ANNUAL REPORT 2012 5

For more than 80 years, the FDIC has carried out its mission 

of maintaining public confidence and stability in the nation’s 

financial system. 

The FDIC does this 

by insuring deposits; 

supervising and 

examining financial 

institutions for 

safety, soundness, 

and consumer 

protection; 

and managing 

receiverships when 

banks fail.

At the end of 2014, 

the FDIC insured 

deposits of $6.2 

trillion in more than half a billion accounts at over 6,500 

institutions. Further, the FDIC supervised 4,138 institutions, 

conducted 8,160 examinations, and managed nearly 500 

active receiverships having total assets of $29.7 billion at 

year-end 2014.

The U.S. economy and the banking industry saw continued 

improvement in 2014. After experiencing the most severe 

financial crisis and economic downturn in the United States 

since the 1930s, the United States is now well into the 

recovery. The economy is expanding, although the pace of 

economic growth has been weaker than the long-term trend 

and bank profitability remains lower than pre-crisis levels. 

Still, the industry has been strengthening balance sheets, 

building capital, and enhancing liquidity. 

Stronger balance sheets indicate ample capacity for FDICinsured institutions to support the economic recovery. 

Last year, loan balances at banks increased by $416 billion, 

the largest dollar gain since 2007. Moreover, that growth 

was broad-based, with nearly all loan categories posting 

increases, and almost three-quarters of all institutions 

reporting larger loan balances. Loan growth was 

strongest at community banks, which posted an 8.6 percent 

gain in 2014 versus 5.3 percent for the industry overall. The 

numbers of both failed and problem institutions declined 

again in 2014, and the Deposit Insurance Fund (DIF) 

balance, which was almost $21 billion in the red during the 

financial crisis, was once again positive at nearly $63 billion 

at year-end.

Rising loan demand and a recent pickup in the pace 

of economic activity are creating favorable conditions 

for FDIC-insured institutions. The FDIC is working to 

wind down the receiverships of failed institutions and to 

address the emerging supervisory challenges of interest 

rate risk, credit risk, and cybersecurity threats. This 

shift is indicative of the move from a post-crisis recovery 

environment to one of expanding economic growth and 

financial activity. Following is an overview of the key 

strategic challenges facing the FDIC. 

REBUILDING THE DIF, RESOLVING 

FAILED BANKS, AND FDIC RESOURCES

Under a long-term plan based on the Dodd-Frank Act 

requirements to rebuild the DIF, the FDIC has had a steady 

increase in the year-end fund balance from 2011 through 

2014. Recently, lower than estimated losses for past bank 

failures, together with assessment income, have contributed 

to the increase in the fund balance to $62.8 billion as of 

December 31, 2014. The fund is on track to reach a reserve 

ratio — the ratio of the DIF fund balance to estimated 

insured deposits — of 1.35 percent by September 2020, as 

mandated by statute. The reserve ratio was 1.01 percent as 

of year-end 2014.

Bank failures in 2014 totaled 18, down dramatically from 

a peak of 157 in 2010, while the number of banks on the 

problem bank list (banks rated 4 or 5 on the CAMELS 

rating scale) fell to 291 at the end of 2014 from a high of 

888 in March 2011. Although these trends are positive, 

we still have a way to go before these numbers return to 

more normal levels. The FDIC will continue to manage 

receiverships, examine problem institutions, and implement 

provisions of the Dodd-Frank Act.

As the banking industry continues to recover, the FDIC 

will require fewer resources. The agency’s authorized 

workforce for 2014 was 7,200 full-time equivalent positions 

Message from the Chairman

MESSAGE FROM THE CHAIRMAN 5
ANNUAL REPORT 2014

6 MESSAGE FROM THE CHAIRMAN

compared with 8,026 the year before. The 2014 Corporate 

Operating Budget was $2.4 billion, a decrease of $300 

million (11 percent) from 2013.

The FDIC reduced its budget for 2015 from the prior year 

by 3 percent to $2.32 billion and reduced authorized 

staffing by approximately 5 percent to 6,875 positions, in 

anticipation of a further drop in bank failure activity in 

the years ahead. The three temporary satellite offices that 

were set up to handle the crisis-related workload have now 

closed. However, contingent resources are included in the 

budget to ensure readiness should economic conditions 

unexpectedly deteriorate.

During 2014, the FDIC continued to successfully use various 

resolution strategies to protect insured depositors of failed 

institutions at the least cost to the DIF. The FDIC actively 

marketed failing institutions and sold a large majority to 

other financial institutions. These strategies protected 

insured depositors and preserved banking relationships in 

many communities, providing depositors and customers 

with uninterrupted access to essential banking services. 

IMPLEMENTING THE FDIC’S 

AUTHORITIES UNDER THE 

DODD-FRANK ACT AND 

OTHER FINANCIAL REFORMS

The FDIC continues to implement its authorities under 

the Dodd-Frank Act, as well as important new capital and 

liquidity requirements. 

Capital and Liquidity Rules Strengthened

In 2014, the FDIC Board of Directors (FDIC Board), 

in concert with the other regulators, adopted several 

important rules that strengthen the capital and liquidity 

standards for banking organizations. In April 2014, 

the FDIC Board finalized the Basel III capital rule that 

strengthens the quality of regulatory capital and increases 

the level of risk-based capital required under the prompt 

corrective action (PCA) standards. The FDIC’s Basel III 

rule is substantively identical to rules adopted by the Board 

of Governors of the Federal Reserve System (FRB) and the 

Office of the Comptroller of the Currency (OCC). In April, 

the FDIC Board also approved an interagency, enhanced 

supplementary leverage ratio requirement for the largest 

systemically important financial institutions (SIFIs). The 

new leverage ratio goes beyond international standards 

agreed to by the Basel Committee on Banking Supervision.

The enhanced supplementary leverage ratio currently 

applies to eight large organizations designated as Global 

Systemically Important Banks, or G-SIBs. Insured banks 

within these G-SIB organizations would need to satisfy a 6 

percent supplementary leverage ratio to be considered well 

capitalized for PCA purposes. The new rule also establishes 

an enhanced 5 percent supplementary leverage ratio at the 

holding company level. This should reduce the likelihood 

of failure, while increasing the ability of these firms to 

continue lending during periods of economic adversity. 

The introduction of the enhanced supplementary leverage 

ratio is one of the most significant step taken thus far to 

reduce the systemic risk posed by large, complex banking 

organizations.

In September 2014, the FDIC, the FRB, and the OCC 

adopted the first-ever quantitative liquidity standard for 

large banking organizations in the United States, the 

liquidity coverage ratio (LCR). During the recent financial 

crisis, many of the largest banks did not have a sufficient 

amount of high-quality liquid assets, such as cash and U.S. 

Treasury securities, and could not borrow enough funds 

from the marketplace to meet their liquidity needs. This 

new ratio will strengthen the liquidity positions of our 

largest financial institutions, thereby promoting safety and 

soundness, and the stability of the financial system.

The LCR applies to bank holding companies (BHCs) and 

depository institutions with $250 billion or more in total 

assets or with $10 billion or more in foreign exposures, and 

to depository institutions with $10 billion or more in assets 

that are consolidated subsidiaries of these covered banking 

organizations. Separately, the FRB issued similar rules for 

BHCs with at least $50 billion in assets. The new rule will 

not apply to community banks.

RESOLUTION PLANNING FOR 

SYSTEMICALLY IMPORTANT 

FINANCIAL INSTITUTIONS AND 

INTERNATIONAL COORDINATION

Under the framework of the Dodd-Frank Act, bankruptcy 

is the preferred path in the event of the failure of a SIFI. 
MESSAGE FROM THE CHAIRMAN 7

To make this objective achievable, Section 165(d) of the 

Dodd-Frank Act and the implementing joint rules require 

that all BHCs with total consolidated assets of $50 billion or 

more, and nonbank financial companies that the Financial 

Stability Oversight Council (FSOC) designates for FRB 

supervision, prepare resolution plans, or “living wills,” to 

demonstrate how the company could be resolved in a rapid 

and orderly manner under the Bankruptcy Code in the event 

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

living will process is an important new tool to enhance 

the resolvability of large financial institutions through the 

bankruptcy process.

Since 2010, the FRB and FDIC have been working to 

implement this new authority and have taken a number of 

important steps to do so, including the issuance of a joint 

rule in 2011 and joint guidance in 2013. In August 2014, 

the FDIC and FRB issued joint letters to the 11 largest, 

most complex banking organizations, directing them 

to make specific substantive changes to facilitate their 

orderly resolution in bankruptcy. The actions the firms 

are being directed to take include changes to simplify 

their legal structures, actions to ensure the continuation 

of critical services throughout the resolution process, and 

information system changes to ensure the timely delivery 

of information in resolution. The agencies in the letters 

directed a set of changes for the firms to implement that 

will make a meaningful difference in the ability to resolve 

these firms in an orderly manner in bankruptcy, as well as 

reduce the risk they pose to the financial system. Since 

that time, the agencies have been providing guidance to the 

banking organizations on the improvements needed to each 

plan, as those plans must demonstrate that the firms are 

making significant progress to address all the shortcomings 

identified in the letters. 

In cases in which resolution under the Bankruptcy Code 

may result in serious adverse effects on financial stability 

in the United States, the Orderly Liquidation Authority set 

out in Title II of the Dodd-Frank Act serves as an important 

backstop. Upon recommendations by a two-thirds vote 

of the Federal Reserve Board and the FDIC Board and a 

determination by the Treasury Secretary in consultation 

with the President, a financial company whose failure is 

deemed to pose a risk to the financial system may be placed 

into an FDIC receivership. Under the Act, key findings 

and recommendations must be made before the Orderly 

Liquidation Authority can be considered as an option. 

These include a determination that the financial company 

is in default or danger of default; that failure of the financial 

company and its resolution under applicable federal or 

state law, including bankruptcy, would have serious adverse 

effects on U.S. financial stability; and that no viable private 

sector alternative is available to prevent the default of the 

financial company. 

At the end of 2013, the FDIC Board approved publication 

of a Federal Register notice, which provides greater detail 

on a Single Point of Entry (SPOE) strategy for resolution 

and discusses the key issues that likely will be faced in the 

resolution of a SIFI. The notice sought public comment 

and views as to how the policy objectives set forth in the 

Dodd-Frank Act could better be achieved and a number 

of comments were received that will be considered as the 

FDIC continues its contingency planning. 

Advance planning and cross-border coordination for the 

resolution of globally active SIFIs will be essential to 

minimize disruptions to global financial markets. Following 

up on progress made on international coordination in prior 

years, the FDIC continues to foster its relationships with 

foreign regulators to establish frameworks for effective 

cross-border cooperation. 

In October, the FDIC hosted the heads of the Treasuries, 

central banks, and leading financial regulatory bodies in the 

United States and United Kingdom in an exercise designed 

to further understanding, communication, and cooperation 

between U.S. and U.K. authorities in the event of the failure 

and resolution of a G-SIB. In addition, the FDIC worked 

with its major foreign counterparts in significant efforts 

to develop cross-border cooperation for resolving failing 

global financial firms.

COMMUNITY BANKING INITIATIVE

Community banks are critically important to our economy 

and banking system. Community banks account for 13.3 

percent of the banking assets in the United States, but also 

account for 45.1 percent of the small loans to businesses 

and farms made by all banks, making them key partners in 

supporting local economic development and job creation. 

Since the FDIC is the primary Federal supervisor of 
ANNUAL REPORT 2014

8 MESSAGE FROM THE CHAIRMAN

the majority of community banks in the United States, 

community banking will continue to be an important focus 

of FDIC supervision, technical assistance, and research.

In late 2012, the FDIC published a comprehensive study 

on community banking. The study confirmed that the 

traditional community bank business model – knowing your 

customer, funding from stable core deposits, and locally 

focused lending – performed comparatively well during 

the recent banking crisis. Of the more than 500 banks that 

failed since 2007, the highest failure rates were among 

non-community banks and community banks that departed 

from this traditional model by investing in risky assets 

funded by non-core deposits.

In 2014, FDIC analysts published new papers dealing with 

community bank consolidation, the effects of long-term 

rural depopulation, and the efforts of Minority Depository 

Institutions (MDIs) to provide essential banking services 

to customers. The FDIC also added a new community 

bank section to the FDIC’s Quarterly Banking Profile 

(QBP). It includes new data on the structure, activity, and 

performance of community banks that will be useful in 

tracking the industry’s performance more closely.

Apart from research, the community bank initiative includes 

a robust technical assistance program for bank directors, 

officers, and employees. The FDIC’s latest innovation is 

a series of videos that are helping community bankers 

to understand better their management responsibilities. 

The video program grew out of requests by community 

bankers for help in a number of areas – from director 

responsibilities, to hot button issues in risk management 

and compliance supervision. Since 2013, the FDIC has 

produced and released more than 20 videos, available on 

the FDIC’s website. 

Finally, 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 three times during 2014, is composed 

of 15 community bank CEOs from around the country. It 

is a valuable resource for input on a wide variety 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.

CYBERSECURITY

The rapidly evolving nature of cybersecurity risks 

reinforces the need for regulators, financial institutions, and 

critical technology service providers to have appropriate 

procedures to effectively respond to cybersecurity risk. 

The FDIC works with other bank regulators to analyze and 

respond to emerging cyber threats, bank security breaches, 

and other harmful or disruptive technology-related 

incidents. The federal banking agencies are currently 

reviewing security readiness at banks and technology 

service providers. We are also evaluating our supervisory 

policies for potential improvements.

The FDIC has taken a number of actions to raise awareness 

of cyber risks and to encourage practices to protect against 

threats at the banks we supervise, particularly community 

banks. For example, in 2014 the FDIC distributed Cyber 

Challenge: A Community Bank Cyber Exercise to all FDICsupervised banks. Cyber Challenge provides operational 

risk-related scenarios and challenge questions designed to 

facilitate discussion and allow community bankers to assess 

their preparedness for and response to cyber-related events. 

The FDIC monitors cybersecurity issues on a regular basis 

through on-site bank examinations, regulatory reports, 

and intelligence reports. The FDIC also works with 

other federal agencies, law enforcement and a number of 

government groups and industry coordinating councils, 

such as the Finance and Banking Information Infrastructure 

Committee, and the Financial Services Sector Coordinating 

Council for Critical Infrastructure Protection and Homeland 

Security, to facilitate collaboration and information sharing 

across the financial services sector.

PROTECTING CONSUMERS 

AND EXPANDING ACCESS 

TO BANKING SERVICES

Expanding access to mainstream banking services is part 

of the FDIC’s core mission. The FDIC’s National Survey of 

Unbanked and Underbanked Households, conducted every 

two years with the U.S. Census Bureau, has documented 

that a large portion of the population in our country 

does not have a relationship with an insured depository 

institution or relies on alternative financial service providers 
MESSAGE FROM THE CHAIRMAN 9

to meet some of their financial services needs. The survey, 

which was last released in October 2014, is widely used by 

the industry, analysts, government and non-governmental 

organizations, the media, and many others to better 

understand who lacks access to mainstream banking 

services and to gain insights into opportunities to expand 

participation.

During 2014, the FDIC continued its efforts to protect 

consumers and expand access to mainstream banking 

services. For example, the FDIC’s Advisory Committee on 

Economic Inclusion — composed of bankers, community 

and consumer organizations, and academics — continues 

to focus on new ways to expand banking services to all 

consumers. During 2014, several banks offered low-cost 

transaction accounts that were consistent with the 

FDIC’s model SAFE transaction account template that 

was developed under guidance from the committee. The 

committee also worked on developing ways to tap the 

economic inclusion potential of mobile financial services, 

expanding financial education programs for young people, 

and identifying prudent, feasible approaches to providing 

access to small-dollar credit within mainstream, insured 

financial institutions.

CONCLUSION

During 2014, the U.S. banking industry continued its 

recovery from the recent financial crisis. The industry 

benefited from stronger balance sheets, fewer problem 

banks and bank closings, increased lending activity, and 

a larger balance in the DIF. At the same time, it remains 

important for bankers and supervisors to heed the lessons 

of the recent crisis by maintaining a steady focus on 

risk management. 

In 2015, the FDIC will continue to work to fulfill its mission 

of maintaining public confidence and stability in the nation’s 

financial system. 

The workforce of the FDIC remains committed to the 

FDIC’s core mission. I am very grateful to the dedicated 

professionals of the FDIC for their commitment to public 

service and for the high level at which they carry out their 

important responsibilities. 

Sincerely,

Martin J. Gruenberg