I'm sure we have the data. 

I just don't know it offhand.

MS. EBERLEY: It’s fewer now than two 

months ago.

(Laughter.)

MS. OXLEY: Yes, that's true.

ACTING CHAIRMAN GRUENBERG: I do know 

I think during the pandemic -- the last two-anda-half years I think we on-boarded about 600 

employees at the FDIC. That's across divisions. 

So until the last few weeks most or all of those 

people had never been in an FDIC facility. So 

bringing them for initial set of meetings to meet 

their colleagues was a new social experience and 

I think generally well received.

And one point that Doreen may want to 

expand on is we weren't sure when we moved to the 

virtual examinations whether that would prove to 
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be more or less efficient than on-site exams. 

And I think one significant lessons we learned 

from this episode is that an entirely off-site 

exam program appears to be significantly less 

efficient than an on-site program. 

And that was a -- we have a statutory 

requirement in terms of getting examinations done 

over the course of the year and the fact is that 

having to do it in a virtual arrangement made 

that more challenging that it might otherwise 

have been.

And, Doreen, it might be worth 

commenting on, because I would not necessarily 

have expected that result.

MS. EBERLEY: Sure. It really did. 

And I got triggered to look at this very, very 

early on. I was able to receive a download of 

several reports of examination, and I read about 

40 in a weekend. And I was struck that in each 

one the examiner commented that the exam took 

longer than the budgeted hours. And is something 
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we track, but it caused me to track it much more 

closely and ask for updated data from my staff on 

a regular basis.

In the first couple months I want to 

say we were maybe 35 percent over our benchmark 

hours. And benchmarks are not the actual exam 

hours that are budgeted for a given exam, but 

it's the average that we expect for a given bank 

of a given size and rating that goes into our 

budgeting process, into our staffing models. And 

so we've always tracked actual hours aggregate to 

benchmark hours aggregate.

And we were running about 35 percent 

that first month. The second month it jumped up 

to 50-some-odd percent. And after that it kind 

of leveled off. And we have been at 40 percent 

the entire time over benchmark.

I have heard anecdotally from field 

supervisors; I don't have numbers to document it 

yet, that they've had examiners say oh, I'm 

giving back hours, we're done early, ready for 
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the next assignment, just in the last month or 

so, that they're recapturing some of the 

efficiencies that we lost, which will certainly 

be very helpful because it's been tough. It's 

been tough.

MEMBER HALL: So I wanted to say that 

it's been -- we've been back in banks for a little 

over a year now and it has been an interesting 

process. Number one, now that we are back fully 

in banks our newer examiners don't know -- did 

not know that exams were only supposed to take 

two weeks. There was just this sort of fluid, 

much more you might start one and then you might 

start another, and then you might -- it was just 

much more fluid in terms of the timing. And the 

first time some of our newer OMs and AMs got the 

like I need your bullet points by Wednesday of 

the second week, there was a bit of a freak out 

because that had not been expected. And so I 

think setting some of those expectations is 

helping with some of that efficiency as well.
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That said, in a state like Montana we 

are committed to a hybrid program. We are not 

going back on site full time with all these 

examiners for multiple weeks. We've set up 

spaces for training around the table so that we 

can mimic the feel of being in the bank in some 

ways because we only have two field -- we have a 

main office and a field -- and a remote office in 

Billings. 

And Montana is just too big and it 

impacts our examiners' lives too much. And as 

much as I want to also provide good service to 

our banks and not put additional burden on them, 

I want my examiners to have children and belong 

to a gym and have lives that are productive and 

also fulfilling. So that is something that we 

are really very firmly committed to.

Additionally, the one thing I wanted 

to say is when I first started at the division in 

2011 the FDIC was doing a program which I think 

was the result of maybe things not going so well 
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for a couple years, and it was around 

communicating bad news. And there was -- it was 

kind of a communications course on talking to 

management when you have to deliver sort of not 

ones and twos. And I think it would probably be 

a good course to dig out of some box because we 

are going to be having some challenging times. 

I think there's going to be some tough 

communications, but also we have people that have 

simply never communicated in person either to a 

board and that's a very different thing. Having 

to sit across the table from somebody and say we 

have concerns about X, Y, and Z is really quite 

different than sitting safely behind your 

computer. 

So I think it would be good for the 

states and the FDIC to work together on sort of 

digging out and doing some examiner communication 

education just to kind of remind people what it 

means to make eye contact and say we're really 

sorry but you're performing in a less-than-
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satisfactory approach.

MEMBER AFDAHL: Yes, Melanie, I think 

that's a great point. I think I'd leverage off 

that a little bit because I think at least early 

on there was a lot of effort to provide 

accommodation to the banks to -- we don't want to 

be downgrading these loans to businesses in tough 

times. And I think we've seen that kind of carry 

forward that the loan review piece hasn't been as 

thorough as it's been in the past. So I hope 

that's not an area where getting back time on 

exams because I think things are changing very 

rapidly and I think we want to make sure we're 

doing a thorough exam so that we see the early 

warning signs flashing. 

Because I agree we are going to at 

some point have to start talking about credit 

risks. I mean, we've talked about it here a 

little bit today, but I think it's kind of been 

the forgotten topic for the last couple years 

just because so much money was thrown at so many 
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businesses and people from every direction that 

it -- we kind of flooded businesses with money, 

the ones that survived anyway.

So that's the one concern I guess 

have with the process right now and as we move 

forward is that we skinnied down our lead sheet 

early on, but we've gone back to the more thorough 

request list. And I just hope we're not gaining 

back time by not looking at the loan portfolio 

like we had in the past because it -- I think 

that will come back to bite us.

MEMBER HALL: We're also beginning to 

have conversations with our banks about sort of 

the gentle approach we've taken with capital over 

the past couple years because of growing balance 

sheets and a lot of that being outside of their 

control, but that has just kind of continued. 

And at this point they really should be thinking 

about what they can be doing, whether -- it's 

much easier as everyone in this room knows to 

build capital in good times when people feel 
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wealthy and all sorts of good things than it is 

to put out your hand to your shareholders when 

times are tough in every -- in their own 

portfolios.

MS. EBERLEY: I think the key message 

we've been giving to our examiners is that we're 

not going to blame bank management for the 

pandemic, right, but our focus in our examination 

is how is management responding? So there is a 

management accountability aspect that has never 

gone away and that truly is what we've tried to 

focus our examiners on. 

How is management working with 

borrowers? How are they working to early 

identify potential vulnerable borrowers and work 

with them and make sure that they're on the right 

track and they understand what that portfolio 

looks like? What are their strategies? What 

are their strategies with respect to capital, 

with respect to the influx of deposits? And now 

what's their strategy with respect to interest 
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rate risk? But consistently going back to how 

is management planning to respond to the 

circumstances that keep changing?

Okay. Well, we will move right along. 

Tara is going to stay up here and she's going to 

talk now about our supervisory guidance on 

multiple re-presentment NSF fees that was issued 

in August of '22. And then she's also going to 

discuss fees associated with authorize 

positive/settle negative transactions.

MS. OXLEY: And I'll explain what 

these are in care people are not aware, too, and 

also use some acronyms for that exact reason.

So first I'm going to talk about representments and what exactly a re-presentment is 

just in case people are not aware.

So a re-presented transaction is one 

where a merchant submits a transaction for

payment. We have found that in such situations 

a financial institution may assess a nonsufficient funds or NSF fee arising from the re-
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presentment of the same unpaid transaction. 

During recent consumer compliance 

examinations we have found that a bank may 

violate Section 5 of the Federal Trade Commission 

Act when it charged multiple NSF fees but failed 

to properly disclose such practice to the 

consumer. We've also noted that the practice 

could be unfair and result in both third-party 

and litigation risk.

For clarification purposes I did want 

to note that the FDIC does not have a concern 

about the initial NSF fee, assuming it is 

disclosed properly. Rather the concern relates 

to multiple NSF fees being charged from the same 

initial transaction.

So as Doreen mentioned, on August 

18th, 2022 the FDIC issued supervisory guidance 

on this issue. We thought it was important to 

not only raise attention regarding the practice, 

but also to discuss what banks could do to 

mitigate the risks associated with the practice 
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and to discuss our expectations relating to make 

full corrective action. So I thought it would 

be helpful today to note some highlights from 

that FIL. 

And I think the next slide -- perfect.

First, we encourage institutions to 

review their practices and disclosures and 

consider how to mitigate such risk. This could 

include eliminating NSF fees altogether, 

declining to charge more than one NSF fee for the 

same transaction, and providing clear and 

conspicuous disclosures that explain the amount 

of NSF fees, and when and how such fees will be 

imposed.

Second, the FIL notes that examiners 

would general not cite a violation where an 

institution has self-identified the violation and 

fully corrected the issue prior to the start of 

the consumer compliance examination. Full 

corrective action includes providing restitution 

to harmed customers.
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We've been meeting with several groups 

over the past few months to discussion this 

issue, including several bankers' associations, 

trade groups and service providers. These 

meetings have been extremely helpful.

One of the questions we've received 

relates to identifying these transactions, as we 

understand that this can be a manual process. We 

encourage banks to review and understand the 

risks presented from their core processing system 

settings relating to multiple NSF fees.

It's important that institutions 

understand the capabilities of their core 

processing system, such as identifying and 

tracking re-presented items in maintaining data 

on such transactions.

We will consider an institutions 

challenges with retrieving, reviewing and 

analyzing re-presentment data on a case-by-case 

basis when reviewing the time period institutions 

should use for remediation.
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So, I'm going to discuss the next 

issue as well and then I'll go back and see if 

anyone has any questions on either of these 

issues.

So next we're going to be talking 

about authorized positive/settle negative. And 

we usually call is APSN for short. So I say 

that, you'll know what I'm talking about because 

sometimes it's hard to say all those words.

So an APSN transaction is a 

transaction in which a bank assesses an overdraft 

fee based on insufficient funds at the time of 

settlement, even though the consumer had

sufficient funds available when the consumer 

entered into the transaction. This risk is 

elevated when an institution utilizes an 

available balance method to assess overdraft fees 

as opposed to a ledger balance method.

In essence, we found it difficult for 

consumers to understand the balance in their 

account, especially when there were pending 
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transactions and authorization holds.

The FDIC highlighted this issue in its 

June 2019 supervisory highlights publication. 

Because we found some institutions did not 

sufficiently disclose the manner in which their 

system assessed overdraft fees, such that a 

reasonable consumer might not understand when an 

overdraft fee could be imposed.

We encourage banks to review their 

current practices to see if this issue is present 

at their own institution.

The supervisory highlights 

publication lists some ways in which a financial 

institution can mitigate such risk, including 

providing clear and conspicuous disclosures 

related to the possible imposition of an 

overdraft fee, as well as if they use an available 

balance method ensuring that any transaction 

authorized against a positive available balance 

does not incur an overdraft fee.

So I just wanted to highlight both of 
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these publications in the FIL, just to make sure 

that everyone is aware those are out there. I'm 

happy to answer any questions or hear any 

comments.

I'm not sure if it is something you 

all were aware of our not, but we received a lot 

of questions here. Especially on the representment FIL. So I just wanted to make sure 

that we addressed it.

MEMBER HAGLER: I had one comment.

MS. OXLEY: Yes.

MEMBER HAGLER: Nearly 30 years ago 

one of my first banking jobs was handling, in a 

community bank, cutbacks I think is what we 

called them, but the checks that came back. And 

it seemed like back then it was handling the 

actual item of course.

And you saw stamps, and multiple 

stamps across the item. And you knew the 

customers and the officers knew who they were 

dealing with. And if they came back more than a 
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couple of times we took a hole punch just punched 

out the MICR number across the bottom so it 

couldn't possible come back.

I think you alluded to systems having 

either the ability or inability to kind of 

replicate that. That we used to do a human level 

at a high volume, no touch environment that we're 

in now.

Do they have systems that can identify 

these repeat items and know that they're repeat 

for the same reasons or is that the breakdown?

MS. OXLEY: It's my understanding 

that they can do that. At least some of the 

service providers we've talked to. They'll label 

it retry so you can see which transactions are 

being repeatedly done versus which one was the 

initial transaction that came through.

So it is my understanding, in some of 

the conversations that we've had, that at least 

some of them are doing that. And that's why 

we're making sure we're having those discussions 
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and understanding where they are in that process. 

Because we think it's important that you can 

identify and distinguish between --

MEMBER HAGLER: Right.

MS. OXLEY: -- these types of NSF 

fees.

MEMBER HAGLER: Okay. Thanks.

MEMBER FITE: Does that retrial label 

happen at the IT vendor or does it happen at the 

merchant?

Does the merchant have to say it's a 

retry or where does that get missed at?

MS. OXLEY: It's my understanding 

that it's not at the merchant level.

MEMBER FITE: Okay.

MS. OXLEY: It's at the --

MEMBER FITE: Yes, I heard similar. 

I heard that some banks struggle with this and 

that maybe being coded wrong or it wasn't 

necessarily being reported. That we came back 

out with kind of a manual exercise to track down 
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and look for similar dollar amounts maybe to try 

to find places it was re-presented.

MS. OXLEY: And that's a very, it's 

my understanding that's a very difficult time 

consuming process to do that manually, so we are 

trying to work with the processors to make this 

more automated.

MEMBER FITE: Great, thank you.

MEMBER HOLSTEIN: I just had a quick 

question under this. This is very recent. But 

as far as training for examiners, what to look at 

or anything, is there anything out there as far 

as work program or any kind of instructions or 

training to kind of, you know, get this on the 

radar of examiners because I feel confident we're 

not looking at this.

MS. OXLEY: We don't have a formal 

training that we've done. We've had calls about 

this issue and we've talked about the issue, but 

we don't have necessarily training materials that 

are put together that would be easy to share or 
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anything like that at this point.

MEMBER HOLSTEIN: Okay. But the 

expectation is on the examiner level that this 

would be an item of review?

MS. OXLEY: If the risk is there. 

This is not something that we're mandating people 

look for, it's really just seeing if there is a, 

yes. If something bring, because we're risk 

focused, and so if the risk brings you there than 

yes, you should look at it. But it's not a 

mandate to look at this at all it seems.

MEMBER HOLSTEIN: Okay. And how is 

the rest being assessed, is it through complaints 

or, like, how do you, I don't know how you risk 

assess, whatever.

MS. OXLEY: A lot of it has been 

complaint driven --

MEMBER HOLSTEIN: Okay.

MS. OXLEY: -- to date.

MEMBER HOLSTEIN: Great, thank you.

MEMBER HALL: I will say on the re-
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presentment issue that our banks are, I think, 

becoming very aware, looking at what they can do, 

revising policies, reading the guidance. But I 

do think that they still are unsure if what they 

do is going to be enough.

What the look back period is. I mean, 

the way the letter reads I think it is dependent 

in some ways on can you get the data or can you 

not get the data.

If you can't get the data, the look 

back period I think is two years. If you can get 

the data, what is the look back period and how 

does that interface with state law, quite 

frankly, on what that look back period might be. 

I think there is still quite a bit of confusion 

out there on that topic.

MS. OXLEY: And we have had more and 

more bankers reach out to us for that exact 

reason, to have that discussion. Because you're 

right, if you self-identify and fully correct, 

we're not going to cite a violation when we come 
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in at the next examination.

So it's very encouraging that bankers 

are reaching out and trying to really do whatever 

is needed to fully correct this issue before we 

get onsite. So we definitely noticed an uptick 

in those conversations.

MEMBER HALL: Yes. And I think 

they're just struggling with what fully correct 

is. So what does that mean in terms of 

remediation and what, you know.

MS. OXLEY: And you're right, there 

is a footnote in that FIL that came out that does 

give flexibility. It is very case-by-case basis. 

So I can see where there's questions.

So you're trying to offer 

flexibilities, but it really does depend on what 

the bank situation is and what steps they've 

taken to correct it and what data they've asked. 

It was impossible to set a bright line. Because 

we really do want to consider it, but that's why 

we're encouraging bankers to have those 
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discussions with us.

MEMBER HALL: Absolutely. And I 

think that what our bankers are looking for is 

that if they're, like, if we try hard enough, 

does that get us a pass when examiners come in 

and decide that although we tried to do it all 

right, we got some part of it wrong or we didn't 

go back far enough. Like what is the, you know, 

what is the outcome going to be if ultimately an 

examiner decides that they didn't get it quite 

right.

MS. OXLEY: Yes.

MEMBER HALL: I think that's the 

concern.

MS. OXLEY: Thank you.

MS. EBERLEY: Okay, thanks, Tara.

MS. OXLEY: You're welcome.

MS. EBERLEY: So next we're going to 

be joined by Counsel, Michael Farrell from the 

Legal Division, and Jonathan Miller, Deputy 

Director of Policy and Research from the Division 
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of Depositor and Consumer Protection.

Mike will discuss the final rule we 

issued in May relating to misrepresentations of 

insured status. And then Mike is also going to 

cover the FDIC portal for submitting complaints 

about suspected misrepresentations regarding 

deposit insurance.

And Jonathan will discuss the request 

for information that we issued relating to 

advertising and FDIC logos. So, Mike, thank you.

MR. FARRELL: Good afternoon, 

everyone. Sorry. As Doreen said I'm going to 

discuss our rule related to deposit insurance 

misrepresentations. If we can have the next 

slide.

So Section 18 of the Federal Deposit 

Insurance Act, which is generally the section 

that requires government's sign and advertising, 

it requires that member FDIC sign that we're all 

very familiar with.

It also includes a provision that 
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prohibits any person from misusing the FDIC's 

name or logo to imply that uninsured products are 

insured. And it prohibits anyone from knowingly 

misrepresenting the extent or manner of deposit 

insurance.

Until this year the FDIC had not 

issued any rule implementing this provision. We 

had taken certain enforcement actions but we 

hadn't done anything to promulgate a regulation.

That changed because recently, in the 

last few years the FDIC, if we could go to the 

next slide please. In recent years we observed 

an increasing number of misuse of the name or 

logo, or similar symbols and words, to 

misrepresent deposit insurance.

And because of that, last year we 

embarked on a rulemaking. The Board approved 

final rule in May of this year that became 

effective in July.

And that final rule is basically aimed 

at providing transparency in the procedures and 
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the standards that the FDIC uses in identifying, 

investigating and evaluating potential 

misrepresentations about deposit insurance. And 

also, similar provides some clarity about the 

procedures we use, if and when it becomes 

necessary to take enforcement action to address 

those kind of misrepresentations.

And one note I will make in the final 

rule, just substantively it does provide certain 

examples, non-exclusively of the type of conduct 

that would violate the rule.

And one thing, as far as a 

misrepresentation, we did key off sort of normal 

deception law. And so the rule does make clear 

that material omissions in representations about 

deposit insurance do violate the rule.

One material omission that was 

specifically identified is when non-insured 

depository institutions advertise the provision 

of deposit insurance. If they do not identify 

the insured depository institution they'll be 
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partnering with to provide that insurance, we do 

consider that a material misrepresentation by 

omission.

If we can have the next slide. These 

are some of the most common types of 

misrepresentations we have seen in the space. 

They are not the only ones, but they're sort of 

the big ticket items.

The first one is just the fraudulent 

website. This would be the spoof of a legitimate 

bank's website. Like you would see Bank of 

American .io. Which .io is the top level domain 

name for the British Indian Ocean territory. So 

when Bank of America has a website, that it's 

probably wrong.

The second one, and this is one we're 

seeing more and more of. And this is where nonbank financial service providers of some type are 

making either expressed statements or 

implications that either a non-bank is FDIC 

insured or that non-deposit products are FDIC 
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insured.

And this happens in a couple of ways. 

A lot of times we see a non-bank financial service 

provider implying that either the failure of a 

non-bank may trigger FDIC insurance or that 

things other than a failure may trigger insurance 

we've seen.

For example, certain companies making 

statements like, that they are FDIC insured so 

this means you're covered if you lose money 

because they fail, or because of mismanagement or 

misconduct by the company. Obviously we all know 

that's not true.

The second thing we see is statements 

or implications that non-deposit insurance 

products are, or non-deposit products are 

insured. This will either be expressed 

statements.

Or sometimes we deal with financial 

companies that they may offer some insured 

products through partnerships with banks, and 
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they may offer non-insured products. And a lot 

of times we see like blurring of the line as to 

what is insured and what isn't insured.

Obviously with our IDIs we have 

specific rules about segregating those things in 

the non-IDI space. We've seen some failure to 

do that.

And then the last thing we have is we 

have certain non-bank companies. And these tend 

to be dealers in alternative assets or 

investments making false statements that 

basically denigrate the security provided by FDIC 

insurance. Making various statements that FDIC 

insurance is not really the reliable safeguarding 

that it is and so people should pull their money 

out of banks and invest in, well, what other 

product it is that they're selling.

Can we go to the next slide please? 

And so, the one, the last thing that I believe 

was promised is, as part of the numerous 

representation rule we did establish a new 
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consumer portal on our, the FDIC support and 

information website for the specific purpose of 

allowing consumers to report to us potential 

deposit insurance representations.

This portal does allow consumers the 

opportunity they can submit complaints with 

contact information, if they would like followup from us and responses. We did also include 

an option for them to do anonymous submissions if 

they have whistleblower concerns. Don't want to 

be identified, et cetera.

That portal launched concurrent with 

the rule becoming final on July 5th. Since that 

time we have had more than 325 submissions to the 

portal. Which is more than I think we were 

expecting. But it's definitely been active.

We have sent out to date six publicly, 

six cease and desist letters to various entities 

that we made public on our website. And we are 

continuing to evaluate new submissions as they 

come in.
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And if we can have the next slide. 

And the next slide here is really just some 

additional resources regarding deposit insurance 

misrepresentations.

There is obviously our rulemaking. 

We did publish a fact sheet. We published FIL. 

And we also always like to publicize our BankFind 

website, which is one of the key places people 

can go to determine where their things are. 

Whether they're dealing with an actually insured 

bank or not.

I don't know if, John, if you want to 

go or if I should field questions now?

MR. MILLER: It might make sense for 

me to talk and then, because it really flows very 

much from what Mike was talking about.

So my name is Jonathan Miller. I'm a 

Deputy Director in our Division of Deposit and 

Consumer Protection for Policy and Research and 

I'm here to talk about our request for 

information on our official sign and advertising 
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regulations. And it really flows directly from 

the efforts Mike described in our work to avoid 

and prevent misrepresentation.

So in February of 2020 we, the FDIC, 

issued, or published, a request for information, 

or an RFI, on modernization of our signage and 

advertising rules.

We republished that in April of 2021. 

We got diverted a little bit in March of 2020. 

So we republished the RFI. We reissued it. And 

in order really to gather feedback regarding how 

we might inform our rules to keep pace with how 

today's banks offer deposit products and services 

and how consumers connect with banks, including 

through evolving channels, such as online and 

mobile apps.

So in response to the two RFIs, we 

received about 20 comments from trade 

associations, insured depositories, consumer 

groups and others. We reached out and conducted 

nine stakeholder meetings with banks, technology 
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service providers, consumer groups and others to 

obtain more information through more informal 

discussions.

Now commenters universally recognize 

the need for updating the sign and advertising of 

requirements in response to the changing industry 

practices and the increasingly significant role 

played by digital and mobile banking. And I will 

just, by way of advertising, say we are going to 

be releasing our household survey on the un, and 

under bank tomorrow, which will, I think has some 

interesting information regarding how consumers 

interact with banks. So we'll look forward to 

you seeing that.

Commentators also indicated that 

consumers assume products offered through banks 

are insured. And these commentators emphasized 

the rule of third-parties and offering uninsured 

products and the importance of enabling consumers 

to identify uninsured products.

And this is really an important point 
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that I want to underscore. We want to help to 

ensure that consumers are not confused about what 

products are insured and what products are not 

insured.

We see this customer confusion as a 

potentially serious risk. And as you can 

imagine, this is a problem. The solution to 

which is becoming more challenging as we see both 

a proliferation of new products and new ways of 

reaching the public.

We're using this feedback as we 

consider revising and clarifying our official 

sign and advertising rules related to FDIC 

insurance and deposition insurance. And to 

account for these changes in banks interactions 

with consumers.

So we take this, I will simply close 

by saying, we take this challenge seriously and 

we look forward to more public discussion and any 

thoughts you may have here as well. Thank you.

MEMBER AFDAHL: Michael, I'm curious, 
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do you have any sense for breakdown on the 

complaints or tips you've received, how many of 

those are crypto-related products?

This seems to be a really common area 

where they want to pretend that people can't lose 

any money, which obviously people have found out 

very painfully that they can.

MR. FARRELL: We certainly have had 

complaints about crypto. I don't have a sense 

of a percentage or a number of breakdown. It 

certainly is something we have seen complaints 

about. In addition to other areas obviously.

MEMBER C. COOPER: Michael, do you 

have an idea, or maybe not an idea, but if you 

had a very valid complaint after your evaluation, 

how long do you think is your turnaround time?

I know you have process you have to go 

through, but how quick could you react in a --

MR. FARRELL: Well --

MEMBER C. COOPER: -- certain case?

MR. FARRELL: -- it does depend. We 
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are still working on our process. As most things 

are, we are risk-focused here.

So I think it really would depend on 

how much risk we saw immediately for consumers on 

how quickly we need to react to that. At this 

point we don't have a set deadline for start to 

finish to investigate and make a decision and 

bring any kind of action, but.

MEMBER C. COOPER: We've had a lot of 

experience with entities claiming that they were 

banks, which really creates a problem. And then 

just compounds it.

And, Jonathan, your comment about, I 

mean, what you all are looking into now is really 

a big situation. And I understand the 

sensitivity of it.

MEMBER HAGLER: Yes, I just wanted to 

applaud your work in this area. Like Charles 

said, in my time as commissioner we've probably 

run a dozen or more banks that were fake out of 

Georgia. But all we're doing is bouncing them 
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between Tennessee and Florida and Georgia. It's 

just running up and down.

(Laughter.)

MEMBER HAGLER: I did tell you hi. 

So yes, we're bouncing them around. So yes, it 

would be helpful if a federal entity took a more 

aggressive or, you know, put a little more light 

on it.

I will say that the other thing is, 

when I became commissioner I asked them why we 

still had a fax machine in our office. And they 

said it was our best source of fake banks because 

we would get the fake solicitations through it.

MR. FARRELL: Yes.

MEMBER HAGLER: So if you can find one 

down in your basement, you may want to fire that 

one back up.

(Laughter.)

MEMBER HAGLER: And to Jonathan's 

comments as a group of regulators, that has to 

flip both in the non-bank and the bank. 
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Definitely appreciate your address in something 

I've been worried about for a long time, which is 

these entities stating that they have a 

relationship with the bank and implying that you, 

as a customer, also have a relationship with that 

bank. And would love to see that be a lot more 

clear to maybe even the entity, but to the 

customers as well. So great work --

MR. FARRELL: It's an issue we take 

very seriously.

MEMBER HOLSTEIN: I just have kind of 

a more observation question. Probably many are 

familiar with companies that are peddling 

themselves to banks to get behind their online 

banking credentials to offer crypto purchases.

And I just, you know, I have warned, 

you know, we've had a couple requests to do that. 

Just about the reputational risks mostly.

But would this come into play in 

anyway with that kind of situation?

MR. MILLER: Well, I would say we are 
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particularly sensitive to misrepresentations in 

this regard. And you may have noticed, I don't 

know, maybe a month ago or so we took some public 

actions with regards to some misrepresentations 

with cease and desist orders.

But we're very cognizant of the fact 

that non-bank parties like the idea of using the 

bank as a way to attract the consumer because of 

the value that the banks brand, and the FDIC's 

brand, brings to the table. And I think we are 

conscious of reputational concerns. Both for the 

FDIC and the institutions.

MEMBER HOLSTEIN: -- that say, I don’t 

think there’s enough disclosures that say you 

know, you don’t do this--

MR. MILLER: And that's --

MR. FARRELL: And that is something 

we do pay attention to. And we kind of try to 

use the normal, you know, in deception cases 

there is usually this, what's the overall 

impression you're creating. We are very 
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sensitive to blurring the line because we do find 

a lot of non-bank financial entities --

MR. MILLER: Right.

MR. FARRELL: -- may have an insured 

component that they partner with the bank for and 

a non-insured component in delineating that line 

of when the consumer's funds are insured versus 

when they're not is something you pay a lot of 

attention to in evaluating these.

MEMBER C. COOPER: So just one more 

thing. I really think this is an area that we 

probably state some, FDIC can share the concern 

about, and possibly somewhere we can do some 

collaboration on this. This can really get, 

generally speaking at the bottom of all this is 

a bank. And sometimes the banks, in my opinion, 

really don't understand just who their partners 

are. Or what their partners are doing.

ACTING CHAIRMAN GRUENBERG: If I can 

underscore that, Charles. I think the issues 

we've had with banks that form partnerships with 
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third-parties, it really is a two-way street. 

It's not just that the third-party may engage in 

misrepresentations because they think it's in the 

business interest to do that, there is an 

obligation on the part of the bank to conduct 

appropriate due diligence to understand the 

relationship and representations and 

misrepresentations that might be made by the 

third-party playing off on that relationship.

We issued a financial institution 

letter in that regard. And realized something 

that banks need to pay attention to, and it's a 

risk to them, as I think was indicated.

MS. EBERLEY: Okay. Well thank you 

very much, Mike and Jonathan. We'll move on. 

Next, Mike Spencer, Associate Director in the 

Financial Risk Management Branch in Our Division 

of Insurance and Research, will discuss the 

amended restoration plan and deposit insurance 

assessments.

MR. SPENCER: Ashley is going to join 
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us too.

MS. EBERLEY: Oh, okay.

MR. SPENCER: She's going to answer 

all the hard questions.

MS. EBERLEY: Perfect. That's a good 

strategy.

ACTING CHAIRMAN GRUENBERG: A sign of 

a smart executive --

MS. EBERLEY: I was going to say, 

that's a good strategy.

MR. SPENCER: Good afternoon. It's a 

pleasure to be here with you. And thank you for 

having us.

I'm Michael Spencer, the Associate 

Director of the Financial Risk Management Branch 

for the Division of Insurance and Research. And 

joining me is Ashley Mihalik, our Chief of our 

Bank Regulatory Policy Section.

This afternoon we're going to speak to 

you about the statutory mandated restoration 

plan. Why we amended it last June and the 
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related assessment rate increase that was just 

approved by the FDIC Board.

Last week, on Tuesday, October 18th, 

Ashley and I presented to the Board a final rule 

to increase initial deposit insurance assessment 

rate schedules by two basis points. And the 

increase is meant to achieve two policy 

objectives.

Most immediately, to restore the 

reserve ratio to its statutory minimum of 1.35 

percent by the statutory deadline of September 

30th, 2028.

Additionally, the rule supports 

growth in the deposition insurance fund, or DIF, 

I'll call it DIF from here on out, in progressing 

toward the long-term fund management goal of a 

two percent designated reserve ratio.

Importantly, not only will this action 

by the Board accelerate the timeline to meet 

these objectives, it reduces the likelihood that 

the FDIC would need to consider a procyclical 
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assessment rate increase. Especially when 

banking in economic conditions may be less 

favorable.

Potentially at some point in the 

future given the uncertainties and downside risks 

the industry faces. And it should also increase 

the likelihood that the DIF will remain positive 

through any potential future period of 

significant losses due to bank failures.

In the next few minutes I'll cover our 

underlying analysis on the scenario projections 

produced by the Staff supporting the Board's 

decision last week and the expected effects on 

the industry. But first I think it makes sense 

to cover a little bit of background and what led 

us up to this point in the restoration plan.

I'm not sure, this is a relatively new 

Committee, so I'm not sure if we've ever spoken 

to you about the restoration plan, but it was 

first established in the height of the pandemic. 

On June 30th, 2020, the reserve ratio fell below 
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the statutory minimum of 1.35 percent. And it 

stood at 1.30 percent.

This was due solely to extraordinary 

growth in insured deposits in the first half of 

2020. In fact, we experienced about three years 

of insured deposit growth in a matter of two 

quarters. So about three years of what we would 

generally expect.

And as a reminder, we started the year 

before the pandemic with a reserve ratio at a 

high of 1.41 percent. So we lost a lot just, it 

was really in a matter of about 16 weeks that 

that occurred.

On September 15th, 2020, the Board 

adopted a restoration plan to restore the ratio 

to the minimum within the statutory eight year 

period. That statutory eight year period ends 

on September 30th, 2028.

At the time, given the significant 

uncertainty that we were faced with, the Board 

believed that it was premature to modify 
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assessment rates. So the plan maintained the 

assessment rate schedule in place and required 

staff, us actually, Ashley and I, to update 

analysis and projects for the DIF balance and 

reserve ratio and report back to them at least 

semi-annually.

Given the broad pandemic support, 

government support and it's duration, including 

two more subsequent direct injections of physical 

stimulus, the industry continued to experience 

strong insured deposit growth through the end of 

2020, well into 2021. And in the first half of 

2022 balances remained significantly elevated.

As of the last semi-annual update we 

provided to the Board in June 2022, almost two 

years after establishing the plan insured deposit 

growth, continued to outpace growth in the DIF. 

And our projections of the reserve ratio under 

different scenarios indicated that it was at risk 

of not reaching 1.35 percent by September 30th, 

2028.
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In the eight quarters during which the 

restoration plan has been in place, the reserve 

ratio actually regressed over that period to 

measure 1.26 percent as of June 30th, 2022. And 

just to be clear, the reserve ratio is our DIF 

balance relative to total insured deposits in the 

system. Right now our DIF balance is about 

$124.5 billion. And about $9.9 trillion in 

insured deposits in the system.

Because of this the Board agreed to 

amend the restoration plan to incorporate a two 

basis point increase in assessment rate 

schedules. And concurrently approved a notice 

of proposed rulemaking to implement the increase.

That proposal that we issued in June 

2022, had a 60-day comment period. We received 

a 171 comment letters from the public. And 

commenters mainly covered our analysis and 

projections. And a key focus was the assumptions 

in our projections used for insured deposit 

growth and the investment portfolio.
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I'll just say a few words about this 

before going into the analysis and the scenarios. 

And first off, start by discussing insured 

deposit growth, which after all is a primary 

reason the reserve ratio has declined so 

significantly over the last two years.

It's true that as of the second 

quarter of 2022 that insured deposit growth has 

shown some signs of possibly normalizing. 

Aggregate insured deposit balances continue to 

remain significantly elevated relative to prepandemic levels.

To be clear, insured deposits measure 

about a trillion dollars more than we would have 

otherwise reasonably expected. If it hadn't been 

for the pandemic and the stimulus.

Insured deposits did decline in the 

second quarter but that's not unusual. Deposits 

declined in the second quarter for six out of the 

last nine years.

One of the years where the second 
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quarter did not experience a decline in insured 

deposits was the second quarter of 2020 when we 

received, when there was significant stimulus 

injected into the system due to the pandemic.

Additionally, year-over-year insured 

deposit growth, so insured deposit growth as of 

the end of June 30th, 2022, still was, remained 

strong at about 4.3 percent. This annual growth 

rate is higher than either of the insured deposit 

growth rates in the scenario analysis that 

underlies our final rule. I'll speak about that 

shortly.

While it's possible that insured 

deposit growth may slow in the future, it's far 

from certain. Insured deposit growth is very 

difficult to predict because it's affected by so 

many different factors.

Regarding the investment portfolio, 

commenters asserted that its contribution would 

be stronger than what we assumed in our 

projections, especially given the rising rate 
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environment. However, growth in the DIF has been 

limited by a prolonged period of low investment 

returns. And recently by unrealized losses. 

Given the rapidly rising rate environment.

And while we agree, we do agree that 

a higher interest rate environment will 

eventually benefit the DIF, at some point the 

timing is highly uncertain. And since 

establishment of the plan, net investment 

portfolio contributions, so that's the yield plus 

the gains, or minus losses, have been flat or 

negative. So that's been since the establishment 

of our restoration plan.

I should add that our longer term 

projection to reach the two percent designated 

reserve ratio assumes a favorable level of 

positive net investment contributions after the 

reserve ratio reaches 1.35 percent.

In support of finalizing the rule we 

did develop the two scenarios that assume 

different levels of insured deposit growth and 
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average assessment rates to project when the 

ratio would reach, first, the statutory minimum, 

and secondly, our long-term goal of two percent.

Those two scenarios assume annual 

insured deposit growth of four percent and three 

and a half percent. And average assessment rates 

of 3.5 basis points and four basis points 

respectively.

Under these scenarios, without any 

increase to assessment rates, the statutory 

minimum would not be reached until the second 

quarter of 2034. Or the fourth quarter of 2026. 

Either well beyond or very late within the eight 

year statutory period.

Each scenario is reasonable. It's 

based on current and historical data. And to 

reiterate, the insured deposit growth rate 

assumed in each of these scenarios is below the 

current annual growth rate of 4.3 percent for the 

year ending June 30th, 2022.

Even under the more favorable outcome, 
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the more favorable scenario this timing, which is 

the, gets us there the fourth quarter of 2026, 

this timing would provide little flexibility to 

prevent a larger procyclical assessment rate 

increase in the event there is an industry 

downturn between now and then.

I think what I've been hearing today 

too, this is true, that future economic and 

banking conditions could be challenged by high 

inflation, rising interest rates, slowing 

economic growth. I'm not sure I've heard 

anything about geopolitical uncertainly yet, but 

that's just to name a few, a few things that we 

think adds to sort of the uncertainty.

And given this timing and these 

uncertainties, when we applied a two basis point 

increase it demonstrated that this modest 

increase in assessment rates would accelerate the 

timeline and get us there in about two years. By 

or before the end of 2024.

And we could possibly the achieve the 
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two percent goal by 2031 instead of 2042. And 

so a powerful acceleration just by raising a 

slight two basis points.

Regarding the estimated effects of the 

rule on the industry, our analysis indicates that 

an annual increase of two basis points and 

assessment rates, rate schedules, would reduce 

tier one capital by an estimated .1 percent. And 

would reduce annual industry income by an average 

of 1.2 percent. For small banks the impact is 

less, averaging about one percent of their 

income.

The industry, as a whole continues to 

report favorable credit quality earnings in 

capital levels, and is well positioned to absorb 

a modest increase in assessment rate schedules of 

two basis points.

The finally rule really attempted to, 

and we believe successfully so, balance several 

considerations and policy goals. Including the 

goal of reaching the statutory minimum ratio 
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sooner rather than later.

It should help us strengthen the fund 

to reduce the risk that we would need to consider 

a potentially procyclical assessment rate 

increase in the event of a future downturn. Or 

industry stress should that occur before the 

statutory deadline.

That would also be at a time when the 

industry would least be able to afford a raise in 

assessment rates as well. And as I've stated, 

it also improves the timeline for achieving a two 

percent designated reserve ratio and should 

strengthen the fun to withstand future potential 

banking crisis.

So when does all of this take affect? 

The final rule will be affecting in the first 

quarterly assessment period of 2023. So that's 

January 1st to March 31st. And the first payment 

would be on June 30th, which we assess in arrears. 

So there should be enough time to plan for this 

change in the assessment rates.
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Thank you very much. If there is any 

questions, I'm happy to answer those.

MEMBER HAGLER: I apologize, I'm not 

a scholar of the FDIC's insurance calculations 

and all the machinations that go into that. But 

the 1.35 and the two percent and the 2.5 percent, 

you know, are those, I was going to make a joke 

about, did you use CECL methodology to get there, 

but --

(Laughter.)

MEMBER HAGLER: -- are those derived 

based on previous events, such as the great 

recession, and if so, do you take into account 

the changes in law and guidance and just economic 

or capitalization levels, better job control and 

concentrations, as part of that calculation?

I mean, do you give yourself credit 

for making the world a better place after that to 

--

MR. SPENCER: I --

MEMBER HAGLER: -- it would seem like 
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you wouldn't need the same amount if you based it 

on previous events, if we improved the situation 

to not recreate that I guess is what I'm trying 

to say.

MR. SPENCER: So I'll take that in 

maybe two parts. First I'll focus on the 1.35 

percent. That statutorily mandated minimum 

reserve ratio that was promulgated by Dodd-Frank. 

Before that it was 1.15.

MS. MIHALIK: 1.25.

MR. SPENCER: 1.25. And so that 

statutory minimum was raised.

Also in Dodd-Frank we were given the 

authority to designate a reserve ratio. And we 

did that. We designated two percent. And that 

was based on historic two banking crisis in the 

past and the determination, I'll short circuit it 

a little bit, but it was at two percent we would 

have, the DIF would have stayed positive through 

those two banking crisis.

Once we do get to two percent, in this 
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rule will be in effect until we reach two percent, 

we will, progressively lower rates will go into 

place. So we have existing rate schedules for 

when the reserve ratio reaches two percent.

ACTING CHAIRMAN GRUENBERG: It's 

probably worth pointing out that during the 

financial crisis in 2008, because the DIF was 

depleted so quickly, we had to impose a five basis 

point assessment in the midst of the crisis. 

Which is really the, that's the worst case 

scenario. That's really what we're aiming to 

avoid.

And it's always a tricky call. And 

there is no sure thing here. You got to sort of 

make your, the best judgment on the information 

available.

You know, I think view was that the 

industry is in pretty good shape at this point. 

The economy. And at least at this point is in 

reasonable shape.

A two basis point assessment increase 
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has about a little more than one percent impact 

on industry income. Which from a credit 

availability and lending standpoint should be 

inconsequential.

But it gives us a high level of 

assurance of not having to impose a really, a 

really severe countercyclical assessment later in 

the cycle here. So it seemed like the prudent 

thing to do.

And once we reach the 1.35 minimum, 

the eight year clock restarts. So that by 

reaching 1.35 earlier in the cycle here we'll 

extend the clock well beyond the current economic 

cycle. And really should take us out of a 

circumstance in which we might have to impose a 

significantly procyclical assessment.

So, you know, there is no sure thing, 

it's a judgment call. But unbalanced, frankly, 

it seemed like the prudent thing to do.

MS. EBERLEY: Okay. Well thank you, 

Mike, thank you, Ashley. Appreciate the 
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information.

And then for our last agenda item, 

Betty Rudolph, the Director of the FDIC's Office 

of Minority and Community Development Banking, 

will provide an update on the mission driven bank 

fund and the minority depository institution 

listening sessions that she's been participating 

in.

MS. RUDOLPH: Thanks, Doreen. Good 

afternoon, everyone. I'll just provide a brief 

update today on our office.

I believe we're the most, the newest 

office of the FDIC. The Office of Minority and 

Community Development Banking was formed last 

November. And our research has shown that FDIC 

insured MDIs and community development financial 

institutions play a very important role in our 

financial system.

So of the 14 Commissioners on this 

Committee, I think eight of you have MDIs 

headquartered in your states. A total of 33 
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banks. That constitutes about a third of the 

MDIs that we supervisor. And five of you 

supervise 14 FDIC supervised CDFI Banks, or about 

12 percent of the 120 CDFIs that we supervise.

So our role is to engage directly with 

these institutions to facilitate strategies to 

help them build capacity and scale through 

partnerships and collaboration. And we work very 

closely with our regional offices as well for our 

traditional programs of technical assistance, 

outreach and training and education.

So today I'm going to update you on a 

couple of our initiatives. We published a FIL 

this past May that I believe you had in your 

packet called MDI designation procedures. And 

it simply outlined the procedure that we take for 

designating de novo institutions or existing 

institutions as minority depository institutions 

as the definitions. What we look at in the 

community that the institutions serve.

And I think it's been really helpful 
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because there has been a lot more interest in 

creating MDIs over the past couple of years. And 

this year to date we have one new FDIC supervised 

de novo that's opened its doors. Another three 

existing institutions that designated themselves 

as MDIs. And we approved a conditional 

application for deposit insurance for an MDI that 

is now raising capital.

We have an MDI subcommittee that 

advises us. And similar to this Committee, we're 

meeting tomorrow. And it's comprised of nine 

executives from around the countries representing 

all types of MDIs.

On the mission driven bank fund, this 

was unique public-private partnership where we 

sort of championed the need for the fund and 

helped the design the framework, structure and 

concept of operations for the fund.

Last September we announced a $120 

million commitment for what will be a private 

equity fund with Microsoft and Truist serving as 
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the anchor investors. We sort of turned the car 

keys over to them at that point.

And they issued an RFP to hire a fund 

manager last December, with applications due in 

February. And they are getting ready to announce 

the fund manager, we understand, within the next 

four to six weeks. And that's kind of where the 

mission driven bank fund stands.

Another initiative we've been engaged 

in is to conduct listen sessions with all 280 

FDIC insured. MDIs and CDFIs were invited to 

provide feedback on sort of the programs of the 

FDIC, the OCC and the Federal Reserve for mission 

driven banks.

And we haven't completely analyzed the 

results, but there are a few takeaways that we 

had, which are that some MDIs are still seeking 

capital and looking for the regulators to provide 

facilitated sessions for them to meet with large 

banks that are interested in partnering with 

them.
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There is also interest in the 

regulators being transparent about regulatory 

expectations for new capital coming into the 

industry. Like the emergency capital investment 

fund with the Department of Treasury, which 

purchased $8.3 billion in preferred stock and 

sub-debt in these institutions this year.

And so, you know, kind of building on 

that, the FDIC has actually put together a 

technical assistance program to, I think we're 

going to be conducting a webinar for all FDIC 

insured MDIs and CDFIs that received ECIP 

funding, or other large bank funding, to really 

talk through our regulatory expectations for that

and how we will look at growth.

And we did a pilot of that a couple 

of weeks ago with our bankers. We're going to 

kind of tweak our presentation based on that, and 

should be rolling it out in the near future.

And then finally we are also getting 

ready to conduct some, just-in-time training, for 
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examiners in charge of MDIs. And this is to 

apply the unique, to apply exam standards 

relative to the unique business models of MDIs.

And I think last year when I met with 

you I explained that we had, the Board had adopted 

a new statement of policy, which focused on how 

we examined these institutions relative to UFIRs 

and applying unique, applying the standards 

relative to unique business models. So we will 

be doing some training on that for our examiners. 

And then we will be working through the CSBS to 

develop similar training for state examiners.

And with that, I think that concludes 

my presentation. And I'm happy to answer any 

questions you might have.

MEMBER AFDAHL: Betty, I'm curious 

how many MDIs do you have located on Native 

American reservations?

MS. RUDOLPH: Yes, I don't know how 

many are actually located on reservations. I 

know there are not, there are no FDIC insured in 
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South Dakota.

But we have a growing number of Native 

American MDIs. There are 19 currently, 

nationwide. And I think we've added two or three 

in the last couple of years.

And then we have a Native American 

bank in Wisconsin that recently expanded to 

another tribe. So we have one located in, many 

in Oklahoma are on reservations. Yes.

MEMBER AFDAHL: Thanks.

MEMBER HALL: One in Montana.

MS. RUDOLPH: One in Montana? Okay. 

And I met Lisa actually at Turtle Mountain State 

Bank up in Northern North Dakota near the 

Canadian border.

MEMBER HAGLER: Betty, is there a list 

of the MDIs? Because it didn't occur to me until 

I was reading through the information you had 

provided in your presentation that, I just 

assumed that all of my institutions were minority 

owned were magically MDIs, and I didn't occur to 
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me that there was an actual application process 

to go through.

MS. RUDOLPH: Yes. That's a great 

question. We do publish a list on our website. 

And we'll make sure you get a copy of that.

Yes, there is a process. So you can 

qualify based on ownership. Or if a majority of 

the Board of Directors is minority and serving a 

minority community. And that's the designation 

we're seeing some growth in now since the 

interest in MDIs.

MEMBER HAGLER: Great, thank you.

MS. RUDOLPH: Yes.

MS. EBERLEY: Okay. I don't know if 

you just said, but there is a list on our web 

page. Yes.

Okay. All right. Well, thank you, 

Betty.

So as we wrap up, I really want to 

thank everybody for their conversation today and 

the good dialogue. I want to thank the 
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presenters. And I will turn things over to 

Acting Chairman Gruenberg for some brief closing 

remarks.

ACTING CHAIRMAN GRUENBERG: Thank 

you, Doreen. Boy, we are on time. That's pretty 

good.

(Laughter.)

ACTING CHAIRMAN GRUENBERG: I give 

us, if nothing else, you know, we could --

(Laughter.)

ACTING CHAIRMAN GRUENBERG: And this 

has actually been a nice conversation today.

MS. EBERLEY: Yes.

ACTING CHAIRMAN GRUENBERG: Thank 

you. Wonderful, really, to see you all.

I'd like to acknowledge two members of 

our Committee who have stepped down recently. Ed 

Leary of course from Utah who retired earlier 

this year. And Charles Vice from Kentucky who I 

think has gone on to bigger and better things, 

although I'm not sure exactly what. But they 
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were both really outstanding members and very 

helpful to this Committee.

I can't overstate the value we place 

in our engagement with you all. It really is a 

partnership from my standpoint. It's really at 

the core of the FDIC's ability to carry out our 

mission.

So to the extent meetings like this 

deepen our understanding of what each of us are 

doing and deepen our working relationship it's 

more than worthwhile. And so much better to do 

it in person.

So thank you all. And I guess we'll 

also being go to the service later today. But 

thank you all. Wonderful to see you. Thanks a 

lot.

(Whereupon, the above-entitled matter 

went off the record at 3:54 p.m.)
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