CFTC CHAIRMAN GENSLER SPEECH AT FAREWELL EVENT

FROM:  U.S. COMMODITIES FUTURE TRADING COMMISSION 
Remarks of Chairman Gary Gensler at Farewell Event
December 19, 2013

John F. Kennedy once said: “Let the public service be a proud and lively career.”

What I’ve been most struck by these last five years is how all of you – the exceptional people of the Commodity Futures Trading Commission (CFTC) really embody this sense of public service as expressed by President Kennedy.

Being with you at our last “town hall” meeting, I wish to thank all of you for welcoming me into the CFTC family these last five years.

I’d like to thank Secretary Jack Lew, Senator Elizabeth Warren, Commissioner Mark Wetjen, former Chairs Sheila Bair and Brooksley Born, and our former Director of Enforcement David Meister for your kind words.

I’m humbled to see Secretary Lew; Director of the National Economic Council and Assistant to the President for Economic Policy Gene Sperling; the Chairman of the Federal Reserve Ben Bernanke; the Chair of the Securities and Exchange Commission (SEC) Mary Jo White; the Chairman of the Federal Deposit Insurance Corporation Marty Gruenberg, the Director of the Federal Housing Finance Agency Ed DeMarco, the Chair of the National Credit Union Administration Debbie Matz, and so many others here at our town hall meeting.

In addition, it’s wonderful to welcome back seven former Chairs of this agency – in addition to Sheila and Brooksley – Jim Newsome, Mary Schapiro, Mike Dunn, Walt Lukken, and Sharon Brown-Hruska.

Five years ago, when the President was formulating his financial reform proposals, he placed tremendous confidence in this small agency, which for eight decades had overseen the futures market.

This confidence in the CFTC was well placed.

And I’m so honored that the President asked me to serve at this agency, particularly at this moment in history.

This amazingly talented staff along with Commissioners – Mike Dunn, Jill Sommers, Bart Chilton, Scott O’Malia and Mark Wetjen – has transformed a market.

As President Kennedy said, you all have much to be proud of. And no doubt, it’s been pretty darn lively.

Based on your work, bright lights of transparency now shine on the nearly $400 trillion swaps market.

You’ve made central clearing of swaps a reality and comprehensively reform the customer protection regimes in our markets.

You brought oversight to the world’s largest swap dealers.

You’ve changed the world’s conversation about LIBOR and Euribor and the real need to bring integrity to benchmark rates.

You’ve worked tirelessly to coordinate with our fellow regulators here at home and abroad.

And to boot, you’ve gotten us through five clean audits, restructured the agency, started a new Weekly Swaps Report, all while reviewing 60,000 public comments, and taking over 2,200 meetings with the public.

You’ve helped the Commission sort through over 170 Dodd-Frank actions – nearly one a week since it was signed into law.

And I want to thank you for those wonderful murderboards for the 54 congressional testimonies. More seriously, I do want to thank Congress and so many members and their staffs for their leadership on reform and supporting the efforts of this agency.

I have worked with some remarkable people in my career – when on Wall Street, at the Treasury Department, and on political campaigns.

The CFTC staff is among some of the most professional and productive that I’ve worked with in my life.

You’ve shown how when faced with real challenges – we can come together as a nation to solve them.

None of this would have been possible without the help and collaboration from others across the Administration and the regulatory community.

Thanks to the leadership of Mary Schapiro and Mary Jo White, we’ve formed a true partnership between our nation’s two market regulators.

Just to mention one of many areas of collaboration – it was no small feat for the staffs of our two agencies came together on joint definitional rules.

Financial reform would not have been possible without the leadership of Treasury and the Federal Reserve. In the wake of the nation’s worst financial crisis in 80 years, Secretary Geithner, Chairman Bernanke and their teams deserve our debt of gratitude. Looking back now, you have to wonder how they made it through their days ... livelier maybe than President Kennedy hoped for any public servant.

I particularly want to thank Secretaries Geithner and Lew, Neal Wolin, Mary Miller, Lael Brainard and Michael Barr at Treasury. In addition to Chairman Bernanke, I want to thank Dan Tarullo, Scott Alvarez and Pat Parkinson.

As the crisis was global, so too has been our reform journey. I want to give a warm thank you to Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board; Martin Wheatley, Chief Executive of the Financial Conduct Authority; Commissioner Michel Barnier, European Commissioner for Internal Market and Services; Jonathan Faull, Director General of the European Commission; and Masamichi Kono, Vice Commissioner for International Affairs of Japan’s Financial Services Agency.

I also know how hard market participants have worked – with real costs and against deadlines – to implement reforms that truly are transforming the markets.

Looking forward, the public is very fortunate to have such talented and dedicated public servants as Mark Wetjen and, subject to Senate confirmation, Tim Massad taking the helm here at the CFTC.

Much will be in your hands my friends, and the journey will continue to evolve. Just one thing beyond the personal note I’m going to leave in the top drawer: this agency really does need more resources.

Lastly, I want to introduce and thank each one of my daughters: Anna, Lee and Isabel.

I am so proud of each of you growing up to be such beautiful and accomplished young ladies. It’s a testament to each of you that not only have you put up with me but also allowed me to devote so much time to my professional life these last five years. I know how much your mom would be beaming at the three of you today, though she certainly would be laughing a bit at your dad.

I would not be here today if it weren’t for Francesca’s encouragement to follow my dreams and to pursue public service.

Your mom and your Captain Grandpa, a Pearl Harbor survivor and appointee of President Johnson, taught us about public service.

Once again, I want to thank President Obama for the opportunity to serve at such a lively time.

And I just want tell everybody, once again, how darn proud I am of all of you.

STATEMENT FROM FDIC OFFICIALS ON "TOO BIG TO FAIL" BANKS

FROM: FEDERAL DEPOSIT INSURANCE CORPORATION

Statement of Federal Deposit Insurance Corporation by James R. Wigand, Director, Office Of Complex Financial Institutions And Richard J. Osterman, Jr., Acting General Counsel on Who Is Too Big To Fail? Examining the Application of Title I of the Dodd-Frank Act before the Subcommittee on Oversight and Investigations; Committee on Financial Services; U.S. House of Representatives; 2128 Rayburn House Office Building
April 16, 2013


Chairman McHenry, Ranking Member Green, and members of the Subcommittee, thank you for the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC) on Sections 165 and 121 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Our testimony will focus on the FDIC's role and progress in implementing Section 165, including the resolution plan requirements and the requirements for stress testing by certain financial institutions.

Section 165 of the Dodd-Frank Act

Resolution Plans
Under the Dodd-Frank Act, bankruptcy is the preferred resolution framework in the event of a systemic financial company's failure. To make this prospect achievable, Title I of the Dodd-Frank Act requires that all large, systemic financial companies prepare resolution plans, or "living wills", to demonstrate how the company would be resolved in a rapid and orderly manner under the Bankruptcy Code in the event of the company's material financial distress or failure. This requirement enables both the firm and the firm's regulators to understand and address the parts of the business that could create systemic consequences in a bankruptcy.

The FDIC intends to make the living will process under Title I of the Dodd-Frank Act both timely and meaningful. The living will process is a necessary and significant tool in ensuring that large financial institutions can be resolved through the bankruptcy system.

The FDIC and the Federal Reserve Board issued a joint rule to implement Section 165(d) requirements for resolution plans – (the 165(d) Rule) – in November 2011. The 165(d) Rule requires systemically important financial institutions (SIFIs) -- bank holding companies with total consolidated assets of $50 billion or more, and nonbank financial companies that the Financial Stability Oversight Council (FSOC) determines could pose a threat to the financial stability of the United States -- to develop, maintain, and periodically submit resolution plans to regulators.

In addition to the resolution plan requirements under the Dodd-Frank Act, the FDIC issued a separate rule which requires all insured depository institutions (IDIs) with greater than $50 billion in assets to submit resolution plans to the FDIC for their orderly resolution under the Federal Deposit Insurance Act. The 165(d) Rule and the IDI resolution plan rule are designed to work in tandem by covering the full range of business lines, legal entities and capital-structure combinations within a large financial firm.

The 165(d) Rule establishes a schedule for staggered annual filings. The first group of filers -- bank holding companies and foreign banking organizations with $250 billion or more in non-bank assets ("first wave" filers) -- submitted their initial resolution plans on July 1, 2012. Financial companies with less than $250 billion, but more than $100 billion in non-bank assets ("second wave" filers), will file their initial plans by July 1, 2013, and all other bank holding companies – those with assets over $50 billion – ("third wave" filers) are scheduled to file by December 31, 2013. While the general expectation is that firms will file annually, regulators may require that a plan be updated on a more frequent schedule, and a firm must provide notice to regulators of any event that may have a material effect on its resolution plan.

Eleven firms comprised the first wave of filers. The nine firms that submitted plans on July 1, 2012, were Bank of America Corporation, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS, Credit Suisse, and Barclays. The two other first wave filers, Bank of New York Mellon Corporation and State Street Corporation, submitted plans on October 1, 2012. The second wave filers include Wells Fargo, BNP Paribas, HSBC, and RBS. The third wave filers include approximately 115 firms, the large majority being foreign financial companies conducting business in the U.S.

The 165(d) Rule sets out the information to be included in a firm's resolution plan. The key objectives laid out in the Rule for the initial resolution plans submitted by first wave filers are identifying each firm's critical operations and core business lines, mapping those operations and core business lines to each firm's material legal entities, and identifying the key obstacles to a rapid and orderly resolution in bankruptcy. With regard to key obstacles, these might include such areas as a firm's internal organizational structure, interconnections of the firm to other systemic financial companies, management information system limitations, default and termination provisions of certain types of financial contracts, cross-jurisdictional operations, and funding mechanisms.

The 165(d) Rule provides that smaller, less complex financial institutions subject to the filing requirements may be eligible to file a less detailed, tailored resolution plan, for which the information requirements generally are limited to the firm's nonbanking operations, and the interconnections between the nonbanking operations and its IDI operations.

Section 165(d) of the Dodd-Frank Act requires the FDIC and the Federal Reserve Board to review each resolution plan. If, as a result of their review, the FDIC and the Federal Reserve Board jointly determine that the resolution plan is not credible or would not facilitate an orderly resolution of the firm under the Bankruptcy Code, then the company must resubmit the plan with revisions, including, if necessary, proposed changes in business operations or corporate structure. If the company fails to resubmit a credible plan that would result in orderly resolution under the Bankruptcy Code, the FDIC and the Federal Reserve may jointly impose more stringent capital, leverage, or liquidity requirements; growth, activities, or operations restrictions; or, after two years and in consultation with the FSOC, divestiture requirements.

Federal Reserve Board and FDIC staff reviewed the first wave filers' plans for informational completeness to ensure that all information requirements of the Rule were addressed in the plans. The initial plan submissions for the first wave filers were created using an assumption of the individual firm's failure under "baseline" economic conditions as a starting point. Subsequent submissions are required to take into account "adverse" and "severely adverse" economic conditions.

The eleven firms that submitted initial plans in 2012 will be expected to revise and update their submissions in their subsequent 2013 versions, pursuant to guidance that the FDIC and the Federal Reserve Board will provide to these companies. Resolution plans submitted in 2013 will be subject to informational completeness reviews and reviews for creditability or resolvability under the Bankruptcy Code. Going forward, the FDIC and the Federal Reserve Board expect the revised plans to focus on key issues and obstacles to an orderly resolution in bankruptcy, including global cooperation and the risk of ring-fencing or other precipitous actions. To assess this potential risk, the firms will need to provide a jurisdiction-by-jurisdiction analysis of the actions each would need to take in a resolution, as well as the actions to be taken by host authorities, including supervisory and resolution authorities. Other key issues expected to be addressed in the plans include: the risk of multiple, competing insolvency proceedings; the continuity of critical operations -- particularly maintaining access to shared services and payment and clearing systems; the potential systemic consequences of counterparty actions; and global liquidity and funding with an emphasis on providing a detailed understanding of the firm's funding operations and cash flows.

Stress Testing
Section 165 of the Dodd-Frank Act requires the FDIC to issue regulations for FDIC-supervised banks with total consolidated assets of more than $10 billion to conduct annual stress tests. The banks must report their respective stress test results to the FDIC and the Federal Reserve Board and these results also are summarized in a public document. The FDIC views the stress tests as an important source of forward-looking analysis that will enhance the supervisory process for these institutions. Furthermore, these stress tests will support ongoing improvement in a bank's internal assessments of capital adequacy and overall capital planning.

The Dodd-Frank Act requires the FDIC to coordinate with the other supervisory agencies to issue regulations that are consistent and comparable. While each banking agency issued separate final rules with respect to their supervised entities, the final rules were nearly identical across the agencies. The FDIC finalized its rule on annual stress tests on October 15, 2012. Complementing this rulemaking, the FDIC also issued proposed reporting templates that were developed jointly with the other agencies. Lastly, the agencies are working closely on proposed guidance to ensure consistent treatment for all covered financial institutions under the final rule.

Certain insured institutions and bank holding companies with assets of $50 billion or more comprised the first set of companies to conduct stress tests, which were completed in March 2013. Using September 30, 2012 financial data, institutions developed financial projections under defined stress scenarios provided by the agencies in November 2012. Each company publicly disclosed the results of their stress tests on or before March 31st of this year.

Institutions with assets greater than $10 billion, but less than $50 billion, and larger institutions that have not had previously conducted stress tests, will conduct their first round of stress tests later this fall.

Section 121 of the Dodd-Frank Act

Section 121 authorizes the Federal Reserve Board, with the concurrence of two-thirds of the voting members of the Financial Stability Oversight Council (FSOC), to take various actions with respect to a bank holding company with assets of $50 billion or more or a nonbank financial company supervised by the Federal Reserve Board, if it is determined that company poses a grave threat to the financial stability of the United States. Section 121 also grants the company, upon its request, the opportunity to request a written or oral hearing before the Federal Reserve Board to contest proposed actions.

As a voting member of the FSOC, the FDIC would participate in any discussions involving findings made by the Federal Reserve Board under this section and would carefully weigh the case and its merit in exercising our FSOC vote. To date, the FSOC has not heard any matters involving the use of this "grave threat" authority.

Conclusion
The FDIC has made significant progress in the implementation of Section 165 of the Dodd-Frank Act. Our goal is to ensure that firms that could pose a systemic risk to the financial system develop and maintain resolution plans that identify each firm's critical operations and core business lines, map those operations and core business lines to each firm's material legal entities, and identify and address the key obstacles to a rapid and orderly resolution in bankruptcy. Ensuring that any institution, regardless of size or complexity, can be effectively resolved through the bankruptcy process will contribute to the stability of our financial system and will avoid many of the difficult choices regulators faced in dealing with systemic institutions during the last crisis.

FDIC REPORTS INSURED BANKS HAD $34.7 BILLION IN 4TH QUARTER EARNINGS

FROM: FEDERAL DEPOSIT INSURANCE CORPORATION

FDIC-Insured Institutions Earned $34.7 Billion in The Fourth Quarter of 2012

Full-Year Net Income Rises to $141.3 Billion, the Highest Since 2006

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $34.7 billion in the fourth quarter of 2012, a $9.3 billion (36.9 percent) improvement from the $25.3 billion in profits the industry reported in the fourth quarter of 2011. This is the 14th quarter in a row that earnings have registered a year-over-year increase. Increased noninterest income and lower provisions for loan losses continued to account for most of the year-over-year improvement in earnings. For the full year, industry earnings totaled $141.3 billion — a 19.3 percent improvement over 2011 and the second-highest ever reported by the industry after the $145.2 billion earned in 2006.

"The improving trend that began more than three years ago gained further ground in the fourth quarter," said FDIC Chairman Martin J. Gruenberg. "Balances of troubled loans declined, earnings rose from a year ago, and more institutions of all sizes showed improved performance."

Sixty percent of all institutions reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 14.0 percent from 20.2 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.97 percent from 0.73 percent a year ago.

Fourth quarter net operating revenue (net interest income plus total noninterest income) totaled $169 billion, an increase of $7.3 billion (4.5 percent) from a year earlier, as gains from loan sales rose by $2.4 billion and trading income increased by $1.9 billion. Net interest income was $2.7 billion (2.5 percent) lower than in the fourth quarter of 2011, as the average net interest margin fell to a five-year low.

Asset quality indicators continued to improve as insured banks and thrifts charged off $18.6 billion in uncollectible loans during the quarter, down $7.0 billion (27.4 percent) from a year earlier. The amount of noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for the 11th consecutive quarter, and the percentage of loans and leases that were noncurrent declined to the lowest level in four years.

Financial results for the fourth quarter of 2012 and the full year are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings:

Total loan balances increased. Loan balances posted their sixth quarterly increase in the last seven quarters, rising by $118.2 billion (1.6 percent). Loans to commercial and industrial borrowers increased by $53.4 billion (3.7 percent), while credit card balances posted a seasonal increase of $28.2 billion (4.2 percent) and loans secured by nonfarm nonresidential real estate properties grew by $14.6 billion (1.4 percent). However, home equity lines of credit declined by $12.6 billion (2.2 percent), and real estate construction and development loans fell by $6.6 billion (3.1 percent).

"Growth in lending continues to be led by commercial and industrial loans," Chairman Gruenberg noted. "Insured institutions of all sizes increased their loan balances during the quarter."

The flow of money into deposit accounts increased sharply. Total deposits increased by a record $313.1 billion (3 percent) in the fourth quarter, surpassing the previous quarterly high of $308 billion set in the fourth quarter of 2008. Deposits in domestic offices increased by $386.8 billion(4.3 percent), while deposits in foreign offices fell by $73.7 billion (5.1 percent). The amount of domestic deposits in accounts with balances of more than $250,000 rose by $348.5 billion (8.2 percent).

The number of institutions on the FDIC's "Problem List" declined for a seventh consecutive quarter. The number of "problem" banks fell from 694 to 651 during the quarter. During the recent financial crisis, "problem" banks reached a high of 888 at the end of the first quarter of 2011. Eight FDIC-insured institutions failed in the fourth quarter. This was the smallest quarterly total since the second quarter of 2008, when two insured institutions were closed. For all of 2012, there were 51 failures, compared to 92 in 2011 and 157 in 2010.

Full-year net income improved for a third consecutive year. The increase in annual earnings over 2011 was attributable to lower expenses for loan-loss provisions and higher noninterest income. Banks set aside $58.2 billion in loss provisions in 2012, a reduction of $19.3 billion (24.9 percent) from 2011. Noninterest income was $18.4 billion (8 percent) higher in 2012, as gains from loan sales rose by $11.2 billion (174.4 percent). The average ROA rose to 1.0 percent, from 0.88 percent in 2011. This is the first time since 2006 that the industry's annual ROA has reached the 1 percent level.

The Deposit Insurance Fund (DIF) balance continued to increase. The audited DIF balance — the net worth of the fund — rose to $33.0 billion at December 31 from $25.2 billion at the end of September. Assessment income and a decrease in estimated losses associated with past bank failures made the biggest contributions to growth in the fund balance. The fund also received an additional $1.8 billion that had been previously set aside for debt guarantees under the FDIC's Temporary Liquidity Guarantee Program (TLGP). The program began in October 2008 and ended when the last debt guarantee expired on December 31, 2012. At its peak, the program guaranteed $346 billion of outstanding debt. TLGP contributed a total of $9.3 billion to the DIF over the life of the program. Estimated insured deposits grew 2.2 percent in the fourth quarter.

FDIC WARNS CONSUMERS OF FRAUDULENT E-MAILS

FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION
E-mail Claiming to Be From the FDIC – January 30, 2013

The Federal Deposit Insurance Corporation (FDIC) has received numerous reports of fraudulent e-mails that have the appearance of being sent from the FDIC. While the e-mails exhibit variations in the "From" and "Subject" lines, the messages are similar. The fraudulent e-mails are addressed to the attention of the “Accounting Department” and meant to notify recipients that that that “ACH and WIRE transactions” are being blocked until “a special security software” is installed. They then instruct recipients to go to a Web site for instructions on how to download the necessary files by clicking on a hyper-link provided (Note: the Web site addresses (URL) vary widely). This e-mail and link are fraudulent. Recipients should consider the intent of this e-mail as an attempt to collect personal or confidential information, or to load malicious software onto end users' computers. Recipients should not click on the link provided. The FDIC does not issue unsolicited e-mails to consumers or business account holders.

U.S. GOVERNMENT ISSUES FINAL RULE ON APPRAISALS FOR HIGH-PRICE MORTGAGE LOANS

FROM: FEDERAL DEPOSIT INSURANCE CORPORATION
Agencies Issue Final Rule on Appraisals for Higher-Priced Mortgage Loans

WASHINGTON— Six federal financial regulatory agencies today issued the final rule that establishes new appraisal requirements for "higher-priced mortgage loans." The rule implements amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Under the Dodd-Frank Act, mortgage loans are higher-priced if they are secured by a consumer's home and have interest rates above certain thresholds.

For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.

The rule exempts several types of loans, such as qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers and boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.

The rule is being issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency. The Federal Register notice is attached. The rule will become effective on January 18, 2014.

In response to public comments, the agencies intend to publish a supplemental proposal to request additional comment on possible exemptions for "streamlined" refinance programs and small dollar loans, as well as to seek clarification on whether the rule should apply to loans secured by existing manufactured homes and certain other property types.

　

ALL FEDERAL BENEFIT PAYMENTS WILL BE DIRECTLY DEPOSITED STARTING MARCH 1, 2013

FROM: FEDERAL DEPOSIT INSURANCE CORPORATION

Getting Ready to Go Direct Deposit for All Federal Benefit Payments
Beginning March 1, 2013, all federal benefits payments including Social Security income, will be made electronically. This move is expected to save taxpayers $1 billion over the next 10 years, while ensuring that all federal benefit recipients receive their money in the safest, most reliable way possible. Those who are currently receiving a paper check should arrange by March 1st to have their funds direct-deposited into an account of their choice. People who have not chosen an electronic payment option by that date will receive their money via the Direct Express card, a prepaid debit card that can be used to pay for purchases and access cash at ATMs. Financial educators can use Money Smart as a resource to help consumers select the best bank account for their needs, particularly for those who may choose to open a new account.

FDIC-INSURED BANKS EARN $34.5 BILLION IN SECOND QUARTER

 FROM: FEDERAL DEPOSIT INSURANCE CORPORATION
FDIC-Insured Institutions Earned $34.5 Billion in The Second Quarter of 2012
Loan Balances Increased by $102 Billion

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $34.5 billion in the second quarter of 2012, a $5.9 billion improvement from the $28.5 billion in profits the industry reported in the second quarter of 2011. This is the 12th consecutive quarter that earnings have registered a year-over-year increase. Lower provisions for loan losses and higher gains on sales of loans and other assets accounted for most of the year-over-year improvement in earnings. Also noteworthy was an increase in loan balances for the fourth time in the last five quarters.

"The banking industry continued to make gradual but steady progress toward recovery in the second quarter," FDIC Acting Chairman Martin J. Gruenberg said. "Levels of troubled assets and troubled institutions remain high, but they are continuing to improve. After declining in the first quarter, loan balances once again expanded in the second quarter — extending a positive trend that began in 2011. Most institutions are profitable and are improving their profitability. All of these trends are consistent with the moderate pace of economic growth that has occurred over the past year."

Almost two-thirds of all institutions (62.7 percent) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 10.9 percent from 15.7 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.99 percent from 0.85 percent a year ago.

Second-quarter loss provisions totaled $14.2 billion, more than 26 percent less than the $19.2 billion that insured institutions set aside for losses in the second quarter of 2011. Net operating revenue (net interest income plus total noninterest income) totaled $165.4 billion, an increase of $1.3 billion (0.8 percent) from a year earlier, as gains from loan sales rose by $3.0 billion. In addition to the increase in net operating revenue, realized gains on investment securities and other assets were $1.7 billion higher than in the second quarter of 2011.

Asset quality indicators continued to improve as insured banks and thrifts charged off $20.5 billion in uncollectible loans during the quarter, down $8.4 billion (29.1 percent) from a year earlier. The amount of noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a ninth consecutive quarter, and the percentage of loans and leases that were noncurrent declined to the lowest level in more than three years (since the first quarter of 2009).

Financial results for the second quarter of 2012 are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings:

Total loan balances increased. Loan balances posted their fourth quarterly increase in the last five quarters, rising by $102 billion (1.4 percent). Loans to commercial and industrial borrowers increased by $48.9 billion (3.6 percent), while residential mortgages rose by $16.6 billion (0.9 percent) and credit card balances grew by $14.7 billion (2.3 percent). However, balances of real estate construction and development loans fell by $10.9 billion (4.8 percent), and home equity lines of credit declined by $10.2 billion (1.7 percent). "This quarter's return to loan growth is an encouraging development, but we will have to wait and see if the trend toward increased lending can be sustained," Acting Chairman Gruenberg said.

The flow of money into deposit accounts continued to slow. Total deposits increased by $61.6 billion in the second quarter, after rising by $74.7 billion in the first quarter and $186 billion in the fourth quarter of 2011. Deposits in domestic offices increased by $88.1 billion, while deposits in foreign offices declined by $26.5 billion. The amount of deposits exceeding $250,000 in noninterest-bearing transaction accounts, which have temporary unlimited coverage under the Dodd-Frank Act, increased by $65.7 billion in the second quarter after declining by $85.8 billion the previous quarter.

The number of "problem" institutions fell for the fifth quarter in a row. The number of "problem" institutions declined from 772 to 732. This is the smallest number of "problem" banks since year-end 2009. Total assets of "problem" institutions declined from $292 billion to $282 billion. Fifteen insured institutions failed during the second quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12. Another nine banks have failed so far in the third quarter, bringing the total for the year to date to 40. At this point last year, there had been 68 failures.

The Deposit Insurance Fund (DIF) balance continued to increase. The unaudited DIF balance — the net worth of the fund — rose to $22.7 billion at June 30 from $15.3 billion at the end of March. The increase included $4.0 billion previously set aside for debt guarantees under the FDIC's Temporary Liquidity Guarantee Program. Assessment revenue and fewer expected bank failures also continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $5.3 billion to $4.0 billion during the quarter. Estimated insured deposits grew 0.7 percent in the second quarter.

FDIC GETS TOUGH ON TWO BANKS FOR EXCESSIVE NSF FEES ON COLLEGE STUDENTS

FROM: FEDERAL DEPOSIT INSURANCE CORPORATION
FDIC Announces Settlements With Higer One, Inc., New Haven, Connecticut, and the Bancorp Bank, Wilmington, Delaware for Unfair and Deceptive PracticesThe Federal Deposit Insurance Corporation (FDIC) announced settlements with Higher One, Inc., New Haven, Connecticut, (Higher One) and The Bancorp Bank, Wilmington, Delaware, for alleged unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act (Section 5). Higher One is an institution-affiliated party of The Bancorp Bank. Under the settlements, both Higher One and The Bancorp Bank have agreed to Consent Orders and Higher One has agreed to provide restitution of approximately $11 million to approximately 60,000 students. In addition, the FDIC has imposed civil money penalties of $110,000 for Higher One and $172,000 for The Bancorp Bank.

The FDIC determined that Higher One operated its student debit card account program (OneAccount) with The Bancorp Bank in violation of Section 5. Among other things, the FDIC found that Higher One and The Bancorp Bank were: charging student account holders multiple nonsufficient fund (NSF) fees from a single merchant transaction; allowing these accounts to remain in overdrawn status over long periods of time, thus allowing NSF fees to continue accruing; and collecting the fees from subsequent deposits to the students' accounts, typically funds for tuition and other college expenses. The Bancorp Bank, as issuer of the OneAccount debit card, was responsible to ensure that Higher One operated the OneAccount program in compliance with all applicable laws.

The Consent Order requires Higher One to change the manner in which it imposes NSF fees. It is required: 1) to not charge NSF fees to accounts that have been in a continuous negative balance for more than 60 days; 2) to not charge more than three NSF fees on any single day to a single account; and 3) to not charge more than one NSF fee with respect to a single automated clearing house (ACH) transaction that is returned unpaid within any 21-day period. In addition, Higher One is required not to make misleading or deceptive representations or omissions in its marketing materials or disclosures and to institute a sound compliance management system.

Higher One has agreed to make restitution to eligible OneAccount holders for certain NSF fees for a period beginning July 16, 2008, to such time as Higher One ceased charging the fees in question. Restitution is estimated at $11 million and may be in the form of credits to current account holders and charged-off accounts, and by check where the account is closed, to the extent that the credit exceeds any charged off amount owed to Higher One.

The Consent Order requires The Bancorp Bank to increase board oversight of all compliance matters, improve its compliance management system, enhance its audit program, correct all violations, significantly increase its management of third party risk, and provide to the FDIC details relating to the termination of its relationship with Higher One. In addition, if Higher One fails to complete restitution, the FDIC may require The Bancorp Bank to establish a restitution account in the amount of restitution unpaid by Higher One.

In agreeing to the issuance of the Consent Orders, neither The Bancorp Bank nor Higher One admits or denies any liability. A copy of the FDIC's Orders issued against The Bancorp Bank and Higher One are attached.

FDIC ACTING CHAIRMAN'S STATEMENT BEFORE CONGRESS ON BANK SUPERVISION AND RISK MANAGEMENT IN LIGHT OF JP MORGAN CHASE LOSSES

FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION
Speeches & Testimony
Statement of Martin J. Gruenberg, Acting Chairman, Federal Deposit Insurance Corporation on "Examining Bank Supervision and Risk Management In Light of JPMorgan Chase's Trading Loss" Before the Committee on Financial Services, United States House of Representatives; 2128 Rayburn House Office Building
June 19, 2012
Chairman Bachus, Representative Frank and members of the Committee, thank you for the opportunity to testify this morning on behalf of the Federal Deposit Insurance Corporation on bank supervision and risk management as it concerns recent trading losses at JPMorgan Chase.

The recent losses at JPMorgan Chase revealed certain risks that reside within large, complex financial institutions. They also highlighted the significance of effective risk controls and governance at these institutions.

The four FDIC-insured subsidiaries of JPMorgan Chase firm have nearly $2 trillion in assets and $842 billion in domestic deposits. As the deposit insurer and backup supervisor of JPMorgan Chase, the FDIC staff works through the primary federal regulators, the Comptroller of the Currency and the Federal Reserve System, to obtain information necessary to monitor the risk within the institution.

The FDIC maintains an onsite presence at the firm, which currently consists of a permanent staff of four professionals. The FDIC staff engages in risk monitoring of the firm through cooperation with the primary federal regulators. Following the disclosure of JPMorgan Chase’s losses, the FDIC has added temporary staff to assist in our current review. The team is working with the institution’s primary federal regulators to investigate both the circumstances that led to the losses and the institution’s ongoing efforts to manage the risks at the firm. The agencies are conducting an in-depth review of both the risk measurement tools used by the firm and the governance and limit structures in place within the Chief Investment Office (CIO) unit where the losses occurred.  Following this review, we will work with the primary regulators to address any inadequate risk management practices that are identified.

Following the announcement of these losses in May, the FDIC joined the OCC and the New York Federal Reserve Bank in daily meetings with the firm. Initially, these meetings focused on gaining an understanding of the events leading up to the escalating losses in the CIO synthetic credit portfolio. The FDIC has continued to participate in these daily meetings between the firm and its primary regulators. We are looking at the strength of CIO’s risk management, governance and control frameworks, including the setting and monitoring of risk limits. The FDIC is also reviewing the quality of CIO risk reporting that has historically been made available to firm management and the regulators. Our discussions have also focused on the quality and consistency of the models used in the CIO as well as the approval and validation processes surrounding them. Although the focus of this review is on the circumstances that led to the losses, the FDIC is also working with JPMorgan Chase’s primary federal regulators to assess any other potential gaps within the firm’s overall risk management practices.

As a general matter, and apart from the specifics of this situation, evaluating the quality of financial institutions’ risk management practices, internal controls and governance is an important focus of safety-and-soundness examinations conducted by the federal banking agencies. Onsite examinations provide an opportunity for supervisors to evaluate the quality of the loan and securities portfolios, underwriting practices, credit review and administration, establishment of and adherence to risk limits, and other matters pertinent to the risk profile of an institution. One important element of risk management is that senior management and the board receives accurate and timely information about the risks to which a firm is exposed. Timely risk-related information is needed by institution management to support decision making and to satisfy disclosure requirements -- and it is an important element of supervisory review.

Without speaking to the specifics of the case for which a review is underway, the recent losses attest to the speed with which risks can materialize in a large, complex derivatives portfolio. The recent losses also highlight that it is important for financial regulatory agencies to have access to timely risk-related information about derivatives and other market-sensitive exposures, to analyze the data effectively, and to regularly share findings and observations.

FDIC INSURED BANKS EARNED OVER $35 BILLION IN THE FIRST QUARTER OF 2012

Photo Credit:  Wikimedia  
FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $35.3 billion in the first quarter of 2012, a $6.6 billion improvement from the $28.8 billion in net income the industry reported in the first quarter of 2011. This is the 11th consecutive quarter that earnings have registered a year-over-year increase. However, loan balances declined by $56.3 billion (0.8 percent) after three consecutive quarterly increases.

FDIC Acting Chairman Martin J. Gruenberg said, "The condition of the industry continues to gradually improve. Insured institutions have made steady progress in shedding bad loans, bolstering net worth, and increasing profitability." He also noted, "The overall decline in loan balances is disappointing after we saw three quarters of growth last year. But we should be cautious in drawing conclusions from just one quarter."
More than two-thirds of all institutions (67.5 percent) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 10.3 percent from 15.7 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.02 percent from 0.86 percent a year ago.

Lower provisions for loan losses and higher noninterest income were responsible for most of the year-over-year improvement in earnings. First-quarter loss provisions totaled $14.3 billion, almost one-third less than the $20.9 billion that insured institutions set aside for losses in the first quarter of 2011. Net operating revenue (net interest income plus total noninterest income) totaled $169.6 billion, an increase of $5 billion (3.1 percent) from a year earlier, as gains from loan sales rose by $2.3 billion. Realized gains on investment securities and other assets were $2 billion higher than in the first quarter of 2011.
Asset quality indicators continued to improve as insured banks and thrifts charged off $21.8 billion in uncollectible loans during the quarter, down $11.7 billion (34.8 percent) from a year earlier. The amount of noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for an eighth consecutive quarter, but the percentage of loans and leases that were noncurrent remained high by historical standards.
Financial results for the first quarter of 2012 are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Among the findings:

Total loan balances fell. Credit card loans had a seasonal decrease of $38.2 billion, closed-end 1-4 family residential real estate loans fell by $19.2 billion, and home equity lines of credit dropped by $13.1 billion. Balances in constructon and development loans declined by $11.7 billion. However, loans to commercial and industrial borrowers increased by $27.3 billion, and auto loans were up by $4.5 billion.

The flow of money into insured deposit accounts slowed. Deposits in domestic offices increased by $67.8 billion (0.8 percent) during the quarter, after rising by more than $200 billion in each of the previous three quarters. Balances in large noninterest-bearing transaction accounts, which have temporary unlimited deposit insurance coverage, fell by $77.3 billion. In contrast, in the previous three quarters the balances in these accounts increased by more than $532 billion. Most of the current quarter's decline occurred at a few of the largest banks that previously received a major share of the inflows. Balances in interest-bearing deposits at domestic offices rose by $100.1 billion.

The number of "problem" institutions fell for the fourth quarter in a row. The number of "problem" institutions declined from 813 to 772. This is the smallest number of "problem" banks since year-end 2009. Total assets of "problem" institutions declined from $319 billion to $292 billion. Sixteen insured institutions failed during the first quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12.

The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance — the net worth of the fund — rose to $15.3 billion at March 31 from $11.8 billion at the end of 2011. Assessment revenue and fewer bank failures continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $6.5 billion to $5.3 billion during the quarter. Estimated insured deposits grew 0.7 percent in the first quarter.

"In summary, indicators of financial strength and asset quality continued to improve in the first quarter, but the process of recovery is clearly still ongoing," Acting Chairman Gruenberg said. He added, "The improved financial condition of the industry has not yet translated into sustained loan growth. We will continue to watch this indicator closely."
The complete Quarterly Banking Profile is available at http://www2.fdic.gov/qbp on the FDIC Web site.