2011

A N N U A L R E P O R T

5

MESSAGE FROM THE a

I am pleased 

to present 

the Federal 

Deposit Insurance 

Corporation’s (FDIC) 

2011 Annual Report. I 

assumed my duties as 

Acting Chairman on 

July 9, 2011, upon the 

departure of Chairman 

Sheila C. Bair at the 

end of her term. 

During 2011, our nation’s banking system continued 

to make gradual but steady progress in recovering from 

the financial market turmoil and severe recession that 

unfolded from 2007 through 2009. Over the past two 

years, the banking industry has undergone a difficult 

process of balance sheet strengthening. Capital has been 

increased, asset quality has improved, and banks have 

bolstered their liquidity. The industry is now in a much 

better position to support the economy through expanded 

lending. However, levels of troubled assets and problem 

banks are still high. And while the economy is showing 

signs of improvement, downside risks remain a concern.

Despite these challenges, bank performance indicators 

did improve during 2011, particularly in terms of industry 

earnings and improved credit quality of loans on the 

books of FDIC-insured institutions. The number of 

institutions on the FDIC’s problem bank list declined for 

three consecutive quarters, the Deposit Insurance Fund 

(DIF) moved into positive territory, and significantly 

fewer banks failed in 2011 compared to 2010. However, 

most of the improvement in earnings over the last two 

years has been the result of lower loan-loss provisions 

reflecting improved credit quality. Sustainable bank 

industry earnings gains will depend on increased lending, 

consistent with sound underwriting. Prudent loan growth 

is a necessary condition for a stronger economy. 

Although challenges related to the recovery remain, the 

FDIC is well positioned to carry out its primary mission 

of upholding public confidence in the nation’s financial 

system by protecting insured depositors. During 2011, the 

FDIC insured a record $7.0 trillion of deposits in over half 

a billion accounts at more than 7,000 institutions, with 

no losses of insured funds. Other notable achievements 

during 2011, discussed in further detail below, include 

returning the DIF to a positive balance, largely completing 

the core rulemaking necessary to carry out the FDIC’s 

responsibilities under the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank) 

and implementing the FDIC’s new authorities related to 

systemic resolutions, launching a series of initiatives to 

deepen our understanding of the unique role community 

banks perform in our nation’s economy, and continuing 

our work to expand access to mainstream financial 

services to all Americans.

A great strength of the agency is its highly dedicated and 

motivated workforce. The FDIC’s employees understand 

the agency’s mission and how it relates to what they do. In 

2011 the FDIC was ranked number one on the Best Places 

to Work in the Federal Government list of 33 large agencies, 

moving up two positions from 2010. This recognition 

is a tribute to the commitment and dedication of the 

FDIC workforce and to the leadership of former FDIC 

Chairman Sheila Bair. 

Strengthening th

and Resolv

The FDIC has made significant progress in rebuilding the 

Deposit Insurance Fund (DIF) and achieving the goals 

set by Dodd-Frank reforms. In 2010, the FDIC Board 

approved a comprehensive, long-term plan for fund 

Message from the
MESSAGE FROM THE a

6

management based on the new law and an FDIC historical 

analysis of DIF losses. Additionally, the DIF balance—the 

net worth of the fund—rose to $11.8 billion at the end of 

2011 compared with negative $7.4 billion a year earlier. 

Assessment revenue and fewer bank failures drove growth 

in the fund balance. 

While 2010 was the peak year for problem and failed 

institutions, substantial work remained in 2011, with an 

additional 92 failures, continuing post-failure receivership 

management, more examination hours because of the 

elevated number of problem institutions, and staffing up 

for new responsibilities under Dodd-Frank.

Accordingly, the FDIC’s authorized workforce for 2011 

stood at 9,269 full-time equivalent positions compared 

with 9,029 the year before. The FDIC Board approved 

a 2011 Corporate Operating Budget of just under $3.9 

billion, a slight decrease from 2010.

For 2012, the Board reduced the budget by 15.4 percent 

to $3.3 billion and reduced authorized staffing by 6 

percent to 8,704 positions in anticipation of a substantial 

drop in failure activity in the years ahead. The FDIC also 

announced plans to close two of three temporary satellite 

offices, which had been established to address crisisrelated workload. The Irvine, California, office closed 

in January 2012 and the Schaumburg, Illinois, office is 

set to close in September 2012. Contingent resources 

are included in the budget to ensure readiness should 

economic conditions unexpectedly deteriorate.

During 2011, the FDIC continued using strategies 

instituted in 2009, including the use of loss-share 

agreements, to protect the depositors and customers 

of failed institutions at the least cost to the DIF. The 

FDIC actively marketed failing institutions, and the vast 

majority were sold to healthier entities. These strategies 

preserved banking relationships in many communities 

while providing depositors and customers with 

uninterrupted access to essential banking services. 

Progrss on

of Systemi

Financia

The Dodd-Frank Act included far-reaching changes to 

make financial regulation more effective in addressing 

systemic risks. The law greatly expanded the FDIC’s 

authority to resolve systemically important financial 

institutions (SIFIs).

One of the FDIC’s top priorities has been preparing for a 

resolution of a large SIFI. The FDIC was given significant 

new responsibilities under the Dodd-Frank Act to resolve 

SIFIs. Specifically, these include an Orderly Liquidation 

Authority to resolve the largest and most complex bank 

holding companies and non-bank financial institutions, 

if necessary, and a requirement for resolution plans for 

covered financial companies that will give regulators 

additional tools with which to manage the failure of large, 

complex enterprises. 

In late 2010, the FDIC established the Office of 

Complex Financial Institutions (OCFI), to carry out 

three core functions:

★Monitor risk within and across these large, complex 

firms from the standpoint of resolution; 

★ Conduct resolution planning and the development of 

strategies to respond to potential crisis situations; and 

★ Coordinate with regulators overseas regarding 

the significant challenges associated with crossborder resolution. 

During 2011, OCFI began developing its own resolution 

plans in order to be ready to resolve a failing systemic 

financial company. These internal FDIC resolution plans, 

developed pursuant to the Orderly Liquidation Authority, 

provided under Title II of Dodd-Frank, apply many of 

the same powers that the FDIC has long used to manage 

failed-bank receiverships to a failing SIFI.

If the FDIC is appointed as receiver of such an institution, 

it will be required to carry out an orderly liquidation in a 
2011

A N N U A L R E P O R T

MESSAGE FROM THE a

7

manner that maximizes the value of the company’s assets 

and ensures that creditors and shareholders appropriately 

bear any losses. The goal will be to close the institution 

without putting the financial system at risk.

This internal resolution planning work is the foundation 

of the FDIC’s implementation of its new responsibilities 

under the Dodd-Frank Act.

Developing a credible capacity to place a SIFI into an 

orderly resolution process is essential to subjecting these 

companies to meaningful market discipline. Without this 

capability, these institutions—which by definition pose 

a risk to the financial system—create an expectation of 

public support to avert failure. That distorts the financial 

marketplace, giving these institutions a competitive 

advantage that allows them to take on even greater risk 

and creating an unlevel playing field for other financial 

institutions that are not perceived as benefiting from 

potential public support. There is a very strong public 

interest in the FDIC developing the capability to carry out 

its new systemic resolution responsibilities in a credible 

and effective way. 

Community Banking

In late 2011, the FDIC established a series of initiatives 

focusing on the future of community banking in the 

United States. The FDIC is the lead federal regulator for 

the majority of community banks in the United States and 

the insurer of all. As such, the FDIC has a responsibility 

to use its resources to gain a better understanding of the 

challenges facing community banks and to share that 

understanding with the banks as well as the general public. 

Community banks play a crucial role in the financial 

system of the United States. Community banks with 

assets of less than $1 billion account for a little more 

than ten percent of the banking assets in our country, 

but provide nearly forty percent of all the small loans 

that insured financial institutions make to businesses 

and farms. Given the labor intensive, highly customized 

nature of many small business loans, it is not clear that 

large institutions would easily fill that critical credit need 

if community banks were not there. Community banks 

also play a crucial role in extending credit and providing 

financial services in rural communities, small towns, and 

inner-city neighborhoods. In many of those localities, if 

not for the community bank there would be no easy access 

to an insured financial institution. There is a clear public 

interest in maintaining a strong community bank sector 

in the U.S. financial system.

The first of the FDIC’s initiatives in this area was a 

national conference in early 2012 on the Future of 

Community Banking. Following on the conference, the 

FDIC plans to hold a series of roundtables with groups 

of community bankers in each of the FDIC’s six regions 

around the country during 2012. The FDIC’s most senior 

executives and I will attend each roundtable to hear first 

hand about the concerns of bankers and what the FDIC 

can do to respond to those concerns. 

As part of the initiatives, the FDIC’s Division of Insurance 

and Research is undertaking a comprehensive review 

of the evolution of community banking in the United 

States over the past twenty-five years, to identify the key 

challenges facing community banks as well as stories of 

successful community bank business models, and draw 

conclusions from that analysis that may be useful for 

community banks going forward. The agency is also 

undertaking a review of the bank examination process 

for both risk management and compliance supervision, 

and the process for promulgating and releasing 

rulemakings and guidance, to identify potential process 

and communication improvements while maintaining 

supervisory standards. 

Protectin Con

Accessto Bank

Deposit insurance is essentially about making people 

feel secure about putting their money into financial 

institutions. However, accessing insured financial 

institutions has proven elusive for millions of people in 

our country. 
MESSAGE FROM THE a

8

In 2009, pursuant to a statutory provision, the FDIC 

partnered with the Census Bureau to conduct the first 

national survey ever undertaken of who is unbanked and 

underbanked in the United States. It found that 7 percent 

of U.S. households do not have bank accounts, and 

another nearly 18 percent who may have an account still 

utilize non-bank financial services such as check cashers 

and payday lenders, which are frequently more expensive. 

Taken together, this means that nearly a quarter of 

American households are underserved by the mainstream 

banking system, and the proportions are significantly 

higher for low-income and minority households. The 

Census Bureau will now conduct this survey on behalf 

of the FDIC every two years. The second survey was 

conducted in mid-2011, and the findings will be released 

during 2012.

In response to this issue, the FDIC has undertaken 

initiatives at both the local and national level.

At the local level, the FDIC’s Alliance for Economic 

Inclusion (AEI) has organized coalitions of financial 

institutions, community organizations, local government 

officials, and other partners in communities across the 

country to bring unbanked and underserved households 

into the financial mainstream by expanding access to 

basic retail financial services, including savings accounts, 

affordable remittance products, small-dollar loan 

programs, targeted financial education programs, and 

asset-building programs. These partnerships are currently 

operating in 14 communities nationwide, and the FDIC 

plans to expand the program further during 2012.

At the national policy level, the FDIC’s Advisory 

Committee on Economic Inclusion—composed of 

bankers, community and consumer organizations, and 

academics—also explores ways to bring the unbanked into 

the financial mainstream. The Committee has pursued 

a number of initiatives since it was formed in 2007. One 

of the initial projects it recommended—the Small-Dollar 

Loan Pilot Program—demonstrated that banks can offer 

safe, affordable small-dollar loans as an alternative to 

high-priced sources of emergency credit, such as payday 

loans or fee-based overdrafts.

The Advisory Committee is now nearing completion of a 

pilot program called Model Safe Accounts to evaluate how 

banks can offer safe, low-cost transactional and savings 

accounts that are responsive to the needs of underserved 

consumers. Participating banks are in the process of 

testing the model accounts, which feature electronic debitcard based accounts with low fees and low minimum 

balance requirements. The intention of the pilot program 

is to help banks better understand the benefits and 

feasibility of offering such products.

The Advisory Committee will continue to meet during 

2012 and a focus of the Committee and the FDIC going 

forward will be the potential role that technology and 

innovation, particularly mobile banking, can play in 

expanding access to mainstream financial services.

The F An Enduring Sym

The year 2011 marked a turning point for American 

banking, as the number of bank failures declined, industry 

earnings grew, and balance sheets improved. There 

appear to be reasonable prospects for continued recovery 

in 2012, although this is dependent on the pace of the 

U.S. economic growth and financial conditions in global 

markets, notably developments in Europe.

These are still challenging times for our nation and for 

the FDIC. Our workforce remains committed to carrying 

out our mission. I am very grateful to the hard-working, 

dedicated men and women of the FDIC for all they have 

done during the financial crisis to maintain the stability of 

the U.S. financial system and put it on the road to recovery.

Sincerely,

Martin J. Gruenberg