The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
P- FDIC NEW S R ELEASE F E D E R A L D E P O S IT I N S U R A N C E C O R P O R A T IO N FOR IM M EDIATE RELEASE s PR-10-78 (2-7-78) K . XA rU </ fi» Statement by 0 George A. Le Maistre // ^ v>0# on the o / 1978 Administrative Budget of the Federal Deposit Insurance Corporation before the n a f ’t Committee on Banking, Housing and Urban Affairs United States Senate FEDERAL DEPOSIT IN SU R A N C E CORPORATION, 5 5 0 Seventeenth St. N.W., Washington, D.C. 20429 202-389-4221 Mr. C ha ir m an , X welcome the o p p o r t u n i t y t o d i s c u s s and review the F D I C ' s 1978 bu dg et w ith t h i s Committee. About one month ago you were s e n t d e t a i l e d r e s p o n s e s to w r i t t e n q u e s t i o n s c o n c e r n i n g the assum pti ons u n d e r l y i n g th e C o r p o r a t i o n ' s b u d g et g u i d e l i n e s f o r 1978, a breakdown o f e x p e n d i t u r e s and employment fo r the p e r io d 1967-1977, and a d e s c r i p t i o n o f t h e Cor p o t a t i o n ' s bank s u p e r v i s o r y and liq u id a tio n a c t i v i t i e s . F o llo w in g the a p p ro v a l o f th e C o r p o r a t i o n ' s 1978 bu dget on J a n u a r y 2 5 , 1978, you were pr o v id e d c o p i e s o f the C o r p o r a t i o n ' s 1978 manning t a b l e and a d m i n i s t r a t i v e e x p e n d i t u r e estim ates. In t h i s s t a t e m e n t I s h a l l review th e f u n c t i o n s and r e s p o n s i b i l i t i e s o f th e FDIC and how t h e y have expanded in r e c e n t y e a r s in resp on se to economic c o n d i t i o n s and new l e g i s l a t i o n . I s h a l l d i s c u s s a l s o t h e 1978 b u d g e t , f o c u s i n g in p a r t i c u l a r on i n c r e a s e s in manpower, r e v e n u e s , and e x p e n d i t u r e s over 1977. F in ally , I s h a l l e x p l a i n s t e p s t h a t a t e b e i n g taken to improve the c o s t e f f e c t i v e n e s s and q u a l i t y o f th e C o r p o r a t i o n ' s f u n c t i o n a l re sp o n sib ilitie s, 1• FDIC F u n c t i o n s P r o v i d i n g d e p o s i t i n s u r a n c e to commercial banks and s a v i n g s b a n k s , and s u p e r v i s i n g in sured s t a t e nonmember banks are the C o r p o r a t i o n ' s p rim ary r e s p o n s i b i l i t i e s . Other f u n c t i o n s i n c l u d e c o l l e c t i o n and d i s t r i b u t i o n o f s t a t i s t i c a l d a t a and i n f o r m a t i o n about b a n k s , consumer p r o t e c t i o n , i n v e s t o r p r o t e c t i o n , and p r e p a r a t i o n and d i s s e m i n a t i o n o f other k i n d s o f i n f o r m a t i o n such as r e s e a r c h s t u d i e s . 2 D urin g th e f i r s t dec ade o f t h e F D I C ' s e x i s t e n c e , th e d e p o s i t insurance fu n c tio n occupied c e n te r s t a g e . 395 i n s u r e d banks were c l o s e d . Between 1934 and 1943, S i n c e th en o n l y 147 i n s u r e d banks have been c l o s e d , a l t h o u g h i n th e l a s t few y e a r s t h e r e has been an i n c r e a s e i n t h e number and s i z e o f banks c l o s e d . In c o n n e c t i o n with t h e i n s u r a n c e f u n c t i o n , t h e FDIC (1) a d m i n i s t e r s th e d e p o s i t insurance! fu n d ; (2) e i t h e r a r r a n g e s f o r a n o t h e r bank t o assume t h e l i a b i l i t i e s and p u rc h a se some o f t h e a s s e t s o f a c l o s e d ba nk, pays o f f in s u r e d d e p o s i t o r s , or e s t a b l i s h e s a D e p o s i t I n s u r a n c e N a t i o n a l Bank; (3) e x t e n d s f i n a n c i a l a s s i s t a n c e ^ / t o reopen a c l o s e d bank or a v e r t the c l o s i n g o f an open bank when t h e c o n t i n u e d o p e r a t i o n o f th e bank i s e s s e n t i a l t o p r o v i d e adeq uate b a n k in g s e r v i c e i n t h e community; and (4) l i q u i d a t e s a s s e t s o f c l o s e d b a n k s. More r e c e n t l y , th e m a j o r i t y o f FDIC employees and r e s o u r c e s has been d ev o ted t o ex am in in g and s u p e r v i s i n g i n s u r e d s t a t e nonmember banks. While 67 p e r c e n t o f t h e 1978 e s t i m a t e d a d m i n i s t r a t i v e e x p e n d i t u r e s i s a c c o u n te d f o r by th e D i v i s i o n o f Bank S u p e r v i s i o n , a l l o c a t i o n o f over head ex p en ses such as employee b e n e f i t s , o f f i c e m ain ten an ce and b u i l d i n g r e n t a l f e e s would i n c r e a s e t h i s t o a p p r o x i m a t e l y 78 p e r c e n t . And, a t th e end o f 1977, 2,507 o f t h e Corporation' 3,591 em p lo y ees, or 70 p e r c e n t , were p a r t o f t h e D i v i s i o n o f Bank Supervision. A noth er 14 p e r c e n t o f t o t a l employees was i n v o l v e d in the l i q u i d a t i o n o f a s s e t s o f c lo se d banks. The D i v i s i o n o f Bank S u p e r v i s i o n i s a l s o an e x t e n s i v e u s e r o f the C o r p o r a t i o n ' s v a r i o u s s t a f f and s u p p o rt o p e r a t i o n s . For exam ple, abou 60 p e r c e n t o f t h e L e g a l D i v i s i o n ' s a c t i v i t i e s and 30 p e r c e n t o f data */ F i n a n c i a l a s s i s t a n c e can t a k e th e form o f l o a n s t o t h e ba nk, “ p u rc h a se o f a s s e t s from th e ban k, or d e p o s i t s p l a c e d w i t h th e bank. 3 p r o c e s s in g s e r v i c e s a r e d i r e c t l y r e l a t e d to s u p e r v i s o r y f u n c t i o n s . A c c o r d i n g l y , a f t e r r e a l l o c a t i n g the bu dgeted c o s t s o f such su pp ort a c t i v i t i e s , t h e F D IC * s bank s u p e r v i s o r y f u n c t i o n a c c o u n ts for 85 to 90 p e r c e n t o f e s t i m a t e d 1978 a d m i n i s t r a t i v e e x p e n d i t u r e s . Bank Supe r v i s i o n In r e c e n t y e a r s , new s t a t e and f e d e r a l l a w s , l e s s s t a b l e economic c o n d i t i o n s , and i n c r e a s e s in the type and c o m p l e x i t i e s of banking a c t i v i t i e s have a l l p l a c e d a d d i t i o n a l demands on F D I C ' s supervisory f u n c t io n . The economy d u r i n g th e p a s t s e v e r a l y e a r s has provided a much l e s s c o m f o r t a b l e environment than in the pr ev io u s d e c a d e . P r i c e f l u c t u a t i o n s in r e c e n t y e a r s have made b u s in e s s e n t e r p r i s e s more v u l n e r a b l e to the e n v iro n m e n t. money c o s t s , High i n c r e a s e d la b o r and m a t e r i a l c o s t s , an d, in some i n s t a n c e s , i l l - c o n c e i v e d p r o j e c t s have l e d to l o s s e s and b a n k r u p t c i e s in r e a l e s t a t e a c t i v i t i e s . In a d d i t i o n , ban kin g has become more c o m p e t i t i v e an d, as a r e s u l t , banks have o p e r a t e d on s m a l l e r m a r g i n s . Net income per $100 of a s s e t s ha s d e c l i n e d from .87 p e r c e n t in 1971 to .70 p e r c e n t in 1976. While ba n ker s sh ould have to work hard and sh ould have to t a k e r i s k s to earn a s a t i s f a c t o r y r e t u r n , a more c o m p e t i t i v e environment te n d s t o be a r i s k i e r one in which t o do b u s i n e s s . And, t h i s may have been exac erbated by more u n c e r t a i n t y in the economic en v iron m en t. I n c r e a s e s in t h e number and a s s e t s i z e o f banks s u p e r v i s e d by the FDIC a l s o have c o n t r i b u t e d to the need fo r more ex am iners and support s t a f f . Dur ing th e p a s t decade t h e number o f banks examined by the FDIC ha s i n c r e a s e d by about 1 ,3 0 0 , or 17.4 p e r c e n t , and t h e i r 4 a s s e t s have t r i p l e d in s i z e . While t h e r a t i o o f in su r ed nonmember banks per examiner d e c l i n e d from 7 . 0 in 1968 to 5 .1 in 1976, a s s e t s per examiner i n c r e a s e d from $127 m i l l i o n t o $185 m i l l i o n over the same per i o d . Loans a t t h e s e same i n s t i t u t i o n s i n c r e a s e d a t a s l i g h t l y f a s t e r r a t e th an t o t a l a s s e t s , b u t annual l o a n c h a r g e - o f f s i n c r e a s e d more than s i x t i m e s . T h i s d r a m a t ic i n c r e a s e c o r r e s p o n d s c l o s e l y w ith t h e p e r c e n t a g e i n c r e a s e in a s s e t s c l a s s i f i e d by PDIC e x a m i n e r s . Data on the number and volume o f a s s e t s o f problem banks would t e l l about th e same s t o r y . Loan e v a l u a t i o n consumes about 40 p e r c e n t o f examiner time in an a v e r a g e e x a m i n a ti o n and even more in banks with l a r g e amounts o f nonperforming and c l a s s i f i e d l o a n s . A l l o f t h e s e develo pm ents have r e q u i r e d an ex p a n s io n o f the C o r p o r a t i o n * s s u p e r v i s o r y and e x a m i n a ti o n d u t i e s . Because o f the i n c r e a s e d demands on examiner t i m e , th e C o r p o r a t i o n has ta k e n c e r t a i n s t e p s d u r i n g th e p a s t few y e a r s to use exam iners more e f f e c t i v e l y and e f f i c i e n t l y by c o n c e n t r a t i n g t h e i r r e s o u r c e s in a r e a s where th e y appeared to be most n eeded . Furth er improvements in p r o d u c t i v i t y ate l i k e l y to r e s u l t from a s tu d y p r e s e n t l y in p r o g r e s s a t the FDIC. E x am in ation p r o c e d u r e s , t r a i n i n g , and r e s o u r c e a l l o c a t i o n a re bein g a n a ly z e d to d e te r m i n e how examiner time can be used most e f f i c i e n t l y and whether c e r t a i n manpower s a v i n g a n a l y t i c a l t e c h n i q u e s can s u b s t i t u t e a d e q u a t e l y f o r some o f th e t r a d i t i o n a l a c t i v i t i e s performed by bank e x a m i n e r s . In 1976 and 1977 the D i v i s i o n o f Bank S u p e r v i s i o n changed n o l i c i e s p e r t a i n i n g to th e p r i o r i t i e s , f r e q u e n c y , and scope 5 o f exam inations. Top p c i o c i t y i s accorded now to t h e e x a m i n a ti o n o f banks w ith known s u p e r v i s o r y or f i n a n c i a l p r o b le m s . Such banks r e c e i v e a f u l l - s c a l e e x a m in a tio n a t l e a s t once e v e r y 12 months, with f o l l o w - u p e x a m i n a t i o n s or v i s i t a t i o n s a s n e c e s s a r y . For c e r t a i n b a n k s , f u l l - s c a l e and l i m i t e d e x a m i n a t i o n s are conducted on an a l t e r n a t i n g b a s i s . To q u a l i f y f o r a l i m i t e d e x a m i n a t i o n , commercial banks must have a s s e t s o f l e s s th an $100 m i l l i o n and mutual s a v i n g s banks must have a s s e t s o f l e s s than $500 m i l l i o n . Banks mee ti ng t h e s e c r i t e r i a must not have s u p e r v i s o r y or f i n a n c i a l problems and must meet c e r t a i n management, c a p i t a l , f i d e l i t y c o v e r a g e , e a r n i n g s , and i n t e r n a l r o u t i n e and c o n t r o l standards. L arger commercial banks and mutual s a v i n g s banks r e c e i v e a f u l l - s c a l e e x a m in a tio n e v e r y t i m e . The normal time frame between e x a m i n a t i o n s for th ose i n s t i t u t i o n s n o t p r e s e n t i n g f i n a n c i a l or s u p e r v i s o r y problems has been s t r e t c h e d out from 12 to 13 months, but a t no time may the i n t e r v a l between e x a m i n a t i o n s exc eed 24 months. working w e l l . These p o l i c y changes appear t o be N e v e r t h e l e s s , t h e y a r e b e i n g reviewed c u r r e n t l y to determined whether t h e c r i t e r i a for c o n d u c t i n g a l i m i t e d e x a m i n a ti o n should be m o d i f i e d . The fr e q u e n c y and scope o f th e l i m i t e d examina t i o n are a l s o under r e v i e w . A f t e r a p e r io d o f e x p e r i m e n t a t i o n and t e s t i n g , th e C o r p o r a t i o n r e c e n t l y i n s t i t u t e d a com pute rized f i n a n c i a l d a t a a n a l y s i s system d e sig n e d to monitor bank performance between e x a m i n a t i o n s . The I n t e g r a t e d M o n i to r in g System ( I M S ) , as i t i s c a l l e d a t th e FD IC , a l s o may prove u s e f u l in d e te r m i n i n g the f r e q u e n c y and scope o f 6 bank e x a m i n a t i o n s and in promoting a more e f f i c i e n t u t i l i z a t i o n o f manpower r e s o u r c e s . IMS i s d e s i g n e d to e n a b l e the C o r p o r a t i o n to zero in on t h o s e banks or th o s e p a r t i c u l a r a s p e c t s o f a b a n k ' s o p e r a t i o n t h a t e s p e c i a l l y m e r i t c l o s e r s u p e r v i s o r y a t t e n t i o n and to a l e r t th e C o r p o r a t i o n to th e p r e s e n c e o f a d e t e r i o r a t i n g s i t u a t i o n b e f o r e i t assumes s e r i o u s p r o p o r t i o n s , t h e r e b y f a c i l i t a t i n g a tim ely response. The FDIC ha s t a k e n o t h e r i n i t i a t i v e s and i s c o n t e m p l a t i n g further i n i t i a t i v e s to economize on manpower r e s o u r c e s and to i d e n t i f y and d e a l w ith s u p e r v i s o r y p r o b l e m s . S i n c e 1976 the FDIC has p a r t i c i p a t e d w ith t h e O f f i c e o f th e C o m p t r o l le r o f th e Currency and the F e d e r a l R eser v e in an annual review o f shared n a t i o n a l cred its. These a r e l o a n s a g g r e g a t i n g $20 m i l l i o n or more to one borrower which a r e p a r t i c i p a t e d in or shared by two or more b a n k s . The rev iew and c l a s s i f i c a t i o n o f t h e s e c r e d i t s i s conducted i n d e p e n d e n t l y o f t e g u l a r e x a m i n a t i o n s and i s th e r e s p o n s i b i l i t y o f s p e c i a l l y s e l e c t e d teams o f N a t i o n a l , F e d e r a l Reser ve and FDIC examiners. T h is r e v ie w g e n e r a l l y i s done on an annual b a s i s and e l i m i n a t e s t h e need for s e p a r a t e e v a l u a t i o n s d u r i n g t h e ex am inati on o f eac h bank p a r t i c i p a t i n g in the l o a n . Another r e c e n t development i s a change in f o c u s o f th e Washington O f f i c e a c t i v i t i e s in the D i v i s i o n o f Bank S u p e r v i s i o n . Increased emphasis has been p l a c e d on th e use o f e l e c t r o n i c d a t a p r o c e s s i n g methods in e x a m i n a t i o n s , m o n i t o r in g problem b a n k s , and the a n a l y s i s o f bank f i n a n c i a l s t a t e m e n t s , w h i l e r o u t i n e r e v ie w o f ex am in ation r e p o r t s has been s h i f t e d to R e g io n a l O f f i c e s . e l i m i n a t e d some d u p l i c a t i o n o f a c t i v i t i e s . The l a s t change has 7 E x a m in a tio n p r o c e d u r e s have been enhanced and updated thro ugh th e use o f automated bank e x a m in a tio n programs and sampling t e c h n i q u e s t h a t e n a b l e exam iners to co n d u c t a s t h o r o u g h , i f n o t more t h o r o u g h , e x a m i n a t i o n s in l e s s time than was p o s s i b l e b e f o r e . The automated programs a r e d e s i g n e d to a s s i s t th e e x a m i n a t i o n p r o c e s s in banks t h a t have automated a c c o u n t i n g s y s t e m s . The programs pe rm it ex am in ers t o use the b a n k ' s computet to s e l e c t and e v a l u a t e c e r t a i n l o a n d a t a on t h e b a s i s o f l o a n c o n d i t i o n , o r i g i n a t o r , e t c . N e e d le s s t o s a y , t h i s s a v e s c o n s i d e r a b l e time over t r a d i t i o n a l manual p r o c e d u r e s . In a d d i t i o n , where f e a s i b l e , sampling t e c h n i q u e s a t e b e i n g used to s e l e c t l o a n s fo r c r e d i t a n a l v s i s . I t is s t i l l to o e a r l y t o d e te r m in e j u s t how much t h e demands on s t a f f r e s o u r c e s w i l l be r e l i e v e d by eac h o f th e measures d i s c u s s e d above. B u t , i t i s ex p ected t h a t th e C o r p o r a t i o n ' s need to i n c r e a s e s t a f f in the f u t u r e w i l l be a p p r e c i a b l y l e s s than i t might be w i t h o u t t h e s e m o d i f i c a t i o n s and enhancements o f examina t i o n and s u p e r v i s o r y p r o c e d u r e s . C o n s i s t e n t w ith t h i s e x p e c t a t i o n , th e p r o j e c t e d i n c r e a s e in th e e x a m in a tio n f o r c e for 1978 t h a t i s r e l a t e d to s a f e t y and soundness i s about 70 p e r s o n s , a modest 4 p e r c e n t i n c r e a s e over th e p r e s e n t f i e l d e x a m in a tio n s t a f f o f 1 ,8 0 0 . T h is i n c r e a s e was p u r p o s e l y l i m i t e d pending the c o n c l u s i o n o f th e stu d y o f th e D i v i s i o n o f Bank S u p e r v i s i o n and t h e e v a l u a t i o n o f th e impact o f r e c e n t p o l i c y changes on manpower r e q u i r e m e n t s . Immediate r e s o u r c e demands from o t h e r a s p e c t s o f e x a m i n a t i o n , however, a t e s i z a b l e and t h e s e a r e d i s c u s s e d below under the g e n e r a l hea din g o f Consumer P r o t e c t i o n . I n c r e a s e s in examiner s t a f f and in the c o m p l e x i t y o f e x am in atio n p r o c e d u r e s have caused a tremendous growth in s t a f f 3 tim e devote d to t r a i n i n g new e m p lo y ees, r e t r a i n i n g commissioned exam in ers b e c a u se o f chan g es i n l e g i s l a t i o n , and t r a i n i n g more exam iners employed by s t a t e s and f o r e i g n c o u n t r i e s . Training r e q u i r e m e n ts measured in man-years have i n c r e a s e d much f a s t e r than t h e C o r p o r a t i o n ' s examiner f o r c e d u r i n g t h e l a s t f i v e y e a r s . Not c o u n t i n g i n s t r u c t o r t i m e , e x am in ers w i l l spend an e s t i m a t e d 70 many e a r s a t t e n d i n g t r a i n i n g c o u r s e s in 1978 compared w ith an estim a te d 26 man-years in 197 0 -7 1 . In 1978, 1,400 p e r s o n s , th e e q u i v a l e n t of t h r e e o u t o f e v e r y four f i e l d e x a m i n e r s , are sch ed u led to a t t e n d s p e c i a l c o u r s e s a t th e C o r p o r a t i o n ' s t r a i n i n g c e n t e r . Most o f these c o u r s e s l a s t about two to t h r e e weeks. In a d d i t i o n to the C o r p o r a t i o n ' s own t r a i n i n g n e e d s , commitments have been made to p r o v i d e t r a i n i n g f o r 190 s t a t e exam in ers i n 1978. T h i s r e p r e s e n t s an approximate 20 p e r c e n t i n c r e a s e over 1977. FDIC ab so rb s a l l t h e c o s t s o f c la s s r o o m f a c i l i t i e s , The i n s t r u c t i o n , and e d u c a t i o n a l m a t e r i a l s and 40 p e r c e n t o f t r a v e l , l o d g i n g , and s u b s i s tence expenses. The C o r p o r a t i o n f e e l s t h a t i t s in v estm en t in s t a t e examiner t r a i n i n g i s w orth w hile in terms o f b e t t e r s t a t e examination and s u p e r v i s i o n . I n many s t a t e s t h e FDIC and s t a t e exam iners conduct j o i n t or c o n c u r r e n t e x a m i n a t i o n s . The p r i n c i p a l d i f f e r e n c e between t h e two t y p e s i s t h a t one r e p o r t i s prepar ed f o l l o w i n g a j o i n t exami-j n a t i o n and two s e p a r a t e r e p o r t s a r e prepar ed f o l l o w i n g a c on cu rren t exam ination. I n b o t h t y p e s FDIC and s t a t e exam iners d i v i d e some or a l l o f th e e x a m i n a t i o n r e s p o n s i b i l i t i e s and s h a r e t h e i r f i n d i n g s . T h u s, i t i s in t h e C o r p o r a t i o n ' s i n t e r e s t to have h i g h l y t r a i n e d , q u a l i f i e d s t a t e ex am in ers because t h i s r e d u c e s th e need f o r the FDIC to em ploy, t r a i n , and pay more e x a m i n e r s . 9 Consumer P r o t e c t i o n The FDIC i s r e s p o n s i b l e for e n f o r c i n g in su red s t a t e nonmember bank c o m p l ia n c e w ith a number o f consumer p r o t e c t i o n , c i v i l r i g h t s , and other m i s c e l l a n e o u s laws and r e g u l a t i o n s , i n c l u d i n g the Truth in Lending A c t , F a i t C r e d i t R e p o rtin g A c t , F a i r Housing A c t , Equal C r e d i t O p p o r t u n i t y A c t , Home Mortgage D i s c l o s u r e A c t , e t c . The FDIC c a r r i e s o u t t h i s r e s p o n s i b i l i t y p r i m a r i l y th rou gh t h e ex am in ation and s u p e r v i s o r y p r o c e s s . In the p a s t , FDIC exam iners u s u a l l y checked for c o m p l ia n c e w i th t h e s e laws and r e l a t e d r e g u l a t i o n s d u r i n g th e c ou rse o f r e g u l a r bank e x a m i n a t i o n s . In May 1977, however, th e FDIC began a new program o f c o n d u c t i n g s e p a r a t e s p e c i a l i z e d e x a m in a tio n s d i r e c t e d s o l e l y a t d e t e r m i n i n g co m p lian c e w ith consumer laws and regulation s. These s e p a r a t e c o m p lia n c e e x a m i n a t i o n s are conducted by a c o rp s o f s p e c i a l i s t s c o n s i s t i n g o f t r a i n e d examiners a s s i g n e d for a six - m o n th p e r i o d on a r o t a t i n g b a s i s . Under t h i s program, each in su red nonmember bank i s sc hed ule d fo r a co m p lian c e e x a m i n a ti o n a t l e a s t once e v e r y 15 months. In a d d i t i o n , f o l l o w - u p e x a m i n a t i o n s or v i s i t a t i o n s a r e sc h ed u led as th e c i r c u m s t a n c e s may r e q u i r e in particu lar cases. In a d d i t i o n t o v a r i o u s a s p e c t s o f consumer o r o t e c t i o n , c o m p l ia n c e e x a m i n a t i o n s cover the Bank P r o t e c t i o n A c t , the C u rre n c y and F o re iq n T r a n s a c t i o n s R e p o r ti n g A c t , and emergency preparedn ess m e a s u r e s . In g o i n g to s e p a r a t e e x a m i n a t i o n s , i t was r e c o g n i z e d t h a t examiner time and t r a v e l would be i n c r e a s e d , b u t i t was f e l t a l s o t h a t s p e c i a l i z e d a t t e n t i o n would improve the q u a l i t y o f co m p lian c e e x a m in a tio n and p r o v i d e a b e t t e r working environment in which examiners c o u l d a d v i s e ba nkers on the i n t r i c a c i e s o f chan gin g r e g u l a t i o n s and la w s . 10 S e p a c a t e c o m p l ia n c e e x a m i n a t i o n s appear t o be working w e l l , but t h e y have s i g n i f i c a n t l y i n c r e a s e d manpower r e q u i r e m e n t s . P r e l i m i n a r y e s t i m a t e s o f manpower u s e , based on d a t a from October and November 1977, i n d i c a t e an a v e r a g e o f 30 manhours per compliance exam ination, e x c lu s iv e o f t r a v e l tim e. T h i s c o n t r a s t s w ith an e s t i m a t e d 13 manhours devoted to c o m p l ia n c e a c t i v i t i e s when th e y were p a r t o f t h e r e g u l a r e x a m in a tio n e a r l i e r hours in 1975 and 1976. re sp o n sib ilitie s w ill i n 1977 and about 9 And, i t seems l i k e l y t h a t c o m p lia n c e increase further in t h e f u t u r e . I f th e 15-month c o m p l ia n c e e x a m i n a t i o n c y c l e i s m a i n t a i n e d , 80 a d d i t i o n a l exam iners w i l l be r e q u i r e d on a f u l l - t i m e b a s i s . In a d d i t i o n , one f u l l - t i m e s e n i o r examiner and one j u n i o r l e v e l person in eac h o f t h e f o u r t e e n R e g io n a l O f f i c e s a r e b e i n g added d u r i n g 1978 to c o o r d i n a t e c o m p l ia n c e a c t i v i t i e s w i t h i n the r e g i o n and to handle t h e i n c r e a s i n g amount o f consumer and o t h e r c o m p l a i n t s . These 103 p o s i t i o n s a c c o u n t f o r 36 p e r c e n t o f t h e 300 new p o s i t i o n s added to the 1978 manning t a b l e . I n s u r a nce_and L i q u i d a t i o n The i n s u r a n c e r e l a t e d a c t i v i t i e s o f t h e F D IC , t h o s e most a s s o c i a t e d w ith t h e FDIC by th e g e n e r a l p u b l i c , a r e not combined into a s i n g l e d i v i s i o n or o f f i c e . However, th e a c t i v i t i e s o f c e r t a i n o f f i c e s or p e r s o n n e l c l e a r l y f a l l w i t h i n t h i s g e n e r a l f u n c t i o n . Most o f th e f i n a n c i a l a c t i v i t i e s r e l a t e d to c o l l e c t i o n o f i n s u r a n c e pre miums, l i q u i d a t i o n a c c o u n t i n g , and a d m i n i s t r a t i o n o f t h e d e p o s i t 11 in s u r a n c e fund ace l o c a t e d w i t h i n the C o n t r o l l e r ' s O f f i c e . Va.iuf 25 o e c c e n t o f the L e g a l D i v i s i o n ' s a c t i v i t i e s i s devoted to l i t i q a t i o n and othec work r e l a t e d to l i q u i d a t i o n s . A considerable portion o f the a c t i v i t i e s o f th e O f f i c e o f C o r p o rate A u d i t s d e a l s with 1 i a u i d a t i o n s ; o t h e r su p p o r t i s pr ovided by th e r e s e a r c h and d a ta p r o c e s s i n g a c t i v i t i e s o f the C o r p o r a t i o n and bv the E x e c u t i v e O f f i c e s . The a c t i v i t i e s o f the L i q u i d a t i o n D i v i s i o n ace c l o s e l y r e l a t e d to the i n s u r a n c e f u n c t i o n . As p r e v i o u s l y i n d i c a t e d , the L i q u i d a t i o n D i v i s i o n was t h e l a r g e s t p a r t o f th e FDIC d u r i n g i t s e a r l y y e a r s and, a t i t s peak in 1941, th e D i v i s i o n had about 1,630 employees, alm os t t w o - t h i r d s o f th e C o r p o r a t i o n ' s t o t a l work f o r c e . A f t e r 1942 the number o f bank f a i l u r e s d e c l i n e d a p p r e c i a b l y , and by 1950 the D i v i s i o n had fewer th an 100 employees and accounted for o n ly 8 p e r c e n t o f th e C o r p o r a t i o n ' s em plo y ees. During the 1960s and e a r l y 1970s t h e number o f bank c l o s i n g s averaged f i v e per y e a r . These banks were m o s t l y s m a l l and s t a f f remained r e l a t i v e l y s t a b l e . B egin n in g in l a t e 1973 th e number and e s p e c i a l l y the s i z e o f bank fa ilu r e s increased. th e l a r g e s t . The F r a n k l i n N a t i o n a l Bank f a i l u r e in 1974 was There were 13 c l o s i n g s in 1975 and 16 in 1976. in l i q u i d a t i o n ro se r a p i d l y , t e a c h i n q a peak o f $2.7 b i l l i o n Assets in 1976. L i q u i d a t i o n employment, i n c l u d i n g temporary em plo yees, reached a peak o f 630 in 1976. A s s e t s in l i q u i d a t i o n ace p r e s e n t l y about $2 .3 b i l l i o n and l i q u i d a t i o n employment i s about 490 — a p p r o x im a t e ly 14 p e r c e n t o f t o t a l employment. The FDIC a d m i n i s t r a t i v e budget i n c l u d e s o n l y the s a l a r i e s and r e l a t e d ex p en ses o f Washington O f f i c e s t a f f o f the D i v i s i o n . Thus, while the number o f person n el working for the L i q u i d a t i o n D i v i s i o n 12 ha s i n c r e a s e d s i g n i f i c a n t l y d u r i n g t h e p a s t s e v e r a l y e a r s , most o f t h i s i n c r e a s e has o c c u r r e d in the f i e l d where s a l a r i e s and expenses, r e n t a l f e e s , c e r t a i n l e g a l f e e s , a p p r a i s a l f e e s , e t c . a r e charged to s p e c i f i c l i q u i d a t i o n s or d i r e c t l y t o i n s u r a n c e e x p e n s e . Only 35 o f th e 490 L i q u i d a t i o n D i v i s i o n employees are in t h e Washington O ffice . The e x p e n s e s o f th e Washington O f f i c e alo n g w ith a sm all p o r t i o n o f t h e l i q u i d a t i o n f i e l d e x p e n s e s , such a s t r a i n i n g s e s s i o n s , a r e charged to the F D I C ' s a d m i n i s t r a t i v e bu dg et a n d , as a r e s u l t , th e L i q u i d a t i o n D i v i s i o n ' s b u d g e t a c c o u n t s f o r o n l y about 1 .5 p e r c e n t o f 1978 FDIC a d m i n i s t r a t i v e e x p e n s e s . When d i r e c t and i n d i r e c t s u p p o r t a c t i v i t i e s a l s o are taken i n t o a c c o u n t , and c e r t a i n overhead ex p en ses a r e a l l o c a t e d , i n s u r a n c e and l i q u i d a t i o n r e l a t e d a c t i v i t i e s ac c o u n t f o r about 6 p e r c e n t o f FDIC a d m i n i s t r a t i v e expenses. Because o f th e number, s i z e and c o m p l e x i t y o f th e a s s e t s t h a t th e C o r p o r a t i o n has had to p l a c e in l i q u i d a t i o n over th e p a s t s e v e r a l y e a r s , t h e s i z e and d i f f i c u l t y o f th e L i q u i d a t i o n D i v i s i o n ' s t a s k has i n c r e a s e d tre m e n d o u sly . T h i s r a p i d i n c r e a s e in r e s p o n s i b i l i t i e s and s t a f f h a s been handled smoo thly and c a p a b l y . Liquidation p r o c e d u r e s have been a d j u s t e d , s t a f f e x p e r t i s e has i n c r e a s e d and t r a i n i n g programs have been i n i t i a t e d resp o n sib ilities. in resp on se to t h e s e added At t h e p r e s e n t t i m e , th e C o r p o r a t i o n i s conducting two s t u d i e s d e s i g n e d to d e v e l o p and imolement a d d i t i o n a l ways o f making l i q u i d a t i o n p r o c e d u r e s s t i l l more e f f i c i e n t and e f f e c t i v e . One s tu d y i s fo c u s ed on d e l e g a t i o n s o f a u t h o r i t y in the L i q u i d a t i o n D i v i s i o n and developm ent o f g u i d e l i n e s f o r s e l l i n g a s s e t s , in c lu d in g c o n s i d e r a t i o n o f th e c o s t o f funds and the r i s k i n e s s o f i n d i v i d u a l 13 assets. The o t h e r s t u d y i s d i r e c t e d a t s t r e a m l i n i n g l i q u i d a t i o n accounting procedures. The adequacy o f f i n a n c i a l c o n t r o l s i s b e in g r e v i e w e d , t h e f e a s i b i l i t y o f au to m ati n g th e a c c o u n t i n g system i s b e i n g s t u d i e d , and a l t e r a t i o n s in the a c c o u n t i n g system to f a c i l i t a t e the s a l e o f a s s e t s are being con sidered . I t i s e x p e ct e d t h a t many o f th e recom mendations r e s u l t i n g from t h e s e s t u d i e s w i l l be adopted and implemented d u r i n g 1978. S t a t i s t i c a l and Other A c t i v i t i e s In a d d i t i o n to the s u p e r v i s o r y , consumer p r o t e c t i o n , and in s u r a n c e r e l a t e d f u n c t i o n s , t h e PDIC a l s o p r o v i d e s a p u b l i c i n f o r m a t i o n f u n c t i o n by d i s s e m i n a t i n g a ffa irs; i n f o r m a t i o n on b a n k s , d e p o s i t i n s u r a n c e , and consumer by d e v e l o p i n g and d i s s e m i n a t i n g s t a t i s t i c a l d a t a f o r banking and other g overn m en ta l a g e n c i e s , th e ba nking community, i n v e s t o r s in bank s e c u r i t i e s , and t h e g e n e r a l p u b l i c ; and by p r e p a r in g r e s e a r c h s t u d i e s on v a r i o u s ban kin g i s s u e s . Many o f t h e s e a c t i v i t i e s a r e c l o s e l y t i e d to the FUTC's s u p e r v i s o r y , consumée p r o t e c t i o n , and in s u r a n c e r e s p o n s i b i l i t i e s . The FDIC r e g u l a r l y c o l l e c t s and p r o c e s s e s a l a r g e body o f banking d a t a a s s o c i a t e d w ith i t s s u p e r v i s o r y and in s u r a n c e f u n c t i o n s . I n c lu d e d are the q u a r t e r l y c a l l r e p o r t s and other su rv ey s such as th e annual summary o f d e p o s i t s . While t h e s e d a t a have always been shared w ith other s t a t e and f e d e r a l a g e n c i e s , l i t t l e was made a v a i l a b l e to banks or th e p u b l i c u n t i l r e c e n t y e a r s . As c o n c ern about t h e c o n f i d e n t i a l i t y o f i n d i v i d u a l bank s t a t i s t i c a l and f i n a n c i a l r e p o r t s has d i s s i p a t e d and a s the t e c h n o l o g i c a l c a p a c i t y to p r o c e s s and g e n e r a t e mote d e t a i l e d f i n a n c i a l d a t a has expanded, p u b l i c i n f o r m a t i o n a c t i v i t i e s have expanded 14 considerably. As a r e s u l t , t h e volume o f d a t a and p u b l i c a t i o n s made a v a i l a b l e to o t h e r a g e n c i e s , b a n k s , and the g e n e r a l p u b l i c has increased c o n s id e ra b ly . I t i s b e l i e v e d t h a t i n c r e a s e d d i s c l o s u r e has b e n e f i t e d b a n k e r s , consum ers, i n v e s t o r s , and the C o n g r e s s . Some p o r t i o n o f t h e c o s t s o f c o l l e c t i n g and p r o c e s s i n g r e g u l a r bank r e p o r t s would be i n c u r r e d even i f th e r e s u l t s were used o n l y for i n t e r n a l s u p e r v i s o r y and in s u r a n c e p u r p o s e s . However, much o f the p r o c e s s i n g o f t h e s e r e p o r t s fo r e x t e r n a l d i s t r i b u t i o n r e q u i r e s s i g n i f i c a n t a d d i t i o n a l e x p e n d i t u r e s f o r manpower, c om pu ter, and p rinting s e r v ic e s . To t h i s must be added r e g u l a r and s p e c i a l s t a t i s t i c a l s u r v e y s conducted a t t h e r e q u e s t o f o t h e r governm ental a g e n c i e s or C o n g re ss which r e q u i r e v a r y i n g amounts o f r e s o u r c e s . These s t a t i s t i c a l a c t i v i t i e s c o n s i d e r e d in t h e a g g r e g a t e , w itho ut a t t e m p t i n g to s e p a r a t e c o s t s a t t r i b u t a b l e to s u p e r v i s o r y and nons u p e r v i s o r y a c t i v i t i e s , ac c ou n t fo r about 4 or 5 p e r c e n t o f th e t o t a l 1978 b u d g e t . Some a d d i t i o n a l p o s i t i o n s have been approved in the 1978 budg et fo r th e purpose o f r e d u c i n g th e time r e q u i r e d to p r o c e s s b a s i c r e p o r t s and to meet the expanded r e a u i r e m e n ts fo r s p e c i a l s u r v e y s and r e p o r t s . Tim ely i n f o r m a t i o n i s an im port an t elem en t i f th e C o r p o r a t i o n ' s I n t e g r a t e d M o n i to r in g System i s t o be su ccessfu l. H . The 1978 FDIC Bud g et As has been the c a s e w ith p a s t b u d g e t s , th e C o r p o r a t i o n ' s 1978 bu dg et r e f l e c t s a resp on se to th e i n c r e a s e d number o f banks s u p e r v i s e d by th e FDIC, th e i n c r e a s e d number o f problem banks and l i q u i d a t i o n s , expanded c o m p lia n c e r e s p o n s i b i l i t i e s , and i n f l a t i o n . E stim ated 1978 a d m i n i s t r a t i v e e x p e n d i t u r e s a r e $104.4 m i l l i o n , an i n c r e a s e o f $15.0 m i l l i o n over a c t u a l 1977 exp en ses ( s e e the T a b l e ) . T w o -th i r d s o f th e p r o j e c t e d i n c r e a s e i s in n o n d i s c r e t i o n a c y expenditures a r i s i n g from t h e r e c e n t 7.05 p e r c e n t f e d e r a l pav r a i s e , the i n c r e a s i n g c o s t o f goods and s e r v i c e s , s t a f f and r e l a t e d c o s t s for a f u l l year for employees h i r e d d u rin g 1977 , sch ed u led p r o m o tio n s , i n - g r a d e s t e p i n c r e a s e s , and the impact o f i n f l a t i o n on t r a v e l and c e r t a in other expenses. Most o f th e rem aining o n e - t h i r d o f the i n c r e a s e stems from the 300 new p o s i t i o n s t h a t a t e a u t h o r i z e d in the 1973 b u d g e t . A portion o f d i s c r e t i o n a r y e x p e n s e s , however, i s a l l o c a t e d to four s p e c i a l o r o je c ts covering s ta t e / fe d e r a l su p ervision o f banking, li q u id a t i o n a c c o u n t i n g , th e Home Mortgage D i s c l o s u r e A c t , and the C o r p o r a t i o n ' s sh are o f the Bank Sto c k Loan Survey b e i n g condu cted a t th e r e q u e s t o f t h i s Com m ittee. from the a n t i c i p a t e d Another p o r t i o n o f d i s c r e t i o n a r y ex p en ses a r i s e s i n c r e a s e in t r a v e l c o s t s and manpower r e q u i r e ments a s s o c i a t e d with the C o r p o r a t i o n ' s newly adopted p o l i c y o f s e p a r a t i n g c o m p l ia n c e e x a m i n a ti o n s from s a f e t y and soundness exam inations. D ivision of L iq u id ation That p o r t i o n o f th e D i v i s i o n o f L i q u i d a t i o n ' s exp en ses a s s i g n e d to a d m i n i s t r a t i v e expense i s p r o j e c t e d to r i s e from $1.0 m i l l i o n in 1977 to $ 1 . 2 m i l l i o n in 1978. Washington O f f i c e p o s i t i o n s , expanded l i q u i d a t o r The i n c r e a s e r e f l e c t s 3 new i n c r e a s e d t r a v e l expen ses due to t r a i n i n g programs, and a new p o l i c y r e q u i t i n g A s s o c i a t e S u p e r v i s i n g L i q u i d a t o r s to v i s i t l i q u i d a t i o n s i t e s under t h e i r j u r i s d i c t i o n , a s w e l l as i n c r e a s e s in nond i s c r e t i o n a r y e x p e n s e s . 16 O f f i c e o f P e r s o n n e l Management T h i s O f f i c e ' s p r o j e c t e d e x p e n d i t u r e i n c r e a s e from $ 6 . 9 m i l l i o n to $8 .2 m i l l i o n i s due p r i m a r i l y to an i n c r e a s e in th e C o r p o r a t i o n ' s c o n t r i b u t i o n s t o the C i v i l S e r v i c e Commission R e ti r e m e n t Fund, F e d e r a l I n s u r a n c e C o n t r i b u t i o n s Act ( F I C A ) , t a x e s , h e a l t h insurance prog rams, Employee Workers' Compensation program, d e n t a l i n s u r a n c e program, and t h e r i s e in s a l a r i e s o f e x i s t i n g s t a f f . No new employee p o s i t i o n s were approved in the 1978 b u d g e t . O f f i c e o f th e C o n t r o l l e r The e s t i m a t e d i n c r e a s e in 1978 e x p e n d i t u r e s f o r t h i s O f f i c e i s $1 .5 m i l l i o n . Nearly o n e-th ird r e f l e c t s l e a s e d space e x p e n s e s . i n c r e a s e d b u i l d i n g and Because o f crowded q u a r t e r s , th e Co r p o ratio n found i t n e c e s s a r y t o l e a s e a d d i t i o n a l o f f i c e s p a c e d u r i n g t h e l a t t e r p a r t o f 1977. expenses, Another o n e - t h i r d stems from i n c r e a s e d communication i n c l u d i n g m a il and t e le p h o n e s e r v i c e s , increased l i a b i l i t y i n s u r a n c e e x p e n s e s , and other m i s c e l l a n e o u s e x p e n s e s . The remainder i s e s s e n t i a l l y due to nond i s c r e t ionar y i n c r e a s e s in s a l a r i e s , t r a v e l , and s u p p l i e s . Manpower w i l l be i n c r e a s e d by 15 from 198 to 213 p o s i t i o n s in 1978. These p o s i t i o n s are fo r e i t h e r t e c h n i c a l or c l e r i c a l p e r s o n n e l , and a re n e c e s s a r y t o s e r v i c e the C o r p o r a t i o n ' s i n c r e a s e d s t a f f , w o r k lo a d , and m u l t i - s i t e l o c a t i o n s . D i v i s i o n _ o f _Bank Supe r v i s i o n The D i v i s i o n o f Bank S u p e r v i s i o n , th e l a r g e s t o p e r a t i n g u n i t in the C o r p o r a t i o n , p r o j e c t s 1978 e x p e n d i t u r e s a t $70.0 m i l l i o n , an $ 8 .5 m i l l i o n i n c r e a s e '-over a c t u a l 1977 e x p e n s e s . About 85 pe rc en t 17 o f th e D i v i s i o n ' s 1978 bu d g e t i n c r e a s e over 1977 i s for p e r s o n a l s e r v i c e s and t r a v e l . Most o f t h i s i s n o n d i s c r e t i o n a r y due to the f e d e r a l pay i n c r e a s e and i n f l a t i o n a r y i n c r e a s e s in t r a v e l c o s t s . A p o r t i o n i s r e l a t e d to the 237 new p o s i t i o n s , 206 o f which a r e t a r g e t e d for R e g io n a l O f f i c e and f i e l d examiner p o s i t i o n s . The 1973 b u d g et p r o v i d e s fo r a manning t a b l e i n c r e a s e o f ab out 140 f i e l d e x a m i n e r s , reflectin g i n c r e a s e d needs a s s o c i a t e d w ith c o m p l ia n c e e x a m in a tio n s as w e l l as a modest i n c r e a s e in the e x a m i n a t i o n f o r c e r e l a t e d to s a f e t y and so u n d n ess. R e g i o n a l O f f i c e s are t o be s t r e n g t h e n e d by Compliance S p e c i a l i s t s and s e n i o r review p e r s o n n e l alo ng w ith needed a d d i t i o n a l c l e r i c a l s t a f f . the a d d i t i o n in l a t e Expenses a l s o w i l l r i s e due to 1977 o f s e n i o r s p e c i a l i s t p o s i t i o n s in e l e c t r o n i c d a t a p r o c e s s i n g in each R e g i o n a l O f f i c e . Modest i n c r e a s e s in Washington O f f i c e e x a m i n a t i o n p e r s o n n e l a r e c o n c e n t r a t e d in f i n a n c i a l a n a l y s i s , problem bank a c t i v i t y , and program p l a n n i n g . Other e x p e n d i t u r e i n c r e a s e s r e l a t e to r e l o c a t i o n o f s e v e r a l R e g io n a l O f f i c e s t h a t has been n e c e s s i t a t e d by s t a f f i n c r e a s e s . Legal D iv is io n S i x new p o s i t i o n s were approved in the 1978 budget fo r the Legal D i v i s i o n . Expenses are p r o j e c t e d to r i s e from $2.3 m i l l i o n to $2 .8 m i l l i o n in 1978. N e a r l y 82 p e r c e n t o f the e x p e n d i t u r e i n c r e a s e i s in s a l a r i e s and b e n e f i t s , much o f which stems from an expansion o f the L e g a l D i v i s i o n ' s L i q u i d a t i o n S e c t i o n . D iv i s i o n o f Research T h i s D i v i s i o n was c r e a t e d in mid-1977. W hile no new p o s i t i o n s were approved for 1978, i t i s ex p ected t h a t rem ain ing v a c a n c i e s w i l l 18 be f i l l e d d u r i n g 1978. The p r o j e c t e d i n c r e a s e in e x p e n d i t u r e s from $400,000 to $750,000 r e f l e c t s t h i s e x p e c t a t i o n . D i v i s i o n o f Management Systems and F i n a n c i a l S t a t i s t i c s E x p e n d i t u r e s o f t h i s D i v i s i o n a r e p r o j e c t e d to i n c r e a s e from $5 .3 m i l l i o n t o $6 .8 m i l l i o n . ap proved. In a d d i t i o n , 16 new p o s i t i o n s were Ten o f t h e s e w i l l p r o v i d e d a t a p r o c e s s i n g su p p o r t t o the D i v i s i o n o f Bank S u p e r v i s i o n i n c l u d i n g s u p p o r t f o r t h e I n t e g r a t e d M o n i t o r i n g S y s te m , s u p p o r t f o r i n c r e a s e d use o f automated examination p a c k a g e s , and i n c r e a s e d t r a i n i n g o f e x am in ers in e l e c t r o n i c d a t a processing. Most o f th e rem aining new p o s i t i o n s a r e r e q u i t e d to meet i n c r e a s e d demands in th e a r e a o f s p e c i a l bank s u r v e y s and c a l l r e p o r t p r o c e s s i n g , and to m a i n t a i n adequate s e r v i c i n g o f th e C orp o ratio n 's ad m in istra tiv e needs. About o n e - t h i r d o f t h e in crease in ex p en ses c o v e r s c o s t s o f s p e c i a l s t u d i e s , such a s th e Home Mortgage D i s c l o s u r e Act s t u d y . Executive O f f i c e s The E x e c u t i v e O f f i c e s i n c l u d e the O f f i c e o f C o r p o r a te P la n n in g , t h e O f f i c e o f t h e E x e c u t i v e S e c r e t a r y , t h e O f f i c e o f C o r p o ra te A u d i t s , th e O f f i c e o f Consumer A f f a i r s and C i v i l R i g h t s , th e O f f i c e o f Employee R e l a t i o n s , and th e p e r s o n a l s t a f f o f th e Chairman and the D i r e c t o r s o f th e FDIC. The c o l l e c t i v e e x p e n d i t u r e s o f t h e s e O f f i c e s i s p r o j e c t e d to i n c r e a s e from $3 .2 m i l l i o n to $4 .5 m i l l i o n . More than o n e - t h i r d o f th e i n c r e a s e i s r e l a t e d to the s t u d y o f s t a t e and f e d e r a l r e g u l a t i o n . Some o f t h e remainder stems from an e x p e c t a t i o n t h a t a new D i r e c t o r w i l l be c on fir m e d and h i s s t a f f 19 vacancies f i l l e d . A l s o , p o s i t i o n s c r e a t e d in th e O f f i c e o f Cor p o rate P la n n in g and the O f f i c e o f Consumer A f f a i r s and C i v i l R i g h t s d u r i n g 1977 should be f i l l e d Iii. in t h e near f u t u r e . FDIC Revenues and Assessm ents The C o r p o r a t i o n ' s t o t a l g r o s s revenue in 1977 amounted to $ 1 .25 b i l l i o n , an i n c r e a s e o f $106 m i l l i o n over 1976. Of t h i s t o t a l , $731 m i l l i o n was d e r i v e d from g r o s s a sse ssm e n t s paid by banks for d e p o s i t i n s u r a n c e d u r i n g the y e a r ; $494 m i l l i o n was r e c e i v e d as i n t e r e s t on the U n ited S t a t e s Government s e c u r i t i e s h e ld by the d e p o s i t in s u r a n c e fu n d ; and $25 m i l l i o n came from oth er s o u r c e s , p r i m a r i l y i n t e r e s t earned on n o t e s extended to p u r c h a s e r s o f f a i l e d banks. Annual ass e s s m e n t s a r e r e q u i r e d by th e F e d e r a l D e p o s i t I n s u r a n c e Act to be p a id by in sured b a n k s. The b a s i c asse ssm e nt r a t e , f i x e d by law s i n c e 1935, i s 1/12 o f 1 p e r c e n t o f t o t a l a s s e s s a b l e d e p o s i t s . In 1950 l e g i s l a t i o n was en ac ted which had th e e f f e c t o f r e d u c in g the s t a t u t o r y r a t e o f asse ssm e n t by p r o v i d i n g a c r e d i t to be a p p l i e d a g a i n s t th e a r o s s a s s e s s m e n t s l e v i e d each y e a r . S i n c e December 31, 1961, t h i s c r e d i t to in sured banks has been 66-2/3 o e r c e n t . The c r e d i t i s a c t u a l l y a p p l i e d a g a i n s t th e n e x t y e a r ' s a s s e s s m e n t . T h is p e r c e n t a g e i s a p p l i e d to the g r o s s a sse ssm e n t s due from banks in the c a le n d a r y e a r , a f t e r s u b t r a c t i n g th e C o r p o r a t i o n ' s a d m i n i s t r a t i v e and o p e r a t i n g e x p e n s e s , in s u r a n c e l o s s e s , and a d d i t i o n s to r e s e r v e for l o s s e s in th e y e a r . In 1977 , insured banks r e c e i v e d $412 m i l l i o n c r e d i t s a g a i n s t the $731 m i l l i o n g r o s s a s s e s s m e n t , r e s u l t i n g in in n e t a s s e s s m e n t s o f $319 m i l l i o n , or about 1/27 o f 1 p e r c e n t o f a s s e s s a b l e deposits. 20 In a d d i t i o n to ex p en ses i n c l u d e d in the a d m i n i s t r a t i v e b u d g e t , t h e FDIC i n c u r s ex p e n se s t o cover i n s u r a n c e l o s s e s and to p r o t e c t depositors. expense. Such e x p e n se s a r e c h a r g e a b l e d i r e c t l y t o in s u r a n c e U n l i k e t h e a d m i n i s t r a t i v e bu dg et which in each y ear o f the p a s t dec ad e has remained w i t h i n a f a i r l y narrow ran ge o f 10 percenl o f th e C o r p o r a t i o n ' s n e t revenue from a s s e s s m e n t s and s e c u r i t i e s , pro v i s i o n s f o r i n s u r a n c e l o s s e s have f l u c t u a t e d s h a r p l y from a n e t r e c o v e r y o f $2 m i l l i o n in 1972 to a n e t l o s s o f $98 m i l l i o n in 1974, The d e p o s i t i n s u r a n c e f u n d , in e f f e c t th e e x c e s s o f th e C o r p o r a t i o n ' s a s s e t s over i t s l i a b i l i t i e s , r e p r e s e n t s i t s accumulated n e t income s i n c e the b e g i n n i n g o f d e p o s i t i n s u r a n c e in 1934. T h is fun) which i s th e C o r p o r a t i o n ' s b a s i c r e s o u r c e f o r th e p r o t e c t i o n o f deposij t o r s , amounted to a p p r o x i m a t e l y $8 b i l l i o n a t the end o f 1977, an i n c r e a s e o f $724 m i l l i o n from y e a r- e n d 1976. A lth o u g h i t i s not p o s s i b l e to s t a t e a c t u a r i a l l y what th e d e p o s i t i n s u r a n c e fund should b e , i t ha s been more th an adequate t o meet t h e C o r p o r a t i o n ' s r e q u i r e ments d u r i n g i t s 44-year h i s t o r y . In the p a s t d e c a d e , th e r a t i o o f t h e b a l a n c e in t h e d e p o s i t in s u r a n c e fund to t o t a l d e p o s i t s has remained v i r t u a l l y unchanged a t .77 p e r c e n t . However, i t has f a l l e n m o d e r a t e l y r e l a t i v e to in sured d e p o s i t s p a r t l y b e c a u s e o f t h e i n c r e a s e s in the maximum in su red amounts f o r v a r i o u s t y p e s o f deposits! IV. 3 udget and Management P r i n c i p l e s For some tim e the FDIC, l i k e most govern m enta l a g e n c i e s , has p r a c t i c e d i n c r e m e n t a l b u d g e t i n g which f o c u s e s on proposed changes in the bu dg et w ith perhaps l e s s a t t e n t i o n p a id to the a p p r a i s a l o f c o n t i n u i n g programs th an s u g g e s t e d by modern b u d g et t e c h n i q u e s . 21 However, th e a p p l i c a t i o n o f in c r e m e n t a l b u d g e t i n g to p r o j e c t o r i e n t e d o r g a n i z a t i o n a l u n i t s i s e s s e n t i a l l y i d e n t i c a l to the z e r o - b a s e d a p p r o a c h , which in p r a c t i c e i s more l i k e l y to i n v o l v e m a rg in a l a n a l y s i s than a review o f a l l a c t i v i t i e s e v e r y y e a r . For exam ple, most o f th e work done by th e C o r p o r a t i o n ' s r e s e a r c h and d a t a p r o c e s s i n g b u d g e ta r y u n i t s i s o f t h i s n a t u r e . And, i t has been th e o r a c t i c e to s u b j e c t eac h major or new p r o j e c t to prior approval. T h i s i s n o t to say t h a t t r a d i t i o n a l b u d g e ta r y p r o c e d u re s have been f u l l y s a t i s f a c t o r y . I f n o th in g e l s e , the d i s c u s s i o n s su rro u n d in g ze ro -b a se d b u dg etin g have a c c e l e r a t e d c o n t i n u i n g e f f o r t s a t th e FDIC to improve p r o c e d u re s and to adopt th ose p r i n c i p l e s o f good budget p r a c t i c e s t h a t a r e a p p l i c a b l e to FDIC c i r c u m s t a n c e s , whether t h e y be d e s i g n a t e d a s management by o b j e c t i v e s , p l a n n i n g and programming, or ze ro -b a se d b u d g e t i n g . In p r e p a r i n g the 1978 FDIC b u d g e t , a number o f p r o p o s a l s from s e v e r a l o r g a n i z a t i o n a l u n i t s f o r a d d i t i o n a l funding fo r new programs were e i t h e r d i sa p p ro v e d or d e f e r r e d u n t i l ze ro -b a se d s t u d i e s o f e x i s t i n g a c t i v i t i e s can be c o n c l u d e d . However, much o f t h e e x a m i n a ti o n and s u p e r v i s o r y a c t i v i t i e s o f th e C o r p o r a t i o n are n o t p r o j e c t or program o r i e n t e d . As s u c h , t h e y a r e n ot s u s c e p t i b l e to e i t h e r / o r d e c i s i o n s , b u t i n v o l v e m a t t e r s o f degre e or l e v e l o f r e s o u r c e commitment. Thus, w h i l e the FDIC must examine banks fo r s a f e t y and soundness and c om plian c e with consumer and c i v i l r i g h t s l a w s , i t i s n o t e a s y to determ in e how much w i l l be g a in e d or s a c r i f i c e d by chan g es in t h e l e v e l o f e x p e n d i t u r e s or r e s o u r c e s a p p l i e d to t h e s e f u n c t i o n s . F urth erm ore, i t i s n o t e a s y to q u a n t i f y or r e l a t e t h e t r a d e - o f f between more i n t e n s i v e or more f r e q u e n t e x a m i n a t i o n s and the number o f problem banks , v i o l a t i o n s o f ba nking l a w s , and bank c l o s i n g s . U l t i m a t e l y , th e adequacy o f s u p e r v i s o r y and e x a m i n a ti o n p r o c e d u r e s and r e s o u r c e s devote d to them depends on th e c o l l e c t i v e judgment o f s e n i o r f i e l d exam iners and other s e n i o r FDIC p e r s o n n e l . resulted As e x p l a i n e d e a r l i e r , such judgm en ts have in major ch an g es in p r o c e d u r e s d u r i n g 1977. The FDIC i s c u r r e n t l y u n d e r ta k i n g a d d i t i o n a l s t e p s t o g a t h e r more d e f i n i t i v e d a t a on the time sp e n t by i n d i v i d u a l exam in ers on v a r i o u s t y p e s and segments o f ex a m in a tio n p r o c e d u r e s so t h a t th e t r a d e - o f f between e x a m i n a t i o n and s u p e r v i s o r y p r o c e d u r e s and problem b a n k s , bank c l o s i n g s , and v i o l a t i o n s o f law and th e impact o f th e t r a d e - o f f on manpower r e q u ir e m e n ts can be e v a l u a t e d . Major s t u d i e s o f e x a m i n a ti o n and l i q u i d a t i o n a c t i v i t i e s and pr o c ed u res a r e c u r r e n t l y in p r o c e s s a t the FDIC. In a d d i t i o n , th e F D I C ' s examiner t r a i n i n g program i s b e i n g r e v i e w e d . The o b j e c t i v e o f th e se s t u d i e s i s t o e v a l u a t e the a p p r o p r i a t e n e s s and e f f e c t i v e n e s s o f e x i s t i n g p o l i c i e s , p r a c t i c e s , and p r o c e d u r e s . In the p a s t th e b u d g et and manpower r e v ie w p r o c e s s ha s occurred o n c e , and sometimes t w i c e a y e a r . The Budget and Programs S e c t i o n in the O f f i c e o f th e C o n t r o l l e r has had the r e s p o n s i b i l i t y f o r gathering and p r e p a r i n g i n f o r m a t i o n on t h e manning t a b l e and e s t i m a t e s o f exp enditures. T h is group c h ec k s t h i s i n f o r m a t i o n to make su re i t conforms w ith th e Budget Procedures Manua l, and r e v ie w s t h e expendi t u r e e s t i m a t e s to c heck whether th e y a r e too h i g h or too low relative 23 to h i s t o r i c a l norms and whether t h e y a re c o n s i s t e n t w ith manpower p rojection s. T h i s group h a s n o t , however, performed any program or p r o j e c t r e v i e w f u n c t i o n s . The manning t a b l e r e q u e s t s have been reviewed by th e O f f i c e o f Per son n el Management to de te r m in e whether re q u e ste d p o s i t i o n s are p r o p e r l y c l a s s i f i e d . Program and p r o j e c t review have been condu cted by an ad hoc committee c a l l e d the Budget Review Committee. T h is Committee c u s t o m a r i l y has been c h a i r e d by th e Deputy t o the Chairman., and i t s membership ha s been drawn from th e C o r p o r a t i o n ' s s e n i o r management. Under t h i s b u d g et system the Budget Review Committee responded p r i m a r i l y to i n d i v i d u a l p r o p o s a l s i n v o l v i n g manning t a b l e ch an g es and expenditure i n c r e a s e s . f o c u s i s narrow. W hile t h i s kind o f rev iew i s i m p o r t a n t , i t s I t has n o t been e a s y under t h i s system to e v a l u a t e p r o p o s a l s in terms o f th e C o r p o r a t i o n ' s o b j e c t i v e s , or the impact o f t h e s e p r o p o s a l s on o t h e r C o r p o r a t i o n p r o j e c t s and programs. Further more, th e e v a l u a t i o n p r o c e s s o f t e n d i d not occur w i t h i n a l o n g - r a n g e p l a n n in g c o n t e x t , and t h e r e was no s y s t e m a t i c procedure f o r e v a l u a t i n g the e f f e c t i v e n e s s o f e x i s t i n g programs and p r o j e c t s . S e v e r a l s t e p s have a l r e a d y been taken t o change th e C o r p o r a t i o n ' s b u d g e ta r y r e v ie w p r o c e s s . In June 1977, th e O f f i c e o f C o rpo rate P l a n n in g was asked to e v a l u a t e e x i s t i n g p r o c e d u re s and to recommend changes t o improve th e p l a n n in g and b u d g e ta r y p r o c e s s . In a d d i t i o n , t h i s group was r e q u e s t e d to p r o v i d e s t a f f a s s i s t a n c e to t h e Budget Review Committee in a n a l y z i n g mid-1977 and 1978 program and p r o j e c t requests. As a r e s u l t o f t h i s e v a l u a t i o n , a r e s o l u t i o n w i l l be submitted to the C o r p o r a t i o n ' s n e x t Board o f D i r e c t o r s meeting to - 24 e s t a b l i s h a permanent s t a n d i n g Budget and Management Committee. T h i s Committee w i l l meet on a r e g u l a r b a s i s and w i l l be resp o n s i b l e f o r r e v i e w i n g e x i s t i n g programs and p r o j e c t s a s w e l l a s new ones. Review s t a n d a r d s w i l l i n c l u d e a t t e n t i o n t o th e F D I C ' s m i s s i o n and o b j e c t i v e s , p l a n n i n g w i t h i n a l o n g - r u n c o n t e x t , c o s t e f f e c t i v e n e s s , b e n e f i t s v e r s u s c o s t s , impac t w i t h i n and beyond th e C o r p o r a t i o n , u r g e n c y , and so f o r t h . S e s s i o n s w ith eac h D i v i s i o n and O f f i c e w i l l be sc hed ule d t h r o u g h o u t t h e year a t v a r i o u s management l e v e l s . These s e s s s i o n s w i l l f o c u s on major s u b s t a n t i v e i s s u e s , p r o b l e m s , f o r m u l a t i o n o f p l a n s , and r e v i e w o f p r o p o s a l s w e l l b e f o r e t h e annual bu d g e t i t s e l f i s form ulated. As a r e s u l t , i t i s e x p e c t e d t h a t by year end no major new or e x i s t i n g a c t i v i t y w i l l have escap ed c a r e f u l j u s t i f i c a t i o n and e v a l u a t i o n , and t h a t th e means by which bu d g e t d e c i s i o n s a r e dete rm ined w i l l be m a t e r i a l l y enhanced by t h i s e f f o r t . I b e l i e v e t h a t th e new b u d g et and management p r o c e d u re s t h a t w i l l be adopted f o r m a l l y in t h e near f u t u r e w i l l c r e a t e a new sense o f c o s t c o n s c i o u s n e s s and program e f f e c t i v e n e s s th ro u g h o u t th e C o r p o r a t i o n , and w i l l c o n t r i b u t e over t h e coming months and y e a r s to improved p r o d u c t i v i t y , i n c r e a s e d s u p e r v i s o r y e f f e c t i v e n e s s , and b e t t e r s e r v i c e to th e p u b l i c . # # I Federal Deposit Insurance Corporation A d m i n i s t r a t i v e Expenses C l a s s i f i e d by O r g a n i z a t i o n a l U n i t and Expense C a t e g o r y (in th ousa nds o f d o l l a r s ) O rg an iz atio n al Unit D iv. o f L iq u id atio n O f f i c e o f Personnel Management O f f i c e o f th e Controller D i v . o f Bank Supervision Legal D ivision D i v . o f Research D i v . o f Management Systems and F i n a n c ia l S ta tistics Executive O ff ic e s Total 1977 1978 Actual Estimated $ 1,004 6,938 $ Expense C a t e g o r y 1,209 8,156 8,746 10,246 61,515 69,984 2,305 408 5,306 2,769 755 6,757 3,248 4,548 $89,470 $104,424 Personal Services Travel B ld g and L e a se d Space Equipment S u p p l i e s and P rin ted Matter O th er Exp en ses* Total 1977 1978 Actual Estimated $60,991 15,164 5,148 $ 70,179 17,755 6*497 2,388 2,144 3,105 2,500 3,635 4,389 $104,425 $89,470 * O th er ex p en ses i n c l u d e t e l e p h o n e , m a i l and o t h e r communications exp en ses ; employee b e n e f i t programs ( h e a l t h i n s u r a n c e , d e n t a l i n s u r a n c e , workman's c o m p e n s a ti o n , e t c . ) ; f e e s f o r employee e d u c a t i o n , and c o n f e r e n c e fees. I <v 4o-> FEDERAL DEPOSIT INSURANCE CORPORATION
@FedFRASER