2.1: Risk Management
FDIC-supervised institutions appropriately manage risk. Other Information:
Means & Strategies: The FDIC performs safety and soundness, trust, Bank Secrecy Act (BSA), and information system examinations
of FDICsupervised institutions. The majority of the states participate with the FDIC in an examination program under which
certain examinations are performed on an alternating basis by the states and the FDIC. The examinations are conducted to assess
an institution’s overall financial condition, management practices and policies, and compliance with applicable laws and regulations.
Through the examination process, the FDIC also assesses the adequacy of management and internal control systems to identify,
measure and control risks. Procedures normally performed in completing examinations may disclose the presence of fraud or
insider abuse. The FDIC regularly reviews examination methodologies and adjusts them as necessary to remain effective. If
the examination process reveals weaknesses in an FDIC-supervised institution’s operations or conditions, the FDIC takes appropriate
action. Informal or formal enforcement actions may be issued for FDICsupervised institutions that have significant weaknesses
or that are operating in a deteriorated financial condition. The actions remain in effect until corrective actions are taken
and the identified weaknesses are cured. If the problems remain unresolved, the FDIC may take further steps to encourage or
compel institutions to comply. If these efforts are unsuccessful or if other weaknesses are evident, the institution would
be instructed to seek additional capital or merger. If problems remain unresolved, the chartering authority might close the
institution, and the FDIC would oversee the resolution of the institution. Informal enforcement actions require the institution’s
acknowledgement and commitment to correct the problem. Informal actions include board resolutions or memoranda of understanding.
Formal enforcement actions are taken when an informal action is ineffective or inappropriate. Formal enforcement actions include
written agreements, cease and desist orders, the suspension or removal of officers and directors, and civil money penalties.
Communication is an important component of the FDIC’s safety and soundness program. Risks identified during an examination
are discussed with the institution’s management and its board of directors. In addition to examinations, the FDIC provides
information on a variety of issues through the publication of financial institution letters and financial institution outreach
programs. The FDIC’s Risk Analysis Center (RAC), established in March 2003 to coordinate corporate-wide risk-related activities,
also offers examiners and other FDIC personnel valuable information about potential risks that could affect the institutions
they supervise. The FDIC invites outside speakers into the RAC, including university representatives and law enforcement.
The FDIC also evaluates an FDIC-supervised institution’s ability to manage risk when reviewing applications or notices for
new or expanded activities. In order for the FDIC to expedite the review of an institution's application or notice, it must
be well-capitalized, possess a qualified management team, be capable of operating in a safe and sound manner, be compliant
with applicable laws and regulations, and represent no undue risk to the deposit insurance funds. External Factors: The development
and implementation of effective riskmanagement policies and practices are the responsibility of individual financial institutions.
As institutions enter new lines of business and activities, implement new technologies, or face changing economic conditions,
risk-management policies and oversight become increasingly important. Although the FDIC prepares its examination staff to
recognize indicators of fraudulent activity, fraud is often difficult to detect, and losses may occur before the fraudulent
activity is detected. Under the alternate examination program, certain examinations are conducted in alternate periods by
the appropriate state supervisory authority. Constraints outside of the FDIC’s control may affect the completion of examinations
by state authorities. However, the FDIC will conduct the examination within a reasonable time frame from the originally scheduled
examination date if the state is unable to do so.
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