SECTION TITLE WILL GO HERE 17

The Year in Review

The year 2010 was relatively challenging for 

the FDIC. In addition to the normal course of 

business, the Corporation continued to resolve 

failed insured depository institutions (IDIs), 

increasing resources as needed. The FDIC also 

started initial steps in the implementation of the 

Dodd-Frank Act, continued its work on highprofile policy issues, and published numerous 

Notices of Proposed Rulemaking (NPRs) 

throughout the year, seeking comment from the 

public. The Corporation also continued to focus 

on a strong supervisory program. The FDIC made 

enhancements to several versions of the Money 

Smart education curriculum. The FDIC also 

sponsored and co-sponsored major conferences 

and participated in local and global outreach 

initiatives.

Highlighted in this section are the Corporation’s 

2010 accomplishments in each of its three 

major business lines—Insurance, Supervision 

and Consumer Protection, and Receivership 

Management—as well as its program 

support areas.

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).

State of the Deposit Insurance Fund

During 2009 and 2010, losses to the DIF were 

high. As of December 31, 2010, both the fund 

balance and the reserve ratio were negative after 

reserving for probable losses for anticipated bank 

failures. For the year, assessment revenue and 

lower-than-anticipated bank failures resulted 

in an increase in the reserve ratio to negative 

0.12 percent as of December 31, 2010, up from 

negative 0.39 percent at the beginning of the year. 

Long-Term Comprehensive Fund 

Management Plan

As a result of the Dodd-Frank Act revisions, 

the FDIC developed a comprehensive, longterm management plan for the DIF designed to 

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion 

and Analysis
18 MANAGEMENT’S DISCUSSION AND ANALYSIS

reduce the pro-cyclicality in the existing system 

and achieve moderate, steady assessment rates 

throughout economic and credit cycles while 

also maintaining a positive fund balance even 

during a banking crisis, by setting an appropriate 

target fund size and a strategy for assessment rates 

and dividends. The FDIC set out the plan in a 

proposed rulemaking adopted in October 2010. 

The plan was finalized in rulemakings adopted in 

December 2010 and February 2011.

New Restoration Plan

Pursuant to the comprehensive plan, in October 

2010, the FDIC adopted a new Restoration 

Plan to ensure that the reserve ratio reaches 1.35 

percent by September 30, 2020. Because of 

lower expected losses over the next five years than 

previously anticipated, and the additional time 

provided by the Dodd-Frank Act to meet the 

minimum (albeit higher) required reserve ratio, 

the new Restoration Plan elected to forego the 

uniform 3 basis point increase in assessment rates 

scheduled to go into effect on January 1, 2011.

Setting the Designated Reserve Ratio

Using historical fund loss and simulated income 

data from 1950 to the present, the FDIC 

undertook an analysis to determine how high the 

reserve ratio would have had to have been 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 

the period. The analysis concluded that a 

moderate, long-term average industry assessment 

rate, combined with an appropriate dividend 

or assessment rate reduction policy, would have 

been sufficient to have prevented the fund from 

becoming negative during the crises, though the 

fund reserve ratio would have had to exceed 2.0 

percent before the onset of the crises.

Therefore, pursuant to provisions in the Federal 

Deposit Insurance Act that require the FDIC 

Board to set the DRR for the DIF annually, the 

FDIC Board proposed in October 2010 to set 

the 2011 Designated Reserve Ratio (DRR) at 

2.0 percent of estimated insured deposits. The 

Board approved a final rule adopting this DRR 

on December 14, 2010. 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. However, the 

FDIC’s analysis shows that a reserve ratio higher 

than 2.0 percent would increase the chance that 

the fund will remain positive during a future 

economic and banking downturn similar to or 

more severe than past crises. Thus, the 2.0 percent 

DRR should not be viewed as a cap on the fund.

Long-Term Assessment Rate Schedules and 

Dividend Policies

Once the reserve ratio reaches 1.15 percent, 

the FDIC believes that assessment rates can be 

reduced to a moderate level. Therefore, pursuant 

to its statutory authority to set assessments, in 

October 2010, the FDIC Board proposed a lower 

assessment rate schedule to take effect when 

the fund reserve ratio exceeds 1.15 percent. To 

increase the probability that the fund reserve 

ratio will reach a level sufficient to withstand a 

future crisis, the FDIC also proposed suspending 

dividends permanently when the fund reserve 

ratio exceeds 1.5 percent. In lieu of dividends, 

the FDIC Board proposed to adopt progressively 

lower assessment rate schedules when the reserve 

ratio exceeds 2.0 percent and 2.5 percent. 

These lower assessment rate schedules will serve 

much the same function as dividends, but will 

provide more stable and predictable effective 

assessment rates. The FDIC finalized these longterm assessment rate and dividend changes in 

February 2011 in concert with the changes to the 

assessment base and large-bank pricing system 

described below. 

Change in the Deposit Insurance 

Assessment Base

Change in the Assessment Base

The Dodd-Frank Act requires the FDIC to amend 

its regulations to define the assessment base as 

average consolidated total assets minus average 

tangible equity, rather than total domestic deposits 

(which, with minor adjustments, it has been since 

1935). The Act allows the FDIC to modify the 

assessment base for banker’s banks and custodial 

banks. In November 2010, the FDIC approved 
MANAGEMENT’S DISCUSSION AND ANALYSIS 19

a proposed rulemaking that would implement 

these changes to the assessment base. The FDIC 

finalized this rulemaking in February 2011.

The Dodd-Frank Act also requires that, for at 

least five years, the FDIC must make available 

to the public the reserve ratio and the DRR 

using both estimated insured deposits and the 

new assessment base. As of December 31, 2010, 

the FDIC estimates that the reserve ratio would 

have been negative 0.06 percent using the new 

assessment base (as opposed to negative 0.12 

percent using estimated insured deposits) and 

that the 2.0 percent DRR using estimated insured 

deposits would have been 1.0 percent using the 

new assessment base.

Conforming Changes to Risk-Based Premium 

Rate Adjustments

The changes to the assessment base necessitated 

changes to existing risk-based assessment rate 

adjustments. The current assessment rate schedule 

incorporates adjustments for types of funding that 

either pose heightened risk to the DIF or that help 

to offset risk to the DIF. Because the magnitude of 

these adjustments and the cap on the adjustments 

have been calibrated to a domestic deposit assessment base, the rule changing the assessment base 

also recalibrates the unsecured debt and brokered 

deposit adjustments. Since secured liabilities 

will be included in the assessment base, the rule 

eliminates the secured liability adjustment.

The assessment rate of an institution would also 

increase if it holds unsecured debt issued by other 

IDIs. The issuance of unsecured debt by an IDI 

lessens the potential loss to the DIF in the event of 

the institution’s failure; however, when the debt is 

held by other IDIs, the overall risk in the system is 

not reduced. 

Conforming Changes to Assessment Rates

The new assessment base under the Dodd-Frank 

Act will be larger than the current assessment 

base. Applying the current rate schedule to 

the new assessment base would result in larger 

total assessments than are currently collected. 

Accordingly, the rule changing the assessment 

base also established new rates to take effect in 

the second quarter of 2011 that will result in 

collecting approximately the same amount of 

assessment revenue under the new base as under 

the current rate schedule using the existing 

(domestic deposit) base. These schedules also 

incorporate the changes from the proposed large 

bank pricing rule that was finalized in February 

2011 along with the change in the assessment 

base. The initial base rates for all institutions will 

range from 5 to 35 basis points. 

The initial base assessment rates, range of possible 

rate adjustments, and minimum and maximum 

total base rates are shown in the table below.

Changes to the assessment base, assessment 

rate adjustments, and assessment rates will take 

effect April 1, 2011. As explained above, the rate 

schedules will decrease when the reserve ratio 

reaches 1.15, 2.0, and 2.5 percent.

Proposed Initial and Total Base Assessment Rates1

Risk 

Category I

Risk 

Category II

Risk 

Category III

Risk 

Category IV

Large and Highly 

Complex Institutions

Initial base assessment rate 5–9 14 23 35 5–35

Unsecured debt adjustment2 (4.5)–0 (5)–0 (5)–0 (5)–0 (5)–0

Brokered deposit adjustment ...... 0–10 0–10 0–10 0–10

Total Base Assessment Rate 2.5–9 9–24 18–33 30–45 2.5–45

1 Total base assessment rates do not include the proposed depository institution debt adjustment.

2 The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an IDI’s initial base assessment rate; thus, 

for example, an IDI with an initial base assessment rate of 5 basis points would have a maximum unsecured debt adjustment of 2.5 

basis points and could not have a total base assessment rate lower than 2.5 basis points.
20 MANAGEMENT’S DISCUSSION AND ANALYSIS

Changes to the Large Bank Assessment System

The FDIC continued its efforts to reduce the 

pro-cyclicality of the deposit insurance assessment 

system by issuing a proposed rule in November 

2010, that was finalized in February 2011, and 

revises the assessment system applicable to large 

IDIs to better reflect risk at the time a large 

institution assumes the risk, to better differentiate 

large institutions during periods of good economic 

conditions, and to better take into account 

the losses that the FDIC may incur if such an 

institution fails.

The rule eliminates risk categories for large 

institutions. As required by the Dodd-Frank Act, 

under the rule, the FDIC will no longer use longterm debt issuer ratings to calculate assessment 

rates for large institutions. The rule combines 

CAMELS1

 ratings and financial measures into two 

scorecards—one for most large institutions and 

another for the remaining very large institutions 

that are structurally and operationally complex or 

that pose unique challenges and risks in case of 

failure (highly complex institutions). In general, a 

highly complex institution is an institution (other 

than a credit card bank) with more than $50 

billion in total assets that is controlled by a parent 

or intermediate parent company with more than 

$500 billion in total assets, or a processing bank 

or trust company with at least $10 billion in 

total assets.

Both scorecards use quantitative measures that 

are readily available and useful in predicting an 

institution’s long-term performance to produce 

two scores—a performance score and a loss 

severity score—that will be combined and 

converted to an initial assessment rate. The 

performance score measures an institution’s 

financial performance and its ability to withstand 

stress. The loss severity score quantifies the relative 

magnitude of potential losses to the FDIC in the 

event of the institution’s failure. The rule will take 

effect in the second quarter of 2011.

Temporary Liquidity Guarantee Program

On October 14, 2008, the FDIC announced 

and implemented the Temporary Liquidity 

Guarantee Program (TLGP). The TLGP consists 

of two components: (1) the Debt Guarantee 

Program (DGP)—an FDIC guarantee of certain 

newly issued senior unsecured debt; and (2) 

the Transaction Account Guarantee Program 

(TAGP)—an FDIC guarantee in full of 

noninterest-bearing transaction accounts.

Under the DGP, the FDIC initially guaranteed 

in full, through maturity or June 30, 2012, 

whichever came first, the senior unsecured debt 

issued by a participating entity between October 

14, 2008, and June 30, 2009, although in 2009 

the issuance period was extended through October 

31, 2009. The FDIC’s guarantee on each debt 

instrument also was extended in 2009 to the 

earlier of the stated maturity date of the debt or 

December 31, 2012.

The FDIC charged a fee based on the amount 

and term of the debt issued. Fees ranged from 50 

basis points on an annualized basis for debt with 

a maturity of 180 days or less, increasing to 75 

basis points on an annualized basis for debt with a 

maturity of 181 to 364 days and 100 basis points 

on an annualized basis for debt with maturities 

of 365 days or greater. In conjunction with the 

program extension in 2009, the FDIC assessed 

an additional surcharge on debt with a maturity 

of one year or greater issued after April 1, 2009. 

Unlike the other TLGP fees, which were reserved 

for possible TLGP losses and not generally 

available for DIF purposes, the surcharge was 

deposited into the DIF and used by the FDIC 

when calculating the reserve ratio of the Fund. 

The surcharge varied depending on the type of 

institution issuing the debt, with IDIs paying the 

lower fees.

The TAGP initially guaranteed in full all domestic 

noninterest-bearing transaction deposits held at 

participating banks and thrifts through December 

31, 2009. This deadline was extended twice 

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

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

(strongest) to “5” (weakest).
MANAGEMENT’S DISCUSSION AND ANALYSIS 21

and expired on December 31, 2010. The 

guarantee also covered negotiable order of 

withdrawal (NOW) accounts at participating 

institutions—provided the institution initially 

committed to maintain interest rates on the 

accounts of no more than 0.50 percent (later 

reduced to 0.25 percent) for the duration of 

the program—and Interest on Lawyers Trust 

Accounts (IOLTAs) and functional equivalents. 

Participating institutions were initially assessed a 

10 basis point surcharge on the portion of covered 

accounts that were not otherwise insured. The fees 

for the TAGP were increased at the first extension 

to either 15 basis points, 20 basis points, or 25 

basis points, depending on the institution’s deposit 

insurance assessment category.

Program Statistics

Institutions were initially required to elect whether 

to participate in one or both of the programs. 

More than half of the over 14,000 eligible entities 

elected to opt in to the DGP, while over 7,100 

banks and thrifts, or 86 percent of FDIC-insured 

institutions, initially opted in to the TAGP. Most 

of the institutions that opted out of the DGP 

had less than $1 billion in assets and issued no 

appreciable amount of senior unsecured debt.

Over the course of the DGP’s existence, 121 

entities issued TLGP debt. At its peak, the 

DGP guaranteed almost $350 billion of debt 

outstanding (see chart below). As of December 

31, 2010, the total amount of remaining FDICguaranteed debt outstanding was $267 billion.

The FDIC collected $10.4 billion in fees and 

surcharges under the DGP. As of December 31, 

2010, the FDIC paid $8 million on seven claims 

that were filed when four participating entities 

(all holding companies) defaulted on debt issued 

under the DGP. Further claims on notes issued by 

one entity are expected, since some of the notes 

issued by this entity have not yet matured. Losses 

through the end of the DGP guarantee period in 

2012 are expected to be limited.

$400

350

300

250

200

150

100

50

0

OCT-08 DEC-08 FEB-09 APR-09 JUN-09 AUG-09 OCT-09 DEC-09 FEB-10 APR-10 JUN-10 AUG-10 OCT-10 DEC-10

Dollars in Billions

OUTSTANDING TLGP DEBT BY MONTH
22 MANAGEMENT’S DISCUSSION AND ANALYSIS

Under the TAGP, the FDIC guaranteed an average 

of $114 billion of deposits during the fourth 

quarter of 2010. As of December 31, 2010, the 

last day of the program, over 5,100 FDIC-insured 

institutions reported having guaranteed deposits. 

As of December 31, 2010, the FDIC has collected 

$1.1 billion in fees under the TAGP.2

 Cumulative 

estimated TAGP losses on failures as of December 

31, 2010, totaled $2.3 billion. 

Overall, TLGP fees are expected to exceed the 

losses from the program. Remaining TLGP fees 

will be added to the DIF balance at the conclusion 

of the program. If fees are insufficient to cover the 

costs of the program, the difference will be made 

up through a systemic risk special assessment.

Transaction Account Guarantee 

Program Phase-Out

The TAGP was designed to eliminate potentially 

disruptive shifts in deposit funding and thus 

preserve bank lending capacity. The program 

proved effective. However, because bank failures 

continued to grow during 2009 and 2010, the 

FDIC remained concerned that terminating the 

TAGP too quickly could reverse the progress made 

in restoring financial markets to more normal 

conditions. To help transition institutions out of 

the TAGP, therefore, the FDIC Board, on August 

26, 2009, approved a final rule that extended 

the TAGP for an additional six months, through 

June 30, 2010, with higher assessment fees for 

institutions participating in the extension period. 

The final rule also provided an opportunity for 

participating entities to opt out of the TAGP 

extension. Over 6,400 institutions (or 93 percent 

of institutions participating at year-end) elected to 

continue in the TAGP.

In June 2010, the FDIC remained concerned that, 

because of the lingering effects of the financial 

crisis and recession, terminating the TAGP too 

quickly could lead to liquidity problems for a 

number of community banks. The Board therefore 

approved a final rule authorizing another sixmonth extension, until December 31, 2010, of 

the TAGP. The FDIC did not increase assessment 

fees with the second extension, but the final rule 

reduced the permissible interest rate for the NOW 

accounts covered by the guarantee to no higher 

than 0.25 percent in order to better align the 

program with prevailing market rates. The FDIC 

provided institutions still participating in the 

TAGP in the second quarter of 2010 with a onetime opportunity to opt out of the second TAGP 

extension, effective July 1, 2010. Almost 6,000 

institutions (or 93 percent of those institutions 

that were participating at the time) remained in 

the TAGP. The final rule authorizing the second 

extension also gave the FDIC Board the authority 

to further extend the TAGP, without further 

rulemaking, should economic conditions warrant 

an additional extension, for a period of time not 

to extend beyond December 31, 2011. However, 

the passage of the Dodd-Frank Act eliminated the 

need for such an extension of the TAGP.

Temporary Unlimited Coverage for 

Noninterest-Bearing Transaction Accounts 

under the Dodd-Frank Act

The Dodd-Frank Act provides temporary 

unlimited deposit insurance coverage for 

noninterest-bearing transaction accounts from 

December 31, 2010 through December 31, 2012, 

regardless of the balance in the account and the 

ownership capacity of the funds. The unlimited 

coverage is available to all depositors, including 

consumers, businesses, and government entities. 

The coverage is separate from, and in addition 

to, the standard insurance coverage provided for 

a depositor’s other accounts held at an FDICinsured bank. 

A noninterest-bearing transaction account is a 

deposit account where: 

Q Interest is neither accrued nor paid; 

Q Depositors are permitted to make transfers 

and withdrawals; and 

Q The bank does not reserve the right to require 

advance notice of an intended withdrawal. 

2 This figure reflects fees assessed through September 30, 2010, and collected as of December 30, 2010. 
MANAGEMENT’S DISCUSSION AND ANALYSIS 23

The Act’s temporary unlimited coverage also 

includes trust accounts established by an attorney 

or law firm on behalf of clients, commonly known 

as IOLTAs, or functionally equivalent accounts.

Money market deposit accounts (MMDAs) and 

NOW accounts are not eligible for this temporary 

unlimited insurance coverage, regardless of the 

interest rate, even if no interest is paid. 

Complex Financial Institution Program

The FDIC’s Complex Financial Institution 

(CFI) Program addresses the unique challenges 

associated with the supervision, insurance, 

and potential resolution of large and complex 

insured institutions. The FDIC’s ability to 

analyze and respond to risks in these institutions 

is of particular importance, as they make up a 

significant share of the banking industry’s assets. 

The Program provides for a consistent approach 

to large-bank supervision nationwide, allows 

for the analysis of financial institution risks 

on an individual and comparative basis, and 

enables a quick response to risks identified at 

large institutions. The Program’s objectives are 

achieved through extensive cooperation with the 

FDIC’s regional offices, other FDIC divisions and 

offices, and the other bank and thrift regulators. 

Given the heightened risk levels stemming 

from continued adverse economic and market 

conditions, the FDIC has expanded its presence at 

the nation’s largest and most complex institutions 

through additional and enhanced on-site and offsite monitoring.

The Program expanded coverage at large and 

complex institutions from eight to ten in 2010 

and increased its on-site presence, as designated 

by the FDIC Board, to assess risk, monitor 

liquidity, and participate in targeted reviews with 

the primary federal regulators. In July 2010, the 

FDIC entered into an interagency memorandum 

of understanding (MOU) which allows FDIC 

examiners to conduct special examinations of 

certain institutions covered by the MOU. The 

MOU should enhance the FDIC’s access to those 

institutions and encourage ongoing effective 

communication among the federal regulators.

The Large Insured Depository Institution (LIDI) 

Program remains the primary instrument for 

off-site monitoring of IDIs with $10 billion or 

more in total assets, or under this threshold at 

regional discretion. The LIDI Program provides a 

comprehensive process to standardize data capture 

and reporting through nationwide quantitative 

and qualitative risk analysis of large and complex 

institutions. As of June 30, 2010, the LIDI 

Program encompassed 110 institutions with 

total assets of $10.3 trillion. The LIDI Program 

was refined again in 2010 to better quantify risk 

to the insurance fund in all large banks. This 

was accomplished, in collaboration with other 

divisions and offices, through a revision to the 

LIDI Scorecard, which better aligns with and 

supports the FDIC’s large-bank deposit insurance 

pricing responsibilities. The LIDI Scorecard is 

designed to weigh key risk areas and provide a risk 

ranking and measurement system that compares 

IDIs on the basis of both the probability of failure 

and exposure to loss at failure. The comprehensive 

LIDI Program is essential to effective large bank 

supervision by capturing information on the risks 

and utilizing that information to best deploy 

resources to high-risk areas, determine the need 

for supervisory action, and support insurance 

assessments and resolution planning.

Office of Complex Financial Institutions

The Office of Complex Financial Institutions 

(OCFI) was created in 2010 to focus on the 

expanded responsibilities of the FDIC by the 

Dodd-Frank Act for the assessment of risk in 

the largest, systemically important financial 

institutions. The OCFI is responsible for oversight 

and monitoring of large, systemically important 

financial institutions (SIFIs). Specifically, through 

both on-site and off-site monitoring, OCFI 

will develop an in-depth understanding of the 

operations and risk profiles of all IDIs and bank 

holding companies with assets over $100 billion 

and other companies designated as systemically 

important by the Financial Stability Oversight 

Council (FSOC).

Additionally, in conjunction with the Federal 

Reserve, OCFI will develop regulations governing 

the preparation, approval, and monitoring of 
24 MANAGEMENT’S DISCUSSION AND ANALYSIS

resolution and recovery plans developed by SIFIs 

commonly referred to as “living wills.” OCFI will 

be responsible for developing detailed resolutions 

plans and strategies for assigned institutions. 

OCFI will also identify and manage international 

and cross-border issues that might complicate the 

resolution process, and, accordingly, will build 

and maintain relationships with key international 

stakeholders.

In 2010, OCFI focused on creating and staffing 

senior management positions. Work also began 

on developing resolution strategies for specific 

SIFIs and more broadly scoping a process, 

strategies, and data needs for ongoing risk 

assessment at SIFIs.

Center for Financial Research

The Center for Financial Research (CFR) was 

founded by the Corporation in 2004 to encourage 

and support innovative research on topics 

important to the FDIC’s role as deposit insurer 

and bank supervisor. During 2010, the CFR cosponsored three major conferences.

The 20th Annual Derivatives Securities and Risk 

Management Conference, which the FDIC 

co-sponsored with Cornell University’s Johnson 

Graduate School of Management and the 

University of Houston’s Bauer College of Business, 

was held in April 2010 at the Seidman Center. 

The two-day conference attracted over 100 

researchers from around the world. Conference 

presentations focused on issues such as credit risk 

measurement, equity option pricing, commodity 

market speculation, and risk management.

In October 2010, the FDIC and the Federal 

Reserve hosted a two-day symposium on 

mortgages and the future of housing finance. 

Over 300 experts from the public, private, and 

academic sectors participated in discussions of 

mortgage finance, foreclosures, loan modifications, 

and securitizations. Federal Reserve Chairman Ben 

Bernanke and FDIC Chairman Sheila Bair spoke 

at the symposium regarding the need for reform 

to restore stability to the housing finance system 

and to aggressively examine the incentives of the 

U.S. system of mortgage finance to ensure that the 

problems that contributed to the financial crisis 

are addressed.

The CFR and the Journal for Financial Services 

Research (JFSR) hosted the 10th Annual Bank 

Research Conference: Finance and Sustainable 

Growth in October. The two-day conference 

included the presentation of 17 papers and 

was attended by over 100 participants. Experts 

discussed a range of topics, including the global 

financial crisis, credit derivatives and the default 

risk of large complex financial institutions, and 

bank capital adequacy.

International Outreach

The past year has been defined by broad 

international efforts to respond effectively to the 

causes of the global financial crisis. One of the 

important lessons of the crisis is that effective 

systems of deposit insurance are important not 

only for the protection of individual depositors 

but also for overall financial stability. Inadequate 

systems of deposit insurance place individual 

depositors at risk and can have a significant 

negative impact on public confidence in the 

financial system as a whole. The FDIC has 

provided leadership and support to international 

standard-setting organizations and international 

financial institutions, and has established bilateral 

agreements with other bank supervisory and 

deposit insurance governmental organizations, 

resulting in significant advancements in 

promoting sound financial systems. 

In 2009, the International Association of Deposit 

Insurers (IADI) and the Basel Committee on 

Banking Supervision (BCBS) jointly published 

Core Principles for Effective Deposit Insurance 

Systems (Core Principles). The Core Principles were 

later adopted by the Financial Stability Board 

(FSB), which added them to its Compendium of 

Standards. Under the FDIC’s leadership, IADI, 

BCBS, the International Monetary Fund (IMF), 

the European Forum of Deposit Insurers (EFDI), 

the World Bank, and the European Commission 

collaborated in developing a methodology for 

assessing compliance with the Core Principles. 

The methodology was submitted for approval 
MANAGEMENT’S DISCUSSION AND ANALYSIS 25

by the executive governing boards of IADI, 

EFDI, and BCBS and presented to the FSB in 

December 2010. Together, the Core Principles

and the methodology will be considered for 

inclusion among the FSB’s 12 Key Standards 

for Sound Financial Systems. Once adopted, 

the Core Principles methodology is expected 

to be used to assess deposit insurance systems 

by the IMF in its Financial Sector Assessment 

Program, and by the FSB in its peer review of 

deposit insurance systems, which is scheduled for 

2011. The leadership of IADI under Martin J. 

Gruenberg, the Vice Chairman of the FDIC, has 

been instrumental in advancing the establishment 

of the Core Principles as the standards for deposit 

insurance. Vice Chairman Gruenberg was reelected to serve as President of IADI and Chair 

of the Executive Council in November 2010. 

During his tenure as President, the membership 

of IADI has grown from 48 to 62 deposit 

insurance members, including new members from 

Germany, Italy, Poland, Belgium, Switzerland, 

Australia, and Paraguay.

The FDIC is integrally involved with the FSB’s 

Cross Border Crisis Management Working 

Group (CBCM). The group has been tasked with 

evaluating options and making recommendations 

on how to address issues related with the too-bigto-fail issue. In particular, the CBCM has been 

focused on recovery and resolution (R&R) for 

SIFIs. FSB member countries have been working 

on preparing R&R plans for SIFIs domiciled in 

their jurisdictions. The FDIC has been involved 

in R&R planning for the top five U.S. firms and 

has participated in Crisis Management Group 

meetings hosted by foreign regulators. The 

FDIC has also provided input and leadership 

to the CBCM’s development of technical work 

streams related to obstacles encountered in a 

SIFI resolution. These work streams are focused 

on booking practices, intragroup guarantees, 

payments and settlement systems and legal 

entities/management information systems.

Since January 2009, international regulators have 

been meeting periodically to exchange views and 

share information on developments related to 

central counterparties (CCPs) for over-the-counter 

(OTC) credit derivatives. Based on the success of 

this cooperation, the OTC Derivatives Regulators’ 

Forum was formed to provide regulators with a 

means to cooperate, exchange views, and share 

information related to OTC derivatives, CCPs, 

and trade repositories. FDIC staff has an active 

role in the OTC Derivatives Regulators’ Forum 

and the OTC Derivative Supervisors’ Group. 

Work streams of particular interest include 

collateral safekeeping practices, dispute resolution, 

and the build out of the central clearing platforms. 

Additionally, staff is completing a data access/user 

agreement MOU to assure ready access to data in 

trade repositories.

Throughout 2010, the FDIC participated in 

Governors and Heads of Supervision and BCBS 

meetings and contributed to the work streams, 

task forces, and the Policy Development Group 

that developed and refined regulatory forms to 

address a new definition of capital, treatment of 

counterparty credit risk, an international leverage 

ratio, capital conservation and countercyclical 

buffers, liquidity requirements, and surcharges 

on SIFIs. The BCBS published the final capital 

and liquidity reforms in December 2010, 

along with the results of the comprehensive 

quantitative impact study and an assessment of 

the macroeconomic impact of the transition to 

stronger capital and liquidity requirements. In 

addition to these capital and liquidity reforms, 

the FDIC also participated in BCBS initiatives 

related to surveillance standards, remuneration, 

supervisory colleges, operational risk, accounting 

issues for consistency, and corporate governance.

The FDIC finalized a resolution and crisis 

management MOU with the China Banking 

Regulatory Commission (CBRC) in 2010. The 

FDIC is currently in the process of negotiating 

a similar MOU with the Swiss Financial Market 

Supervisory Authority (FINMA). The MOU 

with FINMA is expected to be finalized by the 

end of 2011. The FDIC has reached out to other 

strategic countries including India, and has been 

met with enthusiasm by Indian officials. In 2011, 

the FDIC will review its resolution MOU with 

the Bank of England to determine what, if any, 
26 MANAGEMENT’S DISCUSSION AND ANALYSIS

changes need to be made in light of regulatory 

developments both in the U.S. and the United 

Kingdom.

The 2010 Strategic and Economic Dialogue 

(S&ED) was held in Beijing, China, in May and 

was the second such event held under President 

Obama’s administration. President Barack Obama 

and Chinese President Hu Jintao agreed to the 

S&ED in April 2009 to deepen and promote 

mutually beneficial cooperation between the U.S. 

and China in key economic and strategic areas. 

Chairman Bair and staff participated in this year’s 

S&ED and also met with leaders of the People’s 

Bank of China and the CBRC in side meetings to 

further strengthen the FDIC’s relationship with 

these bank regulatory agencies. During the 

meeting with the CBRC, CBRC Chairman Liu 

and Chairman Bair signed an MOU enhancing 

cooperation in times of financial instability and in 

cases of cross-border resolution.

Chairman Bair and staff visited New Delhi and 

Mumbai, India, in June to meet with senior 

representatives of public and private sector 

organizations, including the Ministry of Finance, 

the Reserve Bank of India (RBI), the Deposit 

Insurance and Credit Guarantee Corporation, 

and the National Bank for Agriculture and Rural 

Development to discuss financial inclusion efforts 

in the U.S. and India and to explore possible areas 

of future cooperation between the two countries. 

Chairman Bair was the keynote speaker at an 

event hosted by the RBI, which was attended 

by senior RBI officials, bankers, and financial 

industry representatives. The Chairman’s speech 

addressed U.S. financial regulatory reform, the 

importance of promoting financial inclusion and 

education, and the efforts made by both the U.S. 

and India to reach their unbanked population. 

Chairman Bair also announced plans to translate 

the FDIC’s Money Smart program into Hindi for 

use in India.

The FDIC continued to provide technical 

assistance through training, consultations, and 

briefings to foreign bank supervisors, deposit 

insurance authorities, and other governmental 

officials.

Q The FDIC, on behalf of IADI, provided the 

content and technical subject matter expertise 

in the development of four tutorials released 

through the Financial Stability Institute’s FSI 

Connect: Premiums and Fund Management, 

Deposit Insurance – Reimbursing Depositors 

– Parts I and II, and Liquidation of Failed 

Bank Assets. FDIC hosted two IADI executive 

training seminars: Resolution of Problem 

Banks (April) and Claims Management: 

Reimbursement to Insured Depositors 

(July). Over 125 deposit insurance and 

bank regulatory officials from more than 35 

countries attended the training programs. The 

FDIC developed the IADI Capacity Building 

Program website for organizations to use 

for identifying available technical expertise 

resources from IADI members. The website 

was released in the fall of 2010. 

Q The FDIC hosted 87 visits with 580 visitors 

from approximately 60 countries in 2010. 

In July, Chairman Bair met with members 

of the European Parliament’s Committee on 

Economic and Monetary Affairs to discuss 

U.S. financial regulatory reform and the 

FDIC’s new authorities, SIFIs, and Basel II 

reform. FDIC staff met with representatives 

of Chinese authorities and banks on multiple 

occasions throughout the year. Topics of 

these meetings included discussions about 

the health of the U.S. banking industry, 

financial reform, FDIC supervision of banks, 

the bank resolution process, and the FDIC’s 

management of the distressed assets of failed 

banks. The FDIC hosted a multi-day study 

tour for the Board of Directors of the Nigeria 

Deposit Insurance Corporation (NDIC) in 

October. NDIC guests also traveled to the 

New York Regional Office to learn about 

the role of the regional offices and their 

relationship with headquarters. The FDIC 

hosted secondees, one from each of the 

following organizations during 2010: the 

Korea Deposit Insurance Corporation, the 

Financial Services Commission in Korea, and 

the Savings Deposit Insurance Fund of Turkey.
MANAGEMENT’S DISCUSSION AND ANALYSIS 27

Q June marked the three-year anniversary of the 

secondment program agreed upon between the 

Financial Services Volunteer Corps (FSVC) 

and the FDIC to place one or more FDIC 

employees full-time in FSVC’s Washington, 

DC, office. Between September 2009 and 

August 2010, FSVC hosted four secondees 

who participated in 20 projects that took place 

in Albania, Algeria, Egypt, Jordan, Malawi, 

and Morocco. Additionally, the secondees 

provided services for their counterparts in 

Albania, Egypt, Libya, and Malawi from 

Washington, DC, and completed a project 

for the Central Bank of Iraq in Jordan. The 

secondees worked directly with eight overseas 

regulatory counterparts and trained almost 

440 individuals. In these efforts, they spent 

over 1,850 hours providing direct technical 

assistance.

Q The FDIC continues to support the work and 

mission of the Association of Supervisors of 

Banks of the Americas (ASBA). In furtherance 

of the FDIC’s commitment to ASBA 

leadership and strategic development, in July 

2010, FDIC staff participated in ASBA’s 

board of directors and technical committee 

meetings. To facilitate ASBA’s research and 

guidance initiatives, a senior bank examiner 

will participate in ASBA’s Stress Testing 

Working Group, and FDIC staff is responding 

to ASBA’s review of the implementation of 

International Financial Reporting Standards. 

These research and guidance efforts are 

intended to promote sound bank supervisory 

practices among ASBA members.

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 FDICsupervised 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, 2010, the Corporation was the 

primary federal regulator for 4,386 FDICinsured, state-chartered institutions that were not 

members of the Federal Reserve System (generally 

referred to as “state non-member” institutions). 

Through risk management (safety and soundness), 

consumer compliance and 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, 2010, the Corporation 

conducted 2,720 statutorily required 

risk management (safety and soundness) 

examinations, including a review of Bank 

Secrecy Act compliance, and all required 

follow-up examinations for FDIC-supervised 

problem institutions within prescribed time 

frames. The FDIC also conducted 1,780 CRA/

compliance examinations (914 joint CRA/

compliance examinations, 854 compliance-only 

examinations,3

 and 12 CRA-only examinations) 

and 3,276 specialty examinations. All CRA/

compliance examinations were also conducted 

within the time frames established by FDIC 

policy, including required follow-up examinations 

of problem institutions. The following table 

compares the number of examinations, by type, 

conducted from 2008 through 2010.

3 Compliance-only examinations are conducted for most institutions at or near the mid-point between joint compliance/

CRA examinations under the Community Reinvestment Act of 1977, as amended by the Gramm-Leach-Bliley Act 

of 1999. CRA examinations of financial institutions with aggregate assets of $250 million or less are subject to a CRA 

examination no more than once every five years if they receive a CRA rating of “Outstanding” and no more than once 

every four years if they receive a CRA rating of “Satisfactory” on their most recent examination.
28 MANAGEMENT’S DISCUSSION AND ANALYSIS

Risk Management

As of December 31, 2010, there were 884 insured 

institutions with total assets of $390.0 billion 

designated as problem institutions for safety and 

soundness purposes (defined as those institutions 

having a composite CAMELS4

 rating of “4” or 

“5”), compared to the 702 problem institutions 

with total assets of $402.8 billion on December 

31, 2009. This constituted a 26 percent increase 

in the number of problem institutions and a 3 

percent decrease in problem institution assets. 

In 2010, 267 institutions with aggregate assets 

of $157 billion were removed from the list 

of problem financial institutions, while 449 

institutions with aggregate assets of $198 billion 

were added to the list. Westernbank Puerto Rico, 

Mayaguez, Puerto Rico, which was the largest 

failure in 2010, with $11.9 billion in assets, was 

added to the problem institution list in 2008 and 

resolved in 2010. The FDIC is the primary federal 

regulator for 583 of the 884 problem institutions, 

with total assets of $202.5 billion and $390.0 

billion, respectively.

During 2010, the Corporation issued the 

following formal and informal corrective actions 

to address safety and soundness concerns: 

300 Consent Orders and 424 Memoranda of 

Understanding. Of these actions, 9 Consent 

FDIC Examinations 2008 – 2010

2010 2009 2008

Risk Management (Safety and Soundness): 

State Non-member Banks 2,488 2,398 2,225

Savings Banks 225 203 186

Savings Associations 0 1 1

National Banks 3 0 2

State Member Banks 4 2 2

Subtotal – Risk Management Examinations 2,720 2,604 2,416

CRA/Compliance Examinations:

Compliance/Community Reinvestment Act 914 1,435 1,509

Compliance-only 854 539 313

CRA-only 12 7 4

Subtotal – CRA/Compliance Examinations 1,780 1,981 1,826

Specialty Examinations:

Trust Departments 465 493 451

Data Processing Facilities 2,811 2,780 2,577

Subtotal – Specialty Examinations 3,276 3,273 3,028

Total 7,776 7,858 7,270

4 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).
MANAGEMENT’S DISCUSSION AND ANALYSIS 29

Orders and 16 Memoranda of Understanding 

were issued based, in part, on apparent violations 

of the Bank Secrecy Act.

The FDIC is required to conduct follow-up 

examinations of all state non-member institutions 

designated as problem institutions within 12 

months of the last examination. As of December 

31, 2010, all follow-up examinations for problem 

institutions were performed on schedule.

Compliance

As of December 31, 2010, there were 54 insured 

state non-member institutions with total assets 

of $36.4 billion, rated “4” or “5” for consumer 

compliance purposes. All follow-up examinations 

for these institutions were performed on schedule.

During 2010, the Corporation issued the 

following formal and informal corrective actions 

to address compliance concerns: 23 Consent 

Orders and 122 Memoranda of Understanding.

Bank Secrecy Act/Anti-Money Laundering

The FDIC pursued a number of Bank Secrecy Act 

(BSA), Counter-Financing of Terrorism (CFT), 

and Anti-Money Laundering (AML) initiatives 

in 2010.

The FDIC conducted three training sessions in 

2010 for 65 central bank representatives from 

Afghanistan, Argentina, Ghana, Iraq, Jordan, 

Kuwait, Mali, Mauritania, Morocco, Nigeria, 

Pakistan, Paraguay, Qatar, Senegal, and Turkey. 

The training focused on AML/CFT controls, 

the AML examination process, customer due 

diligence, suspicious activity monitoring, and 

foreign correspondent banking. The sessions also 

included presentations from the Federal Bureau 

of Investigation (FBI) on combating terrorist 

financing, and the Financial Crimes Enforcement 

Network (FinCEN) on the role of financial 

intelligence units in detecting and investigating 

illegal activities.

Chairman Sheila C. Bair meets with Puerto Rico Financial Institutions Commissioner Alfredo Padilla, left, and Puerto Rico Governor 

Luis Fortuño, center.
30 MANAGEMENT’S DISCUSSION AND ANALYSIS

This year, the inaugural Advanced International 

AML/CFT School was offered. The goal of this 

course is to provide seasoned government staff 

with an appropriate understanding of high-risk 

areas and transactions, their potential effect on a 

financial institution, and how to identify potential 

red flags. Expert instructors were provided by 

the United States Attorney’s Office, the Drug 

Enforcement Administration, U.S. Immigration 

and Customs Enforcement, the FBI, FinCEN, 

and the FDIC’s Legal Division.

Additionally, the FDIC met with eight Namibian 

and Zambian foreign officials and 14 European 

representatives as a part of the U.S. Department of 

State’s International Visitor Leadership Program to 

discuss the FDIC’s AML Supervisory Program. 

FFIEC BSA/AML Examination Manual

The FDIC participated in the revision and 

issuance of the 2010 FFIEC BSA/AML 

Examination Manual. The manual was released 

by the Federal Financial Institutions Examination 

Council (FFIEC) for publication and distribution 

on April 29, 2010. It reflects the ongoing 

commitment of the federal banking agencies 

to provide current and consistent guidance on 

risk-based policies, procedures, and processes 

for banking organizations to comply with the 

BSA and to safeguard operations from money 

laundering and terrorist financing. The manual 

was updated to further clarify supervisory 

expectations and to incorporate regulatory 

changes since the 2007 release. The revisions also 

reflect feedback from the banking industry and 

examination staff. The FDIC has also translated 

the manual into Spanish.

Minority Depository Institution Activities

The preservation of Minority Depository 

Institutions (MDIs) remains a high priority for the 

FDIC. In 2010, the FDIC continued to seek ways 

to improve communication and interaction with 

MDIs and to respond to the concerns of minority 

bankers. Many of the MDIs took advantage of 

the technical assistance offered by the FDIC, 

requesting technical assistance on a number of 

bank supervision issues, including but not limited 

to, the following:

Q Troubled Asset Relief Program (TARP)

Q Deposit insurance assessments

Q Proper use of interest reserves

Q Filing branch and merger applications

Q Complying with Part 365 – Real Estate 

Lending Standards

Q Preparing Call Reports

Q Performing due diligence for loan 

participations

Q Monitoring CRE concentrations

Q Reducing adversely classified assets

Q Identifying and monitoring reputation risk

Q Maintaining adequate liquidity

Q Compliance issues 

Q Community Reinvestment Act (CRA)

Q Procedures for filing regulatory appeals

Q Criteria for assigning CAMELS ratings

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 examinations to assist 

management in understanding and implementing 

examination recommendations or to discuss other 

issues of interest. Ten MDIs took advantage of this 

initiative in 2010. Also, the FDIC regional offices 

held outreach training efforts and educational 

programs for MDIs.

The FDIC hosted a series of Asset Purchaser, 

Investor, and Minority Depository Institutions 

Outreach seminars throughout the country, where 

investors, and minority- and women-owned 

firms received information on purchasing assets 
MANAGEMENT’S DISCUSSION AND ANALYSIS 31

from the FDIC and opportunities for investors 

to invest in or establish an MDI. Seminars were 

held in Atlanta, GA; New York, NY; Houston, 

TX; Miami, FL; Los Angeles, CA; San Francisco, 

CA; and Washington, DC. The seminars were well 

received, with over 650 participants in attendance. 

The FDIC held quarterly conference calls and 

banker roundtables with MDIs in the geographic 

regions. Topics of discussion for the quarterly calls 

included both compliance and risk management 

topics, and topics at the roundtables included 

the economy, overall banking conditions, deposit 

insurance assessments, accounting, and other bank 

examination issues.

The FDIC partnered with the Federal Reserve’s 

Partnership for Progress to provide technical 

assistance and training to MDIs interested 

in applying for the New Markets Tax Credit 

(NMTC). The training consisted of a series 

of webinars to educate MDIs about becoming 

Community Development Entities, completing 

NMTC applications, and best practices on 

NMTC projects.

Capital and Liquidity Rulemaking 

and Guidance

Credit Ratings ANPR

In August 2010, the FDIC, along with the 

other federal banking agencies, published 

an Advance Notice of Proposed Rulemaking 

(ANPR) regarding alternatives to the use of credit 

ratings in the risk-based capital rules for banking 

organizations. The ANPR was issued in response 

to section 939(A) of the Dodd-Frank Act, which 

requires the agencies to review regulations that 

(1) require an assessment of the creditworthiness 

of a security or money market instrument, 

and (2) contain references to or requirements 

regarding credit ratings. In addition, the agencies 

are required to remove such references and 

requirements and substitute in their place uniform 

standards of creditworthiness, where feasible.

Market Risk NPR

In December 2010, the FDIC Board of Directors 

approved the publication of a joint Notice 

of Proposed Rulemaking (NPR) designed to 

enhance the market risk capital framework by 

addressing default and credit risk migration, 

innovations in trading book exposures, and other 

deficiencies revealed during the recent financial 

crisis. Enhancements to the framework include 

requirements to compute capital for stressed valueat-risk, and incremental default risk, standardized 

capital requirements for certain securitization 

positions, a capital floor for correlation trading 

exposures, and increased transparency through 

enhanced disclosures.

Advanced Approaches Floor NPR

In December 2010, the FDIC Board of Directors 

approved a joint NPR to implement certain 

requirements of Section 171 of the DoddFrank Act. Section 171 requires, among other 

things, that the agencies’ generally applicable 

capital requirements serve as a floor for other 

capital requirements the agencies may establish 

and, specifically, as a permanent floor for the 

advanced approaches risk-based capital rule. Final 

rulemaking will be completed in 2011.

FAS 166 and 167 Final Rule

In January 2010, the agencies finalized the 

amendment to the risk-based capital rules to 

reflect the issuance of FAS 166 and 167, which 

required certain off-balance-sheet assets to be 

moved back onto a bank’s balance sheet. The 

final rule provided an optional transition period 

that allowed a bank to phase in over one year 

the impact on risk-weighted assets of the change 

in the U.S. generally accepted accounting rules. 

The rule also eliminated the exclusion of certain 

consolidated asset-backed commercial paper 

programs from risk-weighted assets.

Interest Rate Risk

Economic conditions in 2010 presented 

significant risk management challenges to 

depository institutions. For a number of 

institutions, increased loan losses and sharp 

declines in the value of certain securities portfolios 

placed downward pressure on capital and earnings. 

In the prevailing interest rate environment, taking 

advantage of a steeply upward sloping yield curve 

by funding longer-term assets with shorter-term 
32 MANAGEMENT’S DISCUSSION AND ANALYSIS

liabilities may have provided short-term gains 

to earnings helping offset losses, but could pose 

risks to an institution’s capital and future earnings 

should short-term interest rates rise. To reinforce 

the federal banking agencies’ existing guidance 

—The Joint Agency Policy Statement on Interest 

Rate Risk—and to remind institutions to not lose 

focus on their management of interest rate risk, 

the agencies issued new guidance on January 6, 

2010—Advisory on Interest Rate Risk Management. 

The guidance updated and clarified existing 

supervisory guidance on the sound practices 

for managing interest rate risk, noting that 

institutions should assess the likely effects 

of meaningful stress scenarios, including interest 

rate shocks of at least 300 to 400 basis points 

and that institutions are expected to conduct 

independent reviews of their interest rate risk 

models and management processes. 

Liquidity Guidance

Recent turmoil in the financial markets 

emphasized the importance of effective liquidity 

risk management for the safety and soundness 

of financial institutions. To emphasize the 

importance of cash flow projections, diversified 

funding sources, stress testing, a cushion of 

liquid assets, and a formal, well-developed 

contingency funding plan as primary tools for 

measuring and managing liquidity risk, the 

federal banking agencies issued new guidance on 

March 22, 2010—Funding and Liquidity Risk 

Management. This policy statement summarizes 

the principles of sound liquidity risk management 

issued in the past and, when appropriate, 

supplements them with the ‘‘Principles for Sound 

Liquidity Risk Management and Supervision’’ 

issued by the BCBS in September 2008.

Other Guidance Issued

During 2010, the FDIC issued and participated 

in the issuance of other guidance in several areas as 

described below.

Bargain Purchases and Assisted Acquisitions

Market conditions in the banking industry, 

including the significant number of FDIC-assisted 

acquisitions of failed depository institutions, have 

contributed to an increase in bargain purchase 

transactions. A bargain purchase occurs when 

the fair value of the net assets acquired in a 

business combination exceeds the fair value of 

any consideration transferred by the acquiring 

institution. Bargain purchase gains are reported 

in earnings and included in the computation 

of regulatory capital under the agencies’ capital 

standards. To address the supervisory issues arising 

from business combinations that result in bargain 

purchase gains, the FDIC, along with the other 

financial regulators, issued Interagency Supervisory 

Guidance on Bargain Purchases and FDIC- and 

NCUA-Assisted Acquisitions on June 7, 2010. The 

guidance addresses the agencies’ concerns about 

the quality and composition of capital when a 

bargain purchase gain is expected to result from 

a business combination and describes the capital 

preservation and other conditions the agencies 

may impose in their approval of acquisitions. The 

guidance also discusses the agencies’ expectations 

with respect to the appropriate application of 

accounting standards to business combinations.

Examinations of Institutions with FDIC 

Loss-Share Agreements

Beginning in 2009, the FDIC increasingly entered 

into loss-share agreements with institutions 

acquiring failed IDIs. Under such an agreement, 

the FDIC and an acquiring institution share in the 

losses on a specified pool of a failed institution’s 

assets, which maximizes asset recoveries and 

minimizes losses to the DIF. In May 2010, the 

FDIC issued guidance to its examination staff 

on how examiners should take into account 

the implications and benefits of loss-share in 

their supervision of banks that have acquired 

assets of failed institutions covered by loss-share 

agreements. Examiners are expected to consider 

the impact of these agreements when performing 

asset reviews, assessing accounting entries, 

assigning adverse classifications, and determining 

CAMELS ratings and examination conclusions. 

The FDIC has made this examination guidance 

available to bankers, the other banking agencies, 

and other parties to promote their understanding 

of the FDIC’s approach to the examination of 

banks with loss-share agreements. To provide 
MANAGEMENT’S DISCUSSION AND ANALYSIS 33

greater visibility to the effect of loss-share 

agreements on the examination process, the 

Summer 2010 issue of the FDIC’s Supervisory 

Insights, published in June, included “FDIC 

Loss-Sharing Agreements: A Primer”. This article 

provides an overview of the loss-share process, 

addresses the regulatory treatment of assets subject 

to these agreements, and discusses the accounting 

rules and capital implications for the acquisition 

of failed bank assets. 

Troubled Asset Relief Program’s Community 

Development Capital Initiative

In 2010, the FDIC actively engaged with the 

U.S. Department of the Treasury (Treasury) and 

the other federal bank regulatory agencies in 

considering applications to the Troubled Asset 

Relief Program’s (TARP) Community Development 

Capital Initiative (CDCI). The TARP CDCI 

invested lower-cost capital in Community 

Development Financial Institutions (CDFIs), 

which are financial institutions that target at least 

60 percent of their lending and other economic 

development activities in areas underserved by 

traditional financial services providers. In its 

role as primary federal supervisor for state nonmember institutions, the FDIC reviewed 64 

TARP CDCI applications and forwarded approval 

recommendations to Treasury for 12 institutions 

that met Treasury’s Program standards. Treasury 

approved ten institutions for participation in 

the Program.

The FDIC desired to reach a favorable 

recommendation for all TARP CDCI applications 

and worked closely with bank managements that 

were striving to achieve Treasury’s standards for 

approval. CDFIs can provide critically needed 

loan and depository services to underserved 

communities.

Meeting the Credit Needs of Creditworthy 

Small Business Borrowers

In response to difficulties some small business 

owners are experiencing in obtaining or renewing 

credit to support their operations, the FDIC, 

along with other financial regulators, issued 

Interagency Statement on Meeting the Credit 

Needs of Creditworthy Small Business Borrowers

on February 12, 2010. The statement builds 

on principles of existing guidance and strives 

to ensure that supervisory policies do not 

inadvertently curtail the availability of credit to 

sound small business borrowers. The statement 

reiterates regulatory expectations for institutions 

to effectively monitor and manage credit 

concentrations but notes that institutions should 

not automatically refuse credit to sound borrowers 

because of their particular industry or 

geographic location.

The statement also explains that examiners will 

not criticize prudent underwriting practices, that 

examiners will take a balanced approach when 

assessing small business lending activities, and that 

examiners will not adversely classify loans solely 

due to declining collateral values, provided that a 

borrower has the willingness and ability to repay 

loans according to reasonable terms.

Correspondent Concentration Risks

On April 30, 2010, the FDIC, along with the 

other financial regulators, issued guidance on 

Correspondent Concentration Risks to outline the 

agencies’ expectations for identifying, monitoring, 

and managing correspondent concentration risks. 

The guidance addresses the agencies’ expectations 

relative to performing due diligence on credit 

exposures to, and funding transactions with, 

other financial institutions. The guidance notes 

that a financial institution’s relationship with a 

correspondent may result in credit and funding 

concentrations and acknowledges that, while some 

correspondent concentrations meet legitimate 

business needs, the concentrations represent 

a lack of diversification management should 

address when formulating strategic plans and risk 

management policies and procedures.

Appraisal and Evaluation Guidelines

On December 2, 2010, the FDIC, along with 

the other federal banking agencies, issued final 

Interagency Appraisal and Evaluation Guidelines

to provide further clarification of the agencies’ 

appraisal regulations and supervisory guidance 

to institutions and examiners about prudent 

appraisal and evaluation programs. The guidelines 

reflect changes in appraisal standards and 
34 MANAGEMENT’S DISCUSSION AND ANALYSIS

advancements in regulated institutions’ collateral 

valuation methods and clarify longstanding 

supervisory expectations for an institution’s 

appraisal and evaluation program to conduct 

real estate lending in a safe and sound manner. 

Further, the guidelines promote consistency in 

the application and enforcement of the agencies’ 

appraisal regulations and safe and sound 

banking practices.

Incentive Compensation

On June 21, 2010, the FDIC joined the other 

federal banking agencies in issuing interagency 

Guidance on Sound Incentive Compensation Policies. 

This guidance was issued to address incentive 

compensation practices in the financial services 

industry that contributed to the recent financial 

crisis. The guidance uses a “principles-based” 

approach and describes the agencies’ expectations 

for banking organizations to maintain incentive 

compensation practices consistent with safetyand-soundness standards. One main goal of 

the guidance is to align employee rewards with 

longer-term organizational objectives, including 

consideration of potential risks and risk outcomes.

Golden Parachute

As part of supervisory efforts to address executive 

compensation in the financial services industry, 

the FDIC issued Guidance on Golden Parachute 

Applications on October 14, 2010, to clarify 

the golden parachute application process 

for troubled institutions, specify the type of 

information necessary to satisfy the certification 

requirements, and highlight factors considered by 

supervisory staff when determining whether to 

approve a golden parachute payment. A golden 

parachute payment refers to amounts paid by 

troubled entities to an institution-affiliated 

party (IAP) that are contingent on the IAP’s 

termination. Applications made on behalf of 

senior management will be subject to heightened 

scrutiny that will include an evaluation of the 

individual’s performance and involvement in 

corporate initiatives and policymaking. For 

lower-level employees, a de minimis golden 

parachute payment of up to $5,000 per individual 

is permissible without a supervisory application 

in most cases. The bank is required to maintain a 

record of the individuals receiving the payments, 

together with signed and dated certifications of 

the amounts received.

Concerns with Energy Lending Programs

The FDIC, along with other financial regulators, 

issued an alert on July 6, 2010, notifying financial 

institutions about a Federal Housing Finance 

Authority (FHFA) Statement Relative to Concerns 

with Certain Energy Lending Programs. The 

statement relates to FHFA and FDIC concerns 

with certain energy retrofit lending programs 

and indicates institutions should be aware of 

such programs, as deficiencies within the 

programs, such as weak underwriting and 

consumer-protection standards, could affect an 

institution’s residential mortgage lending activities 

and its ability to sell loans to Fannie Mae and 

Freddie Mac.

Secure and Fair Enforcement for Mortgage 

Licensing Act of 2008

On July 28, 2010, the FDIC along with the other 

federal banking agencies, published the final rule 

implementing the requirements of the Secure 

and Fair Enforcement for Mortgage Licensing 

Act of 2008 (SAFE Act). The SAFE Act requires 

residential mortgage loan originators who are 

employees of national and state banks, savings 

associations, Farm Credit System institutions, 

credit unions, and certain of their subsidiaries 

(agency-regulated institutions) to be registered 

in the Nationwide Mortgage Licensing System 

and Registry, an online database. The FIL 

highlights the rule’s requirements for appropriate 

policies, procedures, and management systems 

to ensure compliance with the SAFE Act. 

The SAFE Act is intended to improve the 

accountability and tracking of residential mortgage 

loan originators (MLOs), enhance consumer 

protection, reduce fraud, and provide consumers 

with easily accessible information regarding an 

MLO’s professional background.
MANAGEMENT’S DISCUSSION AND ANALYSIS 35

Municipal Advisor Rule

On October 1, 2010, the FDIC issued a FIL 

announcing the Securities and Exchange 

Commission’s (SEC) issuance of an interim final 

temporary rule requiring all municipal advisors to 

register with the SEC by October 1, 2010. The 

FIL highlights definitions of municipal advisors 

and municipal financial products, and notified 

financial institutions that they should review their 

dealings with municipal entities to determine 

if such dealings will require registration as a 

municipal advisor.

Regulatory Relief

During 2010, the FDIC issued 23 Financial 

Institution Letters (FILs) that provided guidance 

to help financial institutions and facilitate recovery 

in areas damaged by severe storms, tornadoes, 

flooding, and other natural disasters.

Consumer Protection and Compliance Rules 

and Guidance

In March 2010, the FDIC approved and issued, 

along with the other federal bank regulators, 

updated Interagency Questions and Answers 

Regarding Community Reinvestment. These Q&As 

consolidate and supersede all previously published 

versions of this guidance. A new Q&A provides 

examples of how to demonstrate that community 

development services meet the criteria of serving 

low- and moderate-income areas and people. The 

revised Q&As enable consideration of a pro rata 

share of mixed income affordable housing projects 

as community development projects. 

In September 2010, the FDIC, along with the 

other federal bank regulators, issued a final CRA 

rule to implement a provision of the Higher 

Education Opportunity Act. The rule provides for 

consideration of low-cost higher education loans 

to low-income borrowers as a positive factor when 

assessing a financial institution’s record of meeting 

community credit needs under the CRA. The 

rule also incorporates a CRA statutory provision 

that allows the agencies to consider a financial 

institution’s capital investment, loan participation, 

and other ventures with minority-owned financial 

institutions, women-owned institutions, and lowincome credit unions as factors in assessing the 

institution’s CRA record. 

In December 2010, the agencies published 

a final CRA rule that revises the definition 

of “community development” in the CRA 

regulations to provide favorable CRA 

consideration for loans, investments, and 

services by financial institutions that directly 

support, enable or facilitate eligible projects 

and activities in designated target areas of the 

Neighborhood Stabilization Program (NSP) 

approved by the Department of Housing and 

Urban Development. The expanded definition 

of “community development” in the CRA 

regulations will help leverage NSP funds in areas 

experiencing high foreclosure and vacancy rates 

and neighborhood blight.

In May 2010, the FDIC issued guidance to assist 

lenders in meeting their compliance obligations 

under the National Flood Insurance Program 

(NFIP) during periods when the statutory 

authority of the Federal Emergency Management 

Agency (FEMA) to issue flood insurance contracts 

under the NFIP lapses. In December 2010, the 

FDIC issued a notice to its supervised financial 

institutions that FEMA announced that Preferred 

Risk Policy eligibility will be extended two years 

beginning January 1, 2011.

In August 2010, the FDIC, in cooperation 

with the other FFIEC member agencies, issued 

supervisory guidance on reverse mortgage 

products. The guidance emphasizes the consumer 

protection concerns raised by reverse mortgages 

and the importance of financial institutions 

mitigating the compliance and reputation risks 

associated with these products.

In September 2010, the FDIC issued a 

compliance guide for state non-member banks 

wishing to use the model privacy form to comply 

with disclosure requirements under the GrammLeach-Bliley Act.

In November 2010, the FDIC issued final 

supervisory guidance on overdraft payment 

programs. The final guidance reaffirms existing 
36 MANAGEMENT’S DISCUSSION AND ANALYSIS

supervisory expectations described in the February 

2005 Joint Guidance on Overdraft Protection 

Programs, and provides specific guidance with 

respect to automated overdraft payment programs. 

In particular, the FDIC guidance states that 

financial institution management should be 

especially vigilant with respect to product overuse, 

which may harm consumers.

Monitoring Emerging Risks

The FDIC relies heavily on on-site supervisory 

activities to identify existing and emerging risks. 

In addition to on-site supervisory activities, 

the FDIC uses several established off-site 

processes, including the Statistical CAMELS 

Off-site Rating (SCOR) system and the Growth 

Monitoring System (GMS), as well as more recent 

comprehensive reviews (such as the Quarterly 

Supervisory Risk Profile), to assess how identified 

risks are likely to affect insured institutions’ risk 

profiles and ratings. These ongoing analyses have 

been augmented with numerous ad hoc reviews, 

such as reviews of commercial real estate lending 

trends, interest rate risk exposure, allowance 

for loan and lease loss trends, and dividend 

payments. Furthermore, the FDIC replaced its 

former Underwriting Survey with a Credit and 

Consumer Products/Services Survey. The new 

survey extends beyond underwriting practices and 

addresses new or evolving products, strategies, 

and consumer compliance issues and is now 

completed by examiners at the conclusion of 

each risk management and consumer compliance 

examination. Supervisory staff monitors and 

analyzes this real-time examiner input and uses 

the information to help determine the need 

for changes in policy guidance or supervisory 

strategies as appropriate.

Regulatory Reporting Revisions

The FDIC, jointly with the Office of the 

Comptroller of the Currency and the Federal 

Reserve Board, implemented revisions to the 

Consolidated Reports of Condition and Income 

(Call Reports) that took effect in March and 

December 2010. The revisions responded to such 

developments as the temporary increase in the 

deposit insurance limit, changes in accounting 

standards, and credit availability concerns. The 

reporting changes that took effect on March 

31, 2010, included new data on other than 

temporary impairments of debt securities, loans 

to non-depository financial institutions, and assets 

acquired from failed institutions covered by FDIC 

loss-share agreements; additional data on certain 

time deposits and unused commitments; and a 

change from annual to quarterly reporting for 

small-business and small-farm lending data. 

The agencies began to collect new data 

pertaining to reverse mortgages annually 

effective December 31, 2010.

As a result of a change in the basis for calculating 

assessments for banks participating in the FDIC’s 

TAGP in the third quarter of 2010, the agencies 

revised the Call Report items used to collect 

data on TAGP-eligible accounts in September 

2010. For the final two quarters of the TAGP, 

participating banks were required to report the 

total dollar amount and number of TAGP-eligible 

accounts as average daily balances rather than 

quarter-end balances.

With the enactment of temporary unlimited 

insurance coverage for noninterest-bearing 

transaction accounts by the Dodd-Frank Act 

effective December 31, 2010, the agencies added 

two new items to the Call Report as of that date 

for the reporting of the quarter-end dollar amount 

and number of noninterest-bearing transaction 

accounts as defined in the Act. These new items 

must be completed by all banks, not only those 

that participated in the TAGP.

In September 2010, the agencies proposed several 

revisions to the Call Report, primarily to assist 

the agencies in gaining a better understanding 

of banks’ credit and liquidity risk exposures. The 

proposed revisions, which took effect on March 

31, 2011, include additional data on troubled 

debt restructurings, commercial mortgage-backed 

securities, private sector deposits, loans and other 

real estate covered by FDIC loss-share agreements, 

bank-owned life insurance, and trust department 

collective investment funds; new data on auto 

loans, deposits obtained through deposit listing 

services, and assets and liabilities of consolidated 
MANAGEMENT’S DISCUSSION AND ANALYSIS 37

variable interest entities and captive insurance 

subsidiaries; and instructional revisions relating to 

construction loans and repricing data. 

Promoting Economic Inclusion

The FDIC undertook a number of initiatives in 

2010 to promote financial access to IDIs for lowand moderate-income communities. 

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 underserved 

consumers into the financial mainstream.

The FDIC expanded its AEI efforts during 2010 

to increase measurable results in the areas of 

new bank accounts, small-dollar loan products, 

remittance products, and the delivery of financial 

education to more underserved consumers. 

During 2010, over 152 banks and organizations 

joined AEI nationwide, bringing the total number 

of AEI members to 1,119. There were 45,776 new 

bank accounts opened during 2010, bringing the 

total number of bank accounts opened through 

the AEI to 208,458. During 2010, approximately 

56,556 consumers received financial education 

through the AEI, bringing the total number of 

consumers educated to 199,392. Also, 48 banks 

were in the process of offering or developing 

small-dollar loans, 27 banks were offering 

remittance products, and 26 banks were providing 

innovative savings products through the AEI at 

the end of 2010.

During 2010, the FDIC expanded its efforts 

to address additional markets with high 

concentrations of unbanked and underbanked 

households and aligned its targeted efforts with 

the results of its 2009 unbanked survey. Presently 

in 14 markets, the FDIC began the initial 

organization and planning for AEI initiatives in 

two additional markets: Milwaukee, WI, and 

St. Louis, MO. Additionally, the FDIC worked 

closely during 2010 to provide technical assistance 

and support to communities in Ohio and 

northwestern Indiana interested in forming AEI 

coalitions, and provided a loaned executive to lead 

the Bank On California campaign.

The FDIC also worked closely during 2010 with 

the National League of Cities to provide technical 

assistance to facilitate the implementation of Bank 

On campaigns in: Seattle, WA; Savannah, GA; 

Houston and San Antonio, TX; Indianapolis, IN; 

Aurora, IL; Gaithersburg, MD; and Jacksonville, 

FL. The FDIC was also invited to serve as a 

working committee member and advisor to 

facilitate the launch of a Bank On Washington, 

DC, campaign launched in April 2010.

Advancing Financial Education

The FDIC’s award-winning Money Smart

curriculum is available in seven languages, largeprint and Braille versions, as computer-based 

instruction, and as podcast audio instruction. 

Since its inception, over 2.4 million individuals 

have participated in Money Smart classes and selfpaced computer-based instruction. Approximately 

300,000 of these participants subsequently 

established new banking relationships.

The FDIC significantly expanded its financial 

education efforts during 2010 through a multipart strategy that included making available 

timely, high-quality financial education 

products, expanding delivery channels, and 

sharing best practices.

In 2010, the FDIC released an enhanced version 

of its instructor-led Money Smart financial 

education curriculum for adults. The enhanced 

curriculum incorporates changes in the law and 

industry practices that have occurred since Money 

Smart was last revised in 2006. For instance, the 

curriculum reflects recent amendments to the 

rules pertaining to credit cards as well as the new 

overdraft opt-in rule. A new module, Financial 

Recovery, provides an overview of the steps 

consumers can take to rebuild their finances after a 

financial setback. Similar enhancements were also 

made to Money Smart for Young Adults.

The FDIC also released a Spanish language 

version of the Money Smart Podcast Network, a 

portable audio version of Money Smart suitable 
38 MANAGEMENT’S DISCUSSION AND ANALYSIS

for use with virtually all MP3 players. Showing 

the appeal of a portable audio version, the MP3 

English version received more than 522,000 hits 

during more than 23,000 individual sessions 

(individual visitors) during 2010, and the Spanish 

version received nearly 1,000 hits between its 

release on October 14, 2010, and year-end.

The FDIC’s delivery channels for financial 

education were expanded, in particular, through 

a historic partnership agreement signed on 

November 15, 2010, with the National Credit 

Union Administration and the U.S. Department

of Education, to promote financial education 

and access for low- and moderate-income 

students. The agreement will promote educators 

and IDIs working together to help students 

receive financial education and use mainstream 

banking products.

Financial education best practices were shared 

through four editions of Money Smart News, 

which reached over 40,000 subscribers. Success 

stories were shared on topics including reaching 

households struggling to survive a job loss and 

providing financial education to 

college students.

As a member of the Financial Literacy and 

Education Commission, the FDIC continued 

to actively support the Commission’s efforts to 

improve financial literacy in America. During 

2010, the FDIC was significantly involved in 

the work of the National Strategy Working 

Group, which was charged with drafting a new 

national strategy to promote financial literacy 

and education. In addition, the FDIC chairs the 

Commission’s Core Competencies Subcommittee, 

which worked closely with the Department 

of the Treasury and a group of experts in the 

financial education field, including researchers 

and practitioners, to help draft the various core 

principles that individuals should know and the 

basic concepts program providers should cover.

The FDIC also took a leadership role among 

federal agencies to promote the 2010 America 

Saves Week to encourage consumers to establish 

a basic savings account or boost existing savings. 

Chairman Bair authored the nationally distributed 

Your Savings – Good for You, Your Family, and Your 

Peace of Mind op-ed. In addition, a video featuring 

Chairman Bair encouraging consumers to save 

and participate in America Saves Week received 

over 6,000 views on YouTube and was featured on 

the homepage of America Saves. The FDIC also 

provided technical assistance or other involvement 

to at least 15 America Saves coalitions.

Leading Community Development

FDIC community affairs staff are located in 

each of the FDIC’s regions and lead a range of 

community development activities. In 2010, 

the FDIC undertook over 200 community 

development, technical assistance, financial 

education, and outreach activities and events. 

These activities were designed to promote 

awareness of investment opportunities to financial 

institutions, access to capital within communities, 

knowledge-sharing among the public and private 

sector, and wealth-building opportunities for 

families. Staff also provided technical assistance 

and training to financial institutions on 

community development and other CRA-related 

topics. Representatives throughout the financial 

industry and their stakeholders collaborated 

with the FDIC on a broad range of initiatives 

structured to meet local and regional needs for 

financial products and services, credit, assetbuilding, affordable housing, small business and 

micro-enterprise development, and financial 

education.

During 2010, the FDIC launched a pilot initiative 

to build awareness of the FDIC’s asset purchase 

opportunities among nonprofit affordable 

housing developers, NSP grantees, and local 

municipalities. The pilot was designed to increase 

their access and ability to successfully bid on 

and acquire FDIC-owned real estate from failed 

banks for redevelopment for affordable housing 

and other community development purposes. 

As a result, 30 properties were purchased from 

the FDIC by NSP grantees and redeployed as 

affordable housing in the southeast region.
MANAGEMENT’S DISCUSSION AND ANALYSIS 39

Recognizing the importance of small business 

growth and job creation as an essential 

component in America’s economic recovery, the 

FDIC continued its emphasis on facilitating 

small-business development, expansion, and 

recovery during 2010. The FDIC entered into 

a strategic alliance with the U.S. Small Business 

Administration (SBA) on September 8, 2010, 

to facilitate the development and expansion, of 

small businesses. As part of the agreement, the 

FDIC and the SBA collaborated in co-sponsoring 

small-business information, resource, and 

capacity-building seminars in New York, NY; 

Los Angeles, CA; Memphis, TN; Greensboro, 

AL; Jackson, MS; New Orleans, LA; Tampa, FL; 

Richmond, VA; and Raleigh, NC. The events 

provided information and resources to over 1,500 

small business owners, entrepreneurs, banking 

professionals and others.

The FDIC continued its initiative to help 

consumers and the banking industry avoid 

unnecessary foreclosures and stop foreclosure 

“rescue” scams that promise false hope to 

consumers at risk of losing their homes.

The FDIC focused its foreclosure mitigation 

efforts in three areas during 2010:

Q Direct outreach to consumers with 

information, education, counseling, and 

referrals. During 2010, in collaboration 

with NeighborWorks® America, the FDIC 

sponsored four counselor-driven homeowner 

outreach events in high-need markets to 

provide face-to-face assistance for borrowers 

at risk of foreclosure. More than 4,000 

homeowners attended these events. 

Q Industry outreach and education 

targeted to lenders, loan servicers, local 

governmental agencies, housing counselors, 

and first responders (faith-based 

organizations, advocacy organizations, 

social service organizations, etc.). During 

2010, the FDIC hosted or co-hosted five 

major loan modification scam outreach 

events in collaboration with NeighborWorks®

America. These events were targeted to local 

agencies and nonprofits that have the capacity 

to educate stakeholders. These events resulted 

in more than 40,000 pieces of FDIC-branded 

outreach materials provided to partners for 

distribution, and led to more than 200 scams 

being reported to authorities. 

Q Support for capacity-building initiatives 

to help expand the quantity and quality 

of foreclosure counseling assistance that 

is available within the industry. Working 

closely with NeighborWorks® America and 

other national and local counselors and 

intermediaries, the FDIC worked to support 

industry efforts to build the capacity of 

housing counseling agencies. For example, the 

FDIC facilitated two community stabilization 

place trainings, which led to more than 69 

homeownership professionals being trained 

in best practices and strategies to promote 

community recovery.

Gulf Coast Oil Spill Response

The FDIC strongly supported efforts to expedite 

a recovery from the April 22, 2010, Deepwater 

Horizon oil spill in the Gulf Coast region. At 

the onset of this spill of national significance, the 

FDIC recognized that some borrowers’ cash flow 

and repayment capacity would be unexpectedly 

impaired, and that banks should consider assisting 

borrowers that would be severely impacted. 

Accordingly, on May 7, 2010, the FDIC issued 

FIL 24-2010, Guidance for Financial Institutions 

Working with Borrowers in the Gulf Coast Region 

Affected by a “Spill of National Significance”. This 

guidance encourages banks to work constructively 

with borrowers experiencing difficulties beyond 

their control because of damage caused by the 

spill. It also encourages banks to extend repayment 

terms, restructure existing loans, or ease terms 

for new loans in a manner consistent with sound 

banking practices. The guidance recognizes that 

efforts to work with borrowers in communities 

under stress can be consistent with safe and 

sound banking practices as well as in the public 

interest. The FDIC also joined the other banking 

agencies in issuing a similar directive on July 14, 

2010, titled Interagency Statement on Financial 

Institutions Affected by the Deepwater Horizon 

Oil Spill.
40 MANAGEMENT’S DISCUSSION AND ANALYSIS

Through field offices in Florida, Alabama, 

Mississippi, and Louisiana, and frequent 

interaction with state regulators and bank 

trade organizations, the FDIC worked hard 

to understand the spill’s impact on banking, 

commerce, and tourism. FDIC executives from 

Washington and the Dallas and Atlanta regional 

offices conducted outreach and communicated 

with various constituencies to enhance knowledge 

of the spill’s scope and effects. In addition, the 

FDIC engaged in a concerted dialogue with trade 

associations, community and business leaders, 

and congressional staff from the Gulf Coast 

region to gain an “on the ground” perspective on 

the spill’s short- and long-term implications. The 

FDIC will strive to maintain this dialogue with 

bankers and community leaders to ensure its 

supervisory approach prudently accommodates 

recovery efforts.

Affordable Small-Dollar Loan Guidelines 

and Pilot Program

The FDIC’s two-year Small-Dollar Loan Pilot 

Program concluded in the fourth quarter of 2009, 

with final data reported to the FDIC in midMay 2010. The pilot was a case study designed 

to illustrate how banks can profitably offer 

affordable small-dollar loans as an alternative to 

high-cost credit products such as payday loans 

and fee-based overdraft programs. At the end of 

the pilot, 28 banks were participating with total 

assets ranging from $28 million to $10 billion 

and operations in 28 states. Over the course of the 

pilot, participating banks originated more than 

34,400 small-dollar loans with a principal balance 

of $40.2 million. 

The pilot demonstrated that banks can offer 

alternatives to costly forms of emergency 

credit, and resulted in a template of essential 

product design and delivery elements for safe, 

affordable, and feasible small-dollar loans that 

can be replicated by other banks. (See www.fdic.

gov/smalldollarloans/ for the template). Going 

forward, the FDIC is working with the banking 

industry, consumer and community groups, 

nonprofit organizations, other government 

agencies, and others to research and pursue 

strategies that could prove useful in expanding the 

supply of small-dollar loans. Among other things, 

these strategies include:

Q Highlighting the facts about the pilot and 

other successful small-dollar loan models. 

Q Studying creation of pools of nonprofit or 

government funds to serve as “guarantees” for 

small-dollar loans. 

Q Encouraging broad-based partnerships among 

banks, nonprofit, and community groups to 

work together in designing and delivering 

small-dollar loans. 

Q Studying the feasibility of safe and innovative 

emerging small-dollar loan technologies and 

business models. 

Q Considering ways that regulators can 

encourage banks to offer safe and affordable 

small-dollar products, and that these products 

can receive favorable CRA consideration.

Information Technology, Cyber Fraud, and 

Financial Crimes 

The FDIC sponsored a Combating Commercial 

Payments Fraud Symposium in March 2010 

that focused on the nature of this increasingly 

sophisticated form of financial fraud and how the 

industry and regulators can effectively respond. 

Other major accomplishments during 2010 in 

promoting information technology (IT) security 

and combating cyber fraud and other financial 

crimes included the following: 

Q Published, in conjunction with the other 

FFIEC agencies, a Retail Payment Systems 

Handbook. The booklet discusses various 

technologies and products used in payment 

systems and the risk management techniques 

that institutions should use.

Q Issued, in conjunction with the other FFIEC 

agencies, an updated and expanded program 

to review specialized software used by financial 

institutions.
MANAGEMENT’S DISCUSSION AND ANALYSIS 41

Q Published, in conjunction with the other 

FFIEC agencies, a white paper entitled “The 

Detection and Deterrence of Mortgage Fraud 

Against Financial Institutions”.

Q Issued Guidance on Mitigating Risk Posed 

by Information Stored on Photocopiers, Fax 

Machines and Printers.

Q Assisted financial institutions in identifying 

and shutting down approximately 47 

“phishing” websites. The term “phishing”—as 

in fishing for confidential information—refers 

to a scam that encompasses fraudulently 

obtaining and using an individual’s personal or 

financial information. 

Q Issued 130 Special Alerts to FDIC-supervised 

institutions on reported cases of counterfeit or 

fraudulent bank checks. 

Q Issued 3 Consumer Alerts pertaining to 

e-mails and telephone calls fraudulently 

claiming to be from the FDIC.

The FDIC conducts IT examinations at each 

risk management examination to ensure that 

institutions have implemented adequate risk 

management practices for the confidentiality, 

integrity, and availability of the institution’s 

sensitive, material, and critical information 

assets using the FFIEC Uniform Rating 

System for Information Technology (URSIT). 

The FDIC also participates in interagency 

examinations of significant technology service 

providers. In 2010, the FDIC conducted 2,121 

IT examinations at financial institutions and 

technology service providers. Further, as part 

of its ongoing supervision process, the FDIC 

monitors significant events, such as data breaches 

and natural disasters, that may impact financial 

institution operations or customers.

As an additional element of its leadership role in 

promoting effective bank supervision practices, 

the FDIC provides technical assistance, training, 

and consultations to international governmental 

banking regulators in the area of IT examinations. 

In 2010, the FDIC provided foreign technical 

assistance training to the Central Bank of Iraq and 

the Bank of Albania to train examiners and develop 

examination policies for managing IT and other 

operational risks.

Consumer Complaints and Inquiries 

The FDIC investigates consumer complaints 

concerning FDIC-supervised institutions and 

answers inquiries from the public about consumer 

protection laws and banking practices. As of 

December 31, 2010, the FDIC received 13,756 

written complaints, of which 6,862 involved 

complaints against state non-member 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. The FDIC also responded to 1,960 

written inquiries, of which 388 involved state 

non-member institutions. In addition, the FDIC 

responded to 6,666 telephone calls from the 

public and members of the banking community, 

4,375 of which concerned state non-member 

institutions.

Deposit Insurance Education

An important part of the FDIC’s deposit 

insurance mission is ensuring 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 for both 

bankers and consumers.

In 2010, the FDIC continued its efforts to 

educate bankers and consumers about the rules 

and requirements for FDIC insurance coverage. 

The FDIC conducted a series of eight nationwide 

telephone seminars for bankers on deposit 

insurance coverage. These seminars reached an 

estimated 60,000 bankers participating at over 

16,000 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).
42 MANAGEMENT’S DISCUSSION AND ANALYSIS

Deposit Insurance Coverage Inquiries

During 2010, the FDIC received and answered 

approximately 143,000 telephone deposit 

insurance-related inquiries from consumers 

and bankers. Of these inquiries, 119,000 were 

addressed by the FDIC Call Center and 24,000 

were handled by deposit insurance coverage 

subject matter experts. In addition to telephone 

deposit insurance inquiries, the FDIC received 

3,000 written deposit insurance coverage inquiries 

from consumers and bankers. Of these inquiries, 

99 percent received responses within two weeks, as 

required by corporate policy. 

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 

deposit in an FDIC-insured institution due to 

a failure. Once an institution is closed by its 

chartering authority—the state for state-chartered 

institutions, the OCC for national banks, and 

the OTS for federal savings associations—and 

the FDIC is appointed receiver, the FDIC is 

responsible for resolving the failed bank or savings 

association.

The FDIC employs a variety of business 

practices to resolve a failed institution. These 

business 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 practices 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 creditors of the 

failed institution.

The resolution process involves valuing a failing 

institution, marketing it, soliciting and accepting 

bids for the sale of the institution, determining 

which bid is least costly to the insurance fund, and 

working with the acquiring institution through 

the closing process.

In order to minimize disruption to the local 

community, the resolution process must be 

performed quickly and as smoothly as possible. 

There are three basic resolution methods: purchase 

and assumption transactions, deposit payoffs, 

and utilizing a Deposit Insurance National 

Bank (DINB).

The purchase and assumption (P&A) transaction 

is the most common resolution method used 

for failing institutions. In a P&A transaction, a 

healthy institution purchases certain assets and 

assumes certain liabilities of the failed institution. 

There are a variety of P&A transactions that 

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 lossshare transaction, the FDIC as receiver agrees to 

share losses on certain loans 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 would the FDIC’s immediate 

liquidation of these assets.

Deposit payoffs are only executed if a bid for a 

P&A transaction does not meet the least-cost test 

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

in its corporate capacity as deposit insurer, makes 

sure that the customers of the failed institution 

receive the full amount of their insured deposits.

The Banking Act of 1933 authorized 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 which allows 

failed bank customers a brief period of time to 

move their deposit account(s) to other insured 

institutions. A DINB allows for a failed bank to 
MANAGEMENT’S DISCUSSION AND ANALYSIS 43

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, and for 95 percent 

of the failed institutions, at least 90 percent of the 

book value of marketable assets are marketed for 

sale within 90 days of an institution’s failure for 

cash sales and 120 days for structured sales.

Structured sales for 2010 totaled $8.8 billion in 

unpaid principal balances from commercial real 

estate and residential loans acquired from various 

receiverships. These transactions oftentimes 

involved FDIC guaranteed purchase money 

debt and equity in a limited liability company 

shared between the respective receivership which 

contributed the assets to the sale and the successful 

purchaser. Cash sales of assets for the year totaled 

$773 million in book value.

As a result of our marketing and collection efforts, 

the book value of assets in inventory decreased by 

$14.4 billion in 2010. The chart below shows the 

beginning and ending balances of these assets by 

asset type.

Assets in Inventory by Asset Type

Dollars in Millions

Asset Type

Assets in 

Inventory

01/01/10

Assets in 

Inventory

12/31/10

Securities $12,425 $12,820

Consumer Loans 475 56

Commercial Loans 4,423 3,369

Real Estate Mortgages 15,613 5,683

Other Assets/Judgments 4,096 2,103

Owned Assets 3,257 2,086

Net Investments in 

Subsidiaries 1,066 881

Total $41,355 $26,998

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 

retained assets. These include, but are not limited 

to: asset sale and/or management agreements, 

structured transactions, and securitizations.

Financial Institution Failures

During 2010, the FDIC experienced a significant 

increase in the number of institution failures, 157, 

as compared to previous years. 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 2008 – 2010

Dollars in Billions

2010 2009 2008

Total Institutions 157 140 25

Total Assets of 

Failed Institutions1 $92.1 $169.7 $371.9

Total Deposits of 

Failed Institutions1 $79.5 $137.1 $234.3

Estimated Loss to the DIF $24.2 $37.1 $19.6 

1 Total Assets and Total Deposits data are based on the last Call 

Report filed by the institution prior to failure.
44 MANAGEMENT’S DISCUSSION AND ANALYSIS

The FDIC makes extensive use of contractors 

in managing and selling the assets of failed 

institutions. In order to ensure that contractor 

resources are effectively managed, a substantial 

number of dedicated contract oversight and 

management positions were added during 2010 

and extensive training was conducted for new 

employees before assigning them to contractor 

oversight duties. All newly designated oversight 

managers and technical monitors receive training 

in advance of performing contract administration 

responsibilities. Further, new reporting capabilities 

were implemented to the procurement system. 

The contracting department was reorganized, and 

the ratio of task orders to oversight managers was 

significantly reduced.

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 estate. In 2010, the 

number of receiverships under management 

increased by 84 percent, due to the increase in 

failure activity. The following chart shows overall 

receivership activity for the FDIC in 2010.

Receivership Activity

Active Receiverships as of 01/01/101 187

New Receiverships 157

Receiverships Inactivated 0

Active Receiverships as of 12/31/101 344

1 Includes eight FSLIC Resolution Fund receiverships.

Minority and Women Outreach

The FDIC relies on contractors to help meet 

its mission to maintain stability and public 

confidence in the U.S. financial system. In 2010, 

the FDIC continued to host “Doing Business 

with the FDIC” and “Representing the FDIC” 

seminars. The FDIC conducted four seminars 

nationwide and reached out to Minority and 

Women Owned Businesses (MWOBs) and 

Minority and Women Owned Law Firms 

(MWOLFs) to inform them about the FDIC’s 

procurement and legal opportunities. In addition, 

FDIC staff served as panel members, exhibitors, 

and active participants in numerous events 

sponsored by trade and community organizations, 

and provided valuable information to attendees 

regarding the FDIC’s procurement process.

As a result of this additional outreach, the FDIC 

has registered approximately 2,200 MWOBs in 

an internal database. This database was used in 

addition to the newly developed ARON Database 

System (ARON) for generating source lists. 

ARON was developed exclusively for the FDIC 

in an effort to retrieve comprehensive lists of 

competitive MWOBs for potential solicitations. 

The system retrieves contractors’ information 

directly from the Central Contractor Registration 

(CCR) System. Firms that want to do business 

with the government must be registered in the 

CCR System.

In 2010, the FDIC awarded 2,573 contracts, of 

which 522 contracts, or 20 percent, were awarded 

to MWOBs. The total value of contracts awarded 

was $2.6 billion, of which $641 million, or 24 

percent, was awarded to MWOBs, compared to 

32 percent for all of 2009. Lower award values in 

areas where there was strong MWOB participation 

in conjunction with increases in award dollars in 

areas where there was no MWOB participation 

resulted in an overall decrease in dollars awarded 

to MWOBs in 2010. In addition, the FDIC paid 

outside counsel $87 million for legal services, 

of which $8 million, or 10 percent, was paid to 

MWOLFs, compared to 3 percent for all of 2009.

As a result of the number of bank failures for 

2010, the FDIC took a proactive effort to target 

minority and women investors to create awareness, 

promote synergy, and provide information 

regarding purchasing failed bank assets and 

acquiring and/or creating minority depository 

institutions. As previously stated, the FDIC 
MANAGEMENT’S DISCUSSION AND ANALYSIS 45

developed and jointly sponsored eight Asset 

Purchaser, Investor, and Minority Depository 

Institution (AIM) seminars.

In 2011, the FDIC will continue to encourage and 

foster diversity and the inclusion of minorities and 

women in its asset sales program as it continues to 

liquidate assets from failed financial institutions. 

The FDIC will explore an investor match program 

to connect large and small investors interested 

in bidding on the FDIC’s structured sales. In 

addition, the FDIC will conduct workshops to 

provide technical assistance to small investors 

and asset managers on how to participate in 

structured sales.

Protecting Insured Depositors

With the increase in failure activity in 2010, the 

FDIC’s focus on protecting insured depositors 

of failed institutions was of critical importance. 

Confidence in the banking system hinges on 

deposit insurance, and no insured deposits went 

unpaid in 2010.

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 2010, the FDIC paid dividends of 

$5 million to depositors whose accounts exceeded 

the insured limit(s). 

Professional Liability and Financial 

Crimes Recoveries

FDIC staff works to identify potential claims 

against directors, officers, accountants, fidelity 

bond carriers, appraisers, attorneys, and other 

professionals who may have contributed to 

the failure of an IDI. Once a claim is deemed 

meritorious and cost effective to pursue, the 

FDIC initiates legal action against the appropriate 

parties. During the year, the FDIC recovered 

approximately $78 million from these professional 

liability claims/settlements. 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 in conjunction 

with the U.S. Department of Justice, collected 

$6 million in criminal restitutions and forfeitures 

during the year. At the end of 2010, the FDIC’s 

caseload was composed of 153 professional 

liability lawsuits (up from 89 at year-end 2009) 

and 2,750 open investigations (up from 1,878) 

at year-end 2009. There also were 4,895 active 

restitution and forfeiture orders (up from 3,379 

at year-end 2009). This includes 247 FSLIC 

Resolution Fund orders, i.e., orders inherited 

from the Federal Savings and Loan Insurance 

Corporation on August 10, 1989, and orders 

inherited from the Resolution Trust Corporation 

on January 1, 1996.

Effective Management of 

Strategic Resources

The FDIC recognizes that it must effectively 

manage its human, financial, and technological 

resources in order to successfully carry out its 

mission and meet the performance goals and 

targets set forth in its annual performance plan. 

The Corporation must align these strategic 

resources with its mission and goals and 

deploy them where they are most needed in 

order to enhance its operational effectiveness, 

and minimize potential financial risks to the 

DIF. Major accomplishments in improving 

the Corporation’s operational efficiency and 

effectiveness during 2010 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 2010, the FDIC stepped 

up workforce planning and development initiatives 

that emphasized hiring individuals with the skill 

sets needed to address the greatly increased number 

of bank failures and problem institutions. The 

Corporation also deployed a number of strategies 

to more fully engage all employees in advancing 

the FDIC’s mission.
46 MANAGEMENT’S DISCUSSION AND ANALYSIS

Succession Management

In 2010, the Corporation significantly expanded its 

education and training curriculum for employees 

in the business lines, support functions, and for 

leadership development. Additionally, classroom 

learning and development opportunities were 

supplemented and supported with the expansion 

of e-learning, simulations, electronic performance 

support systems, job aids, and tool kits that were 

made available to new and tenured employees 

to quickly facilitate work processes and overall 

efficiencies. The FDIC is also engaged in a number 

of knowledge management approaches as it moves 

through the current financial crisis.

In 2010, the FDIC built on the transformed 

leadership development curriculum launched in 

2009 and continues to expand opportunities to all 

employees, including new hires. This curriculum 

takes a holistic approach, aligning leadership 

development with critical corporate goals and 

objectives, and promotes the desired corporate 

culture. By developing employees across the span 

of their careers, the Corporation builds a culture 

of leadership and further promotes a leadership 

succession strategy.

Additionally, the Corporation formalized its 

Master of Business Administration (MBA) 

program for Corporate Managers and Executive 

Managers, in conjunction with a major university. 

The evaluation results of the pilot MBA program 

were overwhelmingly positive, and participants 

provided explicit examples of direct application to 

their jobs and improved strategic thinking. Five 

candidates were selected for the 2010-2013 class.

Strategic Workforce Planning and Readiness

The FDIC utilized a number of employment 

strategies in 2010 to meet the need for additional 

human resources resulting from the increased 

number of failed financial institutions and the 

volume of additional examinations. Among 

these strategies, the FDIC reemployed over 240 

retired FDIC examiners, attorneys, resolutions 

and receiverships specialists, and support 

personnel; hired employees of failed institutions 

in temporary and term positions; recruited 

mid-career examiners who had developed their 

skills in other organizations; recruited term loan 

review specialists and compliance analysts from 

the private sector; and redeployed current FDIC 

employees with the requisite skills from other 

parts of the Corporation.

As the number of failed financial institutions 

continued to grow in 2010, the FDIC fully staffed 

two temporary satellite offices on both the west 

coast and the east coast to bring resources to 

bear in areas especially hard hit. The West Coast 

Temporary Satellite Office opened in Irvine, CA, 

in spring 2009, and as of year-end 2010 had 

nearly 500 employees. The East Coast Temporary 

Satellite Office opened in Jacksonville, FL, in 

fall 2009, and as of year-end 2010 had over 460 

employees, most of whom were hired in 2010. 

In January 2010, the FDIC Board authorized 

opening a third satellite office in Schaumburg, 

IL. During 2010, the Midwest Temporary 

Satellite Office was established and now has over 

300 employees on board. The Corporation also 

increased resolutions and receiverships staff in the 

Dallas Regional Office.

Almost all of the new employees in these new 

offices were hired on a non-permanent basis to 

handle the temporary increase in bank-closing 

and asset management activities expected over 

the next two to four years. To fully staff these 

offices and meet other needs brought on by the 

financial crisis, including increased examination 

activities, the Corporation hired approximately 

2,000 additional employees in 2010. The use of 

term appointments will allow the FDIC staff to 

return to an adjusted normal size once the crisis 

is over without the disruptions that reductions in 

permanent staff would cause.

The FDIC continued its efforts to build workforce 

flexibility and readiness by increasing its entrylevel hiring into the Corporate Employee Program 

(CEP). The CEP is a multi-year development 

program designed to cross-train new employees 

in the FDIC’s major business lines. In 2010, 148 

new business line employees (883 hired since 

program inception) entered this multi-discipline 

program. The CEP continued to provide a 

foundation across the full spectrum of the 
MANAGEMENT’S DISCUSSION AND ANALYSIS 47

Corporation’s business lines, allowing for greater 

flexibility to respond to changes in the financial 

services industry and in meeting the Corporation’s 

human capital needs. As in years past, the program 

continued to provide the FDIC flexibilities as 

program participants were called upon to assist 

with both bank examination and bank closing 

activities based on the skills they obtained through 

their program requirements and experiences. 

As anticipated, participants are also successfully 

earning their commissioned bank examiner 

credentials, having completed their three to four 

years of specialized training in field offices across 

the country. The FDIC had 163 commissioned 

participants by the end of 2010. These individuals 

are well-prepared to lead examinations on behalf 

of the Corporation.

Employee Engagement

The FDIC continually evaluates its human 

capital programs and strategies to ensure that 

the Corporation remains an employer of choice 

and that all of its employees are fully engaged 

and aligned with the Corporation’s mission. The 

FDIC’s annual employee survey incorporates 

and expands on the Federal Employee Viewpoint 

Survey mandated by Congress. A corporate 

Culture Change Initiative was instituted in 2008 

to address issues resulting from the survey.

The Culture Change Initiative has continued 

to gain momentum, and progress is occurring 

toward completion of goals identified in the 

Culture Change Strategic Plan. The 2008 and 

2009 employee survey results showed marked 

improvement in the areas of opportunity, while 

maintaining or improving on areas of strength. 

In 2010, the Corporation was honored with an 

award from the Partnership for Public Service as 

third best large agency in the Best Places to Work 

in the Federal Government rankings, based on the 

results of the 2009 All-Employee Survey. Much 

of this improvement is attributable to the Culture 

Change Program.

A new Culture Change Initiative was launched in 

September 2010 with an emphasis on individual 

as well as corporate responsibility for culture 

improvement. The Culture Change Council was 

reconstituted with new members, focus groups 

were conducted to determine where efforts should 

be made, training was conducted, and a number 

of other programs were begun as a result. Analysis 

indicates a positive response to these events and 

a willingness to continue to engage in the change 

process. The question-and-answer mailbox and 

quarterly all-employee teleconferences with the 

Chairman continued so that employees could 

provide input, make suggestions, and 

ask questions.

Employee Learning and Development

The FDIC offers a range of learning and 

development opportunities to meet the varied 

needs of its employees. It uses innovative solutions 

to prepare new and existing employees for the 

challenges ahead. By streamlining existing courses, 

promoting blended learning, and creating online, 

just-in-time toolkits and job aids, new employees 

can more quickly and thoroughly assume their 

job functions and assist with examination and 

resolution activities. In order to meet the 2010 

learning needs of employees, the FDIC responded 

with flexible course scheduling, additional 

instructor-led and online courses, electronic 

performance support systems, and greater access to 

online resources via a newly redesigned 

intranet website.

In support of business requirements, the 

Corporation developed two new precommissioning courses for compliance examiners, 

a revised certificate program focused on the 

receivership and resolution function, and online 

toolkits for mid-career examiners. In addition to 

technical training, the Corporation also continued 

to focus on the development of all employees and 

future leaders by launching additional leadership 

development courses and electives. The FDIC’s 

leadership development curriculum supports 

the regulations issued by the Office of Personnel 

Management in December 2009 on succession 

planning and development for managers and 

supervisors. Additionally in 2010, the capabilities 

of the learning management system were 

expanded to allow the Corporation to track its 

employees’ certificates and continuing education 

requirements.
48 MANAGEMENT’S DISCUSSION AND ANALYSIS

To meet the challenges of a growing workforce 

and provide additional flexibility in employee 

learning and development, the Corporation 

located training facilities within the temporary 

satellite offices. The Corporation quickly assessed 

the specific needs of employees in these locations 

and delivered training on-site, thereby reducing 

the need for and expense associated with employee 

travel. The Corporation also undertook several 

knowledge management initiatives, capturing 

lessons learned from the current financial crisis so 

that future generations of FDIC employees and 

managers can benefit from the experience.

In 2010, the Corporation provided its employees 

with 172 instructor-led courses and 1,950 online 

courses to support various mission requirements. 

There were 16,010 instances of completed 

instructor-led courses and 32,850 instances of 

completed online courses.

Information Technology Management

IT resources are among the most valuable assets 

available to the FDIC in fulfilling its corporate 

mission. In today’s rapidly changing business 

environment, technology is frequently the 

foundation for achieving many FDIC business 

goals, especially those addressing efficiency and 

effectiveness in an industry where timely and 

accurate communication and data are paramount 

for supervising institutions, resolving institution 

failures, and monitoring associated risks in the 

marketplace.

IT Support for Resolutions

During 2010, the FDIC provided prompt and 

effective IT support for all bank closings. This 

was accomplished by ensuring that application 

systems, technologies, and staff were available 

to support the FDIC’s closing operations. In 

particular, the FDIC modernized its automated 

insured deposit claims process and increased the 

FDIC’s capacity to process very large failed banks 

and multiple failed banks’ information. The 

application supporting this process was critical to 

the FDIC’s successful closing operations during 

2010. Additionally, the non-deposit claims 

feature of this application increased efficiency of 

the overall closing process. This new subsystem 

introduced significant new technical capabilities to 

the FDIC.

“All of us share the credit for improving the corporate culture,” said Chairman Sheila C. Bair, shown here displaying the FDIC’s Best 

Places to Work award with (from left) Arleas Upton Kea, Benita Swann, Jesse Villarreal, Ira Kitmacher, and Brenda Hardnett.
MANAGEMENT’S DISCUSSION AND ANALYSIS 49

IT Support for Asset Marketing

The FDIC’s marketing of failed financial 

institution assets is a critical resolution and 

post-closing function to ensure the minimal 

loss possible from the closed institution. As 

the number of resolutions increased, so did IT 

operations and support for asset management. To 

ensure that the best possible application systems 

were available to support this critical function, the 

FDIC made a number of key enhancements to the 

Corporation’s primary asset management system. 

During 2010, significant improvements were 

made in the stability, scalability, and performance 

of this application, which enabled the Corporation 

to keep pace with the large increase of assets 

resulting from 157 bank closings. The enhanced 

application now accommodates, with room for 

expansion, thousands of online users and tens of 

billions of dollars of assets for sale.

Strengthening the FDIC’s Privacy Program

The FDIC has a well-established privacy program 

that works to maintain privacy awareness and 

promote transparency and public trust. Privacy, 

the protection of sensitive information, including 

personally identifiable information (PII), is 

integral to accomplishing the mission of the 

FDIC in both the banking industry and among 

U.S. consumers. The privacy program is a critical 

part of the Corporation’s business operations. 

Education and awareness are key components of 

the FDIC’s privacy program. During 2010, the 

FDIC held its second Privacy Awareness Week 

event to raise employee awareness about identity 

theft and fraud prevention. In addition, the FDIC 

conducted a corporate wide campaign called 

“Sensitive Data: Handle with Care” to increase 

employee and contractor awareness about their 

responsibilities to safeguard sensitive data and 

PII. More recently, the FDIC also implemented 

a new “Think Privacy” awareness campaign that 

includes privacy tips on each employee’s hardcopy 

earnings and leave statements and the nationwide 

distribution of lobby posters.

In response to the FDIC’s increased reliance 

on third-party vendors that support bank postclosing activities, the FDIC performed privacy 

assessments of the five vendors that process 

significant amounts of sensitive bank-customer 

data during the loan sale and asset valuation 

process subsequent to a bank closing. To 

complete these assessments, the FDIC developed 

and implemented a privacy risk assessment 

questionnaire and tool in order to determine 

the maturity of the vendors’ privacy program. In 

addition, the FDIC performed Privacy Impact 

Assessments, which collected information 

regarding the adequacy of their processes for 

handling and protecting the privacy and security 

of sensitive bank-customer data.

The FDIC has seen a sharp increase in the volume 

of needed information from failing institutions. To 

ensure that this increased data requirement does 

not increase its PII risk, the FDIC completed the 

second of three in-depth assessments of the bank 

closing process to identify and address risks to the 

privacy and security of bank-customer PII. A key 

outcome of this effort was the creation of a new 

Privacy Compliance Officer (PCO) role for each 

bank closing weekend. In this role, the PCO is 

the designated official responsible for monitoring 

privacy protection requirements during the bank 

closing weekend. In addition, during 2010, the 

FDIC improved the agency’s monitoring of the 

enterprise network to identify at-risk privacy 

data and prevent the loss of that information, 

particularly social security numbers. The FDIC 

was proactive in conducting unannounced 

privacy walkthroughs of its headquarters offices 

in order to check for unsecured sensitive data and 

PII and to increase employee and management 

awareness about protecting such data. Further, 

the FDIC also conducts an annual review of the 

Corporation’s digital library to identify, monitor, 

reduce, and secure documents containing PII.