55

2017

MESSAGE FROM THE CHAIRMAN

MESSAGE FROM THE CHAIRMAN

For 84 years, the FDIC has carried out its mission 

of maintaining public confidence and stability in the 

U.S. financial 

system. The 

FDIC does this 

by insuring 

deposits; 

supervising 

and examining 

financial 

institutions 

for safety, 

soundness, 

and consumer 

protection; 

making large 

firms resolvable; 

and managing 

receiverships when banks fail.

At the end of September 2017, the FDIC insured 

deposits of $7.1 trillion in more than 580 million 

accounts at 5,738 institutions, supervised 3,669 

institutions, and managed 367 active receiverships 

with total assets of nearly $5 billion.

The year 2018 marks a full decade since the start 

of the financial crisis. Stemming the crisis required 

unprecedented actions by the U.S. government, 

including the FDIC, to restore confidence in financial 

markets and to address the problems of systemically 

important financial institutions. The FDIC recently 

published a history, Crisis and Response: An FDIC 

History 2008–2013, to document the lessons learned 

during that period. The study is intended to serve as a 

guidepost for future policymakers who will someday 

be called upon to respond to the next period of 

financial instability. 

One of the most important lessons the book 

conveys—for regulators and bankers alike—is that 

we must not become complacent when economic 

and banking conditions appear strong. It is precisely 

during these times that the seeds can be sown for the 

next financial crisis.

History shows that surprising and adverse 

developments in financial markets occur with some 

frequency. History also shows that the seeds of 

banking crises are sown by the decisions banks and 

bank policymakers make when they have maximum 

confidence that the horizon is clear. It is also worth 

keeping in mind that the evolution of the global 

financial system toward greater interconnectedness 

and complexity may tend to increase the frequency, 

severity, and speed with which financial crises occur. 

It would be a mistake to assume a severe downturn or 

crisis cannot happen again.

Over the past decade, the banking system has 

transitioned from a position of extreme vulnerability 

to a position of strength. Operating with the stronger 

cushions of capital and liquidity required by the 

post-crisis reforms, U.S. banking organizations are 

experiencing strong earnings growth and are providing 

support to the U.S. economy.

The challenge for the FDIC going forward will be 

to preserve the hard-earned improvements in the 

capital and liquidity of U.S. banking institutions 

and to sustain vigilant supervision of the banking 

industry, both to continue the strong performance of 

banks during this post-crisis period and to position 

the banking system to weather the next, inevitable 

downturn.

Following is an overview of the current economic 

and financial outlook, the FDIC’s important 

accomplishments over the past year, as well as the 

strategic challenges we face.

THE CURRENT OUTLOOK

After experiencing the most severe financial crisis and 

economic downturn since the 1930s in 2008–2009, 

the U.S. economy is now well into its ninth year 

of recovery. Growth in real gross domestic product 
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ANNUAL REPORT

(GDP) has averaged 2.2 percent in this expansion, 

and was right around 3 percent in the second and 

third quarters of 2017. The stock market has reached 

new highs and real estate prices have been rising. 

Global economic growth appears to be picking up, 

with the International Monetary Fund raising its 

growth forecasts for Japan, China, and Europe. 

This post-crisis economic expansion is the thirdlongest expansion in U.S. history. In June 2018 it 

would become the second-longest expansion in our 

history. Banks have been able to use this period to 

rebuild their balance sheets and strengthen capital 

and liquidity. They have achieved steady growth in 

net income and loan balances and improved credit 

quality.

In 2017 the industry saw a gradual slowdown in the 

annual rate of loan growth, which appears to be a 

function of the demand for credit rather than the 

supply. During the 12 months ended September 30, 

loan balances at banks increased by $322 billion, 

down from a $466 billion increase in 2016. Loan 

growth was strongest at community banks, which 

posted a 7.3 percent gain versus 3.5 percent for the 

industry overall. 

This improvement in the economic outlook is a 

positive development for banks and bank regulators. 

We know, however, that economic expansions 

eventually come to an end. We also know that 

financial shocks can come from unexpected sources at 

any time. 

Following the Savings & Loan crisis of the 1980s 

and the banking crisis of the late 1980s and early 

1990s, we entered a 10-year economic expansion—

the longest in U.S. history. Even that period was 

punctuated by a series of domestic and international 

crises that tested the effectiveness of risk managers. 

Banking and economic crises emerged during the 

1990s and into the early 2000s in Scandinavia, 

Mexico, east Asia, Russia, and Argentina. 

Domestically, severe disruptions were averted in 

1998 following the collapse of Long-Term Capital 

Management that resulted from its use of high-risk 

arbitrage trading strategies. The 2001 crash in dotcom equity prices was soon followed by the sudden 

bankruptcies of Enron and WorldCom. Finally, 

the development that would ultimately trigger the 

recent financial crisis was the decision by financial 

institutions in increasing numbers, and of increasing 

size, to enter the business of originating or securitizing 

subprime and alternative mortgages. 

Such experience is a reminder that, despite the 

good conditions we currently see, there are always 

challenges that could quickly change the outlook. 

Even though the current expansion appears more 

sustainable than the boom that occurred in the years 

leading up to the 2008 crisis, there are vulnerabilities 

in the system that merit our attention. 

One vulnerability relates to the uncertainties 

associated with the transition of monetary policies—

both here and abroad—from a highly expansionary to 

a more normal posture. Market responses to changes 

in monetary policy can be hard to predict. Recently, 

the Board of Governors of the Federal Reserve System 

has embarked on a gradual reduction in the size of its 

balance sheet. Thus far, there has been no apparent 

market reaction. Nonetheless, higher interest rates 

could pose problems for industry sectors that have 

become more indebted during this expansion. 

By many measures, stocks, bonds, and real estate are 

richly priced. Stock price-to-earnings ratios are at high 

levels, traditionally a cautionary sign to investors of 

a potential market correction. Bond maturities have 

lengthened, making their values more sensitive to a 

change in interest rates. As measured by capitalization 

rates, prices for commercial real estate are at high 

levels relative to the revenues the properties generate, 

again suggesting greater vulnerability to a correction. 

Taken together, these circumstances may represent 

a significant risk for financial market participants. 

While the banking system is much stronger now 

than it was entering the crisis, continued vigilance is 

warranted. 
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2017

MESSAGE FROM THE CHAIRMAN

FOCUSING ON INTEREST-RATE RISK, 

CREDIT RISK, AND LIQUIDITY RISK

While the financial performance of the banking 

industry continues to improve, evidence of growing 

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

attention. A prolonged period of low interest rates 

has resulted in narrow net interest margins, and many 

banks have responded by investing in longer-term 

assets, which has increased the mismatch between 

asset and liability maturities. 

Examiners have also noted that lending in higherrisk loan categories has been increasing, and that 

institutions with concentrated portfolios have been 

growing more rapidly and placing greater reliance 

on potentially volatile funding sources than the rest 

of the industry. The FDIC will continue to monitor 

these trends, as well as the risk-management practices 

of supervised institutions associated with loan 

underwriting, credit administration, and portfolio 

management.

In 2016, the FDIC, Federal Reserve Board, and 

Office of the Comptroller of the Currency (OCC) 

increased the frequency of examinations of large banks 

that participate in the Shared National Credit (SNC) 

program. The most recent report, which reflects 

examinations conducted in the third quarter of 2016 

and first quarter of 2017, noted that credit risk in 

the portfolio remains elevated due to borrowers that 

exhibited excessive leverage, as well as distressed loans 

in the oil and gas sector.

During 2017, the FDIC observed instances of 

liquidity stress at a small number of insured financial 

institutions and broad trends of reduced balance 

sheet liquidity among smaller banks. In response, 

the FDIC co-hosted an interagency community bank 

teleconference to discuss trends in community bank 

liquidity and funds management and the importance 

of sound risk-management practices. The FDIC, 

Federal Reserve Board, OCC, and Conference of 

State Bank Supervisors reiterated the importance 

of a strong cushion of liquid assets and diversified 

funding, and discussed brokered deposit restrictions, 

cash flow scenario analysis and sensitivity testing, and 

contingency funding planning. 

Further, in conjunction with the Federal Reserve 

Board and OCC, we issued a series of frequently 

asked questions to address the applicability of the 

liquidity coverage ratio rule, which was adopted 

in 2014 to implement a quantitative liquidity 

requirement consistent with the standard established 

by the Basel Committee on Banking Supervision.

These examples of increasing risk are noteworthy 

because it is during this phase of the credit cycle that 

underwriting and investment decisions are made 

that may lead to losses in the future. Addressing 

these risks before losses materialize will benefit banks 

and contribute to the stability and resilience of the 

industry. We will continue to focus our supervisory 

attention on these risk areas going forward.

ADDRESSING CYBERSECURITY RISK

The rapidly evolving nature of cybersecurity 

risk reinforces the need for regulators, financial 

institutions, and critical technology service providers 

to have high-quality controls and clear and tested 

business continuity plans. The FDIC collaborates with 

other financial regulators, law enforcement, security 

agencies, and public-private partnerships to better 

understand the cybersecurity threats to the financial 

system, and to identify opportunities to adjust 

supervisory strategies to increase their effectiveness.

The FDIC, Federal Reserve Board, and OCC 

continue to collaborate to strengthen cybersecurity 

risk management among the entities we supervise. 

For example, in 2017, we updated the interagency 

Cybersecurity Assessment Tool that helps financial 

institutions determine their cyber risk profile, 

inherent risks, and level of cybersecurity preparedness. 

This update addressed feedback from entities that are 

using the tool.

The FDIC monitors cybersecurity issues on a regular 

basis through on-site bank examinations. In 2016, 

we introduced the Information Technology Risk 

Examination Program to enhance our ability to 
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ANNUAL REPORT

identify, assess, and validate information technology 

and operations risks in financial institutions. We are 

using information gathered through the program to 

provide more specific, targeted findings with respect 

to information technology, which can help financial 

institutions better prioritize their actions.

The FDIC, Federal Reserve Board, and OCC jointly 

examine the services multiple companies provide 

to the banking industry. We introduced a new 

cybersecurity examination work program in 2017 that 

has improved our risk focus on cybersecurity, among 

other information technology risks. Additionally, in 

December, we held a roundtable meeting with some 

of the most significant service providers to discuss key 

risk topics, including cybersecurity. 

In 2017, the FDIC also continued to strengthen its 

own cybersecurity posture. Our Insider Threat and 

Counterintelligence Program is in place to safeguard 

employees, information, operations, and facilities, and 

we continue to enhance our procedures and programs 

for securing sensitive information. The FDIC also 

requires employees to take annual security and privacy 

training so they are aware of our security standards. 

This is supplemented by periodic exercises to help 

ensure employees stay alert to possible outside threats.

Information security is a top priority at the FDIC. We 

will continue to enhance our security controls in light 

of the changing threat landscape.

RESOLUTION OF SYSTEMICALLY 

IMPORTANT FINANCIAL INSTITUTIONS

The FDIC continues to evaluate firm-developed 

resolutions plans, and to develop its own strategies 

to facilitate the orderly failure of large, complex, 

Systemically Important Financial Institutions (SIFIs) 

without taxpayer support or market breakdowns.

Living Wills

In 2017, the FDIC remained committed to carrying 

out the statutory mandate that SIFIs demonstrate 

a clear path to an orderly failure under bankruptcy 

at no cost to taxpayers. Under the Dodd-Frank 

Wall Street Reform and Consumer Protection Act, 

bankruptcy is the statutory first option for resolving 

a SIFI. To satisfy this requirement, the largest bank 

holding companies and certain non-bank financial 

companies are required to prepare resolution plans, 

also referred to as “living wills.” These living wills 

must demonstrate that the firm could be resolved 

under bankruptcy in a rapid and orderly manner that 

substantially mitigates the risk that its failure would 

have serious adverse effects on financial stability in the 

United States.

The FDIC and the Federal Reserve Board are charged 

with jointly reviewing and assessing each firm’s 

resolution plan. The eight largest U.S. systemically 

important banking organizations submitted their 

plans by July 2017. In December, the FDIC and 

Federal Reserve Board completed their review. 

We identified no deficiencies, but did identify 

shortcomings in the plans of four firms. While the 

agencies agreed these weaknesses did not necessitate 

immediate plan resubmissions, they are important 

enough to highlight and have addressed in the firms’ 

next plan submissions, which are required by July 1, 

2019.  

These results represent the significant progress firms 

have made to modify their corporate structures so 

that losses can be borne by investors in an orderly 

way. However, inherent challenges and uncertainties 

associated with the resolution of a SIFI remain. 

Toward that end, the agencies identified four areas 

in which more work needs to be done by all firms to 

continue to improve their resolvability: intra-group 

liquidity; internal loss-absorbing capacity; derivatives; 

and payment, clearing, and settlement activities.

Moreover, the resolvability of firms will change as 

markets change and as firms’ activities, structures, and 

risk profiles change. We expect the firms to remain 

vigilant in considering the resolution consequences of 

their day-to-day management decisions. 

In addition to the eight U.S. firms, in March 2017 

the agencies issued guidance to four foreign banking 

organizations to help them improve their resolution 

plans and to reflect the significant restructuring that 
MESSAGE FROM THE CHAIRMAN 9

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MESSAGE FROM THE CHAIRMAN

they have undertaken to form intermediate holding 

companies within the United States. The feedback 

was organized around a number of key vulnerabilities, 

such as capital, liquidity, and corporate governance 

mechanisms. These four firms will file their next plans 

in 2018.

Overall, the living will process has proved to be an 

important means for identifying and implementing 

measures to enhance SIFIs’ resolvability. Firms have 

taken significant actions, including restructurings, 

operational continuity planning, and options for 

separating assets, business lines, and entities from 

a failing company. Firms also have improved their 

management information systems capabilities, 

financial resource measurement and processes, and 

resolution planning governance, all of which are key 

elements for enhancing resolvability.

The FDIC and Federal Reserve Board are exploring 

ways to further improve the resolution planning 

process. One measure we are considering is extending 

the cycle for living will submissions to every two 

years and focusing, on an alternating basis, on key 

topics and material changes from the prior full plan. 

In addition, there may be opportunities to reduce the 

submission requirements for a large number of firms 

due to their relatively small, simple, and domestically 

focused banking activities. 

Orderly Liquidation Authority

Given the challenges and uncertainty surrounding 

any particular failure, Title II of the Dodd-Frank 

Act provides the Orderly Liquidation Authority for 

circumstances when an orderly failure in bankruptcy 

might not be possible. This authority allows the FDIC 

to manage the orderly failure of a firm when failure in 

bankruptcy might threaten financial stability. 

Coupled with the Federal Reserve’s Total LossAbsorbing Capacity (TLAC) rule, which requires 

a minimum amount of long-term unsecured debt 

that can be converted to equity in resolution, these 

authorities work together to increase the likelihood 

that financial markets and the broader economy 

can weather the failure of a SIFI; that shareholders, 

creditors, and culpable management of the institution 

will be held accountable without cost to taxpayers; 

and that such an institution can be wound down and 

liquidated in an orderly way. 

As has occurred in the United States, the other leading 

jurisdictions of the world have enacted expanded 

authorities for the resolution of SIFIs. The FDIC has 

worked closely with all major financial jurisdictions, 

including the United Kingdom, the European 

Banking Union, Switzerland, and Japan, to facilitate 

cross-border resolution planning.

In the years since enactment of Dodd-Frank, the 

FDIC has made significant progress in developing 

the operational capabilities necessary to carry out a 

resolution under the Orderly Liquidation Authority 

if needed. The fact that the credit rating agencies have 

lowered the credit ratings of the eight U.S. Global 

Systemically Important Banks (G-SIBs) because of a 

reduced expectation of taxpayer support in the event 

of failure is a sign of that progress. 

Until we actually execute a resolution using these 

authorities we should be cautious about bold 

statements. However, we have a domestic and 

international framework in place today that would 

have been extremely helpful in 2008, and that should 

promote a better outcome in the future. 

REBUILDING THE DIF, 

RESOLVING FAILED BANKS

Under a restoration plan that reflects the statutory 

requirement to rebuild the Deposit Insurance Fund 

(DIF), the fund balance has increased every quarter 

since the end of 2009, when it reached an all-time 

low. As of December 31, 2017, the fund balance had 

increased to $92.7 billion. The DIF reserve ratio—

the ratio of the DIF balance to estimated insured 

deposits—was 1.28 percent at September 30, 2017, 

the highest reserve ratio since June 2005.

The Dodd-Frank Act raised the minimum reserve 

ratio for the DIF from 1.15 percent to 1.35 percent, 
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ANNUAL REPORT

and mandates that the reserve ratio reach 1.35 percent 

by September 30, 2020. Dodd-Frank also assigns the 

cost of that increase in the minimum reserve ratio to 

banks with $10 billion or more in total assets.

To meet these requirements, large banks have been 

paying temporary assessment surcharges. Surcharges 

began in the third quarter of 2016—the quarter 

after the reserve ratio surpassed 1.15 percent—and 

will continue through the quarter in which the 

reserve ratio first meets or exceeds 1.35 percent. The 

FDIC expects the reserve ratio to reach 1.35 percent 

in 2018, ahead of the September 2020 statutory 

deadline.

In the event that the reserve ratio does not reach 1.35 

percent by the end of 2018, FDIC regulations call 

for a shortfall assessment in early 2019 on banks with 

total assets of $10 billion or more to cover the gap.

In 2017, the numbers of failed banks and problem 

banks continued their trend toward pre-crisis levels. 

There were eight bank failures in 2017, down 

dramatically from a yearly 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 104 

at the end of September 2017 from a high of 888 in 

March 2011. 

During 2017, the FDIC successfully used 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 

them 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.

MANAGING FDIC RESOURCES

As the banking industry continues to recover, 

the FDIC requires fewer resources. The agency’s 

authorized workforce for 2017 was 6,363 full-time 

equivalent positions compared with 6,533 the year 

before. The 2017 FDIC Operating Budget was $2.16 

billion, a decrease of 2.4 percent from 2016.

The FDIC remains committed to fulfilling its mission 

while prudently managing costs. We reduced our 

budget for 2018 from the prior year by 3.0 percent 

to $2.09 billion and reduced authorized staffing by 

approximately 4.5 percent to 6,076 positions. This is 

the eighth consecutive reduction in the FDIC’s annual 

operating budget. However, contingent resources are 

included in the budget to ensure readiness should 

economic conditions unexpectedly deteriorate.

COMMUNITY BANKING INITIATIVE

The FDIC is the primary federal supervisor of the 

majority of community banks in the United States, 

and community banks account for 92 percent 

of FDIC-insured institutions. For these reasons, 

community banking is an important focus of FDIC 

supervision, technical assistance, and research. 

The FDIC maintains an extensive community 

bank research program, hosts community banking 

conferences, and convenes an Advisory Committee 

on Community Banking, through which the FDIC 

Board receives regular input from bankers. 

Community banks are critically important to our 

economy and the banking system. Community banks 

account for 13 percent of the banking assets in the 

United States, and 43 percent of the small loans to 

businesses and farms originated by all banks, making 

them key partners in supporting local economic 

development and job creation. The community 

banking sector continues to demonstrate resilience 

and innovation in meeting new challenges and 

competing in an evolving financial marketplace.

Helping community banks meet the challenges they 

face is an important part of the FDIC’s Community 

Banking Initiative. These include challenges in 

the areas of recruitment and succession planning. 

In response, the FDIC developed a directory of 

universities and colleges that have established 

academic programs dedicated to community 

banking, and is working with the American Bankers 

Association to explore the feasibility of establishing 

an online clearinghouse through which banks can 

connect with universities and colleges seeking to place 
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MESSAGE FROM THE CHAIRMAN

students who have an interest in banking internships 

and jobs.

Also in 2017, in response to feedback from our 

Advisory Committee on Community Banking, we 

prepared a virtual version of the Directors’ Colleges 

that we deliver throughout our regions. The virtual 

curriculum includes six video modules covering topics 

directors most often tell us they want to learn more 

about: interest-rate risk, troubled debt restructurings, 

the Bank Secrecy Act, and corporate governance.

The FDIC also hosted banker webinars focusing on 

financial education, accessing affordable mortgage 

credit, and changes to the Call Report. Additionally, 

we conducted 11 banker teleconferences to discuss 

changes to the Home Mortgage Disclosure Act, 

proposed changes to the capital rules, small business 

resources for community banks, liquidity and funds 

management, the Bank Secrecy Act, Community 

Development Lending, reasonably expected market 

areas, and new accounting proposals. 

In addition, we conducted three seminars on 

FDIC deposit insurance coverage for bank officers 

and employees, and released three videos covering 

Fundamentals of Deposit Insurance Coverage, 

Deposit Insurance Coverage for Revocable Trust 

Accounts, and Advanced Topics in Deposit Insurance 

Coverage. 

The FDIC also published a new guide to help 

community bankers learn more about the programs 

and products offered by the Federal Home Loan 

Banks (FHLBs) to facilitate mortgage lending. The 

first two parts of the Guide focus on Federal Agencies 

and Government-Sponsored Enterprises and State 

Housing Finance Agencies. The Affordable Mortgage 

Lending Guide, Part III: Federal Home Loan Banks

describes many of the products and services offered 

by FHLBs, including products that support singlefamily home purchases, and alternatives for selling 

mortgages on the secondary market. The three-part 

guide is available through the FDIC’s Affordable 

Mortgage Lending Center, an online resource to help 

community bankers understand and compare the 

mortgage-lending products and services offered by 

federal and state housing finance agencies, the FHLBs, 

and government-sponsored enterprises.

In 2016 the FDIC launched a new survey regarding 

banks’ small business lending practices. This survey 

was designed to solicit and report information on 

the general characteristics of banks’ small business 

borrowers, the types of credit offered to small 

businesses, and the relative importance of commercial 

lending for banks of different sizes and business 

models. This information increases the understanding 

of how banks of all sizes are lending to small 

businesses, which is crucial to job creation. The survey 

has generated valuable data about a previously underresearched area, and a full report of the survey results 

will be released in 2018.

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 2017, is composed of chief 

executives of 13 community banks located around 

the country. The committee provides valuable 

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.

Supporting De Novo Banks

De novo institutions fill important gaps in local 

banking markets, provide credit and services to 

communities that may be overlooked by larger 

institutions, and help to preserve the vitality of the 

community banking sector. The FDIC is committed 

to working with, and providing support to, any 

group with an interest in starting a de novo bank, and 

welcomes applications for deposit insurance.

The current environment, with low interest rates 

and the resulting impact on net interest margins, 

is challenging for the formation of new banks. 

Nevertheless, we have seen tentative signs of an 

uptick in de novo formations, including increased 

interest from prospective organizing groups in filing 
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applications for new insured depository institutions. 

During 2017, the FDIC approved six applications for 

deposit insurance for new community banks. 

To encourage interest and help organizing groups 

navigate the application process, the FDIC conducted 

a series of outreach meetings throughout the country. 

These meetings aimed to help organizing groups 

become fully informed about the FDIC’s application 

process and the tools and resources available to assist 

them. We also issued a publication entitled Applying 

for Deposit Insurance – A Handbook for Organizers 

of De Novo Institutions that is intended to help 

organizers become familiar with the deposit insurance 

application process and understand the path to 

obtaining insurance. 

SIMPLIFYING REGULATION

In March of 2017, the FDIC, OCC and Federal 

Reserve Board (FRB) in conjunction with the 

National Credit Union Administration (NCUA), 

all members of the Federal Financial Institutions 

Examination Council (FFIEC), issued a joint report 

to Congress detailing our extensive, two-year review 

of the rules affecting financial institutions. This review 

is required by the Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 (EGRPRA), and 

its purpose is to identify and eliminate, as appropriate, 

outdated or otherwise unnecessary regulatory 

requirements on insured depository institutions, 

while, at the same time, ensuring that safety and 

soundness and consumer compliance standards are 

maintained.

The EGRPRA-mandated review is required at least 

once every 10 years, and this review cycle included, 

for the first time, the significant body of new rules 

and regulations introduced in response to the financial 

crisis.

The regulatory review process is one we take very 

seriously. Over the course of the review, the federal 

banking agencies and the NCUA hosted six public 

outreach meetings and reviewed more than 230 

comment letters submitted in response to four Federal 

Register notices. The agencies have reviewed these 

comments and considered appropriate changes to 

reduce regulatory burdens on institutions. We also 

explored opportunities to improve the transparency 

and clarity of our supervisory policies and procedures, 

especially as they apply to community banks.

Together with the other FFIEC agencies, we have 

taken certain steps and continue to take further 

measures to address the significant issues identified 

as burdensome by supervised institutions during the 

EGRPRA review process. For example: 

♦ We adopted a final rule that expanded the 

examination cycle for certain insured depository 

institutions with up to $1 billion in total 

assets. Approximately 4,790 insured depository 

institutions are now eligible for the expanded 

exam cycle.

♦ We streamlined the Call Report, removing 40 

percent of the data items previously required 

for institutions with domestic offices only and 

reducing the length of the Call Report for eligible 

small institutions from 85 pages to 61 pages. In 

June 2017, and again in November 2017, we 

proposed additional burden-reducing revisions to 

all three versions of the Call Report. 

♦ We issued an interagency proposal to simplify 

the generally applicable capital framework 

and to clarify the definition of high-volatility 

commercial real estate. The proposed 

simplifications include changes to the regulatory 

capital treatment of mortgage servicing assets, 

deferred tax assets, investments in the capital 

instruments of other financial institutions, and 

minority interest. 

♦ We finalized a rule regarding regulatory capital 

to pause the phase-in of certain regulatory capital 

adjustments and deductions that are part of the 

Basel III capital standard. 

♦ We issued an interagency proposal to increase 

the threshold for requiring an appraisal on 

commercial real estate loans, which we believe 

will reduce regulatory burden in a manner 

consistent with safety and soundness. Comments 
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MESSAGE FROM THE CHAIRMAN

on the proposal have been received and are 

being evaluated.

♦ We issued an interagency bulletin to make 

bankers and other stakeholders aware of the 

options available in areas where there is a 

shortage of appraisers. The advisory addresses 

concerns raised pursuant to the EGRPRA review 

process, as well as during six roundtables between 

federal banking regulators, state commissioners, 

and rural community bankers.

♦ We raised the threshold for loans included in 

the SNC program from $20 million to $100 

million. This action lowered the number of loans 

required to be reported by financial institutions, 

providing regulatory relief for 82 mid-sized 

financial institutions. 

The federal banking agencies also recognize that 

regulatory burden does not emanate solely from 

statutes and regulations, but often comes from 

processes and procedures related to examinations 

and supervisory oversight. Accordingly, the agencies 

are jointly reviewing the examination process, 

examination report format, and examination 

report preparation process. We are working to 

identify opportunities to minimize burden to bank 

management where possible, with a particular goal of 

determining whether technology can be used to make 

existing examination activities more efficient or allow 

for additional safety and soundness examination work 

to be conducted off-site.

EGRPRA commenters recommended a number of 

legislative changes as well, and the FDIC is supportive 

of reforms that would:

♦ Raise the total assets threshold for conducting 

annual stress tests from $10 billion to $50 

billion;

♦ Increase the asset threshold for banks eligible for 

an 18-month examination cycle from $1 billion 

to $2 billion;

♦ Raise the asset threshold for the community 

bank Call Report to match a higher examination 

frequency threshold; 

♦ Create a new appraisal threshold exemption for 

insured depository institutions that originate a de 

minimis number (i.e., less than 25) of residential 

mortgage loans in a calendar year; and

♦ Deem banks with assets under $10 billion 

compliant with risk-based capital requirements 

if they maintain a leverage capital ratio of 10 

percent and do not engage in a short, specified 

list of activities.

Overall, the FDIC supports measures to ensure that 

financial regulations are simple and straightforward 

and that regulatory costs and burdens are minimized, 

particularly for smaller institutions. However, in 

considering ways to simplify or streamline regulations, 

it is important to preserve the gains that have been 

achieved in restoring confidence and stability since 

the financial crisis and maintaining the safety and 

soundness of the U.S. banking system. 

REGULATORY RELIEF 

IN DISASTER AREAS

In 2017, communities in Florida, Georgia, Texas, and, 

in particular, the U.S. Virgin Islands and Puerto Rico, 

were affected by severe storms and flooding related to 

hurricanes. The FDIC worked to provide flexibility to 

financial institutions in these areas relative to appraisal 

requirements, lending and credit policies, and efforts 

to meet customers’ cash and financial needs. As these 

areas continue to recover, the FDIC encourages 

depository institutions to consider all reasonable and 

prudent steps to assist their customers, consistent with 

safe-and-sound banking practices.

EXPANDING ACCESS 

TO BANKING SERVICES AND 

PROTECTING CONSUMERS

Expanding access to mainstream banking services 

helps strengthen confidence in the nation’s financial 

system, the FDIC’s core mission. Our most recent 

National Survey of Unbanked and Underbanked 

Households, published in October 2016, produced 
14 MESSAGE FROM THE CHAIRMAN

ANNUAL REPORT

encouraging results, showing that the proportion of 

unbanked households has fallen to 7 percent. But 

the survey provides ample evidence that much work 

remains to expand economic inclusion, particularly 

among households with incomes below $30,000 

per year, African American households, Hispanic 

households, and households headed by a working-age 

individual with a disability.

Building on the insights gained from the survey, 

the FDIC has undertaken a number of initiatives to 

expand economic inclusion. 

The FDIC introduced the Safe Accounts pilot in 

2011 in response to survey findings and with the 

encouragement of the Advisory Committee on 

Economic Inclusion. Safe Accounts have a low or 

no minimum balance requirement, are electronicbased, use debit cards, do not include overdraft or 

nonsufficient funds fees, and have low, transparent 

monthly fees. These accounts are designed to better 

enable unbanked and underbanked households to 

access the banking system and to sustain banking 

relationships over time. 

Since the pilot concluded, we have identified examples 

of banks across the spectrum of the industry—

money center, regional, and community banks— as 

offering accounts consistent with the features of the 

Safe Account. FDIC analysts estimate that nine in 

10 Americans live in a county with a branch of an 

institution that offers Safe Accounts. This represents a 

significant improvement since 2011, but many banks 

and consumers remain unaware of the benefits of 

these low-cost, card-based products. To ensure that 

consumers who would benefit from Safe Accounts 

are aware of their availability and to encourage 

bank engagement, the FDIC has partnered with 

the non-profit Cities for Financial Empowerment 

Fund, Bank On programs, and FDIC-supported 

Alliances for Economic Inclusion, and has worked 

with other community groups, banks, state and 

local governments, and philanthropic organizations. 

Through these forums, we provide outreach to 

representatives of hundreds of community-based 

organizations and bankers across the country. 

Bringing these groups together creates opportunities 

to identify strategies to reach unbanked populations 

by lowering the barriers to accessing banking services.

In addition to the Safe Account effort, the FDIC 

continues to study how mobile financial services 

may help banks address many of the core financial 

service needs of underserved consumers, including 

providing more timely information about balances 

and transactions and more control over customers’ 

financial lives.

We also continued our efforts to provide and promote 

effective financial education for young people. 

Offering financial education to school-age children 

opens the door to many opportunities and establishes 

the groundwork for a lifelong banking relationship. 

Through our Youth Savings Pilot program, we have 

studied the financial education programs offered by 

21 banks in partnership with local schools over a twoyear period. These programs tie financial education 

with the opportunity to open a safe, low-cost savings 

account at bank branches, some of which are located 

in the schools and run by students.

We gathered insights from the pilot into a report 

we published in March 2017. The many lessons we 

learned—about program design, the importance of 

partnerships, types of accounts offered, classroombased financial education, the role of parents 

and guardians, program costs, and measuring 

performance—provide a comprehensive roadmap 

for banks and schools that are teaming up to link 

financial education with opportunities to save. 

The FDIC also launched a Youth Banking Network, 

a platform to support banks as they work with 

school and nonprofit partners to create and expand 

youth savings programs. The FDIC offers periodic 

conference calls and resources on topics of interest 

to network members, which now total more than 

50 institutions, and receives ongoing feedback 

from network participants on ways to support 

collaborations. 

Our Money Smart program is another example of 

our ongoing efforts to develop and promote financial 
MESSAGE FROM THE CHAIRMAN 15

2017

MESSAGE FROM THE CHAIRMAN

education. For example, Money Smart for Older Adults, 

a resource developed jointly by the FDIC and the 

Consumer Financial Protection Bureau, was updated 

in 2017 to help older adults and their caregivers guard 

against financial exploitation and make informed 

financial decisions.

We also continue to collaborate with the U.S. Small 

Business Administration (SBA) on Money Smart 

for Small Business, a resource that provides practical 

guidance for starting and managing a business. The 

Strategic Alliance Memorandum between the FDIC 

and SBA ensures this collaboration will continue 

through 2018.

Money Smart for Young People, a curriculum that 

involves educators, parents/caregivers, and young 

people in the learning process, continues to be 

well received. There have been more than 145,000 

downloads of the curriculum, portions of which are 

available in Spanish, since its launch in 2015. These 

resources are at work in classrooms and also are used 

by workforce development organizations in providing 

financial education to young people in employment 

programs.

Many of these initiatives, as well as the future of 

economic inclusion efforts, were discussed at the 

Economic Inclusion Summit the FDIC hosted in 

April. The event brought together representatives from 

banks, trade associations, non-profit organizations, 

government agencies, and the public to explore 

strategies for increasing underserved consumers’ access 

to the mainstream financial system. In particular, 

panelists discussed strategies for 

♦ Establishing safe and sustainable banking 

relationships, 

♦ Leveraging partnerships for banking access and 

financial empowerment, and 

♦ Growing customer relationships and building 

long-term loyalty among diverse customers.

The FDIC’s Advisory Committee on Economic 

Inclusion also met twice in 2017 to discuss topics 

such as neighborhood access to bank branches, 

economic inclusion for persons with disabilities, and 

an FDIC survey of entry-level consumer checking 

and savings accounts, as well as collaborations with 

community-based organizations and resources for 

affordable mortgage lending.

Overall, the progress the FDIC and our collaborators 

have made in this area has been substantial—initiating 

the national survey, developing the model Safe 

Account and seeing it offered by financial institutions 

around the country, and exploring the potential of 

mobile financial services to expand access.

CONCLUSION

During 2017, 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. 

In 2018, the FDIC will continue to work to fulfill its 

mission of maintaining public confidence and stability 

in the nation’s financial system.

As I previously emphasized, bankers and supervisors 

should not allow the current strong economic and 

banking conditions to be a cause for complacency. 

The challenge for the FDIC going forward will be to 

preserve the hard-earned improvements in the capital 

and liquidity of U.S. banking institutions and sustain 

vigilant supervision of the banking industry, both to 

continue the strong performance of banks during this 

post-crisis period and to position the banking system 

to weather the next inevitable downturn.

The workforce of the FDIC remains committed to the 

agency’s 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