The Year in Review

OVERVIEW

Although the number of bank failures declined in 2013 

compared to the previous year, the FDIC remained fully 

engaged in its mission-critical responsibilities. In 2013, 

the FDIC continued to make progress in fulfilling its 

responsibilities under the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (Dodd-Frank Act) and related 

rulemakings. Also during 2013, the FDIC made progress 

with community banking initiatives including releasing 

numerous technical assistance videos on topics relating to 

risk management and consumer protection. The sections 

below highlight some of our accomplishments during 

the year.

INSURANCE

The FDIC insures bank and savings association deposits. As 

insurer, the FDIC must continually evaluate and effectively 

manage how changes in the economy, the financial markets, 

and the banking system affect the adequacy and the viability 

of the Deposit Insurance Fund (DIF).

Long-Term Comprehensive Fund Management Plan 

In 2010 and 2011, the FDIC developed a comprehensive, 

long-term management plan designed to reduce the effects 

of cyclicality and achieve moderate, steady assessment 

rates throughout economic and credit cycles, while also 

maintaining a positive fund balance, even during a banking 

crisis. That plan is combined with the Restoration Plan, 

originally adopted in 2008 and subsequently revised, which 

is designed to ensure that the reserve ratio will reach 1.35 

percent of estimated insured deposits by September 30, 

2020, as required by the Dodd-Frank Act.1

 These plans 

include a reduction in rates that the FDIC Board adopted 

to become effective once the reserve ratio reaches 

1.15 percent. 

To increase the probability that the fund reserve ratio will 

reach a level sufficient to withstand a future crisis, the 

FDIC Board has—pursuant to the long-term management 

plan—set the Designated Reserve Ratio (DRR) for the DIF 

at 2.0 percent. Using historical fund loss and simulated 

income data from 1950 to 2010, FDIC analysis showed 

the reserve ratio would have had to exceed 2.0 percent 

before the onset of the two crises that occurred since the 

late 1980s to have maintained both a positive fund balance 

and stable assessment rates throughout both crises. The 

analysis assumed a moderate, long-term average industry 

assessment rate, consistent with the rates set forth in the 

plan. The FDIC views the 2.0 percent DRR as a long-term 

goal and the minimum level needed to withstand future 

crises of the magnitude of past crises. Under provisions of 

the Federal Deposit Insurance Act (FDI Act) that require the 

FDIC Board to set the DRR for the DIF annually, the FDIC 

Board voted in October 2013 to maintain the 2.0 percent 

DRR for 2014.

MANAGEMENT’S DISCUSSION AND ANALYSIS 13

1 The Act also requires that the FDIC offset the effect on institutions with less than $10 billion in assets of increasing the reserve 

ratio from 1.15 percent to 1.35 percent. The FDIC will promulgate a rulemaking that implements this requirement at a later date 

to better take into account prevailing industry conditions at the time of the offset.

Management’s 

Discussion and 

Analysis

I.
ANNUAL REPORT 2013

14 MANAGEMENT’S DISCUSSION AND ANALYSIS

As part of the long-term management plan, the FDIC also 

suspended dividends indefinitely when the fund reserve 

ratio exceeds 1.5 percent. Instead, the plan prescribes 

progressively lower assessment rates that will become 

effective when the reserve ratio exceeds 2.0 percent and 

2.5 percent. These lower assessment rates serve almost the 

same function as dividends, but provide more stable and 

predictable effective assessment rates over time.

State of the Deposit Insurance Fund 

Estimated losses to the DIF were $1.2 billion from failures 

occurring in 2013, and were lower than losses from failures 

in each of the previous five years. The fund balance 

continued to grow throughout 2013, with 16 consecutive 

quarters of positive growth. Assessment revenue, a 

decrease in the estimate of losses from banks that have 

failed, and a decline in loss provisions for anticipated bank 

failures drove the increase in the fund balance during 2013. 

The fund reserve ratio rose to 0.79 percent of estimated 

insured deposits at December 31, 2013, from 0.44 percent at 

the end of 2012. 

To ensure that the DIF had sufficient liquidity to handle a 

high volume of failures during the recent crisis, the Board 

issued a rule in 2009 that required insured depository 

institutions to prepay 13 quarters of estimated risk-based 

assessments.2 The $45.7 billion in assessments prepaid on 

December 30, 2009, resolved the FDIC’s immediate liquidity 

needs. As required by the rule, the FDIC refunded in 

aggregate $5.9 billion in remaining prepaid assessments at 

the end of June 2013 to 5,625 insured institutions.

Assessment System for Large and Highly 

Complex Institutions

On October 9, 2012, the FDIC Board approved a final rule to 

amend the assessment system for large and highly complex 

institutions. The rule amends definitions adopted in the 

February 2011 large bank pricing rule used to identify 

concentrations in higher-risk assets. This rule, which 

became effective on April 1, 2013, amends the definitions 

of leveraged loans and subprime loans, which are areas 

of significant potential risk. The revised definition of 

leveraged loans, renamed higher-risk C&I (commercial and 

industrial) loans and securities, focuses on large loans to 

the riskiest borrowers—those that are highly leveraged as 

the result of loans to finance a buyout, acquisition, or capital 

distribution. The revised definition of subprime consumer 

loans, renamed higher-risk consumer loans, focuses on the 

most important characteristic—the probability of default. 

The final rule resulted from concerns raised by the industry 

about the cost and burden of reporting under the definitions 

in the February 2011 rule. Nonetheless, the new definitions 

better reflect the risk that institutions pose to the DIF. 

Definition of Deposit at Foreign Branches 

of U.S. Banks

On September 10, 2013, the FDIC Board of Directors 

approved a final rule clarifying that funds on deposit in 

foreign branches of U.S. banks are not FDIC-insured, 

even though they can be deposits for purposes of the 

national depositor preference statute. Under the FDI Act, 

funds deposited in a foreign branch of a U.S. bank are not 

considered deposits, unless the deposits are also payable 

at an office of the bank in the United States (a dually 

payable deposit). A 2012 Consultation Paper by the United 

Kingdom’s Prudential Regulation Authority (PRA) proposed 

that banks from non-European Economic Area countries 

that have depositor preference laws be prohibited from 

accepting deposits at their United Kingdom (U.K.) branches, 

unless the banks take steps to ensure that U.K. depositors 

are no worse off than depositors in the bank’s home country 

if the bank fails. The PRA paper mentioned that such 

efforts could include changing deposit account agreements 

to make U.K. branch deposits dually payable in the United 

States, which would put the U.K. branch deposits on the 

same footing as U.S. deposits under the U.S. depositor 

preference statute. As a result, the FDIC anticipates that 

some large U.S. banks will change their deposit agreements 

to make their U.K. branch deposits payable in both the 

United Kingdom and the United States to provide depositor 

preference to U.K. branch deposits. The final rule clarifies 

that these U.K. branch deposits are not FDIC-insured.

2 The cash collected from the prepayment did not initially affect the DIF balance (i.e., the DIF’s net worth). Rather, each quarter, the 

DIF recognized as revenue prepaid amounts used to cover each institution’s quarterly risk-based assessment. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 15

ACTIVITIES RELATED TO SYSTEMICALLY 

IMPORTANT FINANCIAL INSTITUTIONS

Risk Monitoring Activities for Systemically Important 

Financial Institutions

The Dodd-Frank Act expanded the FDIC’s responsibilities 

for overseeing and monitoring the largest, most complex 

bank holding companies and large, nonbank systemically 

important financial institutions (SIFIs) designated by 

the Financial Stability Oversight Council (FSOC) for 

supervision by the Board of Governors of the Federal 

Reserve System (FRB). In 2013, the FDIC’s complex 

financial institution program activities included ongoing 

reviews of all banking organizations with more than 

$100 billion in assets as well as certain nonbank financial 

companies. Given the scope of the FDIC’s responsibilities 

under the Dodd-Frank Act, the FDIC developed additional 

risk assessment tools, processes, and procedures to better 

identify major risks at SIFIs, to ensure corrective actions 

when warranted, and to efficiently allocate resources. 

Additionally, the complex financial institution program 

prepares the FDIC to resolve insured depository institutions 

(IDIs) in the event of failure, including the review of 

IDI-prepared resolution plans.

In the FDIC’s back-up supervisory role, as outlined in 

Sections 8 and 10 of the FDI Act and Sections 23A and 

23B of the Federal Reserve Act, the FDIC has expanded 

resources and developed and implemented policies and 

procedures to guide back-up supervisory activities. These 

activities include participating in supervisory activities with 

other regulatory agencies, performing analyses of industry 

conditions and trends, and exercising examination and 

enforcement authorities, when necessary.

In addition, the FDIC continues to work closely with other 

federal regulators to gain a better understanding of the 

risk measurement and management practices of SIFIs, and 

assess the potential risks they pose to financial stability.

Title I Resolution Plans

Title I of the Dodd-Frank Act requires that each bank 

holding company with total consolidated assets of $50 

billion or more, and each nonbank financial company that 

the FSOC determined should be subject to supervision 

by the FRB, prepare a resolution plan, or “living will,” 

and periodically provide the plan to the FRB and the 

FDIC. Section 165(d) of the Dodd-Frank Act requires the 

company’s resolution plan to provide for its rapid and 

orderly resolution under the bankruptcy code in the event 

of the company’s material financial distress or failure. The 

FDIC and the FRB issued a joint rule to implement the 

requirements for resolution plans to be filed pursuant to 

Section 165(d) [the 165(d) Rule]. 

In addition to the 165(d) Rule, the FDIC issued a separate 

rule that requires all IDIs with greater than $50 billion 

in assets to submit resolution plans to the FDIC (IDI 

Rule). The IDI’s resolution plan should enable the FDIC, 

as receiver, to resolve the IDI using the FDIC’s traditional 

resolution powers under the Federal Deposit Insurance 

Act (FDI Act), in a manner that ensures that depositors 

receive access to their insured deposits generally within 

one business day of the IDI’s failure, maximizes the net 

present value return from the disposition of its assets, and 

minimizes the amount of any loss realized by creditors.

The 165(d) Rule was effective as of November 30, 2011, 

and provides for staggered initial submission dates for the 

Paul Volcker, former Federal Reserve Chairman, 

offers his perspective on Title I resolution planning at 

a Systemic Resolution Advisory Committee meeting. 
ANNUAL REPORT 2013

16 MANAGEMENT’S DISCUSSION AND ANALYSIS

resolution plans of covered companies. Thereafter, unless 

otherwise agreed to by the FDIC and the FRB, each covered 

company must submit a plan annually, on or before the 

anniversary of its initial submission date. Initial submission 

dates for IDI resolution plans under the IDI Rule, which 

was effective April 1, 2012, conform to those for covered 

companies under the 165(d) Rule. Under the 165(d) Rule, 

the initial submission date is based upon nonbank assets (or 

for a foreign-based covered company, U.S. nonbank assets) 

as of November 30, 2011, and is set by the rule as follows:

♦ July 1, 2012: “First Wave Companies” are covered 

companies with $250 billion or more in nonbank assets 

(or U.S. nonbank assets for foreign-based covered 

companies). 

♦ July 1, 2013: “Second Wave Companies” are covered 

companies with $100 billion or more in nonbank assets 

(or U.S. nonbank assets for foreign-based covered 

companies). 

♦ December 31, 2013: “Third Wave Companies” are all other 

covered companies which are covered companies with 

less than $100 billion in nonbank assets (or U.S. nonbank 

assets for foreign-based covered companies).

Any company that becomes subject to the 165(d) Rule after 

its effective date (including nonbank financial companies 

designated by the FSOC), and any IDI that becomes subject 

to the IDI Rule after its effective date, must submit its initial 

resolution plan by the next July 1 that is at least 270 days 

after the date it became subject to the respective rule (or 

following its designation by FSOC). 

Eleven First Wave Companies submitted initial 165(d) plans 

in July 2012. Based upon review of the initial resolution 

plans, the FDIC and the FRB developed guidance for 

the First Wave Companies to permit alternate resolution 

strategies and to clarify information that should be included 

in their 2013 resolution plan submissions. This guidance 

is posted on the FDIC’s public Website3

. In the guidance, 

the FDIC and the FRB identified an initial set of significant 

obstacles to achieving a rapid and orderly resolution that 

each of the First Wave companies should address in its plan, 

including the actions or steps the company has taken or 

proposes to take to remediate or otherwise mitigate each 

obstacle (with a timeline for any proposed actions). The 

agencies extended the second submission filing date to 

October 1, 2013, giving the First Wave Companies additional 

time to develop resolution plans complying with the 

guidance. Each of the First Wave Companies submitted its 

second submission plan by the October 1 deadline, and the 

agencies are currently reviewing the plans.

Four Second Wave Companies submitted initial resolution 

plans by the July 1, 2013, submission date. The FDIC and 

the FRB reviewed those plans. One hundred and sixteen 

Third Wave Companies and twenty-two Third Wave IDIs 

submitted initial resolution plans by December 31, 2013. 

The FDIC and the FRB are currently reviewing those plans. 

Three nonbank SIFIs designated by the FSOC for FRB 

supervision are expected to submit initial resolution plans 

in 2014.

Title II Resolution Strategy Development

The preferred approach for the resolution of a large, 

complex financial company is for the firm to file for 

reorganization or liquidation under the U.S. Bankruptcy 

Code, just as any failed nonfinancial company would. In 

certain circumstances, however, resolution under the 

bankruptcy code may result in serious adverse effects 

on financial stability in the United States. In such cases, 

the Orderly Liquidation Authority (OLA) set out in Title 

II of the Dodd-Frank Act serves as a potential alternative 

that could be invoked pursuant to a statutorily prescribed 

recommendation and determination process, coupled with 

an expedited judicial review process.

Prior to the recent crisis, the FDIC’s receivership authority 

focused on IDIs. No regulator had the authority to place 

the bank holding company (BHC) or affiliates of an IDI 

or any other nonbank financial company into an FDIC 

receivership to avoid systemic consequences. The OLA 

addresses those limitations and gives the FDIC the back-up 

powers necessary to potentially resolve a failing BHC or 

other SIFI in an orderly manner that imposes accountability 

on shareholders, creditors, and management of the failed 

company while mitigating systemic risk and imposing no 

cost on taxpayers.

3 http://www.fdic.gov/regulations/reform/domesticguidance.pdf
MANAGEMENT’S DISCUSSION AND ANALYSIS 17

The FDIC has largely completed the core rulemakings 

necessary to carry out its responsibilities under Title 

II of the Dodd-Frank Act. Additionally, the FDIC has 

been developing a strategic approach, referred to as the 

“Single Point of Entry (SPOE)”, to carry out those orderly 

liquidation authorities. During 2013, the FDIC reviewed 

the characteristics of each domestic company and studied 

previous financial downturns to determine the systemic 

effects and channels of contagion, and consulted with 

external practitioners and experts on key resolution 

components and options. The FDIC discussed the SPOE 

concept at outreach events with other domestic government 

agencies, the Systemic Resolution Advisory Committee, 

industry groups, the academic community, and international 

financial regulators. In December 2013, the FDIC approved 

publication of a notice in the Federal Register that provides 

greater detail on the SPOE strategy and discusses the 

key issues that will be faced in the resolution of a SIFI.4

 

Comments are expected in early 2014, and the FDIC will 

consider those comments as resolution strategies continue 

to be developed. 

Cross-border Efforts

Advance planning and cross-border coordination for 

the resolution of globally active SIFIs will be essential 

to minimizing disruptions to global financial markets. 

Recognizing that global SIFIs create complex international 

legal and operational concerns, the FDIC continues to 

reach out to foreign regulators to establish frameworks for 

effective cross-border cooperation. 

As part of the bilateral efforts, the FDIC and the Bank of 

England, in conjunction with the prudential regulators 

in our respective jurisdictions, have been developing 

contingency plans for the failure of a global SIFI that 

has operations in the U.S. and the U.K. Of the 28 G-SIFIs 

designated by the Financial Stability Board (FSB) of the 

G-20 countries, four are headquartered in the U.K., and 

another eight are headquartered in the U.S. Moreover, 

approximately 70 percent of the reported foreign activities 

of the eight U.S. G-SIFIs emanates from the U.K. The 

FDIC and U.K. authorities released a joint paper on 

resolution strategies in December 2012, reflecting the 

close working relationship between the two authorities. 

This joint paper focuses on the application of “top-down” 

resolution strategies for a U.S. or a U.K. financial group 

in a cross-border context and addresses several common 

considerations to these resolution strategies. In December 

2013, the FDIC and the Bank of England, including the 

Prudential Regulation Authority, in conjunction with the 

Federal Reserve Board and the Federal Reserve Bank of 

New York, held a staff-level tabletop exercise exploring 

cross-border issues and potential mitigating actions that 

could be taken by regulators in the event of a resolution. 

The FDIC also is coordinating with representatives from 

European authorities to discuss issues of mutual interest, 

including the resolution of European global SIFIs and 

ways in which we can harmonize receivership actions. 

The FDIC and the European Commission (E.C.) have 

established a joint Working Group composed of senior 

executives from the FDIC and the E.C. to focus on both 

resolution and deposit insurance issues. The agreement 

establishing the Working Group provides for meetings twice 

a year with other interim interchanges and the exchange of 

detailees. In 2013, the Working Group convened formally 

twice, and there has been ongoing collaboration at the 

staff level, including discussions of the FDIC’s experience 

with resolutions, the SPOE strategy, the E.C.’s proposed 

European Union (E.U.)-wide Credit Institution and 

Investment Firm Recovery and Resolution Directive, the 

E.C.’s proposed amendment to harmonize further deposit 

guarantee schemes E.U.-wide, and the E.C.’s proposal for a 

Single Resolution Mechanism that would apply to Euro-area 

Member States, as well as any others that would opt-in. The 

FDIC and the E.C. also have exchanged staff members for 

short periods to enhance staff experience with respective 

resolution authorities. In 2014, at the request of the E.C., 

the FDIC is planning to conduct a training seminar on 

resolutions for E.C. staff.

The FDIC continues to foster its relationships with 

other jurisdictions that regulate global SIFIs, including 

4 Notice entitled, “Resolution of Systemically Important Financial Institutions: The Single Point of Entry Strategy,” 78 Federal

Register 76614 (December 18, 2013).
ANNUAL REPORT 2013

18 MANAGEMENT’S DISCUSSION AND ANALYSIS

Switzerland, Germany, and Japan. In 2013, the FDIC had 

significant principal and staff-level engagements with these 

countries to discuss cross-border issues and potential 

impediments that would affect the resolution of a global 

SIFI. This work will continue in 2014 with plans to host 

tabletop exercises with staff from these authorities. The 

development of joint resolution strategy papers, similar 

to the one with the U.K., as well as possible exchanges of 

detailees, has also been discussed. 

In a significant demonstration of cross-border cooperation 

on resolution issues, the FDIC signed a November 2013 

joint letter with the Bank of England, the Swiss Financial 

Market Supervisory Authority, and the German Federal 

Financial Supervisory Authority, to the International Swaps 

and Derivatives Association, Inc. (ISDA). This letter 

encouraged ISDA to develop provisions in derivatives 

contracts that would provide for the short-term suspension 

of early termination rights and other remedies in the event 

of a G-SIFI resolution. The adoption of such changes would 

allow derivatives contracts to remain in effect throughout 

the resolution process following the implementation of a 

number of potential resolution strategies. International 

coordination and outreach and efforts to address 

impediments to an orderly resolution of a global SIFI are 

expected to continue. 

Systemic Resolution Advisory Committee

In 2011, the FDIC Board approved the creation of the 

Systemic Resolution Advisory Committee. The Committee 

provides important advice to the FDIC regarding systemic 

resolutions. The Committee advises the FDIC on a variety 

of issues including:

♦ The effects on financial stability and economic conditions 

resulting from the failure of a SIFI.

♦ The ways in which specific resolution strategies would 

affect stakeholders and their customers. 

♦ The tools available to the FDIC to wind down the 

operations of a failed organization.

♦ The tools needed to assist in cross-border relations with 

foreign regulators and governments when a systemic 

company has international operations. 

Members of the Committee have a wide range of experience 

including managing complex firms; administering 

bankruptcies; and working in the legal system, accounting 

field, and academia. A meeting of the Systemic Resolution 

Advisory Committee was held on December 11, 2013. The 

Committee discussed, among other topics, the bankruptcy 

process for large financial companies, the FDIC’s SPOE 

strategy, and international coordination in financial 

company resolutions.

Honored guest Paul Tucker from the Bank of England, seated to the right of Chairman Gruenberg, with several 

members of the Systemic Resolution Advisory Committee and FDIC Board: (seated, from left) William Donaldson, 

Vice Chairman Hoenig, Paul Volcker, Chairman Gruenberg, Paul Tucker, and Director Norton; (standing, from 

left) Simon Johnson, Michael Bradfield, Richard Herring, Anat Admati, John Koskinen, Donald Kohn, Douglas 

Peterson, and David Wright.
MANAGEMENT’S DISCUSSION AND ANALYSIS 19

Coordinating Interagency Resolution Planning

In 2013, the FDIC continued to promote interagency 

information-sharing and cooperative resolution planning by 

holding quarterly meetings with the other federal regulatory 

agencies. The FDIC also conducted eight interagency 

outreach meetings with the financial market utilities 

(FMUs) that were designated by the FSOC.

Financial Stability Oversight Council 

The FSOC was created by the Dodd-Frank Act in July 2010 

to promote the financial stability of the United States. It is 

composed of ten voting members, including the Chairperson 

of the FDIC, and five non-voting members. 

The FSOC’s responsibilities include the following:

♦ Identifying risks to financial stability, responding to 

emerging threats in the system, and promoting market 

discipline.

♦ Designating a nonbank financial company for supervision 

by the FRB subject to heightened prudential standards.

♦ Designating FMUs and payment, clearing, or settlement 

activities that are, or are likely to become, systemically 

important.

♦ Facilitating regulatory coordination and informationsharing regarding policy development, rulemaking, 

supervisory information, and reporting requirements.

♦ Monitoring domestic and international financial 

regulatory proposals and advising Congress and making 

recommendations to enhance the integrity, efficiency, 

competiveness, and stability of U.S. financial markets. 

♦ Producing annual reports describing, among other things, 

the Council’s activities and potential emerging threats to 

financial stability.

During 2013, the FSOC designated three nonbank financial 

companies for FRB supervision, including enhanced 

prudential standards. Also during 2013, the FSOC issued its 

third annual report. Generally, at each of its meetings, the 

FSOC discusses various risk issues and, in 2013, the FSOC 

meetings addressed U.S. fiscal issues, an asset management 

study prepared by the Office of Financial Research, cyber 

security, market volatility, market and trading disruptions, 

money market mutual fund reforms, and fixed income 

valuations, among other topics.

SUPERVISION AND 

CONSUMER PROTECTION

Supervision and consumer protection are cornerstones 

of the FDIC’s efforts to ensure the stability of, and public 

confidence in, the nation’s financial system. The FDIC’s 

supervision program promotes the safety and soundness 

of FDIC-supervised IDIs, protects consumers’ rights, and 

promotes community investment initiatives. 

Examination Program 

The FDIC’s strong bank examination program is the core 

of its supervisory program. As of December 31, 2013, the 

FDIC was the primary federal regulator for 4,316 FDICinsured, state-chartered institutions that were not members 

of the Federal Reserve System (generally referred to as 

“state nonmember” institutions). Through risk management 

(safety and soundness), consumer compliance and the 

Community Reinvestment Act (CRA), and other specialty 

examinations, the FDIC assesses an institution’s operating 

condition, management practices and policies, and 

compliance with applicable laws and regulations. The FDIC 

also educates bankers and consumers on matters of interest 

and addresses consumer questions and concerns.

As of December 31, 2013, the FDIC conducted 2,284 

statutorily required risk management examinations, 

including a review of Bank Secrecy Act (BSA) compliance, 

and all required follow-up examinations for FDICsupervised problem institutions, within prescribed time 

frames. The FDIC also conducted 1,986 statutorily required 

CRA/compliance examinations (1,585 joint CRA/compliance 

examinations, 396 compliance-only examinations, and 5 

CRA-only examinations) and 5,057 specialty examinations. 

As of December 31, 2013, all CRA/compliance examinations 

were conducted within the time frame established by policy. 

The following table compares the number of examinations, 

by type, conducted from 2011 through 2013. 
ANNUAL REPORT 2013

20 MANAGEMENT’S DISCUSSION AND ANALYSIS

Risk Management

As of December 31, 2013, there were 467 insured 

institutions with total assets of $152.7 billion designated 

as problem institutions for safety and soundness purposes 

(defined as those institutions having a composite CAMELS5

rating of “4” or “5”), compared to the 651 problem 

institutions with total assets of $232.7 billion on December 

31, 2012. This constituted a 28 percent decline in the 

number of problem institutions and a 34 percent decrease 

in problem institution assets. In 2013, 238 institutions with 

aggregate assets of $78.7 billion were removed from the 

list of problem financial institutions, while 54 institutions 

with aggregate assets of $13.9 billion were added to the list. 

First National Bank, located in Edinburg, Texas, was the 

largest failure in 2013, with $3.1 billion in assets. The FDIC 

is the primary federal regulator for 306 of the 467 problem 

institutions, with total assets of $93.2 billion. 

During 2013, the FDIC issued the following formal and 

informal corrective actions to address safety and soundness 

concerns: 51 Consent Orders and 207 Memoranda of 

Understanding (MOUs). Of these actions, 22 Consent 

Orders and 27 MOUs were issued, based in whole or in part, 

on apparent violations of the BSA.

Compliance

As of December 31, 2013, 66 insured state nonmember 

institutions, about 2 percent of all supervised institutions, 

with total assets of $64 billion, were problem institutions for 

compliance, CRA, or both. All existing problem institutions 

for compliance were rated “4” for compliance purposes. 

For CRA purposes, the majority are rated “Needs to 

Improve,” and four are rated “Substantial Noncompliance.” 

As of December 31, 2013, all follow-up examinations for 

problem institutions were performed on schedule.

5 The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the 

quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to market risk, and ranges from “1” (strongest) to “5” 

(weakest).

FDIC EXAMINATIONS 2011 – 2013

2013 2012 2011

Risk Management (Safety and Soundness): 

State Nonmember Banks 2,077 2,310 2,477

Savings Banks 203 249 227

Savings Associations 0 1 3

National Banks 0 1 1

State Member Banks 4 2 4

Subtotal–Risk Management Examinations 2,284 2,563 2,712

CRA/Compliance Examinations:

Compliance/Community Reinvestment Act 1,585 1,044 825

Compliance-only 396 611 921

CRA-only 5 10 11

Subtotal–CRA/Compliance Examinations 1,986 1,665 1,757

Specialty Examinations:

Trust Departments 406 446 466

Information Technology and Operations 2,323 2,642 2,802

Bank Secrecy Act 2,328 2,585 2,734

Subtotal–Specialty Examinations 5,057 5,673 6,002

Total 9,327 9,901 10,471
MANAGEMENT’S DISCUSSION AND ANALYSIS 21

Overall, banks demonstrated strong consumer compliance 

programs. The most significant consumer protection issue 

that emerged from the 2013 compliance examinations 

involved banks’ failure to adequately monitor third-party 

vendors. For example, we found violations involving unfair 

or deceptive acts or practices relating to issues such as 

failure to disclose material information about new products 

being offered, deceptive marketing and sales practices, and 

misrepresentations about the costs of products. As a result, 

the FDIC issued consumer restitution and civil money 

penalty actions.

During 2013, the FDIC issued the following formal and 

informal corrective actions to address compliance 

concerns: 19 Consent Orders and 55 MOUs. In certain 

cases, the Consent Orders issued by the FDIC contain 

requirements for institutions to pay restitution in the form 

of refunds to consumers for different violations of laws. 

During 2013, over $45 million was refunded to consumers 

by institutions subject to Consent Orders. These refunds 

primarily related to unfair or deceptive practices by 

institutions, as discussed above. Additionally, in 2013, the 

FDIC issued 54 Civil Money Penalties (CMPs) relating to 

consumer compliance.

Bank Secrecy Act/Anti-Money Laundering 

The FDIC pursued a number of BSA, Anti-Money 

Laundering (AML), and Counter-Terrorist Financing (CTF) 

initiatives in 2013. 

The FDIC held a symposium for approximately one-third 

of the agency’s 300 BSA/AML subject matter experts. 

Training topics covered electronic payments, suspicious 

activity monitoring, third-party payment processor 

relationships, foreign correspondent banking, money 

service businesses, and other higher-risk topics. In 

addition, a teleconference was held to discuss activity 

observed by the Office of Foreign Assets Control related to 

foreign correspondent transactions.

The FDIC conducted an International AML and CTF training 

session in November 2013, in the Dominican Republic, 

for members of the Association of Supervisors of Banks 

of the Americas (ASBA). The training focused on AML/

CTF controls, the AML examination process, customer due 

diligence, and suspicious activity monitoring, as well as 

AML compliance issues related to higher risk institutions, 

products, services, customers, and geographical locations.

Information Technology, Cyber Fraud, 

and Financial Crimes 

To address the specialized nature of technology-related 

supervision, cyber risks, and controls in the banking 

industry, the FDIC routinely conducts information 

technology (IT) examinations at FDIC-supervised 

institutions. The FDIC and other banking agencies also 

conduct IT examinations of major technology service 

providers (TSPs) that support financial institutions. 

The result of an IT examination is a rating under the 

Federal Financial Institutions Examination Council 

(FFIEC) Uniform Rating System for Information 

Technology (URSIT).

In 2013, the FDIC conducted 2,323 IT and operations risk 

examinations at financial institutions and TSPs. Further, as 

part of its ongoing supervision process, the FDIC monitors 

significant events, such as data breaches and natural 

disasters that may affect financial institution operations 

or customers.

In addition to the FDIC’s operations and technology 

examination program, the FDIC monitors cybersecurity 

issues in the banking industry on a regular basis through 

on-site examinations, regulatory reports, and intelligence 

reports. The FDIC works with groups such as the Financial 

and Banking Information Infrastructure Committee (FBIIC), 

the Financial Services Sector Coordinating Council for 

Critical Infrastructure Protection and Homeland Security 

(FSSCC), the Financial Services Information Sharing and 

Analysis Center (FS-ISAC), other regulatory agencies, law 

enforcement and others to share information regarding 

emerging issues and coordinate responses.

Throughout 2013, FDIC staff participated in workshops, 

sponsored by the National Institute of Standards and 

Technology (NIST), to develop the Cybersecurity 

Framework required by Executive Order 13636. The goal of 

the workshops was to create the initial body of standards, 

guidelines, best practices, tools, and procedures that will 

be used to populate the first draft of the Cybersecurity 
ANNUAL REPORT 2013

22 MANAGEMENT’S DISCUSSION AND ANALYSIS

Framework. Also, the FDIC has actively engaged through 

the FBIIC to participate in interagency discussions 

associated with various elements of the Executive Order.

Other major accomplishments during 2013 to promote IT 

security and combat cyber fraud and other financial crimes 

included the following:

♦ Held a Financial Crimes Conference for staff that 

focused on all types of financial fraud, and how the law 

enforcement community and regulators can effectively 

respond. The conference was co-sponsored by the U.S. 

Department of Justice and held in June 2013.

♦ Coordinated a nationwide video conference about 

distributed denial of service (DDoS) attacks with the FBI, 

financial regulatory agencies, large financial institutions, 

U.S. Treasury Department, and representatives from the 

largest technology service providers. There were over 

300 participants in 35 field offices.

♦ Published a Consumer News article about using 

technology to manage personal finances in the Spring 

2013 edition.

♦ Published a Supervisory Insights article on “The 

Evolution of Bank Information Technology Examinations” 

in the Summer 2013 edition.

♦ Hosted the FFIEC IT Examiners Conference that 

addressed technology and operational issues facing the 

federal financial regulatory agencies.

♦ Assisted financial institutions in identifying and shutting 

down “phishing” Websites that attempt to fraudulently 

obtain and use an individual’s confidential personal or 

financial information. 

♦ Issued a Consumer Alert pertaining to emails fraudulently 

claiming to be from the FDIC.

Minority Depository Institution Activities

The preservation of minority depository institutions (MDIs) 

remains a high priority for the FDIC. In June 2013, the 

FDIC hosted the 2013 Interagency Minority Depository 

Institution and Community Development Financial 

Institution Bank Conference. Every two years, the FDIC, 

the Office of the Comptroller of the Currency (OCC), and 

the FRB host this important interagency conference for 

FDIC-insured MDIs to help preserve and promote their 

mission. The 2013 conference explored “Strategies for 

Success through Collaboration,” and encouraged interactive 

discussion among those who believe MDIs and Community 

Development Financial Institutions (CDFI) are uniquely 

positioned to create positive change in their communities. 

Nearly 120 MDI and CDFI bankers, representing 77 banks, 

attended.

In December 2012, the FDIC initiated a research-based 

study on MDIs. The study, conducted in earnest in 2013, 

sought to better understand the role MDIs play in our 

financial system and in our communities. It also addressed 

the types of challenges MDIs face in the post-crisis 

environment. The study followed a methodology similar 

to that used in the FDIC’s 2012 Community Banking Study, 

dividing institutions into groups of “community banks” 

and “non-community banks.” The study focused on 

structural changes in MDIs; their geography; the financial 

performance of MDIs over time; capital formation; and the 

broader community impact of these institutions. The FDIC 

anticipates that the study will be published in early 2014.

The FDIC continued to seek ways to improve 

communication and interaction with MDIs and to respond 

to the concerns of minority bankers. Many MDIs took 

advantage of FDIC technical assistance on nearly 60 bank 

supervision, compliance, and resolution and receivership 

topics, including, but not limited to, the following:

♦ Corporate Governance.

♦ New Capital Rules.

♦ Capital Stress Testing.

♦ New Mortgage Rules.

♦ Loan Underwriting and Administration.

♦ Troubled Debt Restructuring.

♦ Investment Policy and Investment Securities Monitoring.

♦ Funds Management.

♦ Interest Rate Risk Modeling/Stress Testing.

♦ Third-Party Risk.

♦ Internal Audit Programs.

♦ Information Technology Risk Assessment, Strategic 

Planning and Business Continuity Planning.
MANAGEMENT’S DISCUSSION AND ANALYSIS 23

♦ Home Mortgage Disclosure Act.

♦ Community Reinvestment Act.

♦ Bank Secrecy Act and Anti-Money Laundering.

♦ Branch Opening and Closing Requirements.

♦ Mergers/Acquisition.

♦ Prompt Corrective Action.

♦ FDIC Loss Share Agreements.

The FDIC continued to offer the benefit of having an 

examiner or a member of regional office management 

return to FDIC-supervised MDIs from 90 to 120 days 

after an examination, to provide technical assistance to 

management regarding examination recommendations, 

or to discuss other issues of interest. Several MDIs took 

advantage of this initiative in 2013. Also, the FDIC regional 

offices held outreach training efforts and educational 

programs for MDIs through conference calls and banker 

roundtables. Topics of discussion for these sessions 

included both compliance and risk management matters. 

Additional discussions included the economy, overall 

banking conditions, Basel III capital rules, new mortgage 

rules, and other bank examination issues.

Capital Rulemaking and Guidance

In July 2013, the FDIC acted on two important regulatory 

capital rulemakings. First, the FDIC joined the FRB 

and OCC in issuing rulemakings that significantly revise 

and strengthen risk-based capital regulations through 

implementation of the Basel III international accord 

(Basel III rulemaking). Second, these agencies also issued 

an NPR that would strengthen leverage capital requirements 

for the eight largest U.S. bank holding companies and their 

insured banks.

Basel III Rulemaking

The Basel III rulemaking adopts with revisions the notices 

of proposed rulemaking (NPRs) that the banking agencies 

proposed in June 2012 regarding the Basel Committee on 

Banking Supervision capital framework, the standardized 

approach for risk-weighted assets, and the advanced 

approaches for risk-based capital. The rule strengthens 

the definition of regulatory capital, increases risk-based 

capital requirements, and makes selected changes to 

the calculation of risk-weighted assets. It introduces a 

capital conservation buffer that, if breached, would trigger 

limitations on a bank’s capital distributions and certain 

other discretionary payments. The rule also incorporates 

standards of creditworthiness other than external credit 

ratings, consistent with the Dodd-Frank Act, and establishes 

due diligence requirements for securitization exposures. 

Banking organizations subject to the advanced 

approaches risk-based capital rule also must meet a 

3 percent supplementary leverage ratio requirement and 

a countercyclical capital buffer. Additionally, several 

enhancements to the advanced approaches risk-based 

capital rule are included in the rule to incorporate aspects 

of Basel III, as well as requirements introduced by the Basel 

Committee on Banking Supervision in the “Enhancements 

to the Basel II Framework” (2009 Enhancements).

The rule significantly changes aspects of the NPRs 

to address a number of community bank comments. 

Specifically, unlike the NPR, the rule retains the current 

risk-weighting approach for residential mortgages. It allows 

for an opt-out from the regulatory capital recognition of 

accumulated other comprehensive income (AOCI), except 

for large banking organizations that are subject to the 

advanced approaches capital requirements. Finally, the 

FRB has adopted the grandfathering provisions of Section 

171 of the Dodd-Frank Act for trust preferred securities 

issued by smaller bank holding companies.

The rule becomes effective January 1, 2015, for banking 

organizations not subject to the advanced approaches 

risk-based capital rule. For banking organizations that are 

subject to the advanced approaches capital requirements, 

the effective date is January 1, 2014. For all banking 

organizations, the interim final rule includes a phase-in 

period for certain aspects of the rule including the new 

capital ratios and adjustments to and deductions from 

regulatory capital.

Enhanced Supplementary Leverage Ratio Standards 

for Certain Bank Holding Companies and their 

Subsidiary Insured Depository Institutions

In July 2013, the federal banking agencies issued an NPR 

that would raise the supplementary leverage requirements 

for the largest, most systemically important banking 

organizations and their subsidiary insured depository 
ANNUAL REPORT 2013

24 MANAGEMENT’S DISCUSSION AND ANALYSIS

institutions (IDIs). The new requirements would apply to 

the largest, most interconnected banking organizations 

with at least $700 billion in total consolidated assets at the 

top-tier bank holding company or at least $10 trillion in 

assets under custody [covered Bank Holding Companies 

(BHCs)] and any IDI subsidiary of these bank holding 

companies (covered IDIs). For covered IDIs, the proposed 

rule would establish a supplementary leverage ratio of 

6 percent as a “well-capitalized” threshold for prompt 

corrective action. For covered BHCs, the proposed rule 

establishes a capital conservation buffer composed of 

tier 1 capital of 2 percent of total leverage exposure; 

therefore, these BHCs would need to maintain a 

supplementary leverage ratio of 5 percent to avoid 

restrictions on capital distributions.

The Enhanced Supplementary Leverage Ratio NPR was 

published in the Federal Register on August 20, 2013, and 

the comment period ended October 21, 2013. The FDIC is 

reviewing public comments and is working with the other 

federal banking agencies to develop a final rule.

Regulatory Reporting Under the Interim 

Final Capital Rule

In August 2013, the FDIC and the other federal banking 

agencies issued for comment the first stage of proposed 

revisions to the Consolidated Reports of Condition and 

Income (Call Report), which would align the regulatory 

capital components and ratios portion of the regulatory 

capital schedule with the Basel III revised regulatory 

capital definitions. The agencies also proposed to make 

similar changes to the Federal Financial Institutions 

Examination Council - FFIEC 101 regulatory capital report 

for advanced approaches institutions and to revise nine 

risk-weighted assets schedules in this report consistent 

with the revised advanced approaches regulatory capital 

rules. These proposed regulatory capital reporting changes 

would take effect as of the March 31, 2014, report date 

for advanced approaches banking organizations. The 

Call Report revisions would be applicable to all other 

institutions as of March 31, 2015. The second stage of Call 

Report revisions would update the risk-weighted assets 

portion of the regulatory capital schedule to reflect the 

standardized approach to risk weighting in the Basel III final 

rules effective as of the March 31, 2015, report date. The 

risk-weighted assets reporting proposal is expected to be 

published for comment in 2014. 

Stress Testing Guidance 

In July 2013, the FDIC, along with the other federal banking 

agencies, issued guidance that outlines high-level principles 

for implementation of Section 165(i) (2) of the Dodd-Frank 

Act stress tests for companies with $10 billion to $50 billion 

in consolidated assets.

The guidance discusses supervisory expectations for the 

Dodd-Frank Act stress test practices and offers additional 

details about methodologies that should be employed by 

these companies. It also underscores the importance of 

stress testing as an ongoing risk management practice that 

supports a company’s forward-looking assessment of its 

risks and better equips the company to address a range of 

macroeconomic and financial outcomes.

The comment period on this joint proposed guidance ended 

on September 25, 2013, and the final guidance is being 

developed.

Other Rulemaking and Guidance under the 

Dodd-Frank Act

The Dodd-Frank Act required various agencies to establish 

goals for the completion of rules and/or policy guidance 

on several topics. Although these goals were not included 

in the FDIC’s 2013 Annual Performance Plan, rules 

and guidance on these various topics were finalized or 

progressed in 2013. These topics include:

♦ Proprietary trading and other investment restrictions 

(often referred to as the “Volcker Rule”).

♦ Credit risk retention requirements for securitizations.

♦ Appraisal requirements for higher-priced mortgages.

♦ Examination standards for the classification and appraisal 

of securities.

♦ Capital, margin, and other requirements for over-thecounter (OTC) derivatives.

♦ Mortgage rules.
MANAGEMENT’S DISCUSSION AND ANALYSIS 25

Volcker Rule

On December 10, 2013, the FDIC, along with the other 

federal banking agencies, the Commodities Futures Trading 

Commission (CFTC), and the Securities and Exchange 

Commission (SEC), approved a joint final rule to implement 

the provisions of Section 619 of the Dodd-Frank Act, also 

known as the “Volcker Rule.” The Volcker Rule, which 

added new Section 13 to the BHC Act, generally prohibits 

any banking entity from engaging in proprietary trading or 

acquiring or retaining an interest in, sponsoring, or having 

certain relationships with, a hedge fund or private equity 

fund, subject to certain exemptions.

Based on comments received after issuance of the final rule, 

the agencies issued a joint interim final rule with request for 

comment on January 14, 2014, to permit banking entities to 

retain interests in and sponsorship of certain collateralized 

debt obligations backed primarily by trust preferred 

securities issued by community banks. Under the final 

rule, these investments would have met the definition of 

“covered funds” and would have been subject to investment 

prohibitions. The agencies also released a non-exclusive list 

of qualified collateralized debt obligations backed primarily 

by trust preferred securities to help banks determine 

compliance with the new interim final rule.

The final rule becomes effective April 1, 2014; the interim 

final rule would take effect on the same date. The FRB 

extended the conformance period until July 21, 2015. In 

the final rule, the agencies tailored the compliance program 

for banking entities engaged in covered activities based on 

asset size and amounts in trading assets and liabilities, and 

provided a phase-in of reporting of quantitative measures 

for covered trading activities. Beginning June 30, 2014, 

banking entities with $50 billion or more in consolidated 

trading assets and liabilities will be required to report 

quantitative measurements. Banking entities with at 

least $25 billion, but less than $50 billion, in consolidated 

trading assets and liabilities will become subject to this 

requirement on April 30, 2016. Those banking entities with 

at least $10 billion, but less than $25 billion, in consolidated 

trading assets and liabilities will become subject to the 

requirement on December 31, 2016. The agencies will 

review the data collected prior to September 30, 2015, and 

revise the collection requirement as appropriate. For ease 

of reference, the FDIC maintains a page on its Website 

dedicated to information on the Volcker Rule.

Credit Risk Retention for Securitizations

In August 2013, the FDIC, jointly with the OCC, the FRB, 

the Department of Housing and Urban Development (HUD), 

the SEC, and the Federal Housing Finance Agency (FHFA), 

approved an NPR to implement the securitization credit risk 

retention provisions of Section 941 of the Dodd-Frank Act 

(Section 941), which added Section 15G to the Securities 

and Exchange Act of 1934. This was the second NPR to 

implement that provision. Section 15G generally requires 

securitizers of asset-backed securities (ABS) to retain not 

less than 5 percent of the credit risk of assets collateralizing 

ABS issuances and generally prohibits a securitizer from 

directly or indirectly hedging or otherwise transferring the 

credit risk the securitizer is required to retain. Similar to 

the prior NPR, the current NPR provides the sponsors of 

ABSs with various options for meeting the risk retention 

requirements. As required by the Dodd-Frank Act, the 

proposed rule defines a “qualified residential mortgage” 

(QRM), that is, a mortgage which is statutorily exempt 

from risk retention requirements. The NPR would align 

the definition of QRM with the definition of “qualified 

mortgage” (QM) as prescribed by the Consumer Financial 

Protection Bureau (CFPB) in 2013 and asked for comment 

on an alternative definition. In addition, the proposed rule 

would: provide an exemption for securitizations solely 

collateralized by commercial mortgages, commercial real 

estate loans, or automobile loans, if such loans meet certain 

underwriting standards; and provide various securitization 

structure-specific risk retention options. The public 

comment period ended on October 30, 2013, and comments 

are under review. 

Appraisal Requirements for Higher-Priced Mortgages

In January 2013, the FDIC, jointly with the OCC, FRB, 

National Credit Union Administration (NCUA), FHFA, and 

CFPB, issued the final rule that establishes new appraisal 

requirements for higher-priced mortgage loans. Under the 

Dodd-Frank Act, mortgage loans are higher-priced if they 

are secured by a consumer’s home and have interest rates 

above certain thresholds. The final rule became effective on 

January 18, 2014.
ANNUAL REPORT 2013

26 MANAGEMENT’S DISCUSSION AND ANALYSIS

In July 2013, the FDIC, along with the OCC, FRB, NCUA, 

FHFA, and CFPB, issued a proposed rule that would create 

exemptions from certain appraisal requirements for a 

subset of higher-priced mortgage loans. The comment 

period ended on September 9, 2013. The rule was finalized 

in December 2013 and is effective January 18, 2014. 

The final rule provides that the following three types of 

higher-priced mortgage loans would be exempt from the 

Dodd-Frank Act appraisal requirements: loans of $25,000 

or less; certain “streamlined” refinancings; and certain loans 

secured by manufactured housing.

Uniform Agreement on the Classification 

and Appraisal of Securities Held by 

Financial Institutions

In October 2013, the FDIC issued interagency guidance 

with the OCC and the FRB that revised examination 

standards for the adverse classification of securities held 

in bank investment portfolios. The guidance reiterates 

the importance of a robust investment analysis process 

and the agencies’ longstanding asset classification 

definitions. It also addresses Section 939A of the 

Dodd-Frank Act, which directed the agencies to remove 

any reference to, or requirement of reliance on, credit 

ratings in regulations and replace them with appropriate 

standards of creditworthiness. State nonmember 

institutions are expected to perform an investment 

security creditworthiness assessment that does not rely 

solely on external credit ratings. FDIC examiners will use 

the statement to determine whether an asset should be 

adversely classified during supervisory reviews.

Over-The-Counter Derivatives

The U.S. regulators, including the FDIC, in their capacity as 

members of the Basel Committee on Banking Supervision, 

negotiated with international regulators to develop 

international standards that will be used to implement the 

margin requirements for uncleared OTC derivatives. The 

international convergence document was published in 

early September 2013, and U.S. rulemaking activities 

are continuing.

Mortgage Rules

In January 2013, the CFPB issued, after required 

consultation with the FDIC and the other financial 

regulatory agencies, a number of final rules to implement 

various provisions of the Mortgage Reform and AntiPredatory Lending Act, i.e., Title XIV of the Dodd-Frank 

Act. Key areas of the new rules include: (1) determining 

a consumer’s ability to repay and the qualified mortgage 

safe harbor; (2) loan originator compensation; (3) mortgage 

loan servicing; (4) new escrow requirements; (5) new 

requirements and expanded coverage under the Home 

Ownership and Equity Protection Act (HOEPA); (6) new 

requirements under the Equal Credit Opportunity Act 

(ECOA); and (7) implementing Regulation B. In addition, 

the CFPB issued or proposed several supplemental rules 

during 2013 to clarify certain aspects of many of the rules. 

To ensure examiner preparedness and to assist FDICsupervised institutions in their compliance planning for this 

significant overhaul of mortgage regulation, throughout 

2013, the FDIC worked extensively to develop and issue 

training materials for its examiners in advance of January 

2014, when the rules generally were effective. The FDIC 

also hosted a series of banker outreach calls, providing 

overviews of the new rules and answering questions, in 

collaboration with the CFPB.

On December 13, 2013, the FDIC, along with the OCC, 

FRB, and NCUA, issued a statement to clarify safetyand-soundness expectations and CRA considerations for 

regulated institutions engaged in residential mortgage 

lending in light of the CFPB’s Ability-to-Repay and Qualified 

Mortgage (QM) Standards Rule, which was issued January 

10, 2013, and was effective on January 10, 2014. The 

agencies recognize that many institutions may originate 

both QM and non-QM residential mortgage loans, based on 

the institution’s business strategy and risk appetite. The 

agencies will not subject a residential mortgage loan to 

regulatory criticism based solely on the loan’s status as a 

QM or a non-QM.

Liquidity and Funds Management 

Rulemaking and Guidance

Liquidity Coverage Ratio

In October 2013, the FDIC, together with the OCC and the 

FRB, issued an interagency proposed rule to implement 

the Liquidity Coverage Ratio (LCR). The proposed rule 

would implement a quantitative liquidity requirement 

consistent with the LCR established by the Basel Committee 
MANAGEMENT’S DISCUSSION AND ANALYSIS 27

on Banking Supervision. The requirement would apply to 

large, internationally active banking organizations and their 

consolidated subsidiary depository institutions with $10 

billion or more in total consolidated assets. The proposal 

requires banks to hold a minimum level of liquid assets to 

support contingent liquidity events and provides a standard 

way of expressing a bank’s on-balance sheet liquidity 

position to stakeholders and supervisors. The proposal 

establishes a transition schedule that is more accelerated 

than the Basel standard as it would require covered 

companies to fully meet the minimum LCR by January 1, 

2017, two years earlier than Basel requires.

The LCR proposal was published in the Federal Register

on November 29, 2013, and comments were due by 

January 31, 2014.

Depositor and Consumer Protection 

Rulemaking and Guidance

Guidance on Social Media

In December 2013, the FFIEC, on behalf of its members 

(the FDIC, CFPB, FRB, NCUA, OCC, and State Liaison 

Committee), issued final supervisory guidance on the 

applicability of consumer protection and compliance laws, 

regulations, and policies to activities conducted via social 

media by banks, savings associations, and credit unions, 

as well as nonbank entities supervised by the CFPB and 

state regulators. The final guidance is intended to help 

financial institutions understand and manage the potential 

consumer compliance, legal, reputation, and operational 

risks associated with the use of social media. It provides 

considerations that financial institutions may find useful in 

conducting risk assessments and crafting and evaluating 

policies and procedures regarding social media. 

Revisions to Interagency Questions and Answers 

Regarding Community Reinvestment

In November 2013, the FDIC, FRB, and OCC published 

revisions to “Interagency Questions and Answers Regarding 

Community Reinvestment.” The Questions and Answers 

document provides additional guidance to financial 

institutions and the public on the agencies’ CRA regulations. 

The revisions focus primarily on community development.

Guidance on Reporting Financial Abuse 

of Older Adults

In September 2013, the FDIC, CFPB, CFTC, Federal Trade 

Commission (FTC), NCUA, OCC, and SEC issued guidance 

to clarify that the privacy provisions of the Gramm-LeachBliley Act generally permit financial institutions to report 

suspected elder financial abuse to appropriate authorities. 

The Act generally requires that a financial institution 

notify consumers and give them an opportunity to opt out 

before providing nonpublic personal information to a third 

party. The guidance clarifies that it is generally acceptable 

under the law for financial institutions to report suspected 

elder financial abuse to appropriate local, state, or federal 

agencies.

Other Rulemaking and Guidance Issued

During 2013, the FDIC issued and participated in the 

issuance of other rulemaking and guidance in several areas 

as described below.

Guidance on Deposit Advance Products

In November 2013, the FDIC published supervisory 

guidance to FDIC-supervised financial institutions that offer 

or may consider offering deposit advance products. The 

guidance is intended to ensure that banks are aware of a 

variety of safety and soundness, compliance, and consumer 

protection risks posed by deposit advance loans. It 

supplements the FDIC’s existing guidance on payday loans 

and subprime lending, and encourages banks to respond to 

customers’ small-dollar credit needs.

FDIC Supervisory Approach to Payment Processing 

Relationships with Merchant Customers That Engage 

in Higher-Risk Activities

In September 2013, the FDIC issued guidance clarifying 

its policy and supervisory approach related to facilitating 

payment processing services directly, or indirectly 

through a third party, for merchant customers engaged 

in higher-risk activities. Facilitating payment processing 

for these types of merchant customers can pose risks to 

financial institutions; however, those that properly manage 

these relationships and risks are neither prohibited nor 

discouraged from providing payment processing services to 

customers operating in compliance with applicable law. 
ANNUAL REPORT 2013

28 MANAGEMENT’S DISCUSSION AND ANALYSIS

Modifications to the Statement of Policy for 

Section 19 of the Federal Deposit Insurance Act

On February 8, 2013, the FDIC modified the Statement 

of Policy for Section 19 of the Federal Deposit Insurance 

Act. Section 19 of the Act prohibits, without prior written 

consent of the FDIC, a person convicted of a criminal 

offense involving dishonesty, breach of trust, money 

laundering, or who has entered into a pretrial diversion 

program, from participating in the affairs of an FDICinsured institution. The updated Statement of Policy 

included modifications to the de minimis exceptions 

regarding the potential fine and the number of days of 

imprisonment. These modifications to the de minimis 

criteria are expected to reduce the number of Section 19 

applications and regulatory burden, consistent with safety 

and soundness.

Recordkeeping and Confirmation Requirements for 

Securities Transactions

On September 4, 2013, the FDIC published an NPR 

regarding the removal of Part 390, Subpart K (formerly OTS 

Part 551), which governs recordkeeping and confirmation 

requirements for securities transactions effected for 

customers by state savings associations. The FDIC carefully 

reviewed Part 390, Subpart K, and compared it with Part 

344, a substantially identical FDIC regulation governing 

recordkeeping and confirmation requirements for securities 

transactions effected for customers by state nonmember 

banks. Although the two rules are substantively the same, 

one difference between Part 390, Subpart K and Part 344 

concerned the number of securities transactions that 

could be effected by an IDI without triggering certain 

reporting and confirmation requirements (Small Transaction 

Exception). The threshold for Part 390, Subpart K’s Small 

Transaction Exception is an average of 500 or fewer 

transactions over the prior three calendar year period. The 

NPR proposed amending Part 344 to increase the threshold 

for the Small Transaction Exception applicable to all FDICsupervised institutions effecting securities transactions 

for customers from an average of 200 transactions to 500 

transactions per calendar year over the prior three calendar 

year period. The FDIC supports the idea that increasing 

the number of securities transactions to which the Small 

Transaction Exception would apply will ensure parity for 

all FDIC-supervised institutions. Increasing the threshold 

for the Small Transaction Exception also recognizes that 

the securities activities of FDIC-supervised depository 

institutions have increased over the three decades since 

the FDIC established the original scope of the Small 

Transaction Exception. The comment period for the NPR 

ended on November 4, 2013, with no comments having been 

received. Consequently, on December 10, 2013, the FDIC 

issued a final rule as proposed in the NPR without change; 

the Final Rule was effective January 21, 2014.

Guidance on Interest Rate Risk Management

In October 2013, the FDIC issued a Financial Institution 

Letter (FIL) reiterating expectations for institutions 

to prudently manage their interest rate risk exposure, 

particularly in a challenging interest rate environment. 

The guidance reminds institutions that interest rate risk 

management should be viewed as an ongoing process 

that requires effective measurement and monitoring, 

clear communication of modeling results, conformance 

with policy limits, and appropriate steps to mitigate risk. 

The guidance states that a number of institutions report 

a significantly liability-sensitive balance sheet position, 

which means that in a rising interest rate environment, the 

potential exists for adverse effects to net income and, in 

turn, earnings performance. Additionally, for a number 

of FDIC-supervised institutions, the potential exists for 

material securities depreciation relative to capital in a rising 

interest rate environment.

Advisory on Mandatory Clearing Requirements for 

Over-the-Counter Interest Rate and Credit Default 

Swap Contracts

On June 7, 2013, the FDIC completed a supervisory 

advisory on mandatory clearing requirements for over-thecounter interest rate and credit default swap contracts. 

This guidance was issued as an advisory because the 

requirements are Commodity Futures Trading Commission 

regulations that could impact FDIC-supervised institutions.

Qualified and Non-Qualified Mortgage Loans

On December 13, 2013, the FDIC, along with the OCC, 

FRB, and NCUA, issued a statement to clarify safetyand-soundness expectations and CRA considerations for 

regulated institutions engaged in residential mortgage 

lending in light of the CFPB’s Ability-to-Repay and Qualified 
MANAGEMENT’S DISCUSSION AND ANALYSIS 29

Mortgage (QM) Standards Rule, which was issued January 

10, 2013, and was effective on January 10, 2014. The 

agencies recognize that many institutions may originate 

both QM and non-QM residential mortgage loans, based on 

the institution’s business strategy and risk appetite. The 

agencies will not subject a residential mortgage loan to 

regulatory criticism based solely on the loan’s status as a 

QM or a non-QM.

Interagency Guidance on Leveraged Lending

On March 26, 2012, the FDIC and the other federal banking 

agencies proposed revisions to the 2001 interagency 

guidance on leveraged financing. The proposal’s purpose 

was to update the existing guidance and clarify regulatory 

expectations in light of significant growth in the leveraged 

lending market, and incorporate lessons learned from the 

recent financial crisis. The proposal describes expectations 

for the sound risk management of leveraged lending 

activities, including well-defined underwriting standards, 

effective management information systems, a prudent credit 

limit and concentration framework, and strong pipeline 

management policies. In March 2013, the OCC, the FRB, 

and the FDIC issued final guidance on leveraged lending. 

This guidance outlined for agency-supervised institutions 

high-level principles related to safe-and-sound leveraged 

lending activities, including expectations for the content of 

credit policies, the need for well-defined underwriting and 

valuation standards, and the importance of credit analytics 

and pipeline management. This guidance was effective on 

March 22, 2013.

Director and Officer Liability Insurance Policies

On October 12, 2013, the FDIC issued an Advisory 

Statement on Director and Officer Liability Insurance 

Policies, Exclusions, and Indemnification for Civil 

Money Penalties. The advisory discusses the importance 

of thoroughly reviewing and understanding the risks 

associated with coverage exclusions contained in director 

and officer liability insurance policies and serves as 

a reminder that an insured depository institution or 

depository institution holding company may not purchase 

an insurance policy that would indemnify institutionaffiliated parties (IAPs) for CMPs assessed against 

them. Even if the IAP agrees to reimburse the depository 

institution for the cost of such coverage, the purchase of the 

insurance policy by the depository institution is prohibited.

Interagency Supervisory Guidance on 

Troubled Debt Restructurings

On October 24, 2013, the FDIC and the other federal 

financial institution regulatory agencies jointly issued 

supervisory guidance clarifying certain issues related to 

the accounting treatment and regulatory classification 

of commercial and residential real estate loans that have 

undergone troubled debt restructurings (TDRs). The 

agencies’ guidance reiterates key aspects of previously 

issued guidance and discusses the definition of a collateraldependent loan and the classification and charge-off 

treatment for impaired loans, including TDRs. It also 

encourages institutions to work constructively with 

borrowers and reaffirms that the agencies view prudent 

loan modifications as positive actions when they mitigate 

credit risk. The guidance explains that when modified 

loans are determined to be TDRs for accounting purposes, 

the TDR label does not mean that the loan is automatically 

required to be in nonaccrual status, or to be adversely 

classified, for its remaining life.

Income Tax Allocation in a Holding 

Company Structure

In December 2013, the FDIC and the other federal banking 

agencies issued for comment a proposed Addendum to 

the 1998 Interagency Policy Statement on Income Tax 

Allocation in a Holding Company Structure. Since the 

beginning of the financial crisis, many disputes have 

occurred between holding companies in bankruptcy and 

failed IDIs regarding the ownership of tax refunds generated 

by the IDIs. Certain court decisions have found that holding 

companies in bankruptcy own tax refunds created by failed 

IDIs based on language in their tax-sharing agreements 

that the courts interpreted as creating a debtor-creditor 

relationship as opposed to acknowledging an agency 

relationship. The proposed Addendum seeks to remedy this 

problem by requiring IDIs to clarify that their tax sharing 

agreements acknowledge that an agency relationship exists 

between the holding company and its subsidiary IDI with 

respect to tax refunds, and provides a sample paragraph to 

accomplish this goal. The proposed Addendum would also 
ANNUAL REPORT 2013

30 MANAGEMENT’S DISCUSSION AND ANALYSIS

clarify how certain requirements of Sections 23A and 23B of 

the Federal Reserve Act apply to tax allocation agreements 

between IDIs and their affiliates. The comment period 

closed on January 21, 2014.

Regulatory Relief

During 2013, the FDIC issued six FILs that provide guidance 

to help financial institutions and facilitate recovery in areas 

damaged by wildfires and other natural disasters. In these 

FILs, the FDIC encouraged banks to work constructively 

with borrowers experiencing financial difficulties as a result 

of natural disasters, and clarified that prudent extensions 

or modifications of loan terms in such circumstances can 

contribute to the health of communities and serve the 

long-term interests of lending institutions. 

On February 19, 2013, FDIC-supervised institutions were 

informed that they could begin submitting interagency 

bank merger applications, notices of change in control, and 

notices of change of director or senior executive officer 

through FDICconnect, a secure transaction-based Website 

for FDIC-insured institutions.

On July 25, 2013, the FDIC issued, jointly with the other 

federal banking agencies, a Statement to Encourage 

Financial Institutions to Work with Student Loan 

Borrowers Experiencing Financial Difficulties. In 

addition, on October 9, 2013, the FDIC along with 

other federal regulatory agencies issued a Statement to 

Encourage Institutions to Work with Borrowers Affected 

by Government Shutdown.

Banker Teleconferences

In 2013, the FDIC hosted a series of banker teleconferences 

to maintain open lines of communication and update 

supervised institutions about related rulemakings, guidance, 

and emerging issues in risk management supervision, and 

compliance and consumer protection. Participants of the 

teleconferences included bank directors, officers, staff, and 

other banking industry professionals.

For the risk management supervision series, four 

teleconferences were held in 2013. The topics discussed 

included: (1) the Financial Accounting Standards Board’s 

proposal to change the accounting for credit losses, (2) 

leveraged lending guidance, (3) the interim final capital rule, 

and (4) emerging technology issues for banks and servicers.

For the compliance and consumer protection series, five 

teleconferences were held in 2013. The topics discussed 

included: (1) the CFPB’s final rules on the ability to repay, 

qualified mortgage standards, escrow requirements, and 

the loan originator compensation requirements involving 

the prohibition on mandatory arbitration clauses and 

single premium credit insurance, (2) the CFPB’s final 

rules on mortgage servicing, (3) the CFPB’s final rules on 

loan originator compensation and changes to the HOEPA, 

( 4) consumer complaints and their role in institutions’ 

compliance management systems; and 5) the FFIEC social 

media guidance.

Promoting Economic Inclusion

The FDIC is strongly committed to promoting consumer 

access to a broad array of banking products to meet 

consumer financial needs. To promote financial access 

to responsible and sustainable products offered by IDIs, 

the FDIC:

♦ Conducts research on the unbanked and underbanked.

♦ Engages in research and development on models of 

products meeting the needs of lower-income consumers.

♦ Supports partnerships to promote consumer access and 

use of banking services.

♦ Advances financial education and literacy.

♦ Facilitates partnerships to support community and small 

business development.

Advisory Committee on Economic Inclusion 

The Advisory Committee on Economic Inclusion (ComE-IN) 

provides the FDIC with advice and recommendations 

on important initiatives focused on expanding access to 

banking services to underserved populations. This may 

include reviewing basic retail financial services such as 

check cashing, money orders, remittances, stored value 

cards, small-dollar loans, savings accounts, and other 

services that promote individual asset accumulation and 

financial stability. During 2013, the Committee met in May 

and October to discuss savings initiatives; Safe Accounts, 

including bank prepaid cards, and mobile financial 

services. During the October meeting, staff presented to 

the Committee a plan for producing a white paper on IDIs’ 

use of mobile financial services (MFS) to better serve the 
MANAGEMENT’S DISCUSSION AND ANALYSIS 31

unbanked and underbanked. The presentation outlined 

three goals for the use of this technology: access to the 

banking system for the unbanked, sustainability for the 

underbanked or new entrants to the system, and growth 

of consumers’ ability to deepen banking relationships and 

fulfill financial goals.

FDIC National Survey of Unbanked and 

Underbanked Households and Survey of Banks’ 

Efforts to Serve the Unbanked and Underbanked

As part of its ongoing commitment to expanding economic 

inclusion in the United States, the FDIC works to fill the 

research and data gap regarding household participation 

in mainstream banking and the use of nonbank financial 

services. In addition, Section 7 of the Federal Deposit 

Insurance Reform Conforming Amendments Act of 2005 

(Reform Act) mandates that the FDIC regularly report 

on banks’ efforts to bring individuals and families into 

the conventional finance system. In response, the FDIC 

regularly conducts and reports on surveys of households 

and banks to inform the efforts of financial institutions, 

policymakers, regulators, researchers, academics, 

and others.

During 2013, the FDIC revised the household survey 

instrument and conducted the third nationwide survey 

in partnership with the U.S. Census Bureau. The survey 

focuses on basic checking and savings account ownership, 

but it also explores households’ use of alternative financial 

services to better understand the extent to which families 

are meeting their financial needs outside of mainstream 

financial institutions. Results of the survey will be 

published in 2014.

The FDIC’s planned initiation of work on a new survey 

of banks about their efforts to serve unbanked and 

underbanked customers was delayed until 2014. During 

2013, the FDIC explored alternative methods for gathering 

this information from banks, including the possible 

incorporation of this data collection into a larger survey of 

banks on the challenges and opportunities they are facing 

(an outgrowth of the FDIC’s Community Banking Initiative).

Partnership to Promote Consumer Access: 

Alliance for Economic Inclusion 

The goal of the FDIC’s Alliance for Economic Inclusion 

(AEI) initiative is to collaborate with financial institutions; 

community organizations; local, state, and federal agencies; 

and other partners in select markets, to launch broad-based 

coalitions to bring unbanked and underbanked consumers 

and owners of small businesses into the financial 

mainstream.

During 2013, the FDIC supported 16 AEI programs across 

the nation. Many AEIs formed committees and work groups 

to address specific challenges and financial services needs 

of their communities. These included retail financial series 

for underserved populations, savings initiatives, affordable 

remittance products, small-dollar loan programs, targeted 

financial education programs, and other asset-building 

programs.

In 2012, the FDIC launched AEI initiatives in two additional 

markets: the Appalachian region of West Virginia and 

Northeastern Oklahoma. In 2013, these new efforts 

expanded focus in two particular areas of need: small 

business and tribal organizations. The West Virginia AEI, 

working in collaboration with the Appalachian Regional 

Commission, collaborates with state-wide and local service 

providers to support financial access for small business and 

Chairman Gruenberg emphasizes a point during the 

May 2013 ComE-IN meeting.
ANNUAL REPORT 2013

32 MANAGEMENT’S DISCUSSION AND ANALYSIS

microenterprise in the state. The AEI partners hosted three 

Small Business Resource Summits in Wheeling, Huntington, 

and Fairmont to provide resources and educational 

opportunities to the small business community. The 

Northeast Oklahoma AEI (NEOK AEI) serves a significant 

Native American community as well as the City of Tulsa, 

Oklahoma. Oklahoma has a larger Native American 

population than any state other than California, and about 

60 percent of the state’s Native Americans lives in the 

northeastern quadrant. In 2013, the NEOK AEI initiated 

work to support consumers interested in improving their 

credit profile and worked with America Saves in supporting 

the first Oklahoma Saves campaign.

The FDIC also provided program guidance and technical 

assistance in the expansion of 52 Bank On programs. 

Bank On initiatives are designed to reduce barriers to 

banking and increase access to the financial mainstream. 

Advancing Financial Education 

The FDIC expanded its financial education efforts during 

2013 through a strategy that included providing access to 

timely and high-quality financial education products, 

sharing best practices, and working through partnerships 

to reach consumers.

The existing suite of Money Smart products for consumers 

was enhanced with the release of Money Smart for Older 

Adults in partnership with the CFPB. This stand-alone 

training module developed by both agencies provides 

information to raise awareness among older adults (age 62 

and older) and their caregivers on how to prevent, identify, 

and respond to elder financial exploitation, plan for a secure 

financial future, and make informed financial decisions. 

The instructor-led module offers practical information that 

can be implemented immediately. Money Smart for Older 

Adults is designed to be delivered by representatives of 

A group of dedicated individuals within both the FDIC and the CFPB joined forces to deliver a new product 

designed to help older Americans make informed financial decisions and avoid exploitation. Members of the 

FDIC team, shown here from left, are Cassandra Duhaney, Debra Stabile, Irma Matias, Lekeshia Frasure, Luke 

Reynolds, Ron Jauregui, James Williams, Evelyn Manley, and Glenn Gimble. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 33

financial institutions, adult protective service agencies, 

senior advocacy organizations, law enforcement, and 

others that serve this population. Between its release on 

June 12, 2013, and December 31, 2013, more than 15,000 

copies were released.

Through training and technical assistance, the FDIC 

emphasizes the importance of pairing education with access 

to appropriate banking products and services. The FDIC 

conducted more than 173 outreach events to promote 

the Money Smart program, including 68 train-the-trainer 

workshops with approximately 1,200 participants. More 

than 35,000 Money Smart instructor-led curriculum copies 

were distributed, and more than 50,000 people used the 

computer-based curriculum, exemplifying effective results 

from the outreach sessions. The FDIC also entered into 

23 new collaborative agreements with financial institutions 

and nonprofit organizations, to facilitate the use of the 

Money Smart program. 

A series of webinars for bankers on community 

development and economic inclusion topics were piloted 

during 2013. Five webinars were conducted during 2013 

and each averaged more than 400 participants.

Leading Community Development

In 2013, the FDIC provided professional guidance and 

technical assistance to banks and community organizations 

in outreach activities and events designed to foster 

an understanding and connection between financial 

institutions and other community stakeholders. As 

such, the FDIC conducted 49 community development 

forums linking bank and community partners to facilitate 

opportunities for banks and community stakeholders 

to address community credit and development needs, 

including interagency resource forums with the OCC and 

the Federal Reserve Banks and other stakeholders in the 

recovery efforts of communities in the Northeast impacted 

by Superstorm Sandy. The FDIC also conducted 50 CRA 

roundtables that provided market-specific training for 

bankers and 32 workshops for nonprofit stakeholders on 

CRA, effectively engaging with financial institutions to 

promote community development.

Community Banking Initiatives

The FDIC is the lead federal regulator for the majority 

of community banks, and the insurer of all. As such, the 

FDIC has an ongoing responsibility to better understand 

the challenges facing community banks, and to share 

that knowledge with bankers and the general public. 

Community banks play a crucial role in the American 

financial system. These institutions account for about 14 

percent of the banking assets in our nation, but they provide 

nearly 46 percent of all the small loans that FDIC-insured 

depository institutions make to businesses and farms. 

They also hold the majority of industry deposits in banking 

offices located in rural counties and micropolitan counties 

with populations up to 50,000.

In 2012, the FDIC issued a comprehensive study of the 

evolution of community banking in the United States 

over the past 25 years, and commenced a review of 

its examination, rulemaking, and guidance processes 

with a goal of identifying ways to make the supervisory 

process more efficient, consistent, and transparent. Our 

2012 activities under this initiative included a national 

conference on the Future of Community Banking and a 

series of roundtables with community bankers in each of 

the FDIC’s six regions.

These efforts under the Community Banking Initiative 

continued on a number of fronts in 2013. First, the results 

of the 2012 FDIC Community Banking Study were 

presented to a range of industry and academic audiences, 

furthering our dialogue with key stakeholder groups as to 

the trends that are shaping this key sector of our financial 

system. Using our research definition of the community 

bank, we published updated community bank reference 

data on fdic.gov to reflect year-end 2012 data. Employing 

these data, our researchers found that community banks 

experienced a significant decline in problem loans, loan loss 

provisions, and failures during 2012, while they expanded 

their loan portfolios and were more profitable than in any 

year since 2007.

FDIC researchers applied the analytical framework 

developed for our Community Banking Study to the case of 

MDIs. While MDIs represent a fairly small share of banking 

industry charters and assets, they were found to be highly 
ANNUAL REPORT 2013

34 MANAGEMENT’S DISCUSSION AND ANALYSIS

effective in reaching the minority and low- and moderateincome communities that they have been chartered to serve. 

Preliminary research results were presented in June at the 

2013 Interagency Minority Depository Institution and CDFI 

Bank Conference, and a written report is forthcoming.

Ongoing research topics include the effects of rural 

depopulation on community banks and the contribution of 

community banks to small business lending. In October 

2013, FDIC researchers presented a paper entitled “Do 

Community Banks Increase New Firms’ Access to Credit?” 

at the “Community Banking in the 21st Century,” conference 

co-sponsored by the FRB and the Conference of State Bank 

Supervisors (CSBS). These and other research initiatives 

will continue in 2014.

The FDIC also has continued and enhanced its examination 

and rulemaking review. Based on feedback received 

at community banker roundtables and our ongoing 

review of the FDIC’s bank examination process, the 

FDIC implemented enhancements to our supervisory 

and rulemaking processes in 2013. The FDIC developed 

a Web-based tool to tailor information requests for risk 

management examinations to the characteristics of the 

institution being examined. As a result, information 

requests have generally been shorter than previous 

examination request lists. In addition, more business 

transactions have been made available through 

FDICconnect, a secure, transactions-based Website, which 

ensures better access for bankers and supervisory staff.

The FDIC also has enhanced its efforts to actively 

communicate with the institutions it supervises. The 

FDIC developed an information package to be sent to the 

institution prior to the start of the pre-examination phase of 

compliance examinations to improve communication with 

the field manager and to offer resources that are available 

to the institution at any time throughout the examination 

process. The FDIC has also developed a brochure for 

community bankers entitled “Technical Assistance for 

Managing Consumer Compliance Responsibilities,” 

highlighting ways in which examiners can provide 

assistance to community banks.

The Directors’ Resource Center, a special section of the 

FDIC’s Website, is dedicated to providing useful information 

to bank directors, officers, and employees on areas of 

supervisory focus and regulatory changes. One key element 

of this resource center is a Technical Assistance Video 

Program. Three series of videos were released during 2013. 

The first series is the new director education videos; these 

videos cover director responsibilities and fiduciary duties 

as well as the FDIC examination process. The second 

series is a virtual version of the FDIC’s Directors’ College 

Program; these videos address interest rate risk, third-party 

risk, the CRA, the BSA, corporate governance, and 

information technology. The third series of videos provides 

more in-depth technical training on a variety of issues, 

including interest rate risk, appraisals and evaluations, 

flood insurance, the evaluation of municipal securities, 

fair lending, the allowance for loan and lease losses, and 

troubled debt restructurings.

FDIC staff look at video monitors of the set during 

filming of the bank director videos. From left: 

Lou Bervid, Rob Moss, Vince Moore, and 

Arnie Kunkler.
MANAGEMENT’S DISCUSSION AND ANALYSIS 35

The FDIC’s Website also has a section dedicated to the 

Regulatory Capital Interim Final Rule. This section 

contains links to the rule, pertinent FILs, instructions 

for regulatory reporting, and other items. The FDIC 

conducted comprehensive outreach to community banks 

to inform them about the new requirements. Several 

resources targeted to community institutions include an 

educational video, an interagency community bank guide, 

and an expanded guide for FDIC- supervised institutions. 

The FDIC also responds to questions submitted to 

regulatorycapital@fdic.gov, a dedicated mailbox for 

questions on the new rule. Additionally, to supplement 

the online informational resources, staff hosted outreach 

sessions in each regional office to discuss the new 

requirements and address bankers’ questions and concerns. 

On August 15, 2013, staff held a national conference call 

that had wide participation from bankers as well as FDIC 

supervisory and examination team members, with nearly 

1,700 lines used for the call. In November 2013, the FDIC, 

with the other federal banking agencies, released an 

estimation tool to help community bankers evaluate the 

potential effects on their capital ratios from the revised 

capital approaches.

In addition, the FDIC’s Advisory Committee on Community 

Banking continued to provide timely information and input 

to the FDIC on a variety of community bank policy and 

operational issues throughout 2013. The Committee held 

three meetings in 2013 and provided input on a number of 

key issues and initiatives, including the FDIC’s community 

bank study and report, community bank outreach and 

technical assistance, proposed improvements to the FDIC’s 

regulatory and supervisory processes, mobile banking 

issues, payment system developments and implications, 

information technology examination issues, vendor 

management issues, troubled debt restructuring guidance, 

the Uniform Agreement on Classification and Appraisal of 

Securities, bank cybersecurity issues, the Money Smart

for Small Businesses Program, flood insurance issues, the 

interagency social media guidance, as well as the potential 

effects of various regulatory and legislative developments 

on community banks.

Looking forward, the FDIC will continue to make 

community bank issues a high priority by following up 

on the Community Banking Study; pursuing additional 

research relating to the continued viability of community 

banks; and continuing our review of examination and 

rulemaking processes with the goal of identifying additional 

ways to make the supervisory process more efficient, 

consistent, and transparent, consistent with safe and sound 

banking practices. The FDIC will also be commencing a 

comprehensive review of all of its regulations, as required 

by the Economic Growth and Regulatory Paperwork 

Reduction Act, to identify any regulations that are outdated, 

unnecessary or unduly burdensome, with a focus on 

community banking issues.

Consumer Complaints and Inquiries

The FDIC assists consumers by receiving, investigating, and 

responding to consumer complaints about FDIC-supervised 

institutions and answering inquiries about banking laws 

and regulations, FDIC operations, and other related topics. 

In addition, the FDIC provides analytical reports and 

information on complaint data for internal and external use 

and conducts outreach activities to educate consumers. 

The FDIC recognizes that consumer complaints and 

inquiries play an important role in the development of 

strong public and supervisory policy. Assessing and 

resolving these matters helps to identify trends or problems 

affecting consumer rights, understand the public perception 

of consumer protection issues, formulate policy that aids 

consumers, and foster confidence in the banking system 

by educating consumers about the protection they receive 

under certain consumer protection laws and regulations.

Consumer Complaints by Product and Issue

The FDIC receives complaints and inquiries by telephone, 

fax, mail, email, and online through the FDIC’s Website. 

Between January 1, 2013, and December 31, 2013, the FDIC 

handled 16,887 written and telephone complaints and 

inquiries. Of this total, 8,271 related to FDIC-supervised 

institutions. The FDIC responded to over 97 percent 

of these complaints within time frames established by 

corporate policy, and acknowledged 100 percent of all 

consumer complaints and inquiries within 14 days. As 

part of the complaint and inquiry handling process, the 

FDIC works collaboratively with the other federal financial 

regulatory agencies to ensure that complaints and inquiries 

are forwarded to the appropriate agencies for response.
ANNUAL REPORT 2013

36 MANAGEMENT’S DISCUSSION AND ANALYSIS

The FDIC carefully analyzes the products and issues 

involved in complaints about FDIC-supervised institutions. 

The number of complaints received about a specific bank 

product and issue can serve as a red flag to prompt further 

review of practices that may raise consumer protection or 

supervisory concerns. 

Between January 1, 2013, and December 31, 2013, the five 

most frequently identified consumer product complaints 

about FDIC-supervised institutions concerned checking 

accounts (18 percent), unsecured credit cards (15 percent), 

residential real estate loans (14 percent), bank operations 

(9 percent), and business and commercial loans (7 

percent). The issues most commonly cited in checking 

account complaints related to banks’ overdraft fees and 

service charges. Unsecured credit card complaints most 

frequently described billing disputes and error resolution. 

The largest share of complaints about residential real estate 

loans related to loan modifications, while business and 

commercial loan complaints usually involved repossession 

and foreclosure. Many complaints regarding bank 

operations raised issues about bank management and staff.

The FDIC investigated 80 complaints alleging discrimination 

between January 1, 2013, and December 31, 2013. The 

number of discrimination complaints investigated has 

fluctuated over the past several years but averaged 

approximately 104 complaints per year between 2007 and 

2013. Over this period, 37 percent of these complaints 

investigated alleged discrimination based on the race, color, 

national origin, or ethnicity of the applicant or borrower. 

Twenty-five percent related to discrimination allegations 

based on age, 8 percent involved the sex of the borrower or 

applicant, and 3 percent concerned a handicap or disability.

Consumer refunds generally involve the financial institution 

offering a voluntary credit to the consumer’s account 

that is often a direct result of complaint investigations 

and identification of a banking error or violation of 

law. Between January 1, 2013, and December 31, 2013, 

consumers received a total of nearly $5.6 million in 

refunds from financial institutions as a result of the FDIC’s 

consumer response program.

Public Awareness of Deposit Insurance Coverage

The FDIC provides a significant amount of education for 

consumers and the banking industry on the rules for deposit 

insurance coverage. An important part of the FDIC’s 

deposit insurance mission is to ensure that bankers and 

consumers have access to accurate information about the 

FDIC’s rules for deposit insurance coverage. The FDIC 

has an extensive deposit insurance education program 

consisting of seminars for bankers, electronic tools for 

estimating deposit insurance coverage, and written and 

electronic information targeted to both bankers and 

consumers. 

The FDIC continued its efforts to educate bankers and 

consumers about the rules and requirements for FDIC 

insurance coverage. As of December 31, 2013, the FDIC 

conducted 15 telephone seminars for bankers on deposit 

insurance coverage, reaching an estimated 28,000 bankers 

participating at approximately 8,000 bank locations 

throughout the country. The FDIC also updated its deposit 

insurance coverage publications and educational tools for 

consumers and bankers, including brochures, resource 

guides, videos, and the Electronic Deposit Insurance 

Estimator (EDIE).

As of December 31, 2013, the FDIC received and answered 

approximately 94,677 telephone deposit insurance-related 

inquiries from consumers and bankers. The FDIC Call 

Center addressed 44,541 of these inquiries, and deposit 

insurance coverage subject-matter experts handled the 

other 50,136. In addition to telephone inquiries about 

deposit insurance coverage, the FDIC received 2,499 written 

inquiries from consumers and bankers. Of these inquiries, 

99 percent received responses within two weeks, as 

required by corporate policy.

Center for Financial Research

The Center for Financial Research (CFR) was founded 

by the FDIC in 2004 to encourage and support innovative 

research on topics that are important to the FDIC’s role as 

deposit insurer and bank supervisor. During 2013, the CFR 

co-sponsored two major research conferences.

The CFR organized and sponsored the 23rd Annual 

Derivatives Securities and Risk Management Conference 

jointly with Cornell University’s Johnson Graduate School 
MANAGEMENT’S DISCUSSION AND ANALYSIS 37

of Management and the University of Houston’s Bauer 

College of Business. The conference was held in March 

2013 at the FDIC’s Seidman Center and attracted over 

100 researchers from around the world. Conference 

presentations included credit default swap markets, term 

structure and credit risk, credit and contagion risk, and 

commodity markets.

The CFR also organized and sponsored the 13th Annual 

Bank Research Conference jointly with the Journal for 

Financial Services Research (JFSR), in October 2013. The 

conference was attended by more than 120 participants and 

included over 20 presentations on topics related to global 

banking, financial stability, and the financial crisis.

RESOLUTIONS AND RECEIVERSHIPS

The FDIC has the unique mission of protecting depositors 

of insured banks and savings associations. No depositor 

has ever experienced a loss on the insured amount of his or 

her deposits in an FDIC-insured institution due to a failure. 

Upon closure of an institution, typically by its chartering 

authority—the state for state-chartered institutions and 

the Office of the Comptroller of the Currency (OCC) for 

national banks and federal savings associations—the FDIC 

is appointed receiver and is responsible for resolving the 

failed institution.

The FDIC uses a variety of business practices to resolve a 

failed institution. These practices are typically associated 

with either the resolution process or the receivership 

process. Depending on the characteristics of the institution, 

the FDIC may recommend several of these methods 

to ensure the prompt and smooth payment of deposit 

insurance to insured depositors, to minimize the impact 

on the DIF, and to speed dividend payments to uninsured 

depositors and other creditors of the failed institution.

The resolution process involves evaluating and marketing a 

failing institution, soliciting and accepting bids for the sale 

of the institution, determining which bid is least costly to 

the DIF, and working with the acquiring institution through 

the closing process.

To minimize disruption to the local community, the 

resolution process must be performed as quickly and 

smoothly as possible. There are three basic resolution 

methods used by the FDIC: purchase and assumption 

transactions, deposit payoffs, and Deposit Insurance 

National Bank (DINB) assumptions.

The purchase and assumption (P&A) transaction is the most 

commonly used resolution method. In a P&A transaction, 

a healthy institution purchases certain assets and assumes 

certain liabilities of the failed institution. A variety of 

P&A transactions can be used. Since each failing bank 

situation is different, P&A transactions provide flexibility 

to structure deals that result in the highest value for the 

failed institution. For each possible P&A transaction, the 

acquirer may either acquire all or only the insured portion 

of the deposits. Loss sharing may be offered by the receiver 

in connection with a P&A transaction. In a loss-share 

transaction, the FDIC as receiver agrees to share losses on 

certain assets with the acquirer. The FDIC usually agrees 

to absorb a significant portion (for example, 80 percent) of 

future losses on assets that have been designated as “shared 

loss assets” for a specific period of time (for example, five 

to ten years). The economic rationale for these transactions 

is that keeping shared loss assets in the banking sector can 

produce a better net recovery than the FDIC’s immediate 

liquidation of these assets.

Deposit payoffs are only executed if a bid for a P&A 

transaction is more costly to the DIF than liquidation 

or if no bids are received, in which case the FDIC, in its 

corporate capacity, makes sure that the customers of 

the failed institution receive the full amount of their 

insured deposits.

The Federal Deposit Insurance Act authorizes the FDIC to 

establish a DINB to assume the insured deposits of a failed 

bank. A DINB is a new national bank with limited life and 

powers that allows failed-bank customers a brief period 

of time to move their deposit account(s) to other insured 

institutions. Though infrequently used, a DINB allows 

for a failed bank to be liquidated in an orderly fashion, 

minimizing disruption to local communities and 

financial markets.

The receivership process involves performing the closing 

functions at the failed institution, liquidating any remaining 

failed institution assets, and distributing any proceeds 

of the liquidation to the FDIC and other creditors of the 

receivership. In its role as receiver, the FDIC has used 

a wide variety of strategies and tools to manage and sell 
ANNUAL REPORT 2013

38 MANAGEMENT’S DISCUSSION AND ANALYSIS

retained assets. These include, but are not limited to, 

asset sale and/or management agreements, structured 

transactions, and securitizations.

Financial Institution Failures

During 2013, there were 24 institution failures, compared to 

51 failures in 2012. For the institutions that failed, the FDIC 

successfully contacted all known qualified and interested 

bidders to market these institutions. The FDIC also made 

insured funds available to all depositors within one business 

day of the failure if it occurred on a Friday, and within two 

business days if the failure occurred on any other day of the 

week. There were no losses on insured deposits, and no 

appropriated funds were required to pay insured deposits.

The following chart provides a comparison of failure 

activity over the last three years. 

FAILURE ACTIVITY 2011–2013

Dollars in Billions

2013 2012 2011

Total Institutions 24 51 92

Total Assets of Failed Institutions1 $6.0 $11.6 $34.9

Total Deposits of Failed Institutions1 $5.1 $11.0 $31.1

Estimated Loss to the DIF2 $1.2 $2.8 $7.6

1 Total assets and total deposits data are based on the last Call Report 

or Thrift Financial Report (TFR) filed by the institution prior to failure.

2 Estimated DIF losses from 2011 and 2012 failures are updated as of 

December 31, 2013.

Asset Management and Sales

As part of its resolution process, the FDIC makes every 

effort to sell as many assets as possible to an assuming 

institution. Assets that are retained by the receivership 

are evaluated. For 95 percent of the failed institutions, at 

least 90 percent of the book value of marketable assets is 

marketed for sale within 90 days of an institution’s failure 

for cash sales and within 120 days for structured sales.

Structured sales for 2013 totaled $199 million in unpaid 

principal balances from commercial real estate and 

acquisition, development, and construction assets acquired 

from various receiverships. Cash sales of assets for the year 

totaled $260 million in book value. In addition to structured 

and cash sales, the FDIC also uses securitizations to dispose 

of bank assets. In 2013, securitization sales totaled 

$954 million.

As a result of our marketing and collection efforts, the book 

value of assets in inventory decreased by $5.7 billion (34 

percent) in 2013. The following chart shows the beginning 

and ending balances of these assets by asset type.

ASSETS IN INVENTORY BY ASSET TYPE

Dollars in Millions

Asset Type 12/31/13 12/31/12

Securities $893 $1,179

Consumer Loans 69 99

Commercial Loans 274 604

Real Estate Mortgages 954 1,265

Other Assets/Judgments 1,145 1,134

Owned Assets 365 417

Net Investments in Subsidiaries 117 179

Structured and Securitized Assets 7,487 12,120

Total $11,304 $16,997

Receivership Management Activities

The FDIC, as receiver, manages failed banks and their 

subsidiaries with the goal of expeditiously winding up 

their affairs. The oversight and prompt termination of 

receiverships help to preserve value for the uninsured 

depositors and other creditors by reducing overhead and 

other holding costs. Once the assets of a failed institution 

have been sold and the final distribution of any proceeds is 

made, the FDIC terminates the receivership. In 2013, the 

number of receiverships under management increased by 

3 percent, as a result of new failures. The following chart 

shows overall receivership activity for the FDIC in 2013.

RECEIVERSHIP ACTIVITY

Active Receiverships as of 12/31/121 466

New Receiverships 24

Receiverships Terminated 10

Active Receiverships as of 12/31/131 480

1 Includes one FSLIC Resolution Fund receivership at year-end 2013.
MANAGEMENT’S DISCUSSION AND ANALYSIS 39

Minority and Women Outreach

The FDIC relies on contractors to help meet its mission. 

During 2013, the FDIC has awarded 995 contracts. Of these, 

282 contracts (28 percent) were awarded to minority- and 

women-owned businesses (MWOBs). The total value of 

contracts awarded in 2013 was $573 million, of which $199 

million (35 percent) was awarded to MWOBs, compared 

to 30 percent for all of 2012. In 2013, the FDIC paid $141 

million of its total contract payments (25 percent) to 

MWOBs. Engagements of minority and women-owned law 

firms (MWOLFs) were 18 percent of all legal engagements 

for 2013, with total payments of $13 million going to 

MWOLFs (13 percent) of all payments to outside counsel, 

compared to 13 percent for all of 2012.

In 2013, the FDIC participated in a combined total of 

25 business expos, one-on-one matchmaking sessions, 

and panel presentations. Dissemination of information 

and responses to inquiries regarding FDIC business 

opportunities for minorities and women took place at these 

sessions. In addition to targeting MWOBs, these efforts 

also targeted veteran-owned and small disadvantaged 

businesses. Vendors were provided with the FDIC’s 

general contracting procedures, prime contractors’ 

contact information, and possible upcoming solicitations. 

Vendors were also encouraged to register with the FDIC’s 

Contractors Resource List (a principal database for vendors 

interested in doing business with the FDIC).

The FDIC participated in trade events where information 

was provided to MWOLFs about opportunities for 

legal representation and how to enter into co-counsel 

arrangements with majority law firms. In addition to 

attending nine bar association conferences during 2013, 

the FDIC presented a training workshop for MWOLFs 

entitled “Anatomy of a Bank Closing” to provide firms 

with ideas for marketing their services to FDIC in-house 

attorneys following the resolution of a financial institution. 

This workshop was presented at events sponsored by the 

National Association of Minority and Women Owned Law 

Firms (NAMWOLF) affinity group. These events were 

well-attended and received with great enthusiasm. The 

FDIC continues to explore new opportunities to partner 

with NAMWOLF.

The FDIC also conducted a series of outreach events 

to raise awareness, and provide information on how to 

purchase Owned Real Estate (ORE) through the FDIC’s 

Owned Assets Marketplace and Auctions program. 

These events also facilitated interaction between smaller 

investors and asset managers, which includes minority 

and women-owned (MWO) firms. These included three 

informational sessions with 95 participants, and several 

workshops/webinars targeting small investors and MWO 

investors in the southeast.

In 2013, the FDIC’s Office of Minority and Women Inclusion 

(OMWI) participated with other Dodd-Frank Act agency 

OMWIs in drafting an interagency policy statement for 

assessing the diversity policies and practices of entities 

regulated by their agencies. The proposed statement 

was posted for comments in the Federal Register on 

October 25, 2013. The comment period was extended 

45 days and ended on February 7, 2014. The FDIC will 

continue efforts in 2014 to fully implement Section 342 

of the Dodd-Frank Act.

In 2014, the FDIC will continue to encourage and foster 

diversity and inclusion of minorities and women in its 

business, procurement activities and outside counsel 

engagements, and MWO investors, as well as promote 

strong commitment to diversity inclusion within its 

workforce and with all financial institutions and law firms 

that do business with the FDIC.

Protecting Insured Depositors 

The FDIC’s ability to attract healthy institutions to assume 

deposits and purchase assets of failed banks and savings 

associations at the time of failure minimizes the disruption 

to customers and allows assets to be returned to the private 

sector immediately. Assets remaining after resolution 

are liquidated by the FDIC in an orderly manner, and the 

proceeds are used to pay creditors, including depositors 

whose accounts exceeded the insurance limit. During 2013, 

the FDIC paid dividends of $7 million to depositors whose 

accounts exceeded the insurance limit.

Professional Liability and Financial Crimes Recoveries

FDIC staff works to identify potential claims against 

directors, officers, fidelity bond insurance carriers, 

appraisers, attorneys, accountants, mortgage loan brokers, 
ANNUAL REPORT 2013

40 MANAGEMENT’S DISCUSSION AND ANALYSIS

title insurance companies, securities underwriters, 

securities issuers, and other professionals who may 

have contributed to the failure of an IDI. Once a claim is 

determined to be meritorious and cost-effective to pursue, 

the FDIC initiates legal action against the appropriate 

parties. During 2013, the FDIC recovered more than $674 

million from professional liability claims and settlements. 

The FDIC also authorized lawsuits related to 42 failed 

institutions against 316 individuals for director and officer 

liability and authorized 10 other lawsuits for fidelity 

bond, liability insurance, attorney malpractice, appraiser 

malpractice, and securities law violations for residential 

mortgage-backed securities. Eighty-three residential 

mortgage malpractice and fraud lawsuits were pending as of 

year-end 2013. Also, by year-end 2013, the FDIC’s caseload 

included 119 professional liability lawsuits (up from 95 at 

year-end 2012) and 796 open investigations (down from 

1,343 at year-end 2012).

In addition, as part of the sentencing process for those 

convicted of criminal wrongdoing against institutions that 

later failed, a court may order a defendant to pay restitution 

or to forfeit funds or property to the receivership. The 

FDIC, working with the U.S. Department of Justice, 

collected $8.4 million from criminal restitution and 

forfeiture orders through year-end 2013. As of year-end 

2013, there were 4,073 active restitution and forfeiture 

orders (down from 4,860 at year-end 2012). This includes 

126 orders held by the FSLIC Resolution Fund orders, 

(i.e., orders arising out of failed financial institutions that 

were in receivership or conservatorship by the Federal 

Savings and Loan Insurance Corporation or the Resolution 

Trust Corporation).

International Outreach 

Throughout 2013, the FDIC played a leading role among 

international standard-setting, regulatory, supervisory, 

and multi-lateral organizations by supporting the global 

development of effective deposit insurance and bank 

supervision systems, maintaining public confidence and 

financial stability, and promoting effective resolution 

regimes as integral components of the financial safety net. 

Among the key institutions the FDIC collaborated with were 

the Association of Supervisors of Banks of the Americas 

(ASBA), the Basel Committee on Banking Supervision 

(BCBS), the European Forum of Deposit Insurers, the 

Financial Stability Board (FSB), the Financial Stability 

Institute (FSI), the International Association of Deposit 

Insurers (IADI), the International Monetary Fund (IMF), 

and the World Bank.

Key to the international collaboration was the ongoing 

dialogue among FDIC Chairman Martin J. Gruenberg, other 

senior FDIC leaders, and a number of policymakers and 

senior financial regulators from the United Kingdom (U.K.) 

about the implementation of the Dodd-Frank Act, Basel III, 

and how changes in U.S., U.K., and European Union (EU) 

financial regulations affect global information sharing, 

crisis management, and recovery and resolution activities. 

In light of the large number of cross-border operations of 

large, complex financial institutions, the primary areas of 

discussion and collaboration were the FDIC’s OLA under 

Title II of the Dodd-Frank Act, and the importance of crossborder coordination in the event a SIFI begins to experience 

financial distress. In addition, FDIC leadership was engaged 

in numerous consultations with EU policymakers on 

creating a Banking Union in Europe to encompass bank 

supervision, resolution, and deposit insurance.

During 2013, the FDIC participated in both Governors 

and Heads of Supervision and BCBS meetings. The 

FDIC supported work streams, task forces, and policy 

development group meetings to participate in BCBS 

work on a variety of topics. The FDIC assisted in several 

quantitative analyses conducted by the BCBS, including 

those with respect to the leverage ratio and liquidity 

standards. Additionally, the FDIC participated in BCBS 

initiatives related to topics including comparability 

and simplicity within the Basel Accord, standards 

implementation, accounting, external audits, review of 

the trading book, capital planning, liquidity standards, and 

credit ratings 

and securitizations. 

International Association of Deposit Insurers (IADI) 

Since its founding in 2002, IADI has grown from 26 founding 

members to 71 deposit insurers from 69 jurisdictions. IADI 

contributes to the security of individual depositors and 

global financial stability and is recognized as the standardsetting body for deposit insurance by all the major public 

international financial institutions, including the FSB, the 
MANAGEMENT’S DISCUSSION AND ANALYSIS 41

Group of 20 (G-20), the BCBS, the IMF, and the World Bank. 

Chairman Gruenberg served as the President of IADI and 

the Chair of its Executive Council from November 2007 

to October 2012. FDIC Vice Chairman Thomas Hoenig 

currently serves on IADI’s Executive Council.

Under the FDIC’s leadership, IADI has made significant 

progress in advancing the 2009 IADI and BCBS Core 

Principles for Effective Deposit Insurance Systems 

(Core Principles). In February 2011, the FSB approved 

the Core Principles and the Core Principles Assessment

Methodology for inclusion in its Compendium of Key 

Standards for Sound Financial Systems. During 2013, an 

IADI Steering Committee led by the FDIC and the Canada 

Deposit Insurance Corporation was established to review 

and update the Core Principles. The Steering Committee 

plans to submit a revised document to the FSB in July 2014. 

To-date, IADI has trained over 250 staff members from 

over 70 jurisdictions in conducting self-assessments for 

compliance with the Core Principles.

The Core Principles are officially recognized by both the 

IMF and World Bank and are now accepted for use in 

their Financial Sector Assessment Program (FSAP). This 

represents an important milestone in the acceptance 

of the role of effective systems of deposit insurance in 

maintaining financial stability. The FDIC has also worked 

with senior officials at the World Bank and IMF, and 

formalized IADI collaboration and support of the deposit 

insurance review portion of the FSAP reviews. This support 

includes the provision of FDIC member-experts for IMF/

World Bank FSAP Review Teams and the on-going training 

of additional IADI experts for subsequent FSAP missions. 

Core Principles regional workshops, training sessions, 

self-assessment reviews and Steering Committee meetings 

were held in Istanbul, Turkey; Manila, Philippines; Basel, 

Switzerland; Warsaw, Poland; Buenos Aires, Argentina; and 

Mumbai, India during 2013. In addition, the FDIC hosted 

the IADI executive training seminar, “Claims Management: 

Reimbursement to Insured Depositors” July 16-18, 2013, 

at the Seidman Center in Arlington, Virginia. Fifty-three 

people from 31 jurisdictions participated in the seminar.

The FDIC continued its global role in supporting the 

development of effective deposit insurance and banking 

supervision systems through the provision of training, 

consultations, and briefings to foreign bank supervisors, 

deposit insurance authorities, international financial 

institutions, partner U.S. agencies, and other governmental 

officials. Many of these consultations were multi-day study 

tours that enabled delegations to receive in-depth advice 

on a wide range of deposit insurance issues. Officials from 

the European Commission, the Ukraine Deposit Guarantee 

Fund, the Malaysian Deposit Insurance Corporation, the 

Philippine Deposit Insurance Corporation, the Bank of 

Thailand, and the Central Bank of Kenya benefited from 

these extended consultations.

Association of Supervisors of Banks of 

the Americas (ASBA) 

The FDIC has been a member of ASBA since its founding 

in 1999 and supports ASBA’s mission of promoting 

sound banking supervision and regulation throughout 

the Western Hemisphere. In recognition of the FDIC’s 

enduring leadership in ASBA, the General Assembly elected 

FDIC Director of Risk Management Supervision Sandra 

Thompson to serve a two-year term as Vice Chairman 

of ASBA in November 2011, a position she held until her 

departure from the FDIC in early 2013. In this capacity, 

Director Thompson presided over meetings of the Training 

and Technical Cooperation Committee, the General 

Assembly, and the ASBA board.

To assist ASBA in promoting capacity- and leadershipbuilding in the Americas, the FDIC currently chairs 

the Association’s Training and Technical Cooperation 

Committee, and led two ASBA technical assistance training 

missions in 2013, including Financial Institution Analysis in 

Panama City, Panama, and Anti-Money Laundering in Santo 

Domingo, Dominican Republic. The FDIC continued to 

provide subject-matter experts as instructors and speakers 

to support ASBA-sponsored training programs, seminars, 

and conferences.

In support of building institutional leadership, the 

FDIC hosted its second Secondment Program in the 

spring of 2013, designed to demonstrate how the FDIC 

has successfully implemented best international bank 

supervisory practices into its Risk Management and 

Supervision programs. Three ASBA members, representing 

bank supervisory agencies from the National Commission 

of Banks and Insurances of Honduras; the Bank of Jamaica; 

and the Superintendent of Banking, Insurance, and Private 
ANNUAL REPORT 2013

42 MANAGEMENT’S DISCUSSION AND ANALYSIS

Pension Funds Administrators of Peru, participated in 

this intensive eight-week study tour at the various policy 

and operational levels within the FDIC at headquarters, a 

regional office, and a field office.

In addition, to promote and influence sound bank 

supervision policy, and the adoption of international best 

practices, the FDIC actively participates in Research 

and Guidance Working Groups sponsored by ASBA, 

including those on Corporate Governance, Enterprise Risk 

Management, and Anti-Money Laundering and Combating 

the Financing of Terrorism.

Foreign Visitors Program 

The FDIC’s international efforts supporting the development 

of effective deposit insurance systems, bank supervisory 

practices, and bank resolution regimes continued to grow in 

2013. FDIC management and staff met with 533 individuals, 

representing over 39 jurisdictions during the year. 

Discussions with European authorities were an important 

focus of the FDIC’s international efforts this year. Senior 

management and subject-matter experts provided advice 

and consultation on a number of major European initiatives, 

including the Single Supervisory mechanism, the proposed 

bank recovery and resolution directive, and the directive on 

deposit guarantee schemes. 

Questions about the FDIC’s expanded authorities under the 

Dodd-Frank Act continued to be a common area of intense 

interest, with particular focus on how the FDIC would 

resolve a SIFI with cross-border operations. Other major 

topics discussed include the FDIC’s management of the DIF, 

offsite monitoring methodologies, and corporate training 

programs.

During 2013, the FDIC provided subject-matter experts to 

participate in seven FSI seminars around the world. The 

topics included resolution planning, liquidity risk, stress 

testing, bank resolution, SIFI resolution, and supervising 

SIFIs. Additionally, 204 individuals representing over 16 

jurisdictions attended training programs offered through the 

FDIC’s Corporate University.

The FDIC made major strides in strengthening its 

relationships with Chinese authorities in 2013. The 5th 

U.S.-China Strategic and Economic Dialogue was held 

in Washington, D.C. in July. U.S. Treasury Secretary 

Jacob Lew and Chinese Vice Premier Wang Qishan led 

the Economic Track discussions. FDIC Chairman Martin 

Gruenberg participated in the meetings alongside a 

high-level delegation of Cabinet members, ministers, agency 

heads, and senior officials from both countries. Chairman 

Gruenberg discussed the importance of a well-developed 

deposit insurance framework and bank resolution regime 

for financial stability. In October 2013, Chairman Gruenberg 

visited China to meet with Chinese officials to discuss 

effective deposit insurance and bank resolution systems, 

and how the FDIC expects to resolve U.S. SIFIs under 

the OLA of the Dodd-Frank Act. While there, Chairman 

Gruenberg signed an MOU with the People’s Bank of China 

(PBOC) designed to extend their effective international 

working relationship in the areas of deposit insurance and 

resolution. The purpose of the MOU is to develop and 

expand the interaction between the FDIC and the PBOC 

and to demonstrate a shared commitment to cooperation 

among banking agencies. The MOU also seeks to enhance 

cooperation in analyzing cross-border financial institution 

recovery and resolution issues, and planning for potential 

recovery and resolution scenarios, including appropriate 

simulations, contingency planning, and other work designed 

to improve preparations to manage troubled institutions 

with operations in the United States and the People’s 

Republic of China. In November 2013, a senior government 

delegation which included representatives from the Chinese 

State Council, visited the FDIC for a series of discussions 

with FDIC management, subject-matter experts, and 

academics about the operations of the FDIC, the benefits of 

an effective deposit insurance system and bank resolution 

regime, and advice on China’s plans to implement a deposit 

insurance system.

Financial Services Volunteer Corps (FSVC) 

The FDIC placed two staff members on long-term 

assignments with the FSVC during 2013 as part of 

a continuing written agreement between the two 

organizations. FDIC personnel provided a variety 

of consulting and training services focused on risk 

management supervision in Angola, Egypt, and Tanzania. 

SME credit analysis, credit risk ratings, corporate 

governance best practices, risk management organization 

and policy, and financial education teaching aids were 

among the projects completed for the benefit of central 
MANAGEMENT’S DISCUSSION AND ANALYSIS 43

banks, training institutes, financial business associations, 

and commercial banking organizations. Over the past 

several years, the FDIC has assisted the FSVC with a wide 

variety of programs and projects funded in large part by 

the U.S. Agency for International Development to help 

strengthen regulatory frameworks and banking systems in 

developing countries. 

EFFECTIVE MANAGEMENT OF 

STRATEGIC RESOURCES

The FDIC recognizes that it must effectively manage 

its human, financial, and technological resources to 

successfully carry out its mission and meet the performance 

goals and targets set forth in its annual performance 

plan. The FDIC must align these strategic resources 

with its mission and goals and deploy them where they 

are most needed to enhance its operational effectiveness 

and minimize potential financial risks to the DIF. Major 

accomplishments in improving the FDIC’s operational 

efficiency and effectiveness during 2013 follow. 

Human Capital Management

The FDIC’s human capital management programs 

are designed to recruit, develop, reward, and retain 

a highly skilled, cross-trained, diverse, and resultsoriented workforce. In 2013, FDIC workforce planning 

initiatives shifted emphasis to restructuring the portion 

of the workforce that will address the requirements of 

Dodd-Frank, especially as it relates to the oversight of SIFIs. 

Workforce planning also more acutely addressed the need 

to start winding down bank closure activities, based on the 

decrease in the number of financial institution failures and 

institutions in at-risk categories.

Strategic Workforce Planning and Readiness

In August 2010, the FDIC established its Office of 

Complex Financial Institutions (OCFI) in response to the 

requirements of the Dodd-Frank Act to supervise and be 

prepared to resolve SIFIs. In 2011 and 2012, the FDIC 

recruited complex financial institution specialists who had 

developed their skills in other public and private sector 

organizations to staff the risk management supervision 

section of the OCFI and redeployed current FDIC 

employees with the requisite skills from other parts of the 

agency. In 2013, the FDIC reorganized these staff from 

the supervision section of OCFI into the Division of Risk 

Management Supervision (RMS), where the vast majority of 

bank supervisory expertise resides. This allows the FDIC 

to integrate all financial institution risk supervision into 

one organization that can deploy and train staff as needed 

for both SIFIs and smaller banks. It also allows OCFI to 

concentrate on policy and rule development as we continue 

to implement Dodd-Frank.

In 2013, the FDIC also addressed workforce planning at 

several levels within the agency. Given the number of 

senior executives in key leadership positions who are, or 

in the next few years will become, eligible to retire from 

the federal government, in 2013 the FDIC embarked on 

a succession planning effort focused on the Division and 

Office Director level. The FDIC is defining the attributes, 

skills, and experience needed in each of these positions, 

drafting a plan for developing these attributes and skills in 

executive managers at the next lower levels, and identifying 

potential candidates at those levels.

In addition, as the number of financial institution failures 

continued to decline in 2013, the FDIC’s workforce planning 

efforts turned to determining the staffing needs of the 

agency during “normal” times and beginning to release 

some of the temporary staff as their term appointments 

expire. Although post-closure activity often continues for 

five to seven years after a bank fails, that activity should 

slow considerably over the next few years. The FDIC is in 

the process of extending term appointments only for the 

most critical staff still needed to monitor and process those 

actions. The FDIC is also filling vacancies for permanent 

staff, principally from among the ranks of these experienced 

term employees.

Finally, in 2013, the FDIC also refined its processes for 

implementing its “Pathways Programs” as a source of 

entry-level employees to maintain a fully-trained staff. 

By utilizing the intern program and the recent graduates 

program, as well as the normal hiring process, the FDIC 

has been able to recruit a well-educated and highly skilled 

workforce that can successfully complete the rigorous 

three- to four-year training program that leads to a 

commission as a bank examiner or resolutions specialist. 

By maintaining a steady pipeline of new examiner trainees, 

the FDIC intends to keep its future workforce in a steady 

state of readiness. 
ANNUAL REPORT 2013

44 MANAGEMENT’S DISCUSSION AND ANALYSIS

The FDIC utilizes the Corporate Employee Program (CEP) 

to sponsor the development of newly hired Financial 

Institution Specialists (FISs) for entry-level positions. 

The Program encompasses major FDIC divisions where 

newly hired FISs are trained to become a highly effective 

workforce. During their first year rotation within the 

Program, FISs gain experience and knowledge in the 

Division of Depositor and Consumer Protection (DCP), 

the Division of Risk Management Supervision (RMS), the 

Division of Resolutions and Receiverships (DRR), and 

the Division of Insurance and Research (DIR). At the 

conclusion of this rotation period, FISs are placed within 

RMS, DCP, or DRR, where they continue their career path 

to become commissioned examiners or resolutions and 

receiverships specialists. 

The Corporate Employee Program is an essential part of 

the FDIC’s ability to provide continual cross-divisional staff 

mobility. As a result, the FDIC is capable of responding 

rapidly to shifting priorities and changes in workload while 

achieving its corporate mission. Since the CEP’s inception 

in 2005, 1,254 individuals have joined the FDIC through 

this multi-discipline program and approximately 540 

have become commissioned examiners after successfully 

completing the program’s requirements.

The FDIC also continues to sponsor the Financial 

Management Scholars Program (FMSP) that was launched 

in May 2011 as an additional hiring source for CEP. 

Participants in the FMSP are summer interns who have 

completed their junior year of college. The level of FMSP 

participants increased significantly in 2012 and 2013. 

This program allows the FDIC to recruit and hire highly 

talented and well-qualified students into the CEP earlier 

than the agency has been able to in the past, and serves as 

an additional venue to recruit talent. For 2014, the FDIC 

will continue to augment its workforce by fully utilizing the 

capacity of the CEP, including the FMSP.

Employee Learning and Development

The FDIC provides its employees with a broad array of 

learning and development opportunities throughout their 

career to grow both in technical proficiency and leadership 

capacity, supporting career progression and succession 

management. In 2013, the FDIC focused on developing and 

implementing comprehensive curricula for its business lines 

to incorporate lessons learned from the financial crisis and 

prepare employees to meet new challenges. Such training, 

which includes both classroom and online instruction 

for maximum flexibility, is a critical part of workforce 

and succession planning as more experienced employees 

become eligible for retirement.

The FDIC also offers a holistic leadership development 

program that combines core courses, electives, and other 

enrichment opportunities to develop employees at all 

levels. From new employees to new managers, the FDIC 

provides employees with targeted leadership development 

opportunities that are aligned with key leadership 

competencies. The FDIC is also expanding the use of 

strategic simulations within its leadership development 

program to support corporate readiness and preparedness.

In addition to extensive internally developed and 

administered courses, the FDIC also offers its employees 

with funds and/or time to participate in external offerings 

in support of their career development. The FDIC offers 

learning and development opportunities in support of the 

FDIC mission for employees at all levels and stages of their 

career. In 2013, FDIC employees completed approximately 

39,000 sessions in the classroom and online, through 

internal and external courses.

Continuity of Operations

In accordance with guidance in Executive Order 12656, 

Assignment of Emergency Preparedness Responsibilities; 

National Security Presidential Directive-51/Homeland 

Security Presidential Directive-20, National Continuity 

Policy; and other pertinent Federal Executive Branch 

continuity guidance, in 2013, the FDIC implemented a new 

Continuity of Operations Plan that addresses two central 

priorities:

♦ Reduce the potential for loss of life and safeguard the 

FDIC workforce.

♦ Minimize and mitigate disruptions to FDIC operations 

to enable continuous performance of essential FDIC 

functions.

The FDIC’s Continuity of Operations Plan meets these 

central priorities by:
MANAGEMENT’S DISCUSSION AND ANALYSIS 45

♦ Ensuring continuity facilities are prepared to carry out 

essential actions.

♦ Facilitating succession to key positions by enunciating 

clear policies and procedures.

♦ Identifying, safeguarding, and ensuring the availability 

of all essential records that support FDIC essential 

functions.

♦ Protecting facilities, equipment, essential records, and 

other assets.

♦ Facilitating a timely and orderly transition from 

emergency operations to ordinary operations and 

resumption of full service to the public.

♦ Ensuring and validating readiness through an effective 

continuity test, training, and exercise program.

As a result of these efforts, the FDIC has the enhanced 

ability to maintain a comprehensive and effective continuity 

capability to support the preservation of our form of 

government under the Constitution and the continuing 

performance of Nation Essential Functions under all 

conditions.

Corporate Risk Management

During 2013, the Office of Corporate Risk Management 

(OCRM) worked with Divisions and Offices to develop 

common agency-wide processes for identifying, managing, 

and mitigating risks to the FDIC. The Office supported 

both the Enterprise Risk Committee and the Executive 

Management Committee in reviewing material risks across 

the FDIC, including:

♦ Risks to the financial system posed by the current 

very low level of interest rates, and from the potential 

disruptions which could arise from sudden and sharp 

increases in rates.

♦ Risks to the deposit insurance system arising from new 

products and services with characteristics very different 

from traditional time and demand deposits.

♦ Risks posed by the analytical models used by both the 

financial services industry and the FDIC in identifying and 

managing risk.

♦ Internal operational risks associated with both large-scale 

IT system development efforts and smaller-scale IT 

applications developed by individual Divisions and 

Offices.

♦ Coordination risks arising from new organizational units 

created to manage the range of new functions assigned to 

the FDIC by the Dodd-Frank Act.

♦ Risks posed to the FDIC and to the financial services 

industry by concerted attempts to penetrate, compromise, 

and disrupt the information systems that are essential to 

effective operation. 

Employee Engagement

The FDIC continually evaluates its human capital programs 

and strategies to ensure that it remains an employer of 

choice and that all of its employees are fully engaged 

and aligned with the mission. The FDIC uses the Federal 

Employee Viewpoint Survey mandated by Congress 

to solicit information from employees and takes an 

agency-wide approach to address key issues identified 

in the survey. In December 2013, the FDIC received an 

award from the Partnership for Public Service for being 

Chairman Martin J. Gruenberg and Arleas Upton Kea, 

Director of the Division of Administration, accepts 

the award from Max Stier, President and CEO of the 

Partnership for Public Service.
ANNUAL REPORT 2013

ranked number one among mid-sized federal agencies on 

the Best Places to Work in the Federal Government® list. 

Effective leadership is the primary factor driving employee 

satisfaction and commitment in the federal workplace, 

according to a report by the Partnership for Public Service.

The FDIC’s Workplace Excellence (WE) Program played 

an important role in helping the FDIC achieve this 

ranking. The WE Program is composed of a nationallevel WE Steering Committee and Division/Office WE 

Councils that are focused on maintaining, enhancing, 

and institutionalizing a positive workplace environment 

throughout the FDIC. In addition to the WE Program, 

the FDIC-NTEU Labor-Management Forum serves as 

a mechanism for the union and employees to have 

pre-decisional input on workplace matters. The WE 

Program and Labor Management Forum enhances 

communication, provides additional opportunities for 

employee input and engagement, and improves employee 

empowerment.

Information Technology Management

The FDIC continues to heavily leverage Information 

Technology (IT) to achieve its mission and has improved 

both the structure of IT leadership and the protection of 

sensitive digital information from cyber threats in 2013. 

IT Leadership Structural Changes

Because the importance of digital information to FDIC 

operations continues to grow, an assessment of IT 

leadership structure was completed, and corresponding 

improvements were implemented. First, the assessment 

concluded that the requirements of the Chief Information 

Officer (CIO) role have grown to require a full-time 

incumbent in addition to a full time incumbent in the role 

of IT division director. The new CIO role, which reports 

directly to the Chairman, was separated from the IT division 

director role and is responsible for strategic alignment of 

IT resources to securely produce objectively measurable 

business value. The IT division director, in turn, reports 

to the CIO and manages IT operations and development. 

Second, the assessment concluded that the information 

security and privacy functions continue to grow in 

importance and warranted separation under the CIO from 

the IT division. Both of these changes will help to elevate 

and integrate IT and information security management 

commensurate with their increasing importance in 

achieving the FDIC’s mission.

Sensitive Digital Information Protection

The FDIC continued to enhance its security posture under 

a new cross-divisional leadership team to combat the 

increased number and sophistication of security threats. 

Several specific projects were completed during the 

year including an independent assessment of the FDIC’s 

IT security, employee training improvements, and the 

introduction of simulation exercises to routinely identify 

potential enhancements to the FDIC security profile.

An independent assessment of the FDIC’s IT security 

was completed and improvements were initiated in 

response to the assessment’s findings. The assessment 

confirmed the overall high quality of the FDIC’s security 

mechanisms but also identified refinements that could be 

efficiently implemented, ranging from improvements to 

access controls to enhancements of incident monitoring 

tools. Several of the recommendations have already been 

implemented and the remainder will be completed in 2014.

The new cross-divisional leadership team has also overseen 

improvements to employee security training during the year. 

Specifically, better monitoring of employee completion of 

general security training was implemented and exercises to 

help employees identify fraudulent emails were increased. 

Also, educational presentations to the leadership team 

were completed throughout the year to raise awareness 

and understanding of types of threats and preventative 

measures, both at the FDIC and at financial institutions.

Simulation exercises contributed significantly to identifying 

areas to improve in current policy and procedure relative 

to varying threat scenarios. For example, in November 

simulations of a successful fraud perpetration on the FDIC 

data center were completed that helped identify needed 

changes to incident response procedures. These changes 

are now being implemented. Additional simulations are 

planned for 2014 and on an ongoing basis to continually 

evaluate the efficacy of FDIC security and privacy 

procedures.

46 MANAGEMENT’S DISCUSSION AND ANALYSIS