Federal Financial Institutions Examination Council ...Uniform Fair Lending examination procedures....

Federal Financial Institutions Examination Council, Washington, DC

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration,Office of the Comptroller of the Currency, Office of Thrift Supervision

A N N U A L R E P O R T 1 9 9 8

MEMBERS OF THE COUNCIL

Laurence H. Meyer, Vice ChairmanMemberBoard of Governors of the

Federal Reserve System

Ellen SeidmanDirectorOffice of Thrift Supervision

Norman E. D’AmoursChairmanNational Credit Union Administration

Donna TanoueChairmanFederal Deposit Insurance Corporation

John D. Hawke, Jr., ChairmanComptroller of the CurrencyOffice of the Comptroller of the Currency

LETTER OF TRANSMITTAL

Federal Financial InstitutionsExamination Council

Washington, DCMarch 24, 1999

The President of the SenateThe Speaker of the House of Representatives

Pursuant to the provisions of section 1006(f) of the Financial Institutions Regulatoryand Interest Rate Control Act of 1978 (12 USC 3305), I am pleased to submit the1998 Annual Report of the Federal Financial Institutions Examination Council.

Sincerely,

John D. Hawke, Jr.Chairman

TABLE OF CONTENTS

vii Message from the Chairman

1 The Federal Financial Institutions Examination Council

3 Record of Actions of the Council

7 State Liaison Committee Report

9 Administration of the Council

11 Activities of the Interagency Staff Groups

23 The Federal Financial Institutions Regulatory Agencies andTheir Supervised Institutions

27 Assets, Liabilities, and Net Worth of U.S. Commercial Banks andThrift Institutions as of June 30, 1998

28 Income and Expenses of U.S. Commercial Banks and ThriftInstitutions for the Twelve Months Ending June 30, 1998

29 Appendix A: Relevant Statutes

33 Appendix B: 1998 Audit Report

37 Appendix C: Maps of Agency Regions and Districts

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MESSAGE FROM THE CHAIRMAN

John D. Hawke, Jr.

I am pleased to report on the activi-ties of the Federal Financial Institu-tions Examination Council (FFIEC).This has been another busy and pro-ductive year for the Council and itsmember agencies.

In 1998, the Council continued tofocus on the Year 2000 project toensure that our financial institutionsare ready for the century datechange. Since 1997, the Council hasplayed a pivotal role in keeping thetempo of Year 2000 activities mov-ing forward at a steady pace, recog-nizing the need to provide conciseguidance and ensure strict enforce-ment to minimize date change dis-ruptions. The Council’s efforts haveincluded examination guidance,examiner training, joint examina-tions, and industry outreach. Fewsituations have arisen in theCouncil’s history that have calledfor as large an effort, involving somany people from the five memberagencies.

Throughout 1998, the Council’sTask Force on Supervision issuedguidance to financial institutionsto assist them in their Year 2000remediation efforts. These issuancesprovided guidelines on: assessingYear 2000-related risks associatedwith service providers, softwarevendors, and institutions’ custom-ers; testing for Year 2000 readinessand establishing key milestones thatmust be met to prepare for the datechange; evaluating potential risksassociated with institutions’ fidu-ciary services; developing contin-gency plans to mitigate potentialrisks; and responding to customerinquiries about the Year 2000 datechange. The Council also developeda brochure entitled The Year 2000Date Change, which addresses com-monly asked questions on how thedate change might impact federaldeposit insurance, steps financialinstitutions and the regulatory

agencies are taking to minimize po-tential disruption, and steps cus-tomers should take to prepare forthe Year 2000. The Council madethis brochure available to financialinstitutions so that they could keeptheir customers informed about thisissue. Council members and agencyrepresentatives also continued theirextensive outreach activities, par-ticipating in numerous industryconferences, trade association semi-nars, and software vendor meetingsacross the country.

The Council’s Task Force on Super-vision also oversaw developmentand issuance of the Year 2000 PhaseII Work Program. This programprovides member agencies’ examin-ers with the tools necessary toevaluate the progress financialinstitutions are making in preparingfor the Year 2000 date change.It was designed for examiners touse during a second round of Year2000-related examinations, whichbegan in the summer of 1998. Theseexamination procedures focus onrisk and help examiners deter-mine whether an institution hasaddressed Year 2000 problemsembedded in many computer soft-ware, hardware, and environmentalsystems.

As the following report will show,the Council and its interagency stafftask forces and working groups alsoundertook numerous other initia-tives in addition to Year 2000projects. I am especially proud ofthe Council’s Consumer Compli-ance Task Force's effort to revise theUniform Fair Lending examinationprocedures. These procedures,which address issues such asredlining and discriminatory steer-ing, will enhance supervisoryefforts and provide examiners withextensive assistance in setting thescope of their examinations. TheCouncil also established a high-

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level interagency steering committeeon capital to review U.S. bankingagencies’ capital requirements. TheCouncil also took steps to make theUniform Bank Performance Reportsfor all commercial and savings banksavailable on its World Wide Web site.These reports will be posted in 1999.

In closing, I would like to expressthe Council’s appreciation of Joe M.Cleaver, who retired in May 1998,after seven years of dedicated serviceto the Council. Joe served the Counciladmirably during his tenure

as executive secretary and weare grateful for the leadershiphe provided. I am happy toannounce that Keith Todd hasbeen appointed as the Council’snew executive secretary.

I feel confident the Council willcontinue the fine record of inter-agency cooperation and accom-plishment so vital to the supervi-sion and promotion of the safetyand soundness of our nation’sfinancial system.

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THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL

The Federal Financial InstitutionsExamination Council (Council) wasestablished on March 10, 1979, pur-suant to title X of the FinancialInstitutions Regulatory and InterestRate Control Act of 1978 (FIRA),Public Law 95-630. The purpose oftitle X, entitled the Federal FinancialInstitutions Examination CouncilAct of 1978, was to create a formalinteragency body empowered toprescribe uniform principles, stan-dards, and report forms for the fed-eral examination of financial insti-tutions by the Board of Governorsof the Federal Reserve System, Fed-eral Deposit Insurance Corporation,National Credit Union Administra-tion, Office of Comptroller of theCurrency, and Office of ThriftSupervision and to make recom-mendations to promote uniformityin the supervision of financial insti-tutions. The Council is also respon-sible for developing uniform report-ing systems for federally supervisedfinancial institutions, their holdingcompanies, and the non-financial-institution subsidiaries of thoseinstitutions and holding companies.It conducts schools for examinersemployed by the five agenciesrepresented on the Council andmakes those schools available toemployees of state agencies thatsupervise financial institutions.The overall intent of the legislationwas that the Council promote

consistency in federal examinationsand progressive and vigilant super-vision. Under the Financial Institu-tions Reform, Recovery, andEnforcement Act of l989 (FIRREA),the Council was also authorizedto develop and administer trainingseminars in risk management forthe employees of the agencies rep-resented on the Council and theemployees of insured financialinstitutions.

The Council was given additionalstatutory responsibilities by section340 of the Housing and CommunityDevelopment Act of 1980, PublicLaw 96-399. Among these responsi-bilities are the implementation of asystem to facilitate public access todata that depository institutionsmust disclose under the HomeMortgage Disclosure Act of 1975(HMDA) and the aggregation ofannual HMDA data, by censustract, for each metropolitan statisti-cal area (MSA).

In 1989, title XI of FIRREA estab-lished the Appraisal Subcommitteewithin the Council. The functions ofthe subcommittee are (l) monitoringthe requirements, including a codeof professional responsibility, estab-lished by states for the certificationand licensing of individuals whoare qualified to perform appraisalsin connection with federally relatedtransactions; (2) monitoring the

appraisal standards established bythe federal financial institutionsregulatory agencies and the Resolu-tion Trust Corporation; (3) main-taining a national registry ofappraisers who are certified andlicensed by a state and who arealso eligible to perform appraisalsin federally related transactions;and (4) monitoring the practices,procedures, activities, and organi-zational structure of the AppraisalFoundation, a nonprofit educa-tional corporation established bythe appraisal industry in the UnitedStates.

The Council has five members:the Comptroller of the Currency,the Chairman of the FederalDeposit Insurance Corporation,a member of the Board of Gover-nors of the Federal Reserve Systemappointed by the Chairman ofthe Board, the Chairman of theNational Credit Union Administra-tion Board, and the Director of theOffice of Thrift Supervision. In ad-dition, to encourage the applicationof uniform examination principlesand standards by the state and fed-eral supervisory authorities, theCouncil has established, in accor-dance with the requirement of thestatute, an advisory State LiaisonCommittee composed of five repre-sentatives of state supervisoryagencies.

RECORD OF ACTIONS OF THE COUNCIL

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The Examination Council in Session.

The followingsection is a chro-nological recordof the officialactions takenby the FederalFinancial Institu-tions Examina-tion Councilduring 1998 pur-suant to sections1006, 1007, and1009A of theFederal Finan-cial InstitutionsExaminationCouncil Act of1978, Public Law95-630; section304 of the HomeMortgage Disclosure Act (HMDA),Public Law 94-200; and the RiegleCommunity Development andRegulatory Improvement Act of1994 (RCDRIA), Public Law 103-325.

January 7

Action. A request to collect CallReport data was not approved.The voting was one approval,three disapprovals, and oneabstention.

Explanation. Additional data wererequested to monitor bank affiliatetransactions and compliance withsection 23A of the Federal ReserveAct.

March 12

Action. Unanimous approval of ananalysis of home mortgage lendingin 1996.

Explanation. An extensive analysis ofhome loan growth to minorities andpatterns of denial rates was adoptedand approved for a Council pressrelease.

March 13

Action. Unanimously approvedthe appointment of two at-largemembers to the State LiaisonCommittee.

Explanation. Mr. Bill C. Houston,Tennessee, was appointed and Mr.Thomas Curry, Massachusetts, wasre-appointed to the State LiaisonCommittee for two-year terms.Under the Council’s Rules ofOperation, the Council directlyappoints two of the five membersof the State Liaison Committee.

March 13

Action. Unanimously approved theappointment of six task force chairs.

Explanation. The chairs for all sixstanding task forces are approvedannually and are drawn from man-agement or senior staff of the fivemember agencies.

March 13

Action. Unanimous approval of the

release of two pa-pers on the Year2000 readinessissue.

Explanation. Apaper describingdue diligenceexpectations andefforts in connec-tion with serviceproviders andsoftware vendorswas approved.While the FFIECagencies willconduct exami-nations of serviceproviders andinspect software

vendors, no public Year 2000 certifi-cation will be developed. A paperdetailing the impact of Year 2000readiness on three broad classes ofcustomers was alsoapproved.

March 13

Action. Directed the working groupto revise the draft policy on Uni-form Classification of ConsumerInstallment Credit.

Explanation. Substantial progresshas been made in rewriting theCouncil’s 1980 policy. Additionallanguage addressing a consistentcharge-off policy at 150 days andrequiring implementation byJanuary 1, 2001, was requested.

March 13

Action. Unanimous approval of thenonvoting participation of the StateLiaison Committee in the activitiesof the Supervision Task Force.

Explanation. The ongoing participa-tion of state banking agencies in

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Council task force meetings hasresulted in a greater exchange ofinformation between federal andstate bank supervisors and isencouraged by the Council.

March 13

Action. Approved initiating aproject by the Supervision TaskForce to review the InteragencyStatement on Retail Sales ofNondeposit Investment Products.

Explanation. A working group willreview the 1994 statement andmake recommendations on whetherthe statement needs to be updated,whether its scope should beexpanded to include insurancesales activities, and whether all orparts of the statement should becodified.

June 1

Action. Unanimous approval of anoffice space lease for Council opera-tions at 2000 K Street, Suite 310,Washington, D.C.

June 4

Action. Unanimous approval ofthe release of nonpublic ConsumerReinvestment Act data to theDepartment of Justice.

Explanation. The Department ofJustice sought and the Councilapproved release of incoming,nonaggregated Community Rein-vestment Act data collected fromfinancial institutions.

September 11

Action. Unanimous approval topermit public access to the UniformBank Performance Report (UBPR)on the Council’s website.

Explanation. At a moderate cost, theCouncil can provide substantiallygreater public access to bank finan-

cial information than is possiblewith the current paper-based deliv-ery system. It is anticipated the gen-eral public, banks, and others willuse this electronic access to theUBPR extensively.

September 11

Action. The Council directed theCapital Working Group to developtwo issue papers for the nextmeeting.

Explanation. The Capital WorkingGroup will develop a paper explor-ing options for treating recourseand direct credit substitutes. Thegroup will also develop an outlineof issues for the capital treatment insmaller institutions.

September 11

Action. Unanimous concurrenceto reduce the number of Risk-Management Seminars from twoto one per year.

Explanation. Falling attendance hasresulted in the need to consolidateseminars. The Task Force on Exam-iner Education will explore ways torefocus the seminar.

September 11

Action. The Council directed theTask Force on Examiner Educationto explore the feasibility of conduct-ing trust, consumer compliance, andbank information systems trainingon an interagency basis.

Explanation. Conducting basic train-ing on an interagency basis mayoffer opportunities for reducingcourse redundancies amongagencies.

September 29

Action. Unanimous approval ofthe appointment of Keith J. Toddas Executive Secretary for theCouncil.

December 4

Action. Unanimously approvedthe revised Uniform Fair LendingExamination Procedures.

Explanation. The new proceduresretain many core elements whileadding explicit procedures dealingwith issues such as redlining andsteering. An extensive new sectionon scoping was also added. TheCouncil agreed that this projectwas a significant step forward in animportant area of bank supervision.

Actions Taken by the Council’sTask Forces under DelegatedAuthority

Task Force on ConsumerCompliance

• February 12—Approved the FairCredit Reporting Act Inter-Agency Policy letter.

• July 15—Approved issuance ofElectronic Banking GuidanceRelating to Consumer Compli-ance Issues.

Task Force on Reports

• September 18—Approved FederalRegister notice covering revisionsto the March 31, 1999, bank CallReport.

• October 9—Approved Federal Reg-ister notice on the InteragencyPolicy Statement on Income TaxAllocation in a Holding Com-pany Structure.

• October 25—Approved FederalRegister notice announcing elimi-nation of FFIEC form 035,Monthly Consolidated ForeignCurrency Report.

• November 11—Approved FederalRegister notice requesting com-ment on proposed revisions tothe March 31, 1999, FFIEC 002Report of Assets and Liabilitiesof U.S. Branches and Agenciesof Foreign Banks.

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• December 29—Approved issuanceof Interim Guidance on the Regu-latory Reporting of Derivativesunder Financial Accounting Stan-dards Board Statement No. 133.

Task Force on Supervision

• January 28—Approved policystatement and Federal Registernotice on revisions to the FFIECTrust Rating System.

• January 28—Approved FederalRegister notice on FFIEC policystatement covering ExternalAuditing Programs of Banksand Savings Associations.

• March 6—Rescinded the 1992Policy Statement on SecuritiesActivities that included high-risktests and approved the revisedpolicy statement.

• March 6—Approved Year 2000paper on Guidance ConcerningInstitution Due Diligence in Con-nection with Service Providerand Software Vendor Readiness.Approval was conditioned onthe approval of agency principalsand the full Council.

• March 6—Approved Year 2000paper on Guidance Concerningthe Year 2000 Impact on Custom-

ers. Approval was conditionedon the approval of agency princi-pals and the full Council.

• March 20—Approved the revisedInteragency Policy Regarding theAssessment of Civil Money Pen-alties by Federal Financial Insti-tution Regulatory Agencies.

• April 8—Approved retention ofthe Policy on Interagency Infor-mation Systems Examinationand Report Distribution.

• April 8—Approved the Year 2000paper on Guidance ConcerningTesting for Year 2000 Readiness.

• May 6—Approved Year 2000paper on FFIEC Guidance onYear 2000 Customer AwarenessPrograms and the customerawareness brochure.

• May 12—Approved the Year2000 paper on Guidance Con-cerning Contingency Planning inConnection with Year 2000Readiness.

• May 26—Approved FederalRegister notice on proposed revi-sions to the Information SystemsExamination Rating System.

• June 29—Approved the Year2000 Phase II Work Program.

• June 29—Approved Federal Regis-ter publication of the ProposedRevisions for Classification ofConsumer Installment CreditBased on Delinquency.

• August 27—Approved the Year2000 Safety and SoundnessGuidelines to strengthenenforcement powers previouslyreleased.

• August 27—Approved thepaper on Year 2000 FiduciaryGuidance.

• August 27—Approved publica-tion of Questions and AnswersConcerning FFIEC Year 2000Policy.

• October 5—Approved the modifi-cations to the MDPS and SASRsexamination procedures to allowa focus on Year 2000 risk.

• October 5—Approved the revi-sions to the Trust ExaminationRating System.

• December 10—Approved publica-tion of Questions and AnswersConcerning Year 2000 Contin-gency Planning.

• December 18—Approved revi-sions to the Information Technol-ogy Rating System.

STATE LIAISON COMMITTEE REPORT

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In Section 1007 of Public Law 95-630,the Congress authorized the estab-lishment of the State Liaison Com-mittee (SLC) “to encourage theapplication of uniform examinationprinciples and standards by stateand federal supervisory agencies.”The SLC carries out this responsibil-ity by assuming an active advisoryrole in all Council deliberations,especially when matters pertainingdirectly to joint state and federalregulatory concerns or jurisdictionaloverlaps are at issue. The primaryobjectives of the SLC are to fostercommunication and cooperationbetween state and federal supervi-sory authorities and to reduceredundant supervisory procedures.

The SLC believes that the Councilcan effectively coordinate activitiesamong the federal agencies andbetween federal agencies and theirstate counterparts to economize onthe combined state and federalresources devoted to the super-vision and regulation of financialinstitutions. The Council providesthe SLC with a staff position, whichallows the SLC members to be fullyinformed of Council matters and toparticipate in all Council activities,including task force assignmentsand other projects.

Organization

The SLC consists of five representa-tives of state agencies that supervise

financial institutions. The represen-tatives are appointed for two-yearterms. An SLC member may havehis or her two-year term extendedby the appointing organization foran additional, consecutive two-yearterm. Each year, the SLC elects oneof its members to serve as chair fortwelve months. Of the five mem-bers, two are selected by the Coun-cil. The other three are designatedby the American Council of StateSavings Supervisors (ACSSS), theConference of State Bank Supervi-sors (CSBS), and the National Asso-ciation of State Credit Union Super-visors (NASCUS). A list of the SLCmembers appears on page 10 ofthis report.

Participation in ExaminationCouncil Activities

In 1998, the State Liaison Committeeactively participated in several keyprojects having a long-term impacton the financial industry. TheCouncil’s project on the Year 2000problem has had the continuedinput and support of the entire SLC.SLC Chairman Thomas Curry notesthe continued cooperation of stateand federal banking agencies toexpand industry and public knowl-edge of the issues involving theYear 2000 problem. Some statescoordinate closely with federalagencies while others act on theirown initiative.

As a way of enhancing stateinvolvement in addressing the Year2000 problem and other supervisoryissues, the State Liaison Committeesought and received unanimousCouncil approval to participate inthe Supervision Task Force as a non-voting member. This opportunityfor further information sharing inthe critical area of bank supervisionpolicy will benefit all involved. Statesupervisors also participate in theTask Force on Information Sharing,which is charged with facilitatingthe sharing of electronic informa-tion, ensuring that informationquality meets the agencies’ consis-tency requirements, and improvingthe way information is collected andshared by the agencies.

The core Call Report project nowunder way with the Task Force onReports has benefitted greatly fromthe input of several states. An exten-sive survey defining current uses ofand possible enhancements to theCall Report was completed by sev-eral states. The Conference of StateBank Supervisors coordinated thiseffort.

The State Liaison Committee islooking forward to continued coop-eration of state and federal effortsand is deeply interested in expand-ing state participation in otherareas of joint financial industrysupervision.

ADMINISTRATION OF THE COUNCIL

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Regular meetings of the Councilare held quarterly. Special meetingsmay be scheduled whenever mattersof high priority must be consideredwithout delay.

The Council’s activities are fundedin several ways. Most of theCouncil’s funds derive from semian-nual assessments on its five constitu-ent agencies. The Council alsoreceives reimbursement for theservices it provides to supportpreparation of the quarterlyUniform Bank Performance Report(UBPR). It receives tuition fees fromnonagency attendees to cover someof the costs associated with itsexaminer-education program.

The Federal Reserve Board providesbudget and accounting services tothe Council, and the FederalReserve’s Assocaite Director forManagement serves as the Council’sController. The Council is supportedby a small full-time administrativestaff in its operations office, and itsexaminer-education program isadministered by Council stafflocated at its Examiner TrainingFacility in Arlington, Virginia. EachCouncil staff member is detailedfrom one of the five agencies repre-sented on the Council but is consid-ered an employee of the Council.All Council employees are in theOffice of the Executive Secretary.The major responsibilities of theOffice of the Executive Secretary arethe following:

• scheduling Council meetings,preparing agendas for Councilmeetings, preparing minutesof Council meetings, and review-ing all material for Councilconsideration

• monitoring the work of all inter-agency staff groups involved inthe Council’s activities and help-ing staff groups set priorities anddefine key issues

• undertaking special projectsand studies as requested by theCouncil

• working closely with membersof the State Liaison Committee toensure adequate communicationamong the members, Council,and interagency staff groups

• coordinating public informationactivities, including preparationand distribution of Council pressreleases

• maintaining liaison with theCongress and with federaldepartments and agencies

• preparing the Council’s annualreport to the Congress

• coordinating the production anddistribution of the quarterlyUBPR and related data

• coordinating the collection, pro-duction, and distribution ofHome Mortgage Disclosure Actdata

• managing the Council’sexaminer- education program

Six interagency staff task forces,and the Legal Advisory Group(LAG) provide most of the staffsupport in the substantive areasof concern to the Council. The taskforces and the LAG are responsiblefor the research and other investi-gative work agency staff membersperform on behalf of the Counciland for reports and policy recom-mendations prepared for Councilconsideration. In addition, theCouncil has established the AgencyLiaison Group, an interagencygroup of senior officials responsiblefor coordinating the efforts of theirrespective agencies’ staff membersin support of the Council. TheExecutive Secretary of the Councilis an ex officio member of the sixinteragency staff task forces aswell as the Agency Liaison Group.The staff time and other resourcesexpended on Council-relatedprojects in 1998 were providedby the five agencies without reim-bursement and are not reflectedin the Council budget. Withoutthose contributions by the agenciesand the individual staff members,significant progress on Councilprojects during 1998 would havebeen impossible.

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Organization, December 31, 1998

Members of the Council

John D. Hawke, Jr., ChairmanComptroller of the CurrencyOffice of the Comptroller of the

Currency (OCC)

Laurence H. Meyer, Vice ChairmanMemberBoard of Governors of the Federal

Reserve System (FRB)

Norman E. D'AmoursChairmanNational Credit Union

Administration (NCUA)

Donna TanoueChairmanFederal Deposit Insurance

Corporation (FDIC)

Ellen SeidmanDirectorOffice of Thrift Supervision (OTS)

State Liaison Committee

Thomas J. Curry, ChairmanCommissioner of BanksMassachusetts

Gavin M. Gee, Jr.Director, Department of FinanceIdaho

Bill C. HoustonCommissioner of Financial

InstitutionsTennessee

G. Edward LearyCommissioner of Financial

InstitutionsUtah

James L. PledgerCommissioner Savings &

Loan DepartmentTexas

Council Staff Officers

Keith J. Todd,Executive Secretary

John M. Smullen,(Acting) SLC Coordinator and

Assistant Executive Secretary

Interagency Staff Groups

Agency Liaison Group

Roger T. Cole (FRB)Nicholas J. Ketcha Jr. (FDIC)David M. Marquis (NCUA)John C. Price (OTS)Emory W. Rushton (OCC)

Legal Advisory Group

Julie L. Williams, Chairman (OCC)Carolyn B. Buck (OTS)Robert M. Fenner (NCUA)Douglas H. Jones (FDIC)J. Virgil Mattingly (FRB)

Consumer Compliance Task Force

Stephen J. Cross, Chairman (OCC)Timothy R. (Tim) Burniston (OTS)Glenn E. Loney, (FRB)Carmen J. Sullivan (FDIC)Jodee J. Wuerker (NCUA)

Examiner Education Task Force

Mark Nishan, Chairman (OCC)Ronald H. Ball (FDIC)

Martin F. Kushner (NCUA)Robert E. Leibowitz (FRB)David Smith (OTS)

Information Sharing Task Force

William Schneider, Chairman (FRB)Jim Dudine (FDIC)William Shively (OTS)Nancy Wentzler (OCC)

Reports Task Force

Robert F. Storch, Chairman (FDIC)Patrick G. Berbakos (OTS)Zane D. Blackburn (OCC)Gerald A. Edwards, Jr. (FRB)Polly Kennedy (NCUA)

Supervision Task Force

Nicholas J. Ketcha Jr.Chairman (FDIC)

Stephen E. Austin (NCUA)Richard M. Riccobono (OTS)Emory W. Rushton (OCC)Richard Spillenkothen (FRB)

Surveillance Systems Task Force

Marty Wiseman, Chairman (OCC)Kevin M. Bertsch (FRB)Charles W. Collier (FDIC)Polly Kennedy (NCUA)William Shively (OTS)

Members of the AppraisalSubcommittee

Herbert S. Yolles, Chairman (NCUA)John C. Price (OTS)David Gibbons (OCC)Virginia Gibbs (FRB)Mark W. Holman (HUD)Jesse G. Snyder (FDIC)

ACTIVITIES OF THE INTERAGENCY STAFF GROUPS

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Section 1006 of Public Law 95-630sets forth the functions of the Coun-cil. Briefly summarized, these func-tions are the following:

• establish uniform principles, stan-dards, and report forms for theexamination of financial insti-tutions and make recommenda-tions for uniformity in othersupervisory matters

• develop uniform reporting sys-tems for federally supervised inst-itutions, their holding companies,and subsidiaries of those institu-tions and holding companies

• conduct schools for examinersemployed by the federal supervi-sory agencies and make thoseschools available to employeesof state supervisory agenciesunder conditions specified bythe Council

To effectively administer projectsin all of those functional areas, theCouncil established six interagencystaff task forces, each of whichincludes one senior official fromeach agency:

• Consumer Compliance

• Examiner Education

• Information Sharing

• Reports

• Supervision

• Surveillance Systems

The Council also established theLegal Advisory Group, composedof a senior legal officer from eachagency. The task forces and theLegal Advisory Group provideresearch and analytical papers andproposals on the issues that theCouncil addresses.

Task Force onConsumer Compliance

The Task Force on Consumer Com-pliance promotes policy coordina-tion and uniform enforcement ofconsumer laws by the five agenciesrepresented on the Council. It con-sists of senior personnel with know-ledge in consumer compliance mat-ters. The task force identifies andstudies problems concerning con-sumer compliance and fosters uni-formity in the policies and proce-dures used by member agencies.

The task force is responsible forthose laws and regulations thatprotect consumers who conductbusiness with insured depositoryinstitutions. The task force alsoaddresses other legislation, regula-tions, or policies at the state andfederal levels that could affect agen-cies’ consumer compliance respon-sibilities. During 1998, the task forcehad five standing subcommittees:automation, Community Reinvest-ment Act, electronic banking,examination procedures , HomeMortgage Disclosure Act. Therewere also two issue-specific work-

ing groups: one working on thedevelopment of an interagencyconsumer-contacts database andanother working on developmentof interagency fair lendingexamination procedures.

Automation Subcommittee

The Automation Subcommitteeprovides the task force withtechnical support by undertakingprojects that require coordinationwith other automation groups bythe developing of applications forFFIEC benefit. In August 1998, thesubcommittee completed the devel-opment of a searchable FFIEC CRAratings database and provided pub-lic access to the database throughthe FFIEC website. During 1999, thesubcommittee will continue to ana-lyze the technical and functionalfeasibility of developing a secure“extranet” for compliance staff ofmember agencies to use to shareinformation. The subcommitteewill also enhance the searchableFFIEC CRA ratings database inresponse to consumer and agencyrecommendations.

Task Force on Consumer Compliance

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Community Reinvestment ActSubcommittee

The Community Reinvestment ActSubcommittee provides technical,programmatic, and policy supportto the task force on issues associatedwith the agencies’ implementationof the Community ReinvestmentAct. During 1998, the CRA subcom-mittee devoted the majority of itstime to working on several initia-tives to promote consistency in theCRA examination process. Duringthe first quarter, the subcommitteeworked to complete a three-partproject to further promote consistentimplementation of the examinationprocedures for large institutions. Tomeet this goal, a review of perfor-mance evaluations of institutionsthat were examined under the lend-ing, investment, and service testswas completed. In the third quarter,the subcommittee completed itscoordination of eight joint CRAexaminations and began reviewingemerging issues. In the fourth quar-ter, the subcommittee organized aCRA forum with examiners from theFederal Reserve Board, the FederalDeposit Insurance Corporation, theOffice of the Comptroller of theCurrency, the Office of Thrift Super-vision, and representatives fromcommunity groups and banks. Dur-ing the forum, findings from thejoint performance review and jointexaminations were communicated,and recommendations for increasedconsistency in implementing thelarge institution examination proce-dures were gathered.

The subcommittee anticipates thatthe interagency effort to foster con-sistent implementation of the CRAexamination procedures will be thefocus of its work well into 1999. Itwill also develop interpretive guid-ance for the task force to consider onany examination issues that arise.

Electronic BankingSubcommittee

The Electronic Banking Subcommit-tee helps develop uniform policies,

principles, and standards associatedwith member agencies’ implementa-tion of the consumer protection andfair lending laws and regulations asthey relate to emerging electronicbanking technology. The subcom-mittee serves as an ongoing inter-agency working group to conductresearch and analysis, produceinteragency reports and recommen-dations, and educate the industryand general public on developmentsin electronic banking technologyand regulatory matters.

During 1998, the subcommitteeworked on completion of its five ini-tiatives for the year: (1) reviewingconsumer regulations, (2) updatingthe compliance examination proce-dures, (3) delivering interagencyelectronic banking compliancetraining, (4) studying CRA andelectronic banking, and (5) briefingthe task force on the ConsumerElectronics Payments Task Forcereport. The subcommittee decidedto postpone the review of consumerregulations until after the FederalReserve Board issues its final rulesconcerning “electronic communica-tions” on various consumer regula-tions. In July 1998, the task forceapproved and the FFIEC issuedindustry guidance entitled “Guid-ance on Electronic Financial Ser-vices and Consumer Compliance.”The subcommittee also isolated allchanges to regulations regardingelectronic services and provided theExamination Procedures Subcom-mittee with recommendations forupdating the procedures. Through-out the year, the subcommittee hasmonitored the progress of the inter-agency CRA policy group on theissue of remote banking and hasmet with senior staff working onthe project. Based on the progressof the interagency group, the sub-committee provided input into thatgroup’s work product in lieu ofdeveloping a separate document. InDecember 1998, the subcommitteepresented training on its “Guidanceon Electronic Financial Services andConsumer Compliance” at theFFIEC Cyberbanking Conference.

In 1999, the subcommittee antici-pates developing uniform inter-agency compliance-examinationprocedures that will incorporatechanges to the consumer protectionregulations reflecting developmentsin electronic banking and, if appro-priate and necessary, organizinginteragency training for complianceexaminers.

Examination ProceduresSubcommittee

The Examination ProceduresSubcommittee is responsible formaintaining updated interagencyexamination procedures for thecompliance and consumer protec-tion laws the agencies enforce.During 1998, the subcommitteecompleted and the task forceapproved a revised Truth in Lend-ing Policy Statement and Fair CreditReporting Act Policy Statement. Thesubcommittee worked on develop-ing new Fair Credit Reporting Actexamination procedures, which arebeing vetted throughout the mem-ber agencies for review and com-ment. In November 1998, the sub-committee presented a draft Truthin Lending Act Questions andAnswers document to the taskforce for consideration.

During 1999, the subcommitteeanticipates it will finalize the exami-nation procedures for the FairCredit Reporting Act and the Truthin Lending Act Questions andAnswers and work on developingexamination procedures for theTruth in Savings Act and the Expe-dited Funds Availability Act.

Home Mortgage Disclosure ActSubcommittee

The Home Mortgage Disclosure Act(HMDA) Subcommittee supervisesthe collection and dissemination ofHMDA data reported to the agen-cies and aggregated by the Council.During 1998, the Council processedapproximately 16 million reportedloans and applications. The sub-

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committee updated and published aHMDA technical guide, “Getting itRight,” including questions con-cerning the new asset threshold thatexempts institutions with assets ofless than $28 million from HMDArequirements.

During 1999, the HMDA Subcom-mittee will continue to work onmatters related to the toll-freeassistance line that answers ques-tions from the public about HMDA,establish guidelines for HMDAresubmissions, and work to elimi-nate paper products in the collectionand dissemination of HMDA data.

Community ContactsAutomated Systems WorkingGroup

During 1998, the Community Con-tacts Automated Systems WorkingGroup completed testing andprovided recommendations forenhancement and further develop-ment of a database of community-contact forms. Using Internettechnology, the Federal DepositInsurance Corporation has taken thelead in developing the system forthe member agencies, with fundingfrom the FFIEC. During 1999, theworking group anticipates complet-ing and testing the beta system inall member agencies before comple-tion of the final system with Internetcapabilities.

Fair Lending ExaminationProcedures Working Group

The Fair Lending ExaminationProcedures Working Group wasformed in 1996 to draft a set ofinteragency fair lending examina-tion procedures. In 1998, the work-ing group completed its develop-ment of interagency fair-lendingprocedures and presented themto the task force for consideration.In the fourth quarter, the Councilapproved the procedures andbegan to prepare a press release toannounce their completion andavailability.

In 1999, the new interagency fairlending examination procedureswill be posted on the FFIEC websitefor public access, and the workinggroup will provide recommenda-tions on future training on theprocedures.

Task Force onExaminer Education

The mission of the Federal FinancialInstitutions Examination Councilis to promote consistency in theexamination of financial institu-tions. The Task Force on ExaminerEducation was established by theCouncil to support one of its threeoriginal statutory functions, exam-iner training. Accordingly, the mis-sion of this task force is to:

• promote training efficiency byencouraging consistency ofexaminer education, which isaccomplished by jointly sponsor-ing interagency training;

• develop, maintain, and delivertimely, state-of-the-art inter-agency training;

• serve as a clearinghouse for train-ing opportunities offered by themember agencies; and

• provide support to the initiativesof the Council and its task forces.

During 1998, the Council conductedtraining for the five member agen-cies, state financial institution regu-latory agencies, other federal agen-cies, and several attendees fromforeign central banks. The Counciloffers a wide variety of courses andconferences, which are primarilyaimed at the needs of examinerswho have completed the commis-sioning process within their agen-cies. However, some noncommis-sioned examiners also attendCouncil programs.

Oversight and guidance for cur-ricula and programs are providedby the task force, which is composedof examiner training directors fromeach of the member agencies. Inter-agency course-development com-

mittees provide specific guidanceon each program and ensure thatprograms targeted at agency train-ing needs are kept current. The pro-gram calendar is developed in thefall in response to needs surveysconducted in each of the participat-ing agencies. In 1998, attendance byregulatory staff totaled 3,435. Thetable below provides details ofattendance by course and agency.

1998 Initiatives

During the year, a major effort wasmade to refine and develop thenew programs approved in 1997.Accordingly, four new examinertraining programs were success-fully piloted:

• Advanced White-Collar Crime

• Advanced Credit AnalysisConference

• Syndicated Loan Seminar

• Lunchtime Speaker Services

The following programs wereapproved for development; how-ever, considerable work needs to bedone before they can be added tothe curriculum:

• A course on Computer-AssistedPresentations

• A program on Internet deliveryof examiner education informa-tion and short courses.

One video teleconference oncyberbanking was transmitted toFDIC regional offices, with othermember agencies invited to attendat those offices. This two-hour seg-ment, part of a larger two-day con-ference, was broadcast from theFDIC Seidman Center, with examin-ers from all five member agencies inattendance.

Courses

Most courses are 4½ days long andconducted in groups of 20 to 35 par-ticipants. Courses offered in 1998were Instructor Training, Informa-tion Systems Symposium, Testify-

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No ofCourses/Conferences Sessions FDIC OTS FRB NCUA OCC FCA Other Total

Advanced Credit Anaylsis 3 100 . . . 46 . . . 128 2 . . . 276Advanced White Collar Crime 3 83 5 119 1 28 . . . 1 237Capital Markets 4 161 . . . 83 8 118 11 1 382CRA Forum (Consumer) 1 6 11 21 . . . 18 . . . . . . 56Cyberbanking 1 27 13 18 2 25 3 . . . 88

Emerging Issues—Community 7 273 56 128 . . . 160 4 . . . 621Emerging Issues—Multinational 2 34 . . . 80 . . . 36 2 . . . 152Information Systems & Technology 1 58 23 68 1 92 10 3 . . .

Instructor Training 8 45 1 38 1 15 1 . . . 101International Banking Conference 1 21 . . . 59 . . . 14 1 . . . 95

International Banking School 3 19 . . . 10 . . . 14 . . . 32 75International Banking Self Study . . . 1 . . . . . . . . . 17 . . . . . . 18Payment Systems Risk 3 109 . . . 56 3 81 1 . . . 250Syndicated Loan Seminar 4 30 . . . 14 . . . 59 1 . . . 104Testifying 3 11 . . . 11 . . . 18 1 . . . 41

Trust Conference 1 77 10 63 . . . 75 . . . 10 235White Collar Crime 1 74 . . . . . . . . . 14 3 . . . 91

Y2K Training—General 3 10 9 5 69 39 6 5 143Y2K Training—Advanced 5 100 9 53 8 2 5 38 215

Subtotal 54 1,238 137 872 93 953 51 90 3,435

Risk Management Planning 2 . . . . . . . . . . . . . . . . . . . . . 428

Total 56 . . . . . . . . . . . . . . . . . . . . . 3,863

1998 Regulatory Attendance at FFIEC Courses by Agency—Actual

ing, and International Banking. AnInternational Banking Self-StudyCourse is maintained by the Counciland administered to individuals inthe regional offices of the bankingagencies. The course was revisedand updated during 1998.

Conferences

Conferences are generally con-ducted in an agency auditorium forgroups of 100 attendees. Some con-ferences are aimed at safety-and-soundness examiners, such asEmerging Issues, Advanced White-Collar Crime, Capital Markets, andPayment Systems Risk. Specializedconferences are available for thosewho examine trust departments,information systems, and interna-tional banking activities. Mostconferences last three to four days.Upon demand, courses and confer-ences are conducted at the regionallocations of member agencies.

FFIEC conferences provide themember agencies with programsaimed entirely at the needs of thefinancial institution regulatory com-munity, whereas conferences pro-vided by nongovernment organiza-tions often provide a wider array oftopics, some of which are outsidethe needs of examiners.

Conference for Bankers

In response to a statutory mandate(see appendix A of this AnnualReport), the Council conducts Risk-Management Planning conferencesfor bankers and other financial insti-tution managers. In 1998, two con-ferences were offered, one in SanAntonio, Texas, and one in SanFrancisco, California. One session isplanned for November 1999, to beheld in Washington, D.C. A periodi-cally updated draft of the Risk-Management Planning conferenceprogram agenda is available on the

FFIEC Internet site (www.ffiec.gov),which allows potential attendees tosee the program before deciding toattend.

Costs

Costs for training programs are keptlow by renting classrooms and au-ditoriums on an as-needed basis.Approximately half of the instruc-tors provide their services free ofcharge.

Facilities

The Council training office andclassrooms are located in the FDICSeidman Center in Arlington, Vir-ginia. This facility offers convenientaccess to a 100-seat auditorium,numerous classrooms, offices, anda lodging facility, which are rentedat approximately market rates from

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the FDIC. Regional sessions are usu-ally conducted in the cities in whichdistrict or Reserve Bank offices ofthe member agencies are located.

Course Catalogue and Schedule

The 1999 course catalogue andschedule are available from theCouncil training office. To obtain acopy contact:

FFIEC Examiner Education3501 Fairfax Drive, Room 3086Arlington, VA 22226-3550

Phone: (703) 516-5588Fax: (703) 516-5487

The FFIEC training catalog, sched-ule, and other information arealso available on the Internet at

http://www.ffiec.gov.

The course catalogue for the year2000 will be available in May 1999.

Task Force onInformation Sharing

The Information Sharing Task Forcewas organized in December 1997 tofacilitate the sharing of electronicinformation among the FFIEC agen-cies, which in turn supports thesupervision, regulation, or insuringof banking organizations. The taskforce is a forum for the regulatoryagencies to promote efficient andeffective mechanisms for inter-agency information sharing. Whilesignificant issues are referred, withrecommendations, to the Councilfor action, the task force has del-egated authority from the Councilto take certain actions.

Task force members consist of rep-resentatives from the constituentagencies. Monthly meetings areheld to address and resolve issuesrelated to information sharing. Thetask force has established workgroups to address specific structuredata and technology developmentissues.

Initiatives Addressed in 1998

Guiding principles for sharing informa-tion. The task force developed guid-ing principles to protect the privacy,security, and integrity of sharedinformation.

Data-exchange inventory. The taskforce developed a matrix documentdepicting all data files sharedamong the regulatory agencies. Theinformation includes file name, filedescription, security classification,technical and data content contacts,data frequency, and media form.

Structure data reconciliation. TheStructure Data Reconciliation WorkGroup was created to reconcilestructure data for banking institu-tions to ensure consistency andaccuracy among the regulatoryagencies. The group has establisheda quarterly reconciliation processthat has led to the resolution ofnumerous data discrepancies. Thusfar the group has reconciled datafor December 1997 and March, June,and September 1998.

Technology issues. A technical workgroup was formed to oversee thedevelopment of more efficient pro-cesses to share information amongthe regulatory agencies. The imme-diate focus of this group was to

research and analyze the means toconvert data transfers from tape toelectronic media. Currently, thegroup is working on the initiativeto automate the transfer of examdata from the FDIC to the FRB.This requires the installation of a T1communications line between thetwo agencies to accommodate large-volume transfers. Program and soft-ware changes are also under way ateach sight to facilitate the exchange.

Initiatives to be Addressedin 1999

Testing and implementation of theautomated transfer of FDIC examdata to the FRB is the primary ini-tiative for 1999. The target date forimplementation is March 31.

Upon completion of the automatedtransfer process between the FDICand FRB, the work group’s focuswill shift to developing similarlinks for the OCC and OTS. The tar-get completion date for the OCC isthe end of the second quarter of thisyear, with the OTS transfer processto be completed thereafter.

The Structure Data ReconciliationGroup focus for 1999 is to broadenthe scope of the reconciliation

Task Force on Information Sharing

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progress to include bank branchdata. Efforts to automate the entirereconciliation process will alsobegin.

Preliminary investigation has beenstarted to identify the additionaldata needs of each regulatoryagency that are not currently beingmet through established dataexchanges. The initial focus of thiseffort is on information gaps relat-ing to the ownership of depositoryinstitutions and their nondepositaffiliates. Much discussion onthese matters will be required toidentify viable solutions. This initia-tive is still in its infancy and there-fore no completion date has beenestablished.

Task Force on Reports

Section 1006(c) of Public Law 95-630requires the Council to develop uni-form reporting systems for feder-ally supervised financial institu-tions and their holding companiesand subsidiaries. To meet this objec-tive, the Council established theTask Force on Reports, which hasalso received other responsibilitiesrelated to developing interagencyuniformity in reporting of the of theperiodic information needed foreffective supervision. The task forceis thus concerned with issues suchas the development and interpreta-tion of reporting instructions; theapplication of accounting standardsto specific transactions; the devel-opment and application of process-ing standards; the monitoring ofdata quality; the assessment ofreporting burden; and liaison withother organizations, including theSecurities and Exchange Commis-sion, Financial Accounting Stan-dards Board, the American Instituteof Certified Public Accountants,and the Independence StandardsBoard. The task force is also respon-sible for any special projects relatedto these subjects that the Councilmay assign. To help it carry out itsresponsibilities, working groupsare organized as needed to handleaccounting, reporting, instructional,

and processing matters that are spe-cialized or technical.

Activities of the Task Force

During 1998, the task force’s princi-pal activities involved two reports:(1) the Reports of Condition andIncome (Call Report) filed byinsured commercial banks andFDIC-supervised savings banks,and (2) a common core report forbanks, savings associations, andbank holding companies, the devel-opment of which is mandated bysection 307 of the Riegle Commu-nity Development and RegulatoryImprovement Act of 1994 (theRiegle Act). Other task force activi-ties pertained to the regulatoryreport prepared by U.S. branchesand agencies of foreign banks, a for-eign currency report completedby U.S. banks, a report on insiderindebtedness to correspondentbanks, and the banking and thriftagencies’ policies on intercompanyincome tax remittances.

After approval by the U.S. Office ofManagement and Budget (OMB), amodest number of revisions to thebank Call Reports (Forms FFIEC031, 032, 033, and 034) took effect inthe first quarter of 1998. Because ofthe nature of these changes, mostbanks were not expected to experi-ence an increase in the reportingburden imposed by the Call Report.The changes included reducingfrom quarterly to annually the fre-quency with which all banks reporttheir “preferred deposits” andreducing the level of detail in thetrading assets and liabilities sched-ule filed by larger banks. In theregulatory capital schedule, newitems were added for low-levelrecourse transactions and, for largerbanks, market-risk capital require-ments. In addition, the Councilclarified the reporting requirementsrelating to allowances and provi-sions for credit losses, changed thereporting basis used to reportavailable-for-sale securities in thedomestic office assets and liabilitiesschedule completed by banks with

foreign offices, and revised theinstructions for reporting certaintypes of vehicle loans in twosecuritized consumer loan itemscompleted annually by largerbanks.

OMB also approved two changes tothe Report of Assets and Liabilitiesof U.S. Branches and Agencies ofForeign Banks (Form FFIEC 002) forimplementation as of the March 31,1998, report date. The Counciladded new items to this report todistinguish balances due frombanks in the branch’s or agency’shome country from balances duefrom banks in other foreign coun-tries, and to identify the amount ofa branch’s or agency’s pledgedsecurities.

On May 12, 1998, the task force,acting under delegated authority,approved the elimination of theMonthly Consolidated Foreign Cur-rency Report of Banks in the UnitedStates (Form FFIEC 035) after theDecember 31, 1998, report date. TheFederal Reserve Board (FRB), theOffice of the Comptroller of theCurrency (OCC), and the FederalDeposit Insurance Corporation(FDIC) have used the data collectedin the FFIEC 035 to monitor the for-eign exchange activities of indi-vidual U.S. banking institutions, butthe agencies determined that theseactivities can be monitored throughother supervisory means.

On July 1, 1998, the FRB, OCC, andFDIC jointly requested public com-ment on a proposal to extend theuse of the Report of Indebtednessof Executive Officers and PrincipalShareholders and Their RelatedInterests to Correspondent Banks(Form FFIEC 004) for three yearswithout revision. The agenciesreceived four comment letters con-taining several suggested changesto the information that executiveofficers and principal shareholdersmust provide in the report. How-ever, certain suggested changesare inconsistent with the governingstatute and the agencies’ regula-tions. Before proposing any

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changes, the task force, in Decem-ber 1998, requested the Council’sTask Force on Supervision toreview the agencies’ regulationsto determine whether any of thesuggested changes are consistentwith the statute and with safety-and-soundness concerns. If so, cor-responding changes to the FFIEC004 report would be proposed.

Section 303 of the Riegle Actdirected the Council’s memberagencies to review and updatetheir regulations and policies topromote consistency and unifor-mity. In 1997, the task force estab-lished a working group to reviewthe banking and thrift agencies’separate but similar policies onincome tax remittances betweendepository institutions and parentholding companies. During 1998,this working group prepared asingle interagency policy statementto replace the four agencies’ poli-cies. On October 9, 1998, the taskforce, acting under delegated au-thority, approved the InteragencyPolicy Statement on Income TaxAllocation in a Holding CompanyStructure and recommended itsadoption by the four banking andthrift agencies. The agencies jointlypublished the policy statement onNovember 23, 1998. The policyprovides uniform guidance to allFDIC-insured depository institu-tions on the allocation and pay-ment of taxes. It reiterates that, ingeneral, intercorporate tax settle-ments between a depository institu-tion and its parent company shouldbe conducted in a manner that isno less favorable to the institutionthan if it was a separate taxpayer.

On December 29, 1998, thetaskforce (acting under delegatedauthority), the Federal ReserveBoard, and the Office of Thrift Su-pervision issued interim guidanceexplaining how a banking organi-zation should report derivatives inthe bank Call Report, the Consoli-dated Financial Statements forBank Holding Companies (FormFR Y-9C), and the Thrift FinancialReport after adopting Financial

Accounting Standards Board State-ment No. 133, “Accounting forDerivative Instruments and Hedg-ing Activities” (FAS 133). Forregulatory reporting purposes,all banking organizations mustadopt FAS 133 for fiscal yearsbeginning after June 15, 1999, withearly adoption permitted. Forbanking organizations with a cal-endar year fiscal year that do notelect early adoption, the March 31,2000, reports will be the first thatmust be completed in accordancewith FAS 133. The interagency issu-ance also describes the appropriateinterim regulatory capital treat-ment of derivatives for bankingorganizations.

On October 1, 1998, the bankingagencies requested public commenton a limited number of proposedCall Report revisions that wouldtake effect as of March 31, 1999.The agencies’ joint Federal Registernotice described the reportingchanges that the task force hadapproved under its delegatedauthority in September. The taskforce proposed to delete outdateditems pertaining to “high-riskmortgage securities” and, forsmall banks, deferred agriculturalloan losses. In response to theJune 1998 issuance of FAS 133 onderivative instruments and hedg-ing activities, two new items foraccumulated net gains (losses) oncash-flow hedges would be addedto the Call Report. As a result ofthe banking and thrift agencies’August 1998 revision of the regula-tory capital treatment of servicingassets, a new or revised item woulddistinguish nonmortgage-servicingassets from other intangible assets.The task force also proposed tomake a number of instructionalchanges, primarily to incorporaterecent changes in accounting stan-dards, to further conform withgenerally accepted accountingprinciples in other areas, and toimprove the reporting of certainregulatory capital information. Tothe extent applicable, correspond-ing revisions to the FFIEC 002report for U.S. branches and agen-

cies of foreign banks were proposedon November 19, 1998, for imple-mentation in 1999.

The agencies received two commentletters on the bank Call Report pro-posal. After considering the com-ments, the task force, acting underdelegated authority, decided to pro-ceed with the proposed changes.For nonmortgage-servicing assets,the task force chose the proposedoption of revising an existing itemrather than adding a new item.Banks were notified about thechanges in reporting requirementsfor 1999 in a January 21, 1999, letterfrom the Council.

Section 307 of the Riegle Actrequires the four federal bankingand thrift agencies to work jointlyto develop a single form for the fil-ing of core information by banks,savings associations, and bankholding companies. Section 307also directs the agencies to (1)review the information they collectfrom these three types of institu-tions that supplements the coreinformation and (2) eliminate thosereporting requirements that are notwarranted for safety-and-soundnessor other public purposes. In thisregard, the task force and the agen-cies regularly review existingreporting requirements to identifyitems that are no longer sufficientlyuseful to warrant their continuedcollection. Since 1995, these reviewshave led to the elimination ofnumerous items and reductionsin the level of detail in severalareas of the bank Call Report.

In addition, the Council and thethree banking agencies have, as partof their section 307 efforts, adoptedgenerally accepted accounting prin-ciples as the reporting basis for theCall Report; combined the four setsof Call Report instructions into asingle, comprehensive set; devel-oped an index to the instructions;made the Call Report forms,instructions, and data availableon the Internet; and implementedan electronic filing requirement forthe Call Report. The Council, the

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task force, and the banking agenciesare currently surveying Call Reportusers within the agencies and arecontinuing to review the uses ofindividual Call Report items inorder to ascertain their relativeimportance to the agencies. Theseactions are part of the agencies’ongoing effort to eliminate CallReport information with the leastpractical utility and to increase uni-formity among regulatory reports.


The jurisdiction of the Task Forceon Supervision includes all mattersrelating to the supervision andexamination of depository institu-tions. It provides a forum for theregulatory agencies of financialinstitutions to promote quality,consistency, and effectiveness ofexamination and supervisory prac-tices and to reduce regulatory bur-den. While significant issues arereferred, with recommendations, tothe Council for action, the Councilhas delegated to the task force theauthority to make certain decisions,provided all task force members arein agreement.

Task force members are the seniorsupervisory officials of the constitu-

ent agencies. Meetings are heldregularly to address and resolvecommon supervisory issues. Thetask force has a standing subcom-mittee to address information sys-tem and technology issues as theyrelate to financial institution super-vision. In addition, a task force sub-committee was formed to reviewissues pertaining to regulatory capi-tal; Its mission is to coordinateinteragency efforts to enhance theagencies’ regulatory capital regimesin light of the significant evolutionin the financial services industry. Inaddition, ad hoc working groupsare created as needed to handle par-ticular projects and assignments.

Activities of the Task Force

During 1998, the task force, its vari-ous ad hoc working groups, andsubcommittees were involved innumerous projects and activities,taking action on 19 items. Majoraccomplishments in 1998 wereacheved in matters concerning Year2000 and revisions to the agencies'various examination rating systems.

Year 2000

The Year 2000 Interagency Working

Group was created to address Year2000 issues, develop industry guid-ance for financial institutions, andassess the banking industry’s readi-ness for the Year 2000. The supervi-sory program established by theworking group focuses on theindustry’s efforts to ensure thatfinancial institutions’ automatedsystems will be able to correctly cal-culate date-dependent informationafter the century date change. Dur-ing the year, the member agenciescontinued to assess the Year 2000readiness of financial institutions,service providers, and software ven-dors to help curtail any Year 2000-related computer problems andmajor service disruptions to cus-tomers and the banking system.As part of the agencies’ efforts, aseries of guidance papers on impor-tant aspects of Year 2000 readinesswere issued:

• Guidance Concerning InstitutionDue Diligence in Connectionwith Service Provider and Soft-ware Vendor Year 2000 Readi-ness (March 17, 1998)

• Guidance Concerning the Year2000 Impact on Customers(March 17, 1998)

• Guidance Concerning Testing forYear 2000 Readiness (April 10,1998)

• Guidance on Year 2000 CustomerAwareness Programs (May 13,1998)

• Guidance Concerning Contin-gency Planning in Connectionwith Year 2000 Readiness(May 13, 1998)

• Questions and Answers Concern-ing FFIEC Year 2000 Policy(August 31, 1998)

• Guidance Concerning FiduciaryServices and Year 2000 Readiness(September 2, 1998)

• Interagency Guidelines Establish-ing Year 2000 Standards forSafety and Soundness (October15, 1998)


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• Questions and Answers Concern-ing Year 2000 Contingency Plan-ning (December 11, 1998).

These guidance statements wereincorporated into the agencies’ Year2000 evaluations to enhance theirreviews of federally supervisedfinancial institutions, service pro-viders, and software vendors. Toassist financial institutions in theirunderstanding of the various Year2000 guidance statements and theYear 2000 review process, the agen-cies have conducted hundreds ofbanker and community outreachprograms throughout the country.These programs have focused onthe many aspects of supervisoryexpectations for Year 2000, convey-ing a consistent message from theagencies to the institutions and thepublic.

Finally, the member agencies ofthe FFIEC participated in ThePresident’s Council on Year 2000Conversion, which is coordinatingthe federal government’s efforts toaddress Year 2000 issues. ThePresident’s Council, made up ofrepresentatives from more than 30major federal executive and regula-tory agencies, has enlisted agenciesto serve as “sector coordinators” topromote action on the Year 2000problem within their policy areas.

Policy Statement onInvestment Securities andEnd-User Derivatives Activities

In April 1998, the FFIEC issued theSupervisory Policy Statement onInvestment Securities and End-UserDerivatives Activities, whichrescinded the 1992 FFIEC Supervi-sory Policy Statement on SecuritiesActivities. The 1998 policy state-ment advances sound practices formanaging the market, credit, liquid-ity, operational, and legal risks ofinvestment and end-user activitiesand reflects the agencies’ move toa more risk-focused approach tosupervision. This approach consid-ers the appropriateness of an instru-ment held for investment or end-user purposes in light of a variety

of factors, including management’sability to measure and manage therisks of the institution’s holdingsand the impact of those holdingson aggregate portfolio risk. Thepolicy statement reflects a supervi-sory focus on evaluating and con-trolling risks on an investment-portfolio or an institution-widebasis.

Uniform Interagency TrustRating System

In October 1998, the task force,under delegated authority, adoptedrevisions to update the UniformInteragency Trust Rating System(UITRS), which became effectivefor all examinations commencingon or after January 1, 1999. TheUITRS is a supervisory rating sys-tem, originally adopted in 1978, topromote consistency among thefederal banking agencies whenthey evaluate the fiduciary activi-ties of institutions under their su-pervisory jurisdiction. The majorrevisions to the UITRS include(1) modifications to the ratingdefinitions to better align themwith the language and tone of theUniform Financial Institutions Rat-ing System rating definitions, com-monly referred to as the CAMELSrating system; (2) combining the“Account Administration” and“Conflict of Interest” rating compo-nents into a new “Compliance”component; (3) requiring a ratingof “Earnings” only for those insti-tutions with trust assets of morethan $100 million; and (4) greateremphasis on risk- managementprocesses.

Uniform Rating System forInformation Technology

In December 1998, the task force,under delegated authority, revisedthe Uniform Interagency RatingSystem for Data Processing Opera-tions, commonly referred to as theinformation systems rating system.The revision changed the name ofthe rating system to the UniformRating System for InformationTechnology (URSIT) and reflected

changes in the data processing ser-vices industry and in supervisorypolicies and procedures since the rat-ing system was first adopted in 1978.The revised numerical ratings con-form to the language and tone of theCAMELS rating system. The URSITreformatted and clarified the compo-nent rating descriptions and empha-sized the quality of risk-managementprocesses in each of the rating com-ponents. In addition, two new com-ponent categories—“Developmentand Acquisition” and “Support andDelivery”—were adopted as replace-ments for the “Systems Developmentand Programming” and “Opera-tions” components. Finally, URSITexplicitly identifies the risk typesthat are considered in assigning com-ponent ratings.

Uniform Retail Credit Classification andAccount-Management Policy

In June 1998, the task forceapproved for comment the UniformRetail Credit Classification andAccount-Management Policy. Onceadopted, the policy will update andexpand on the existing guidance thatdates back to 1980. The proposedpolicy will also provide guidanceon the treatment of retail accountsaffected by fraud, bankruptcy, andthe death of a borrower. In addition,the guidance will detail criteria foraccount re-aging and will provideclassification guidance for residen-tial and home equity loans. The finalversion of the revised policy state-ment is expected to be published inearly 1999.

Revisions toRegulatory Capital Regulations

Although each of the four federalbanking and thrift agencies has itsown capital regulations, the taskforce and several of its workinggroups have worked to developnumerous planned revisions tothese rules. This coordinated effortamong the agencies promotes thejoint issuance of capital rules,thereby minimizing interagencydifferences and, consequently,reducing the potential burden on

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the banking industry. During 1998,these capital-related initiativesincluded the following:

• Servicing assets. In August 1998,the agencies issued a final ruleamending their capital guidelinesto address the accounting treat-ment of servicing assets on bothmortgage assets and financialassets other than mortgages. Thefinal rule reflects the changesin accounting standards for ser-vicing assets in the FinancialAccounting Standards BoardStatement No. 125, “Accountingfor Transfers and Servicing ofFinancial Assets and Extinguish-ments of Liabilities” (FAS 125).

• Derivative instruments and hedgingactivities. In December 1998, theagencies issued a joint releasethat described the appropriateinterim regulatory capital treat-ment of derivatives for thosebanking organizations choosingearly adoption of FinancialAccounting Standards BoardStatement No. 133, “Accountingfor Derivative Instruments andHedging Activities” (FAS 133).This new accounting standardrequires that all derivatives berecorded on the balance sheet asassets or liabilities at fair value.It also requires that a specificportion of cash-flow hedges bereflected as a separate componentof equity. Moreover, FAS 133 sig-nificantly alters the accountingfor derivatives used for hedgingpurposes and for financial instru-ments with specific types ofembedded derivatives.

Task Force onSurveillance Systems

The Task Force on Surveillance Sys-tems oversees the development andimplementation of uniform inter-agency surveillance and monitoringsystems. Historically, the taskforce’s primary objective has beento develop and produce the Uni-form Bank Performance Report(UBPR). This report, an analytical

tool created for supervisory pur-poses, is used to monitor the condi-tion and performance of bankinginstitutions on a quarterly basis andto identify potential or emergingproblems in those financial institu-tions. A UBPR is produced quar-terly for each commercial bank andinsured savings bank in the UnitedStates that is supervised by theBoard of Governors of the FederalReserve System, Federal DepositInsurance Corporation, or the Officeof the Comptroller of the Currency.

During 1998, the Surveillance TaskForce and Surveillance WorkingGroup completed the followingprojects:

• Updated the tax-equivalencysection of the earnings analysis inthe UBPR. The tax schedule, losscarryback and error analysiscomponents were revised.This new computation shouldenhance bank-to-bank analysis.

• Revised peer group analysis inthe UBPR. Averages of peergroup balance sheet and earningscomponents are displayed in theUBPR for comparative purposes.The peer group calculation basiswas switched to a weighted aver-age from a trimmed ratio averageto provide a more inclusive pic-ture of peer group data trends.

• Revised the risk-based capitalcalculation to include regulatorychanges to the treatment ofintangibles and gains/losseson marketable equity securities.

• Reviewed the core Call Reportproposed by the Reports TaskForce and performed an exten-sive analysis of all UBPR ratiosto determine impact. Coordi-nated survey responses fromstate bank supervisors on thecore Call Report.

• Completed conversion of theUBPR to a data warehouse, withreduced production costs as animmediate benefit. Enhancedflexibility in ratio design andpeer group analysis and display

of the UBPR on a public websiteare some of the longer term ben-efits of this project.

• Produced and distributed fourquarterly versions of the UBPRahead of schedule. The federalbanking agencies each receivedUBPR data in electronic format.State banking agencies were pro-vided two sets of printed UBPRsfor banks in their respectivestates. Some of the state bankingagencies which are developinginformation systems may ulti-mately substitute UBPR datafrom either website and/ortape delivery for the printedcopies currently provided tothem.

Additionally, printed UBPR reportswere sent to all banks. Several thou-sand copies of individual bankUBPRs were provided to the gen-eral public.

• Expanded the list of regulatorsusing early Call Report data. OneFederal Home Loan Bank wasadded to the list of state bankingregulators currently using theearly Call report data downloadfacility. This facility provides CallReport data throughout the edit-ing cycle, which is similar to thatreceived by the federal bankregulators.

• Redesigned and reprinted theUBPR User’s Guide. Copies weredistributed to all banks and fed-eral and state banking authoritiesand made available on the FFIECwebsite.

Several projects are planned for1999 which should provide furtherenhancements to the UBPR:

• Revise, produce, and distributethe UBPR in a timely fashion.

• Establish a working group tore-evaluate the design of theUBPR.

• Determine what changes areneeded in the UBPR to accuratelyreflect banks that have electedsubchapter “S” treatment fortaxes.

• Develop miscellaneous other newanalyses of bank data.

• Revise the UBPR User’s Guide toincorporate all changes that areplanned for 1999. This will be thefifth annual complete reprintingin perfect-bound format and itwill be distributed to bankingregulators and banks.

• Study the impact of changing theUBPR system to accommodate acommon core Call Report for allbanks and thrift institutions. Thereporting changes required by theRiegle Community Developmentand Regulatory Improvement Actwill expand and enhance dataused in the UBPR, but significantprogramming changes may beneeded to take advantage of therevised information.

• Develop and implement a publicwebsite to permit the entire UBPRfor all commercial and savingsbanks to be viewed online. Coun-cil approval for this project wasgranted in the fourth quarter of1998.

• Analyze and possibly revise cur-rent peer groupings in the UBPR.Possible new peer groups couldinclude line of business (creditcard, trust company, agricultural)or changed asset groupings. Thetask force will also consider therelevance of structural factors.

• Produce four quarterly versions

of the UBPR. Distribute copies tofederal and state agencies, banks,and the general public.

• Adjust UBPR data for the effectof push-down accounting.

• Determine whether alternativemethods of distributing UBPRdata could be used.

While the UBPR is primarily asupervisory tool for the three fed-eral banking agencies, it is alsoused extensively by other groups.Copies of the UBPR are routinelydistributed to banks and statebanking agencies as described be-low in the distribution policy. Inaddition to the several thousandUBPRs distributed in printed form,several institutions have acquiredUBPR data in electronic form. Amajor goal of the task force is to en-sure timely production and distri-bution of UBPRs and related data.The following distribution policywill continue:

• Each insured bank will receiveone copy of the current UBPRper quarter.

• UBPR data will be provided toeach federal banking agencyeach quarter.

• Two copies of the UBPRs willbe made available to state banksupervisors for banks in theirstate. Alternatively, the printedreports may be requested in tapeform.

• State banking agencies may alsopurchase UBPR data files in elec-tronic form.

• UBPRs and Call Report data willbe made available to the publicfor a fee.

Copies of UBPRs may be purchasedby the general public for $45.00. AUser’s Guide, which describes thecontent of the report and definesratio calculations, is available for$25.00. The peer group report,showing average ratios for all peergroups, is available for $65.00. TheState Average Report is availablefor $45.00. Peer Group and StateAverage Percentile DistributionReports are available for $65.00 and$45.00, respectively. The UBPRUser’s Guide and selected otherinformation may also be obtainedon the FFIEC website at

www.ffiec.gov

Standardized UBPR quarterly dataon magnetic tape are available for$400.00. Information on orderingitems may be obtained by calling

(202) 872-7500,

e-mail to

[email protected],

or writing the Council:

Federal Financial InstitutionsExamination Council

2000 K Street, NW, Suite 310Washington, DC 20006

21

THE FEDERAL FINANCIAL INSTITUTIONS REGULATORY AGENCIESAND THEIR SUPERVISED INSTITUTIONS

23

The five federal regulatory agenciesrepresented on the Council haveprimary federal supervisory juris-diction over about 22,000 domesti-cally chartered banks, thrift institu-tions, and credit unions. On June30, 1998, these financial institutionsheld total assets of more than$7.5 trillion. The Board of Gover-nors of the Federal Reserve System(FRB) and the Office of ThriftSupervision (OTS) also have pri-mary federal supervisory responsi-bility for commercial bank holdingcompanies and for savings and loanholding companies, respectively.

The three banking agencies onthe Council have authority to over-see the operations of U.S. branchesand agencies of foreign banks.The International Banking Act of1978 (IBA) authorizes the Office ofthe Comptroller of the Currency(OCC) to license federal branchesand agencies of foreign banksand permits U.S. branches thataccept only wholesale deposits toapply for insurance with theFederal Deposit Insurance Cor-poration (FDIC). According tothe Federal Deposit Insurance Cor-poration Improvement Act of1991 (FDICIA), foreign banks thatwish to operate insured entities inthe United States and accept retaildeposits must organize underseparate U.S. charters. Existinginsured retail branches may con-tinue to operate as branches. TheIBA also subjects those U.S. officesof foreign banks to many provi-sions of the Federal Reserve Actand the Bank Holding CompanyAct. The IBA gives primary exam-ining authority to the OCC, theFDIC, and various state authoritiesfor the offices within their jurisdic-tions, and gives the FRB residualexamining authority over all U.S.banking operations of foreignbanks.

Board of Governors of theFederal Reserve System (FRB)

The FRB was established in 1913. Itis headed by a seven-member Boardof Governors, each member ofwhich is appointed by the Presi-dent, with the advice and consentof the Senate, for a 14-year term.Subject to confirmation by the Sen-ate, the President selects two Boardmembers to serve four-year terms asChairman and Vice Chairman. TheFRB’s activities that are most rel-evant to the work of the Council are

• examining, supervising, andregulating state member banks,bank holding companies, EdgeAct and agreement corporations,and, in conjunction with thelicensing authorities, the U.S.offices of foreign banks; and

• approving or denying applica-tions for mergers, acquisitions,and changes in control by statemember banks and bank holdingcompanies, applications for for-eign operations of member banksand Edge Act and agreement cor-porations, and applications byforeign banks to establish oracquire U.S. banks and to estab-lish U.S. branches, agencies, orrepresentative offices.

Policy decisions are implementedby the FRB and the 12 FederalReserve Banks, each of which hasoperational responsibility within aspecific geographical area. EachReserve Bank has a president andother officers. Among other respon-sibilities, a Reserve Bank employs astaff of bank examiners who exam-ine state member banks and EdgeAct and agreement corporations,inspect bank holding companies,and examine the offices of foreignbanks located within its District.

National banks, which must bemembers of the Federal Reserve

System, are chartered, regulated,and supervised by the Office of theComptroller of the Currency. State-chartered banks may apply and beaccepted for membership to theFederal Reserve System, after whichthey are subject to the supervisionand regulation of the FederalReserve. Insured state-charteredbanks that are not members of theFederal Reserve System are regu-lated and supervised by the FederalDeposit Insurance Corporation. TheFederal Reserve has overall respon-sibility for foreign banking opera-tions, including both U.S. banksoperating abroad and foreign banksoperating branches in the UnitedStates.

The Federal Reserve covers theexpenses of its operations with rev-enue it generates principally frominterest received on Treasury andfederal-agency securities held asassets by the Reserve Banks. Thefunding for these investments isderived partially from non-interest-earning reserves that member banksand other depository institutionsare required to hold at the ReserveBanks and partially from non-inter-est-bearing Federal Reserve notes(currency) issued by the ReserveBanks. The Reserve Banks payassessments to the Federal ReserveBoard, which are used to meet itsexpenses. Excess revenues areturned over to the Treasury generalfund and categorized as interest onFederal Reserve notes.

Federal Deposit InsuranceCorporation (FDIC)

The Congress created the FDIC in1933 with a mission to insure bankdeposits and reduce the economicdisruptions caused by bank failures.Management of the FDIC is vestedin a five-member Board of Directors.Three of the directors are directly

24

appointed by the President, with theadvice and consent of the Senate,for six-year terms. One of the threedirectors is designated by the Presi-dent as Chairman for a term of fiveyears and another is designated asVice Chairman. The other two Boardmembers are the Comptroller of theCurrency and the Director of theOffice of Thrift Supervision. Nomore than three Board membersmay be of the same political party.

The FDIC’s supervisory activitiesare conducted by the Division ofSupervision (DOS) and the Divisionof Compliance and ConsumerAffairs (DCA). Each of these divi-sions is organized into eightregional offices headed by a DOSregional director and a DCAregional director (DCA). Bankliquidation activities are handledby the Division of Resolutions andReceiverships.

The FDIC administers two federaldeposit insurance funds, the BankInsurance Fund (BIF) and the Sav-ings Association Insurance Fund(SAIF). The basic insured amountfor a depositor is $100,000 at eachinsured depository institution. TheBIF is funded through assessmentspaid by insured commercial banks,certain federal and state savingsbanks, and industrial banks, as wellas through income from investmentsin U.S. government securities. TheSAIF, which was created in 1989 asa successor to the former FederalSavings and Loan Insurance Corpo-ration (FSLIC), receives assessmentpremiums from insured savingsassociations. SAIF assessment ratesand BIF assessment rates are cur-rently the same—ranging from zeroto 27 cents for every $100 of assess-able deposits, depending on thedegree of risk to the respectivedeposit insurance fund.

Any depository institution thatreceives deposits may be insuredby the FDIC after application toexamination and approval by theFDIC. After considering theapplicant’s condition, financial his-tory, capital adequacy, prospects for

future earnings, management prac-tices, and risk to the insurance fund,as well as the needs of the appli-cant’s community, the FDIC mayapprove or deny an application forinsurance. FDICIA expanded theFDIC’s approval authority toinclude national banks, all state-chartered banks that are members ofthe Federal Reserve System, and fed-eral and state-chartered savingsassociations.

The FDIC has primary federal regu-latory and supervisory authorityover insured state-chartered banksthat are not members of the FederalReserve System, and it has theauthority to examine for insurancepurposes any insured financial insti-tution, either directly or in coopera-tion with state or other federalsupervisory authorities. FDICIAgives the FDIC backup enforcementauthority over all insured institu-tions; that is, the FDIC can recom-mend that the appropriate federalagency take action against aninsured institution and may do soitself if deemed necessary.

In protecting insured deposits, theFDIC is charged with resolving theproblems of insured depositoryinstitutions at the least possible costto the deposit insurance fund. In car-rying out this responsibility, theFDIC engages in several activities,including paying off deposits,arranging the purchase of assetsand assumption of liabilities offailed institutions, effecting insureddeposit transfers between institu-tions, creating and operating tempo-rary bridge banks until a resolutioncan be accomplished, and using itsconservatorship powers.

National Credit UnionAdministration (NCUA)

The NCUA, established by an actof Congress in 1934, is the agencythat heads the nation’s federal creditunion system. A three-memberbipartisan board appointed by thePresident for six-year terms managesthe NCUA. The President also

selects a member to serve as Chairof the board.

The main responsibilities of theNCUA are the following:

• charters, examines, and super-vises more than 6,500 federalcredit unions nationwide

• administers the National CreditUnion Share Insurance Fund(NCUSIF), which insures 96 per-cent of member share accounts innearly 11,300 U.S. federal andstate-chartered credit unions

• manages the Central LiquidityFacility, a central bank for creditunions, which provides liquidityto the credit union system

The NCUA also has statutoryauthority to examine and superviseNCUSIF-insured, state-charteredcredit unions in coordination withstate agencies.

The NCUA has six regional officesacross the United States that admin-ister its responsibility to charter andsupervise credit unions. Its examin-ers conduct annual, on-site exami-nations of each federal credit union.The NCUA is funded by the creditunions it regulates and insures.

Office of the Comptroller of theCurrency (OCC)

The OCC is the oldest federal bankregulatory agency, established as abureau of the Treasury Departmentby the National Currency Act of1863. It is headed by the Comptrol-ler, who is appointed to a five-yearterm by the President with theadvice and consent of the Senate.The Comptroller also serves as aDirector of the Neighborhood Rein-vestment Corporation and a Direc-tor of the Federal Deposit InsuranceCorporation.

The OCC is the charterer, regulator,and supervisor of the nationalbanking system. As such, it cur-rently regulates and supervisesmore than 2,600 national banks and66 federal branches and agencies of

25

foreign banks in the United States,accounting for 58 percent of thenations's banking assets. As the onlyfederal banking agency with author-ity to charter commercial banks, theOCC shapes the structure of thenational banking system throughits authority to approve or denyapplications for new bank chartersand new bank activities, the estab-lishment of branches, relocationsof head offices, and mergers ofnational banks.

The national interest requires thatthe United States have a safe andstable financial system that pre-serves public confidence and makesavailable a wide variety of financialservices in a competitive market-place. The OCC serves this interestby maintaining and promoting asystem of bank supervision andregulation with four key objectives:

• promoting safety and soundnessby requiring that national banksadhere to sound banking andmanagement principles and thatthey comply with the law

• supporting banks’ ability tocompete fairly in the financialmarketplace

• increasing OCC efficiency andreducing unnecessary regulatoryburden consistent with safetyand soundness

• ensuring fair and equal accessto financial services for allAmericans

The principal supervisory tools ofthe OCC are on-site examinationactivities and ongoing analysis ofnational bank operations. As appro-priate, the OCC issues rules, legalinterpretations, and corporate deci-sions concerning banking, bankinvestments, and other aspects ofbank operations.

To meet its objectives, the OCC isorganized into eight main areasdescribed below.

• Bank Supervision Operationsoversees examinations and othersupervision activities in theOCC’s six districts; the Large

Bank Supervision Department,which supervises the largestnational banks and overseesoperations in the OCC’s Londonoffice; Compliance Operations;and the Continuing Educationand Supervision Support depart-ments. Specific responsibilitiesinclude directing programsfor the examination and regula-tion of national banks and over-seeing supervision of nationaltrust companies, federal branchesand agencies of foreign banks,and the international banks withglobal operations.

• Bank Supervision Policy formu-lates and disseminates the OCC’ssupervision policies to promotenational banks’ safety and sound-ness and compliance with lawsand regulations. Specificresponsibilities include issuingpolicy, guidance, and examina-tion procedures related tonational banks’ commercial,asset-management, capital-markets, bank information sys-tems, and consumer complianceactivities; and coordinating theOCC’s participation in FederalFinancial Institutions Examina-tion Council activities.

• International Affairs oversees theOCC’s international activities.Specific responsibilities include:providing policy advice and tech-nical expertise to the OCC andTreasury Department oninternational banking andfinancial matters; formulatingpolicies and procedures for thesupervision and examination offederal branches and agencies offoreign banks; and serving as liai-son to the international financialcommunity and foreign supervi-sory organizations.

• Economic and Policy Analysisprovides economic research andanalysis on the condition of thebanking industry and trends infinancial services. It also supplieson-site technical assistance tofield examiners on quantitativerisk models and measurementtools and coordinates efforts

to monitor electronic moneyand banking activities in themarketplace.

• Public Affairs manages the OCC’sexternal relations with the gen-eral public, bank customers, com-munity organizations, the Con-gress, the news media, and tradeassociations. It disseminates in-formation about the OCC’s initia-tives, policies, and activities andworks to increase public under-standing of the OCC’s mission.

• The Chief Counsel advises theComptroller on legal matters aris-ing from the administration oflaws, rulings, and regulationsgoverning national banks. Spe-cific responsibilities include draft-ing regulations, responding torequests for legal interpretations,and representing the OCC in alllegal matters and proceedings.The Chief Counsel oversees cor-porate application activities,including establishing corporatepolicies and processing corporateapplications from national banks.The Chief Counsel also overseesthe community developmentactivities of national banks.

• Administration is responsible forthe efficient and effective admin-istrative functioning of the OCC.The office supervises the HumanResources, Financial Services,Management Improvement, andOrganizational Effectiveness divi-sions. The Senior Deputy Comp-troller or Administration alsoserves as Chief Financial Officerand oversees the OCC’s EqualEmployment programs.

• The Ombudsman’s office over-sees the national bank appealsprocess. The office resolves indi-vidual appeals from nationalbanks and acts as a liaisonbetween the OCC and anyonewith unresolved problems indealing with the OCC regardingits regulatory activities. The Om-budsman also oversees the Cus-tomer Assistance Group, a cen-tralized function that handles allcustomer complaints.

26

The OCC’s six geographic districtsare headquartered in New York,NY; Atlanta, GA; Chicago, IL; Kan-sas City, MO; Dallas, TX; and SanFrancisco, CA. The agency is fundedthrough assessments on the assetsof national banks.

Office of Thrift Supervision(OTS)

The OTS was established as abureau of the Treasury Departmenton August 9, 1989. OTS has theauthority to charter federal thriftinstitutions. It is the primary regula-tor of all federal and many state-chartered thrifts.

The mission of the OTS is to:

• effectively and efficiently super-vise thrift institutions;

• maintain the safety and sound-ness and viability of the industry;and

• encourage a competitive industryto meet America's housing, com-munity credit and financial ser-vices needs, and to provideaccess to financial services forall Americans.

OTS carries out its mission by (1)adopting regulations governingthe thrift industry, (2) examiningand supervising thrift institutionsand their affiliates, (3) taking ap-propriate action to enforce compli-ance with federal laws and regula-tions, and (4) acting on applicationsto charter or aquire a savingsassocaition. In addition to over-see-ing thrift institutions themselves,OTS also has the authority to regu-late, examine, and supervise compa-nies that own thrifts, and controlsthe acquisition of thrifts by suchholding companies.

OTS is headed by a Directorappointed by the President, with

the advice and consent of the Sen-ate, to serve a five-year term. TheDirector determines policy for theOTS and makes final decisions onregulations governing the industryas a whole and on measures affect-ing individual institutions. TheDirector also serves as a memberof the board of the Federal DepositInsurance Corporation and theNeighborhood Reinvestment Cor-poration. The Office of the Directoralso includes the Office of Equalityand Workplace Principles, theOmbudsman, and liaison with theFDIC.

The Deputy Director of OTS assiststhe Director in managing variousagency programs with an emphasison regulatory issues. In particular,the Deputy Director oversees OTS'five regional offices, the Office ofSupervision and Examinations, andthe Office of Compliance Policyand Speciality Examinations. Majorresponsibilities of these officesinclude the supervision and exami-nation of OTS-regulated thrifts toensure safety and soundness of theindustry, compliance with con-sumer protection, CommunityReinvestment Act and fair lendingrequirements, the developmentof policies affecting those functions,applications of all types, and theagency's accounting policies. TheDeputy Director also oversees theOffice of Information Systems,which manages the agency's infor-mation systems, and the agency'sfinancial management, humanresources, training and procurementprograms.

The other major functions of OTSare:

• Chief Counsel is responsible foroverseeing the legal activities ofthe agency. This includes repre-senting OTS on pending litiga-tion; preparing the record for

final agency action in accor-dance with legal requirements;pursuing enforcement actionsrelating to thrift institution;providing legal advice and opin-ions; and drafting support onregulatory projects, statutes,and regulations.

• Research and Analysis officewhich is composed of four units:Risk Management, EconomicAnalysis, Industry Analysis, andFinancial Reporting. The officedevelops and maintains surveil-lance systems for monitoring andreporting the condition of thethrift industry and assists in iden-tifying the impact of emergingissues. The office also collectsdata, analyzes trends, and reportson the exposure of individualinstitutions to interest-rate risk.This information is used by theinstitution’s management and byOTS examiners.

• External Affairs function man-ages congressional matters andpress relations. It interacts withmembers of Congress as well aswith executives of other federalagencies to accomplish the legis-lative and regulatory objectivesof the OTS. The office convenespress conferences; distributesnews releases; and communi-cates and explains policy direc-tives, objectives, and actions ofthe agency to the Congress, thepress, the thrift industry, othergovernment agencies, andemployees.

The OTS’s five geographic regionaloffices are located in Jersey City, NJ;Atlanta, GA; Chicago, IL; Dallas,TX; and San Francisco, CA.

The OTS uses no tax money to fundits operations. Its expenses arefunded through fees and assess-ments levied on institutions itregulates.

27

ASSETS, LIABILITIES, AND NET WORTH of U.S. Commercial Banks and Thrift Institutions as of June 30, 19981

Billions of dollars

Total assets 7,547 2,962 1,294 938 936 753 34 258 226 146

Total loans and lease receivables (net) 4,450 1,952 602 596 367 516 22 157 143 95Loans secured by real estate4 2,037 733 227 335 23 470 20 143 50 36Consumer loans5 745 364 65 116 * 39 1 9 92 59Commercial and industrial loans 1,094 552 190 106 225 11 1 6 1 2All other loans and lease receivables6 640 339 130 49 119 1 * 2 * *LESS: Allowance for possible loan

and lease losses 65 36 10 10 * 5 * 2 1 1Federal funds sold and securities

purchased under agreements to resell 362 95 141 33 78 7 1 7 * *Cash and due from depository

institutions7 446 204 82 46 80 18 1 7 5 3Securities and other obligations8 1,359 455 197 221 117 167 8 77 73 44

U.S. government obligations9 643 127 75 106 71 147 7 57 35 18Obligations of state and local

governments10 83 37 15 29 * 1 * 1 ‡ ‡Other securities 632 291 107 86 46 18 1 19 38 26

Other assets11 930 256 272 42 294 46 1 8 7 4

Total liabilities 6,965 2,700 1,201 846 936 689 30 232 201 130

Total deposits and shares12 4,988 2,023 771 711 455 488 27 188 197 128Federal funds purchased and securities

sold under agreements to repurchase 597 219 131 46 142 43 * 14 2 *Other borrowings13 752 306 112 73 87 143 3 27 1 *Other liabilities14 628 152 186 16 252 15 * 3 2 2

Net worth15 582 262 93 92 * 64 4 26 25 16

Memorandum: Number of institutionsreporting 22,249 2,529 982 5,424 460 982 198 549 6,907 4,218

FederalCharter

StateCharter

FederalCharter

StateCharterItem

Symbols Appearing in Tables

* = Less than $500 million† = Not available separately‡ = Not applicable

Footnotes to Tables1. The table covers institutions, including

those in Puerto Rico and U.S. territoriesand possessions, insured by the FederalDeposit Insurance Corporation orNational Credit Union Savings InsuranceFund. All branches and agencies of for-eign banks in the United States, butexcluding any in Puerto Rico and U.S.territories and possessions, are coveredwhether or not insured. The tableexcludes Edge Act and agreementcorporations that are not subsidiaries ofU.S. commercial banks.

2. Reflects the fully consolidated statementsof FDIC-insured U.S. banks—includingtheir foreign branches, foreign subsidiar-ies, branches in Puerto Rico and U.S. terri-tories and possessions, and FDIC-insuredbanks in Puerto Rico and U.S. territoriesand possessions. Excludes bank holdingcompanies.

3. The credit union data are for federally-insured credit unions only.

4. Loans secured by residential property,commercial property, farmland (includ-ing improvements), and unimprovedland; and construction loans secured byreal estate. For SAIF-insured institutions,also includes mortgage-backed securities.

5. Loans, except those secured by realestate, to individuals for household, fam-

ily, and other personal expenditures,including both installment and single-payment loans. Net of unearned incomeon installment loans.

6. Loans to financial institutions, loans forpurchasing or carrying securities, loans tofinance agricultural production and otherloans to farmers (except loans secured byreal estate), loans to states and politicalsubdivisions and public authorities, andmiscellaneous types of loans.

7. Vault cash, cash items in process ofcollection, and balances with U.S. andforeign banks and other depositoryinstitutions, including demand andtime deposits and certificates of depositfor all categories of institutions. SAIF-insured institutions data are for cash and

StateSavingsBanks

OTS-Regulated17

OtherFDIC-

InsuredCredit

Unions3

StateMemberNationalTotal

U.S. Commercial Banks2

U.S.Branches

andAgencies

ofForeignBanks16

StateNon-

Member

Thrift Institutions

Notes continue on the next page

Operating income 573 281 99 86 56 3 18 18 12Interest and fees on loans 332 161 44 54 39 2 12 12 8Other interest and dividend income 118 52 30 14 12 1 4 4 2All other operating income 122 68 25 18 6 * 2 2 1

Operating expenses 464 224 81 68 48 2 15 16 10Salaries and benefits 90 43 18 14 7 * 3 3 2Interest on deposits and shares 165 70 27 25 20 2 8 8 5Interest on other borrowed money 61 29 15 6 10 * 1 * *Provision for loan and lease losses 25 14 2 5 2 * * 1 1All other operating expenses 123 68 19 18 9 * 3 4 2

Net operating income 110 57 18 19 8 1 4 2 1

Securities gains and losses 2 * * * 2 * * * *

Income taxes 38 22 6 6 3 * 1 ‡ †

Net income 73 35 12 12 7 1 3 2 1

Memorandum: Number of institutionsreporting 21,789 2,529 982 5,424 982 198 549 6,907 4,218

28

INCOME AND EXPENSES of U.S. Commercial Banks and Thrift Institutions1 for the Twelve Months Ending June 30, 1998Billions of dollars

FederalCharter

StateCharter

StateSavingsBanks

FederalCharter

StateCharterItem

StateNon-

Member

U.S. Commercial Banks2

StateMemberNational

OtherFDIC-

InsuredOTS-Regulated17Credit

Unions3

Thrift Institutions

Total

demand deposits only; time deposits areincluded in “Other securities.”

8. Government and corporate securities,including mortgage-backed securities andobligations of states and political subdivi-sions and of U.S. government agenciesand corporations. For SAIF-insured-institutions, also includes time depositsand excludes mortgage-backed securities.

9. U.S. Treasury securities and securities of,and loans to, U.S. government agenciesand corporations.

10. Securities issued by states and politicalsubdivisions and public authorities,except for savings and loan associationsand U.S. branches and agencies of foreignbanks that do not report these securitiesseparately. Loans to states and politicalsubdivisions and public authorities areincluded in “All other loans and leasereceivables.”

11. Customers' liabilities on acceptances,real property owned, various accrual

accounts, and miscellaneous assets. ForU.S. branches and agencies of foreignbanks, also includes net due from headoffice and other related institutions. ForSAIF-insured institutions, also includesequity investment in service corporationsubsidiaries.

12. Demand, savings, and time deposits,including certificates of deposit at com-mercial banks, U.S. branches and agen-cies of foreign banks, and savings banks;credit balances at U.S. agencies of foreignbanks; and share balancesat savings and loan associations andcredit unions, including certificates ofdeposit, NOW accounts, and share draftaccounts. For U.S. commercial banks,includes deposits in foreign offices,branches in U.S. territories and posses-sions, and Edge act and agreementcorporation subsidiaries.

13. Interest-bearing demand notes issuedto the U.S. Treasury, borrowing fromFederal Reserve Banks and Federal Home

Loan Banks, subordinated debt, limited-life preferred stock, and other nondepositborrowing.

14. Depository institutions' own mortgageborrowing, liability for capitalized leases,liability on acceptances executed, variousaccrual accounts, and miscellaneous liabil-ities. For U.S. branches and agencies offoreign banks, also includes net owed tohead office and other related institutions.

15. Capital stock, surplus, capital reserves,and undivided profits for SAIF-insuredinstitutions.

16. U.S. branches and agencies of foreign banksare not required to file reports ofincome.

17. Data for thrifts regulated by OTS areunconsolidated, except for operating andfinance subsidiaries.

NOTE: Because of rounding, details may notadd to totals.

APPENDIX A: RELEVANT STATUTES

29

Title X of Public Law 95–630

Title X of Public Law 95–630, whichestablishes the Federal FinancialInstitutions Examination Council,reads, as amended, as follows:

Sec. 1001. This title may be citedas the “Federal Financial Institu-tions Examination Council Act of1978.”

Purpose

Sec. 1002. It is the purpose ofthis title to establish a FinancialInstitutions Examination Councilwhich shall prescribe uniform prin-ciples and standards for the Federalexamination of financial institu-tions by the Office of the Comptrol-ler of the Currency, the FederalDeposit Insurance Corporation, theBoard of Governors of the FederalReserve System, the Office of ThriftSupervision, and the NationalCredit Union Administration, andmake recommendations to promoteuniformity in the supervision ofthese financial institutions. TheCouncil’s actions shall be designedto promote consistency in suchexaminations to insure progressiveand vigilant supervision.

Definitions

Sec. 1003. As used in this title—

(1) the term “federal financialinstitutions regulatory agencies”means the Office of theComptroller of the Currency, theBoard of Governors of the Fed-eral Reserve System, the FederalDeposit Insurance Corporation,the Office of Thrift Supervision,and the National Credit UnionAdministration;

(2) the term “Council” meansthe Financial Institutions Exami-nation Council”; and

(3) the term “financial institu-tion” means a commercial bank, asavings bank, a trust company, asavings and loan association, abuilding and loan association, ahomestead association, a coopera-tive bank, or a credit union.

Establishment of the Council

Sec. 1004. (a) There is establishedthe Financial Institutions Examina-tion Council which shall consist of

(1) the Comptroller of theCurrency,

(2) the Chairman of the Boardof Directors of the FederalDeposit Insurance Corporation,

(3) a Governor of the Board ofGovernors of the Federal ReserveSystem designated by the Chair-man of the Board,

(4) the Director of the Office ofThrift Supervision and

(5) the Chairman of theNational Credit Union Admin-istration Board.

(b) The members of the Councilshall select the first Chairman of theCouncil. Thereafter the chairmanshall rotate among the members ofthe Council.

(c) The term of the Chairman ofthe Council shall be two years.

(d) The members of the Councilmay, from time to time, designateother officers or employees of theirrespective agencies to carry outtheir duties on the Council.

(e) Each member of the Councilshall serve without additional com-pensation but shall be entitled toreasonable expenses incurred incarrying out his or her officialduties as such a member.

Expenses of the Council

Sec. 1005. One-fifth of the costsand expenses of the Council,including the salaries of its employ-ees, shall be paid by each of the fed-eral financial institutions regulatoryagencies. Annual assessments forsuch share shall be levied by theCouncil based upon its projectedbudget for the year, and additionalassessments may be made duringthe year if necessary.

Functions of the Council

Sec. 1006. (a) The Council shallestablish uniform principles andstandards and report forms for theexamination of financial institu-tions, which shall be applied by thefederal financial institutions regula-tory agencies.

(b)(1) The Council shall makerecommendations for uniformityin other supervisory matters,such as, but not limited to, classi-fying loans subject to countryrisk, identifying financial institu-tions in need of special supervi-sory attention, and evaluating thesoundness of large loans that areshared by two or more financialinstitutions. In addition, theCouncil shall make recommenda-tions regarding the adequacy ofsupervisory tools for determiningthe impact of holding companyoperations on the financial insti-tutions within the holding com-pany and shall consider the abil-ity of supervisory agencies todiscover possible fraud or ques-tionable and illegal payments andpractices which might occur inthe operation of financial institu-tions or their holding companies.

(b)(2) When a recommendationof the Council is found unaccept-able by one or more of the appli-

30

cable federal financial institutionsregulatory agencies, the agencyor agencies shall submit to theCouncil, within a time periodspecified by the Council, a writ-ten statement of the reasons therecommendation is unacceptable.

(c) The Council shall develop uni-form reporting systems for feder-ally supervised financial institu-tions, their holding companies, andnonfinancial institution subsidiariesof such institutions or holding com-panies. The authority to developuniform reporting systems shall notrestrict or amend the requirementsof section 12(i) of the SecuritiesExchange Act of 1934.

(d) The Council shall conductschools for examiners and assistantexaminers employed by the federalfinancial institutions regulatoryagencies. Such schools shall beopen to enrollment by employeesof state financial institutions' super-visory agencies and employees ofthe Federal Housing Finance Boardunder conditions specified by theCouncil.

(e) Nothing in this title shall beconstrued to limit or discouragefederal regulatory agency researchand development of new financialinstitutions supervisory methodsand tools, nor to preclude the fieldtesting of any innovation devisedby any federal regulatory agency.

(f) Not later than April 1 of eachyear, the Council shall prepare anannual report covering its activitiesduring the preceding year.

State Liaison

Sec. 1007. To encourage the appli-cation of uniform examination prin-ciples and standards by state andfederal supervisory agencies, theCouncil shall establish a liaisoncommittee composed of five repre-sentatives of state agencies whichsupervise financial institutionswhich shall meet at least twice ayear with the Council. Members ofthe liaison committee shall receive

a reasonable allowance for neces-sary expenses incurred in attendingmeetings.

Administration

Sec. 1008. (a) The Chairman of theCouncil is authorized to carry outand to delegate the authority tocarry out the internal administra-tion of the Council, including theappointment and supervision ofemployees and the distribution ofbusiness among members, employ-ees, and administrative units.

(b) In addition to any otherauthority conferred upon it bythis title, in carrying out its func-tions under this title, the Councilmay utilize, with their consent andto the extent practical, the person-nel, services, and facilities of thefederal financial institutions regula-tory agencies, Federal ReserveBanks, and Federal Home LoanBanks, with or without reimburse-ment therefor.

(c) In addition, the Council may

(1) subject to the provisions ofTitle 5, United States Code, relat-ing to the competitive service,classification, and General Sched-ule pay rates, appoint and fix thecompensation of such officersand employees as are necessaryto carry out the provisions of thistitle, and to prescribe the author-ity and duties of such officers andemployees; and

(2) obtain the services of suchexperts and consultants as arenecessary to carry out the provi-sions of the title.

Access to Informationby the Council

Sec. 1009. For the purpose of car-rying out this title, the Council shallhave access to all books, accounts,records, reports, files, memoranda,papers, things, and propertybelonging to or in use by federalfinancial institutions regulatory

agencies, including reports ofexamination of financial institu-tions or their holding companiesfrom whatever source, togetherwith workpapers and correspon-dence files related to such reports,whether or not a part of the report,and all without any deletions.

Risk Management Training

Sec. 1009A. (a) Seminars. TheCouncil shall develop and adminis-ter training seminars in risk man-agement for its employees and theemployees of insured financialinstitutions.

(b) Study of Risk ManagementTraining Program. Not later thanthe end of the one-year periodbeginning on the date of the enact-ment of the Financial InstitutionsReform, Recovery, and Enforce-ment Act of l989, the Council shall

(l) conduct a study on the feasi-bility and appropriateness ofestablishing a formalized riskmanagement training programdesigned to lead to the certifica-tion of Risk Management Ana-lysts; and

(2) report to the Congress theresults of such study.

Audit by theComptroller General

Sec. 1010. Section 117 of theAccounting and Auditing Act of1950, as amended by the FederalBanking Agency Audit Act (PublicLaw 95–320), is further amended by

(1) redesignating clauses (A),(B), and (C) of subsection (e)(1)as (B), (C), and (D), respectively,and inserting in subsection (e)(1)the clause “(A) of the FinancialInstitutions Examination Coun-cil”; immediately following “audits”; and

(2) striking out in subsection(e)(2) “and (C)” and inserting inlieu thereof “(C), and (D).”

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Sec. l0ll. Establishment ofAppraisal Subcommittee

There shall be within the Council asubcommittee to be known as the“Appraisal Subcommittee,” whichshall consist of the designees of theheads of the federal financial insti-tutions regulatory agencies. Eachsuch designee shall be a personwho has demonstrated knowledgeand competence concerning theappraisal profession.

Excerpts from Title III ofPublic Law 94–200

Following are those sections of titleIII of Public Law 94–200, the HomeMortgage Disclosure Act, as amended,that affect the Federal FinancialInstitutions Examination Council.

Findings and Purpose

Sec.302. (a) The Congress findsthat some depository institutionshave sometimes contributed to thedecline of certain geographic areasby their failure pursuant to theirchartering responsibilities to pro-vide adequate home financing toqualified applicants on reasonableterms and conditions.

(b) The purpose of this title is toprovide the citizens and public offi-cials of the United States with suffi-cient information to enable themto determine whether depositoryinstitutions are fulfilling their obli-gations to serve the housing needsof the communities and neighbor-hoods in which they are locatedand to assist public officials in theirdetermination of the distribution ofpublic sector investments in a man-ner designed to improve the privateinvestment environment.

Maintenance of Records andPublic Disclosure

Sec.304. (f) The Federal FinancialInstitutions Examination Council inconsultation with the Secretary,

shall implement a system to facili-tate access to data required to bedisclosed under this section. Suchsystem shall include arrangementsfor a central depository of data ineach primary metropolitan statisti-cal area, metropolitan statisticalarea, or consolidated metropolitanstatistical area that is not comprisedof designated primary metropolitanstatistical areas. Disclosure state-ments shall be made available to thepublic for inspection and copyingat such central depository of datafor all depository institutions whichare required to disclose informationunder this section (or which areexempted pursuant to section306(b)) and which have a homeoffice or branch office within suchprimary metropolitan statisticalarea, metropolitan statistical area,or consolidated metropolitan statis-tical area that is not comprised ofdesignated primary metropolitanstatistical areas.

Compilation of Aggregate Data

Sec. 310. (a) Beginning with datafor calendar year 1980, the FederalFinancial Institutions ExaminationCouncil shall compile each year, foreach primary metropolitan statisti-cal area, metropolitan statisticalarea, or consolidated metropolitanstatistical area that is not comprisedof designated primary metropolitanstatistical areas, aggregate data bycensus tract for all depository insti-tutions which are required to dis-close under section 304 or which areexempt pursuant to section 306(b).The Council shall also producetables indicating, for each primarymetropolitan statistical area, metro-politan statistical area, or consoli-dated metropolitan statistical areathat is not comprised of designatedprimary metropolitan statisticalareas, aggregate lending patternsfor various categories of censustracts grouped according to loca-tion, age of housing stock, incomelevel and racial characteristics.

(b) The Board shall provide staff

and data processing resources tothe Council to enable it to carry outthe provisions of subsection (a).

(c) The data and tables requiredpursuant to subsection (a) shall bemade available to the public by nolater than December 31 of the yearfollowing the calendar year onwhich the data are based.

Excerpts from Title XI ofPublic Law l0l–73

Sec. ll03. Functions of AppraisalSubcommittee.

(a) In General. The AppraisalSubcommittee shall

(l) monitor the requirementsestablished by States for the certi-fication and licensing of individu-als who are qualified to performappraisals in connection withfederally regulated transactions,including a code of professionalresponsibility;

(2) monitor the requirementsestablished by the federal finan-cial institutions regulatory agen-cies and the Resolution TrustCorporation with respect to

(A) appraisal standards forfederally related transactionsunder their jurisdiction, and

(B) determinations as towhich federally related transac-tions under their jurisdictionrequire the services of a Statecertified appraiser and whichrequire the services of a Statelicensed appraiser.

(3) maintain a national registryof State certified and licensedappraisers who are eligible toperform appraisals in federallyrelated transactions; and

(4) transmit an annual reportto the Congress not later thanJanuary 3l of each year whichdescribes the manner in whicheach function assigned to theAppraisal Subcommittee hasbeen carried out during the pre-ceding year.

(b) Monitoring and ReviewingFoundation. The Appraisal Subcom-mittee shall monitor and review thepractices, procedures, activities,and organizational structure of theAppraisal Foundation.

Sec. ll04. Chairperson ofAppraisal Subcommittee: Termof Chairperson; meetings.

(a) Chairperson. The Councilshall select the Chairperson of thesubcommittee. The term of theChairperson shall be two years.

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ments referred to above presentfairly, in all material respects, thefinancial position of the Councilas of December 31, 1998, and theresults of its operations and its cashflows for the year then ended inconformity with generally acceptedaccounting principles.

In accordance with GovernmentAuditing Standards, we have alsoissued our report dated February19, 1999, on our tests of theCouncil’s compliance with certainprovisions of laws, regulations, con-tracts, and grants and our consider-ation of the Council's internalcontrol over financial reporting.

February 19, 1999

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APPENDIX B: 1998 AUDIT REPORT

To the Federal Financial InstitutionsExamination Council

We have audited the accompanyingbalance sheet of the FederalFinancial Institutions ExaminationCouncil (the Council) as ofDecember 31, 1998, and the relatedstatements of revenues and expen-ses and changes in fund balance,and of cash flows for the year thenended. These financial statementsare the responsibility of theCouncil’s management. Our respon-sibility is to express an opinion onthese financial statements based onour audit. The financial statementsof the Council for the year endedDecember 31, 1997, were auditedby other auditors whose report,dated March 6, 1998, expressedan unqualified opinion on thosestatements.

We conducted our audit in accor-dance with generally accepted

auditing standards and the stan-dards applicable to financial auditscontained in Government AuditingStandards, issued by the ComptrollerGeneral of the United States. Thosestandards require that we plan andperform the audit to obtain reason-able assurance about whether thefinancial statements are free ofmaterial misstatement. An auditincludes examining, on a test basis,evidence supporting the amountsand disclosures in the financialstatements. An audit also includesassessing the accounting principlesused and significant estimates madeby management, as well as evaluat-ing the overall financial statementpresentation. We believe that ouraudit provides a reasonable basisfor our opinion.

In our opinion, the financial state-

CURRENT ASSETSCash $ 319,844 $ 486,595Accounts receivable from member organizations 724,021 765,290Other accounts receivable 194,449 107,955Prepaid expenses 25,319 0

Total current assets 1,263,633 1,359,840FURNITURE AND EQUIPMENT

Furniture and equipment, at cost 257,091 257,091Less accumulated depreciation 237,470 215,271

Net furniture and equipment 19,621 41,820LEASEHOLD IMPROVEMENTS, net of amortization 0 9,907

Total assets $ 1,283,254 $ 1,411,567

LIABILITIES AND FUND BALANCECURRENT LIABILITIES

Accounts payable and accrued liabilities to member organizations $ 901,303 $ 839,757Other accounts payable and accrued liabilities 69,225 112,848Accrued annual leave 48,625 59,019

Total current liabilities 1,019,153 1,011,624DEFERRED RENT (Note 5) 68,457 49,042FUND BALANCE 195,644 350,901

Total liabilities and fund balance $ 1,283,254 $ 1,411,567

Notes to Financial Statements

(1) Organization and Purpose

The Federal Financial Institutions ExaminationCouncil (the “Council”) was established underTitle X of the Financial Institutions Regulatoryand Interest Rate Control Act of 1978. The pur-pose of the Council is to prescribe uniformprinciples and standards for the federal exami-nation of financial institutions and to makerecommendations to promote uniformity in thesupervision of these financial institutions. Thefive agencies which are represented on theCouncil, referred to hereafter as member orga-nizations, are as follows:

Board of Governors of the Federal ReserveSystem

Federal Deposit Insurance CorporationNational Credit Union AdministrationOffice of the Comptroller of the CurrencyOffice of Thrift Supervision

The Appraisal Subcommittee of the Councilwas created pursuant to Public Law 101–73,Title XI of the Financial Institutions Reform,Recovery, and Enforcement Act of 1989. Thefunctions of the Appraisal Subcommittee arerelated to the certification and licensing of indi-viduals who perform appraisals in connectionwith federally related real estate transactions.Members of the Appraisal Subcom- mittee con-sist of the designees of the heads of those agen-cies which comprise the Council and the desig-nee of the head of the Department of Housingand Urban Development. Although it is a sub-

committee of the Council, the Appraisal Sub-committee maintains separate financial recordsand administrative processes. The Council's fi-nancial statements do not include financialdata for the Appraisal Subcommittee otherthan that presented in note 4.

(2) Significant Accounting Policies

Revenues and Expenses—Assessments madeon member organizations for operatingexpenses and additions to property are calcu-lated based on expected cash needs. Assess-ments, other revenues, and operatingexpenses are recorded on the accrual basisof accounting.

Furniture and Equipment—Furniture andequipment is recorded at cost less accumu-lated depreciation. Depreciation is calcu-lated on a straight-line basis over the esti-mated useful lives of the assets, which rangefrom four to ten years. Upon the sale orother disposition of a depreciable asset, thecost and related accumulated depreciationare removed from the accounts and anygain or loss is recognized.

Leasehold Improvements—Leaseholdimprovements are amortized on a straight-line basis over the shorter of the term of therelated lease or the estimated useful life ofthe improvements.

Estimates—The preparation of financial state-ments in conformity with generally acceptedaccounting principles requires management to

make estimates and assumptions that affect thereported amounts of assets and liabilities andthe disclosure of contingent assets and liabili-ties at the date of the financial statements andthe reported amounts of revenues and ex-penses during the reporting period. Actualresults could differ from those estimates.

Reclassifications—Certain 1997 disclosures havebeen reclassified to conform with the 1998presentation.

(3) Transactions with Member Organizations

1998 1997

The five member organi-zations are each assessedone-fifth of the expectedcash needs based on theannual operating bud-get. Annual assessmentfor each memeberorganization was $ 248,800 $ 228,200

The Council providesseminars in the Wash-ington area and atregional locationsthrought the countryfor member organiza-tion examiners andother agencies. TheCouncil receivedtuition payments frommemeber agenciesin the amount 1,172,456 1,267,444

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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCILBalance Sheet as of December 31, 1998 and 1997

ASSETS

19971998

See notes to financial statements.

REVENUESAssessments to member organizations $ 1,244,000 $ 1,141,000Tuition 1,365,656 1,501,494Other revenue (Note 4) 2,814,718 2,707,759

Total revenues 5,424,374 5,350,253EXPENSES

Salaries and related benefits 1,263,700 1,408,595Data processing 2,922,678 2,694,856Rental of office space 728,452 640,281Travel 112,242 112,758Professional fees 106,070 98,277Printing 94,805 102,798Other seminar expenses 85,251 88,330Rental and maintenance of office equipment 74,758 123,999Administrative fees 54,199 53,236Office and other supplies 46,968 32,904Depreciation 32,107 39,911Postage 12,881 21,994Telephone 5,998 12,776Books and subscriptions 3,453 14,779Miscellaneous 36,069 12,446

Total operating expenses 5,579,631 5,457,940REVENUES OVER (UNDER) EXPENSES (155,257) (107,687)FUND BALANCE, Beginning of year 350,901 458,588FUND BALANCE, End of year $ 195,644 $ 350,901


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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCILStatement of Revenues and Expenses and Fund Balance for the Years Ended December 31, 1998 and 1997

Notes continue on the following page.

1998 1997

The Board of Gover-nors of the FederalReserve System pro-vided administrativesupport services to theCouncil at a cost of 54,199 53,236

Member organizationsprovided office space,data processing andprinting servicesto the Council. TheCouncil paid memberorganizations 3,525,945 2,891,245

The Council coordinates the production anddistribution of the Uniform Bank PerformanceReports (UBPR) through the Federal DepositInsurance Corporation (FDIC). The Council isreimbursed for the direct cost of the operatingexpenses it incurs for this project.

Council employees are paid through thepayroll systems of member organizations.Salaries and fringe benefits, including retire-ment benefit plan contributions, disbursedon behalf of the Council are reimbursed in fullto these organizations. The Council doesnot have any postretirement or postemploy-ment benefit liabilities since Council employeesare included in the plans of the memberorganizations.

Member organizations are not reimbursed forthe costs of personnel who serve as Councilmembers and on the various task forces andcommittees of the Council. The value of these

contributed services has not been included inthe accompanying financial statements.

(4) Other Revenue

1998 1997

Home MortgageDisclosure Act $1,517,598 $ 1,378,370

Uniform BankPerformance Report 266,824 253,494

Appraisal Subcommittee 156,594 161,952Rental 158,965 157,751Community

Reinvestment Act 714,696 719,427Miscellaneous 41 36,765

$2,814,718 $ 2,707,759

Home Mortgage Disclosure Act (HMDA)

1998 1997

The Council producesand distributes reportsunder the Home Mort-gage Disclosure Act(HMDA). The Councilreceived the followingfrom memberorganizations $1,051,492 $ 906,006

The Council receivedthe following from theDepartment of Hous-ing and Urban Devel-opment (HUD) to fundHUD's participationin the HMDA project 279,077 248,054

The Council receivedthe following from theMortgage InsuranceCompanies of Americafor performing HMDArelated work for them. 153,138 169,661

The balance of theHMDA revenue for1998 and 1997 wasreceived from sales tothe public. 33,891 54,649

Uniform Bank Performance Report (UBPR)

1998 1997

The Council coordi-nated and providedcertain administrativesupport to the UBPRproject. The Councilreceived the followingfor operating expensesincurred in support ofthe UBPR project $ 266,824 $ 253,494

Appriasal Subcommittee

1998 1997

The Council providedspace and certainadministrative supportto the Appraisal Sub-committee. TheCouncil received thefollowing from theAppraisal Subcommit-tee for these services 156,594 161,952

Office Space

The Council providedspace to the Boardof Governors of theFederal Reserve System(Board). The Councilreceived the followingrent from the Board 158,965 157,751

Community Reinvestment Act

In 1995, developmentwork began to preparean information systemto assist financial insti-tutions with certainCommunity Reinvest-ment Act (CRA)requirements. The firstfull year of operationswas 1996. The Councilreceived the followingfrom participatingmember agencies foroperating expensesincurred in support ofthe CRA project 714,696 719,427

CASH FLOWS FROM OPERATING ACTIVITIESOperating revenues over (under) expenses $ (155,257) $ (107,687)

Adjustments to reconcile operating revenues over (under) expenses to net cashused by operating activities:Depreciation 32,107 39,911(Increase) decrease in accounts receivable from member organizations 41,269 (101,677)(Increase) decrease in other accounts receivable (86,495) 23,750(Increase) decrease in prepaid expense (25,319) 222Increase (decrease) in accounts payable and accrued liabilities to member organizations 61,546 (167,032)Increase (decrease) in other accounts payable and accrued liabilities (43,623) 22,148Increase (decrease) in accrued annual leave (10,394) 10,961Increase (decrease) in deferred rent 19,415 (49,041)

Net cash provided by operating activities (166,751) (328,445)CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures 0 (6,003)Net cash used in investing activities 0 (6,003)

NET INCREASE (DECREASE) IN CASH (166,751) (334,448)CASH BALANCE, Beginning of year 486,595 821,043CASH BALANCE, End of year $ 319,844 $ 486,595

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCILStatement of Cash FlowsIncrease (Decrease) in Cash for the Years Ended December 31, 1998 and 1997

19971998


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(5) Deferred Rent

In 1992 and 1998, the Council entered intoleases for office space. These leases contain rentabatements and scheduled rent increases,which, in accordance with generally acceptedaccounting principles, must be considered indetermining the annual rent expense to be rec-ognized by the Council. The deferred rent rep-resents the difference between the actual leasepayments and the rent expense recognized.

(6) Commitments

The Council entered into operating leases tosecure office and classroom space for peri-ods ranging from two to ten years. Mini-mum future rental commitments under

those operating leases having an initial orremaining noncancellable lease term inexcess of one year at December 31, 1998, areas follows:

1999 $299,3802000 306,3312001 313,2812002 320,232

After 2002 2,043,023$3,282,247

Rental expenses under these operatingleases and the operating lease whichexpired in 1998 were $478,690 and $392,718in 1998 and 1997, respectively.

APPENDIX C: MAPS OF AGENCY REGIONS AND DISTRICTS

38 Board of Governors of the Federal Reserve System

39 Federal Deposit Insurance Corporation

40 National Credit Union Administration

41 Office of the Comptroller of the Currency

42 Office of Thrift Supervision

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THE FEDERAL RESERVE SYSTEM DISTRICTS

38

FEDERAL DEPOSIT INSURANCE CORPORATION REGIONS

(SUPERVISION AND COMPLIANCE)

39

NATIONAL CREDIT UNION ADMINISTRATION

40

41

COMPTROLLER OF THE CURRENCY DISTRICT ORGANIZATION

OFFICE OF THRIFT SUPERVISION

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Federal Financial Institutions Examination Council ...Uniform Fair Lending examination procedures....

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