Program Description
The FDIC is the insurer for all IDIs in the United States, and the primary federal supervisor for state-chartered banks and savings institutions that are not members of the Federal Reserve System.4 The FDIC’s roles as an insurer and primary supervisor are complementary, and many activities undertaken by the FDIC support both the insurance and supervision programs. Through conducting examinations, review of examination reports, use of off-site monitoring tools, and participation in examinations conducted by other federal regulators (either through agreements with these regulators or, in limited circumstances, under the exercise of the FDIC’s authority to conduct special (backup) examination activities), the FDIC regularly monitors the potential risks at all insured institutions, including those for which it is not the primary federal supervisor. The FDIC also takes into account supervisory considerations in the exercise of its authority to review and approve applications for deposit insurance from new institutions and other applications from IDIs, regardless of the chartering authority.
In addition, the FDIC has statutory responsibilities for certain bank holding companies and nonbank financial companies that are designated as systemically important. The FDIC and FRB have joint responsibility for reviewing and assessing resolution plans developed by these companies that demonstrate how they would be resolved in a rapid and orderly manner in the event of financial distress.
The FDIC pursues the following three strategic goals in fulfilling its supervisory responsibilities as the primary federal supervisor for state non-member banks and savings institutions, the backup supervisor for other FDIC-insured institutions, and the reviewer of resolution plans:
- FDIC-insured institutions are safe and sound.
- FDIC-supervised institutions are compliant with applicable laws, including federal consumer protection laws, fair lending laws, and the Community Reinvestment Act (CRA).
- Large and complex financial institutions are resolvable in an orderly manner.
The FDIC promotes safe and sound financial institution practices through regular risk management examinations, publication of guidance and policy, ongoing communication with industry officials, and the review of applications submitted by FDIC-supervised institutions to expand their activities or locations. When appropriate, the FDIC has a range of informal and formal enforcement options available to resolve safety-and-soundness problems identified at these institutions. The FDIC also has staff dedicated to administering off-site monitoring programs and to enhancing the agency’s ability to timely identify emerging safety-and-soundness issues.
The FDIC promotes compliance by FDIC-supervised institutions with federal consumer protection laws, fair lending statutes, and community reinvestment laws through a variety of activities, including ongoing communication with industry officials, regular compliance and Community Reinvestment Act (CRA) examinations, dissemination of information to consumers about their rights and required disclosures, and investigation and resolution of consumer complaints regarding FDIC-supervised institutions. The FDIC also has a range of informal and formal enforcement options available to resolve compliance problems identified at these institutions and their institution-affiliated parties.
The FDIC’s assessment of the resolution plans submitted by bank holding companies, other covered companies, and IDIs helps develop and improve its capabilities to administer large resolutions under any of the available authorities. For example, the actions firms take to address the shortcomings identified by the FDIC and the Federal Reserve Board in their resolution plans are intended to address potential impediments to resolvability under the Bankruptcy Code. That work in turn informs the FDIC’s strategic planning to conduct an orderly liquidation under the FDI Act or the Orderly Liquidation Authority (OLA), if necessary, to protect U.S. financial stability.
The FDIC may be called upon to resolve the failure of a large, systemically important financial company if failure under the Bankruptcy Code would threaten U.S. financial stability. In such circumstances, the authority exists to place the failed or failing financial company into an FDIC receivership process if no viable private-sector alternative is available to prevent the default of the company. The OLA is intended to ensure the rapid and orderly resolution of the failure of such a financial company in accordance with statutory mandates. The FDIC actively engages in, and will continue to refine, resolution plans and strategies and operational readiness initiatives to ensure that it is prepared, if necessary, to fulfill this responsibility.
4 This includes state-licensed insured branches of foreign banks. As of 3/31/21, the FDIC had primary supervisory responsibility for 3,209 FDIC-insured, state-chartered commercial banks and savings institutions that are not members of the Federal Reserve System (generally referred to as “state non-member” institutions).
Supervision Program - Risk Management
Strategic Goal 2
FDIC-insured institutions are safe and sound.
Strategic Objective
2.1 The FDIC exercises its statutory authority, in cooperation with other primary federal regulators and state agencies, to promote safe and sound practices at FDIC-insured institutions, including appropriate risk management.
Means and Strategies:The FDIC exercises its statutory authority, in cooperation with other primary federal regulators and state agencies, to promote safe and sound practices at FDIC-insured institutions, including appropriate risk management.
In addition, the FDIC, OCC, and FRB conduct IT examinations of third-party technology service providers that provide a range of services to IDIs. As the threat of cyberattacks continues to be prominent, the FDIC engages with other regulators and the private sector to encourage IDIs and service providers to implement strong preventive programs and to exercise and refine protocols for addressing cyber events when preventive programs are overcome.
Risk management examinations are conducted according to statutorily established timeframes. Regional bank examinations are conducted on a continuous basis throughout the calendar year. Both community bank and regional bank examinations assess an institution’s overall financial condition, management practices and policies, compliance with applicable laws and regulations, and the adequacy of management and internal control systems to identify, measure, and control risks. Examination procedures may also detect the presence of fraud or insider abuse. In addition, the FDIC reviews the risk management capabilities of those FDIC-supervised institutions that apply for permission to engage in new or expanded business activities, including those associated with innovative technologies.
Communication and corrective action are important components of the FDIC’s strategy for promoting the safety and soundness of the institutions it supervises. Risks identified during an examination are discussed with the institution’s management and board of directors. If an examination reveals serious weaknesses in the operations of the institution or indicates that the institution is operating in a weakened financial condition, the FDIC may issue formal or informal enforcement actions that remain in effect until corrective actions are taken and the identified weaknesses are addressed. In the case of severe problems, the institution may be instructed to seek additional capital, merge with another institution, or liquidate.
The FDIC monitors individual institutions it supervises between examinations, and emerging trends across institutions, by analyzing Call Report data and examination findings relative to the emerging trends. To perform this analysis, the FDIC uses a combination of traditional analytical tools, and machine learning techniques. The FDIC’s statutory authority also gives it a degree of supervisory responsibility in its role as insurer for IDIs for which it is not the primary federal supervisor. The agency has staff in each of its regional offices that regularly review examination reports and other available information from the primary federal regulators for those institutions.
The FDIC also performs off-site monitoring of those institutions on an ongoing basis. In addition, certain larger, more complex institutions are subject to more frequent onsite reviews and more robust off-site and ongoing monitoring. The FDIC also has the authority to conduct special (backup) examination activities for institutions for which is not the primary federal regulator. Under this authority, the FDIC participates in examinations of certain IDIs that present heightened risk to the DIF and designated large, complex IDIs.
Ensuring the safety and soundness of FDIC-insured institutions over the next four years will require an effective supervisory program that incorporates the lessons learned from past financial crises and the recent health pandemic, identifies potential new risks that emerge, and responds quickly to such issues in an effective manner that maximizes the use of technology. The economic impact of the pandemic and potential longer-term shifts in demand for various property types, products and services create significant uncertainty for the coming period. Government stimulus programs have helped prevent asset quality deterioration, thus far, and have led to significant deposit inflows at institutions of all sizes. The low interest rate environment has negatively impacted institutions’ earnings, with net interest margins falling to historic lows. These factors combine to create a challenging operating environment for institutions. The pandemic-related shift to working from home also led to an increase in cybersecurity threats and attacks across all industries. Innovation creates opportunities for managing through these changes, including in creating more resilient information technology infrastructures.
Through regular on-site examinations and interim contacts with state non-member institutions, FDIC staff will actively engage in a constructive dialogue with banks to ensure that their policies to manage financial and operational risks are effective, and, where appropriate, FDIC staff will work closely with institutions that have significant exposure to these risks and encourage them to take appropriate steps to mitigate risks. The FDIC will use off-site monitoring to help identify institutions with outsized risk exposures and follow up with individual institutions to better understand their risk profiles.
Additionally, the FDIC will continue its efforts to promote offsite examination work where possible, by leveraging technologies used and lessons learned while examining through the pandemic. Cybersecurity is a risk area that will continue to receive particular attention. During this period, the FDIC will refine its IT examination program for insured institutions and major technology service providers, and increase its already robust collaboration with other regulators, law enforcement, and security agencies. In addition, in light of the risks posed to the DIF by large and complex banks and the FDIC’s responsibilities for systemically important financial institutions (SIFIs), the agency will continue to enhance its supervisory monitoring program for large and complex banks.
The FDIC dedicates significant resources to the continuing identification of emerging issues. It regularly reviews supervisory information from the thousands of examinations that are conducted annually as well as information from a variety of external data sources to identify and, where appropriate, initiate supervisory responses to newly identified areas of risk. For example, the FDIC is currently monitoring trends, opportunities, and risks in innovative technologies; evaluating the impact of innovation on banking, deposit insurance, oversight, inclusion, and consumer protection; and formulating strategy to respond to opportunities and challenges presented by technological innovation to supervised institutions.
The FDIC also dedicates significant resources to developing and implementing supervisory technology (SupTech). Examples of SupTech that will be expanded over the coming years are a machine learning tool that identifies trends across examinations and pertinent weaknesses at individual institutions, an off-site monitoring tool that analyzes Call Report data to identify institutions vulnerable to financial deterioration, and analytical tools derived from a rapid prototyping competition that will allow analysis of more granular bank data on a more regular basis between examinations, supporting earlier identification of any problems at the institutions, across the financial sector, or in particular economic areas.
The FDIC promotes safety and soundness through the development of or modification to regulatory policy. Identification of new or emerging risks may lead to a variety of policy responses depending on the nature and severity of the risk. The FDIC devotes significant resources to both domestic and international policy development and works collaboratively with other regulatory bodies in an effort to bolster the financial resilience of the banking system. While banks generally performed well through the global health crisis, the period of disruption offers an opportunity to evaluate policy effectiveness while also addressing any identified weaknesses.
The FDIC actively works to fulfill five statutory goals to support the preservation of minority depository institutions (MDIs). In addition to its outreach, technical assistance, and training and education programs, the FDIC facilitates engagement with MDIs and other mission-driven institutions; highlights the role they play in community development; promotes public and private partnerships to provide tools and resources to support these institutions; and explores ways to remove barriers to adoption of innovative technologies by these banks.
The FDIC has established and consults regularly with the Advisory Committee on Community Banking (CBAC), which advises the FDIC on the impact of FDIC supervisory policies and practices on community banks. Members of the Advisory Committee have a wide range of knowledge and experience related to community banks. The FDIC also engages regularly with the MDI Subcommittee of the CBAC.
External Factors: Several factors outside of the FDIC’s control could affect the successful achievement of this strategic objective. In accordance with statutorily established time frames, most risk management examinations of well-capitalized and well-managed state non-member institutions are point-in-time examinations that occur at 18-month intervals. Between examinations, institutions may enter new lines of business, extend their lending programs into riskier areas, or implement new technologies without the knowledge of the FDIC or state regulatory agencies. Major changes in economic conditions could also affect institutions between examinations. The FDIC will continue to improve off-site tools to analyze potential risks that may develop between examinations at individual institutions or across the financial sector.
Supervision Program – Compliance and Consumer Protection
Strategic Goal 3
FDIC-supervised institutions are compliant with federal consumer protection laws, including fair lending laws, and the Community Reinvestment Act (CRA).
Strategic Objectives
3.1 The FDIC supervises institutions for compliance with applicable federal consumer protection laws, including fair lending laws; the law against unfair and deceptive practices; and the CRA.
3.2 The FDIC provides clear and accessible information to consumers about their rights under federal consumer protection and fair lending laws and regulations, including applicable disclosures.
3.3 The FDIC encourages IDIs to offer affordable checking and savings accounts and loan products that meet the needs of consumers.
The means and strategies used to achieve these strategic objectives and the external factors that could impact their achievement are described below.
3.1 The FDIC supervises institutions for compliance with applicable federal consumer protection laws, including fair lending laws; the law against unfair and deceptive practices; and the CRA.
Means and Strategies: The FDIC pursues this strategic objective primarily through compliance and CRA examinations of all FDIC-supervised institutions. CRA examinations are subject to statutory timelines, while compliance examinations are conducted according to timeframes established by FDIC policy. These examinations evaluate institutions’ compliance with consumer protection laws, unfair and deceptive acts or practices, CRA, and fair lending laws and regulations.
If an examination reveals violations, the FDIC may implement either formal or informal enforcement actions to correct the identified violations. In unusual cases, non-compliance with consumer laws may subject the institution to significant legal risk, and could result in administrative enforcement actions or private litigation. In addition, when the FDIC has reason to believe that a “pattern or practice” of violations of fair lending laws has occurred at an institution, the FDIC is required by statute to refer the matter to the Department of Justice. An institution’s failure to comply with consumer protection, CRA, or fair lending laws and regulations might also affect the application of an FDIC-supervised institution seeking to engage in new or expanded business activities.
The FDIC sponsors or participates in numerous outreach and technical assistance activities designed to facilitate better understanding of and compliance with CRA, consumer protection, and fair lending laws and regulations by FDIC-supervised institutions. In addition, it actively participates in interagency policy development efforts and issues policy guidance. The FDIC focuses its examinations and other supervisory activities on those industry products, services, and practices that have the highest potential risk for violations of law that may result in potential harm to consumers.
External Factors: Most compliance and CRA examinations are point-in-time examinations that occur at scheduled intervals in accordance with FDIC policy. Between examinations, institutions may implement new products, services, or practices that hold significant potential risk for consumer harm without the knowledge of the FDIC. In addition, major changes in economic conditions could also affect institutions between examinations. During economic downturns, institutions sometimes elect to reduce costs by decreasing their internal resources dedicated to compliance.
3.2 The FDIC provides clear and accessible information to consumers about their rights under applicable federal consumer protection and fair lending laws and regulations, including applicable disclosures.
Means and Strategies: The FDIC provides information about consumer protection and fair lending laws and regulations to help consumers understand their rights. This information is disseminated through brochures and other venues including social media, and the FDIC’s website(https://www.fdic.gov). The FDIC Consumer News is a monthly online newsletter for consumers, providing practical guidance on becoming a smarter, safer user of financial services. In addition, the FDIC frequently conducts or participates in educational seminars and conferences on consumer protection and fair lending issues to help both consumers and insured institutions better understand consumer protection, CRA, and fair lending laws and regulations.
The FDIC maintains a National Center for Consumer and Depositor Assistance for investigating and responding to consumer complaints about FDIC-supervised institutions and deposit insurance inquiries under established target timeframes. FDIC also promotes greater financial education and well-being, primarily through its award-winning Money Smart curriculum. The FDIC will continue to keep the Money Smart content relevant and research-based, while expanding collaborative relationships that result in its use.
External Factors: Although the FDIC makes information available to a broad array of consumers, individual consumers may not always use it. In addition, increasing complexity and aggressive and targeted marketing increase the challenges consumers face in evaluating alternatives in the marketplace.
3.3 The FDIC encourages IDIs to offer affordable checking and savings accounts and loan products that meet the needs of consumers.
Means and Strategies: The FDIC has played a leadership role in recent years in promoting broader economic inclusion of underserved households within the nation’s banking system through the availability of safe and affordable transaction and saving accounts, as well as the opportunity to build credit profiles and borrow money to meet their needs. Most recently, FDIC Launched #GetBanked, a public awareness campaign encouraging consumers to open an account, harnessing the opportunity for millions of unbanked Americans to receive COVID-19 relief government payments safely and securely. Also, the FDIC’s Money Smart financial education curriculum is a key tool for pursuing this objective by helping target populations gain practical knowledge, skills-building opportunities, and resources they can use to manage their finances with confidence. The FDIC also sponsors or conducts research and demonstration projects, develops policy proposals, facilitates partnerships, and participates in targeted outreach and technical assistance activities with both the institutions it supervises and various community-based organizations to further this objective.
The FDIC established and supports the Advisory Committee on Economic Inclusion to inform and support its economic inclusion strategies and to promote sound supervisory and public policies to help ensure that underserved households have access to mainstream financial products and services that are affordable, easy to understand, and not subject to unfair or unforeseen fees. In addition, on a biennial basis, the FDIC conducts jointly with the U.S. Census Bureau the only comprehensive, nationwide research survey called “How America Banks” regarding the number of banked and unbanked households in the U.S. The FDIC also engages banks; other federal, state and local government agencies; and non-profit organizations serving a broad spectrum of consumers and small businesses in building locally based coalitions to participate in financial education and information sharing. These coalitions promote local economic inclusion opportunities in communities where financial health and well-being has lagged the rest of the country. In each state and territory in the US, at least one FDIC Community Affairs specialist has responsibilities to promote economic inclusion. Some markets also have an Alliance for Economic Inclusion.
The FDIC will continue to pursue multi-year initiatives to support broader economic inclusion such as promoting account opening, strategies to improve financial well-being, build savings and improve credit records, and evaluate new technologies that can be responsibly used to expand banking services to underserved populations. The FDIC also will continue to work with federal and local partners to facilitate community development through affordable housing, small business development, and related initiatives.
External Factors: The access to credit of underserved households from mainstream financial institutions could be disproportionately affected during economic downturns or periods of economic stress. Changing technological and market conditions could also positively or negatively affect opportunities to expand economic inclusion in the nation’s banking system.
Supervision Program – Resolution Planning
Strategic Goal 4
Large, complex financial institutions are resolvable in an orderly manner.
Strategic Objective
4.1 Large, complex financial institutions are resolvable under the bankruptcy code or, for covered IDIs, the Federal Deposit Insurance (FDI) Act, as applicable.
4.2 In the event of the failure of a large, complex financial institution, the FDIC carries out the resolution in an orderly manner in accordance with statutory mandates.
The means and strategies used to achieve these strategic objectives and the external factors that could impact their achievement are described below.
4.1 Large, complex financial institutions are resolvable under the bankruptcy code or, for covered IDIs, the Federal Deposit Insurance (FDI) Act, as applicable.
Means & Strategies: Certain large financial companies are required to prepare and submit annually to the FDIC and FRB resolution plans, or “living wills,” demonstrating that they could be resolved in a rapid and orderly manner under the Bankruptcy Code (or other applicable insolvency regime) in the event of material financial distress or failure. Among other things, the resolution plans must identify each firm’s critical operations, core business lines, and the key obstacles to a rapid and orderly resolution. The FDIC and FRB share responsibility for reviewing the plans, assessing informational completeness and resolvability under the Bankruptcy Code, identifying and requiring firms to address any shortcomings, and providing firms with guidance on the submission of future plans. The FDIC has a complementary rule that requires certain IDIs to periodically submit resolution plans that would enable the FDIC, as receiver, to resolve their failure in an orderly, least-costly manner.
The FDIC’s review of resolution plans is intended to improve the resolvability of bank holding companies (and other designated financial companies) through the bankruptcy process and their subsidiary IDIs through the FDIC’s traditional resolution processes as deposit insurer. These reviews enhance the FDIC’s ability to prepare for possible large resolutions and its understanding of how the FDIC’s resolution authorities could be best used. The FDIC has established on- and off-site monitoring and risk assessment programs that support the FDIC’s review of the resolution plans submitted by these companies. In addition, the FDIC employs multidisciplinary teams that include both supervisory and receivership management expertise in the review of these plans. The FDIC also collaborates closely with the primary federal supervisors for the affected IDIs in the review of these plans.
External Factors: The rapid and orderly resolution of a large, complex financial institution under either bankruptcy or Orderly Liquidation Authority may be complicated by legal and operational concerns that stem from the cross-border operations of many large, complex financial institutions. The FDIC actively works with foreign authorities to address these issues.
In addition, the sheer size and complexity of these firms pose legal and operational challenges to their resolution. Preplanning and structural and operational reforms by these companies are essential to achieving a rapid and orderly resolution under any legal framework.
4.2 In the event of the failure of a large, complex financial institution, the FDIC carries out the resolution in an orderly manner in accordance with statutory mandates.
Means & Strategies: Large, complex financial institutions in the United States historically have been organized under a holding company structure, with a top-tier parent and operating subsidiaries that comprise hundreds, or even thousands, of interconnected entities that share funding and support services and span legal and regulatory jurisdictions across international borders. Functions and core business lines often are not aligned with individual legal entity structures, and critical operations cross legal entities and jurisdictions, with funding dispersed among affiliates as needs arise. These integrated legal structures present obstacles to the orderly resolution of one part of the company without triggering a costly collapse of the entire company and potentially transmitting adverse effects throughout the financial system.
To improve the ability of firms to be resolved in bankruptcy, the FDIC and FRB have worked closely with firms, and provided detailed feedback regarding key issues and obstacles to orderly resolution in bankruptcy. In response, firms have made significant changes to their operations and legal structure. The agencies also have fostered significant public transparency surrounding the resolution planning process to improve the public’s understanding of the progress that has been made. In addition to taking steps to improve resolvability under bankruptcy (the statutorily preferred option), the FDIC has been preparing contingency plans for firms to be resolved under the OLA, should that be necessary to protect U.S. financial stability.
To ensure the FDIC’s operational readiness to conduct the resolution of a large, complex financial institution, the FDIC continues to update and refine its firm-specific contingency plans. In addition, the FDIC is developing operational procedures for administration of a receivership, if necessary. The FDIC conducts simulations and tabletop exercises and undertakes joint contingency planning with other U.S. and foreign regulatory authorities to enhance communications and operational readiness, and it is exploring other opportunities to collaborate with U.S. and foreign authorities to ensure effective coordination and cooperation in a resolution.
In addition, the FDIC, together with other U.S. financial regulatory agencies, continues to develop its relationships with key regulatory authorities in other countries to facilitate closer coordination and cooperation in the event of the failure of a global SIFI. The FDIC also analyzes emerging issues and is enhancing its understanding of the legal and policy structures in other countries that might affect a rapid and orderly resolution.
The FDIC established the Systemic Resolution Advisory Committee to advise on the potential effects the failure of a large, complex financial institution would have on financial stability and economic conditions. Members of the Advisory Committee bring a wide range of knowledge and experience to resolution-related issues, including expertise in managing complex firms, administering bankruptcies, working within different legal jurisdictions, and understanding the application of accounting rules and practices.
External Factors: The specific facts surrounding the failure of a large, complex financial institution may affect the FDIC’s ability to execute a resolution as planned, especially considering the complex and interconnected nature and global reach of these firms. As part of its contingency planning efforts, the FDIC will seek to mitigate this risk by collecting and maintaining comprehensive, up-to-date information on these institutions that will support a rapid and orderly resolution, if that becomes necessary.