Full text of Statements and Speeches of William M. Isaac : Address Before the [FDIC Examiner] Inter-Regional Training Conference

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Address

i

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ADDRESS BY
a
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WILLIAM M. ISAAC, CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION

BEFORE THE
INTER-REGIONAL TRAINING CONFERENCE

NEW ORLEANS MARRIOTT HOTEL
NEW ORLEANS, LOUISIANA

February

17 - 18, 1982

FOR INTERNAL USE ONLY

ì ò

I TAKE GREAT PLEASURE/lN HELPING TO OPEN/THIS FIRST
INTER-REGIONAL EXAMINER CONFERENCE •

I HOPE Y o i f ^ ttrL FIND IT

u s e f u l / as

AS A MEANS TO MEET YOUR

COLLEAGUES

AN EDUCATIONAL p r o g r a m / a n d

FROM OTHER REGIONS/AND EXCHANGE

W hen I b e ca m e C h a i r m a n last A u g u s t ,/ I

IDEASp e r c e i v e d a need to

IMPROVE C OMMU NIC AT ION s/ TH ROU GHOUT THE CORPORATIONPOLICIES CAN BE RENDERED

THE BEST

INEFFECTIVE/i F WE FAIL TO CLEARLY

ART ICULATE/BOTH THE POL IC IE s/ a ND THE REASONS FOR THEIR ADOPTIONm a de

a major

e f f o r t / to

improve

communications-

O ur m a n a g e m e n t s y s t e m / e m p h a s i z e s gr o u p d e c i s i o n -m a k i n g - T ask
FORCES HAVE BEEN FORMED/TO DELVE

INTO VARIOUS SUBJECTS-

FDIC NEWS/has been e x p a n d e d a n d i m p r o v e d REINSTITUTEDMEET WITH

THE

ARD me et i ng s h a ve been

ABOUT ONCE EACH MONTH/l AND MEMBERS OF MY STAFFj/

EXAMINERS AT THE TRAINING CENTER-

T he i n t e r - r e g io na l c o n f e r e n c e s / are part of this e f f o r t I HOPE

PARTICIPATE

IN TH EM/ACT IVEL Y •

I ALSO HOP

YOU *L. t

LET US KNOW AT THE CONCLUSION OF THIS FIRST CONFERENCE/
HOW IT MIGHT BE IMPROVED IN THE FUTUREj u st c o n c l u d e d / a year
t a i n t y / for the

institutions

of t u r b u l e n c e and u n c e r -

we s u p e r v i s e an d

insure-

These

TWO DAYS/OFF ER A VALUABLE OPPORTUNITY/TO ASSESS THE FDIC'S

ROLE/

IN A RAPIDLY EVOLVING EN VIR ONMENT/AND TO CONSIDER THE EXTENT AND
KIND OF CHANG E/T HAT MAY BECOME

NECESSARY/lN THE WAY WE FULFILL/

OUR TR AD IT IO NA L FUNCTIONS-

The p e r f o r m a n c e of d e p o s i t o r y i n s t i t u t i o n s / c o n t i n u e s to be
a f f e c t e d / by a d e c l i n i n g e c o n o m y /and




increasing

pressure / from

RELATIVELY UNREGULATED N O N ”BANK CO MPETITORS/O FFERING SUBSTITUTES
FOR DEPOSITS AND OTHER TRADITIONAL
factors/ are

altering

the

nature

BANKING SERVICES*

and

s h a p e / of

THESE

THE f i n a n c i a l

ser­

INDUSTRY,/ AND WHAT WE ARE SEEING NOw/lS ONLY A FORERUNNER

vices

OF EVEN GREATER CHANGE*

W ithout d o u b t ,/the m o s t d r a m a t i c d e v e l o p m e n t / of the past
YEAR FOR THE FDIC/wAS THAT COMPETITIVE AND ECONOMIC PRESSURES/
FINALLY BEGAN TO TAKE A VISIBLE TOLl/ o N THE NATION'S THRIFT
INS TIT UTI ONS, /IN CLUDI NG THE 335 MUTUAL SAVINGS BANKs/sUPERVISED

For this s e g m e n t of the industry / the m o d e r a t e

FDIC*

by the

LOSSES SUSTAINED IN 1980/b ECAME A DELUGE OF RED INK IN 1981,/
PRESENTING THE FDIC WITH

ITS MOST SIGNIFICANT CHALLENGE/sINCE

ITS FOUNDING NEARLY A HALF~CENTURY AGO*
The Co r p o r a t i o n
industry/ and

WEAKENED
SPECIAL

began

developing

actively

monitoring/ the

a p p r o a c h e s / to

dealing

savings

with

bank

financially

INSTI TUT I0 Ns/wITH THE CREATION EARLY LAST YEAR/OF A
INTERNAL STUDY GROUP*

THE FIRST F D I C “ASSISTED SAVINGS

BANK MERGER/OCCURRED LAST N0VEMBEr/ a T AN ESTIMATED COST TO THE
/

F D I C / o f $¿425
m e r g e r s /a t

million*

an

estimated

S ince t h e n /
cost

of

, OC'l/r.

$350

handled
m i l l i o n ,/ a n d

three
a

more

number

of

OTHERS WILL LIKELY BE NECESSARY*
Ue'ue.

,
HAD TO DEV OTE/A SIGNIFICANT PORTION OF OUR RESOURCES/

TO DEALING WITH THE SAVINGS BANK PROBLEM,/AND SO LONG AS INTEREST
RATES REMAIN RELATIVELY HIGH/THE SITUATION WILL CONTINUE TO
DEMAND OUR ATTENTION*
OF PERFORMANCE




BUT ALL OUR A N A L Y s I s ,/BACKED BY OUR RECORD
I

IN 19 81 ,/DEMO NS TR ATE THAT WE HAVE BOTH THE PERSONNEL/

-3AND FINANCIAL R E S O U R C E s / t O COPE WITH THIS PROBLE m / w HILE MOVING
FORWARD ON OTHER F R O N T S •
AS A GENERAL PROPOSI T ION,/T HE PUBLIC CAN BE SERVED BEST/lF
FINANCIAL

INSTITUTIONS OPERATE

IN AN ENVIRONMENT/ IN WHICH SIGNALS

FROM THE MARKETPLACE,/ RATHER THAN GOVERNMENT C O N T R O L S ,/ GUIDE
THEIR BEHAVIOR*

N E V E R T H E L E S S ,/ OUR OVERALL APPROACH TO SUPERVISI ON/

MUST CONTINUE TO BE SHA PE d / b Y SOME MAJOR PUBLIC POLICY OBJEC T I V E S /
THAT NEC ESSARILY REQUIRE GOVERNMENT OVERSIGHT*

THESE INCLUDE:

rfl) PRESERVING A SAFE AND SOUND BANKING SYSTEM,
(2^ PREVENTING ABUSIVE TRANSACT ION s / a ND AN UNDULY
HIGH CO NCE NTR ATI ON OF FINANCIAL

RESOURCES,

(f^) ACHI EVI NG COMPETITIVE EQUITY/AMONG INDUSTRY P A RTI­
CIPANTS,

AND

(HT) PROVIDING ADEQUATE SERVICES TO THE PUBLIC*

At t a i n m e n t of th es e o b j e c t i v e s / re q u i r e s t h a t we po sit io n
o u r s e l v e s /to deal

immediately

with

the pr ob l em s

in the t h ri f t

INDUSTRY/WHILE AT THE SAME T I M E/CHARTING A LONG-RANGE COURSE/
THAT RESPONDS TO THE EVOLUTIONARY

FORCES/NOW AT WORK*

THE

IMMEDIATE NEED/lS FOR A COMPREHENSIVE APPROACH/TO THE THRIFT
PROBLEMS*

F i r s t ,/'we m u s t have t»
WITH TROUBLED INSTITUTIONS*

additional

t o

o

l

s

t

o

deal

As YOU KNOW,/WE SUBMITTED TO

Co n g r e s s l a s t year / legi s l a t i o n kn o w n as the R e g u l a t o r s ' B i l l ,/
WHICH WOULD GIVE US GREATER FLEXIBILITY/lN DEALING WITH TROUBLED
I NST ITUTIONs/lN THREE




IMPORTANT RESPECTS^/ IT WOULD MAKE

IT EASIER

-4FOR US TO PR OVI D e / d IRECT FINANCIAL ASS ISTANCE/TO A FAILING INSTI“
TUT 10 N j/ IT WOULD PERMIT US TO ARRANGE

INTERSTATE A C Q U I S IT IONs/oF

LARGE FAILED I NST ITUT I0 NS ;/AND IT WOULD ALLOW MUTUAL

INSTITUTIONS/

TO CONVERT TO STOCK OWNERS H Ip/uNDER A FEDERAL CHARTER*

W e CONTINUE

TO SUPPORT ENACTMENT/OF THIS LEGISLATIONSECOND ,/C o n g r e s s m u s t
p o w e r s /a n d

to

override

prohibitions*

act

state

to

give

usury

Such l e g i s l a t i o n

is

thrifts/ broader

ceilings/and
needed/ to

d u e -o n

enable

asset

-s a l e

t h r i f t s /t o

EARN THEIR WAY OUT OF THEIR CURRENT DILEMMA/ a ND TO PERMIT THEM
ÎHE FDIC

TO FUNCTION EFFECT IVEL y/ I N A MORE COMPETITIVE WORLD*

IS C O M M I T T E d / t O THE DEREGULATION OF THE FINANCIAL SERVICES
INDUSTRY.,/INCLUDING ELIMINATION OF THE THRIFT DIFFERENTIAL,/BUT

I THINK IT'S PLAIN/THAT THR IFTS MUST HAVE BROADER POWERs/lF
they

'r e t o c a r v e

out

a viable

r o l e / in

the

financial

services

INDUSTRY OF THE FUTURE*
T h i r d ,/ w e m u s t g e t
Among the t h o r n i e s t / and
F D IC / a n d

our

partner

ceilings*

The

(D ID C ), /

which

in

on

is

receive

from

DEPOSITORY

made
the

I

with

most

emotional

more

struggles

probably
to

d i f f i c u l t / by

Co n g r e s s *

the

In s t i t u t i o n s

s e r v e ,/ h a s

it

interest

r e g u l a t o r s / is

Depository

W a s h i n g t o n / as

Our j o b

on

issues/ c o n f r o n t i n g
p h a s e -o u t

of

De r e g u l a t i o n
the

achieve
the

deregulation*

rate

most

its

the

interest

Committer/

thankless

task

congressional

conflicting

N e v e r t h e l e s s ,/ t h e

mandate*

s i g n a l s / we

failure

INSTITUTIONS/VlTH COMPETITIVE DEPOSIT

rate

to

provide

IN S T R U M E N T s/ h AS

CONTRIBUTED TO THE ONGOING OUTFLOW OF FUNDs/FROM BANKS AND THRIFTS/
INTO MONEY MARKET FUNDS AND OTHER NONREGULATED




INTERMEDIARIES*

-5Banks a n d t h r i f t s / m u st p r o m p t l y be given the me ans / to s t e m the
o u t f l o w / an d

r e c a p t u r e th o s e

lo st d e p o s i t d o l l a r s *

.
LniCuf
FOURTH,/jEfc* CONVINCED/THAT THE THRIFT INDUSTRY/WOULDj be
'

t

L

IN BETTER SHAPE TODAY/IF MORE REALISTIC ACCOUNTING METHODS/HAD
BEEN ADOPTED IN THE PAST*

0 0 K I N G AT POSSIBLE CHANGES/1 N

ACCOUNTING PO LIC IES /THAT WOULD ALLOW INSTITUTIONS TO DISPOSE OF/
THE LOW -YI ELD ING A S S E T s / t HAT ARE SUCH A DRAG ON THEIR EARNINGS/
WITHOUT HAVING TO ABSORB THE ENTIRE LOS s/lMMEDI ATELY *
IS KIND OF LOSS DEF ERRAL/MIGHT BE PART OF A T R A N S I T I O N /
FROM A HISTORICAL COST-BASED ACCOUNTING S Y S T E m/ t O A OfettSSiSSer
A t T H I S 'P d i k j t / U r f <&0 kj 'T K S J O L J I f
markettvalue based s y s t e m . :
"7
'
*
v(iu < ?3 o f
<FeASi<9Le
F i n a l l y .,/we may need to c o n s i d e r / some kind of b r o a d -b a s e d
f

J

CAPITAL

'T0 PROVIDE

INFUSION;

TEMPORARY R E L I E F / t O STRAPPED

INSTITUTIONS*

tyCtaGlVC,

STANDING ALONE,/SUCH

A PROGRAM WOULD BE HIGHLY U N D E S I R A B L E j / H O W E V E R , AS ONE FACET OF
A MU LT I- FA CE TE D APPROACH ,/i T COULD GIVE

INST ITUT IONS/HAMSTRUNG

BY INTEREST RA TE s /a NEEDED "BREATHING SPELL*"

L et me e m p h a s i z e / that I d o n 't think any of th ese five points /
al on e / is s u f f i c i e n t to solve the p r e s e n t c r i s i s *

HOWEVER,/I

T aken t o g e t h e r ,

BELIEVE THEY PROVIDE A COMPREHENSIVE MEANS/OF

REASONABLY

DEALING WITH THE PROBLEM*

I n our c o n c e r n / for the i m m e d i a t e pr obl em s we f a c e ,/we
CANNOT AFFORD TO

I
IGNORE/LONG-RANGE
*
n

ISSUES*

c
SOME OF THE LONG

RANGE ISSUES/COULD ALTER THE VERY DEFINITION OF BANKING*
today / face

in te ns e c o m p e t i t i o n / from n o n - bank

MEDIARIES/THAT ARE ESSENTIALLY UNREGULATED*




BANKS

FINANCIAL i n t e r THE C o NGRESs/ a T

-

6

-

SOME POINT/WILL HAVE TO DEVELOP A RATIONAL DEF IN IT IO n/ o F WHAT
CONSTITUTES BANKIN G/A ND

IMPOS^

ON ALL ORGANIZATIONS THAT ENGAGE
s t a k e / in

the

breadth

of

that

RATIONAL SCHEME OF REGULATION/
IN I T •

THE F D I C / h AS AN

definition/ and

IMPORTANT

WE MUST PRESENT

CLEARCUT AND LOGICAL VIEWS ON IT*
AS WE MOVE

INTO A DEREGULATED ENVIRONMENT,/A NUMBER OF

RELATED TO OUR DEPOSIT
They

ISSUES

INSURANCE SYSTEM/WILL NEED TO BE CONSIDERED'

include/ r i s k -r e l a t e d

insurance

p r e m i u m s ,/ t h e

possibility

of

HAVING LARGE DEPOSI TORS/SHARE SOMEHOW IN THE RISK OF BANK FAILURE/
EVEN WHE N THE FAILURE

IS HANDLED BY WAY OF M E R G E R / A N D

REDEFINING

THE BASE OF LIABILITIES/AGAI NST WHICH PREMIUMS ARE ASSESSED*

We

also

THE FUNCTIONS
FINANCIAL

will

explore

w a y s / to

streamline

and

redistribute/

PERFORMED BY THE VARIOUS AGENCIEs/THAT REGULATE

INSTITUTIONS*

FOR E X A M P L E / I QUESTION WHETHER

MAKES S E N S E / ™ HAVE THREE FEDERAL AGENCIES

INSURING DEPOSITS/

OR TO HAVE FIVE FEDERAL AGENCIEs/sUPERVISING FINANCIAL
TIONS*

Ho w e v e r J t h e

IT

INSTITU­

STRUCTURE MAY COME TO BE r e o r g a n i z e d / t h e

TALENT AND THE RESOURCES OF THE FDI C/ wi LL BE FULLY UTILIZED;/

I'm

confident

that

PLAY A CRITICAL

this

agency/ will

remain

independent/ and

will

ROLE/uND ER ANY REORGANIZATION PLAN/uLTIMATELY

ADOPTED*
Cha ng e s

in

banking/and

bank

supervision/necessarily

REQUIRE/CHANGES

IN HOW WE P E RFOR m / o UR D A Y “TO"DAY TASKS*

WE SEEK WAYS OF

IMPR OVI Ng / t HE MANNER

will

As

IN WHICH WE CARRY OUT/OUR

EXAMINATION AND SUPERVISION F U N C T I O N S / IT SEEMS CLEAR/WE WILL




-7-

NEED TO PLACE

INCREASED RELIANCE/oN THE SOPHISTICATED H E L P / C O M ”

PUTERS CAN GIVE US*
plan/ for

the

A COMMITTEE IS WORKING TO DEVELOP/A LONG-TERM

C o r p o r a t i o n / in t h e

related

TELECOMMUN ICATIONS/AND WORD PROCESSING*
EFFORTS ARE

IN THE WORKS/TO EXPLORE

WE CARRY OUT OUR SUPERVISORY JOB*

areas

of

a u t o m a t i o n ,/

IN D B S / a NUMBER OF

IDEAS FOR U PGRADING/TH E WAY
W e ARE LOOKIN g/ a T EXPANDED

MONITORI NG SYSTEMS,/MORE SO PHISTICATED FINANCIAL ANALYSIS / AND
IMPROVING OUR KNOWLEDGE/OF LARGE

INSTITUTIONS*

REVISED TRAINING

PROGRAMS,/A NEW MANUAL OF EXAMINATION POLI Cl Es/AND A SHARED BANK/
HOLDING COMPANY EXA MINATION PROGRAM/wiTH THE FEDERAL

RESERVE AND

THE CO MP TR OLLER /ARE ALSO ON THE AGENDA*
I' v e t o u c h e d b r i e f l y / o n s o m e o f t h e c o n c e r n s a n d i s s u e s /
¿Jf* *U^r
IDENTIFIED AS IMPORTANT/TO THE SUCCESSFUL PERFORMANCE OF
OUR MISS ION /lN THE MONTHS AND YEARS AHEAD*

It 'S UP TO ALL OF US/

TO CONVERT THE CHALLENGES WE FACE/TO OPPORTUNITIES*

I ' M CONFIDENT

WE WIL L DO So/lN A WAY THAT CONTI NU E s / t HE FDIC'S TRAD ITI O n |RdF
excellence/ and

As I

DEDICATED PUBLIC SERVICE*

n o t e d /at

the

FDIC

awards

ceremony

last

De c e m b e r / ^

4te$*£H*#3^s«,/THE FDIC OVER THE YEARS/HAS COMPILED A RECORD OF
ACH IEVEMENT/THAT SEEMS TO HAVE

EXEMPTED

PUBLIC PERCEPTI ON/ THAT GOVERNMENT
blessing*

Th e C o r p o r a t i o n

is

more

IT/FROM THE GENERAL

IS MORE OF A BURDEN/THAN A
often

praisei/ than

condemned/

AND THAT IS THE RESUL t / o F DEDICATED AND CAPABLE S E R V I C e/ b Y FDIC
EMPLOYEES /wITH A WIDE RANGE OF TALENTS*




-

You/ a n d y o u r

colleagues^ who

8

-

preceded

y o l ^/c a n

justifiably

CLAIM C R E D I T / f OR THE SUCCESSES THAT HAVE NOW EXTENDED/NEARLY
HALF A CENTURY*
of

the

B o a r d of

a p p r e c i a t e ^/y o u r




I WANT YOU TO KNO w / t HAT I AND THE OTHER MEMBERS
Directors/ recognize your
EFFORTS.

c o n t r i b u t i o ^ and

greatly