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MANAGEMENT’S I. DISCUSSION AND ANALYSIS
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2018

MANAGEMENT ’S DISCUSSION AND ANALYSIS 13

THE YEAR IN REVIEW

OVERVIEW

During 2018, the FDIC continued to fulfill its 

mission-critical responsibilities. In addition, the 

agency adopted and issued proposed rules on key 

regulations under the Economic Growth, Regulatory 

Relief and Consumer Protection Act (EGRRCPA) 

and the Economic Growth and Regulatory Paperwork 

Reduction Act of 1996 (EGRPRA), and engaged 

in several community banking and community 

development initiatives. 

Cybersecurity remained a high priority for the 

FDIC in 2018; the agency worked to strengthen 

cybersecurity oversight, help financial institutions 

mitigate risk, and respond to cyber threats. 

The sections below highlight these and other 

accomplishments during the year. 

In May 2018, Jelena McWilliams was confirmed as 

the 21st Chairman of the FDIC, and has met with 

bankers from across the country in the intervening 

months to discuss the diverse needs of bank customers 

and how to meet those needs.

DEPOSIT INSURANCE

As insurer of bank and savings association deposits, 

the FDIC must continually evaluate and effectively 

manage how changes in the economy, financial 

markets, and banking system affect the adequacy and 

the viability of the Deposit Insurance Fund (DIF).

Long-Term Comprehensive Fund Management Plan 

In 2010 and 2011, the FDIC developed a 

comprehensive, long-term DIF management plan 

designed to reduce the effects of cyclicality and 

achieve moderate, steady assessment rates throughout 

economic and credit cycles, while also maintaining a 

positive fund balance, even during a banking crisis. 

That plan complements the DIF Restoration Plan, 

originally adopted in 2008 and subsequently revised, 

which was designed to ensure that the reserve 

ratio (the ratio of the fund balance to estimated 

insured deposits) would reach 1.35 percent by 

September 30, 2020, as required by the Dodd-Frank 

Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act).

Picture provided by the Kansas Bankers Association

Chairman Jelena McWilliams (center), with bankers from New Hampshire, Iowa, and Kansas.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

14

Under the long-term DIF management plan, to 

increase the probability that the fund reserve ratio 

will reach a level sufficient to withstand a future crisis, 

the FDIC Board set the Designated Reserve Ratio 

(DRR) of the DIF at 2.0 percent. 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. In December 2018, the 

Board voted to maintain the 2.0 percent ratio 

for 2019.

Additionally, as part of the long-term DIF 

management plan, the FDIC has suspended dividends 

indefinitely when the fund reserve ratio exceeds 

1.5 percent. In lieu of dividends, the plan prescribes 

progressively lower assessment rates that will become 

effective when the reserve ratio exceeds 2.0 percent 

and 2.5 percent. 

State of the Deposit Insurance Fund 

There were no bank failures in 2018. The fund 

balance continued to grow through 2018, as it has 

every quarter after the end of 2009. Assessment 

revenue was the primary contributor to the increase 

in the fund balance in 2018. The fund reserve ratio 

rose to 1.36 percent at September 30, 2018, from 

1.27 percent a year earlier. 

Minimum Reserve Ratio

Section 334 of the Dodd-Frank Act, which 

increased the minimum reserve ratio of the DIF 

from 1.15 percent to 1.35 percent, mandates that the 

reserve ratio reach that level by September 30, 2020. 

To achieve this ratio, the FDIC imposed surcharges 

on the quarterly assessments of insured depository 

institutions (IDIs) with total consolidated assets of 

$10 billion or more (large banks). The surcharge 

equaled an annual rate of 4.5 basis points applied to 

an institution’s regular quarterly deposit insurance 

assessment base after subtracting $10 billion, with 

additional adjustments for banks with affiliated IDIs. 

As of September 30, 2018, the reserve ratio exceeded 

the required minimum of 1.35 percent, and the 

surcharges were suspended.

Because the Dodd-Frank Act mandates that the FDIC 

offset the effect of the increase in the reserve ratio 

on small banks (i.e., banks with assets less than $10 

billion), these banks were exempt from the surcharges. 

Furthermore, assessment credits are provided to small 

banks for the portion of their regular assessments that 

contributed to growth in the reserve ratio between 

1.15 percent and 1.35 percent. The FDIC has 

calculated the aggregate amount of credits to be 

$765 million. Each quarter the reserve ratio is at 

least 1.38 percent, the FDIC will automatically apply 

a small bank’s credits to reduce its regular assessment 

up to the entire amount of the assessment. 

SUPERVISION 

Supervision and consumer protection are cornerstones 

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

public confidence in, the nation’s financial system. 

The FDIC’s supervision program promotes the 

safety and soundness of FDIC-supervised financial 

institutions, protects consumers’ rights, and promotes 

community investment initiatives.

Examination Program 

The FDIC’s strong bank examination program is at 

the core of its supervisory program. As of December 

31, 2018, the FDIC was the primary federal regulator 

for 3,495 FDIC-insured, state-chartered institutions 

that were not members of the Federal Reserve 

System (generally referred to as “state nonmember” 

institutions). Through risk management (safety and 

soundness), consumer compliance, Community 

Reinvestment Act (CRA), and other specialty 

examinations, the FDIC assesses an institution’s 

operating condition, management practices and 

policies, and compliance with applicable laws 

and regulations. 

As of December 31, 2018, the FDIC conducted 1,492 

statutorily required risk management examinations, 

including reviews of Bank Secrecy Act (BSA) 

compliance, and all required follow-up examinations 

for FDIC-supervised problem institutions, within 

prescribed time frames. The FDIC also conducted 
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2018

15

FDIC EXAMINATIONS 2016-2018

2018 2017 2016

Risk Management (Safety and Soundness): 

State Nonmember Banks 1,333 1,440 1,563

Savings Banks 159 171 164

State Member Banks 0 0 0

Savings Associations 0 0 0

National Banks 0 0 0

Subtotal–Risk Management Examinations 1,492 1,611 1,727

CRA/Consumer Compliance Examinations:

Consumer Compliance/Community Reinvestment Act 876 770 709

Consumer Compliance-only 337 393 594

CRA-only 2 5 8

Subtotal–CRA/Compliance Examinations 1,215 1,168 1,311

Specialty Examinations:

Trust Departments 308 347 351

Information Technology and Operations 1,503 1,627 1,742

Bank Secrecy Act 1,523 1,640 1,761

Subtotal–Specialty Examinations 3,334 3,614 3,854

TOTAL 6,041 6,393 6,892

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).

1,215 statutorily required CRA/consumer compliance 

examinations (876 joint CRA/consumer compliance 

examinations, 337 consumer compliance-only 

examinations, and two CRA-only examinations). 

In addition, the FDIC performed 3,334 specialty 

examinations (which include reviews for BSA 

compliance) within prescribed time frames.

The table below illustrates the number of 

examinations by type, conducted from 2016 

through 2018. 

Risk Management 

All risk management examinations have been 

conducted in accordance with statutorily-established 

time frames. As of September 30, 2018, 71 insured 

institutions with total assets of $53.3 billion were 

designated as problem institutions for safety and 

soundness purposes (defined as those institutions 

having a composite CAMELS1 rating of 4 or 5). By 

comparison, on September 30, 2017, there were 104 

problem institutions with total assets of $16.0 billion. 

This represents a 32 percent decline in the number 

of problem institutions and a 233 percent increase in 

problem institution assets. 

For the 12 months ended September 30, 2018, 45 

institutions with aggregate assets of $7.4 billion 

were removed from the list of problem financial 

institutions, while 12 institutions with aggregate assets 

of $45.6 billion were added to the list. The FDIC is 

the primary federal regulator for 52 of the 71 problem 

institutions, with total assets of $7.3 billion. 

In 2018, the FDIC’s Division of Risk Management 

Supervision (RMS) initiated 156 formal enforcement 

actions and 95 informal enforcement actions. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

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16

Enforcement actions against institutions included, 

but were not limited to 13 actions under Section 8(b) 

of the Federal Deposit Insurance Act (FDI Act), all 

of which were consent orders, and 94 memoranda 

of understanding (MOUs). Of these enforcement 

actions against institutions, eight consent orders 

and 20 MOUs were based, in whole or in part, 

on apparent violations of BSA and anti-money 

laundering (AML) laws and regulations. In addition, 

enforcement actions were also initiated against 

individuals. These actions included, but were not 

limited to, 52 removal and prohibition actions under 

Section 8(e) of the FDI Act (50 consent orders and 

two notices of intention to remove/prohibit), three 

actions under Section 8(b) of the FDI Act (two orders 

to pay restitution, and one notice of charges), and 11 

civil money penalty (CMPs) (10 orders to pay and one 

notice of assessment).

The FDIC continues its risk-focused, forward-looking 

supervision program by assessing risk management 

practices during the examination process to ensure 

that risks are mitigated before they lead to financial 

deterioration. 

Consumer Compliance 

As of December 31, 2018, 35 insured state 

nonmember institutions, about 1 percent of all 

supervised institutions, with total assets of $39 billion, 

were problem institutions for consumer compliance, 

CRA, or both. All of the problem institutions for 

consumer compliance were rated “4” for consumer 

compliance purposes, with none rated “5.” For CRA 

purposes, the majority were rated “Needs to Improve,” 

and only one was rated “Substantial Noncompliance.” 

As of December 31, 2018, all follow-up examinations 

for problem institutions were performed on schedule.

As of December 31, 2018, the FDIC conducted 

substantially all required consumer compliance 

and CRA examinations and, when violations 

were identified, completed follow-up visits and 

implemented appropriate enforcement actions in 

accordance with FDIC policy. In completing these 

activities, the FDIC substantially met its internallyestablished time standards for the issuance of final 

examination reports and enforcement actions. 

Overall, banks demonstrated strong consumer 

compliance programs. The most significant consumer 

protection issue that emerged from the 2018 consumer 

compliance examinations involved banks’ failure to 

adequately monitor third-party vendors. For example, 

the FDIC found violations involving unfair or 

deceptive acts or practices, such as failure to disclose 

material information about product features and 

limitations, deceptive marketing and sales practices, 

and misrepresentations about the costs of products. 

The FDIC issued orders requiring the payment of 

CMPs to address these violations. 

As of December 31, 2018, the FDIC’s Division of 

Depositor and Consumer Protection (DCP) initiated 

21 formal enforcement actions and 13 informal 

enforcement actions to address consumer compliance 

concerns. This included three restitution orders, four 

consent orders, 13 CMPs, one Notice of Assessment, 

and 13 MOUs. Restitution orders are formal actions 

that require institutions to pay restitution in the form 

of consumer refunds for violations of law. In 2018, 

these orders required the payment of approximately 

$21.3 million to harmed consumers. As of December 

31, 2018, the CMP orders totaled $3,556,766.

Large Bank Supervision Program 

The Large Bank Supervision Branch within RMS 

addresses the growing complexity of large banking 

organizations with assets exceeding $10 billion and 

not assigned to the Complex Financial Institution 

(CFI) Group. This branch is responsible for 

supervisory oversight, ongoing monitoring, and 

resolution planning, while supporting the insurance 

business line. For state nonmember banks with 

assets exceeding $10 billion, the FDIC generally 

applies a continuous examination program, whereby 

dedicated staff conducts ongoing on-site supervisory 

examinations and institution monitoring. The FDIC 

also has dedicated on-site examination staff at select 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

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17

banks for which the FDIC is not the primary federal 

regulator. These examiners work closely with other 

financial institution regulatory authorities to identify 

emerging risks and assess the overall risk profile of 

large institutions. 

The Large Insured Depository Institution (LIDI) 

Program remains the primary instrument for offsite monitoring of IDIs with $10 billion or more 

in total assets not assigned to CFI Group. The 

LIDI Program provides a comprehensive process 

to standardize data capture and reporting for large 

and complex institutions nationwide, allowing for 

quantitative and qualitative risk analysis. In 2018, 

the LIDI Program covered 116 institutions with total 

assets of $6.2 trillion. The LIDI Program supports 

effective large bank supervision by using individual 

institution information to focus resources on higherrisk areas, determine the need for supervisory action, 

and support insurance assessments and resolution 

planning. 

The Shared National Credit (SNC) Program is an 

interagency initiative administered jointly by the 

FDIC, the Office of the Comptroller of the Currency 

(OCC), and the Federal Reserve Board (FRB) to 

ensure consistency in the regulatory review of large, 

syndicated credits, as well as to identify risk in this 

market, which comprises a large volume of domestic 

commercial lending. In 2018, outstanding credit 

commitments identified in the SNC Program totaled 

$4.4 trillion. The FDIC, OCC, and FRB report 

the results of their review in an annual, joint public 

statement. 

In the first quarter of 2018, the Large Bank 

Supervision Branch completed a horizontal creditrisk rating assessment at 16 large FDIC-supervised 

institutions to evaluate transparency and effectiveness 

of their internal credit risk rating systems. The 

findings of this horizontal assessment were 

summarized in a Supervisory Insights article published 

in September 2018.2

 

Operational Risk Supervision Program

Information Technology and Cybersecurity

The FDIC examines information technology (IT), 

including cybersecurity, at each bank it supervises as 

part of the risk management examination. Examiners 

assign an IT rating using the Federal Financial 

Institutions Examination Council’s (FFIEC) 

Uniform Rating System for Information Technology 

(URSIT), and the IT rating is incorporated into the 

management component of the CAMELS rating, 

in accordance with the FFIEC’s Uniform Financial 

Institutions Rating System (UFIRS). 

The FDIC continued to enhance its IT supervision in 

2018. Examiners used the Information Technology 

Risk Examination Program (InTREx), which 

includes cybersecurity components, to conduct 

IT examinations. Examiners provided results and 

recommended actions to institutions to address IT, 

cybersecurity, and other operational risks. During 

the year, the FDIC also analyzed the effectiveness and 

efficiency of this examination program by reviewing 

workpapers and reports of examination comments. 

Together with the Federal Reserve and the Conference 

of State Bank Supervisors, adjustments to InTREx 

are being considered and implemented. In addition, 

the FDIC held an IT Security Training Conference 

to provide continuing education to RMS IT subject 

matter experts and IT examiners on risks facing the 

industry, and examination policy.

In October 2018, the FDIC and other FFIEC 

members conducted a webinar and published a 

Cybersecurity Resource Guide for Financial Institutions 

to raise awareness about the importance of 

cybersecurity. The webinar provided an overview 

of the resource guide, and featured a guest speaker 

from the Department of Homeland Security National 

Cybersecurity and Technical Services (NCATS) team 

who provided information on the NCATS’ Cyber 

Hygiene program. This program’s goal is to secure 

internet-accessible systems by continuously scanning 

2

 Sandra Macias, “Credit Risk Grading Systems: Observations From a Horizontal Assessment,” Supervisory Insights 15 no. 1, Summer 2018, https://www.fdic.gov/regulations/examinations/supervisory/insights/sisum18/si-summer-2018-article02.pdf.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

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for known vulnerabilities and configuration errors at 

no cost to financial institutions. 

In October 2018, the FDIC also published new 

vignettes for Cyber Challenge: A Community Bank 

Cyber Exercise. Cyber Challenge is a series of video 

vignettes and discussion material that can help bank 

management and staff learn more about operational 

risk and mitigation techniques. 

The FDIC, OCC, and FRB also examine IT and 

other operational components of service providers 

that support financial institutions via the continued 

implementation of the Cybersecurity Examination 

Program.  During 2018, the agencies completed 

a horizontal interconnectivity review, as well as 

individual cybersecurity reviews at all significant 

service providers.

The FDIC continues to actively engage with both 

the public and private sectors to assess cybersecurity 

and other operational risk issues. This work includes 

regular meetings with the Financial and Banking 

Information Infrastructure Committee (FBIIC), the 

Financial Services Sector Coordinating Council for 

Critical Infrastructure Protection, the Department 

of Homeland Security, the Financial Services 

Information Sharing and Analysis Center, other 

regulatory agencies, and law enforcement to share 

information regarding emerging issues and coordinate 

responses. 

The FDIC played a significant role in organizing 

FBIIC incident management communication related 

to areas affected by hurricanes Florence and Michael. 

The FDIC also actively participated in FBIIC working 

groups to better understand the financial sector’s 

vulnerability to a cybersecurity incident, and consider 

ways to harmonize cybersecurity supervisory efforts.

Bank Secrecy Act/Anti-Money Laundering 

In 2018, the FDIC and the other federal banking 

agencies issued examination procedures for the 

customer due diligence and beneficial ownership 

rules, which were effective May 11. These procedures 

supersede similar examination instructions and 

procedures in the 2014 version of the FFIEC 

BSA/AML Examination Manual. 

The FDIC, other federal banking agencies, and 

Financial Crimes Enforcement Network (FinCEN) 

evaluated opportunities to increase the efficiency and 

effectiveness of the BSA/AML examination process. 

During the year, these agencies issued two statements. 

The first statement discussed how banks with a 

community focus, less-complex operations, and lower 

risk profiles may share BSA resources. The second 

statement expressed support for banks’ innovative efforts 

with respect to BSA/AML compliance. 

Cyber Fraud and Financial Crimes

The FDIC has undertaken a number of initiatives 

in 2018 to protect the banking industry from 

criminal financial activities. For example, the FDIC 

developed, sponsored, and presented a financial crimes 

conference that was attended by examiners, lawyers, 

other interested personnel from the FDIC, other 

banking agencies, and law enforcement agencies. 

The FDIC also helped financial institutions identify 

and shut down “phishing” websites that attempt 

to fraudulently obtain an individual’s confidential 

personal or financial information. Finally, the FDIC 

published an article titled “Beware of ATM, Debit 

and Credit Card ‘Skimming’ Schemes” in the Winter 

2018 edition of the Consumer News.

 3

Examiner Training and Development

Examiner training continued to receive high priority 

and attention in 2018 on multiple fronts. The FDIC 

strives to deliver effective and efficient on-the-job, 

classroom, and computer-based instruction. A cadre 

of highly trained and skilled instructors provides 

classroom learning to FDIC examination staff, as well 

as staff of regulatory partners from international and 

state agencies. Oversight of the training program 

is provided by senior and mid-level management 

to ensure that content and delivery are effective, 

3

 “Beware of ATM, Debit, and Credit Card ‘Skimming’ Schemes,” FDIC Consumer News, Winter 2018, https://www.fdic.gov/consumers/consumer/news/cnwin18/

cardskimming.html.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

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19

appropriate, and current. The FDIC works in 

collaboration with partners across the organization 

and with the FFIEC to ensure that emerging risks 

and topics are incorporated and conveyed timely. 

Examination staff at all levels benefit from targeted 

and tenure-appropriate content. The FDIC also 

recognizes the critical role peer-to-peer knowledge 

transfer plays in preserving institutional knowledge 

and experience, and encourages opportunities for 

employees to learn from each other. 

The FDIC has undertaken a multi-year project to 

expand and strengthen its examiner development 

programs for specializations, such as IT, BSA/AML, 

trust, capital markets, and accounting. As banks 

become more specialized, enhancing examiner 

skills in these areas is key to ensuring an effective 

examination program. The goal of this project is to 

standardize the skills needed to examine banks of 

varying levels of risk and complexity in each specialty 

area, and to develop on-the-job training (OJT) 

programs to provide opportunities for examiners 

to acquire higher level competencies in these 

specialty areas. 

In 2018, the FDIC drafted specialty OJT programs 

in accounting, capital markets, BSA/AML, and trust. 

These drafts are under management review and are 

targeted for implementation in 2019. The agency also 

implemented a new intermediate IT OJT program 

and updated its advanced IT OJT program.

In addition, a Current Expected Credit Losses (CECL) 

Examiner Training and Development Plan was 

launched in 2018 to begin a multi-year initiative to 

ensure examination staff understands the requirements 

of the new credit losses accounting standard and are 

consistent in conveying the FDIC’s expectations with 

respect to banks’ CECL implementation efforts.

Minority Depository Institution Activities 

The preservation of minority depository institutions 

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

2018, the FDIC continued to promote and support 

MDI and Community Development Financial 

Institution (CDFI) industry-led strategies for success. 

These strategies include increasing collaboration 

between MDI and CDFI bankers and other financial 

institutions; partnering to share costs, raise capital, 

or pool loans; and making innovative use of available 

federal programs. The FDIC supports this effort 

by providing outreach, education and training, and 

technical assistance to MDI and CDFI banks. 

During 2018, the FDIC led discussions with MDI 

bankers and its Advisory Committee on Community 

Banking (CBAC) about the FDIC’s Resource 

Guide for Collaboration with Minority Depository 

Institutions. This guide, published in December 2017, 

encourages collaboration among MDIs and between 

MDIs and other institutions. The publication 

describes some of the ways that financial institutions, 

including community banks, can partner with MDIs 

to the benefit of all institutions involved, as well as 

the communities they serve. Both community banks 

and larger insured financial institutions have valuable 

incentives under the CRA to undertake ventures 

with MDIs, including capital investment and loan 

participations. In 2018, the FDIC began preparations 

to host roundtables and other events that would 

enable MDIs to engage with potential collaboration 

partners in 2019.

The FDIC added additional minority bankers to 

its CBAC to bring more diverse perspectives and 

input to these discussions. In addition, the agency 

began updating its 2014 study, “Minority Depository 

Institutions: Structure, Performance, and Social 

Impact,” for publication in 2019. In support of its 

statutory goal to preserve the minority character in 

mergers and acquisitions, the FDIC hosted outreach 

sessions with MDI bankers to provide an overview 

of the process for bidding on failed minority banks, 

and to offer technical assistance to banks desiring to 

place a bid on a failed MDI franchise. The FDIC also 

began planning for the 2019 Interagency Minority 

Depository Institution and CDFI Bank Conference, 

which the FDIC will host in collaboration with the 

OCC and FRB. 

The FDIC also continuously pursued efforts to 

improve communication and interaction with MDIs 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

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20

and to respond to the concerns of minority bankers 

in 2018. The agency maintains active outreach with 

MDI trade groups and offers to arrange annual 

meetings between FDIC regional management and 

each MDI’s board of directors to discuss issues of 

interest. The FDIC routinely contacts MDIs to offer

return visits and technical assistance following the 

conclusion of FDIC safety and soundness, compliance, 

CRA, and specialty examinations to help bank 

management understand and implement examination 

recommendations. These return visits, normally 

conducted within 90 to 120 days after the examination, 

are intended to provide useful recommendations or 

feedback for improving operations, not to identify 

new issues.

The FDIC’s website invites inquiries and provides 

contact information for any MDI to request technical 

assistance at any time. 

In 2018, the FDIC provided 149 individual technical 

assistance sessions on nearly 50 risk management and 

compliance topics, including: 

♦ Accounting, 

♦ Bank Secrecy Act and Anti-Money Laundering, 

♦ Community Reinvestment Act, 

♦ Funding and liquidity, 

♦ Information technology risk management 

and cybersecurity, 

♦ Third-party oversight, and

♦ Troubled debt restructuring. 

The FDIC also held outreach, training, and 

educational programs for MDIs through conference 

calls and regional banker roundtables. In 2018, topics 

of discussion for these sessions included many of those 

listed above, as well as collaboration and partnerships, 

capital markets, cybersecurity, liquidity risk, and 

Ombudsman services. In addition, the FDIC assisted 

four MDIs in the early termination of Shared Loss 

Agreements related to the purchase of failed bank 

franchises during the crisis. 

Mutual Institution Activities

In July 2018, the FDIC and OCC co-hosted the 2018 

Joint Mutual Forum, which was open to all mutual 

banking institutions regardless of charter type. 

Mutually owned institutions represent about 9 percent 

of all FDIC-insured institutions and are among the 

oldest form of depository institution. Attended by 

approximately 135 participants, the forum provided 

an opportunity for mutual bankers to learn about 

current trends and engage in a dialogue on the 

strengths of and challenges facing mutual institutions. 

The forum opened with remarks by FDIC Chairman 

Jelena McWilliams and Comptroller of the Currency 

Joseph M. Otting and featured presentations and 

banker panels covering topics of interest relating to 

the mutual industry. Key sessions focused on: Being 

a Mutual in Today’s Financial Services Environment, 

Strategic Thinking: Liquidity and Interest Rate Risk 

Management, a regulatory Compliance Update, and 

an opportunity for each agency to hold an agencyspecific session to address other current matters and 

respond to banker inquiries.

SUPERVISION POLICY

The goal of supervision policy is to provide clear, 

consistent, meaningful, and timely information to 

financial institutions.

Risk-Focused Supervision Program

During 2018, RMS undertook initiatives to enhance 

its risk-focused supervision programs, including a 

study of post-crisis bank failures, and an in-depth 

evaluation of examination processes.

RMS studied post-crisis bank failures for lessons that 

could be used to enhance risk-focused supervision 

activities going forward. The study reinforced 

the importance of a comprehensive and vigilant 

approach to continuous risk-focused, forward-looking 

supervision. As a result, case study analyses were 

presented to supervisory staff, and training sessions 

were held to communicate lessons learned from the 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

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21

study that would help examiners identify deficiencies 

or weaknesses and work with institutions to correct 

their root causes.

The FDIC also initiated an Examination Workstream 

project to review risk-focused examination practices. 

The Conference of State Bank Supervisors (CSBS) 

participated in the initiative, which also leveraged 

feedback from other sources, and developed numerous 

recommendations to enhance the risk-focused 

supervision program.

Current Expected Credit 

Losses Implementation

In June 2016, the Financial Accounting Standards 

Board (FASB) introduced the CECL methodology for 

estimating allowances for credit losses, replacing the 

current incurred-loss methodology. 

Since then, the FDIC has worked collaboratively 

with the other federal banking agencies, the FASB, 

the Securities and Exchange Commission (SEC), 

and the CSBS to answer questions regarding the 

implementation of CECL. 

♦ In February 2018, the FDIC and FRB, in 

conjunction with the FASB, SEC, and CSBS, 

jointly hosted two CECL webinars—one for 

examiners and another for bankers—entitled 

“Practical Examples of How Smaller, Less 

Complex Community Banks Can Implement the 

Current Expected Credit Losses Methodology.” 

The webinars addressed loan loss rate methods 

that such institutions can use to implement 

CECL, as well as related data considerations and 

controls. The banker webinar had more than 

8,000 participants. Materials have been archived 

for viewing, and a transcript of the banker 

webinar is available. 

♦ In May 2018, the FDIC, FRB, and OCC issued 

a notice of proposed rulemaking (the CECL 

NPR), that proposed a revision to the regulatory 

capital rules for the implementation of, and 

capital transition to, the CECL methodology.

♦ In July 2018, the three banking agencies, together 

with the FASB, SEC, and CSBS, conducted a 

Q&A webinar that addressed various CECL 

questions the agencies have received from 

community bankers. The July webinar had more 

than 3,300 participants. The webinar materials 

and a transcript of the presentation have also 

been archived for viewing. 

In September 2018, the FDIC, jointly with the 

other federal banking agencies, published a Federal 

Register notice requesting comment on proposed 

revisions to the Call Report and other regulatory 

reports to address, among other things, changes in 

the accounting for credit losses under the CECL 

methodology. The notice also proposed changes to 

the Call Report’s regulatory capital schedule and 

changes to another report to align these reports 

with the agencies’ May 14, 2018, CECL NPR. 

The agencies issued the CECL final rule in December 

2018. The final rule allows banks to transition the 

day one effects of the CECL accounting standard on 

regulatory capital over three years. The final rule also 

revises the agencies’ regulatory capital rule and other 

rules to take into consideration differences between the 

new accounting standard and existing U.S. generally 

accepted accounting principles.

Alternative Reference Rates

The FDIC, along with the other FFIEC members, 

launched an initiative to raise awareness and educate 

supervised financial institutions and examiners about 

reference rate alternatives to the London Inter-bank 

Offered Rate (LIBOR). The FFIEC members hosted 

an introductory webinar in December 2018, and plan 

to follow with additional outreach via webinars and 

other efforts as new information develops.

Credit Risk, Liquidity Risk, 

and Interest-Rate Risk

Loan volume continues to grow as the economy 

expands for the tenth consecutive year. A large 

majority of insured institutions grew their loan 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

22

portfolios over the past year, and some institutions 

have further increased existing concentrations. Loan 

growth accompanied by a reduction in holdings of 

liquid assets and increased reliance on funding sources 

other than traditionally stable deposits is particularly 

prevalent among institutions with rising or elevated 

concentration levels. These trends have the potential 

to give rise to heightened credit and liquidity risk. 

While interest rates are beginning to rise, asset 

maturities remain lengthened. A lengthy period 

of historically low interest rates and tightening 

net interest margins created incentives for insured 

depository institutions to reach for yield in their 

lending and investment portfolios by extending 

portfolio durations, potentially increasing their 

vulnerability to interest-rate risk. Banks must 

continue to be diligent in their efforts to identify, 

manage, and monitor credit risk, liquidity risk, and 

interest-rate risk.

Through regular on-site examinations and interim 

contacts with state nonmember institutions, FDIC 

staff regularly engages in dialogue with institution 

management to ensure that their policies to manage 

credit risk, liquidity risk, and interest-rate risk are 

effective. Where appropriate, FDIC staff works with 

institutions that have significant exposure to these 

risks and encourages them to take appropriate riskmitigating steps. The FDIC uses off-site monitoring 

to help identify institutions that may have heightened 

exposure to these risks, and follows up with them to 

better understand their risk profiles. 

Throughout 2018, the FDIC conducted outreach 

and offered technical assistance regarding these risk 

issues, including Supervisory Insights articles on credit 

risk grading systems and on the risk management 

practices of insured banks active in oil and gas 

lending. In addition, FDIC examiners now devote 

additional attention during the examination process 

to assessing how well banks are managing the risks 

associated with concentrations in credit exposures and 

funding sources. The findings of these assessments 

are shared with bank management in the Report 

of Examination.

Industry Guidance

Interagency Statement on Accounting and 

Reporting Implications of the New Tax Law

In January 2018, the FDIC, jointly with the FRB and 

OCC, issued an interagency statement containing 

guidance on the accounting implications of the 

new tax law, which was enacted on December 22, 

2017, and related matters. The statement provided 

instructions on the application of FASB Accounting 

Standards Codification (ASC) Topic 740, “Income 

Taxes,” and did not represent new rules or regulations 

of the agencies. The changes enacted in the new 

tax law were relevant to financial statements and 

regulatory reports, such as the Call Report and the 

Consolidated Financial Statements for Holding 

Companies (FR Y-9C Report).

Interagency Statement Clarifying 

the Role of Supervisory Guidance

In September 2018, the FDIC, jointly with the 

FRB, OCC, National Credit Union Administration 

(NCUA), and Consumer Financial Protection Bureau 

(CFPB), issued an interagency statement explaining 

the role of supervisory guidance and describing the 

agencies’ approach to supervisory guidance. The 

statement reaffirmed the purpose of supervisory 

guidance to articulate the agencies’ general views 

regarding appropriate practices for a given subject 

area. Unlike a statute or regulation, supervisory 

guidance does not have the force and effect of 

law, and the agencies do not take enforcement 

actions based on supposed “violations” of 

supervisory guidance.

Regulatory Relief

During 2018, the FDIC issued 13 FILs to provide

guidance to financial institutions in areas affected by 

hurricanes, tornadoes, flooding, wildfires, and other 

severe storms, and to facilitate recovery. In these FILs, 

the FDIC encouraged banks to work constructively with 

borrowers experiencing financial difficulties as a result of 

natural disasters, and clarified that prudent extensions 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

23

or modifications of loan terms in such circumstances 

can contribute to the health of communities and serve 

the long-term interests of lending institutions. 

Rulemakings to Implement the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act 

In May 2018, the EGRRCPA was signed into law, 

and the FDIC immediately began efforts to 

implement various provisions of the new law.

Community Bank Leverage Ratio

In November 2018, the FDIC, OCC, and FRB 

issued a notice of proposed rulemaking to implement 

Section 201 of EGRRCPA to establish a leverage ratio 

for qualifying community banks. If a qualifying 

community bank exceeds this leverage ratio, it would 

be deemed to meet the generally applicable leverage 

and risk-based capital requirements and the wellcapitalized ratio requirements under the prompt 

corrective action framework. Comments will be 

accepted for 60 days following publication in the 

Federal Register. 

In December 2018, the FDIC published a notice of 

proposed rulemaking to amend the deposit insurance 

assessment system to address the application of the 

leverage ratio for qualifying community banks. 

Comments will be accepted for 60 days following 

publication in the Federal Register. 

Appraisal Threshold for Residential Real Estate Loans

In December 2018, the FDIC, OCC, and FRB 

published a proposed rule to amend the agencies’ 

regulations requiring appraisals for certain real 

estate-related transactions. The proposed rule would 

raise the threshold from $250,000 to $400,000 at 

which appraisals would be required for residential 

real estate-related transactions. The proposed rule 

would also make conforming changes to exempt 

certain transactions secured by residential property in 

rural areas from the agencies’ appraisal requirement 

pursuant to the EGRRCPA. Pursuant to the DoddFrank Act, the proposed rule would amend the 

agencies’ appraisal regulations and require institutions 

to review appraisals for federally related transactions 

for compliance with the Uniform Standards of 

Professional Appraisal Practice. The comment period 

closed on February 5, 2019.

Reciprocal Deposits

Section 202 of EGRRCPA amended Section 29 of the 

FDI Act with respect to reciprocal brokered deposits. 

On September 12, 2018, the FDIC approved an NPR 

on the treatment of reciprocal deposits to conform 

Section 337.6 of the FDIC Rules and Regulations 

to Section 202. The NPR was published in the 

Federal Register on September 26, 2018. The 30-day 

comment period closed on October 26, 2018. 

After reviewing the 13 comments received, the FDIC 

Board approved a final rule on December 18, 2018, 

for publication in the Federal Register. This final rule 

adopts the NPR as proposed.

The final rule incorporates the Section 202 statutory 

language into the regulation. In summary, the final 

rule provides an exception for a capped amount 

of reciprocal brokered deposits from treatment as 

brokered deposits for certain IDIs, and confirms 

that the current statutory and regulatory rate 

restrictions for less than well-capitalized institutions 

apply to reciprocal deposits that are excepted from 

treatment as brokered deposits. The final rule also 

includes conforming amendments to the insurance 

assessment regulations, Part 327 of the FDIC Rules 

and Regulations, to be consistent with the statutory 

definition of reciprocal deposits. 

Volcker Rule

In December 2018, the FDIC, OCC, FRB and 

SEC issued an NPR to implement Section 203 of 

EGRRCPA. Section 203 amends Section 13 of the 

Bank Holding Company Act to create an exclusion 

for certain banks and their holding companies from 

the prohibitions of the Volcker Rule. To qualify, 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

24

neither the IDI nor any controlling company may 

have more than $10 billion in total consolidated 

assets, or total trading assets and trading liabilities 

of more than 5 percent of total consolidated assets, 

as reported on the most recent regulatory filing. 

The NPR would also implement Section 204 of 

EGRRCPA to amend the restrictions applicable to 

the naming of a hedge fund or private equity fund 

to permit certain banking entities that are not banks 

or bank holding companies to share a name with the 

fund under certain circumstances. Comments will 

be accepted for 30 days following publication in the 

Federal Register.

Short Form Call Reports

In November 2018, the FDIC, together with the FRB 

and OCC, published in the Federal Register an NPR 

to implement Section 205 of EGRRCPA, that would 

increase the existing asset-size limit from less than 

$1 billion to less than $5 billion for eligibility to file 

the streamlined FFIEC 051 Call Report, provided 

other criteria are met, and establish reduced reporting 

for all IDIs that file this version of the Call Report. 

To further reduce reporting requirements in the 

FFIEC 051 Call Report, the agencies also proposed 

exempting approximately 37 percent of data items 

from being reported in the FFIEC 051 Call Report 

in the first and third quarters. The principal areas 

proposed for reduced reporting include data items 

related to categories of risk-weighting of various types 

of assets and other exposures under the agencies’ 

regulatory capital rules, fiduciary and related services 

assets and income, and troubled debt restructurings 

by loan category. As of June 30, 2018, almost 90 

percent of IDIs reported less than $1 billion in total 

assets and were already eligible to file the FFIEC 

051 Call Report based on asset size. By raising the 

threshold for filing the FFIEC 051 to less than $5 

billion in total assets, approximately 95 percent of 

all IDIs would be eligible to file this streamlined 

Call Report. The 60-day comment period closed on 

January 18, 2019.

Expanded Examination Cycle

In December 2018, the FDIC, FRB, and OCC jointly 

published final rules to expand the examination cycle 

for certain small IDIs and U.S. branches and agencies 

of foreign banks. The final rules did not differ from 

the interim rules that were published in the Federal 

Register on August 29, 2018. 

Section 210 of the EGRRCPA raised the asset-size 

threshold for the 18-month examination cycle from 

less than $1 billion in assets to less than $3 billion in 

assets for certain well-capitalized and well-managed 

IDIs with an “outstanding” composite condition, 

and gave the agencies discretion to similarly raise this 

threshold for certain IDIs with an “outstanding” or 

“good” composite condition. The agencies exercised 

this discretion and issued final rules that, in general, 

make qualifying IDIs with less than $3 billion in 

total assets eligible for an 18-month (rather than a 

12-month) examination cycle. 

To qualify, IDIs must have a CAMELS composite 

rating of “1” or “2,” and be well-capitalized, wellmanaged, not subject to a formal enforcement 

proceeding, and must not have undergone any change 

in control during the previous 12-month period. 

The rule also applies to qualifying U.S. branches or 

agencies of a foreign bank. 

Since BSA compliance programs are required to be 

reviewed during safety and soundness examinations, 

institutions with assets up to $3 billion that are 

now eligible for the 18-month safety-and-soundness 

examination cycle will also generally be subject to less 

frequent BSA reviews.

High Volatility Commercial Real Estate

The FDIC worked with the FRB and OCC to 

issue an NPR, published in the Federal Register on 

September 28, 2018, to incorporate the new definition 

of high-volatility commercial real estate acquisition, 

development or construction loan included in Section 

214 of EGRRCPA. The 60-day comment period ended 

on November 27, 2018.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

25

Liquidity Coverage Ratio Rule: Treatment of Certain 

Municipal Obligations as High-Quality Liquid Assets

Section 403 of EGRRCPA amended Section 18 of 

the FDI Act, requiring the FDIC, OCC, and FRB 

(collectively, the agencies) to amend their liquidity 

coverage ratio (LCR) rules, and any other regulation 

that incorporates a definition of the term “highquality liquid asset” (HQLA), to treat a municipal 

obligation as HQLA that is a level 2B liquid asset if 

the obligation, as of the calculation date, is liquid and 

readily-marketable and investment grade. On August 

31, 2018, the agencies published an interim final rule 

in the Federal Register in compliance with Section 

403. The comment period for the interim final rule 

closed October 1, 2018. The agencies are reviewing 

the comments received.

Other Rulemakings

Removal of Credit Ratings from 

International Banking Regulations

In March 2018, the FDIC published a final rule 

amending its international banking regulations 

related to permissible investment activities and the 

pledging of assets. The final rule removes references 

to “external credit ratings” and replaces them with 

“appropriate standards of creditworthiness.” The 

changes in the FDIC Rules and Regulations Part 347, 

Subparts A and B, are consistent with Section 939A 

of the Dodd-Frank Act.

Securities Transaction Settlement Cycle

In June 2018, the FDIC and OCC published a final 

rule to amend the rules to generally require supervised 

institutions to settle securities transactions within the 

number of business days in the standard settlement 

cycle followed by registered broker dealers in the 

United States. The final rule, which became effective 

on October 1, 2018, responds to an industry-wide 

shift in the standard settlement cycle from three 

days after the trade date (“T+3”) to two days (“T+2”), 

as mandated by the SEC’s recent amendments to 

SEC Rule 15c6-1(a). By requiring FDIC-supervised 

institutions to settle securities transactions within 

the standard settlement cycle as provided in SEC 

Rule 15c6-1(a), the final rule effectively conforms the 

FDIC’s rules to the current T+2 and accommodates 

future shifts in the standard settlement cycle. 

Proposed Changes to Applicability Thresholds

 for Regulatory Capital Requirements and 

Liquidity Requirements

In December 2018, the FDIC, FRB, and OCC 

published an NPR that would establish a revised 

framework for applying the regulatory capital rule, 

liquidity coverage ratio rule, and proposed net stable 

funding ratio rule. Under the proposal, application 

of the rules would depend on the risk profile of each 

large U.S. banking organization and its subsidiary 

institutions. The proposal would establish four 

categories of standards for banking organizations with 

total assets of $100 billion or more, and would apply 

capital and liquidity requirements tailored for banking 

organizations subject to each category. The 30-day 

comment period ended on January 22, 2019.

Modifications to the Statement of Policy for Section 19

On July 19, 2018, after considering public comments, 

the FDIC Board of Directors approved modifications 

to the Statement of Policy for Section 19 of the Federal 

Deposit Insurance Act to revise the criteria that define 

de minimis offenses, clarify existing statements, and 

remove outdated references to the Office of Thrift 

Supervision.  The modifications are intended to reduce 

regulatory burden, promote public awareness of the 

law, and decrease the number of covered offenses that 

will require an application.  In addition, the FDIC 

revised the Section 19 application form and published 

an informational brochure: “Your Complete Guide 

to Section 19.”  The modifications to the statement of 

policy, revised application form, and informational 

brochure were announced in FIL-68-2018. 

Brokered Deposits

The FDIC continues to receive questions about the 

application of the brokered deposit regulation (Section 

337.6 of the FDIC Rules and Regulations). Except 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

26

for the December 2018 update for reciprocal deposits, 

FDIC last amended its brokered deposit regulation 

– specifically the interest rate restrictions– in 2009. 

Since that time, technology, law, business models, and 

product ranges have evolved. In order to determine 

what additional changes to Section 337.6 may be 

warranted, the FDIC approved an Advance NPR on 

December 18, 2018, to seek comment on the brokered 

deposit regulation more generally. The comment 

period will end 90 days after publication in the 

Federal Register.

FINANCIAL TECHNOLOGY 

The FDIC continuously monitors developments in 

technology to better understand how it may affect 

the financial industry. 

Center for Financial Research

The FDIC’s Center for Financial Research (CFR) 

encourages, supports, and conducts innovative 

research on topics that inform the FDIC’s key 

functions of deposit insurance, supervision, and the 

resolution of failed banks. CFR researchers produced 

a number of new and innovative working papers 

in 2018. Many of these were published in leading 

banking, finance, and economics journals, and 

presented in banking and finance seminars at major 

conferences, regulatory institutions, and universities. 

FDIC Chairman Jelena McWilliams delivers opening remarks at the 

18th Annual Bank Research Conference.

The CFR also developed and maintained many 

financial models used throughout the FDIC, 

including off-site models that inform the examination 

process. CFR economists also provided ongoing 

support to RMS through on-site examinations.

In September 2018, the CFR and the Journal of 

Financial Services Research jointly sponsored the 18th 

Annual Bank Research Conference. FDIC Chairman 

Jelena McWilliams kicked-off the conference by 

highlighting the importance of research in supporting 

the FDIC’s role in maintaining stability and public 

confidence in the nation’s financial system. The 

conference has become a premier forum in its field. 

Conference organizers received more than 450 

submissions for the 26 available presentation slots, and 

approximately 220 participants attended. Discussion 

sessions focused on tradeoffs in bank regulation, 

segmentation of the lending markets, FinTech, and 

depositor reactions to increased risk at banks, among 

other things.

In October 2018, the CFR published the Small 

Business Lending Survey, which presented findings 

from a nationally representative survey of U.S. banks 

about their small 

business lending 

practices. The 

report provided new 

information about 

the amount of loans 

that banks extend 

to small businesses; 

how banks engage 

with their small 

business customers, 

including start-ups; 

the competitive 

environment for 

small business loans; and how banks of different 

sizes compete in the small business lending market. 

Presentations of the findings were made to banking 

organizations and regulatory agencies, and the full 

report is available at https://www.fdic.gov/sbls.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

27

FDIC Emerging Technology 

Steering Committee

The FDIC’s Emerging Technology Steering 

Committee, supported by two staff-level 

subcommittees, continues to monitor and assess 

the various dimensions of emerging technology 

developments. The committee is comprised of the 

Directors of RMS, DCP, Division of Insurance 

and Research (DIR), Division of Resolutions and 

Receiverships (DRR), and the Office of Complex 

Financial Institutions (OCFI), as well as the General 

Counsel, the Chief Risk Officer, and the Chief 

Information Officer.

In 2018, the Emerging Technology Steering 

Committee continued work on its established 

objectives: 

♦ Comprehend, assess, and monitor the current 

emerging technology activities, risks, and trends; 

♦ Evaluate the projected impact to the banking 

system, the deposit insurance system, effective 

regulatory oversight, economic inclusion, and 

consumer protection; 

♦ Oversee internal working groups monitoring 

particular aspects of emerging technology; 

♦ Recommend follow-up actions, as appropriate, 

and monitor implementation; and 

♦ Help formulate strategies to respond to 

opportunities and challenges presented by 

emerging technology, and to ensure developments 

align with regulatory goals. 

In May 2018, the FDIC hosted a forum on the Use of 

Technology in the Business of Banking. The forum 

brought together a range of stakeholders, including 

banks, technology firms, financial technology 

(fintech) firms, trade associations, consumer groups, 

and other regulators, to explore emerging technology 

issues, specifically as they relate to the business of 

banking. The goals of the forum were to better 

understand emerging technologies that banks are 

using or considering for future use; gain a deeper 

understanding of how banks are leveraging (or 

can leverage) those emerging technologies to seize 

opportunities for their business and their customers, 

as well as methods to mitigate risks; and facilitate 

candid discussion of emerging issues related to the 

use of financial technology in banking. Panelists 

represented banks of all sizes, from small community 

banks to large banks, as well as other firms and 

organizations involved with emerging technology. 

Together, they offered a range of perspectives on many 

new technologies and the associated opportunities and 

potential risks.

The FDIC also participates on several working groups 

related to financial technology:

♦ The Basel Committee on Banking Supervision’s 

Task Force on Financial Technology, which 

focuses on the impact of financial technology on 

banks’ business models, risk management and 

implications for bank supervision; 

♦ The Financial Stability Oversight Council 

(FSOC) Digital Assets Working Group, which is 

examining potential policy areas as they relate to 

digital assets and the application of distributed 

ledger technology; and 

♦ An interagency FinTech discussion forum, which 

focuses on issues related to consumer compliance.

FinTech Legal Group

In 2018, the General Counsel announced a Legal 

Division initiative and formed a FinTech Legal Group 

comprised of attorneys from across the Division. The 

initiative will support the Legal Division and the 

FDIC, including its internal agency working groups 

with respect to emerging and novel legal issues arising 

from new digital and other forms of technology. 

In particular, the FinTech Legal Group considers 

developments that may transform the traditional 

banking business model, operations, systems, 

and vendor and consumer relationships; impact 

application of current laws and regulations; affect the 

risk profiles of FDIC-insured and FDIC-supervised 

institutions; and introduce new considerations in 

resolving failed institutions. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

28

COMMUNITY BANKING INITIATIVES

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

and as the primary federal supervisor for the majority 

of community banks, the FDIC has a particular 

responsibility for the safety and soundness of this 

segment of the banking system. 

As defined for FDIC research purposes, community 

banks made up 92 percent of all FDIC-insured 

institutions at mid-year 2018. While these banks hold 

just 13 percent of banking industry assets, community 

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

and local communities across the nation. They hold 

42 percent of the industry’s small loans to farmers and 

businesses, making them the lifeline to entrepreneurs 

and small enterprises of all types, and they hold the 

majority of bank deposits in U.S. rural counties and 

micropolitan counties with populations up to 50,000. 

In fact, as of June 2018, community banks held more 

than 75 percent of deposits in more than 1,200 U.S. 

counties. In more than 600 of these counties, the 

only banking offices available to consumers were those 

operated by community banks.

In 2012, the FDIC launched a Community Banking 

Initiative to better understand and support these 

institutions. As part of the initiative, the FDIC 

publishes research on issues of importance to 

community banks, and provides them with resources 

to manage risk, enhance the expertise of their staff, 

and adapt to changes in the regulatory environment.

Community Banking Research 

The FDIC pursues an ambitious, ongoing agenda 

of research and outreach focused on community 

banking issues. Since the 2012 publication of the 

FDIC Community Banking Study, FDIC researchers 

have published more than a dozen additional studies 

on topics ranging from small business financing to the 

factors that have driven industry consolidation over 

the past 30 years. 

The FDIC Quarterly Banking Profile (QBP) includes 

a section focused specifically on community bank 

performance, providing a detailed statistical picture of 

the community banking sector that can be accessed 

by analysts, other regulators, and bankers themselves. 

The most recent report shows that net income at 

community banks continued to grow at a healthy 

annual rate in the first three quarters of 2018. 

The long-term trend of consolidation has done little to 

diminish the role of community banks in the banking 

industry. More than three-quarters of the community 

banks that merged in 2017 and early 2018 were 

acquired by other community banks. On a merger 

adjusted basis, loan growth at community banks 

exceeded growth at noncommunity banks in every 

year between 2012 and 2017. (See Chart 1 on Page 

29.) From June 2017 to June 2018, currently operating 

noncommunity banks closed far more offices than 

they acquired. In contrast, currently operating 

community banks acquired offices and opened still 

more offices, on net, during the year. 

(See Table 1 on page 29.) 

Community Bank Advisory Committee 

The FDIC’s Advisory Committee on Community 

Banking is an ongoing forum for discussing current 

issues and receiving valuable feedback from the 

industry. The committee, which met twice during 

2018, is composed of as many as 18 community bank 

CEOs from around the country. It is a valuable 

resource for information on a wide range of topics, 

including examination policies and procedures, capital 

and other supervisory issues, credit and lending 

practices, deposit insurance assessments and coverage, 

and regulatory compliance issues. 

At the July 2018 meeting, DIR discussed the current 

financial performance of community banks, and 

how selected risk indicators compare to those seen 

before the financial crisis. As compared to the precrisis years, community banks have higher capital 

ratios than noncommunity banks, and far fewer of 

community banks have extremely high concentrations 

in construction lending. The presenters also noted, 

however, that community banks are holding generally 

more loans, fewer liquid assets, and face potential 

pressures on deposit costs as interest rates increase. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

29

Committee members indicated that deposit pricing 

pressures had been relatively modest, but that further 

interest rate increases could begin to pressure their 

deposit costs. 

De Novo Banks 

In 2018, the FDIC pursued multiple initiatives to 

fulfill its commitment to working with, and providing 

support to, any group with interest in starting a bank. 

In general, these initiatives focused on reviewing and, 

as appropriate, updating the processes, procedures, 

and management systems by which the FDIC 

receives, reviews, and acts on applications. 

Most significantly, in December 2018, the FDIC 

announced new measures to promote a more 

transparent, streamlined, and accountable process 

for all de novo applications submitted to the 

agency. Specifically, the FDIC issued a Request 

CHART 1: COMMUNITY BANK LOAN GROWTH HAS EXCEEDED GROWTH 

AT NONCOMMUNITY BANKS FOR SIX CONSECUTIVE YEARS

Merger Adjusted Annual Growth in Total Loans and Leases

2006-2017

Source: FDIC. All calculations are merger adjusted.

TABLE 1. COMMUNITY BANKS ADDED OFFICES WHILE NONCOMMUNITY BANKS 

CLOSED OFFICES FROM JUNE 2017 TO JUNE 2108

Offices of the 

June 2018 

Group of 

Institutions in 

June 2017

Offices of 

Banks 

Acquired

Number of 

Offices in 

June 2017 

Mergeradjusted

New 

Offices 

Opened

Offices 

Closed

Net Offices 

Purchased 

or Sold

Number of 

Offices in 

June 2018

Community Banks 29,832 619 30,451 585 500 15 30,551

Noncommunity banks 57,886 1,481 59,367 404 2,254 -15 57,502

TOTAL 87,718 2,100 89,818 989 2,754 0 88,053

Source: FDIC

-10

-5

0

5

10

15

-8.9%

2006 2016

11.2%

7.0%

9.5% 9.3%

-2.1%

-0.3%

-2.3%

2.1%

-0.9%

2.0%

3.4%2.9%

5.0%

2.1%

8.6%

4.7%

8.6%

6.0%

3.9%

7.7%

2007 2008 2009 2010 2011

Community Banks

Noncommunity Banks

2012 2013 2014 2015 2017

10%

0%

-5%

5%

15%

-10%

9.0% 8.3%

4.8%
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

30

for Information soliciting comments on the deposit 

insurance application process, including the 

transparency and efficiency of the process, and any 

unnecessary burdens that impede the process. 

The agency also established a process to receive and 

review draft deposit insurance proposals. This process 

will help organizers of new financial institutions by 

providing an early opportunity for both the FDIC 

and organizers to identify potential challenges with 

respect to the statutory criteria, areas that may require 

further detail or support, and potential issues or 

concerns. It will also promote a more transparent 

and efficient deposit insurance application process. 

The FDIC also established an Applications Mailbox 

as an additional means by which bankers and other 

applicants may pose questions regarding a specific 

application or the application process.

Other measures to support de novo formation, included:

♦ Re-publishing time frame guidelines for 

processing applications, notices, requests, and 

other filings submitted on behalf of proposed 

and existing institutions and other parties to help 

applicants in their planning. 

♦ Updating the Applying for Deposit Insurance – A 

Handbook for Organizers of De Novo Institutions. 

The handbook was designed to help organizers 

become familiar with the deposit insurance 

application process. 

♦ Updating the Deposit Insurance Applications 

Procedures Manual. The manual provides 

comprehensive instruction to staff regarding 

the review and processing of deposit insurance 

applications.

Technical Assistance Program 

As part of the Community Banking Initiative, 

the FDIC continued to provide a robust technical 

assistance program for bank directors, officers, and 

employees. The technical assistance program 

includes Directors’ College events held across the 

country, industry teleconferences and webinars, 

and a video program.

In 2018, the FDIC hosted Directors’ College 

events in five of its six regions. These events 

were typically conducted jointly with state trade 

associations and addressed issues such as corporate 

governance, regulatory capital, community banking, 

concentrations management, consumer protection, 

BSA, and interest-rate risk, among other topics. 

The FDIC also offers a series of banker events, in 

order to maintain open lines of communication and 

to keep bank management and staff up-to-date on 

important banking regulatory and emerging issues of 

interest to community bankers. In 2018, the FDIC 

offered 11 teleconferences or webinars focused on the 

following topics: 

♦ Understanding Reasonably Expected Market 

Area (REMA) and Community Reinvestment 

Act (CRA) Assessment area, 

♦ Liquidity and funding risk management, 

♦ Current Expected Credit Losses (CECL) 

accounting methodology, 

♦ The impact of rising interest rates on asset/

liability management,

♦ Money Smart for Small Businesses,

♦ Regulatory and accounting update,

♦ Common exam findings,

♦ Update on compliance and CRA, and

♦ Information sharing on standardized export of 

imaged loan documents.

In October 2018, the FDIC hosted a teleconference 

to provide information about EGRRCPA 

implementation, and to answer questions. The 

call was part of the FDIC’s consumer compliance 

teleconference and webinar series, which allows the 

FDIC to communicate important information to 

supervised institutions on a variety of topics and to 

respond to industry questions. 

In November 2018, the FDIC hosted another 

teleconference to discuss results of the 2017 National 

Survey of Unbanked and Underbanked Households. 

During this call, participants also discussed economic 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

31

inclusion resources pertinent to community banks, 

including the Money Smart for Adults financial 

education program, and CRA consideration for 

activities that benefit underserved communities.

Economic Growth and Regulatory 

Paperwork Reduction Act

The Economic Growth and Regulatory Paperwork 

Reduction Act (EGRPRA) directs the federal banking 

agencies and the FFIEC to conduct a joint review of 

regulations every 10 years to determine whether any 

of those regulations are outdated or unnecessary. 

In March 2017, the FFIEC submitted a report to 

Congress that described actions the agencies had 

already taken to address comments received during 

the EGRPRA process as well as actions the agencies 

planned to take in the future. During 2018, the 

FDIC along with the other FFIEC member agencies, 

continued to work together to reduce burden in the 

following areas raised during the EGRPRA review 

process. 

♦ Capital Simplification Proposal 

In 2017, the federal banking agencies issued 

an NPR to seek comment on simplifications to 

the capital framework as part of the agencies’ 

EGRPRA efforts. Parts of the proposed 

rulemaking was superseded by certain capital 

framework provisions of the Economic Growth, 

Regulatory Relief and Consumer Protection Act. 

As a result, the federal banking agencies issued 

in September 2018 an NPR to seek comment on 

implementation of the revised statutory definition 

of High Volatility Commercial Real Estate and 

issued in November 2018 an additional NPR to 

seek comment on the leverage ratio for qualifying 

community banks. FDIC staff, along with the 

staff of other federal banking agencies, continued 

to review comments received in response to the 

2017 NPR to simplify the capital rules for small 

banks not eligible for the community bank 

leverage ratio, including the regulatory capital 

treatment of mortgage servicing assets, deferred 

tax assets, investments in the capital instruments 

of other financial institutions, and minority 

interest. FDIC staff, along with the staff of 

other federal banking agencies, plan to put forth 

final rules on both of these capital simplification 

efforts in 2019 and explore other areas of 

regulatory capital rules that may be simplified 

or streamlined.  

♦ Commercial and Residential Real Estate 

Appraisal Thresholds 

On April 9, 2018, the FDIC, FRB, and 

OCC jointly published a final rule that raised 

the threshold for requiring an appraisal on 

commercial real estate transactions from 

$250,000 to $500,000. 

Similarly, on December 7, 2018, the FDIC, FRB, 

and OCC jointly published an NPR requesting 

comment on an increase in the threshold for 

requiring an appraisal on residential real estate 

transactions from $250,000 to $400,000.

♦ Frequently Asked Questions (FAQs) on the 

Appraisal Regulations and the Interagency 

Appraisal and Evaluation Guidelines

In October 2018, the FDIC, FRB, and OCC 

jointly issued FAQs on real estate appraisals 

and evaluations, in response to questions raised 

during the EGRPRA process about the agencies’ 

appraisal regulations and guidance. The FAQs 

do not introduce new policy or guidance, but 

instead assemble previously communicated policy 

and interpretations. The FAQs complement the 

agencies’ appraisal regulations, the real estate 

lending standards, the Interagency Appraisal and 

Evaluation Guidelines, the Interagency Advisory 

on the Use of Evaluations in Real Estate-Related 

Financial Transactions, and other regulations and 

advisories related to appraisals and evaluations. 

The FAQs rescinded and replaced FAQs that the 

agencies previously issued in March 2005.

♦ Advisory on the Availability of Appraisers 

The FDIC, FRB, OCC, and NCUA issued an 

advisory that discusses two existing methods 

that may address appraiser shortages, particularly 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

32

in rural areas: temporary practice permits and 

temporary waivers. The advisory addresses 

concerns raised pursuant to the EGRPRA 

review process. 

The first method, temporary practice permits, 

may be granted by state appraiser regulatory 

agencies to allow credentialed appraisers to 

provide their services in states experiencing 

a shortage of appraisers, subject to state law. 

Reciprocity is a widely used practice in which 

one state recognizes the appraiser certification 

and licensing of another state, permitting statecertified and -licensed appraisers to perform 

appraisals across state lines. The second method, 

temporary waivers, sets aside requirements 

relating to the certification or licensing of 

individuals to perform appraisals under Title 

XI of FIRREA in states or geographic political 

subdivisions while there is a scarcity of certified 

or licensed appraisers that has caused significant 

delays in performing appraisals. Authority to 

grant temporary waiver requests rests with the 

FFIEC's Appraisal Subcommittee, and is subject 

to FFIEC approval. To further communicate 

about the availability of the waiver process and 

get a deeper understanding of rural appraisal 

issues, the Conference of State Bank Supervisors 

organization arranged six roundtables between 

federal banking regulators, state commissioners 

and rural community bankers. Roundtables were 

held in Michigan, Tennessee, Wyoming, North 

Dakota, South Dakota, and Montana.

♦ Call Report Burden Reduction

Effective with the June 30, 2018, reporting 

date, burden-reducing revisions were made to 

all three versions of the Call Report (FFIEC 

051, FFIEC 041, and FFIEC 031 Call Reports). 

These changes were the result of multi-phase 

review of the data collected in all Call Report 

schedules, the re-evaluation of certain previously 

reviewed schedules, and consideration of industry 

comments and feedback. These changes were 

designed to ease reporting requirements and 

lessen the reporting burden for small and 

large institutions.

Additionally, during 2018 the FFIEC’s Task 

Force on Reports developed options for 

expanding eligibility to file the FFIEC 051 Call 

Report beyond the initial asset size eligibility 

threshold of $1 billion. This effort included 

analyzing Call Report data from institutions 

with domestic offices only and $1 billion or more 

in total assets. Section 205 of the EGRRCPA 

requires the banking agencies to issue regulations 

that allow for a reduced reporting requirement 

in the first and third quarter Call Reports for 

institutions that have less than $5 billion in 

total assets and satisfy other appropriate criteria 

established by the agencies. An NPR to expand 

eligibility for filing FFIEC 051 and to reduce 

the quarterly reporting frequency for some items 

to semiannual (i.e., June and December only) 

was published in November 2018. As of June 

30, 2018, approximately 90 percent of IDIs were 

eligible to file the FFIEC 051 Call Report. If 

the rule is finalized as proposed, approximately 

95 percent of IDIs would be eligible to file the 

FFIEC 051 Call Report. 

♦ Part 350 Disclosure of Financial and 

Other Information

In October 2018, the FDIC published an NPR 

to rescind and remove Part 350 of its regulations, 

which requires insured state nonmember banks 

and insured state-licensed branches of foreign 

banks to prepare an annual disclosure statement 

containing specified financial information and 

make it available to the public. The FDIC 

determined that widespread access to the internet 

allows interested persons to readily access more 

extensive and timely financial information about 

individual institutions than an annual disclosure 

statement, and that the burden of providing this 

annual disclosure statement is no longer justified. 

♦ Management Official Interlocks

In December 2018, the FDIC, OCC, and 

FRB approved a proposed rule that would 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

33

increase the major assets prohibition thresholds 

for management interlocks in the agencies’ 

rules implementing the Depository Institution 

Management Interlocks Act (DIMIA). The 

DIMIA major assets prohibition prohibits a 

management official of a depository organization 

with total assets exceeding $2.5 billion (or any 

affiliate of such an organization) from serving 

at the same time as a management official of an 

unaffiliated depository organization with total 

assets exceeding $1.5 billion (or any affiliate of 

such an organization). Raising the thresholds 

will account for changes in the U.S. banking 

market and inflation since the current thresholds 

were established in 1996, and relieve certain 

institutions (i.e., those below the adjusted 

threshold) from having to ask the agencies for 

an exemption from the major assets prohibition. 

The agencies proposed three alternative 

approaches to increasing the thresholds, and do 

not expect the proposal to materially increase 

anticompetitive risk.

♦ Retirement of Certain Financial 

Institution Letters 

Financial Institution Letters (FILs) serve as 

the primary tool for delivering information to 

financial institutions about new regulations, 

supervisory guidance, management tools, 

regulatory relief, and other subjects of interest. 

As part of a continuing effort to reduce 

regulatory burden, in December 2018, the FDIC 

retired 374 risk management supervision-related 

FILs and 119 FILs related to consumer protection 

that were issued between 1995 and 2017. The 

retired FILs were identified as being outdated or 

as conveying regulations or other information 

that is still in effect but available elsewhere on the 

FDIC’s website.

♦ Examination Modernization

Recognizing that regulatory burden does not 

emanate only from statutes and regulations, the 

FDIC, along with the FFIEC, continued the 

FFIEC Examination Modernization project in 

2018 as a follow-up to the review of regulations 

under EGRPRA. The project is focused on 

identifying ways to improve the efficiency of 

processes, procedures, and tools related to safetyand-soundness examinations and supervisory 

oversight, while maintaining the quality of the 

examination process. 

In March 2018, the FFIEC issued an update 

on the Examination Modernization project, 

which noted that, in response to feedback from 

both bankers and examiners, the FFIEC would 

initially focus on the following measures to 

reduce supervisory burden:

1. Highlight and reinforce regulator 

communication objectives before, during, and 

after examinations.

2. Continue to tailor examinations based on risk.

3. Leverage technology and shift, as appropriate, 

examination work from on-site to off-site. 

4. Improve electronic file transfer systems to 

facilitate the secure exchange of information 

between institutions and supervisory offices or 

examiners.

As a first step, and to address the first theme, 

the FDIC and other banking agencies issued 

a statement describing the principles of 

communication the agencies follow during the 

examination process, and committed to issue 

guidance to examination staff to reinforce 

and clarify the importance of being clear and 

transparent with community bankers during the 

examination process. 

In April 2018, the FDIC conducted an 

information sharing session to introduce 

a methodology for examiners to review 

standardized imaged loan files off-site. This 

technology is designed to reduce the amount of 

time examiners must spend onsite during a bank 

examination. A pilot program began in May, 

and several institutions have participated. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

34

Also in 2018, the Examination Modernization 

project team reviewed and compared principles 

and processes for risk-focusing examinations of 

community banks. This review concluded that 

the agencies have developed and implemented 

similar programs and processes for risk-tailoring 

examinations. 

On November 27, 2018, the FFIEC issued a 

statement to update the industry on efforts 

to reduce supervisory burden by tailoring 

examinations based on risk. In this statement, 

the FDIC and other agencies committed to issue 

reinforcing and clarifying guidance to examiners 

on risk-focused examination principles.

♦ OTS Rule Integration

The FDIC also streamlined and clarified 

certain regulations through the Office of Thrift 

Supervision (OTS) rule integration process. 

Under Section 316(b) of the Dodd-Frank 

Act, former OTS rules remain in effect “until 

modified, terminated, set aside, or superseded 

in accordance with applicable law” by the 

relevant successor agency, a court of competent 

jurisdiction, or operation of law. When 

the FDIC republished the transferred OTS 

regulations as new FDIC regulations applicable 

to state savings associations, the FDIC stated in 

the Federal Register notice that its staff would 

evaluate the transferred OTS rules and might 

later recommend incorporating them into other 

FDIC rules, amending them, or rescinding 

them. This process began in 2013 and continues, 

involving publication in the Federal Register of a 

series of NPRs and final rules. 

In April 2018, two transferred OTS rules, 

Prompt Corrective Action and Capital, were 

removed as part of Basel III implementation. 

Additionally, in May 2018, the FDIC issued 

final rules to remove two transferred OTS rules, 

Minimum Security Procedures and Consumer 

Protection in Sales of Insurance, and to make 

technical amendments to related FDIC rules 

for applicability to FDIC-supervised state banks 

and savings associations. In November 2018, 

the FDIC issued a final rule to remove the 

transferred OTS rule regarding Fiduciary Powers 

of State Savings Associations, and to amend and 

revise rules regarding Consent Requirements 

for the Exercise of Trust Powers. The final rule 

makes all FDIC-supervised institutions subject 

to the same application procedures for obtaining 

consent to exercise trust powers. 

Finally, in December 2018, the FDIC approved 

an NPR seeking comment on the removal of a 

transferred rule regarding lending and investment 

that is duplicative of standards in existing FDIC 

regulations. The NPR also seeks to remove rules 

related to the registration of residential mortgage 

loan originators in light of Title X of the DoddFrank Act, which transferred this authority to 

the CFPB. Staff will continue to review the 

remaining nine transferred regulations.

ACTIVITIES RELATED TO SYSTEMICALLY 

IMPORTANT FINANCIAL INSTITUTIONS

The FDIC is committed to addressing the unique 

challenges associated with the supervision, insurance, 

and potential resolution of large and complex financial 

institutions. The agency’s ability to analyze and 

respond to risks in these institutions is particularly 

important, as they comprise a significant share of 

banking industry assets and deposits. We have 

developed a consistent approach to large bank 

supervision nationwide that allows us to identify, 

analyze, and quickly respond to industry-wide and 

institution-specific risks and emerging issues. The 

FDIC has segregated these activities in two groups to 

both ensure that supervisory attention is risk-focused 

and tailored to the risk presented by the nation’s 

largest banks, and to meet our responsibilities under 

the FDI Act and the Dodd-Frank Act.

Complex Financial Institutions Program 

The Dodd-Frank Act expanded the FDIC’s 

responsibilities pertaining to systematically important 

financial institutions (SIFIs) and nonbank financial 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

35

companies designated by FSOC. The FDIC’s CFI 

Group and Large Bank Supervision Branch, both 

within RMS, perform ongoing risk monitoring of 

Global Systemically Important Banks (G-SIBs), large 

Foreign Banking Organizations (FBOs), and FSOCdesignated nonbank financial companies, provide 

backup supervision of the firms’ related IDIs, and 

evaluate the firms’ required resolution plans. The CFI 

Group also performs certain analyses that support the 

FDIC’s role as an FSOC member.

Resolution Plans – Title I Living Wills 

Certain large banking organizations and nonbank 

financial companies designated by the FSOC for 

supervision by the FRB are periodically required to 

submit resolution plans to the FRB and the FDIC. 

Each resolution plan, commonly known as a “living 

will,” must describe the company’s strategy for rapid 

and orderly resolution under the U.S. Bankruptcy 

Code in the event of material financial distress or 

failure of the company.

Companies subject to Title I are divided into three 

groups: 1) companies with $250 billion or more in 

nonbank assets, 2) companies with nonbank assets 

between $100 billion and $250 billion, and 3) all 

other companies with total consolidated assets of $50 

billion or more.4

 Large bank holding companies with 

substantial nonbank assets file in July. Other large 

bank holding companies file in December. 

Large Bank Holding Companies 

with Substantial Nonbank Assets

July filers include Bank of America Corporation, 

Bank of New York Mellon Corporation, JPMorgan 

Chase & Co., State Street Corporation, Wells Fargo 

& Company, Goldman Sachs Group, Inc., Morgan 

Stanley, and Citigroup, Inc. (collectively referred to as 

the eight domestic G-SIBs); and Barclays PLC, Credit 

Suisse Group AG, Deutsche Bank AG, and UBS AG, 

(collectively referred to as the four large FBOs). 

The four FBOs submitted resolution plans on or 

before July 1, 2018. On December 18, 2018, the 

FDIC and FRB issued letters to the four firms 

providing their review findings and information 

about areas where additional work needs to be done 

to improve resolvability. The agencies also extended 

the next resolution plan filing deadline for FBOs 

from July 1, 2019, to July 1, 2020. The extensions 

will allow additional time for the agencies to provide 

feedback to the firms on their last submissions and for 

the firms to produce their next plans. 

On July 29, 2018, the agencies issued for public 

comment revised resolution plan guidance for the 

eight domestic banking organizations. The proposed 

guidance updates to the agencies’ expectations for how 

a firm’s resolution strategy should address derivatives 

and trading activities, and payment, clearing, and 

settlement activities. The comment period closed 

on September 14, 2018. The agencies issued final 

guidance on December 18, 2018.

Other Large Bank Holding Company Filers

In January 2018, the FDIC, jointly with the FRB, 

provided feedback to 19 foreign-based banking 

organizations with total consolidated assets of $50 

billion or more regarding resolution plans submitted 

in December 2015. In March 2018, the FDIC, and 

FRB, provided feedback to two regional bank holding 

companies which submitted their resolution plans 

in December 2016. In May 2018, the FDIC and 

FRB granted an extension to 14 regional bank 

holding companies, extending the due date for 

their next resolution plan from December 2018 to 

December 2019. 

Nonbank Firms 

Nonbank financial firms designated as systemically 

important by FSOC also are required to submit 

resolution plans for review by the FDIC and FRB. 

Prudential, Inc., the only remaining designated 

4

 In 2018, the EGRRCPA increased the threshold for resolution plan requirements under Section 165(d) of the Dodd-Frank Act. The FDIC and FRB have announced 

their intention to propose amendments to current regulations and tailor certain future plan submission requirements in 2019. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

36

nonbank at the start of 2018, was required to submit 

its plan on December 31, 2018, pursuant to a previous 

extension. However, on October 16, 2018, FSOC 

rescinded Prudential’s designation as a SIFI. 

Insured Depository 

Institution Resolution Plans

Section 360.10 of the FDIC Rules and Regulations 

requires an IDI with total assets of $50 billion or 

more to periodically submit to the FDIC a plan for 

its resolution in the event of its failure (the “IDI 

rule”). The IDI rule requires covered IDIs to submit 

a resolution plan that would allow the FDIC, as 

receiver, to resolve the institution under Sections 11 

and 13 of the FDI Act in an orderly manner that 

enables prompt access to insured deposits, maximizes 

the return from the sale or disposition of the failed 

IDI’s assets, and minimizes losses realized by 

creditors. The resolution plan must also describe how 

a proposed strategy will be least costly to the Deposit 

Insurance Fund. 

Forty-one large insured banks covered by the IDI rule 

submitted their resolution plans by July 1, 2018. In 

the time period leading up to the submission deadline, 

the FDIC had undertaken measures to improve 

transparency and responsiveness. Specifically, the 

FDIC established a dedicated mailbox to receive 

questions and responded to more than 200 individual 

questions from banks, conducted three industry 

calls, met with one trade association, and conducted 

numerous meetings with individual covered IDIs. 

The resolution plans submitted by the IDIs have been 

reviewed and potential impediments to resolvability 

identified. Letters will be sent to the firms in 

early 2019.

The FDIC expects to issue an advance notice of 

proposed rulemaking relating to the IDI rule for 

public comment during the first quarter of 2019. 

Monitoring and Measuring Systemic Risks 

The FDIC monitors risks related to G-SIBs and 

large FBOs at the firm level and industry wide to 

inform supervisory planning and response, policy 

and guidance considerations, and resolution planning 

efforts. As part of this monitoring, the FDIC 

analyzes each company’s risk profile, governance 

and risk management capabilities, structure and 

interdependencies, business operation and activities, 

management information system capabilities, and 

recovery and resolution capabilities. 

The FDIC continues to work closely with the other 

federal banking agencies to analyze institution-specific 

and industry-wide conditions and trends, emerging 

risks and outliers, risk management, and the potential 

risk posed to financial stability by G-SIBs and 

large FBOs and non-bank financial companies. To 

support risk monitoring that informs supervisory and 

resolution planning efforts, the FDIC has developed 

systems and reports that make extensive use of 

structured and unstructured data. Monitoring reports 

are prepared on a routine and ad-hoc basis and cover 

a variety of aspects that include risk components, 

business lines and activity, market trends, and 

product analysis. 

Additionally, the FDIC has implemented and 

continues to expand upon various monitoring 

systems, including the Systemic Monitoring System 

(SMS). The SMS provides an individual risk profile 

and assessment for each G-SIB and large FBO by 

evaluating the level and change in metrics that serve 

as important indicators of overall risk. The SMS 

supports the identification of emerging and outsized 

risks within individual firms and the prioritization 

of supervisory and monitoring activities. The SMS 

also serves as an early warning system of financial 

vulnerability. Information from SMS and other 

FDIC-prepared reports are used to prioritize activities 

relating to SIFIs and to coordinate supervisory and 

resolution-related activities with the other banking 

agencies. 

The FDIC also conducts semi-annual “Day of Risk” 

meetings to present, discuss, and prioritize the review 

of emerging risks. In some cases, these discussions 

can lead to shifts in supervisory focus or priorities. 

In 2018, RMS CFI Group implemented a new SIFI 

Risk Report that identifies key vulnerabilities of 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

37

systemically important firms, gauges the proximity of 

these firms to a resolution event, and independently 

assesses the appropriateness of supervisory CAMELS 

ratings for the insured deposit institutions held by 

these firms. 

Back-up Supervision Activities for IDIs of 

Systemically Important Financial Institutions

Risk monitoring is enhanced by the FDIC’s back-up 

supervision activities. In its back-up supervisory role, 

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

FDIC has expanded resources and has developed and 

implemented policies and procedures to guide backup supervisory activities. These activities include 

performing analyses of industry conditions and 

trends, supporting insurance pricing, participating 

in supervisory activities with other regulatory 

agencies, and exercising examination and enforcement 

authorities when necessary. 

At institutions where the FDIC is not the primary 

federal regulator, FDIC staff works closely with other 

regulatory authorities to identify emerging risk and 

assess the overall risk profile of large and complex 

institutions. The FDIC has assigned dedicated staff 

to IDIs of G-SIBs and large FBOs and certain other 

large IDIs to enhance risk-identification capabilities 

and facilitate the communication of supervisory 

information. These individuals work with the staff 

of the FRB and OCC in monitoring risk at their 

assigned institutions. 

Through December 2018, FDIC staff participated 

in 112 targeted examination activities with the FRB 

or OCC in G-SIBS, large FBOs, and large regional 

banks. The reviews included, but were not limited 

to, engagement in evaluation of risk management, 

corporate governance, BSA/AML reviews, credit risk 

reviews, quantitative model reviews, and cybersecurity 

risk and operational risk reviews. FDIC staff also 

participated in various interagency horizontal review 

activities, including the FRB’s Comprehensive 

Capital Assessment and Review, reviews of model 

risk management, and independent pricing of 

fair-valued assets. 

Title II Orderly Liquidation Authority 

Under the Dodd-Frank Act, failed or failing financial 

companies are expected to file for reorganization or 

liquidation under the U.S. Bankruptcy Code, similar 

to what any failed or failing nonfinancial company 

would file. If resolution under the Bankruptcy 

Code would result in serious adverse effects to U.S. 

financial stability, Title II of the Dodd-Frank Act 

provides a backup authority for resolving a company 

for which the bankruptcy process is not viable. 

There are strict parameters on the use of the Title 

II Orderly Liquidation Authority, however, and it 

can only be invoked under a statutorily prescribed 

recommendation and determination process, coupled 

with an expedited judicial review process.

Resolution Strategy Development 

The FDIC has undertaken institution-specific 

strategic planning to carry out its orderly liquidation 

authorities with respect to the largest G-SIBs 

operating in the United States. The strategic plans 

and optionality being developed for these firms are 

informed by the Title I plan submissions. Further, 

the FDIC continues to build its systemic resolution 

framework, portions of which have been shared with 

other authorities, and is developing process documents 

to facilitate the implementation of the framework in 

a Title II resolution. In addition, preliminary work 

continues in the development of resolution strategies 

for financial market utilities, particularly central 

counterparties (CCPs). 

Cross-Border Efforts 

Advance planning and cross-border coordination 

for the resolution of Global Systemically Important 

Financial Institutions (G-SIFIs) is essential to 

minimizing disruptions to global financial markets. 

Recognizing that the resolution of a G-SIFI creates 

complex cross-border legal and operational concerns, 

the FDIC continues to work with foreign regulators 

to establish frameworks for effective cooperation, 

including information-sharing arrangements.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

38

The FDIC continued to advance its working 

relationships with authorities from other jurisdictions 

that supervise G-SIFIs, and through international 

forums, such as the Financial Stability Board’s 

Resolution Steering Group and its various subgroups. 

In 2018, the FDIC continued its ongoing work with 

international authorities to enhance coordination on 

cross-border bank resolution. This work included 

participation by senior financial officials and staff 

from the United States and key foreign jurisdictions. 

FDIC staff continues to pursue follow-on work 

endorsed by senior officials from participating 

agencies.

The FDIC serves as a co-chair for all of the 

cross-border crisis management groups (CMGs) 

of supervisors and resolution authorities for U.S. 

G-SIFIs. In addition, the FDIC participates as a 

host authority in CMGs for foreign G-SIFIs. The 

FDIC and the European Commission (EC) continued 

their engagement through a joint working group, 

which is composed of senior executives at the FDIC 

and EC who meet to focus on both resolution and 

deposit insurance issues. In 2018, the working group 

discussed cross-border bank resolution and resolution 

of CCPs, among other topics. 

FDIC staff also participated in the joint U.S.-EU 

Financial Regulatory Forum meetings, one held in 

Washington, D.C., in January 2018, and another 

held in Brussels in June 2018, with representatives 

of the EC and other participating European 

Union authorities, and staffs of the Department of 

Treasury, FRB, SEC, Commodities Futures Trading 

Commission (CFTC), and other participating U.S. 

agencies. Discussions addressed the outlook for 

financial regulatory reforms and future priorities, 

including those involving standards relevant to banks 

and cooperation on cross-border issues relevant to 

capital markets such as those involving CCPs. 

In 2018, FDIC staff also participated in the inaugural 

meeting of the U.S.-UK Financial Regulatory 

Working Group in London, which was formed to 

support financial stability and related matters. This 

cooperation is especially important given transition in 

the UK’s regulatory relationships as it withdraws from 

the European Union. 

Systemic Resolution Advisory Committee 

The FDIC created the Systemic Resolution Advisory 

Committee (SRAC) in 2011 to receive advice and 

recommendations on a broad range of issues regarding 

the resolution of systemically important financial 

companies pursuant to the Dodd-Frank Act. Over 

the years, the SRAC has advised the FDIC on a 

variety of issues, including:

♦ The effects on financial stability and economic 

conditions resulting from the failure of a SIFI, 

♦ The ways in which specific resolution strategies 

would affect stakeholders and customers, 

♦ The tools available to the FDIC to wind down 

the operations of a failed organization, and 

♦ The tools needed to assist in cross-border 

relations with foreign regulators and governments 

when a SIFI has international operations. 

Members of the SRAC have a wide range of 

experience, including managing complex firms, 

administering bankruptcies, and working in the legal 

system, accounting field, and academia. The last 

meeting of the SRAC was held on December 6, 2018. 

Agenda topics included updates to the Title I Living 

Wills, Title II Orderly Liquidation Authority, and 

international developments. 

Financial Stability Oversight Council 

The FSOC was created by the Dodd-Frank Act in 

July 2010 to promote the financial stability of the 

United States. It is composed of 10 voting members, 

including the Chairperson of the FDIC, and five nonvoting members. 

The FSOC’s responsibilities include the following:

♦ Identifying risks to financial stability, responding 

to emerging threats in the financial system, and 

promoting market discipline; 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

39

♦ Identifying and assessing threats that institutions 

may pose to financial stability and, if appropriate, 

designating a nonbank financial company for 

supervision by the FRB subject to heightened 

prudential standards; 

♦ Designating financial market utilities and 

payment, clearing, or settlement activities 

that are, or are likely to become, systemically 

important; 

♦ Facilitating regulatory coordination and 

information sharing regarding policy 

development, rulemaking, supervisory 

information, and reporting requirements; 

♦ Monitoring domestic and international financial 

regulatory proposals and advising Congress 

and making recommendations to enhance the 

integrity, efficiency, competitiveness, and stability 

of U.S. financial markets; and 

♦ Producing annual reports describing, among 

other things, the Council’s activities and 

potential emerging threats to financial stability. 

In December 2018, the FSOC issued its 2018 annual 

report. Generally, at each of its meetings, the FSOC 

discusses various risk issues. In 2018, the FSOC 

meetings addressed, among other topics: the process 

for considering applications from bank holding 

companies or their successors under section 117 of 

the Dodd-Frank Act, the annual reevaluation of its 

designation of a nonbank financial company, financial 

market volatility, fluctuations in various asset classes 

(including cryptocurrency futures) and the impacts 

on financial institutions and markets, the progress of 

the United Kingdom’s efforts to leave the European 

Union (i.e., “Brexit”) and potential changes that could 

affect U.S. financial markets or institutions, and 

alternative reference rates, including the adoption of 

the Secured Overnight Financing Rate. Additionally, 

in early 2018, the Council established a working 

group to study a digital asset and distributed ledger 

technology. The working group brings together 

federal financial regulators whose jurisdictions are 

relevant to the oversight of digital assets and their 

underlying technologies.

DEPOSITOR AND 

CONSUMER PROTECTION

A major component of the FDIC’s mission is to 

ensure that financial institutions treat consumers 

and depositors fairly, and operate in compliance with 

federal consumer protection, anti-discrimination, 

and community reinvestment laws. The FDIC 

also promotes economic inclusion to build and 

strengthen positive connections between insured 

financial institutions and consumers, depositors, small 

businesses, and communities.

Rulemaking and Guidance

Home Mortgage Disclosure Act 

In March 2018, the FDIC and other FFIEC members 

revised A Guide to HMDA Reporting: Getting It Right! 

The guide was updated to reflect changes to the Home 

Mortgage Disclosure Act (HMDA) in October 2015, 

and further amendments made in 2017. The guide 

was designed to help financial institutions better 

understand the HMDA requirements, including data 

collection and reporting provisions.

In July 2018, the FDIC released a statement on the 

impact of the EGRRCPA on HMDA. EGRRCPA 

provides partial exemptions for some insured 

depository institutions and insured credit unions 

from certain HMDA requirements. The FDIC noted 

that the CFPB would be providing further guidance 

on the applicability of the EGRRCPA to HMDA 

data collected in 2018. The agencies retained their 

diagnostic examination approach regarding HMDA 

data collected in 2018 and reported in 2019.

Updated Examination Procedures

Updated examination procedures were communicated 

through revisions to the FDIC Compliance 

Examination Manual that is publicly available on 

the FDIC’s website. 

In February 2018:

♦ Truth in Lending Act (TILA) (V-1.1): Several 

TILA thresholds were updated. Specifically, the 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

40

escrow exemption and the appraisal exemption 

thresholds for higher priced mortgages were 

increased and dollar amounts for provisions in 

Regulation Z related to qualified mortgages and 

Home Ownership and Equity Protection Act 

loans were updated. The exemption threshold 

for consumer credit and lease transactions were 

also increased. The Credit Card Penalty Fee Safe 

Harbor remained the same as the prior year. 

♦ Home Mortgage Disclosure Act (HMDA) 

(V-9.1): The asset size exemption thresholds were 

updated. Additional information regarding 

implementation of the 2015 HMDA Final Rule 

and subsequent rulemakings was added.

♦ Consumer Leasing Act (V-10.1): The exemption 

threshold for consumer credit and lease 

transactions was updated. 

♦ Community Reinvestment Act (XI-1.1): 

Asset-based definitions for “small banks” and 

“intermediate small banks” were updated. 

In May 2018:

♦ Truth in Lending Act (TILA) (V-1.1): The 

interagency TILA examination procedures 

were updated to reflect the 2016 amendments 

to the Mortgage Servicing Rule originally issued 

in 2013.

♦ Real Estate Settlement Procedures Act (RESPA) 

(V-3.1): The interagency RESPA examination 

procedures were updated to reflect the 2016 

amendments to the Mortgage Servicing Rule 

originally issued in 2013. 

♦ Servicemembers Civil Relief Act (SCRA) (V11.1): The SCRA chapter was updated to reflect a 

statutory amendment extending the sunset date 

of certain expanded protections for members 

of uniformed services relating to mortgages 

and mortgage foreclosure available under the 

Servicemembers Civil Relief Act. 

In June 2018: 

♦ Retail Insurance Sales (IX-2.1): The Retail 

Insurance Sales chapter was updated to reflect 

changes to Part 343 to reflect the scope of the 

FDIC’s current supervisory responsibilities 

as the appropriate federal banking agency for 

state savings associations that were previously 

regulated by the Office of Thrift Supervision. 

In August 2018:

♦ Expedited Funds Availability Act (VI-1.1): The 

Expedited Funds Availability Act chapter was 

updated to reflect amendments to Regulation CC 

regarding check collections and return provisions. 

Promoting Economic Inclusion

The FDIC is strongly committed to promoting 

access to a broad array of responsible and sustainable 

banking products to meet consumer’s financial needs. 

In support of this goal, the FDIC: 

♦ Conducts research on the unbanked and 

underbanked populations, 

♦ Engages in research and development on models 

of products meeting the needs of lower-income 

consumers, 

♦ Supports partnerships to promote consumer 

access to and use of banking services, 

♦ Advances financial education and literacy, and 

♦ Facilitates partnerships to support community 

and small business development. 

Advisory Committee on Economic Inclusion 

The Advisory Committee on Economic Inclusion 

(ComE-IN) provides the FDIC with advice and 

recommendations on important initiatives to expand 

access to mainstream banking services to underserved 

populations. This includes reviewing basic retail 

financial services (e.g., low-cost, safe transaction 

accounts; affordable small-dollar loans; savings 

accounts; and other services), as well as demand-side 

factors such as consumers’ perceptions of mainstream 

financial institutions. 

In October 2018, the ComE-IN held a meeting that 

included a discussion of the results from the 2017 

FDIC National Survey of Unbanked and Underbanked 

Households. The committee also heard a presentation 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

41

on research from the United Kingdom’s Financial 

Conduct Authority into the effectiveness of mobile 

text notifications sent to help consumers avoid 

unwanted fees. In addition, the committee heard a 

presentation on opportunities to extend economic 

inclusion in the banking system through youth 

employment programs.

In December 2018, the FDIC renewed the ComE-IN 

charter pursuant to the requirements of the Federal 

Advisory Committee Act (5 U.S.C. App. 2).

FDIC National Survey of Unbanked and 

Underbanked Households and Related Research

As part of its ongoing commitment to expanding 

economic inclusion in the United States, the FDIC 

works to fill the research and data gap regarding 

household participation in mainstream banking and 

the use of nonbank financial services. In addition, 

Section 7 of the Federal Deposit Insurance Reform 

Conforming Amendments Act of 2005 mandates that 

the FDIC regularly report on underserved populations 

and bank efforts to bring individuals and families 

into the mainstream banking system. In response, 

the FDIC regularly conducts and reports on surveys 

of households and banks to inform the public and 

enhance the understanding of financial institutions, 

policymakers, regulators, researchers, academics, 

and others. 

In 2018, the FDIC published results from the 2017 

FDIC National Survey of Unbanked and Underbanked 

Households. In addition to updating key reference 

measurements on participation in the banking system, 

the report analyzed the methods through which 

households access their bank accounts, examined 

consumer use of various mobile banking functions, 

measured bank branch utilization, and examined 

household use of and demand for mainstream credit. 

This information provided a basis for identifying 

additional opportunities in the report to expand 

economic inclusion in the banking system. The 

FDIC made full results and respondent-level data 

available on https://economicinclusion.gov and 

also provided users with the ability to generate 

custom tabulations and to access a wide range of 

pre-formatted information, including new five-year 

estimates that provide additional granularity for state 

and local results. In addition, planning for the 2019 

FDIC National Survey of Unbanked and Underbanked 

Households is complete. A November 2018 notice 

in the Federal Register proposed the use of a 

revised questionnaire.

Community and Small Business Development 

and Affordable Mortgage Lending

In 2018, the FDIC provided technical assistance 

to banks and community organizations through 

more than 254 outreach events designed to increase 

shared knowledge and support collaboration between 

financial institutions and other community, housing, 

and small business development resources and to 

improve knowledge about CRA. 

The FDIC’s work emphasized sharing information to 

support bank efforts to prudently provide affordable 

mortgages, small business credit, and access to safe 

accounts and financial education. 

As part of this effort, the FDIC also launched the 

Affordable Mortgage Lending Center, a website 

that houses a number of resources, including the 

Affordable Mortgage Lending Guide, a three-part guide 

designed to help community banks identify affordable 

mortgage products. 

By year-end 2018, the Affordable Mortgage Lending 

Center had more than 15,000 subscribers. Materials 

from the center have been downloaded more than 

12,000 times, and the site has had more than 68,000 

page views since its inception. 

In addition, the FDIC sponsored sessions with 

interagency partners covering basic and advanced 

CRA training for banks. The agencies also offered 

CRA basics for community-based organizations, 

as well as seminars on establishing effective 

bank/community collaborations in more than 

27 communities. The FDIC also focused on 

encouraging community development initiatives in 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

42

rural communities. This work included workshops 

to highlight housing needs and programs, economic 

development programs, and community development 

financial institution collaborations, including those 

serving Native American communities.

Advancing Financial Education

Financial education helps consumers understand and 

use bank products effectively and sustain a banking 

relationship. In 2018, the FDIC continued to be 

a leader in developing high-quality, free financial 

education resources and pursuing collaborations to 

use those tools to educate the public. 

The Money Smart series of products is available 

to organizations and individuals who want to 

teach financial concepts to consumers of all ages; 

individuals can also use the products to learn the 

concepts on their own. In particular, the newly 

updated Money Smart for Adults can help adults 

build the fundamental financial knowledge, 

skills, and confidence they need to use banking 

services effectively. 

Youth Financial Education 

The FDIC’s Youth Banking Network provides 

opportunities for 66 banks to learn from one another 

and FDIC staff about promising strategies to teach 

financial education concepts to school-aged children 

using hands-on approaches. 

In 2018, Youth Banking Network members 

participated in periodic learning calls to discuss 

helpful strategies and resources. For example, the 

April 2018 call highlighted practical approaches in 

conducting reality fairs, a strategy to help young 

people understand the tradeoffs of money choices that 

they can expect to experience as they enter adulthood. 

The FDIC also engaged network participants to 

develop an operational toolkit of resources that 

can support the development of new youth savings 

collaborations. The FDIC drafted new resources for 

the network based on consultations with members 

that included:

♦ Answers to frequently asked questions about 

operating youth banking programs; 

♦ A tip sheet to help banks communicate with 

parents and caregivers about the financial 

education provided through schools;

♦ A tip sheet to help banks communicate with 

teachers and administrators to secure an 

agreement to educate students; 

♦ Strategies bankers can use to make financial 

education relevant when visiting classrooms to 

talk about money; 

♦ A guide to reality fairs; and 

♦ A guide to measuring outcomes of youth 

savings programs.

Many youth banking programs provide financial 

education training based on FDIC’s Money Smart 

for Young People curriculum. As part of the FDIC’s 

ongoing efforts to improve the curriculum, the FDIC 

obtained feedback from 26 educators who taught 

83 Money Smart for Young People sessions as part 

of a special project. The participating educators 

overwhelmingly reported that the materials were 

structured well, easy to use, and initiated critical 

thinking among students. They also provided 

valuable suggestions for improvement, such as 

including more activities, updating the content, and 

reorganizing content to make it more useful. 

The FDIC has begun to revise Money Smart for Young 

People based on this teacher feedback and other 

curriculum assessments with a goal of releasing a 

redesigned and strengthened curriculum tool in mid2019. As part of our collaboration with the CFPB 

to promote youth financial capability, the FDIC is 

exploring how to integrate the CFPB’s research-based 

Building Blocks for Youth Financial Capability activities 

into the updated materials. 

Financial Education Outreach 

Highlights of our outreach include collaboration 

with members of the Federal Financial Literacy and 

Education Commission (FLEC). During Financial 

Capability Month (April), the members shared and 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

43

promoted financial education resources using the 

#FinancialFuture2018 hashtag on social media. 

During a webinar hosted by FLEC, 200 participants 

learned about the FDIC’s financial education 

resources. 

The FDIC also collaborated with the U.S. 

Department of Education and other FLEC agencies 

on the “Financial Education in America’s Schools” 

convening on April 27, 2018. This event promoted 

the exchange of ideas among state and local leaders 

and highlighted federal resources that support 

promising ideas.

In addition, the FDIC engaged with youth 

employment programs to use the Money Smart

financial education materials to reach young workers. 

For example, FDIC staff visited a Job Corps site in 

Washington, D.C., to provide technical assistance, 

and later conducted a Money Smart train-the-trainer 

session for 10 staff members, and planned a banker 

roundtable. 

The FDIC also developed a brochure for workforce 

program organizations that included tips on how 

to engage financial institutions to provide financial 

education or deposit account opportunities for young 

people. The FDIC joined with NCUA to engage 

more than 15 cities to participate in the America Saves 

for Young Workers initiative and learn how to connect 

young workers with basic deposit accounts at insured 

financial institutions.

From left, Salvador Arbujo, Tina Queen, April Atkins, and Alberto Cornejo 

discuss an activity during a Money Smart Train-the-Trainer session for the 

Community Affairs Branch staff.

The FDIC collaborated with the CFPB to release a 

Spanish translation of Money Smart for Older Adults. 

This material had been updated in 2017 to include 

information and resources to help older adults and 

their caregivers avoid financial exploitation through 

fraud and scams. 

Finally, the format of the FDIC Consumer News 

has changed from a quarterly printed newsletter to 

an electronic monthly article release with printable 

versions. This allows for more frequent contact 

with consumers and consistent timely releases of 

information. It also provides an opportunity to 

attract new readers through the use of social media in 

an easy to read format for mobile devices. Through 

digitation the FDIC can measure and improve 

communication and outreach efforts. 

Money Smart for Adults 

In November 2018, the FDIC updated the Money 

Smart for Adults curriculum, building on insights 

gained from more than 17 years of experience with 

the Money Smart program. The revised curriculum, 

field-tested twice with community organizations and 

banks, features 14 modules that cover basic financial 

topics for use during group training or one-on-one 

work. Specifically, the updated curriculum features:

♦ Expanded content on topics such as mobile 

banking, reading a pay statement, renting an 

apartment, creative ways to save money, and 

updated information on standard topics such as 

credit reports and scores;

♦ Vibrant graphics and discrete sections so 

instructors can create effective training sessions 

by choosing topics of interest to training 

participants;

♦ “Try It” activities that provide engaging 

opportunities for participants to practice what 

they’re learning during training in many 

contexts, including realistic scenarios;

♦ “Apply It” activities to help participants apply 

what they have learned to their own lives, either 

during or after training; 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

44

♦ “Key Takeaways” that briefly summarize the 

main message of each section;

♦ A “Take Action” section in every module that 

encourages participants to identify at least one 

thing they plan to do because of what they 

learned during the training; 

♦ A new Guide to Presenting Money Smart for 

Adults that includes tools to help instructors 

present interactive, non-biased training using 

the updated curriculum, such as “roadmaps” to 

create customized training across modules, fun 

and engaging introductory activities to energize 

participants to learn, and detailed checklists to 

prepare for training; and

♦ An updated supplement with scenarios featuring 

individuals with disabilities thinking about a 

financial decision.

More than 1,500 organizations were trained on the 

updated materials before year-end, including during 

two national webinars, and plans are underway to 

provide training to many more organizations. 

In addition, the FDIC plans to release a self-paced 

online learning tool based on the updated curriculum 

in 2020. 

Money Smart for Small Business 

The FDIC convened forums and roundtables 

featuring safe small business products and services, 

and provided information and technical assistance 

to support initiatives geared to increase access to 

capital for small businesses. In 2018, the FDIC 

completed 74 events and activities primarily focused 

on small business.

The Small Business Administration (SBA) and its 

partner networks – including the Small Business 

Development Centers, Women’s Business Centers and 

SCORE Chapters – the Federal Trade Commission, 

CFPB, and other stakeholders collaborated with the 

FDIC to produce a revised version of the Money Smart 

for Small Business Credit and Banking Modules to 

address information needs in response to a lending 

marketplace where entrepreneurs may be unaware 

of safe and affordable financing options and may 

be engaging in financing with terms they do not 

fully understand.

Money Smart Alliance

The maximum potential of the curriculum is reached 

when banks collaborate with non-profits or other 

community-based organizations to bring Money Smart

training to local communities, and, when appropriate, 

connect the training to banking products and services 

that respond to the needs of participants. Through 

the Money Smart Alliance, the FDIC recognizes 

organizations that commit to using Money Smart and 

that want to receive regular updates and training tips 

to enhance their use of the curriculum. 

More than 450 organizations joined the Alliance 

during 2018, bringing the total members to 1,062. 

The Alliance experienced a 34 percent growth during 

2018 compared to year-end 2017. This growth is 

largely attributable to the Money Smart Advance Team 

effort that built engagement with organizations that 

have or will deliver Money Smart to adults. 

The FDIC engaged Alliance members through 

quarterly webinars and one-on-one calls. Alliance 

members also learned about the updated Money Smart 

for Adults curriculum (and had the opportunity for 

early review of the modules) starting in September 

2018, several weeks before the broader public release.

Partnerships for Access 

to Mainstream Banking

The FDIC supported community development and 

economic inclusion partnerships at the local level 

by providing technical assistance and information 

resources throughout the country, with a focus on 

unbanked and underbanked households and low- and 

moderate-income communities. Community Affairs 

staff support economic inclusion through work with 

the Alliances for Economic Inclusion (AEI), Bank On 

initiatives, and other coalitions originated by local and 

state governments, and in collaboration with federal 

partners and many local and national non-profit 

organizations. The FDIC also partners with other 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

45

financial regulatory agencies to provide information 

and technical assistance on community development 

to banks and community leaders across the country. 

In the 12 AEI communities and in other areas, 

the FDIC helped working groups of bankers and 

community leaders develop responses to the financial 

capability and services needs in their communities. 

To integrate financial capability into community 

services more effectively, the FDIC supported 

seminars and training sessions for community service 

providers and asset-building organizations, workshops 

for financial coaches and counselors, promotion of 

savings opportunities for low- and moderate-income 

people and communities, initiatives to expand access 

to savings accounts for all ages, outreach to bring 

larger numbers of people to expanded tax preparation 

assistance sites, and education for business owners to 

help them become bankable. 

The FDIC worked across the nation, including in 

16 targeted communities, to convene 12 forums 

and 19 roundtables that helped advance strategies 

to expand access to safe and affordable deposit 

accounts and engage unbanked and underbanked 

consumers. The FDIC provided technical assistance 

to bankers, coalition leaders, and others interested 

in understanding opportunities for banking services 

designed to meet the needs of the unbanked 

and underbanked. 

In total, the FDIC sponsored more than 55 events, 80 

outreach activities, and 13 speaking engagements and 

exhibitions during 2018 that provided opportunities 

for partners to collaborate on increasing access to 

bank accounts and credit services, opportunities 

to build savings and improve credit histories, and 

initiatives to significantly strengthen the financial 

capability of community service providers who 

directly serve consumers with low or moderate 

incomes and small businesses. 

Consumer Complaints and Inquiries

The FDIC helps consumers by receiving, 

investigating, and responding to consumer complaints 

about FDIC-supervised institutions and answering 

inquiries about banking laws and regulations, FDIC 

operations, and other related topics. In addition, the 

FDIC provides analytical reports and information 

on complaint data for internal and external use, and 

conducts outreach activities to educate consumers. 

The FDIC recognizes that consumer complaints and 

inquiries play an important role in the development 

of strong public and supervisory policy. Assessing 

and resolving these matters helps the agency identify 

trends or problems affecting consumer rights, 

understand the public perception of consumer 

protection issues, formulate policy that aids 

consumers, and foster confidence in the banking 

system by educating consumers about the protection 

they receive under certain consumer protection laws 

and regulations.

Consumer Complaints by Product and Issue 

The FDIC receives complaints and inquiries 

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

through the FDIC’s website. In 2018, the FDIC 

handled 18,334 written and telephonic complaints 

and inquiries. Of the 12,016 involving written 

correspondence, 5,306 were referred to other agencies 

and 6,710 were handled by the FDIC. The FDIC 

responded to 97 percent of written complaints 

within time frames established by corporate policy, 

and acknowledged 100 percent of all consumer 

complaints and inquiries within 14 days. As part 

of the complaint and inquiry handling process, 

the FDIC works with the other federal financial 

regulatory agencies to ensure that complaints and 

inquiries are forwarded to the appropriate agencies for 

response. The FDIC carefully analyzes the topics and 

issues involved in complaints about FDIC-supervised 

institutions. The number of complaints received 

about a specific bank topic and issue can serve as a red 

flag to prompt further review of practices that may 

raise consumer protection or supervisory concerns. 

In 2018, the four most frequently identified topics 

in consumer complaints and inquiries about FDICsupervised institutions concerned checking accounts 

(19 percent), consumer line of credit/installment 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

46

loans (15 percent), credit cards consumer/business 

(14 percent), and residential real estate (10 percent). 

Issues most commonly cited in correspondence 

about checking accounts were concerns with account 

discrepancies or transaction errors, and fees and 

service charges. Consumer loan complaints and 

inquiries most frequently described issues with 

reporting erroneous account information and 

collection practices, while consumer correspondence 

about credit cards most often raised issues regarding 

reporting of erroneous account information and 

billing disputes/error resolution. Correspondence 

regarding residential real estate related to disclosures, 

inaccurate appraisal reports, and loan modifications.

The FDIC also investigated 63 Fair Lending 

complaints alleging discrimination during 2018. The 

number of discrimination complaints investigated 

has fluctuated over the past several years but averaged 

approximately 67 complaints per year between 

2013 and 2018. Over this period, 47 percent of 

the complaints investigated alleged discrimination 

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

of the applicant or borrower; 14 percent related to 

discrimination allegations based on age; 13 percent 

involved the sex of the borrower or applicant; and 8 

percent concerned disability. 

Consumer refunds generally involve the financial 

institution offering a voluntary credit to the 

consumer’s account, often as a direct result of 

complaint investigations and identification of a 

banking error or violation of law. Through December 

2018, consumers received more than $448,500 in 

refunds from financial institutions as a result of 

the assistance provided by the FDIC’s Consumer 

Response Center.

Public Awareness of Deposit 

Insurance Coverage

An important part of the FDIC’s deposit insurance 

mission is to ensure that bankers and consumers 

have access to accurate information about the FDIC’s 

rules for deposit insurance coverage. The FDIC has 

an extensive deposit insurance education program 

consisting of seminars for bankers, electronic tools for 

estimating deposit insurance coverage, and written 

and electronic information targeted to both bankers 

and consumers. 

The FDIC continued its efforts to educate bankers 

and consumers about the rules and requirements for 

FDIC insurance coverage during 2018. For example, 

as of December 31, 2018, the FDIC conducted four 

telephone seminars for bankers on deposit insurance 

coverage, reaching an estimated 4,473 bankers 

participating at approximately 1,278 bank sites 

throughout the country. The FDIC also features 

deposit insurance training videos that are available on 

the FDIC’s website and YouTube channel. 

As of December 31, 2018, the FDIC Call 

Center received 96,703 telephone calls, of which 

approximately 38,681 were identified as deposit 

insurance-related inquiries. The FDIC Call Center 

handled approximately 20,102 inquiries and Deposit 

Insurance subject matter experts (SMEs) handled 

18,579 complex telephone calls identifying a total 

of 50,548 deposit insurance issues. In addition to 

telephone inquiries about deposit insurance coverage, 

the FDIC received 1,339 written inquiries from 

consumers and bankers identifying a total of 2,248 

deposit insurance issues. Of these inquiries, 100 

percent received responses within two weeks, as 

required by corporate policy.

RECEIVERSHIP MANAGEMENT

The FDIC has the unique mission of protecting 

depositors of insured banks and savings associations. 

No depositor has ever experienced a loss on the 

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

institution closes, its chartering authority—the state 

for state-chartered institutions and the OCC for 

national banks and federal savings associations— 

typically appoints the FDIC as receiver, responsible 

for resolving the failed institution.

The FDIC employs a variety of strategies and business 

practices to resolve a failed institution. These 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

47

strategies and practices are typically associated with 

either the resolution process or the receivership 

process. Depending on the characteristics of 

the institution, the FDIC may utilize several of 

these methods to ensure the prompt and smooth 

payment of deposit insurance to insured depositors, 

to minimize the impact on the DIF, and to speed 

dividend payments to uninsured depositors and other 

creditors of the failed institution. 

The resolution process involves evaluating and 

marketing a failing institution, soliciting and 

accepting bids for the sale of the institution, 

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

DIF, and working with the acquiring institution 

through the closing process. 

To minimize disruption to the local community, 

the resolution process must be performed as quickly 

and efficiently as possible. The FDIC uses two 

basic resolution methods: purchase and assumption 

transactions and deposit payoffs. 

The purchase and assumption (P&A) transaction 

is the most commonly used resolution method. 

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

purchases certain assets and assumes certain liabilities 

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

transactions can be used. Because each failing bank 

situation is different, P&A transactions provide 

flexibility to structure deals that result in obtaining 

the highest value for the failed institution. For each 

possible P&A transaction, the acquirer may acquire 

either all of the failing institution’s deposits or only 

the insured portion of the deposits.

From 2008 through 2013, loss sharing was offered by 

the FDIC in connection with P&A transactions. In 

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

to share losses on certain assets with the acquirer, 

absorbing a significant portion (typically 80 percent) 

of future losses on assets that have been designated as 

“shared-loss assets” for a specific period of time (e.g., 

five to 10 years). The economic rationale for these 

transactions is that keeping assets in the banking 

sector and resolving them over an extended period 

of time can produce a better net recovery than 

the FDIC’s immediate liquidation of these assets. 

However, in recent years as the markets improved 

and functioned more normally with both capital 

and liquidity returning to the banking industry, 

acquirers have become more comfortable with bidding 

on failing bank franchises without the loss-sharing 

protection. 

The FDIC continues to monitor compliance 

with shared-loss agreements by validating the 

appropriateness of loss-share claims; reviewing 

acquiring institutions’ efforts to maximize recoveries; 

ensuring consistent application of policies and 

procedures across both shared-loss and legacy 

portfolios; and confirming that the acquirers have 

sufficient internal controls, including adequate staff, 

reporting, and recordkeeping systems. At year-end 

2018, there were 81 receiverships with active sharedloss agreements and $9.6 billion in total shared-loss 

covered assets.

Financial Institution Failures

During 2018, there were no institution failures, 

compared to eight failures in 2017. 

There were no losses on insured deposits, and no 

appropriated funds were required to pay insured 

deposits.

The following chart provides a comparison of failure 

activity over the past three years.

FAILURE ACTIVITY 2016 – 2018

Dollars in Billions

2018 2017 2016

Total Institutions 0 8 5

Total Assets of Failed 

Institutions* $0.0 $5.1 $0.3

Total Deposits of Failed 

Institutions* $0.0 $4.7 $0.3

Estimated Loss to the DIF $0.0 $1.2 $0.04

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

the institution prior to failure.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

48

Asset Management and Sales

As part of its resolution process, the FDIC tries to sell 

as many assets as possible to an assuming institution. 

Assets that are retained by the receivership are 

promptly valued and liquidated in order to maximize 

the return to the receivership estate. For 95 percent 

of failed institutions, at least 90 percent of the book 

value of marketable assets is marketed for sale within 

90 days of an institution’s failure for cash sales, and 

within 120 days for structured sales. 

Cash sales of assets for 2018 totaled $38.6 million in 

book value. 

As a result of the FDIC’s marketing and collection 

efforts, the book value of assets in inventory decreased 

by $1.1 billion (48 percent) in 2018. 

The following chart shows the beginning and ending 

balances of these assets by asset type.

ASSETS-IN-LIQUIDATION INVENTORY 

BY ASSET TYPE

Dollars in Millions

Asset Type 12/31/18 12/31/17 12/31/16

Securities $50 $160 $183

Consumer Loans 0 8 8

Commercial Loans 34 50 19

Real Estate Mortgages 67 139 85

Other Assets/Judgments 151 260 268

Owned Assets 3 47 40

Net Investments in 

Subsidiaries 19 157 100

Structured and 

Securitized Assets 854 1,449 2,614

TOTAL $1,178 $2,271 $3,317

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 its liabilities 

extinguished, the final distribution of any proceeds is 

made, and the FDIC terminates the receivership. In 

2018, the number of receiverships under management 

decreased by 66 (19.5 percent) to 272. 

The following chart shows overall receivership activity 

for the FDIC in 2018.

RECEIVERSHIP ACTIVITY

Active Receiverships as of 12/31/17 338

New Receiverships 0

Receiverships Terminated 66

Active Receiverships as of 12/31/18 272

Protecting Insured Depositors

The FDIC’s ability to attract healthy institutions 

to assume deposits and purchase assets of failed 

banks and savings associations at the time of failure 

minimizes the disruption to customers and allows 

assets to be returned to the private sector immediately. 

Assets remaining after resolution are liquidated by 

the FDIC in an orderly manner, and the proceeds are 

used to pay receivership creditors, including depositors 

whose accounts exceeded the insurance limit. During 

2018, receiverships paid dividends of $4.6 million to 

depositors whose accounts exceeded the insurance 

limit.

Professional Liability and 

Financial Crimes Recoveries

The FDIC investigates bank failures to identify 

potential claims against directors, officers, securities 

underwriters and issuers, fidelity bond insurance 

carriers, appraisers, attorneys, accountants, mortgage 

loan brokers, title insurance companies, and other 

professionals who may have caused losses to insured 

depository institutions and FDIC receiverships. The 

FDIC will pursue meritorious claims that are expected 

to be cost-effective. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

49

During 2018, the FDIC recovered $116.2 million 

from professional liability claims and settlements. 

The FDIC did not authorize any professional liability 

lawsuits during 2018. As of December 31, 2018, 

the FDIC’s caseload included 62 open institutions 

(not including institutions open for collection only), 

21 professional liability lawsuits (down from 24 at 

year-end 2017), nine residential mortgage malpractice 

and fraud lawsuits (down from 21), and open 

investigations in 27 claim areas out of 18 institutions. 

The FDIC seeks to complete professional liability 

investigations and make decisions expeditiously on 

whether to pursue potential professional liability 

claims. The FDIC completed investigations and made 

decisions on 92 percent of the investigations related 

to failures that reached the 18-month point after the 

institution’s failure date in 2018, thereby exceeding its 

annual performance target. 

As part of the sentencing process, for those convicted 

of criminal wrongdoing against an insured institution 

that later failed, a court may order a defendant 

to pay restitution or to forfeit funds or property 

to the receivership. The FDIC, working with the 

U.S. Department of Justice, in connection with 

criminal restitution and forfeiture orders issued by 

federal courts and independently in connection 

with restitution orders issued by the state courts, 

collected $8.3 million in 2018. As of December 

31, 2018, there were 2,346 active restitution and 

forfeiture orders (decreased from 4,163 at year-end 

2017). This includes 101 orders held by the Federal 

Savings and Loan Insurance Corporation (FSLIC) 

Resolution Fund, (i.e., orders arising out of failed 

financial institutions that were in receivership or 

conservatorship by the FSLIC or the Resolution 

Trust Corporation).

ENHANCING THE FDIC’s IT SECURITY

Information technology (IT) is an essential 

component in virtually all FDIC business processes. 

This integration with the business provides 

opportunities for efficiencies but also requires an 

awareness of potential risks. In 2018, the Chief 

Information Officer Organization focused its efforts 

on addressing cybersecurity risk, strengthening 

infrastructure resiliency, and improving IT 

governance. 

Addressing FDIC Cybersecurity Risk

The FDIC’s Information Security Program is critical 

to the agency’s ability to carry out the mission of 

maintaining stability and public confidence in the 

nation’s financial system. The Information Security 

Program relies on effective and efficient cybersecurity 

practices that are designed to detect, identify, respond, 

and recover from cybersecurity incidents as rapidly 

as possible with minimal disruption to stakeholders, 

and to protect against future incidents. The FDIC 

continues to strengthen and expand its cybersecurity 

program and practices.

On May 11, 2017, the President issued an Executive 

Order 13800 entitled Strengthening the Cybersecurity 

of Federal Networks and Critical Infrastructure. 

The Executive Order builds on existing statutory 

requirements under the Federal Information Security 

Modernization Act of 2014, which establishes 

information security obligations for Federal agencies 

(including the FDIC). Subsequent to the issuance 

of the Executive Order, OMB issued Reporting 

Guidance for Executive Order on Strengthening 

the Cybersecurity of Federal Networks and Critical 

Infrastructure, M-17-25 (May 19, 2017) to provide 

agency heads with instructions for meeting the risk 

management reporting requirements in the Executive 

Order. To fulfill these requirements and strengthen 

cybersecurity, the FDIC:

♦ Reorganized the Information Security function 

by creating the Office of the Chief Information 

Security Officer which includes a new Deputy 

Chief Information Security Officer position 

and a new Privacy Section Chief position that 

report directly to the Chief Information 

Security Officer;

♦ Implemented the Cybersecurity Framework 

(CSF) according to OMB M-17-25 requirements;
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

50

♦ Conducted the CSF cybersecurity assessment to 

capture, assess, report, and monitor the current 

state of FDIC cybersecurity controls;

♦ Established an agency-wide Incident 

Response Plan;

♦ Updated the agency’s Breach Response Plan to 

address new Federal policy requirements; and

♦ Developed and submitted the Annual Risk and 

FISMA Reports for 2018.

Cybersecurity continues to be a top management 

priority at the FDIC. During 2018, the FDIC has 

taken a number of actions to enhance and improve 

our risk management practices. 

We developed and implemented an Information 

Security and Privacy Strategic Plan to guide our efforts 

through 2021. This plan aligns with the FDIC 

Information Technology Strategic Plan: 2017 – 2020, 

and defines the core strategies needed to sustain and 

improve the FDIC’s cybersecurity posture. 

To operationalize the strategy, the FDIC implemented 

a risk management function and assigned program, 

and executive-level officials to manage information 

risk.  Ensuring that leaders are accountable for the 

effective planning, implementation, and monitoring 

of risk management enables the FDIC to identify, 

prioritize, communicate, and sustain the information 

security and privacy controls required to mitigate 

cybersecurity risks across the agency. 

Strengthening Infrastructure Resiliency 

Infrastructure resilience requires that the FDIC be 

able to provide and maintain an acceptable level 

of service in the face of threats and challenges to 

normal computer and network operations. Threats 

and challenges for services can range from simple 

misconfigurations, unforeseen large scale natural 

disasters, to targeted attacks. The FDIC works to 

ensure that its infrastructure can anticipate, absorb, 

adapt to, and/or rapidly recover from a potentially 

disruptive event.

In 2018, the FDIC launched a comprehensive 

initiative to expand and enhance its existing disaster 

recovery and business continuity capabilities to ensure 

that designated IT systems and applications that 

support mission-essential functions can be recovered 

within targeted timeframes. As part of this multi-year 

project, the FDIC is migrating key IT systems and 

applications to a new and larger backup data center 

(BDC). This effort will help mitigate the current 

risk posed by the geographic proximity of the FDIC’s 

BDC to its primary data center. 

The new facility will enhance security capabilities that 

are not available at the current recovery site, including 

enterprise logging, vulnerability identification, 

file integrity monitoring, forensic analysis, threat 

management, and security operational risk 

management. These security enhancements will allow 

security operations and other key security functions 

to be carried out at the new site without interruption, 

in the event of a failure or other contingency at 

the primary data center. The new BDC will also 

provide flexibility and scalability for future growth 

and increased computing requirements. It will 

also accommodate potential future changes in the 

configuration of the network and provide connectivity 

to cloud providers. 

Additionally, the new BDC will provide for the rapid 

restoration (failover) of mission-critical business 

applications. Restoration processes will be automated 

to minimize manual intervention, and equipment will 

be maintained in a higher availability mode to enable 

faster restoration. As a result, the FDIC will be better 

positioned to preempt and rapidly recover from an 

outage or threat. 

Improving IT Governance

The purpose of IT governance at the FDIC is to 

ensure that IT resources are used effectively and 

efficiently to achieve the FDIC’s goals and mission. 

IT governance enables the alignment of the FDIC’s 

strategies and goals with IT services, infrastructure, 

and environment. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

51

During 2018, the FDIC implemented changes to 

enhance, consolidate, and streamline IT governance 

processes. The Security and Enterprise Architecture 

Technical Advisory Board (SEATAB) was established, 

(replacing three other groups) and became the one 

governance body that was chartered to oversee and 

manage all architecture and technical decisions 

around FDIC’s technology infrastructure, platforms, 

systems, and applications. 

The implementation of the SEATAB was just one 

of the changes made in IT governance. The Chief 

Information Officer (CIO) Council charter was 

also revised to include increased business division 

membership. The CIO Council is the principal 

advisory body to the CIO, with members having 

the delegated authority to agree to and authorize IT 

decisions on behalf of the division or the office that 

the member represents. 

Additionally, an IT Operating Commitee SubCharter was established to reflect its strategic role 

in IT governance. The Operating Committee also 

assumed the responsibilities of the Intelligence 

and Critical Infrastructure Protection Committee 

(ICIPC). The Operating Committee, as the executive 

leadership of FDIC divisions and offices, is consulted 

and informed on corporate-wide IT matters. This 

ensures that there is consensus on those IT decisions 

that impact business priorities and corporate-wide 

operations and that these decisions are in the best 

interest of the FDIC. 

The changes made in IT governance, along with the 

use of the IT Decision Framework which serves as the 

foundation for IT architecture, development policies, 

and standards decisions ensure the integration and 

alignment of the FDIC information technology and 

security management processes with the agency’s 

strategic planning. 

Insider Threat and 

Counterintelligence Program

An insider threat is a concern or risk posed to the 

FDIC that involves an individual who misuses or 

betrays, wittingly or unwittingly, his or her authorized 

access to FDIC resources. This individual may 

have access to sensitive or personally identifiable 

information, as well as privileged access to critical 

infrastructure or business sensitive information 

(e.g., bank data). 

The FDIC established the Insider Threat and 

Counterintelligence Program (ITCIP) in September 

2016. ITCIP is a defensive program focused on 

preventing and mitigating internal and external 

threats and risks posed to FDIC personnel, facilities, 

assets, resources, and both national security 

and sensitive information by insider and foreign 

intelligence entities. These threats may involve 

inadvertent disclosures and intentional breaches 

of sensitive information by personnel who may be 

compromised by external sources, disgruntled, seeking 

personal gain, intending to damage the reputation of 

the FDIC, or acting for some other reason. ITCIP 

leverages both physical and logical safeguards to 

minimize the risk, likelihood, and impact of an 

executed insider threat. 

The National Insider Threat Task Force (NITTF) 

initiated its Federal Program Review in January 2017 

to ensure the FDIC’s implementation of the White 

House minimum standards. NITTF’s independent 

evaluation showed that FDIC’s ITCIP met all 

minimum standards and achieved full operating 

capability. NITTF also noted that FDIC’s ITCIP 

leads the federal government in several best practices 

that affect the entire workforce and serves as a model 

program for other independent regulators and nonTitle 50 departments and agencies. The FDIC is 

moving forward with several important new steps 

to further advance the agency’s ITCIP during 2019 

and beyond. 

MINORITY AND WOMEN INCLUSION

Consistent with the provisions of the Dodd-Frank 

Act, the FDIC continues to enhance its longstanding 

commitment to promote diversity and inclusion in 

employment opportunities and all business areas 

of the agency. The Office of Minority and Women 

Inclusion (OMWI) supports the FDIC’s mission 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

52

through outreach efforts to ensure the fair inclusion 

and utilization of minority- and women-owned 

businesses, law firms, and investors in contracting 

and investment opportunities. 

The FDIC relies on contractors to help meet its 

mission. The FDIC awarded 166 (29.4 percent) 

contracts to minority- and women-owned businesses 

(MWOBs) out of a total of 565 issued. The FDIC 

awarded contracts with a combined value of $499.5 

million in 2018, of which 24.5 percent ($122.5 

million) were awarded to MWOBs, compared to 

18.5 percent for all of 2017. The FDIC paid $98.0 

million of its total contract payments (22.8 percent) to 

MWOBs, under 299 MWOB contracts. 

The Legal Division’s legal contracting program 

endeavors to maximize the participation of both 

minority- and women-owned law firms (MWOLFs) 

and minority and women partners and associates 

employed at majority owned firms (Diverse Attorneys) 

in legal contracting. This approach is consistent 

with Section 342 of the Dodd-Frank Act that 

encourages diversity and inclusion at all levels. For 

both MWOLFs and Diverse Attorneys, FDIC legal 

matters provide important learning and professional 

client development opportunities that can be quite 

meaningful to career advancement. For the year 

2018, the Legal Division has an aggregate 26.4 

percent diversity and inclusion participation rate in 

legal contracting as set forth below.

The FDIC made 29 referrals to MWOLFs, which 

accounted for 28 percent of all legal referrals. Total 

payments to MWOLFs were $3.7 million in 2018, 

which is 7.7 percent of all payments to outside 

counsel, compared to 11 percent for all of 2017. In 

2018, Diverse Attorneys earned $8.9 million in legal 

fees, which is 18.6 percent of all payments to outside 

counsel. Taken together, FDIC paid $12.7 million to 

MWOLF firms and Diverse Attorneys out of a total of 

$48.0 million dollars spent on outside counsel services 

in 2018. This number represents 26.4 percent of total 

outside counsel fees. 

The keystone of the Legal Division diversity and 

inclusion outreach is the FDIC’s partnerships 

with minority bar associations and specialized 

stakeholder organizations. In 2018, the FDIC Legal 

Division participated in six minority bar association 

conferences and three stakeholder events in support 

of maximizing the participation of MWOLFs 

and Diverse Attorneys in FDIC legal contracting. 

Stakeholder event participation included service on 

several panels and committees, such as the National 

Association of Minority and Women Owned 

Law Firms (NAMWOLF) Advisory Council, the 

NAMWOLF Events Committee, the NAMWOLF 

Law Firm Admissions Committee, and the 

NAMWOLF Diversity and Inclusion Initiative.

In 2018, NAMWOLF formally recognized the FDIC 

as a principal member of, and major contributor to, 

its Inclusion Initiative, a collaborative program among 

law departments of major corporations designed to 

increase the participation of MWOLF firms in legal 

contracting. Members of the Inclusion Initiative have 

spent over $1 billion with MWOLF firms since its 

inception. The FDIC participates in the Inclusion 

Initiative along with major corporations.

The Legal Division recognizes the value of involving 

FDIC in-house counsel in its MWOLF outreach. 

In 2018, the Legal Division collaborated with a top 

rated New York MWOLF firm to present a full 

day continuing legal education seminar on cutting 

edge legal issues in the capital markets area to FDIC 

attorneys who are responsible for engaging outside 

counsel. The program was designed to showcase 

the MWOLF’s expertise while providing the firm 

with valuable opportunities to build meaningful 

relationships with FDIC oversight attorneys in the 

field offices and at the headquarters office. In its 

ongoing diversity and inclusion efforts, the Legal 

Division continues to seek more opportunities 

to highlight the expertise of MWOLF firms in 

accordance with the needs of the FDIC at any given 

point in time. Also in 2018, the Legal Division 

presented an MWOLF Utilization Workshop for the 

closed bank oversight attorneys at the Dallas Regional 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

53

Office. These attorneys are responsible for assigning 

work to MWOLFs. The program included a review of 

the prior year’s MWOLF statistics, planned projects, 

question and answers, and the solicitation of ideas 

from the attorneys for improving the selection and 

retention of outside counsel. 

Pursuant to Section 342 of the Dodd-Frank Act, 

which requires an assessment of legal contractors’ 

internal workforce diversity practices, the Legal 

Division conducted nine compliance reviews of the 

top-billing law firms (both non-minority-owned 

and MWOLFs). The reviews included discussions 

that focused on associate and partner recruitment, 

retention rates of minority and women associates 

and partners, and partnership offers to minority and 

women attorneys working on FDIC legal matters. 

The site visit discussions are instrumental in gathering 

diversity data for ongoing monitoring efforts as well as 

the exchange of ideas to enhance diversity initiatives.

In addition to the outreach efforts noted above, 

the Legal Division continues to provide technical 

assistance to other related government agencies on 

developing MWOLF outreach programs that mirror 

FDIC’s program. The Legal Division evaluated and 

approved six new MWOLF applications in 2018. 

Firms from various geographic areas were added to 

the FDIC List of Counsel Available in order to be 

eligible to receive legal contracting work.

In 2018, the FDIC participated in a total of 33 

business expos, one-on-one matchmaking sessions, 

and panel presentations. At these events, FDIC 

staff provided information and responded to 

inquiries regarding FDIC business opportunities 

for minorities and women. In addition to targeting 

MWOBs and MWOLFs, these efforts also targeted 

veteran-owned and small disadvantaged businesses. 

Vendors were provided with the FDIC’s general 

contracting procedures, prime contractors’ contact 

information, and forecasts of possible upcoming 

solicitations. Also, vendors were encouraged to 

register through the FDIC’s Contractor Resource 

List (the principal database for vendors interested 

in doing business with the FDIC). The Office of 

Minority and Women Inclusion (OMWI) Director 

and Chief of the Minority and Women Business and 

Diversity Inclusion Branch made panel presentations 

and attended a number of these events to enhance 

OMWI’s outreach efforts. 

The FDIC, in conjunction with the other OMWI 

agencies, partnered with the Minority Business 

Development Agency Business Center of San Antonio, 

University of Texas at San Antonio, and the Institute 

for Economic Development to host the Smart 

Contacts – Smart Contracts technical assistance event. 

The presenters shared information about tools for 

competing for government contracting opportunities 

and developing winning proposals. The OMWI 

Director, Chief of the Minority and Women Business 

Diversity Inclusion Branch, and leaders from other 

OMWI financial agencies made panel presentations 

to explain contracting opportunities. The OMWI 

agencies also hosted a panel on Doing Business with 

the OMWI Agencies. The final panel presentation 

consisted of representatives from various local 

minority/women trade organizations sharing their 

outreach mission and outreach services with the 199 

attendees. In addition, the sponsoring agencies and 

various procurement trade organizations exhibited at 

the event. 

Information regarding the Minority and Women 

Outreach Program can be found on the FDIC’s 

website at www.fdic.gov/mwop. 

In addition, FDIC worked closely with the OMWIs 

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

Department of Treasury to further implement 

Section 342(b)(2)(C) of the Dodd-Frank Act, which 

requires the agencies to develop standards to assess 

the diversity policies and practices of the entities 

they regulate. After publishing Joint Standards in 

2015, the FDIC developed an electronic diversity 

self-assessment instrument to assist FDIC-regulated 

financial institutions in systematically assessing their 

diversity programs.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

54

The FDIC started collecting voluntary selfassessments from its regulated financial institutions 

in 2017. The FDIC received 95 of 805 (11.8 percent) 

self-assessments in 2017 for the 2016 reporting period. 

In 2018, the FDIC received 137 of 820 (16.7 percent) 

self-assessments from its regulated institutions for the 

2017 reporting period. OMWI analyzed the selfassessment responses for the 2016 reporting period 

and posted this analysis on its internal and external 

web sites.

While the FDIC is pleased with the increased 

participation of financial institutions in 2018, it 

will continue to take steps to increase voluntary 

participation by augmenting outreach at banking 

conferences, developing financial institution diversity 

marketing materials, and making improvements to 

the program website. 

On September 13, 2018, the FDIC along with the 

OMWI agencies hosted an outreach event entitled 

“Financial Regulatory Agencies Diversity Summit” 

in New York, New York. The 109 individuals that 

attended the event were from various financial 

institutions that are regulated by the financial 

agencies. The event focused on the value of 

conducting voluntary self-assessments, annually 

submitting assessment results to OMWI Directors, 

and making diversity information transparent to the 

public. The OMWI agencies also outlined how the 

self-assessments will be used to identify leading trends 

and establish benchmarks that will assist financial 

institutions in assessing and enhancing their diversity 

programs. The OMWI FDIC Director, along with 

Directors from other OMWI financial agencies, made 

a panel presentation concerning the analysis of selfassessments received for the 2016 and 2017 reporting 

periods and associated issues.

INTERNATIONAL OUTREACH 

The FDIC played a leading role during the year 

in supporting the global development of deposit 

insurance, bank supervision, and bank resolution 

systems. This included working closely with 

regulatory and supervisory authorities from around 

the world, as well as international standard-setting 

bodies and multilateral organizations, such as the 

International Association of Deposit Insurers (IADI), 

the Association of Supervisors of Banks of the 

Americas (ASBA), the Basel Committee on Banking 

Supervision (BCBS), the Financial Stability Board 

(FSB), the International Monetary Fund (IMF), and 

The World Bank. The FDIC engaged with foreign 

regulatory counterparts by hosting visiting officials, 

conducting training seminars, delivering technical 

assistance abroad, and fulfilling the commitments 

of FDIC membership in international organizations. 

The FDIC also advanced policy objectives with 

key jurisdictions by participating in high-level 

interagency dialogues.

International Association of Deposit Insurers 

FDIC officials and subject matter experts provided 

continuing support for IADI programs in 2018. This 

included chairing IADI’s Training and Conference 

Technical Committee, which provided support 

for developing and facilitating technical assistance 

workshops for the Middle Eastern, African, European, 

Eurasian, Asia-Pacific, Caribbean, North American, 

and Latin American regions of IADI. The FDIC 

also participated in reviews of IADI members’ selfassessments of compliance with the Core Principles

and assisted in the development of a Core Principles

workshop for officials and senior management of 

deposit insurance and other financial regulatory 

authorities in conjunction with the IADI Annual 

General Meeting. Led and supported by FDIC 

executives and senior staff, IADI technical assistance 

and training activities reached approximately 500 

participants during 2018. 

Association of Supervisors of Banks of the Americas 

Senior FDIC staff chaired the ASBA Training and 

Technical Committee in 2018, which designs and 

implements ASBA’s training strategy, promoting the 

adoption of sound banking supervision policies and 

practices among its members. The training program 

reached more than 500 member participants in 2018. 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

55

Basel Committee on Banking Supervision 

The FDIC supports and contributes to the 

development of international standards, guidelines, 

and sound practices for prudential regulation and 

supervision of banks through its longstanding 

membership in BCBS. The contribution includes 

actively participating in many of the committee 

groups, working groups, and task forces established 

by BCBS to carry out its work, which focused on 

policy development, supervision and implementation, 

macroprudential supervision, accounting, and 

consultation. 

International Capacity Building 

During the year, FDIC provided direct assistance to 

many foreign organizations through the provision 

of technical expertise. These engagements included 

providing staff experts to advise the European Union’s 

Single Resolution Board, the De Nederlandsche 

Bank, and the IMF. FDIC also hosted more than 

170 visiting regulators and other government officials 

from 20 countries during the year, including in-depth 

technical visits from the Indonesia Deposit Insurance 

Corporation and Bank of Ghana. Two sessions of 

FDIC 101: An Introduction to Deposit Insurance, Bank 

Supervision, and Resolutions, a structured learning 

program for senior foreign officials, were offered in 

2018 and attended by 65 participants from more 

than 45 organizations. FDIC’s Corporate University 

also makes supervisory courses available to foreign 

participants and trained 129 students this year. 

EFFECTIVE MANAGEMENT 

OF STRATEGIC RESOURCES

The FDIC recognizes that it must effectively manage 

its human, financial, and technological resources 

to successfully carry out its mission and meet the 

performance goals and targets set forth in its annual 

performance plan. The FDIC must align these 

strategic resources with its mission and goals and 

deploy them where they are most needed to enhance 

its operational effectiveness and minimize potential 

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

major accomplishments in improving operational 

efficiency and effectiveness during 2018.

Human Capital Management 

The FDIC’s human capital management programs 

are designed to attract, train, develop, reward, 

and retain a highly skilled, diverse, and resultsoriented workforce. In 2018, the FDIC workforce 

planning initiatives emphasized the need to plan for 

employees to fulfill current and future capability 

and leadership needs. This focus ensures that the 

FDIC has a workforce positioned to meet today’s core 

responsibilities and prepared to fulfill its mission in 

the years ahead. 

Strategic Workforce Planning and Readiness 

During 2018, the FDIC continued to develop 

and implement integrated workforce development 

strategies to address workforce challenges and 

opportunities. The effort is focused on four 

broad objectives: 

♦ Attract and develop talented employees across 

the agency; 

♦ Enhance the capabilities of employees through 

training and diverse work experiences; 

♦ Encourage employees to engage in active career 

development planning and seek leadership roles 

in the FDIC; and 

♦ Build on and strengthen the FDIC’s operations 

to support these efforts. 

In 2018, the FDIC continued to develop the programs 

and processes to help meet its long-term workforce 

and leadership needs. The FDIC is committed to 

building and growing its talent pipeline to ensure 

succession challenges are met. To that end, the 

agency expanded its succession planning efforts in 

2018 to include a survey of 4,000 non-supervisory 

employees occupying positions that could feed into 

the agency’s longer-term pipeline for management 
MANAGEMENT ’S DISCUSSION AND ANALYSIS

ANNUAL REPORT 

56

positions. The survey was designed to identify 

the population’s aspiration to higher-level and 

management roles, their perceptions of readiness for 

these opportunities, and actions they have taken to 

prepare themselves. 

Nearly two-thirds of mid-level non-supervisor 

respondents reported that they were interested in 

seeking higher-level positions at the FDIC. Of 

these, more than three-quarters believe they have the 

talents and skills for higher-level positions and plan 

to apply for promotions and details over the next 

five years, demonstrating their ongoing interest in 

career development. The FDIC also learned that less 

than half of respondents have discussed their career 

interests and plans with a manager. 

As a result of the survey findings, the FDIC plans 

to further develop the longer-term pipeline of the 

FDIC’s aspiring leadership pool. Plans include 

supervisory training in succession management 

techniques, developing resources to support career 

planning discussions between managers and staff, 

and promoting emerging manager coaching through 

FDIC’s Career Management Program. 

The FDIC’s strategic workforce planning initiatives 

require a long-term and sustained focus to identify 

future workforce and leadership needs, assess current 

capabilities, support aspiration to management and 

leadership roles, and develop and source the talent to 

meet emerging workforce needs. Through further 

development of its human capital strategies, the FDIC 

will work to ensure that the future FDIC workforce 

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

has today.

Corporate Employee Program 

The FDIC’s Corporate Employee Program (CEP) 

sponsors the development of newly hired Financial 

Institution Specialists (FIS) in entry-level positions. 

During the first-year rotation within the program, FIS 

gain experience and knowledge in the core business of 

the FDIC, including DCP, RMS, DRR, and DIR. At 

the conclusion of the rotation period, FIS are placed 

within RMS or DCP, where they continue their career 

path to become commissioned examiners. 

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

provide highly-trained staff for its core occupational 

series, and ultimately for its future senior technical 

and leadership positions. Nearly 500 individuals are 

active in this multi-discipline program. Since the 

CEP’s inception in 2005, more than 980 employees 

have become commissioned examiners after 

successfully completing the program’s requirements. 

The FDIC continues to sponsor the Financial 

Management Scholars Program (FMSP), an additional 

hiring source for the CEP. Participants in the FMSP 

complete an internship with the FDIC the summer 

following the conclusion of their junior year in 

college. The program serves as an additional avenue 

to recruit talent. 

Employee Learning and Development 

The FDIC is committed to training and developing 

its employees throughout their careers to enhance 

technical proficiency and leadership capacity, 

supporting career progression and succession 

management. The FDIC is focused on developing 

and implementing comprehensive curricula for its 

business lines to prepare employees to meet new 

challenges. Such training, which includes both 

classroom and online instruction for maximum 

flexibility, is a critical part of workforce and succession 

planning as more experienced employees become 

eligible for retirement.

The FDIC also offers a comprehensive leadership 

development program that combines core courses, 

electives, and other enrichment opportunities to 

develop employees at all levels. From new employees 

to new executives, the FDIC provides employees 

with targeted leadership development opportunities 

that align with key leadership competencies. In 

addition to a broad array of internally developed and 

administered courses, the FDIC also provides its 

employees with funds and/or time to participate in 

external training to support their career development.
MANAGEMENT ’S DISCUSSION AND ANALYSIS

2018

57

Employee Engagement

The FDIC continually evaluates its human capital 

programs and strategies to ensure that it remains an 

employer of choice, and that all of its employees are 

fully engaged and aligned with the mission. The 

FDIC uses the Federal Employee Viewpoint Survey 

mandated by Congress to solicit information from 

employees, and takes an agency-wide approach to 

address key issues identified in the survey. The FDIC 

continues to rank near the top in all categories of 

the Partnership for Public Service Best Places to Work 

in the Federal Government® list for mid-size federal 

agencies. Effective leadership is the primary factor 

driving employee satisfaction and commitment in 

the federal workplace, according to a report by the 

Partnership for Public Service. 

The FDIC engages employees through formal 

mechanisms such as the Workplace Excellence 

program, Chairman’s Diversity Advisory Councils, 

and Employee Resource Groups; and informally 

through working groups, team discussions, and 

daily employee-supervisor interactions. Employee 

engagement plays an important role in empowering 

employees and helps maintain, enhance, and 

institutionalize a positive workplace environment. 

Photo credit: Partnership for Public Service

Deputy to the Chairman and Chief Operating Officer and Director of the 

Division of Administration Arleas Upton Kea receives the award for Best 

Places to Work in the Federal Government for mid-sized federal agencies 

from Max Stier, President and CEO of Partnership for Public Service.

Employee Resource Groups bring people together.