Challenges and Recent Experiences of the Deposit Insurance Systems in the Latin American Region San - PowerPoint PPT Presentation

Loading...

PPT – Challenges and Recent Experiences of the Deposit Insurance Systems in the Latin American Region San PowerPoint presentation | free to view - id: 204fcc-ZDc1Z



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Challenges and Recent Experiences of the Deposit Insurance Systems in the Latin American Region San

Description:

... of the Deposit Insurance Systems in the Latin American Region ... of Bank Failures ... minimize the cost of resolving bank failures and limit ... – PowerPoint PPT presentation

Number of Views:26
Avg rating:3.0/5.0
Slides: 19
Provided by: Truong2
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Challenges and Recent Experiences of the Deposit Insurance Systems in the Latin American Region San


1
International Association of Deposit Insurers4th
Latin America Regional Committee Meeting
Challenges and Recent Experiences of the
Deposit Insurance Systems in the Latin American
RegionChallenges Faced by the FDIC as Deposit
Insurer
  • Galo CevallosSenior Internationl Advisor,
    International AffairsFederal Deposit Insurance
    Corporation

2
Challenges and Experiences
ProgramOutline
  • FDIC 75 Years of Challenges and Experience
  • Overview of US Banking and Regulatory Systems
  • Key Challenges to FDIC as Deposit Insurer
  • Reducing the cost of failed banks
  • Improving the design of the deposit insurance
    system
  • Insuring effective interagency coordination

3
FDIC Challenges and ExperienceOverview of
Banking and Regulatory System
Overview of U.S. Banking System
  • 8,861 insured institutions US 11.8 Trillion in
    assets US 4.2 Trillion in insured deposits
    Median bank size US 140 million largest bank
    US 1.2 Trillion in assets

Large, diverse and complex
Well Regulated
  • Four Federal and 50 State supervisors

Financially Sound
  • ROA 1.21 ROE 11.58 NIM 3.20 Equity/TA
    10.52
  • Data as of December 31, 2006

Key Functions of the FDIC
  • Deposit insurance reform revised risk-related
    premium system US 50.1 billion in deposit
    insurance fund

Deposit Insurance
  • Primary federal supervisor for 5,220 banks
    examined every 12 18 months 7,400 risk
    management and specialty exams conducted in 2006

Bank Supervision
  • February 2007 - First bank failure in almost
    three years claims modernization project large
    bank failure contingency planning

Resolutions and Receiverships
4
FDIC Challenges and ExperienceReducing the Cost
of Bank Failures
5
FDIC Challenges and ExperienceReducing the Cost
of Bank Failures
Addressing Moral Hazard and Regulatory Forbearance
Prompt Corrective Action (PCA) is intended to
minimize the cost of resolving bank failures and
limit regulatory forbearance by requiring more
timely closure of failing institutions and
earlier intervention in problem banks.
The Least-Cost approach compels the FDIC to use
the least costly method to the deposit insurance
fund when resolving a failing institution. Prior
to 1991, the FDIC was not required to determine
the least costly resolution and could pursue any
resolution alternative, as long as it cost less
than liquidating the institution.
6
FDIC Challenges and ExperienceReducing the Cost
of Bank Failures
Practices that Minimize Losses
Prompt Corrective Action (PCA) PCA requires
supervisory intervention at an early stage as
indicated by a banks capital position.
Supervisory actions escalate in proportion to the
banks capital level. Some of these actions are
mandatory, while others are discretionary. A
key point is that supervisors are required to
intervene while the bank has positive regulatory
capital and is believed to have positive
economic capital, which lessens the cost to the
insurer.
7
FDIC Challenges and ExperienceReducing the Cost
of Bank Failures
Minimizing Cost of Bank Failures
The Least-Cost Requirement
The least cost test requires the FDIC to perform
cost-benefit analyses on all possible resolution
alternatives, based on the best available
information at the time, when deciding how to
resolve a failed financial institution.
  • Resolution method chosen must represent the least
    cost to the FDIC of all possible alternatives.
  • FDIC must document its selection, which will be
    evaluated by the inspector general.
  • An exception to the least-cost requirement may be
    made for systemically important banks.

8
FDIC Challenges and ExperienceDesign
Improvements
A Commitment to Continuous Redesign A sign of
an effective deposit insurance system is that it
is continuously changing to account for its
experiences and to keep up with a changing
environment.
The Federal Deposit Insurance CorporationReform
Act (February 2007)
  • Principal Reform Features Included
  • Improved management of the fund
  • Improved risk pricing
  • Preserving the value of deposit insurance
    protection

9
FDIC Challenges and Experience Design
Improvements
  • Problem One Law restricts the FDIC from charging
    premiums to most banks that are well capitalized
    and highly rated by bank supervisors as long as
    the Deposit Insurance Funds Designated Reserve
    Ratio is above 1.25 percent of insured deposits.
  • 95 percent of banks do not pay for deposit
    insurance (9/30/2007)
  • 1,100 newly established banks never made
    contributions to the deposit insurance fund
    (2005)

Improved Fund Managment
Twin Problems with Funding Design
Problem Two Law requires the FDIC to assess
premiums across-the-board at a rate of at least
23 basis points when the Designated Reserve Ratio
falls below 1.25 percent likely resulting in the
industry paying high premiums when both banks and
the economy can least afford it.
10
FDIC Challenges and Experience Design
Improvements
Improved Fund Managment
Insured Deposit Growth Outpaced Fund Growth
11
FDIC Challenges and Experience Design
Improvements
Improved Fund Managment
Fund Ratio Declined Steadily
12
FDIC Challenges and Experience Design
Improvements
Improved Fund Managment
Twin Problems with Funding Design
Simple Yet Elegant Solution Congress gave the
FDICs Board of Directors the authority to set
the Designated Reserve Ratio between 1.15 and
1.50 percent. The FDIC is authorized to charge
all institutions a risk-based premium regardless
of the level of the designated reserve ratio.
13
FDIC Challenges and Experience Design
Improvements
Rates paid by banks once fund was restored
Rates paid by all banks while fund was being
revitalized
Rates paid today by all institutions
14
FDIC Challenges and Experience Design
Improvements
The Final Rule All banks pay premiums. To
further refine banks in Group I, performance
metrics and CAMELS component ratings will be
considered. Consolidates nine risk categories
into four categories to better align them with
their respective historical failure and loss
experience. Capital ratios and supervisory
ratings continue to drive the risk matrix. FDIC
Board of Directors may adjust rates /-3 basis
points with relative ease. Market risk
indicators considered when determining rate paid
by large banks.
Improved Risk Pricing
All Banks Should Pay Something
15
FDIC Challenges and Experience Design
Improvements
Retirement accounts are now protected to
250,000. Coverage for all other accounts may be
indexed to inflation to preserve the value of
protection.
16
FDIC Challenges and Experience Ensuring
Effective Coordination
Interagency Cooperation, Coordination,
Communication
17
FDIC Experience and Practical Considerations
Interagency Cooperation, Coordination,
Communication
18
Promoting Uniform Standards The Important Role
ofThe Federal Financial Institutions Examination
Council
  • The Federal Financial Institutions Examination
    Council (FFIEC) comprises Federal and State
    banking agencies, and credit union regulators.
    It promotes uniform principles, standards, and
    reporting
  • The Financial Institution Rating System
    (CAMELS)
  • Definitions for classifying assets
  • Financial reports (Call Reports)
  • Examiner training
About PowerShow.com