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MAR 2 31989
FEDERAL DEPOSIT INSURANCE CORPORATION
N T E S T IM O N Y
OF
L. WILLIAM SEIDMAN
CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
THE FEDERAL DEPOSIT INSURANCE CORPORATION'S ADDITIONAL SUPERVISORY
RESPONSIBILITIES UNDER THE ADMINISTRATION'S PROPOSAL TO REFORM
THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION AND THE
SAVINGS AND LOAN INDUSTRY ^
BEFORE THE
* EXAMINATION, AUDIT AND REVIEW TASK FORCE OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION,
REGULATION AND INSURANCE
\ b wsc, COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
UNITED STATES HOUSE OF REPRESENTATIVES
2:00 P.M.
March 22, 1989.
Room 2222, Rayburn House Office Building
Good afternoon, Mr. Chairman and members of the Task Force.
Thank you for the
opportunity to testify today to discuss the Federal Deposit Insurance
Corporation’s ("FDIC") increased supervisory responsibilities under President
Bush's proposal to reform the Federal Savings and Loan Insurance Corporation
("FSLIC") and the savings-and-loan ("S&L") industry ("President's Proposal").
We support the President's Proposal.
As you know, our detailed views on the
reform plan, including a few recommended changes, are contained in our written
testimony of March 8, when we testified before the Financial Institutions
Subcommittee.
Strong supervision is essential to an effective resolution of the problems in
the S&L industry.
Before the American taxpayers can be asked to shoulder a
major portion of the cost of revitalizing that industry, they must be
convinced that the government has taken the necessary steps to prevent a
repeat of past mistakes.
In this regard your efforts are a necessary and most
welcome step in that process.
The FDIC brings over fifty years of supervisory expertise to its proposed new
role as back-up supervisor of the S&L industry.
We are confident that we can
handle both the short-term and long-term supervisory responsibilities
envisioned in the President's Proposal without undermining our bank
supervision activities.
We look forward to working with you to ensure that
strong supervision is the foundation of the reform plan.
A full response to each question in your letter of invitation is provided in
the attachment to this statement ("Attachment").
I now would like to
highlight some of the major points made in our responses.
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THE FDIC'S ROLE UNDER THE PRESIDENT'S PROPOSAL
The President's Proposal gives the FDIC two principal roles.
Short-Term Interagency Effort.
First, the President requested that the FDIC
lead a joint effort with the FSLIC, the Federal Home Loan Bank Board ("Bank
Board"), the Federal Reserve and the Office of the Comptroller of the Currency
("OCC") to evaluate and oversee thrift institutions that are either currently
insolvent under regulatory accounting principles or will become insolvent
before the proposed legislation is enacted.
Since that program was announced,
the regulators, led by the FDIC, have assumed control of 166 S&Ls out of a
projected total of approximately 232.
We anticipate that the major impact on our resources from this first role as
managing agent of insolvent thrifts will last for perhaps three-to-four
months, although we realize that this period could be longer. During the peak
period approximately 1,200 to 2,000 interagency personnel from all the
involved agencies will be needed.
Considering that we are receiving
substantial participation from the other federal regulatory agencies and state
supervisory agencies, we anticipate at its peak that we will have to detail
about 1,200 employees to this effort.
Approximately 600 will come from our
examination staff and about 600 will come from our liquidation staff.
After the peak period, we expect FDIC involvement to be reduced substantially
to around 300 to 400.
Since about half that number will come from our
- 3 -
liquidation staff, at most 200 bank examiners, or less than 10 percent of our
supervisory workforce, will be involved until the new Resolution Trust
Corporation ("RTC") comes into existence.
While this effort will press our resources in the short term, the task is
clearly manageable.
any disruption.
We already have taken some steps to help compensate for
For example, we have revised our examination priorities to
ensure that, with the help of state supervisors, all banks most in need of
close supervision will continue to receive it.
bank supervision responsibilities.
Thus, we will not slip in our
We also have stepped-up our training
activities to build our examination force as quickly as possible.
We believe we can handle this first phase of the additional S&L supervisory
role because of its relatively short peak period, because the number of banks
on our problem list has dropped from a high of 1,624 in 1987 to about 1,350 —
we expect 1989 to show significantly fewer bank failures than 1988 —
and
because we are continuing to expand the examination force and improve
productivity through automation and more streamlined examination processing
procedures.
Long-Term S&L Back-up Role. The second major supervisory role envisioned for
the FDIC under the President's Proposal essentially is to back up the Bank
Board (to be renamed the Federal Home Loan Bank System ("FHLB System")) in its
role of supervising both state and federally chartered S&Ls.
The FHLB System
will be the primary supervisor for solvent thrifts and its staff of
approximately 1,800 examiners will continue to have primary responsibility for
- 4 -
supervising those institutions.
It is important to emphasize that this
back-up function will require significantly less resources than the primary
supervisory function.
As the designated back-up supervisor, the FDIC would have authority, upon
notification to the FHLB System, to examine all insured thrifts for insurance
purposes.
The FDIC also would be authorized to request that the FHLB System
or state supervisory authority take any enforcement action applicable to any
insured institution or its officers and directors.
If the appropriate
authority declines to take such enforcement action, the FDIC would be
permitted to initiate that action independently.
The extent to which we will need additional staffing to carry out the FDIC's
long-term role under the President's Proposal will depend in large part on the
ability of the FHLB System examiners to carry out their responsibility as
primary supervisor and the actual number of remaining S&Ls following removal
of the insolvent institutions and the expected merger of several others.
In
this connection, the current caliber of that examination corps should not be
underestimated.
We believe that the Bank Board has made significant strides recently in
improving training, manuals and examination procedures.
We expect that a
significant part of S&L supervision will be under the FHLB System and that the
FDIC will make maximum use of that work product.
We are confident of our
ability to assemble the personnel resources to meet our responsibilities in
this long-term role.
- 5 -
The President's Proposal also places the thrift insurance fund under the FDIC
and provides for a separate appropriated agency —
insolvencies.
This segregates the
that of the healthy thrifts.
the RTC ~
to handle thrift
responsibility for insolvent thrifts from
This division of responsibilities is important
to discussions of FDIC staffing needs.
Our role with the RTC is still being
worked out, but it is not envisioned that it will include the use of any
substantial number of our examination personnel.
As stated, the enactment of the President's Proposal will require the FDIC to
increase staff further.
Over the past several years we have worked hard to
attract and retain qualified applicants in a planned effort to reinforce our
examination staff.
Since I became Chairman in 1985 we have increased our
field examiner force from about 1,500 to 1,993.
Because of turnover, which is
not extraordinarily high at 12 percent per annum, we had to hire about 1,000
examiner trainees in order to reach our present staff level.
In addition,
after allowing for attrition, we have set a hiring goal of 507 new field
examiners this year to meet the previously planned field staffing goal of
2,200 examiners by year-end 1989.
of at least 150.
Our goal for 1990 is another net increase
This plan was made without regard to any additional duties
included in the President's Proposal.
Including regional and Washington office support staff, the total personnel in
our Division of Bank Supervision ("DBS") has increased from 1,800 at the end
of 1984 to 2,565 year-end of 1988, and is projected to increase to about 2,800
by year-end 1989.
Given the amount of on-the-job training that is combined with classroom study,
we generally have found it possible to assimilate about 400 trainees per year
*61
in the ordinary course of business.
A recent review of our training programs
and procedures concluded that we could, if necessary, train a greater number
of examiner trainees, using improved training techniques and equipment.
The
next few years will be more challenging than previous years, but we are
confident that adjustments can be made to accommodate a greater number of
trainees.
With 500 new hires this year and at least the same number next
year, the assimilation program will clearly expand.
We also have taken, or will take, a number of other steps to ensure adequate
examination resources.
To help stem examiner attrition and to properly reward
performance, we intend to raise examiners salaries to more competitive levels
after we receive the results of a commissioned study on private sector wage
comparability.
In the meantime, as necessary, other salary adjustments will
be made to reward our staff.
We believe we have already taken significant
steps to provide an awards and benefits program which exceeds government
norms.
These include regional pay differentials and a 401(k) savings plan.
We also have implemented in July 1988 the cooperative Federal/State
examination program, called SAFE.
This program is consistent with the
recommendation made in the Government House Operations Committee October 1988
report on fraud.
It is designed to build on a long-standing tradition of
Federal/State cooperation by explicitly stating the FDIC policy to communicate
and coordinate regularly with the states and make maximum use of state
examination resources.
The SAFE Program provides additional flexibility and
efficiencies in our bank examination work.
- 7 FDIC EXAMINATION PROGRAM
I now would like to turn to the FDIC's current examination program.
We
already have provided the Task Force with statistics on our examination
frequency.
Last July DBS issued a revised policy for examination priorities
and frequency.
A copy of that policy statement is attached.
The policy
established goals for onsite examination interval guidelines of every 24
months for 1- and 2-rated institutions and every 12 months for 3-, 4- and
5-rated institutions.
The policy also states that intervals could be extended
up to 48 months for 1- and 2-rated institutions and up to 24 months for
3-rated institutions.
These extensions, however, apply only if state
examinations meeting FDIC needs were performed in the interim and the ratings
assigned are confirmed by our offsite monitoring system.
This revised policy was established as a goal that we anticipated reaching
over a two-to-three-year period depending on available resources and
circumstances within the industry.
The prior examination policy permitted
examination intervals of up to 60 months for 1- and 2-rated institutions with
total assets of less than $300 million and up to 24 months for 3-rated
institutions provided certain conditions were met.
The extended examination
intervals were necessary at the time because of staffing shortages resulting
from various hiring freezes imposed on the agency in the early 1980s and as
part of an overall program to rely on state banking departments for
examinations of satisfactory-rated banks so that the FDIC could concentrate
more of its resources on problem institutions.
There also was a belief at that time that onsite examinations of well rated
banks might not be needed as often since our offsite monitoring had improved.
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8
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We now believe that more banks need to be examined more often, although not
necessarily annually, in order to adequately assess the quality of management
and the volume of risk assets.
We have made considerable progress reducing onsite examination intervals.
In
1988, for example, we conducted 4,019 onsite safety and soundness examinations
compared to only 3,653 in 1987.
We have not yet fully complied with our
ambitious objective, but we are only about eight months into a projected 2- to
3-year goal.
We would like to emphasize that, even when the FDIC has not conducted a
full-scope examination within the prescribed period, we are informed of the
bank's condition and are able to set examination priorities based on
information received.
Banks are subject to sophisticated quarterly offsite
monitoring reviews in which any significant adverse or unusual trends are
fully investigated by our analysts and examiners.
Depending on the
circumstances, the follow-up action required to answer an offsite monitoring
question could result in an onsite visitation or examination.
The FDIC routinely exchanges supervisory information with the state banking
departments including all examination reports, bank correspondence and
enforcement actions.
All this information is carefully reviewed and used by
our field and office staff to monitor the condition of the bank.
If a state
examination meets our needs it can be used to extend the examination cycles
for 1-, 2- or 3-rated institutions.
However, even if the examination is not
used to extend the examination intervals, the information in the report is
used to help us set examination priorities.
- 9 Moreover, we have an extensive program of visitations to look at special
situations and to keep apprised of a bank's condition.
If a bank is in a
holding company we also receive and review holding company examination reports
from the Federal Reserve and we receive examination reports on other banks in
the holding company system from both the Federal Reserve and the OCC.
As
insurer, we keep informed of the condition of National and State member banks
by reviewing all OCC and Federal Reserve examination reports.
We also are
tied into their computer data bases so that we have access to the most current
data.
Thus, the FDIC's examination program should not be judged merely by adherence
to examination frequency schedules.
While these guidelines are useful for
internal monitoring purposes, today's environment demands that we emphasize
identifying economic and industry risk and pinpointing individual banks that
exhibit symptoms of higher than normal risk.
Traditional methods of onsite
examinations based on fixed examination cycles have given way to more
continuous supervision.
Our examination staff is instructed to gather as much information as possible
from as many sources as possible, analyze it thoroughly and establish
examination priorities.
Time intervals between examinations is only one
component of this overall risk analysis.
While onsite examinations remain an
important part of the supervisory process, they are now being augmented by
improving offsite monitoring systems, visitations and other anticipatory
measures.
Improvement in gathering and analyzing information from various
sources has progressed to the point where even if resources were available to
conduct annual onsite examination for all institutions, it would not be an
efficient use of those resources.
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Conclusion
He believe we can assemble the resources to do the short-range and long-range
jobs assigned to us by the President's Proposal, while doing an even better
job in our banking responsibilities.
Force in any way.
Attachments
The FDIC stands ready to assist the Task
I would be pleased to answer any questions you may have.
ATTACHMENT
QUESTIONS AND ANSWERS
Data on Reallocation of Agency Examiners, FDIC Examiner
Levels and Attrition, and Examination Frequency________
1.
Numbers of Agency Examiners Allocated:
(a) Please specify for the OCC, the FRB, the FHLBB, and the FDIC, the
numbers of each agency's examiners now assigned or deployed to the
FDIC's current insolvent thrift efforts, (b) When does the FDIC
expect the peak period to end, and at that time, how will the numbers
of examiners deployed to this effort be expected to change?
Response
a.
As of March 16, 1989, 831 examiners were assigned or deployed to
the FDIC's current insolvent thrift efforts.
Of that total, 538
were from the FDIC, 97 were from the FRB, 144 were from the OCC
and 52 were from the FHLBB.
These totals do not include FDIC
liquidation staff.
b.
The FDIC anticipates that the peak period will be for a relatively
short period of time, perhaps three-to-four months.
After the
peak period, agency personnel will be cut back to a minimum, with
nominal participation by agencies other than the FDIC.
It is
estimated that the number of FDIC examiners being used will level
off at around 200.
2.
FDIC Examiner Levels. Attrition Rate, and Hiring:
a.
Please set forth (in a table) FDIC examiner levels for year end
1986, 1987, and 1988, and as of February 28, 1989, indicating (a)
for each point in time the total examiner levels, (b) the number
of examiners which left the FDIC during the period covered, (c)
the number which the FDIC hired during that period, and (d) the
net increase in numbers of examiners at that point in time.
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2
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Response
FDIC Field Examiner Levels. Attrition Rate and Hiring
1987
12-31-86
Staff Level
Gains
Losses
12-31-87
Staff Level
Net
Gain
1726
421
238
1909
183
1988
12-31-87
Staff Level
Gai ns
Losses
12-31-88
Staff Level
Net
Gain
1909
362
288
1983
74
2-28-1989
12-31-88
Staff Level
Gains
Losses
Staff Level
Net
Gain
1983
57
47
1993
10
Gains and losses are shown as gross figures with transfers to regional offices
and the Washington Office being shown as losses.
- 3 b.
(i) In 1988 what was the FDIC1s attrition rate for (a) field
examiners and (b) other staff within the Division of Bank
Supervision (such as legal and supervisory staff)? (ii) What was
the attrition rate for more experienced mid- to senior-level
examiners? (The FDIC previously stated to the Commerce, Consumer,
and Monetary Affairs ("CC&MA") Subcommittee that in 1987 attrition
among experienced examiners totalled 1/3 of the total.)
Response
a.
In 1988, FDIC's attrition rate for field examiners was 14.5% if
internal transfers to the regional offices and Washington Office
are considered.
Net of those types of transfers, the attrition
rate was 12.0%.
b.
The Division of Bank Supervision's attrition rate for professional
staff was 7.2% in 1988 and the clerical attrition rate was 22.9%,
both computed net of internal transfers.
The attrition rate for more experienced examiners (Grades 12-15)
was 6.10%, net of internal transfers.
The 33% attrition rate
noted in the question was the number of experienced examiners who
left the FDIC as a percentage of total attrition.
That percentage
for 1988 was 21.2% of the 7.2%.
c.
The FDIC also advised the Government Operations subcommittee that
it could not assimilate more than 350 new trainees per year,
because it wanted to maintain a ratio of 1 trainee per 5
experienced examiners. Has either the maximum "assimilation"
number or the ratio changed, or are they the same? If either has
changed, please explain the reasons. (Could you also explain when
a trainee is no longer a trainee but considered experienced, the
amount of time required.)
- 4 -
Response
For 1989, we have set a hiring goal of 507 new field examiners.
That
target was designed to enable us to achieve the field staffing goal of
2,200 field examiners by year-end even after allowing for a 12%
attrition rate.
The FDIC has no official policy of maintaining a ratio of one trainee
per five experienced examiners.
The larger-than-normal hiring goal
for 1988 will make the assimilation process more challenging than in
previous years; however, we are confident that the new employees can
be trained and placed in our workforce without significant
difficulty.
In addition to the formalized classroom training for new
examiners, trainees also receive individual on-the-job training under
the guidance of more senior field examiners.
The latter group is now
of sufficient size and experience to train a greater number of new
employees.
We are constantly reviewing our training programs to
improve efficiency and effectiveness.
After satisfactory performance as a bank examiner trainee for a
one-year period, an employee is promoted to Assistant Bank Examiner,
Grade 7.
The employee is then eligible for promotion to a Grade 9
assistant examiner in one additional year and to Grade 11 examiner
status at the end of another twelve months of satisfactory
performance.
Thus, it is possible to become a commissioned examiner
at some point after three years of satisfactory service.
- 5 3.
Examination Frequency:
(a) At present, what is the actual frequencies of examinations for (i)
non-problem (i.e. healthy) institutions (rated 1 and 2) and (ii)
problem institutions (rated 3-5)? (b) What is the FDIC policy or
guideline on the preferred frequency of FDIC examinations for (i)
non-problem institutions and (ii) problem institutions?
Response
a.
Our latest analysis of FDIC examination frequencies was done for
the period September 30, 1987 to September 30, 1988.
For that
period our intervals averaged 35 months for 1- and 2-rated
institutions, 18 months for 3-rated institutions and 16 months for
4- and 5-rated institutions.
Over that period the FDIC increased
the number of onsite examinations from 3,188 in the prior year to
3,829 and significantly improved examination frequency intervals.
For example, the number of 1- and 2-rated banks without a regular
examination in three years reduced from 1,168 to 272; 3-rated
banks with last examinations two years or older declined from 167
to 65 and 4- and 5-rated banks with last examinations two years or
older dropped from 72 to 12.
It is important to note that between regular examinations the FDIC
receives and reviews a variety of information from several sources
which helps us monitor the condition of the bank.
All banks are
subject to quarterly offsite monitoring reviews where our
examiners investigate adverse or unusual trends and perform onsite
visitations when necessary.
Importantly, we also receive
additional information from interim state examinations and
visitations.
If the bank is part of a holding company, we receive
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holding company examination reports from the Federal Reserve as
well as examination reports from other Federal and state agencies
on other banks in the holding company. In other words, even when
the FDIC has not conducted an onsite examination for a longer than
normal period, we are informed of the bank's condition and we are
able to adjust examination priorities, based on the information
received.
b.
The FDIC policy for 1- and 2-rated institutions is to conduct an
examination at least every 24 months.
The examination interval
can be extended up to 48 months when:
(1) an interim state
examination that meets FDIC needs has been performed, and (2) our
offsite monitoring system confirms the rating.
For 3-rated
institutions the FDIC policy is to conduct an examination at least
every 12 months.
The examination interval for 3-rated banks can
be extended up to 24 months when:
(1) an interim state
examination that meets FDIC needs has been performed, and (2) our
offsite monitoring system confirms the rating.
For 4- and
5-rated institutions the FDIC policy is to conduct its own
examination at least every 12 months.
A copy of our formal policy
on examination frequencies is attached.
4.
Projections on FDIC examiners needed to backup the Bank Board System:
If the Administration's proposal is enacted, with the FDIC becoming
the deposit insurance agency for savings institutions, how many
examiners does the FDIC project that it will require in a supporting
role to the Home Loan Bank System (which will be the primary
supervisor for these institutions)? Please describe any discussions
with the Bank Board or with the Treasury Department on this.
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Response
We believe the FHLB System, with 1,800 examiners, recently has made
significant progress in improving its overall examination program.
The number of additional FDIC examiners required will depend on our
analysis of that program.
Generally we intend to make full use of
their work product and we intend, in most cases, to have our examiners
accompany FHLB System examiners on their examinations to evaluate the
examination program as well as provide information on the condition of
solvent S&Ls.
few.
The number of independent FDIC examinations will be
Our hiring projections will be based primarily on an analysis of
the initial evaluations and on the number of S&Ls remaining once the
insolvencies and the expected consolidations take place.
Without having done that analysis, our best estimate is that it will
require 400 to 600 additional examiners to properly perform the
back-up supervisory role envisioned by the President's Proposal.
These numbers are preliminary estimates and could be higher or lower
depending on the condition of the S&L industry and the level of
confidence we develope in the FHLB System examination and supervision
program.
We have had no formal discussions with the Bank Board or Treasury
Department on this issue.
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B.
FDIC Examiner Compensation:
1.
8
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Amounts» Deficiencies & Increases
Increases in Examiner Salaries: How much were examiner salaries
increased in 1987, 1988, and 1989 (to present?)
Response
Examiner salaries increased in these years by the Government-wide
annual salary adjustment and, in some locations, as warranted by the
Corporation's regional pay differential program.
The Government-wide
salary adjustment for 1987 was 3%; for 1988 2%; and for 1989 4.1%.
Regional pay differential rates are reviewed and adjusted annually as
a percentage of base pay.
The rates currently in effect for 31
locations nationwide range from a low of 0% to a high of nearly
20%— with the average covered employee receiving an 8% pay
adjustment.
In 1987, 27 locations were covered with a low of 1% to a
high of nearly 19%.
In 1988, 28 locations were covered with a low of
1% to a high of nearly 20%.
8%.
In both years the average adjustment was
In addition to the salary differential, the Corporation offers a
benefit package which includes its own pre-tax or 401(k) savings plan
separate from the Federal Thrift Savings Plan, free vision and dental
care insurance, and privately sponsored health and life insurance
programs.
The FDIC also has established an Incentive Awards Program
which recognizes and rewards employees whose performance or cost
savings ideas contribute to the productivity and efficiency of the
Corporation.
2.
Examiner Salary Ranges:
Please provide data on the numbers of FDIC examiners in each of the
following salary ranges at present (or, if present data is not readily
- 9 available, then the most recent data): (a) less than $20,000, (b)
$20,000 to $29,999, (c) $30,000 to $39,999, (d) $40,000 to $49,999,
(e) $50,000 to $59,999, and (f) $60,000 plus.
Response
Base Salary Ranges*
Less than 20,000
$20,000 to 29,999
$30,000 to 39,999
$40,000 to 49,999
$50,000 to 59,999
$60,000 plus
Field Examiners
Regional & Wash.
Prof. DBS Staff
244
889**
190
443
212
15
1
2
20
26
209
73
*Not including regional differentials
**This figure reflects the Corporation's aggressive recruitment of
Bank Examiners (Trainee) over the last 4—172 years. Most of the
individuals hired during that time are presently in the GG 7-11 salary
range.
3.
Past FDIC Surveys on Examiner Compensation:
Has the FDIC conducted or contracted for any past surveys on what
salary increases were necessary to keep FDIC examiner salaries
competitive with those in the private sector? If so, what did the
surveys show? And how did the FDIC respond to them?
Response
The Corporation has not previously conducted any surveys to determine
what, if any, salary increases were necessary to keep examiners
salaries competitive with those in the private sector.
4.
FDIC's Response to Pav Increase Recommendation and Need for FDIC
Action:
a.
Who is conducting the study which the FDIC has commissioned?
(Please provide a copy of the contract or project guidelines.)
What is the status of the study and have any tentative conclusions
been reached?
- 10 b.
Why was the report's recommendation for an immediate increase
rejected outright (although there are FDIC funds for pay
increases)?
c.
On March 9, 1989, the Secretary of Transportation announced an
"experimental pay allowance" under a 5 year demonstration project,
providing for a "retention allowance" of up to 20 percent of basic
salaries for 2,100 air traffic controllers, inspectors and
technicians at 11 facilities in "difficult-to-staff" locations.
(The details of this project are set forth in the March 10th
Federal Register.) Please explain why the FDIC has not considered
and then implemented a similar demonstration, as a solution to the
drastic shortfall it is encountered.
Response
a.
& b.
The FDIC solicited competitive bids from outside consulting
firms to review salary levels.
is attached.
A copy of the solicitation package
Four bids were received by March 13, 1989.
Those
bids will be evaluated and a selection made by a committee being
established by the Deputy to the Chairman.
No immediate
adjustment has been given because we believe we need more
information as to amount and how to properly allocate any raises.
We expect to grant at least some interim adjustments very soon.
See also our response to Question 1, above.
c.
The Corporation has had a Regional Pay Differential program in
place since December 23, 1984.
The differential rates are
reviewed and adjusted annually as a percentage of base pay.
We
will look at the D.O.T. program for any characteristics that may
work for the FDIC.
11
C. Other Alternatives To Address Inadequate Numbers of FDIC Examiners
1.
Use of Outside Organizations:
(a) Has the FDIC actively explored contracts with outside accounting
firms, investigative firms, or other kinds of firms or consultants, to
assist the FDIC in managing or closing insolvent thrift institutions,
to take some pressure off its own examination resources, and, if not,
why not? (b) if these alternatives have been explored, but rejected,
what are the impediments making such alternatives not feasible?
Response
a.
To date, the FDIC has not actively explored the use of outside
firms or consultants to assist in its current thrift efforts.
However, we intend to fully review the options in this area.
b.
2.
Not applicable.
Better Utilization of State Resources:
a.
For how many states is the FDIC willing to accept a state banking
agency examination in lieu of a FDIC examination, fully utilizing
the State report? For how many States is the FDIC not willing to
so accept?
Response
The FDIC accepts State banking department examinations, in lieu of an
FDIC examination, from 32 states.
We review all state examination
reports, however, on an individual basis.
In 6 other states, the FDIC
accepts some of the examination reports and enters financial
information from those reports into the FDIC data base.
12
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Even in the 12 states where the FDIC is unwilling to accept
examination reports, the state examinations are not ignored.
The
reports are reviewed for informational and follow-up purposes by
Regional Office staff and field office supervisors and thus play a
role in establishing priorities in scheduling FDIC examinations.
b.
(i) Since the Government Operation's Committee's October 1988
report, has the FDIC specially (a) conferred with each State
banking department, (b) reappraised its use of State examination
reports, and (c) given direction to FDIC regional directors to
better utilize those reports done in a competent and thorough
fashion by State regulators? (Please describe any such actions.)
(ii) For each of these recommended actions not taken by the FDIC,
specify why not? (iii) And is the FDIC now prepared to
reconsider and take specific steps, including increased
consultation, coordination, data sharing, joint-examinations, or
other actions or the formulation of new regional agreements).
The FDIC has conferred specifically with all 50 State banking
departments since October 1988.
In addition, the FDIC has also
conferred with banking authorities from Puerto Rico, Guam, American
Samoa and The Federated States of Micronesia.
The use of State bank
examination reports is reappraised on a continual basis with a clear
bias towards accepting and relying on as much information as possible
without lowering FDIC standards for accurate information.
During a
recent management conference between Regional Directors and Division
of Bank Supervision senior management the relationships and
interactions with State authorities were fully discussed with the
importance of getting as much cooperation and help from the states as
possible being emphasized.
- 13 -
As mentioned above, examination reports from 32 states are fully
accepted in lieu of FDIC examinations.
In all states, coordination of
scheduling takes place not only at the Regional Office level but also
between FDIC field office supervisors and their state counterparts.
Regional Directors are instructed by an active directive to consult,
coordinate examination scheduling, share data, conduct joint and/or
concurrent examinations and form formal or informal regional
agreements to the fullest extent possible.
The FDIC takes active measures to maintain good relations with state
authorities and improve the quality of state examination staffs.
The
FDIC makes its data base and early warning system available to the
states, we provide examination forms for those states using the FDIC
examination report, and we provide training for state examiners at the
FDIC's training facility.
3.
Expanded Role of Independent Audits:
a.
Does the FDIC have statutory authority to order independent audits
(with possible limited audits for very small institutions) for all
state nonmember banks supervised by it? Does it have such
authority to order independent audits for all FDIC-insured banks,
irrespective of which agency is the primary regulator?
b.
If the FDIC does have such authority for state nonmember banks, is
it prepared to revisit this issue to order independent audits for
these banks? If not, why not, given the infrequency of FDIC
examinations?
c.
If such authority (for both categories of banks) is missing,
should the Congress confer on the FDIC such authority in the
legislation under consideration?
14 -
Response
a.
The FDIC has the express authority to require insured State
nonmember banks that are registered under the Securities Exchange
Act of 1934 to have periodic independent audits.
We also have
authority, where necessary, to require external audits as a
condition to granting federal deposit insurance.
In addition, we
have ad-hoc authority to include provisions requiring external
audits in individual cease-and-desist orders.
There are no specific provisions in the Federal Deposit Insurance
Act authorizing the FDIC to require insured State nonmember banks
to employ independent auditors to conduct external audits.
Thus,
we have no express authority to require independent audits of
non-registered State nonmember banks through a regulation of
general applicability.
However, we believe that we have implied
authority to require external audits generally.
Nevertheless, we
have not chosen to invoke this authority, nor has it been tested;
therefore, our authority in this area remains unclear at this
time.
Our authority to require external audits of all
FDIC-insured banks, regardless of their primary Federal regulator,
also is unclear.
b.
The FDIC continues to agree in principle with the desirability of
independent audits for all insured banks, with perhaps some
special allowance or exemption for very small banks.
In keeping
with this view, the FDIC Board of Directors approved the attached
Statement of Policy Regarding Independent External Auditing
15 Programs of State Nonmember Banks on November 16, 1988.
This
policy strongly encourages all insured state nonmember banks under
our supervision to adopt an annual independent external auditing
program.
Although it lacks the force of law, we are confident
that over time the flexible application of the policy statement by
our examiners and regional office staff will achieve positive
results in terms of a much-expanded use of external audit programs
by insured nonmember banks under our supervision.
Furthermore, the banking agencies have added an item to the
Reports of Condition and Income that requires each bank to
indicate in the March quarterly report the level of auditing work
performed by independent external auditors during the prior year.
This new item should enable us to see what changes result in
external auditing programs of banks over the next several years.
Thus, we would not be inclined to revisit the issue of requiring
independent audits for banks until sufficient time has elapsed to
assess the effectiveness of the new policy.
We also continue to
believe it would be unfair to have a regulation that did not apply
equally to all categories of banks.
4.
Other Alternatives: What other alternatives exist, in the FDIC's
view, which could respond to the serious shortage of experienced FDIC
examiners? Please describe them and indicate how the FDIC intends to
utilize such alternatives, if such is feasible.
Response
As indicated previously, the FDIC hopes to attain a goal of 2,200
field examiners by year-end 1989.
Further increases in subsequent
- 16 years can be expected.
Our examination efficiency is consistently
improving and our examination staff has increased dramatically —
a low of 1,389 in 1984 to 1,993 at the present time.
efficiency, improved methodology —
automation —
from
Increased
including maximum use of
and periodic review of priorities will be a continuous
part of our program.
The FDIC is continually alert to alternatives for addressing our
increasing workload.
In the past we have initiated programs for
hiring loan analysts and have contracted with CPA firms to assist in
bank examinations, but with mixed results.
The CPA program, for
example, was dropped because of the high cost and insufficient number
of available senior level CPAs to participate in the program.
Further, the strict conflict-of-interest and confidentiality standards
required for FDIC examiners and which had to be imposed on CPA
personnel created an unacceptable burden.
Also, bankers were
concerned over CPA employees having access to their records when the
same CPA firm may be providing consulting services to their
competitors.
These problems severely limited the attractiveness of
the program.
While outside contractors remain an alternative that the FDIC will
continue to explore as necessary, we have had better success handling
workload increases by using expedited examination procedures such as
visitations and targeted examinations and through better utilization
of state banking department resources and expanding our own staff.
- 17 Creation of a wrongful discharge remedy:
a.
Does the FDIC have any information (including anecdotes)
concerning bank employees or officers who provided information to
the FDIC (or other agencies), including the frequency of such
disclosures and also any discrimination which such
officers/employees have suffered? (b) Are there any problems or
concerns which need to be taken into account in considering this
proposal?
Response
The proposed legislation would provide a cause of action for a person
who has been wrongfully discharged by a financial institution for
providing information about a possible violation of law to a
regulatory agency or to the Department of Justice.
We do not have any
reliable means of quantifying the nature and extent of disclosures
covered by this section nor of any recriminations that might have been
suffered by those coming forward with the information.
Bank
supervisors in our regional offices report that, in their experience,
situations of the kind contemplated in the proposed legislation are
not numerous but have occurred often enough for them to recognize a
need for the proposed legislation.
The following case is illustrative of many others:
While copying bank
records to be given to the bank's auditors, a bank employee noticed
differences in the financial information being prepared by the chief
executive officer.
She made copies and provided them to the FDIC.
She was immediately dismissed by the bank and later brought action
against the bank for wrongful dismissal.
- 18 -
The information she provided the FDIC led to a full examination of the
bank and an investigation into the activities of senior management.
A
temporary cease and desist order was issued; the executive was
formally removed and ordered to pay a civil money penalty of
$250,000.
The bank has since been merged with FDIC assistance.
For
taking a courageous step and informing the FDIC, the bank employee
lost her job and had to pay legal expenses to get unemployment
compensation because the bank contested her right to receive
benefits.
Because the bank has merged, the status of her claim is
uncertain.
Notwithstanding the obvious protection afforded an employee who steps
forward courageously to inform authorities of violations of law, the
mere fact that the protection is available, if properly publicized to
bank employees, should encourage them to volunteer information to
regulators that might lead to earlier detection of violations and
might actually deter bank insiders from attempting the violations in
the first place.
2.
Establishment of a reward or bounty provision:
a.
Does the FDIC have any information indicating that such a reward
would bring forth information which could prevent unsafe and
unsound practices or other violations in financial institutions?
(b) Are there any problems or concerns (including potential
administrative difficulties), which need to be taken into account
in considering this proposal? (c) What would be the source for
the funds to pay the rewards? Does this need to be addressed in
the legislation?
- 19 -
Response
We have no information on which we could conclude positively that a
reward or bounty provision would elicit enough reliable information to
improve the safety and soundness of financial institutions.
We
believe that some people who might not do so under present
circumstances would be induced by the prospects of receiving a reward
or bounty to bring forth information.
As with any new provision,
administrative problems are likely but should diminish over time.
The
payment of something of value to a potential witness in either a civil
or criminal proceeding, however, might prove troublesome in that the
person's motive for providing the information could be questioned.
We believe the funds used to pay the reward should come from the
penalty that is collected and that the reward should be deducted from
the penalty before the funds are paid to the U.S. Treasury.
Classification Number
Division of Bank Supervision
MEMORANDUM SYSTEM
Data
,Tli i y
Issuing Office
Contact
Robert Waleb
□ Notice
TO:
Regional Directors
FROM:
Paul G. Fri
Di rector
SUBJECT:
1Q8R
d b .S/PPH
691 :
ßj Memorandum
Policy for Examination Priorities and Frequency
1. Purpose. To set forth DBS policies for examination priorities and frequency
and to define those areas where Regional Director discretion is allowed.
2. Background. The FDIC examination program is designed to help maintain
public confidence in the integrity of the banking system, monitor compliance .
with applicable laws and regulations, protect the insurance fund and establish
a factual record to support recommendations for corrective actions. Examina
tions are the crux of the risk identification process. However, the process
of identifying and controlling risk on both an individual bank and industrywide
basis has become more difficult as additional powers are granted and banks
expand into a wide range of new activities. The Division believes deregulation
of the industry must be balanced with a more intense supervisory program. This
memorandum revises current policy to require more frequent onsite examinations
for all insured State nonmember banks while continuing to give priority to all
insured institutions requiring special supervisory attention and to those
institutions presenting the most risk to the insurance fund and the industry.
3. Examination Intervals — Safety and Soundness Examinations. The standard
safety and soundness examination intervals for insured State nonmember banks
are set forth below. Subsection "a" details the criteria to be used for extend
ing the examination intervals. The CAEL monitoring system should be used with
information obtained from State examinations, visitations, offsite reviews and
other sources to establish examination priorities especially for those institu
tions with extended intervals. Although this memorandum sets forth maximum
intervals for examinations and certain visitations, Regional Directors are
encouraged to perform additional examinations or visitations whenever necessary.
Composite
Rating
1
2
3
4
5
Maximum Interval
(Months)
24
24
12
12
12
-
Z
-
a. Extended Intervals. Intervals for 1- and 2-rated institutions may be
extended up to 48 months and intervals for 3-rated institutions may be extended
up to 24 months when: (1) an interim State examination that meets FDIC needs
has been performed, and (2) the "CAELDIFF" score of the CAEL monitoring system
confirms the rating. There should be no more than 24 months between the State
examination and an FDIC examination for 1- and 2-rated institutions, and no
more than 12 months between the State examination and an FDIC examination for
3-rated institutions.
b. Offsite Reviews. Offsite reviews should be conducted in accordance with
outstanding instructions.
c. Vi sitations. Except as noted under "Other Situations," the Regional
Director (or designee) has discretion to conduct visitations as necessary to:
(1) monitor compliance with a formal corrective order or an informal agreement;
(2) comply with CAEL followup requirements and to investigate other adverse or
unusual situations; (3) determine progress in correcting deficiencies noted at
the previous examination; (4) act as an effective investigative and supervisory
tool as deemed necessary; and (5) comply with frequency schedules described
under "Other Situations" listed below. While a visitation is not a substitute
for an examination, it may be expanded into an examination when deemed
necessary.
:
d. Other Situations. In addition to the preceding instructions, examinations
or visitations should be performed in the following situations:
(i)
Newly chartered and insured institutions:
° Visitations should be conducted within the first three and six
months of operation. An examination is to be conducted within the
first 12 months of operation. Subsequent to the first examination
and through the third year of operation, at least one visitation is
to be performed in each 12-month period during which an examination
is not conducted.
• State examinations that meet FDIC needs can be substituted for the
required FDIC examinations or visitations outlined in this subsec
tion subsequent to the initial visitations and examination.
(ii) Institutions converting to insured nonmember status, including national,
State member, thrift and industrial bank conversions:
° For national and State member banks converting to insured nonmember
status, a visitation should be conducted within the first six months
after the conversion. An examination is to be conducted within 24
months of the last examination prior to conversion if the institution
was assigned a rating of 1 or 2 and the rating is confirmed by CAEL.
An examination is to be conducted within 12 months of the last exami
nation prior to conversion if a 3-, 4- or 5-rating was assigned or
indicated by CAEL or to investigate other adverse or unusual situations.
- 3 -
° For thrift and industrial bank conversions, a visitation should be
conducted within the first six months after the conversion. An
examination is to be conducted within 24 mohths of the entrance
examination if the institution was assigned a rating of 1 or 2. An
examination is to be conducted within 12 months of the entrance
examination if a 3, 4 or 5 rating was assigned.
• Thrift institutions and industrial banks that have not had an FDIC
entrance examination prior to the conversion should have a visita
tion within three months after the conversion and an FDIC examination
within 12 months after the conversion.
(iii) Institutions which have had a change of ownership control:
• If the Regional Director's knowledge of the new ownership reflects
a satisfactory financial and management performance record, standard
examination intervals apply. If new ownership is unknown, at least
one visitation is to be conducted within the first three months
after the change of ownership control and an examination is to be
conducted within the first 12 months after the change. Subsequent
to the first examination and through the third year from the change, .
at least one visitation is to be performed in each 12-month period
during which an examination is not conducted.
° Subsequent to the initial visitation and the first examination,
State examinations that meet FDIC needs can be substituted for the
FDIC examinations or visitations required in this subparagraph.
(iv)
Insured institutions that have received FDIC assistance or been involved
in purchase and assumption or deposit transfer transactions:
c Acquiring institutions with total assets in excess of ten times the
deposits acquired, which are rated composite 2 or better, and have
an acceptable CAELDIFF score are exempt from the following require
ments, including any reporting. Aside from the initial visitation,
the requirements outlined in this paragraph are part of the ongoing
supervisory process. Procedures directly related to compliance with
assistance agreements will be described separately.
• If the institution is a State nonmember, a visitation is to be con
ducted within 30 days of the date of the transaction to determine
how funds from the FDIC are being used and whether the bank is in
accordance with the assistance agreement, if there is one. A second
visitation is to be conducted within six months of the transaction.
A third visitation should be conducted within the second 12-month
period after the transaction.
• If the institution is a State nonmember, an examination is to be
conducted within the first 12 months of the transaction.
Thereafter, the standard examination frequency schedule applies.
• For national and State members, a cooperative program should be
established with the other Federal supervisory agencies to ensure
- 4 -
that all institutions receiving FDIC funds are properly monitored.
The primary Federal supervisor has responsibility for the oversight
of the institution and should be requested to keep the FDIC Regional
Director informed of important developments. The Regional Director
has discretion to determine the extent of direct FDIC involvement in
this process.
° The Regional Office is to submit to the Associate Director,
Supervision, Enforcement and Surveillance Branch, a quarterly report
that includes: (a) a listing of each assisted or assuming bank
including State member and national banks; (b) a brief description
of the bank's condition including the uniform bank rating; (c) the
CAEL rating and CAELDIFF score; and (d) the Region's supervisory
plan for each bank including the oversight performed by other
Federal agencies. Banks should remain on the list for two years.
Any deviation to the examination or visitation schedule outlined in
this subsection should be explained in this quarterly report.
4. Coordination with State Authorities. Every effort should be made to coordi
nate examination and visitation schedules of all FDIC supervised institutions
with State authorities to take advantage of State authority resources and to
minimize duplication of effort and burden on the institutions. Toward the end
of the year, the Regional Director (or designee) should meet with representa
tives from each State banking authority to determine relative examination
responsibilities for the upcoming calendar year. This may be done in broad
categories by rating, size and location of institution or it may be done by
specific institution as deemed appropriate. Such agreements should remain
informal, with enough flexibility to allow either party to alter schedules with
minimal notice.
The agreement should strive to provide for a safety and soundness examination
and, where appropriate, specialty area examinations of all insured State nonmem
ber banks within intervals (including allowable extensions) not less frequent
than those prescribed in this memorandum. While State law examination require
ments should be considered in the negotiation process together with other
appropriate factors, such statutory requirements should not be the determining
factor in the final agreement.
5. Coordination with Other Federal Agencies of Bank Holding Company
Inspections and Subsidiary Institution Examinations. Federal bank regulatory
agencies have agreed to conduct coordinated bank holding company inspections and
lead bank examinations for: (a) any bank holding company with consolidated
assets in excess of $10 billion; (b) any bank holding company or its subsidiary
lead bank rated composite 4 or 5 under the bank holding company rating system or
the uniform rating system for banks; and (c) any bank holding company or its
subsidiary lead bank rated composite 3 whose financial condition appears to have
worsened significantly since the last inspection or examination. In multibank
holding companies without a designated lead bank, the largest bank in total
assets generally should be considered the lead bank. However, when other banks
in a holding company are similar in size or larger than the designated lead
bank, the condition and general performance trends of those banks together with
the lead bank should be an important factor in establishing examination
- S -
priorities. Whenever possible, examinations and inspections are also to be
coordinated for all other bank holding companies.
Bank examinations for subsidiary banks within a multibank holding company should
be coordinated with the parent inspection to the extent practicable and where
resources will permit.
Regional Directors (or designee) should meet at least
annually with their counterparts from other Federal agencies in order to develop
a coordinated schedule that will maximize the efficient use of examination
resources and enhance the integration of bank and bank holding company examina
tions. The appropriate State bank regulator should be kept informed and encour
aged to participate in the coordinated Federal efforts affecting State banks.
Coordination of inspections and examinations should focus on the use of common
financial statement dates where possible, and allow for joint discussions of
examination findings with management. Absolute concurrency, common "as of"
dates or simultaneous starting dates are not required.
Examinations of nonbank affiliates may be conducted at the discretion of the
Regional Director, but independent examinations of holding companies supervised
by the Federal Reserve may not be conducted without prior approval of the
Washington Office.
6. Supervision of Interstate Banking Organizations and Chain Banks. In
*
addition to the guidelines outlined in paragraph No. 5 above, a coordinated
supervisory strategy for interstate banking organizations (both inter- or
intraregional) should be developed. Regional Directors are responsible for
designating a lead Region to design an appropriate supervisory strategy for
those organizations and to ensure pertinent information is conveyed in a timely
manner to other DBS Regions and to appropriate Federal and State regulators.
The supervisory strategy developed by the lead Region should combine tradi
tional supervision of individual units with an appropriate top-down approach to
assess risk and monitor and coordinate supervisory actions. For these organi
zations, the Regional Director has discretion to omit, delay or modify existing
examination frequency policy if: (1) the financial condition of the holding
company and lead bank is considered satisfactory; (2) the condition of the
subsidiary units is believed to be satisfactory; (3) control over all insured
banks in the organization is effectively centralized; and (4) management is
favorably regarded. Refer to Regional Director Memorandums related to
supervision of interstate banking organizations. Classification No. 6610, for
further guidance in this area.
It is the policy of the Division to monitor and supervise banks that are part
of a chain banking organization in a manner that fully considers the financial
impact of the consolidated chain on the individual institutions within that
chain. Regional Directors have been assigned responsibility for maintaining
a record system for chain banking organizations and for developing an overall
supervisory strategy for those organizations. This involves interregional plan
ning sessions to: (1) evaluate examination priorities; (2) assign Regional
responsibility; (3) develop examination strategies; and (4) coordinate the
process with other supervisory authorities, as appropriate. Refer to Regional
Director Memorandums related to chain banks under Classification No. 6800 for
more specific guidance in this area.
-
6
-
7 . Examinations of National Banks. State Member Banks and Federal Savinas
Banks. Regional Directors may use their discretion, in planning examinations of
State member, national and Federal savings banks. Examinations of State member
banks where an FDIC presence is deemed appropriate will be subject to approval
by the Director of DBS under existing guidelines. Examinations of Federal
savings banks should be performed in accordance with the cooperative examination
program that became effective in July 1984. Examinations of multinational
national banks are to be decided on a case-by-case basis by the OCC's Senior
Deputy Comptroller for Supervision and the FDIC's Director of the Division of
Bank Supervision. Examinations of all other national banks, including large
regional institutions are to be determined at the Regional Office level.
Factors to be considered when establishing priorities for State member and
national bank examinations include risk to the insurance fund; evidence of
serious deterioration which may require corrective action; and whether finan
cial assistance had been granted to the institution. Consideration should also
be given to examining or participating in examinations of large well-rated
institutions as an effective way to gain valuable experience in the large bank
environment and in more specialized areas of banking.
8. Entry of FDIC. State and Other Federal Agency Examinations onto the FDIC
Database. The Regional Office is responsible for the timely entry of FDIC,
t
State and other Federal agency examination data to the online database. FDIC
examination data should be entered as soon as possible after the report is
received in the Regional Office. Procedures should also be in place to ensure
that State and other Federal agency reports are received within a reasonable
time period and that the reports are reviewed and the database updated within
60 days of receipt. With regard to OCC examinations, the Regional Office
should have access (either in hard copy or through the OCC's online SMS) to
enough information to conduct a proper review. This is necessary to ensure
that current examination data are available for offsite monitoring, bid list
preparation and a variety of management reports. State examination reports
dated after August 1, 1988, that are usable to extend examination intervals
should be coded "A" on the examination system. Other State examinations, if
useful for information purposes, should be entered and coded "B." Examinations
coded "B" will not be used by CAEL. All reports from a given State need not be
coded the same way; some can be coded "A" and some "B." Generally, those coded
"A" should relate to the agreed upon examination schedule described in
paragraph 4.
A Summary Analysis of Examination Report (Form 96) should be prepared for each
OCC and Federal Reserve examination report which is reviewed. If all the infor
mation necessary to complete the form is not available from the examination
report data, the database or discussion with the regulator, the information
that is available should be entered. A type code of "N" and a scope of "X"
should continue to be used for these examinations. When these codes are used
the only items required are the CAMEL rating components and the composite
rating together with the examiner-in-charge and date of examination. Additional
items such as assets, deposits or classifications may be entered as available.
Since only ten examination events can be retained on the online database at one
time, procedures should be established to ensure that the last full-scope or
- 7 -
most complete examination performed by the OCC and Federal Reserve is retained
if it is still considered relevant. Other limited-scope examinations or events
should be dropped from the database to permit entry of the most current
examination.
9. Examination Intervals - Specialty Examinations. Specialty examinations
generally should be conducted concurrently with safety and soundness examina
tions except when the size or arrangement of the department makes it impractical
or inefficient to do so. However, when the safety and soundness rating is a 1,
2 or 3 and the specialty area is rated 4 or 5, a specialty examination is to be
conducted within a 12-month interval. Conversely, if the safety and soundness
rating is 3, 4 or 5, the specialty examination may be extended to the maximum
interval if the specialty area is assigned a rating of 1, 2 or 3.
Only the Trust and Data Processing areas are eligible for extra extended
examination intervals based on State examinations. The criteria for extending
examination intervals in these areas are explained in the appropriate
subsection below. Other areas must conform to the standard examination
intervals listed below even when the safety and soundness examination has been
extended.
Specialty Composite
_______ Rating______
Maximum Interval
(Months)
1
24
24
24
12
12
2
3
4
5
a. Bank Secrecy Act ("BSA") Compliance Examination. The FDIC is required by
statute to review compliance with the Treasury Department's currency reporting
regulations (31 CFR 103) and FDIC Section 326.8 at each examination of the
bank. Accordingly, concurrent BSA reviews should be conducted with each safety
and soundness or compliance examination (but not more than once per annum).
Where a compliance examination is conducted concurrently with the safety and
soundness examination, BSA reviews should be included in the compliance report.
A separate BSA review should be prepared when no compliance examination is con
ducted with the safety and soundness examination. When the safety and sound
ness examination period has been extended, a BSA review should be done with
any interim compliance examination.
b. Compliance. Examinations generally should be conducted concurrently with
safety and soundness examinations in accordance with prescribed intervals.
Additional examinations or visitations are encouraged as deemed necessary by
the Regional Director.
-
8
-
c. Data Processing Facilities- Examinations of data processing facilities
operated by an FDIC supervised institution or its subsidiary generally should
be conducted concurrently with safety and soundness examinations, in accor
dance with prescribed intervals. In those cases where the size or arrangement
of the data facility makes this inefficient or impracticable, separate examina
tions may be conducted. Regional Directors have discretion to extend examination
intervals for 1-, 2- and 3-rated data processing facilities up to 48 months if
there has been an interim State examination that meets FDIC needs since the last
FDIC examination. There should be no more than 24 months between the State
examination and an FDIC examination for 1-, 2- and 3-rated data facilities.
Additional examinations or visitations are encouraged when considered necessary
by the Regional Director.
Independent data processing facilities are subject to the same examination
frequency policy as financial institutions. Regional Directors should coordi
nate with other responsible Federal agencies for joint or rotated examinations
of data facilities operated independently or by a holding company, or its
affiliate, which service both FDIC supervised institutions and other intitutions.
FDIC participation is encouraged for examinations of national and State member
institution data facilities, or their affiliated organizations, which provide
services for FDIC supervised institutions.
r
Examinations of data facilities subject to the Multiregional Data Processing
Servicer (MDPS) program will be scheduled at the Washington Office level by
the FFIEC's EDP Examination Task Force Subcommittee.
d. Government Securities Dealer and Broker Activity. The Department of
Treasury has not issued regulations requiring specific examination frequencies
for examinations of Government securities brokers and dealers. Nevertheless,
for efficiency, when a bank is both a municipal securities dealer and a
Government securities dealer or broker, the examinations of both departments
should be conducted concurrently in accordance with prescribed intervals for
specialty examinations. A bank which is a Government securities broker or
dealer, but not a municipal securities dealer, also should be examined in
accordance with prescribed intervals. These examinations generally should be
performed concurrently with other types of examinations but may be conducted
independently as appropriate. Additional examinations or visitations are
encouraged when deemed necessary by the Regional Director.
e. Municipal Securities Dealer Activity. The Municipal Securities Rulemaking
Board Rule G-16 requires that an examination of the municipal securities dealer
activities of institutions which are registered with the SEC as municipal
securities dealers is to be conducted at least once every 24 months. These
examinations generally should be performed concurrently with other types of
examinations but may be conducted independently as appropriate. Additional
examinations or visitations are encouraged when deemed necessary by the Regional
Director.
f.
Transfer Agent. Examinations generally should be conducted concurrently
with safety and soundness examinations or with independent trust examinations,
as appropriate, in accordance with prescribed intervals. If an institution
- 9 -
is subject to the transfer agent registration requirements of Part 341 and also
has a trust department, the transfer agent function.should be examined at all
trust department examinations. If the institution does not have a trust depart
ment but is subject to Part 341, the transfer agent examinations should be
performed with the safety and soundness examination. Additional examinations
or visitations are encouraged when deemed necessary by the Regional Director.
g.
Trust. Examinations generally should be conducted concurrently with safety
and soundness examinations in accordance with prescribed intervals. Separate
examinations of larger departments may be conducted when deemed necessary by the
Regional Director. Regional Directors have discretion to extend examination
intervals for 1-, 2- and 3-rated trust departments up to 48 months if there has
been a State examination that meets FDIC needs since the last FDIC examination.
There should be no more than 24 months between the State examination and an FDIC
examination for 1-, 2- and 3-rated trust departments.
10. Insured
examinations
described in
institutions
Branches of Foreign Banks. The same priorities and frequency of
including instructions regarding visitations and other situations
this memorandum that are applicable to domestic FDIC supervised
are applicable to insured branches of foreign banks.
i
11. Responsibility and Action. Regional Directors should strive to provide for
a safety and soundness examination and specialty area examinations of all State
nonmember banks within the prescribed intervals (including allowable extensions).
Consideration also should be given to the number of State member, national and
Federal savings banks that may require FDIC examinations or participation by the
FDIC. An estimate showing the number of safety and soundness as well as
specialty area examinations by State for the coming year should be submitted to
the Director of Division of Bank Supervision no later than January 31 of each
year. This projection should be made after discussions and agreements have been
made with State and Federal authorities regarding examination responsibilities
for the next calendar year. A June 30 progress report should be submitted to
the Director of the Division of Bank Supervision no later than July 31.
Significant variances from projections or changes in future projections should
be discussed in this report.
Full implementation of this examination program will depend on the personnel
resources available as well as the general structure and condition of the
industry. Because of differences in staffing and overall banking conditions
in each Region, implementation periods will vary. However, Regional Directors
should request authorization to hire sufficient staff and should develop neces
sary operating procedures to be in full compliance with this program within a
reasonable time period.
When the examination frequency requirements outlined in this memorandum cannot
be met because of personnel restrictions or other reasons, a description of the
nature and cause of the situation, necessary corrective measures planned,
implemented or needed and interim steps being taken to maintain an adequate
supervision program should be included with the examination projections due on
January 31. An updated discussion should be included with the June 30 progress
report. A discussion addressing the general situation existing within the
10 -
region is acceptable in lieu of a notification for each institution for which
examination requirements cannot be met. However, for a bank rated 4 or 5 which
is not examined within 12 months, an explanatory memorandum to the files should
be prepared.
12. Effective Date. This policy is effective immediately. Regional Director
Memorandums: Priorities, Frequency and Scope of Examinations, May 14, 1985,
Classification No. 6510, Transmittal No. 89, Supervision of Banks Having
Received FDIC Assistance, March 29, 1988, Classification No. 6610, Transmittal
No. 88-044, and Timely Updates to the Online "96" Database, June 13, 1986,
Classification No. 6610, Transmittal No. 86-112, are hereby rescinded.
page 1 of 11
SOLICITATION
FEDERAL DEPOSIT INSURANCE CORPORATION
Solicitation Nunber: 8900290QCD
Date Issued: February 2, 1989
SUBMISSION OF OFFERS
PROPOSALS ARE DUE IN THE OFFICE DESIGNATED BELOW BY
5:15 P.M. EASTERN STANDARD T P IE ON MONDAY FEBRUARY 27, 1989
Proposals may be mailed
to this address:
Proposals nay be hand
carried to this address:
Federal Deposit Insurance Corporation
Contracts and Acquisitions Unit, Rocn F-104
550 17th Street, N.W.
'Washington, D.C. 20429
Attn: Canpbell Denial lie, Jr.
Federal Deposit Insurance Corporation
Contracts and Acquisitions Unit, Room F-104
1776 F Street, N.W.
Washington, D.C. 20006
Attn: Canpbell DeMallie, Jr.
For information call Campbell DeMallie, Jr. on (202) 898-3664 (No collect calls)
See Article I, Statement of Work, in the Contract Special Provisions for a des
cription of the goods and services to be provided under anv contract resulting
frcn this solicitation.
OFFER
The firm named below offers and agrees to furnish any or all items upon which
prices are offered, at the price offered herein or in oaoers attached hereto,
delivered at the designated points, within the time or times specified herein or
in papers attached hereto. Prices are subject to the following prcnot payment
discount:
f~ ] »lone
ËÉ
_________
% _____________________
calendar days
(check one box)
Name of Offeror Firm: ____________________________
Address:
__________ Signature:
Name of Signer: ______
Title of Signer: _____
Telephone Number: (
)
FAX Nunber (if any): (
)
Ref. No.
CONTINUATION SHEET
8900290000
REO TEST FOR PROPOSALS
TABLE OF OOtTTPTTS
1.
Signature Page
2.
Contents Page
3.
Part I
- Solicitation Instructions and Conditions
4.
Part II
- Evaluation Criteria
5.
Part III - Contract Special Previsions
Article
Article
Article
Article
Article
Article
Article
Article
Article
Article
Article
Article
Appendices: "R"
»«rtf
3320 15 14- 79 )
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
Statement of Work
Consideration
Progress Reports
Billing Instructions
FDIC Contract Representatives
Advertisi'^q and Publicity
Confidentiality of Information
Conflict of Interest
Inspection and Acceptance
Option for Phase II
FDIC General Provisions
Order of Precedence
- FDIC General Provisions
- Representations and Certifications
Page
2
JÔT
11
CONTINUATION SHEET
Ref No.
89002900CD
Page
Of
3
part I - Solicitation Instructions and Conditions
1.
It is anticipated that this solicitation will result in a Firm Fixed Price
contract with a period of performance of about four (4) months. The antici
pated period of performance of Phase I is two (2) months.
2.
Any proposal submitted under this solicitation must be signed with an oriqinal
signature by an official authorized to submit offers and contractually bind
the organization submitting the proposal.
3.
The proposal shall stimulate that it is predicated upon all the terms a n d
conditions of this Request for Proposals and shall acknowledge any amend
ments thereto.
4.
Envelopes containing responses to this Request for Proposals should be marked
with the Solicitation Number - 8900290QCU. Also, please reference the solici
tation number in your cover letter.
5.
Each offeror shall furnish the information required on various pages of this
solicitation. Ihe offeror shall print or type his name on any sheets on
which he enters any information or makes any changes.
6.
Addresses for submission of proposals:
(a)
Proposals may be nailed to the following address:
Federal Deposit Insurance Corporation
Contracts and Acquisitions Unit, Suite F-100
550 17th Street, N.W.
Washington, D.C. 20429
Attn: Campbell DeMallie, Jr.
(b)
Prooosals may be hand carried to the following address:
Federal Deposit Insurance Corporation
Contracts and Acquisitions Unit, Suite F-100
1776 F Street, N.W.
Washington, D.C. 20006
Attn: Campbell DeMallie, Jr.
7.
Proposals received after the due date and time on cage 1 may be rejected for
that reason.
8.
*V>3ifications of otherwise acceptable proposals submitted after the RTP due
date may be considered by the FDIC at any tine prior to award. Modifications
must be in writing and signed by an official empowered to bind the offeror.
9.
Because of the time required by the FDIC to adequately evaluate proposals,
offerors are requested to scecify a proposal acceDtance period of not less
than sixty (60) days.
3320 15 (4 - 79 )
il
Ref N o
CONTINUATION SHEET
890029OOCD
Page
ToT
4
11
10. Prior to proposal submission offerors shall examine the Contract SDecial
Provisions and note all conditions and limitations which may influence exe
cution or completion of the work required. Any discrepancies noted should be
identified in writing to the FDIC Contracting Officer for resolution orior to
submission of proposals. Any substantive information given to a prospective
offeror will be furnished to all prospective offerors as an amendment to the
solicitation.
if tbe FDIC, at anv time prior to the due date for receipt
amends or changes anv part of the RFP, then the issuing office
an appropriate notification to all prospective offerors, and
shall acknowledge in writing the receipt of any such amendment
wise provided for in the particular amendment.
of proposals,
will transmit
each offeror
unless other
12. Award of Contract
(a)
The contract will be awarded to the responsible offeror whose offer con
forming to this solicitation will be most advantageous to the FDIC,
price and other factors considered.
(b)
The FDIC reserves the right to reject any or all offers and to waive
informalities and minor irregularities in offers received.
(c)
A written award or acceptance of offer mailed or otherwise furnished to
the successful offeror within the time for acceptance specified in the
offer shall be deemed to result in a binding contract without further
action by either party.
(d)
The FDIC may accent, within the time specified therein, any offer,
whether or not there are negotiations subsequent to its receipt, unless
the offer is withdrawn by written notice received by the FDIC prior to
award. If subsequent negotiations are conducted, they shall not consti
tute a rejection or counteroffer on the nart of the FDIC.
(e)
The FDIC reserves the right to accent other than the lowest offer and to
reject any or all offers.
(f)
The FDIC mav award a contract, based on initial offers received, withcut
discussion of such offers. Accordingly, initial offers should be sub
mitted on the most favorable terms that the offeror can submit to the
FDIC.
Ref. No.
CONTINUATION SHEET
89002900CD
Page
Of
5
Part II - Evaluation Criteria
A.
General
The technical portion of the proposal will be the most important single con
sideration in the award of the contract and should, therefore, be as complete
and specific as possible. The evaluation will be based on the technical and
administrative capabilities of the prospective contractors in relation to the
needs of the FOIC.
8.
Technical Evaluation Factors
Proposals submitted in response to this RFP shall be evaluated in accordance
with the following factors with a maximum total score of 100 points:
C.
1.
Approach - Offerors should -demonstrate an understanding of the work to
be performed by providing a thorough description of their approach to the
project............................... ........................ 40 points
2.
Personnel - Experience and other qualifications of the people who will
perform the project. Offerors should describe in detail what each person
will contribute to the project and vrtiat experience each person has in the
resolution of problems similar to those of the RDIC.... ....... 30 points
3.
Experience - Technical competence of the firm, as evidenced by the recom
mendations of references and other sources of information, of successful
performance on similar work with respect to such factors as control of
costs, quality of work and ability to meet schedules........... 30 points
Price Evaluation
Price wil1 be a significant factor along with the technical evaluation of an
offeror's prooosal and will not be disregarded in the negotiation and award
of a contract under this solicitation,
A seoarate price analysis will be
performed on each pricinq proposal received. The contract will be awarded to
the responsible offeror whose proposal conforming to the solicitation will be
the rest advantageous to the FDIC, price and other factors considered.
c 3320 15 14-79)
11
Ref N o
CONTINUATION SHEET
39002900(7)
Part III - OOtfTRACT SPECIAL PROVISIONS
Article I - Statement of Vtork
¿1
BACKGROUND
__
Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act
of 1933 to protect depositors in the nation's banks, to help maintain confidence
in the banking system, and to prenote safe and sound banking practices. The FDIC
implements these programs through a program of federal deposit insurance for
about fourteen thousand (14,000) ccnmercial banks and savings banks, and renulation and supervision, in cooperation with the states, of about eiqht thousand
(8,000) state-chartered banks that are not members of the Federal Reserve System.
other six thousand (6,000) or 90 commercial banks are covered by FDIC deoosit
insurance but are regulated and supervised by the Board of Governors of the
Federal Reserve System or by the Comptroller of the Currency.
The FDIC has about eight thousand (8,000) employees. Of this number about four
thousand (4,000) are temporary liquidation employees. Many temporary liquidation
employees are former emplovees of failed banks when the FDIC has hired to assist
in the liquidation their old employer and other failed banks. They work for the
FDIC for an average of two (2) years. The number and location of liquidation
offices varies. They are established to support bank liquidation or "bailout"
activities and are discontinued when no longer needed. There is currently one
consolidated office in Puerto Rico. The others are in the continguois United
States. About two thou sard (2,000) FDIC employees are bank examiners. They are
hired directly out of college and are trained by the FDIC. Most temporary liquid
ation employees and bank examiners work in small rural communities. Geographic
pay differentials are currently addressed through local differences in the CPI.
The other two thousand (2,000) FDIC enoloyees have a wide variety of jobs. Most
of these employees work in the FDIC's headquarters in Washington, D.C. or m one
of the FDIC's regional offices.
FDIC Regional Offices are located in Atlanta,
Boston, Chicaqo, Dallas, Kansas City, Memphis, New York, and San Francisco.
•’’he Federal Deposit Insurance Corporation (FDIC) has the leqal authority to
develop and use its own pay structure. From its founding in 1933 the FDIC has
generally voluntarily subscribed to the U.S. Office of Personnel Management
(U.S. OPM) regulations in the areas of pay and classification of positions.
Although position descriptions and job evaluation criteria exist, many of the
FDIC's jobs have functional responsibilities unique to the FDIC.
As a result
it has been difficult to measure comparable positions and salary structures
against external points of reference.
The FDIC is subjected by law to the U.S. OPM regulations in the critical areas
of hiring and promotion practices.
The fact that the FDIC is subject tc> the
U.S. OPM regulations has significant impact on how the FDIC s Personnel Office
responds to management's needs in these areas..
"^ie FDIC is interested in exolorinq the advantages and disadvantages of develooing
a canoensation system t h a t 'is more directly tied to prevailing local pay rates
in areas of the country where the FDIC has an employment presence. The FDI_ is
thus interested in obtaining the. services of a contractor with capability and
experience m reviewing compensation systems.
1 ^ 3 3 2 0 15 U-79Í
(continued)
Ref. No
890029OQCD
CONTINUATION SHEET
Page J o T
7
li
Article I - (Continued)
II.
SCOPE AND STFUCTJRE OF THE PROJECT
The Contractor shall review the present salary structure of the FDIC's seventyfive (75) occupations and develop a specific and_practical salary program to
ensure comparability with the competitive markets. The Contractor shall perform
the study in two separately priced phases. The FDIC will evaluate the results
of the first phase and decide whether or not to continue with the second phase.
It is expected that the FDIC will decide whether or not to continue with the
second phase within two (2) months after delivery of the Contractor's final
report for Phase I. In accordance with Article X of this contract the FDIC has
an option to order the Contractor to perform Phase II for six (6) months after
delivery of the Contractor's final report for Phase I.
Both phases of the oroject entail the review of the present structure, selection
of benchmark jobs to be used as a basis for comparison with jobs in the local
and national markets, a salary survey of the market, analysis of the data, con
struction of a new salary structure, the grouoinq of jobs, and the process to
maintain the structure.
In addition, Phase II of the oroject requires the de
velopment of new salary administration procedures. This includes describing hew
salaries would be determined for new entrants, how movement would occur within
and between grades or structures, rules for promotion, and h w increased experi
ence should be factored into salary determinations. The Contractor shall develop
competitive marketplace data for a representative sample of benchmark positions
using published data if available supplemented by a marketplace survey of selected
positions. In particular, the Contractor shall identify available published
survey sources; identify benchmark positions that can be matched with published
survey data? develop comparisons between current pay rates and competitive mar
ketplace pay rates for the selected benchmark positions; and estimate the cost
associated with bringing current pay rates in line with the competitive market
place. The Contractor should provide the FDIC with recommended principles and
guidelines which can be used to initially set individual employee salaries using
the new structure.
Also the firm will identify merit pay programs that have
been shown to be effective in environments such as the FDIC's. The Contractor
should provide extensive communication support throughout the project as well as
periodic written status reports and presentations to managerial and employee
groups.
III.
PHASE I
The Contractor shall explore the feasibility of developing a market-based oav
system for the FDIC. To do this the Contractor shall develop the data needed
for the FDIC to make an intelligent decision whether or not to proceed with the
design and implementation of a market-based pay system. The end product of the
Phase I shall be a report containing the Contractor's analysis and findings
including a recommendation for whether or not to proceed with the development
of a new compensation system.
'Die report shall include a discussion of the
important administrative issues that would need to be addressed in moving fren
the current pay system to a market-based system.
(continued)
1*°* 3320 15 (4-79)
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CONTINUATION SHEET
8900290QCD
Page
[ Of
8
Article I - (Oontinued)
These administrative issues include the following:
1
j
2.
How is competitive pay data gathered and maintained over time?
To what extent would the ccnpensation system be administered centrally versus
locally?
3.
What will be the basis for determining the amount of the budget available for
pay increases in a given year?
IV. PHASE II
The contract will give the FDIC a firm (priced) ootio.n to direct the Contractor
to perform Phase II which consists of the actual design of a new salary structure,
development of policies and procedures for maintaining the pay system, a plan to
integrate the existing internal evaluation system with the market-based external
pay system, and development of the necessary communication materials, training
and supoort in order to effectively implement the new compensation system.
Article II - Consideration
The FDIC will pay the Contractor the firm fixed price of $_______ *______ for per
formance of Phase I in accordance with this contract. The FDIC has a firm ootion
to acquire from the Contractor the goods and services described as Phase II of
this contract for a firm fixed price of $______ *______ .
*To be included in the contract document.
Article III - Progress Reports
The Contractor shall provide progress reports, either verbal or in writina, at
the frequency and discretion of the FDIC Project *lanaaer.
Article IV - Billing Instructions
The invoice for the fee shall include (1) the contract number and (2) a short
description of the work for v^iich payment is sought.
Invoices shall be sub
mitted in original and two (2) copies to:
Federal Deposit Insurance Corporation
Financial Operations Hnit/Accounts Payable Croup
550 17th Street, N.W.
Washington, D.C. 20429
fD,C3320
15 <4-79)
11
Ref. No.
CONTINUATION SHEET
Page
8900290OCD
Of
11
9
Article V - FPIC Contract Representatives
1
.
Project Manager - The "Project Manager" is the chief and only particioant to
whom the Contractor should look for techncial guidance in presenting the work.
He or she provides coordination between the Contractor and FDIC ccmmittees,
division heads, the Chairman of the Hoard of Directors of FDIC and is respon
sible for all FDIC technical decisions and directives relating to the oroject
on behalf of the FDIC.
__________ *__________ is
2.
hereby
designated
as
the
FDIC
Project
Manager.
Contracting Officer - The term "Contracting Officer" neans the person
exeaiting this contract on behalf of the FDIC and any other FDIC enolq/ee
appointed by the FDIC to succeed him as Contracting Officer of this contract.
Tiiere will be only one Contracting Officer at a time but the Contracting
Officer may appoint authorized reoresentatives who have limited or temporary
authority to represent the FDIC in his stead.
__________ *_________ _ is the Contracting Officer
telephone number is (202) 8 9 8 - _____ *_____ •
for this contract.
His
*To be included in the contract document.
Article 'H. - Advertising and Publicity
Neither the Contractor nor its subcontractors, if any, shall issue or soonsor any
advertising or publicity that says or implies, either directly or indirectly,
that the FDIC endorses, recommends or prefers the Contractor’s services. This
does not, however, preclude the Contractor from using the FDIC as a confidential
reference in seeking other business.
Article VII - Confidentiality of Information
A.
TO the extent that work under this contract requires that the Contractor he
given access to confidential financial information belonging to the ^DIC,
the Contractor shall, after receipt thereof, treat such information as con
fidential and agrees not to approoriate such information to its a^n use or
to disclose such information to third parties unless srecifically authorized
to do so by the Contracting Officer in writing. The foregoing restrictions
shall not apply to:
1.
Information which, at the tine of receiot by the Contractor, is in the
public domain;
2.
Information that is oublishel after receipt thereof by the Contractor or
that otherwise becomes part of the public domain not through any action
by the Contractor;
(continued)
No
89002900CD
Ref
CONTINUATION SHEET
Page
jOf
10
article VII - (Continued)
3.
Information that the Contractor can demonstrate was in its possession at
the time of receipt thereof and was not acquired directly or indirectly
from the FDIC or other entities related to the overall scope of this
engagement; or
4.
Information that the Contractor can demonstrate was received by it from a
third party who did not require the Contractor to hold it in confidence
nor was bound by the FniC to hold it in confidence.
B.
The Contractor agrees to hold all information obtained in performance of this
contract in confidence, and to disclose it neither to anyone outside the
FDIC nor to any Contractor employee not involved in performance of this
contract. Furthermore, the Contractor agrees not to use any such confidential
information for any purpose other than performance of this contract.
C.
Notwithstanding Paragraphs A and B of this Article VII, in the event that the
Contractor is requested or required (by oral questions, interrogatories, re
quests for information or documents, subpoena, Civil Investigative Demand or
other process) to disclose (i) any confidential information or (ii) any inform
ation relating to to the Contractor's opinion, judgment or recommendations in
connection with such transaction concerning the FDIC, its affiliates or sub
sidiaries as develooed from confidential information, it is agreed that the
Contractor will provide the FDIC with prompt notice of any such request or re
quirement so that the FDIC may seek an appropriate protective order or waive
the Contractor's compliance with the provisions of this agreement. If, fail
ing the entry of a protective order or the receipt of a waiver hereunder, Con
tractor is, in the opinion of the Contractor's counsel, carpel led to disclose
confidential information, Contractor may disclose that portion of the confid
ential information which the Contractor's counsel advises Contractor that Con
tractor is compelled to disclose.
In any event, the Contractor will not
oppose action by the FDIC to obtain an aporopriate protective order or other
reliable assurance that confidential treatment will be accorded the confident
ial information.
Article VIII - Conflicts of Interest
A.
^
The Contractor shall notify the Contracting Officer immediately whenever tne
work under this contract conflicts with or apoears to conflict with the Con
tractor's obligation to another company or organization.
This oblination
shall continue for one (1) year after the required date for completion of
work under this contract. The Contractor shall furnish sufficient details to
permit evaluation of the situation. The Contractor shall not proceed with
the performance of the work in question until written notification to do so
is given by the Contracting Officer.
U-791
(continued)
Article VIII - (Continued)
B.
The Contractor aqrees that if after award it discovers an organizational
conflict of interest with resoect to this contract, then it shall make an
immediate and full disclosure in writing to the Contracting Officer which
shall include a description of the action that the Contractor has taken or
proposes to take to avoid or mitiqate such conflict. The FDIC may, however,
terminate this contract for convenience if it deems such termination to be in
the best interest of the ^DIC.
C.
If the Contractor was aware of an organizational conflict of interest prior
to the award of this contract and did not disclose the conflict to the Con
tracting Officer, then the FDIC may terminate this contract for default.
Article IX - Inspection and Acceptance
Inspection and acceptance shall be accomplished by the Project Manager.
Article X - Option for Phase II
The FDIC has a hard (priced) option to obtain from the Contractor the goods and
services described in the Statement of Work (Article I) as Phase II, Die FDIC
may exercise this option within six (6) months after delivery of the Contractor's
final report for Phase I.
Article XI - FDIC General Provisions
Appendix B entitled FDIC General Provisions is hereby incorporated into and made
a part of this contract.
Article XII - Order of Precedence
Ary inconsistency in this contract, unless otherwise provided herein, shall be
resolved by giving precedence in the following order:
(1) Special Provisions;
(2) Statement of Work; (3) Terms and Conditions of the Solicitation, if anv;
(4) FDIC General Provisions; and (5) Other orovisions of the contract, when
attached or incorporated by reference.
@FedFRASER