|
|
In 1999, the U.S. economy marked its ninth year of a remarkably strong economic
expansion, which contributed to record profits for the banking industry. Insured
commercial banks posted record earnings for the eighth consecutive year, while insured
savings institutions recorded their third consecutive year of record earnings. |
Commercial banks earned $71.7 billion in
1999, an increase of $9.9 billion (16.0 percent) over their
1998 results. The industrys return on assets (ROA) rose to a record-high 1.31
percent, from 1.19 percent in 1998. The previous record for full-year ROA was 1.23
percent, set in 1997. Banks return on equity (ROE) rose to 15.34 percent, equaling
the all-time high first reached in 1993. Much of the earnings improvement occurred at the
largest banks, due to continued strength in noninterest income and slower growth in
noninterest expenses. Profitability declined at smaller banks, reflecting narrower net
interest margins. Overall asset-quality indicators remained favorable; both the percentage
of loans charged off and the percentage of loans that were noncurrent (past due 90 days or
more or in nonaccrual status) at year-end were lower than a year earlier. This improvement
was made possible by lower losses on credit card loans, which outweighed a rise in losses
on commercial and industrial loans. Insured savings institutions earned $10.9 billion in
1999, a $736 million (7.3 percent) increase over 1998. The average ROA was 1.00 percent,
about the same as the 1.01 percent that thrifts registered in 1998. The gap in performance
between the largest savings institutions and their smaller counterparts widened in 1999.
At thrifts with more than $5 billion in assets, the average ROA was 1.06 percent, up from
1.04 percent in 1998. At savings institutions with less than $5 billion in assets, the
average ROA declined from 0.96 percent to 0.93 percent.
The FDIC administers two deposit insurance funds, the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF), and manages the FSLIC Resolution Fund (FRF),
which fulfills the obligations of the former Federal Savings and Loan Insurance
Corporation (FSLIC). As a result of positive conditions, deposit insurance assessment
rates remained unchanged from 1998 for both deposit insurance funds, ranging from 0 to 27
cents annually per $100 of assessable deposits. Under this assessment rate schedule, 93.7
percent of BIF-member institutions and 91.6 percent of SAIF-member institutions were in
the lowest risk-assessment rate category and paid no deposit insurance assessments for the
first semiannual assessment period of 2000.
At year-end 1999, the BIF had a balance of $29.4 billion, representing a loss of $198
million for the year. This was the first year-end loss reported since 1991 and was
primarily attributable to insurance losses recognized in 1999. During the year,
BIF-insured deposits grew by 0.76 percent, yielding a reserve ratio of 1.36 percent of
insured deposits at year-end 1999. The reserve ratio at year-end 1998 was slightly higher,
at 1.38 percent. Seven BIF-insured institutions failed in 1999 with total assets at
failure of $1.4 billion and total estimated insurance losses of $838.4 million. The
contingent liability for anticipated failure of BIF-insured institutions as of December
31, 1999, was $307.0 million compared to $32.0 million at year-end 1998.
The SAIF ended 1999 with a fund balance of $10.3 billion, a 4.5 percent increase over
the year-end 1998 balance of $9.8 billion. Estimated insured deposits increased by 0.34
percent in 1999. The reserve ratio grew from 1.39 percent of insured deposits at year-end
1998 to 1.45 percent. Only one SAIF-insured institution failed in 1999 with total assets
at failure of $63.0 million and estimated insurance losses of $1.3 million. The contingent
liabilities for anticipated failure of SAIF-insured institutions as of December 31, 1999
and 1998, were $56.0 million and $31.0 million, respectively. On January 1, 1999, a
Special Reserve was established within the SAIF, as required by the Deposit Insurance
Funds Act of 1996. The SAIF Special Reserve was mandated as a result of the federal budget
process and did not address any deposit-insurance issues. The reserve was funded with $978
million, the amount by which the SAIF exceeded the Designated Reserve Ratio of 1.25
percent. The segregation of these funds into the special reserve was eliminated on
November 12, 1999, with the enactment of the Gramm-Leach-Bliley Act. |
|
Selected Statistics |
Bank Insurance
Fund (BIF) |
(Dollars in Millions) |
|
|
For the year ended December 31 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
Financial Results |
Revenue |
$ |
1,816 |
|
$ |
2,000 |
|
$ |
1,616 |
|
Operating Expenses |
|
730 |
|
|
698 |
|
|
605 |
|
Insurance Losses and Expenses |
|
1,192 |
|
|
(6) |
|
|
(428) |
|
Net Income |
|
(106) |
|
|
1,309 |
|
|
1,438 |
|
Comprehensive Income* |
|
(198) |
|
|
1,319 |
|
|
1,438 |
|
Insurance Fund Balance |
$ |
29,414 |
|
$ |
29,612 |
|
$ |
28,293 |
|
Fund as a Percentage of Insured Deposits |
|
1.36 % |
|
|
1.38 % |
|
|
1.38% |
|
|
Selected Statistics |
Total BIF-Member Institutions + |
|
8,832 |
|
|
9,031 |
|
|
9,403 |
|
Problem Institutions |
|
66 |
|
|
68 |
|
|
73 |
|
Total Assets of Problem Institutions |
$ |
4,000 |
|
$ |
5,000 |
|
$ |
5,000 |
|
Institution Failures |
|
7 |
|
|
3 |
|
|
1 |
|
Total Assets of Current Year Failed Institutions |
$ |
1,424 |
|
$ |
370 |
|
$ |
26 |
|
Number of Active Failed Institution Receiverships |
|
101 |
|
|
219 |
|
|
302 |
|
|
Savings Association Insurance Fund
(SAIF) |
(Dollars in Millions |
|
|
For the year ended December 31 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
Financial Results |
Revenue |
$ |
601 |
|
$ |
584 |
|
$ |
550 |
|
Operating Expenses |
|
93 |
|
|
85 |
|
|
72 |
|
Insurance Losses and Expenses |
|
31 |
|
|
32 |
|
|
(2) |
|
Net Income |
|
477 |
|
|
467 |
|
|
480 |
|
Comprehensive Income* |
|
441 |
|
|
472 |
|
|
480 |
|
Insurance Fund Balance |
$ |
10,281 |
|
$ |
9,840 |
|
$ |
9,368 |
|
Fund as a Percentage of Insured Deposits |
|
1.45% |
|
|
1.39% |
|
|
1.36% |
|
|
Selected Statistics |
Total SAIF-Member Institutions ** |
|
1,388 |
|
|
1,430 |
|
|
1,519 |
|
Problem Institutions |
|
13 |
|
|
16 |
|
|
19 |
|
Total Assets of Problem Institutions |
$ |
6,000 |
|
$ |
6,000 |
|
$ |
2,000 |
|
Institution Failures |
|
1 |
|
|
0 |
|
|
0 |
|
Total Assets of Current Year Failed Institutions |
$ |
63 |
|
$ |
0 |
|
$ |
0 |
|
Number of Active Failed Institution Receiverships |
|
3 |
|
|
2 |
|
|
2 |
|
|
* Comprehensive Income is added to conform with SFAS No. 130,
"Comprehensive Income." |
+ Commercial banks and savings institutions. Does not include 20
U.S. branches of foreign banks. |
** Savings institutions and commercial banks. |
The FRF consists of two distinct pools of assets
and liabilities. One pool, composed of the assets and liabilities of the FSLIC,
transferred to the FRF when the FSLIC was dissolved on August 9, 1989 (FRF-FSLIC). The
other pool, composed of the assets and liabilities of the Resolution Trust Corporation
(RTC), transferred to the FRF on January 1, 1996 (FRF-RTC). The assets of one pool are not
available to satisfy obligations of the other. As of December 31, 1999, the FRF-FSLIC had
resolution equity of $2.2 billion, and the FRF-RTC had resolution equity of $4.4 billion. Eight
institutions insured by the FDIC were closed during 1999. Seven of those institutions were
insured by the BIF and one was insured by the SAIF. These failed entities had combined
assets of approximately $1.5 billion. The First National Bank of Keystone, Keystone, WV,
accounted for $1.0 billion of the total assets.
For the eight failures in 1999, approximately $1.4 billion of deposits in 69,000
accounts were protected by FDIC insurance.
During 1999, the FDIC disposed of $1.6 billion in
retained assets, which resulted in a net reduction of the book value of assets in
liquidation from $2.4 billion at year-end 1998 to $2.0 billion at year-end 1999, a decline
of 17 percent. In addition to assets in liquidation, the FDIC was managing approximately
$5.2 billion in assets not in liquidation, a reduction of $1.5 billion during the year. A
total of 469 real estate properties were sold for a total of $66.8 million, and 16,976
loans and other assets were sold for a total of $204.2 million.
During the year, the FDIC terminated 363
receiverships. The FDIC was administering 448 receivership estates at the end of 1999.
|
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Emerging Trends
|
Despite
the apparently strong condition of the economy and the banking system in 1999, the FDIC
continued to monitor a number of emerging trends. The first trend, an area of concern,
is household and business debt levels. Spending by households and businesses is growing
faster than cash income, resulting in rapidly increasing indebtedness. Further, recent
growth in business indebtedness raises concerns about commercial credit quality. After
expanding at the fastest growth rate in more than a decade during 1998, the commercial and
industrial (C&I) loan portfolios at insured depository institutions continued to grow
rapidly in 1999. Evidence of weakening corporate credit quality began to appear during
1999, and the federal banking regulators have |
|
Chairman
Tanoue appeared on live network television to withdraw cash from an ATM, showing it was
business as usual for bank customers on January 1, 2000. |
|
|
publicly
expressed their concerns about the quantity and quality of commercial credit risk in the
system. Despite starting from very low levels, net C&I loan charge-offs for all
insured institutions totaled $3.6 billion during 1999 a 51 percent increase over
1998. Moreover, results from the annual interagency review of large commercial credits
the Shared National Credit (SNC) Program noted a sharp rise in criticized
loans, albeit from historical lows. At the same time, corporate bond defaults and negative
credit rating revisions during 1999 reached levels not seen since the early 1990s. These
signs of moderate deterioration in commercial credit quality have been experienced during
a particularly strong economic environment, leading to questions about how much further
credit quality might deteriorate in the event of a moderate to severe recession.
Second, intense competition in banking is
driving business strategies. Evidence also suggests that, to maintain loan growth and meet
funding needs, institutions are pursuing asset-liability structures with higher levels of
interest rate risk. Innovations and cost-cutting initiatives used by insured institutions
to counter competitive pressures may introduce new risks associated with complex
accounting valuations, weakening internal controls, and the need for more intensive loan
servicing.
|
Liquidation Highlights 1997-1999 |
Dollars in
billions |
|
|
1999 |
|
|
1998 |
|
|
1997 |
Total Failed Banks |
|
7 |
|
|
3 |
|
|
1 |
Assets of Failed Banks |
$ |
1.42 |
|
$ |
.37 |
|
$ |
.03 |
Total Failed Savings
Associations |
|
1 |
|
|
0 |
|
|
0 |
Assets of Failed
Savings Associations |
$ |
.06 |
|
$ |
0 |
|
$ |
0 |
Net Collections from
Assets in Liquidation* |
$ |
.98 |
|
$ |
3.55 |
|
$ |
3.57 |
Total Assets in
Liquidation* |
$ |
1.98 |
|
$ |
2.38 |
|
$ |
4.12 |
Net Collections from
Assets Not in Liquidation* |
$ |
.21 |
|
$ |
.38 |
|
$ |
.48 |
Total Assets Not in
Liquidation* |
$ |
5.20 |
|
$ |
6.71 |
|
$ |
8.17 |
|
* Also
includes assets from thrifts resolved by the FSLIC and the RTC.
Third, the economy
and the banking system are vulnerable to sudden shocks from financial market instability.
The 1990s were marked by recurring, and perhaps more frequent, episodes of financial
market turbulence. At the request of the Department of the Treasury, FDIC Chairman Tanoue
represents the United States on the Financial Stability Forums Study Group on
Deposit Insurance. The Financial Stability Forum was established by the Bank for
International Settlements to examine issues relating to global financial stability. |
Chairman Tanoue (center) joins other members of the
Financial Stability Forum's Study Group on Deposit Insurance at their first meeting in
Ottawa, Canada, in December 1999. |
|
|
Fourth,
for most of the 1990s, banking industry asset growth has outstripped growth in deposits,
creating greater reliance on more expensive and less stable market-based sources of
funding. Each quarter, the FDIC publishes a Regional Outlook that provides
analysis and discussion of national and regional trends that may affect the risk exposure
of insured depository institutions. The third quarter 1999 edition of the Regional
Outlook included a special analysis of these funding trends and the challenges they
pose for community institutions. Fifth,
and finally, after the announcement of several mergers between several of the largest U.S.
banks, the FDIC created an internal task force in July 1998 to identify and to address
issues that might arise in resolving the failure of one of the largest banks. |
|
Year 2000
During 1999, the FDIC took an aggressive approach to supervising federally
insured financial institutions to assure readiness for the Year 2000 (Y2K) date conversion
and, as important, engaged in an extensive program of Y2K public education and outreach.
Throughout the year, the FDICs Division of Supervision (DOS) examiners, with
assistance from state bank regulators, performed comprehensive on-site Y2K readiness
assessments of FDIC-supervised financial institutions and their service providers, as well
as software vendors that the FDIC is responsible for examining. Year 2000 readiness
efforts were assessed "satisfactory," "needs improvement," or
"unsatisfactory." All service providers and software vendors examined by the
FDIC were assessed "satisfactory" by the end of the third quarter. And on
December 13, 1999, FDIC Chairman Donna Tanoue announced to the public that every
FDIC-insured financial institution in the nation had achieved a satisfactory assessment.
The industry was prepared for the Year 2000 rollover.
The FDIC along with the other federal and
state regulatory agencies set up supervisory programs to monitor the transition of
financial institutions, service providers and software vendors into the Year 2000 during
the key period of October 1, 1999, through the century date change. Each financial
institution, service provider and software vendor was contacted at least once from October
1 through December 31, 1999; again from January 1-3, 2000; and again from January 4-5,
2000.
To assure public confidence, FDIC senior officials participated in hundreds of
Y2K outreach events, and were interviewed by The Wall Street Journal, The Washington
Post, USA Today and other news venues. During the year, the Y2K issue of FDIC
Consumer News was one of the most popular publications offered by the Consumer
Information Center, which distributed more than 500,000 copies to the public. Throughout
the fall, Chairman Tanoue traveled the country holding press conferences in major cities
and personally appearing on network television news programs. On September 11, 1999,
syndicated columnist Ann Landers published a Year 2000 letter from Chairman Tanoue and
included the FDIC toll-free Y2K information number. Approximately 1,200 newspapers carried
the column. In mid-November, Gallup reported that nine out of ten U.S. bank customers
believed their banks were ready for the Year 2000.
Throughout the day on January 1, Chairman Tanoue
appeared on NBC and CNN, withdrawing money from an automated teller machine, illustrating
that it was business as usual for banking and it was. Banks reported no significant
Y2K problems. Public confidence held. |
|
|
Compliance, Enforcement and Other
Related Legal Actions 1997-1999 |
|
|
1999 |
1998 |
1997 |
|
Total Number of Actions Initiated by the FDIC |
111 |
143 |
127 |
|
Termination of Insurance |
Involuntary Termination |
|
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition |
0 |
0 |
0 |
|
Voluntary Termination |
|
Sec.8a By Order Upon Request |
0 |
0 |
0 |
|
|
Sec.8p No Deposits |
3 |
5 |
6 |
|
|
Sec.8q Deposits Assumed |
9 |
4 |
7 |
|
Sec. 8b Cease-and-Desist Actions |
|
Notices of Charges Issued |
5 |
2 |
3 |
|
|
Consent Orders |
19 |
21 |
15 |
|
Sec. 8e Removal/Prohibition of Director or Officer |
|
Notices of Intention to Remove/Prohibit |
4 |
2 |
11 |
|
|
Consent Orders |
22 |
15 |
33 |
|
Sec. 8g Suspension/Removal When Charged With
Crime |
3 |
0 |
1 |
|
Civil Money Penalties Issued |
|
Sec.7a Call Report Penalties |
15 |
41 |
24 |
|
|
Sec.8i Civil Money Penalties |
20 |
35 |
10 |
|
Sec. 10c Orders of Investigation |
4 |
6 |
6 |
|
Sec. 19 Denials of Service After Criminal Conviction |
3 |
3 |
1 |
|
Sec. 32 Notices Disapproving Officer or
Director |
1 |
0 |
0 |
|
Truth in Lending Act Reimbursement Actions |
|
Denials of Requests for Relief |
1 |
1 |
3 |
|
|
Grants of Relief |
0 |
0 |
0 |
|
|
Banks Making Reimbursement l |
134 |
161 |
139 |
|
Suspicious Activity Reports
(Both Open and Closed Institutions)l |
22,015 |
20,229 |
20,385 |
|
Other Actions Not Listed |
2 |
8 |
7 |
|
|
l These
actions do not constitute the initiation of a formal enforcement action and, therefore,
are not included in the total number of actions initiated.
|
FDIC Applications 1997-1999 |
|
|
1999 |
1998 |
1997 |
|
Deposit Insurance |
295 |
296 |
238 |
|
|
Approved |
295 |
296 |
238 |
|
|
Denied |
0 |
0 |
0 |
|
New Branches |
1,346 |
1,450 |
1,436 |
|
|
Approved |
1,346 |
1,450 |
1,435 |
|
|
Denied |
0 |
0 |
1 |
|
Mergers |
341 |
390 |
419 |
|
|
Approved |
341 |
390 |
419 |
|
|
Denied |
0 |
0 |
0 |
|
Requests for Consent to Serve l |
210 |
304 |
261 |
|
|
Approved |
207 |
289 |
258 |
|
|
|
Section 19 |
42 |
145 |
76 |
|
|
|
Section 32 |
165 |
154 |
182 |
|
|
Denied |
3 |
5 |
3 |
|
|
|
Section
19 |
1 |
3 |
2 |
|
|
|
Section
32 |
2 |
2 |
1 |
|
Notices of Change in Control |
31 |
34 |
28 |
|
|
Letters of Intent Not to Disapprove |
31 |
34 |
28 |
|
|
Disapproved |
0 |
0 |
0 |
|
Brokered Deposit Waivers |
16 |
10 |
17 |
|
|
Approved |
16 |
9 |
17 |
|
|
Denied |
0 |
1 |
0 |
|
Savings Association Activities n |
83 |
0 |
2 |
|
|
Approved |
83 |
0 |
2 |
|
|
Denied |
0 |
0 |
0 |
|
State Bank Activities/Investments * |
24 |
23 |
46 |
|
|
Approved |
24 |
23 |
46 |
|
|
Denied |
0 |
0 |
0 |
|
Conversions of Mutual Institutions |
16 |
30 |
15 |
|
|
Non-Objection |
15 |
30 |
15 |
|
|
Objection |
1 |
0 |
0 |
|
l Under Section 19 of the Federal Deposit Insurance Act, an
insured institution must receive FDIC approval before employing a person convicted of
dishonesty or breach of trust. Under Section 32, the FDIC must approve any change of
directors or senior executive officers at a state nonmember bank that is not in compliance
with capital requirements or is otherwise in troubled condition.
n
Amendments to Part 303 of FDIC Rules and Regulations changed FDIC oversight responsibility
in October 1998.
* Section 24 of the FDI Act, in general,
precludes an insured state bank from engaging in an activity not permissible for a
national bank and requires notices to be filed with the FDIC.
|
FDIC Examinations 1997-1999 |
|
|
1999 |
1998 |
1997 |
|
Safety and Soundness: |
State Nonmember Banks |
2,289 |
2,170 |
2,515 |
|
Savings Banks |
241 |
221 |
224 |
|
National Banks |
3 |
1 |
6 |
|
State Member Banks |
7 |
6 |
0 |
|
Savings Associations |
0 |
1 |
4 |
|
Subtotal |
2,540 |
2,399 |
2,749 |
|
|
Compliance/CRA |
2,368 |
1,989 |
1,990 |
|
Trust
Departments |
452 |
542 |
552 |
|
Data
Processing Facilities |
1,446 |
1,335 |
1,514 |
|
|
Total |
6,806 |
6,265 |
6,805 |
|
|
The Gramm-Leach-Billey Act |
In 1999, Congress passed financial modernization legislation directly affecting depository
institutions and the FDIC, and appropriations legislation for the FSLIC Resolution Fund
and the Office of Inspector General (OIG). The Gramm-Leach-Bliley Act is financial
modernization legislation signed by President Clinton on November 12, 1999. The Act
(Public Law 106-102) repeals Sections 20 and 32 of the Banking Act of 1933 (Glass-Steagall
Act) and amends the Bank Holding Company Act of 1956 to allow affiliations between insured
depository institutions and any "financial" company, including securities and
insurance firms, in new types of bank holding companies known as financial holding
companies. The Gramm-Leach-Bliley Act also allows certain financial activities permitted
by financial holding companies to be carried out through bank subsidiaries, subject to
safeguards and restrictions.
The new law also protects the deposit insurance funds and the federal banking agencies
from certain claims brought in bankruptcy for return of capital infusions made to a
failing depository institution at the direction of a federal banking agency. The FDIC and
the other federal banking agencies are also required to write regulations on privacy, fair
credit reporting, insurance products offered by banks, and disclosure of agreements
related to the Community Reinvestment Act (CRA); establish a consumer complaints mechanism
for violations of rules related to insurance; and establish recordkeeping requirements
related to certain securities activities conducted by banks. In addition, the FDIC is
required to implement and enforce other new legal provisions, including those related to
privacy and pretext calling (obtaining customer information under false pretenses).
|
|