Detailed Information on the
Thrift Institution and Savings Association Supervision Assessment

Federal banking regulatory agencies, including the OTS, the OCC, the NCUA, the Federal Reserve, and the FDIC, will work together to align outcome goals and related measures to allow for greater comparison of program performance in the industry.

The OTS will evaluate the efficiency and effectiveness of a single examination for both Safety and Soundness and Compliance functions.

The OTS will take steps to examine long-term systemic risks in the industry.

Measure: Percentage of thrifts with high ratings according to industry standards (composite CAMELS ratings of 1 or 2) (Performance measure was adopted in 2003)

Explanation:

Measure: Thrifts with consumer compliance ratings of 1 or 2 (Performance measure was adopted in 2003)

Explanation:

Measure: Percent of thrifts that are well capitalized (Performance measure was adopted in 2003)

Explanation:

Is the program purpose clear?

Explanation: Home Owners' Loan Act authorizes the Office of Thrift Supervision (OTS) to charter, examine, supervise and regulate savings associations.

Evidence: Home Owners' Loan Act, Federal Deposit Insurance Act, and OTS Mission Statement as stated in the Strategic Plan reinforce the program's purpose.

Does the program address a specific interest, problem or need?

Explanation: A thrift industry operating in a safe and sound manner, serves a important public need.

Evidence: Industry assets are close to $1 trillion. Thrifts originate approximately 20% of all mortgages in the U.S., and they hold nearly one-half trillion dollars in whole mortgages and mortgage-backed securities. Current industry data; OTS Quarterly Press Releases.

Is the program designed to have a significant impact in addressing the interest, problem or need?

Explanation: OTS charters all Federal savings associations and is the primary federal regulator for all FDIC-insured savings associations.

Evidence: OTS Mission Statement as stated in the Strategic Plan, enforcement actions, charter applications.

Is the program designed to make a unique contribution in addressing the interest, problem or need (i.e., not needlessly redundant of any other Federal, state, local or private efforts)?

Explanation: OTS is uniquely charged with ensuring that thrifts provide housing finance to borrowers in a safe and sound manner and is the only regulator that uses a comprehensive model to assess and supervise interest rate risk. However, FDIC performs limited supervision of thrift institutions. Depository institutions are regulated by a complex, overlapping structure of Federal and State agencies. Other agencies, including the Office of Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and the Federal Reserve Bank (FRB), perform similar types of regulatory functions in the banking industry.

Evidence: OCC Strategic Plan, NCUA Strategic Plan, and FDIC Strategic Plan all reflect similar regulatory functions as OTS.

Is the program optimally designed to address the interest, problem or need?

Explanation: The program is designed to operate in an effective and efficient manner. OTS focuses its examination and supervision practices on risk and uses an Interest Rate Risk model as a measurement tool. As OTS charges thrifts for the cost of supervision, it imposes financial incentives on them to operate in accordance with OTS's regulations. OTS is motivated to find the most cost-effective practices because assessments on thrifts are the source of OTS's funding. There are ways that OTS could improve its program, specifically by demonstrating the effectiveness of the use of compliance self-examinations and by taking steps to examine long-term systemic risks in the industry.

Evidence: OCC Strategic Plan

Does the program have a limited number of specific, ambitious long-term performance goals that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: OTS has three long-term goals that reflect its mission and achieve critical outcomes in support of national economic policy: (1) thrifts operate in a safe and sound manner to protect depositors' savings; (2) a flexible regulatory framework enables the industry to provide a full competitive array of financial services; and (3) access to financial services and treatment of thrift customers are fair.

Evidence: OTS GPRA Performance Plan and Strategic Plan.

Does the program have a limited number of annual performance goals that demonstrate progress toward achieving the long-term goals?

Explanation: OTS has several performance goals to demonstrate progress toward achieving the long-term output goals, including (1) adequate capitalization in thrift institutions; (2) completion of examination objectives stated in customer service plan; and (3) containment of financial regulatory burden on thrifts.

Evidence: OTS GPRA Performance Plan and Strategic Plan.

Do all partners (grantees, sub-grantees, contractors, etc.) support program planning efforts by committing to the annual and/or long-term goals of the program?

Explanation: This program does not have partners (grantees, contractors, etc.)

Evidence:  

Does the program collaborate and coordinate effectively with related programs that share similar goals and objectives?

Explanation: OTS has joined other financial institution regulatory agencies as part of the Federal Financial Institutions Examination Council (FFIEC) in an effort to develop common examination policies and procedures.

Evidence: OIGs' 2002 review entitled "Joint Evaluation of the Federal Financial Institutions Examination Council" concluded that the FFIEC is accomplishing its mission of prescribing uniform principles, standards, and report forms and is achieving coordination between the banking agencies. The report further concluded that the FFIEC and the banking agencies have issued guidance responsive to the major risks and emerging issues facing the industry between 1997 and 2001 (the period of the study) and had achieved uniformity in critical areas such as common examination rating systems and standard quarterly financial reports submitted by insured institutions (see report pages 5, 6, 10-14). FFIEC annual reports; joint interagency bank supervision conferences.

Are independent and quality evaluations of sufficient scope conducted on a regular basis or as needed to fill gaps in performance information to support program improvements and evaluate effectiveness?

Explanation: Evaluations or program performance reviews are conducted on a periodic basis to examine effectiveness and to consider program improvements.

Evidence: Regular audits of supervisory programs and cases by GAO, Treasury IG, FDIC and IG. It is anticipated that audits will continue to address specific programmatic issues.

Is the program budget aligned with the program goals in such a way that the impact of funding, policy, and legislative changes on performance is readily known?

Explanation: As an non-appropriated bureau, OTS monitors the impact of funding, policy, legislative changes, and the risks to regulated institutions. The budget is aligned with program goals and projected assessments, which is the source of OTS funding.

Evidence: The OTS FY04 Budget reflects program goals.

Has the program taken meaningful steps to address its strategic planning deficiencies?

Explanation: OTS has defined long-term goals that state useful outcomes and measures of progress. Major reductions in expenses (without increases in assessments) in FY2002 enabled OTS to further refine its strategic and performance plans in FY 2003 and beyond.

Evidence: OTS GPRA Performance Plan and Strategic Plan.

Are all regulations issued by the program/agency necessary to meet the stated goals of the program, and do all regulations clearly indicate how the rules contribute to achievement of the goals?

Explanation: Regulations are promulgated based upon statutory requirements or as prompted by safety and soundness concerns. OTS Mission Statement, Federal Register documents and industry correspondence provide the basis for agency actions. Public comment is sought on all major regulatory actions.

Evidence: Home Owners' Loan Act, Federal Deposit Insurance Act, Federal Register documents, comment letters, and CEO letters.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: OTS regularly monitors examination ratings and quarterly financial data to assess the condition of the industry. OTS uses this information to help problem institutions take corrective actions.

Evidence: Internal data systems collect, process, and analyze financial and examination data. Quarterly press releases announce the financial condition of the industry.

Are Federal managers and program partners (grantees, subgrantees, contractors, etc.) held accountable for cost, schedule and performance results?

Explanation: The Director and Deputy Director hold Regional Directors accountable for supervision of their caseloads of thrifts and the administration of their respective regional offices. Regional Directors are responsible for effective management of statutory examination schedules, annual budgets, and human resources. Regional Directors and all their staff have established performance plans that serve as the basis for annual performance ratings and merit-based salary increases (OTS does not grant any annual cost-of-living increases to salary).

Evidence: Regional Manager meetings held ten times each year. Weekly significant activity reports submitted to the Deputy Director. Annual performance ratings and merit increases.

Are all funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Funds are obligated for their intended purpose. Budget plans may be adjusted during the year if changes to the projected assessments are anticipated. The Information Review Board (IRB) monitors information technology (IT) obligations and expenses.

Evidence: Obligation and expenses are regularly reviewed by the Deputy Director and Director. The IRB receives reports summarizing IT expenses at quarterly meetings.

Does the program have incentives and procedures (e.g., competitive sourcing/cost comparisons, IT improvements) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The assessment rates for regulated institutions provide incentives for thrifts to operate safely and soundly. Institutions with higher risks are assessed at a higher rate. Internally, timeliness and efficiencies of exams are monitored and discussed at monthly meetings. Internal reports are provided to regional managers. An internal incentive is to avoid assessment increases to the industry by aligning expenses with revenue, even when budget reductions are necessary (from FY 2002 to FY 2003, OTS's budget has been reduced by 4 percent).

Evidence: Thrift Bulletin 48-18 provides the assessment rates.

Does the agency estimate and budget for the full annual costs of operating the program (including all administrative costs and allocated overhead) so that program performance changes are identified with changes in funding levels?

Explanation: The entire OTS budget supports the thrift supervision program and identifies all spending categories.

Evidence: OTS FY2003 Performance Plan.

Does the program use strong financial management practices?

Explanation: OTS had no material weakness, reportable conditions, or instances of non-compliance identified in FY01 or FY02.

Evidence: OTS received consecutive unqualified opinions on its financial statements since 1990.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: OTS is completing the implementation of a common regional management structure designed to minimize regional inconsistencies that might result in management deficiencies.

Evidence: The regional structure changes were materially completed in 2002 with all regions shifting to a common managerial structure. See OTS CEO memo 157, and memo to all employees, both dated 4/11/02.

Did the program seek and take into account the views of affected parties including state, local and tribal governments and small businesses, in drafting significant regulations?

Explanation: Small Business Administration, Council of State Bank Supervisors, and state attorneys general are provided advance copies of regulatory proposals prior to formal publication. Opportunity for public comment is provided on all major regulatory actions.

Evidence: Transmittal letters and responses; Federal Register documents

Did the program prepare, where appropriate, a Regulatory Impact Analysis (RIA) that comports with OMB's economic analysis guidelines and have these RIA analyses and supporting science and economic data been subjected to external peer review by qualified specialists?

Explanation: OTS has only had one regulation that is deemed a Significant Regulatory Action based on legal policy reasons rather than potential economic impact. The vast majority of OTS's regulations do not constitute significant regulatory actions as that term is defined in the executive order.

Evidence: OTS monitors the impact of this regulation by reviewing input from a variety of sources. OTS monitors data collection and burden estimates pursuant to the Paperwork Reduction Act. Recently, OTS has reviewed the study the FRB prepared after Gramm-Leach-Bliley Act (GLBA) and comments received on an advance notice of proposed rulemaking on the Community Reinvestment Act (CRA) rule.

Does the program systematically review its current regulations to ensure consistency among all regulations in accomplishing program goals?

Explanation: By statute, OTS must perform a regulatory review every 10 years. OTS has, independent of the statute, performed three such reviews within the last 10 years. OTS Policy Coordination Group regularly reviews regulatory proposals for consistency.

Evidence: Within the last 10 years, OTS changed regulations by eliminating or modifying outdated ones, or by adding new ones, including rewriting regulations in plain English.

In developing new regulations, are incremental societal costs and benefits compared?

Explanation: While the OTS takes into account costs and benefits when developing and issuing new regulations, formal cost-benefit analyses are not routinely performed on proposed rules. Depositor/borrower impact, in conjunction with institution cost and administrative burden, is weighed in determining issuance and structure of regulations and other agency pronouncements. However, OTS does not perform a quantitative cost-benefit analyses.

Evidence: Federal Register documents, industry correspondence, public comment letters, OTS written testimony on Superior Bank failure

Did the regulatory changes to the program maximize net benefits?

Explanation: Given statutory constraints, regulations are promulgated following review and analysis of public comments. Cost both to OTS and regulated institutions are factors considered in the regulatory process.

Evidence: Federal Register documents, industry correspondence, and public comment letters.

Does the program impose the least burden, to the extent practicable, on regulated entities, taking into account the costs of cumulative final regulations?

Explanation: To the extent permitted, regulations and pronouncements address safety and soundness concerns in a general manner and avoid imposition of specific, inflexible requirements. Examinations are conducted with minimal disruption. Regulated institutions file required data electronically.

Evidence: Federal Register documents, industry correspondence, OTS Handbooks, and examination programs

Has the program demonstrated adequate progress in achieving its long-term outcome goal(s)?

Explanation: Supervisory oversight has resulted in few failures and problem thrifts while capital and earnings are at the highest levels in history.

Evidence: Refer to the three goals below.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The performance goals contained in the annual GPRA plan are monitored and updated annually. These goals meet their stated objectives.

Evidence: Refer to the three goals below.

Does the program demonstrate improved efficiencies and cost effectiveness in achieving program goals each year?

Explanation: OTS completed a restructuring in FY02 reducing the number of regional offices from 5 to 4. Staff size was reduced to match workload demands and the consolidation of the industry.

Evidence: During the restructuring, administrative functions were centralized and supervisory resources combined.

Does the performance of this program compare favorably to other programs with similar purpose and goals?

Explanation: It is impossible to compare program performance until the financial regulatory agencies, such as FDIC OCC, and NCUA, better align outcome goals and related measures.

Evidence: OTS Strategic Plan, OCC Strategic Plan, and NCUA Strategic Plan.

Do independent and quality evaluations of this program indicate that the program is effective and achieving results?

Explanation: During the second quarter of 2002, the OTS-regulated thrift industry reported earnings and profitability that support continued health and profitability. More than 98 percent of the industry exceeded well-capitalized standards.

Evidence: Well-capitalized thrifts held 99.9 percent of industry assets. FDIC is the provider of insurance to thrifts, and analyzes industry financial data and related OTS examination data.

Were programmatic goals (and benefits) achieved at the least incremental societal cost and did the program maximize net benefits?

Explanation: Regulations are issued following analysis of public comments and are general in scope, given statutory constraints. Examinations are conducted in the least disruptive, most cost-effective manner.

Evidence: Federal Register documents, examiner guidance, industry correspondence