FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

FDIC Advisory Committee of 

State Regulators 

October 18, 2023 

State-Federal Coordination 
FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

FDIC Advisory Committee of 

State Regulators 

October 18, 2023 

Asset-Liability Management 
5.5% 

5.0% 

4.5% 

4.0% 

3.5% 

3.0% 

2.5% 

2.0% 

1.5% 

1.0% 

0.5% 

0.0% -

Net Interest Margin Compression as Cost of Funds Increases 

Outpace Earning Asset Yields 

\ 

______ , 

- Yield on Earning Assets - Net Interest Margin - Cost of Funds -- Fed Funds Rate 

FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

I 

I 

3

 

The Effects of Rising Interest Rates on Earnings 

Source: Call Report data for community banks as defined in the FDIC’s 2020 Community Banking Study 

3 
30% 

25% 

20% 

15% 

10% 

5% 

0% 

Deposit Declines offset with Wholesale Funding 

---------------- " " - ________ , 

-------------- ----- ---

•• •• •••••••••• • • • 

FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

••••••••••••• •• 

•••••••••••••••••••••••••• •••••• 

•••••• 

• • • • 

-----

• • • • 

••• •• 

• • • • 

• • • • • • • • • • • 

-- Wholesale Funding / TA (L) 

- Domestic Deposits/ TA (R) 

- securities Portfolio (at cost)/ TA (L) 

• • • • Loans and Leases/ TA (R) 

• • • •• 

• • • ••••• 

90% 

85% 

80% 

75% 

70% 

65% 

60% 

4

 

The Effects of Rising Interest Rates on Liquidity 

Source: Call Report data for community banks as defined in the FDIC’s 2020 Community Banking Study 

4 
Rising Deposit Costs due to Increased Market Interest Rates and Deposit Migration 

2.7 1.8% 

2.4 • 1.6% 

• 

2.1 16% 16% 16% 170/o 18% • 1.4% 210/o . • 23% 

210/o • • 1.8 • • 1.2% • ----- V') • 

C 270/o 270/o 28% 270/o • g 1.5 280/o • 1.0% 47% 47% 470/o 450/o ·;::: ••• 440(e· ••• • 410/o I- ••• • • 390/o 

C 1.2 •• • • 0.8% • 500/o • • • • • -Ur • • • • • - • 0.9 • 500/o • 0.6% 500/o :\90/o 490/o 480/o • • •• • • • • ••• •• ••••• • •• 0.6 • •• •• 0.4% •• •• 

- 38% 38% 38% 37% 

0.3 

23% 24% 23% 23% 29% 0.2% 

0.0 0.0% 

4Ql5 4Ql6 4Ql7 4Ql8 4Ql9 4Q20 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 

- Transaction Accounts (L) - MMDA & Other Savings (L) - Time Deposits (L) • • • • Average Cost of Funds (R) 

FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

5

 

The Effects of Rising Interest Rates on Liquidity 

Source: Call Report data for community banks as defined in the FDIC’s 2020 Community Banking Study 

5 
----- V) 

C 

0 

en 

C 

·-

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-

Recent Uptick in Wholesale Funding Primarily due to 

Borrowings, Reciprocals, and Brokered Deposits 

700 

600 

500 

---------- 400 16% 

300 

200 41% 42% 43% 51% 52% 49% 470/o 43% 40% 36% 

100 

18% 16% 140/o 12% 120/o 130/o 14% 17% 180/o 18% 

4Ql8 4Ql9 4Q20 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 

- Brokered Deposits (L) - Listing Service Deposits (L) - Muni Accounts (L) 

- Reciprocal Deposits (L) - Foreign Deposits (L) - FH LB Borrowings (L) 

28% 

24% 

----- V) 

+-' 20% Q) V) 

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<( 

16% ro +-' 

~ 

12% o 

8% 

4% 

0% 

0 ~ 

ro 

V) 

ro 

- Other Borrowings (L) - FFP & Repos {L) ---Wholesale Funding / TA (R) 

FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

6

 

The Effects of Rising Interest Rates on Liquidity 

Source: Call Report data for community banks as defined in the FDIC’s 2020 Community Banking Study 

6 
---V) 

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co 

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...__... 

30 

20 

10 

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(20) 

(30) 

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Higher Rates Caused Long-Term Bond Values to Decline, 

Potentially Impacting Capital and Liquidity 

--------------... ...... 

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CY CY CY CY CY 

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- Unrealized G/ L AFS Securities (L) - Unrealized G/ L HTM Securities (L) -- 10 Year Treasury CMT (R) 

FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

6% 

4% 

2% 

0% 

7

 

The Effects of Rising Interest Rates on Liquidity 

Source: Call Report data for community banks as defined in the FDIC’s 2020 Community Banking Study 

and https://fred.stlouisfed.org/series/DGS10#0 7 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

8

 

 

 

 

Interagency Policy Statement 

Interagency Policy Statement on Funding and Liquidity Risk 

Management on the Importance of Contingency Funding Planning 

issued July 2023 

• Maintain actionable and 

operationally ready contingency 

funding plans (CFPs) that are 

updated to address evolving 

liquidity risks 

• Assess the stability of funding 

• Maintain diversified funding sources 

• Consider the Discount Window as a 

contingent funding source 

• Understand operational 

requirements of contingent funding 

sources and test regularly 

• Ensure an appropriate amount 

of collateral is readily available 

• Plan for operational challenges 

moving and posting collateral 

• Review and revise CFPs periodically 

to address evolving liquidity risks 

8 
FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

FDIC Advisory Committee of 

State Regulators 

October 18, 2023 

Prudent CRE Loan Accommodations and Workouts 
 

 

10

Prudent CRE Loan Accommodations and Workouts 

• Interagency Policy Statement issued June 29, 2023 (FIL-34-2023) 

• Updates and replaces Interagency Policy Statement issued 

October 30, 2009 

• Timely: 

o More than 98% of banks engage in CRE lending 

o Pandemic led to stress in several CRE property types 

10 
 

 

 

 

11

Prudent CRE Loan Accommodations and Workouts 

• Objectives of the Interagency Policy Statement: 

o Encourages banks to work prudently and constructively with 

creditworthy borrowers during times of financial stress 

o Adds a new section on short-term loan accommodations 

o Addresses accounting changes on estimating loan losses 

o Provides new and updated examples of how to classify and account 

for loans modified or affected by loan accommodations or workout 

activity 

• Incorporates feedback from industry 

11 
12

Prudent CRE Loan Accommodations and Workouts 

• Ask the Regulator session held September 14, 2023 

• 3,400+ participants 

• Questions received: 

o Mostly case-specific questions on workout situations 

 Accrual/Nonaccrual 

 Pass vs. adverse classification 

 A/B Note structures 

12 
FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

FDIC Advisory Committee of 

State Regulators 

October 18, 2023 

Interagency Guidance on Third-Party Relationships: 

Risk Management 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

 

 

 

 

Background 

• Prior to 2023, the FDIC, OCC, and Federal Reserve each had 

separate guidance for managing third party risk (for the FDIC, this 

was issued via FIL-44-2008). 

• In general, the principles conveyed were the same, with some 

differences in scope, terminology, and level of detail 

• Perceived inconsistencies between the agencies’ guidance 

confused some financial institutions and third parties working 

with, or wanting to work with, financial institutions 

14 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

Background 

• Agencies collaborated to develop interagency guidance for thirdparty risk management: 

o Provide clarity and consistency 

o Articulate risk-based principles for third-party risk management 

o Applicable to all types of third-party relationships 

o Furnish examples of considerations useful in identifying and 

managing risks and complying with applicable laws and regulations 

during all stages of a third-party relationship 

15 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

 

 

 

Interagency Guidance 

• Interagency Guidance on Third-Party Relationships: 

Risk Management 

o Issued June 6, 2023 via FIL-29-2023 

• Overview and Risk Management: 

o Highlights importance of effective risk management 

o Reinforces safety and soundness principles, including requirement to 

comply with applicable laws and regulations 

o Reminds institutions that use of third parties does not diminish Board 

and management oversight responsibility 

o Promotes tailoring of risk management practices commensurate with 

risk profile, risk appetite, and the level of risk and complexity of thirdparty relationships 

16 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

Interagency Guidance 

• Principles Based: 

o Not mandatory 

o Not intended as a checklist 

o Not a safe harbor provision 

• Provides examples of considerations in each stage of the risk 

management life cycle: 

o Planning 

o Due diligence and third-party selection 

o Contract negotiations 

o Ongoing monitoring 

o Termination 

17 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

 

 

 

 

Interagency Guidance 

• Tailoring: 

o Risk management practices tailored to institution and relationship 

• Governance: 

o Responsibility of board to ensure risk management processes are 

commensurate with the institution’s risk profile, risk appetite, and 

the level of risk and complexity of its third-party relationships 

• Supervision: 

o Examiners to assess whether activities are conducted in a safe and 

sound manner in compliance with applicable laws and regulations 

18 
FDICI 

FEDE:R.Al DEPOSIT INSURA.NCE CORPORATION 

 

 

 

 

 

 

 

Resources 

• Banker Resource Center: Third-Party Relationships Page 

• Interagency Guidelines Establishing Standards for Safety and 

Soundness (Part 364 Appendix A) 

• Interagency Guidelines Establishing Information Security Standards 

(Part 364 Appendix B) 

• Sections 23A and 23B of the Federal Reserve Act apply to affiliate 

relationships 

• Interagency Guidance on Third-Party Relationships: Risk 

Management: FIL 29-2023 

• Conducting Due Diligence on Financial Technology Companies: A 

Guide for Community Banks: FIL-59-2021 

19