|Program Title||Federal Deposit and Insurance Corporation: Regulation and Examination|
|Department Name||Federal Deposit Insurance Corp|
|Agency/Bureau Name||Federal Deposit Insurance Corporation, activities|
|Assessment Section Scores||
|Program Funding Level
|Year Began||Improvement Plan||Status||Comments|
|Year Began||Improvement Plan||Status||Comments|
Measure: Meets goals for internal efficiency performance measures, as verified.
Measure: Meets goals for internal output performance measures, as verified.
|Section 1 - Program Purpose & Design|
Is the program purpose clear?
Explanation: FDIC's regulation and examination program ensures the safety and soundness of FDIC-supervised institutions, protects consumer rights, and ensures that FDIC-supervised institutions invest in their communities.
Evidence: FDIC Strategic Plan 2005-2010: pages 2 and 7. http://www.fdic.gov/about/strategic/strategic/index.html
Does the program address a specific and existing problem, interest, or need?
Explanation: Congress created the FDIC with the Banking Act of 1933 to maintain stability and public confidence in the nation's banking system. In addition to providing deposit insurance for 8,560 banking and thrift institutions, the FDIC supervises approximately 5,200 state-chartered banks that are not members of the Federal Reserve System (non-member banks). With over $2.16 trillion in assets, the safety and soundness of these institutions is vital to the stability of the U.S. economy. The FDIC is also the primary federal regulator of state-chartered industrial loan corporations (banks owned by non-bank corporations). In addition to its responsibility as primary regulator to many state-chartered banks, the FDIC is also the back-up federal regulator of all FDIC-insured financial institutions.
Evidence: FDIC Strategic Plan 2005-2010; FDIC Quarterly Banking Profile, September 2007, http://www2.fdic.gov/qbp/2007sep/qbp.pdf.
Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?
Explanation: FDIC shares regulation and examination responsibilities over depository institutions with the Federal Reserve Board (FRB), Office of Thrift Supervision (OTS), and the Office of the Comptroller of the Currency (OCC), and state regulators. FDIC is the primary federal regulator of state-chartered banks that are not members of the Federal Reserve System, which account for 58% of all banking institutions, but only 19% of industry assets. The FDIC also has backup regulatory authority over all FDIC-insured financial institutions. In all cases, the FDIC shares regulatory authority over its supervised institutions, either in combination with a state regulator or with the "lead" federal regulator. In 2005, the GAO published a report that described the inherent inefficiencies and complexities of the shared regulatory structure, and advocated consolidation of the existing financial regulatory structure. The Treasury Department's Blueprint for a Modernized Financial Regulatory Structure examined the current system of bank regulation recommending that bank supervision authorities be consolidated within one prudential regulator. Though the Blueprint recommended establishing a Federal Insurance Guarantee Corporation that would operate much as the FDIC's deposit insurance program does today, that new entity would not have additional regulatory authority as the FDIC does today.
Evidence: FDIC Strategic Plan 2005-2010; GAO: Financial Regulation: Industry Changes prompt need to reconsider U.S. Regulatory Structure, Oct 2005. Information on the Treasury Blueprint for a Modernized Financial Regulatory Structure is available on the Treasury Department's website at: http://www.treas.gov/ CBO: Options for Reorganizing Federal Banking Agencies, Sept. 1993, http://www.cbo.gov/ftpdocs/64xx/doc6438/93doc167.pdf (see Table 2, page 7). http://www.treas.gov/press/releases/reports/Blueprint.pdf
Is the program design free of major flaws that would limit the program's effectiveness or efficiency?
Explanation: Because FDIC shares overlapping regulatory and examination responsibilities with other federal and state agencies, the regulatory system as a whole is inherently inefficient. The current structure requires a great deal of coordination between the various regulatory authorities (Federal and State) in order to ensure that standards are applied consistently across the industry. This interagency process can draw out the timeframe for implementation of new regulations and supervisory efforts because regulators must reconcile differing points of view to come to a common framework for implementation. Although the regulators have established a formal structure to manage this interagency process through the Federal Financial Institutions Examination Council (FFIEC), there is still a great deal of work that must be done behind the scenes to coordinate any major rulemaking or joint supervisory action. Federal examination procedures have been standardized by the efforts of the FFIEC and overall the exam process is much more comparable across regulators than it was in the 1980s or early 1990s. Overall, the exam program at FDIC and its fellow regulators is well-designed to provide in-depth review of an institution's safety and soundness. There has been some discussion in the academic literature about the potential for conflicts of interest by integrating the insurance function and the supervisory function in the same entity. These papers have postulated that combining these two functions could lead to incentives for examinations to be more lenient in order to protect the insurance funds from taking expenses for potential losses. Although this was one of the causes of the S & L crisis in the late 1980s, there has been no evidence that this has occurred in the case of FDIC since the enactment of deposit insurance reform.
Evidence: FFIEC: http://www.ffiec.gov/ ; Edward J. Kane, "How Incentive-Incompatible Deposit Insurance Funds Fail" NBER Working Paper #2836, Feb 1989 http://www.nber.org/papers/w2836.pdf; Glenn Hoggarth, Patricia Jackson and Erlend Nier , "Banking crises and the design of safety nets" Journal of Banking & Finance, Volume 29, Issue 1, January 2005, Pages 143-159; Asli Demirg????-Kunt, and Enrica Detragiache "Does deposit insurance increase banking system stability? An empirical investigation" Journal of Monetary Economics, Volume 49, Issue 7, October 2002, Pages 1373-1406; Armen Hovakimian, Edward Kane, and Luc Laeven, " How Country and Safety-Net Characteristics Affect Bank Risk-Shifting" Journal of Financial Services Research, Volume 23, No. 3, June 2003, Pages 177-204
Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?
Explanation: FDIC's regulation and examination program is focused on promoting industry stability and consumer rights. The examination program is conducted on a risk-adjusted basis - therefore institutions with a relatively higher perceived risk due to a number of metrics, including previous exams and off-site monitoring will be subjected to a greater degree of scrutiny. However, based upon a detailed review of the overall examination program, FDIC management have decided to retool the risk-based exam program to provide greater examiner discretion in cases where circumstances may have changed, or more investigation seems necessary. There is one aspect of the exam program which could use improvement, related to an imbalance in the funding of FDIC's examinations. FDIC's operations are funded almost entirely from income earned on the Deposit Insurance Fund (DIF) and from premiums paid into the DIF by insured depository institutions. Therefore, the cost of banking supervision is paid for by the banking industry and not U.S. taxpayers. However, this also means that the cost of FDIC's supervisory activities is borne by all banks, even though many of the banks who are paying into the fund are not primarily regulated by the FDIC and often pay separate examination assessments to their primary regulator. This subsidization of FDIC's examination program by all insured institutions means that some costs are shifted away from the (typically smaller) institutions that are the focus of the FDIC's supervisory efforts. This inequity could be resolved by funding all regulatory activities through the same system (either through direct assessments on all banks or by funding all exams through the Deposit Insurance Fund, and charging increased premiums to make up those costs), rather than having a hybrid system where some institutions pay for exams and others are subsidized.
Evidence: Strategic Plan 2005-2010, page 20; About FDIC: http://www.fdic.gov/about/learn/symbol/index.html.; American Banker "FDIC to Undo Limits on Examiner Discretion" January 3, 2008 http://www.americanbanker.com/article.html?id=200801026T8XX6WH (subscription required)
|Section 1 - Program Purpose & Design||Score||60%|
|Section 2 - Strategic Planning|
Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?
Explanation: The supervisory program's long-term strategic goals are to: 1) ensure that FDIC-supervised institutions are safe and sound and 2) protect consumer rights and ensure that FDIC-supervised institutions invest in their communities. There are a number of "strategic objectives" that directly support the long-term goals, although these are not specific and quantitative in ways that can be benchmarked. FDIC's Annual Performance Plan 2007 contains the following three strategic objectives: 1) FDIC-supervised institutions appropriately manage risk 2) FDIC-supervised institutions comply with consumer protection, the Community Reinvestment Act (CRA), and fair lending laws 3) Consumers have access to easily understood information about their rights and the disclosures due them under consumer protection and fair lending laws.
Evidence: FDIC's Annual Performance Plan 2007 pp 22-25
Does the program have ambitious targets and timeframes for its long-term measures?
Explanation: The FDIC's supervisory program sets its target as doing its best to ensure that its regulated institutions operate in a safe and sound manner and fulfill their responsibilities to treat consumers fairly and to invest in redevelopment in accordance with the requirements of the Community Reinvestment Act. As noted above, these goals are not specific and quantifiable although they do relate directly to the agency's core mission. There are a number of individual criteria which institutions must meet during the examination process in order to be certified as receiving a favorable rating under the FDIC's supervisory program. The FDIC's staff constantly monitors the banks via a variety of indicators to ensure that they continue to meet these standards. It is an ambitious effort to consistently monitor the banking system for potential problems, although specific information about the scope and effectiveness of these efforts is not easily available publicly. Specific information on the eventual ratings of institutions and the issues involved are not made public, but are kept confidential as part of the exam process.
Evidence: 2007 Annual Performance Plan, pages 24-46.
Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?
Explanation: The FDIC has developed an extensive internal monitoring system or "balanced scorecard". This system monitors performance of different sections of the Corporation's supervisory program by tracking information about various components of the exam process. For the exam program, management in FDIC's Division of Supervision and Consumer Protection track the average length of exams, turnaround time for exam reports and examiner time involved in conducting exams, and compare that information against benchmarks which are based on historical experience and goals set forth by Corporation management. Overall success in the internal monitoring system is measured through tracking ratings migration (i.e. changes in ratings) in the three types of exams FDIC performs - safety and soundness, regulatory compliance and consumer protection, and Community Reinvestment Act compliance - which is then weighted by size of assets of the institutions involved. This information is not made publicly available, but receives extensive internal attention, and helps management keep on top of the issues the Corporation must manage to achieve its mission. In addition, the FDIC maintains an internal Quality Assurance unit which conducts regular reviews of the examination process and ensures consistent application of examination standards across the FDIC's six regions and their associated territories. In its public documents, FDIC sets out a number of annual goals that support the program's overall purpose. These annual goals are expressed as targets in the FDIC's annual performance plan. Targets that FDIC tracks in its performance plan are primarily output-focused rather than outcome-focused. For example, one annual goal is to complete 100 percent of required risk management examinations, but the measure says nothing about the impact of the exams. There is also a target to complete follow-up exams in areas where issues were identified in an initial examination report within a year. This asserts that additional corrective action will be taken in cases where it is found necessary, but there is not (to take one example) measurement of how many follow-up examinations find that issues are (or are not) being addressed satisfactorily. In addition, in contrast to its fellow regulators the FDIC does not track efficiency measures for its programs (i.e. cost of supervision relative to assets of supervised institutions) in its public documents. The FDIC does report on overall spending versus the overall level of deposits in insured institutions, but that measure covers all FDIC costs and is not specific to the supervision program. Despite the differences between the FDIC's internal and external performance reporting, it is clear that FDIC management have embraced the use of outcome-based performance information to drive decisionmaking, and the Corporation has agreed to consider whether to incorporate more information from its internal scorecards in its external performance plans.
Evidence: FDIC 2006 Annual Report, pages 39-42; FDIC 2007 Annual Performance Plan, pages 24-46;
Does the program have baselines and ambitious targets for its annual measures?
Explanation: As mentioned above, the FDIC has a well-integrated internal monitoring system to monitor its progress toward specific performance metrics in its examination program. This includes baselines and targets based upon historical experience and management decisions taking into account current conditions in the industry. However, this information is not released publicly outside of the Corporation. In contrast, the targets contained in FDIC's publicly available documents - its annual report and performance plan - are often very qualitative in nature. For example, the FDIC has a target of "continuing preparatory activities related to the implementation of new capital requirements." Setting qualitative targets makes measuring progress over time (especially over a period of years) very difficult. In cases where the FDIC does have quantitative external targets for its supervision program(such as performing 100% of required risk management exams), these targets are output-based rather than outcome-based - i.e. they indicate a level of effort rather than a level of results. The FDIC's IG has released a report recommending that FDIC management provide more specific performance goals and information in its publicly-available performance plans.
Evidence: 2006 Annual Report, pages 39-42; 2007 Annual Performance Plan, pages 22-46. IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf
Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?
Explanation: FDIC's partners are the Office of Thrift Supervision, Office of the Comptroller of the Currency, the Board of Governors and regional banks of the Federal Reserve, the National Credit Union Administration and State regulators. FDIC works closely with these regulators through the Federal Financial Institutions Examination Council(FFIEC), and they jointly cooperate to improve the overall supervisory process.
Evidence: FDIC 2007 Annual Performance Plan, Page 67-70
Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?
Explanation: The FDIC IG conducts numerous evaluations and audits of FDIC's programs throughout the year. Among these have been assessments of the FDIC's interaction with state regulators, the FDIC's system of compliance examinations, and the implementation of the FDIC's risk-based examination system. The GAO has recently completed an assessment of the FDIC's implementation of prompt corrective action in its supervisory regime, and the FDIC's human capital initiatives.
Evidence: 2006 Performance Plan, page 63; FDIC-IG Division of Supervision & Consumer Protection's Risk-Focused Compliance Examination Process, Sept 2005, Report 05-038; FDIC-IG Audit of the Implementation of the Risk-Focused Examination Process, May 2000, Report 00-016; FDIC-IG FDIC's Reliance on State Safety and Soundness Examinations, March 2004, Report 04-013; GAO FDIC: Human Capital Risk Assessment Programs Appear Sound, but Evaluations of their Effectiveness Should Be Improved, Feb 2007 GAO-07-255; GAO Deposit Insurance: Assessment of Regulators' Use of Prompt Corrective Action Provisions and FDIC's new Deposit Insurance System, Feb 2007 GAO-07-242; GAO Financial Market Regulation: Agencies Involved in Consolidated Supervision Can Strengthen Performance Measurement and Collaboration, March 2007 GAO-07-154
Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?
Explanation: The Corporation is accountable to its Board for its annual budget, and therefore the Corporation's budget is closely tied to the priorities of the Board and (by extension) the accomplishment of FDIC's strategic goals. As evidenced by the most recent (2008) Corporate Budget, budget requests are justified according to the assessed needs of the Corporation in fulfilling its responsibility to conduct robust examinations of its supervised institutions and working to improve consumer protection and regulatory compliance within the industry. There is also evidence that the FDIC's budget process has become more results-driven in recent years. A 2005 report by the IG concluded that, "The FDIC has made progress in integrating budget and performance goal information. For example, in developing the 2005 corporate operating budget, the FDIC used a more integrated planning and budgeting process that was an improvement over the 2001 CPC wherein the staffing, budgeting, and planning processes overlapped and were not as well integrated."
Evidence: 2008 FDIC Corporate Budget, http://www.fdic.gov/news/board/dec19budget1.pdf; 2007 Annual Performance Plan; FDIC IG Follow-up Evaluation of the FDIC's Corporate Planning Cycle, page 20, http://fdicig.gov/reports05/05-032.pdf.
Has the program taken meaningful steps to correct its strategic planning deficiencies?
Explanation: The FDIC has made great efforts to improve its strategic planning process and link that effort to its budgetary process. The Corporation has developed an integrated internal scorecard directly linked to its major goals and strategic objectives. Corporation management uses this system to assess program execution, and links management performance assessments and pay directly to the fulfillment of certain benchmarks and goals in the internal reporting system. However, although the Corporation has made significant strides in implementing an internal performance measurement system, that effort has not yet "trickled down" to the Corporations' external performance reporting. A 2007 IG report on FDIC's performance measures highlights that FDIC still has some way to go in this (external) process. Although the FDIC acts in accordance with the requirements of GPRA by reviewing and updating its Strategic Plan at least every three years and publishing an Annual Performance Plan, the measures that it includes in the external performance plan are focused on output rather than outcomes. Although FDIC is understandably concerned about maintaining the confidentiality of certain data related to its exam process, FDIC staff can continue to work to improve the Corporation's external reporting systems to include measures that meaningfully reflect the results of its activities, while maintaining the confidentiality that is important to its work.
Evidence: Strategic Plan 2005-2010; 2006 Annual Report, page 37; IG Follow-up Evaluation of the FDIC's Corporate Planning Cycle, http://fdicig.gov/reports05/05-032.pdf.
Are all regulations issued by the program/agency necessary to meet the stated goals of the program, and do all regulations clearly indicate how the rules contribute to achievement of the goals?
Explanation: The FDIC promulgates regulations based upon statutory requirements (such as to implement recent military payday lending legislation or the Financial Services Regulatory Relief Act of 2006), or as prompted by safety and soundness concerns. Increasingly the FDIC issues regulations jointly with the other federal banking regulators (OCC, OTS and the Fed), after an extensive interagency consultation process. Public comment is sought on all major regulations, and on many (though not all) guidance documents. In addition, the FDIC led the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) project, an interagency initiative established by the federal financial institution regulatory agencies to review all regulations that impose a burden on the banking industry. Through the Federal Financial Institutions Examination Council, regulators have completed a review to identify and eliminate any regulatory requirements that are outdated, unnecessary or unduly burdensome, as mandated by EGRPRA, and have presented their findings to Congress, who enacted several of their recommendations as part of the Financial Services Regulatory Relief Act of 2006.
Evidence: 2007 Annual Performance Plan; Economic Growth and Regulatory Paperwork Reduction Act: Joint Report to Congress, http://www.egrpra.gov/
|Section 2 - Strategic Planning||Score||100%|
|Section 3 - Program Management|
Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?
Explanation: FDIC uses a number of tools to assess potential risk in the financial institutions it supervises. The FDIC's centralized Risk Analysis Center monitors and analyzes potential risks to the Deposit Insurance Fund and assesses overall safety and soundness of FDIC-insured institutions. FDIC also collects quarterly Reports of Condition & Income (call reports) that detail the financial condition of all supervised institutions. FDIC staff use proprietary monitoring systems to analyze the results of these call reports, comparing them with on-site-exam results to highlight discrepancies for further review. In addition, FDIC performs safety and soundness examinations of its approximately 5,200 supervised institutions every 12-18 months. Depending on the size of the institution and the certification of State regulators, FDIC may alternate examination responsibility with State regulators, conduct the exams jointly with State regulators, or perform the exams itself. The exams assess six different components of an institution's financial condition and operations: Capital adequacy; Asset quality; Management, Earnings, and Liquidity; and Susceptibility to market risk. Institutions are rated on a scale from 1 (strong) to 5 (unsound) in each component. The ratings for each component are then combined into a single 1 to 5 "CAMELS" rating, which FDIC uses to judge the overall financial condition of that institution. The FDIC performs risk-focused exams to effectively target its supervisory resources and focus more attention on institutions with potential problems. In addition, FDIC examinations adhere to guidelines from the Federal Financial Institutions Examination Council, which provides a standardized "Uniform Financial Institution Rating System" for all Federal and State financial regulators. This permits direct comparability of results between FDIC exams and exams of institutions overseen by other regulatory authorities. The FDIC conducts a similar, though separate, process when examining banks for compliance with consumer protection and community investment requirements. The FDIC Division of Supervision and Consumer Protection has a risk-based process whereby consumer complaints, past history and a range of other factors are combined to determine which banks to examine in a given year. Although the required exam cycle is generally every 3 years in the compliance area and longer for smaller institutions that fit a lower risk profile (rather than 12-18 months for safety and soundness exams), the FDIC attempts to reach a wide sample of institutions on a regular basis. Similar to the process for safety and soundness exams, there have been efforts made to standardize certain compliance exam procedures across the various regulators as well. In addition, as described in Question 2.3, the FDIC's supervision program has an integrated internal performance monitoring system which Corporation management use to assess the program's status.
Evidence: Strategic Plan 2005-2010, pages 13-14; FDIC Risk Management Manual of Examination Policies, http://www.fdic.gov/regulations/safety/manual/section1-1.html#examination.
Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?
Explanation: A recent IG evaluation of the FDIC's use of performance measures asserts that manager performance evaluations and compensation are tied to the fulfillment of internal corporate performance objectives. Manager's performance is monitored via the internal scorecard system discussed in questions 2.3 and 3.1, and they are held accountable for the results observed in the office(s) they oversee.
Evidence: IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf
Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?
Explanation: FDIC reviews spending variances on a continuous basis and provides an analysis of spending variances to the FDIC Board of Directors on a quarterly basis. The Quarterly CFO Report details spending variances by expenditure. The FDIC IG performs periodic reviews of FDIC's financial management and has found that where issues are identified, FDIC management has been quick to respond to adjust its procedures accordingly. FDIC has also recently introduced a new integrated cost-accounting system which provides real-time, searchable information on current spending to aid management decisionmaking and tracking of expenditures.
Evidence: Strategic Plan 2005-2010, page 20; CFO Report to the Board: http://www.fdic.gov/about/strategic/corporate/index.html#2006
Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?
Explanation: The FDIC's supervision program has an extensive internal scorecard to measure program execution against specified internal benchmarks. These benchmarks are consistently updated and reassessed given the condition of the financial industry. For example, the FDIC has a "MERIT" program to apportion examination resources among smaller institutions based upon the risk rating of those institutions. However, given recent uncertainty in the financial industry FDIC leadership has changed the parameters of the program to provide examiners additional freedom to pursue potential issues at the examiners' discretion. This internal scorecard is closely linked to the FDIC's internal accounting system, the New Financial Environment, which allows management to identify areas where cost savings can be identified, and assess the relative efficiency of FDIC's various operating units. This has also allowed a couple of major internal projects to be completed on time and under budget (including the FDIC's new office complex in Arlington, Virginia). However, despite the wealth of internal data, the FDIC does not currently report efficiency data for individual programs in its annual performance documents or annual report.
Evidence: Strategic Plan 2005-2010; FDIC 2007 Annual Performance Plan; IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf
Does the program collaborate and coordinate effectively with related programs?
Explanation: The complex financial system requires FDIC to cooperate with a number of domestic and international entities. At the Federal level, FDIC, OTS, OCC, FRB, and NCUA coordinate regulation and policy through the Federal Financial Institutions Examination Council (FFIEC). For example, in 2006 the FFIEC issued a jointly produced examination manual to ensure the consistent application of the Bank Secrecy Act to all federally regulated depository institutions. Due to its role as a regulator of state-chartered banks, the FDIC also has extensive interaction with state regulatory officials, and these relationships are crucial to the effective implementation of its core mission. The FDIC works closely with state regulators to coordinate exam schedules and processes, cooperate in the preparation, execution and follow-up to examinations of financial institutions, and jointly address potential problems in state-chartered banks which are identified during FDIC exams. The FDIC IG has conducted a number of reviews of FDIC's interaction with state regulatory authorities, and has found that cooperation to be generally effective, although the IG has suggested some areas for improvement of cooperation, such as better integration of risk-based examination principles in state examinations. Internationally, FDIC participates in the Basel Committee on Banking Supervision, a forum for international cooperation on financial institution supervision. The Basel Committee has agreed upon a set of new international banking standards (commonly referred to as the Basel II Capital Accord). Through the FFIEC, the federal regulatory agencies have worked with the banking industry to understand the impact of new regulations and to guide the implementation process. In addition, FDIC's Annual Performance Plan outlines the shared performance goals among the federal banking agencies.
Evidence: 2007 Annual Performance Plan, page 67-70; Bank Secrecy Act Examination Manual, http://www.ffiec.gov/bsa%5Faml%5Finfobase/documents/BSA_AML_Man.pdf. FDIC IG Audit Report - FDIC's Reliance on State Safety and Soundness Examinations, March 26, 2004 Report No 04-013
Does the program use strong financial management practices?
Explanation: FDIC programs' financial management is evaluated and audited by the IG. In addition the GAO audits FDIC's insurance fund and internal controls. These reports have found no material weaknesses in FDIC's financial management practices. In addition, the FDIC has just completed implementation of an integrated cost-accounting system, the New Financial Environment, which allows Corporation management almost real-time information about current spending in any program, office or activity, sortable by a wide range of criteria. This new system should help the Corporation continue to improve its financial management capability.
Evidence: GAO-06-146 Financial Audit: Federal Deposit Insurance Corporation Funds 2005 and 2004; 2006 Annual Report, pages 96-101 & 106-107.
Has the program taken meaningful steps to address its management deficiencies?
Explanation: The IG identifies management deficiencies through its many evaluations and audits of FDIC programs. Based on these evaluations, FDIC management presents a timetable for resolving the issue. The Annual Report highlights all IG audits and FDIC's progress at resolving these issues. The implementation of the FDIC's new internal management scorecard as well as the Corporation's integrated cost accounting system has further helped the Corporation improve its internal management practices.
Evidence: 2006 Annual Report, pages 126-133; 2007 Annual Performance Plan
Did the program seek and take into account the views of all affected parties (e.g., consumers; large and small businesses; State, local and tribal governments; beneficiaries; and the general public) when developing significant regulations?
Explanation: The FDIC's rulemaking is guided by a Statement of Policy that outlines the following principles: 1) burdens imposed on the banking industry and the public should be minimized 2) regulations and policies should be clearly and understandably written 3) the public should have a meaningful opportunity to participate in the rulemaking process 4) common statutory and supervisory requirements should be implemented by the Federal financial institutions regulators in a uniform way 5) regulations and statements of policy should be reviewed periodically. The FDIC follows Administrative Procedures Act guidelines in issuing all significant regulations as proposals for public comment prior to finalizing those regulations, and has recently done so for some significant interagency guidance documents as well.
Evidence: 5000 - FDIC Statements of Policy: http://www.fdic.gov/regulations/laws/rules/5000-400.html#5000developmentar; According to the 2005 Annual Report (page 10) FDIC sought public comment on 56 regulations in 2005. Additionally, in 2005 FDIC, the FRB, and OCC made changes to the Community Reinvestment Act to lower the burden on small community banks. In 2006 and 2007, the FDIC and its fellow regulatory agencies issued guidance on proper disclosure and underwriting of non-traditional mortgage lending and adjustable rate mortgages which were issued for public comment prior to their finalization in September 2006 and July 2007, respectively.
Did the program prepare adequate regulatory impact analyses if required by Executive Order 12866, regulatory flexibility analyses if required by the Regulatory Flexibility Act and SBREFA, and cost-benefit analyses if required under the Unfunded Mandates Reform Act; and did those analyses comply with OMB guidelines?
Explanation: As an independent regulatory agency, the FDIC is subject to the requirements of the Regulatory Flexibility Act and SBREFA, and all FDIC regulations (whether or not issued jointly with the other regulators) contain regulatory flexibility analyses. In coordination with the Small Business Administration, FDIC has conducted significant training of its regulatory policy staff to ensure it complies properly with all requirements of the Regulatory Flexibility Act and SBREFA. In addition, FDIC has a "Statement of Policy" on development and review of FDIC regulations which states in part: "Burdens imposed on the banking industry and the public should be minimized" and "Prior to issuance, the potential benefits associated with the regulation or statement of policy are weighed against the potential costs." FDIC's releases of proposed and final regulations typically do not contain an FDIC-prepared regulatory impact analysis which quantifies costs and benefits of the rule. FDIC's own process to consider the costs and benefits of proposed regulations is largely based upon responding to issues which are raised during the public comment period on proposed regulations and major guidance. However, many of the FDIC's major regulations are issued on a joint basis with the other regulators, and often contain regulatory impact analyses prepared by the OCC or OTS.
Evidence: http://www.federalreserve.gov/GeneralInfo/Basel2/NPR_20060905/NPR/Basel_II_NPR.pdf FDIC Statements of Policy, Development and Review of FDIC Regulations and Policies http://www.fdic.gov/regulations/laws/rules/5000-400.html
Are the regulations designed to achieve program goals, to the extent practicable, by maximizing the net benefits of its regulatory activity?
Explanation: As an independent financial regulator, FDIC is not required to submit analyses demonstrating that regulations meet a "net benefit" standard. As such, FDIC has no formal policy in place to ensure that regulations are subjected to a "net benefit" test when being drafted and initially implemented. However, FDIC staff do pay close attention to the responses of the industry and other interested parties during the FDIC's rulemaking process and endeavor to ensure that regulations are structured to reduce unnecessary burdens while fulfilling the mandates of the agency's mission. In addition, as a part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), FDIC and the other bank regulatory agencies reviewed regulations to identify outdated, unnecessary, or unduly burdensome regulatory requirements, so there is also some "ex-post" assessment of the net benefits of particular regulations.
Evidence: FDIC Statements of Policy, Development and Review of FDIC Regulations and Policies http://www.fdic.gov/regulations/laws/rules/5000-400.html;
|Section 3 - Program Management||Score||100%|
|Section 4 - Program Results/Accountability|
Has the program demonstrated adequate progress in achieving its long-term performance goals?
Explanation: Although the FDIC's long-term strategic objectives are not specific and quantifiable in ways that can be benchmarked, the FDIC does have a robust and well-standardized program of examinations that assess depository institutions for safety and soundness as well as compliance with consumer protection requirements. This program has helped FDIC to promote a banking system with a strong capital foundation entering the latest period of uncertainty (late 2007). However, there are a wide range of factors which impact the financial condition of the banking industry, some well beyond the control of the regulators. The job of financial regulation is to help ensure banks mitigate the risks that they take, not to prevent them from taking risks in the first place. In the area of consumer issues, the FDIC has been a leader among the Federal regulators in advocating consumer rights and providing services and resources on financial literacy to the public. Despite this generally positive overview, the assessment and measurement of the results of the FDIC's supervisory efforts would be aided by new metrics of FDIC's performance that are more directly tied to the outcomes of the program. The reporting of appropriate outcome-based metrics could shed additional light on the role that specific FDIC activities have contributed to those results.
Evidence: 2007 Annual Performance Plan, pages 22-46; 2006 Annual Report, pages 39-42.
Does the program (including program partners) achieve its annual performance goals?
Explanation: The Annual Report details FDIC's success at achieving its annual performance goals as outlined by the Annual Performance Plan. In addition to its external goals, which are mainly output measures, the FDIC Supervision program has an extensive internal reporting system which tracks program outcomes against specific benchmarks. Although the results of these internal metrics are not currently reported in the Corporation's external reports (including on an aggregate basis), OMB has verified that FDIC has met its internal performance measures. FDIC's senior management has challenged the staff to achieve a number of "stretch" goals in the coming year, and the current environment in the banking industry has created a number of challenges of its own. The annual performance process has helped to focus the FDIC on its mission, though in the end there are a range of factors (including some well beyond regulators' control) which impact whether they are ultimately successful in achieving their objectives.
Evidence: 2007 Annual Performance Plan, pages 22-46; 2006 Annual Report, pages 39-42. IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf
Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?
Explanation: The FDIC has extensive program specific data internally that demonstrates improved efficiencies, but does not report this data externally. For example, FDIC does not report efficiency data on specific programs in its annual report or annual performance plan. However, FDIC does monitor efficiency internally on specific programs, which has been verified by OMB.
Evidence: 2007 Annual Performance Plan, pages 22-46; 2006 Annual Report, pages 39-42. IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf; GAO - FDIC: Human Capital and Risk Assessment Programs Appear Sound, but Evaluations of their Effectiveness Should Be Improved, Feb 2007 GAO-07-255
Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?
Explanation: The best approach for comparing program performance would be for all of the banking regulators to work together to define common goals and performance measures that would permit appropriate cross-organizational comparisons.
Evidence: FDIC Annual Performance Plan & Strategic Plan, OTS Strategic Plan, OCC Strategic Plan, FRB Strategic Plan, and NCUA Strategic Plan.
Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?
Explanation: The FDIC IG conducts a number of independent assessments and audits of FDIC's supervisory programs each year. Among these have been assessments of the FDIC's interaction with state regulators, the FDIC's system of compliance examinations, and the implementation of the FDIC's risk-based examination system. These assessments have shown that the FDIC's supervisory program has been effective in most of the areas surveyed, although they have identified a few areas where additional improvements could be made. Although an earlier GAO study found significant problems with the FDIC's supervisory programs, a series of assessments issued in 2006 and 2007 have been more positive about the FDIC's supervision of financial institutions, including the FDIC's implementation of prompt corrective action and the Corporation's staff training initiatives.
Evidence: 2006 Annual Report, pp 126-133 GAO - FDIC: Human Capital and Risk Assessment Programs Appear Sound, but Evaluations of their Effectiveness Should Be Improved, Feb 2007 GAO-07-255 IG Evaluation of the FDIC's Use of Performance Measures, May 2007, http://www.fdicig.gov/reports07/07-002E.pdf
Were programmatic goals (and benefits) achieved at the least incremental societal cost and did the program maximize net benefits?
Explanation: Overall, the FDIC's supervisory program is run relatively efficiently and is closely monitored via the internal reporting systems discussed above. FDIC's regulatory activities are similarly structured to reduce burdens to consumers and the industry while fulfilling the Corporation's mandate and strategic goals. However, as discussed in a 2005 GAO report, the duplication of activity and overlapping jurisdiction of the Federal financial regulators hampers the overall efficiency of the US system. While the FFIEC has made progress toward coordinating efforts between agencies, it is not clear that the current examination and regulation regime is as efficient or effective as possible.
Evidence: FDIC Annual Report 2006; FDIC 2007 Annual Performance Plan; GAO: Financial Regulation: Industry Changes Prompt Need to Reconsider U.S. Regulatory Structure, Oct 2005.;
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