FFIEC Annual Report

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					Federal Financial Institutions Examination Council




   ANNUAL
   REPORT
  2000
Cover Photos:
Left to right, line one: Federal Financial Institutions Examination Council, Board of Governors of the Federal
Reserve System, Federal Deposit Insurance Corporation
Line two: National Credit Union Administration, Office of Comptroller of the Currency
Line three; Office of Thrift Supervision
Federal Financial Institutions Examination Council, Washington, DC




               A N N U A L R E P O R T 2000





  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
                                        MEMBERS OF THE COUNCIL





                        Laurence H. Meyer, Chairman                     Donna Tanoue, Vice Chairman

                        Member                                          Chairman

                        Board of Governors of the                       Federal Deposit Insurance Corporation

                          Federal Reserve System





John D. Hawke, Jr.                             Ellen Seidman                                    Norman E. D’Amours
Comptroller of the Currency                    Director                                         Chairman
Office of the Comptroller of the Currency      Office of Thrift Supervision                     National Credit Union Administration
                                 LETTER OF TRANSMITTAL





Federal Financial Institutions
  Examination Council
Washington, DC
March 23, 2001




The President of the Senate

The Speaker of the House of Representatives


Pursuant to the provisions of section 1006(f) of the Financial Institutions Regulatory

and Interest Rate Control Act of 1978 (12 USC 3305), I am pleased to submit the

2000 Annual Report of the Federal Financial Institutions Examination Council.




Sincerely,



Laurence H. Meyer, 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 and
    Their Supervised Institutions
27	 Assets, Liabilities, and Net Worth of U.S. Commercial Banks and
    Thrift Institutions as of June 30, 2000
28	 Income and Expenses of U.S. Commercial Banks and Thrift
    Institutions for the Twelve Months Ending June 30, 2000
29    Appendix A: Relevant Statutes
33    Appendix B: 2000 Audit Report
39    Appendix C: Maps of Agency Regions and Districts




                                                                      v
                     MESSAGE FROM THE CHAIRMAN





                          I am pleased to report on the activi­    allowed under the legislation is car­
                          ties of the Federal Financial Institu­   ried out effectively and efficiently.
                          tions Examination Council (FFIEC)
                                                                   In addition, the Council and its
                          (the Council) during the year 2000—
                          a particularly busy and productive       interagency staff task forces and
                          year for the Council and its member      working groups undertook other
                                                                   important initiatives. The work
                          agencies. One of the most notable
                                                                   of the Supervision Task Force
                          achievements was the significant
                                                                   included revising the interagency
                          role the Council and the agencies
                                                                   retail credit classification policy,
                          played in the financial industry’s
                                                                   initiating discussion of a possible
                          successful transition into the new
                                                                   simplified capital framework for
                          century without serious disruption
                                                                   noncomplex banks, and issuing pro-
                          in the financial services provided to
                          the industry and the public. The po­     posed interagency capital rules on
Laurence H. Meyer	                                                 recourse obligations and direct
                          tential problems associated with the
                                                                   credit substitutes, and retained
                          year 2000 changeover presented
                                                                   interests. Proposed guidance on
                          unique challenges
                                                                   methodologies and documentation
                          to the Council and its member agen­
                                                                   requirements pertaining to the
                          cies, as well as to the banking and
                                                                   allowance for loan and lease losses
                          financial industries. The successful
                                                                   was also issued for comment. The
                          outcome demonstrated that the
                                                                   Supervision Task Force also contin­
                          U.S. banking industry and the agen­
                                                                   ued its important work on asset
                          cies that supervise it were well pre-
                          pared for the event. Before turning      securitization.
                          its attention back to more conven­       The Reports Task Force completed
                          tional matters, the Council took         significant revisions to the Call
                          advantage of the experience gained       Report to make the content more
                          during the more than two-year            relevant to today’s evolving finan­
                          process and issued “Year 2000 Les­       cial services environment. These
                          sons Learned” in March. This docu­       extensive changes included elimi­
                          ment presented valuable guidelines       nating items that are no longer rel­
                          that banking organizations can           evant for safety-and-soundness
                          apply to future project-management       purposes and adding line items
                          processes and technology risk-           designed to capture the financial
                          management efforts.                      characteristics of modern banking
                                                                   organizations, as well as restructur­
                          During 2000, the Council’s key role
                                                                   ing the report itself to be more
                          in fostering communication, coordi­
                                                                   uniform.
                          nation, and cooperation among the
                          member agencies was highlighted          The Information Sharing Task Force
                          in the efforts to implement the          continued to make excellent pro­
                          Gramm-Leach-Bliley Financial             gress in improving the efficiency of
                          Modernization Act of 1999—the            interagency data communication.
                          most sweeping legislation affecting      High-speed communication lines
                          banks and other financial institu­       linking the Office of the Comptroller
                          tions since the Depression. The          of the Currency (OCC), the Board of
                          Council continues to play a vital        Governors of the Federal Reserve
                          role in ensuring that the rules and      System (FRB), and the Federal De-
                          regulations implementing this            posit Insurance Corporation (FDIC)
                          legislation are as uniform as pos­       were installed in 1999 to
                          sible, and that supervision of the       allow the electronic transfer of large
                          new types of financial institutions      data files and to phase out use of

                                                                                                     vii
magnetic tapes or disks for this pur­    to our nation’s financial system
pose. Early in 2000, a weekly transfer   through their industrious and in­
of structure, financial, and supervi­    novative work on a diverse super­
sory data files was under way            visory agenda.
between the Federal Reserve and
the FDIC via these new communica­        It has been my pleasure to have
                                         served as Chairman of the Council
tion links. By midyear, the automated
                                         over the past two years. I feel con­
transfer of data files between the
                                         fident the Council will continue its
FDIC and the OCC was established.
                                         fine record of interagency coop­
At year-end, Uniform Bank Perfor­
                                         eration and accomplishment that
mance Report data were being trans­
                                         is so vital to the promotion of
mitted between the OCC and FDIC
                                         safety and soundness in our
via the high-speed lines. The staffs
of the agencies showed their continu­    nation’s financial system.
ing dedication and commitment




viii
THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL





The Federal Financial Institutions       intent of the legislation was that the   transactions; (2) monitoring the
Examination Council (FFIEC) (the         Council promote consistency in fed­      appraisal standards established by
Council) was established on March        eral examinations and progressive        the federal financial institutions
10, 1979, pursuant to title X of the     and vigilant supervision. Under          regulatory agencies and the former
Financial Institutions Regulatory        the Financial Institutions Reform,       Resolution Trust Corporation; (3)
and Interest Rate Control Act of         Recovery, and Enforcement Act of         maintaining a national registry of
1978 (FIRA), Public Law 95-630. The      l989 (FIRREA), the Council was also      appraisers who are certified and
purpose of title X, entitled the Fed­    authorized to develop and adminis­       licensed by a state and who are also
eral Financial Institutions Examina­     ter training seminars in risk man­       eligible to perform appraisals in fed­
tion Council Act of 1978, was to cre­    agement for the employees of the         erally related transactions; and (4)
ate a formal interagency body            agencies represented on the Council      monitoring the practices, proce­
empowered to prescribe uniform           and the employees of insured finan­      dures, activities, and organizational
principles, standards, and report        cial institutions.                       structure of the Appraisal Founda­
forms for the federal examination of                                              tion, a nonprofit educational corpo­
financial institutions by the Board of   The Council was given additional
                                                                                  ration established by the appraisal
Governors of the Federal Reserve         statutory responsibilities by section
                                                                                  industry in the United States.
System (FRB), the Federal Deposit        340 of the Housing and Community
Insurance Corporation (FDIC), the        Development Act of 1980, Public          The Council has five members: the
National Credit Union Administra­        Law 96-399. Among these responsi­        Comptroller of the Currency, the
tion (NCUA), the Office of the           bilities are the implementation of a     Chairman of the Federal Deposit
Comptroller of the Currency (OCC),       system to facilitate public access to    Insurance Corporation, a member
and the Office of Thrift Supervision     data that depository institutions        of the Board of Governors of the
(OTS) and to make recommenda­            must disclose under the Home             Federal Reserve System appointed
tions to promote uniformity in the       Mortgage Disclosure Act of 1975          by the Chairman of the Board, the
supervision of financial institutions.   (HMDA) and the aggregation of            Chairman of the Board of the
The Council is also responsible for      annual HMDA data, by census tract,       National Credit Union Administra­
developing uniform reporting sys­        for each metropolitan statistical area   tion, and the Director of the Office
tems for federally supervised finan­     (MSA).                                   of Thrift Supervision. In addition,
cial institutions, their holding com­    In 1989, title XI of FIRREA estab­       to encourage the application of uni­
panies, and the nonfinancial                                                      form examination principles and
                                         lished the Appraisal Subcommittee
institution subsidiaries of those                                                 standards by the state and federal
                                         within the Council. The functions of
institutions and holding companies.                                               supervisory authorities, the Council
                                         the subcommittee are (l) monitoring
It conducts schools for examiners                                                 has established, in accordance with
                                         the requirements, including a code
employed by the five agencies rep­                                                the requirement of the statute, an
                                         of professional responsibility, estab­
resented on the Council and makes                                                 advisory State Liaison Committee
                                         lished by states for the certification
those schools available to employees                                              composed of five representatives of
                                         and licensing of individuals who are
of state agencies that supervise         qualified to perform appraisals in       state supervisory agencies.
financial institutions. The overall      connection with federally related




                                                                                                                      1

                       RECORD OF ACTIONS OF THE COUNCIL




The following section is a chrono­
logical record of the official actions
taken by the Federal Financial Insti­
tutions Examination Council during
2000 pursuant to sections 1006, 1007,
and 1009A of the Federal Financial
Institutions Examination Council
Act of 1978, Public Law 95-630; sec­
tion 304 of the Home Mortgage Dis­
closure Act (HMDA), Public Law
94-200; and the Riegle Community
Development and Regulatory
Improvement Act of 1994
(RCDRIA), Public Law 103-325.


January 1
Action. Issued a joint interagency
press release following the century
date change.
Explanation. The five member agen­
cies of the Federal Financial Institu­
tions Examination Council issued
                                         The Examination Council in Session.
the joint press release to assure the
public and others that financial
institutions continued normal            agement or senior staff of the five   chairs be selected by the task forces
operations following the century         member agencies.                      and approved by the Council.
date change.                                                                   Explanation. To allow interagency
                                         March 13                              task forces greater responsibility in
                                                                               selecting their chairs for a one-year
January 12                               Action. Unanimously approved the      term, and to streamline the existing
Action. Unanimously approved the         appointment of Mr. Thomas             practice, the Council authorized the
issuance of special Y2K awards to        Watson, Office of the Comptroller     new nomination process.
staff of the member agencies.            of the Currency, to a two-year term
                                         as chairman of the
Explanation. The Council determined      Appraisal Subcommittee.               March 13
that appropriate recognition should
be made to the individuals involved      Explanation. The Council is           Action. Unanimously approved pro-

in the extraordinary interagency ef­     directed by title XI of FIRREA to     posed revisions to improve the rel­

forts to safeguard the nation’s finan­   select a chairperson from among se-   evance of the Bank Call Report in

cial system leading up to the Y2K        nior staff of the five member agen-   March 2001.

event.                                   cies and the Department of Hous-
                                         ing and
                              Explanation. To improve overall

                                         Urban Development (HUD) to            financial institution reporting, the

                                         serve a two-year term as chair of     Council gave approval to the Task

March 13                                                                       Force on Reports to move forward

                                         the Appraisal Subcommittee.
Action. Unanimously approved the                                               on its proposals and recommenda­
appointment of six task force chairs.                                          tions, and authorized the task force
                                         March 13                              to prepare the Federal Register no­
Explanation. The chairs for all six                                            tice soliciting comment from the
standing task forces are approved        Action. Unanimously approved that     banking industry and the public on
annually and are drawn from man-         all future interagency task force     the 10 percent reduction in the

                                                                                                                   3

number of existing reportable data
elements collected in the quarterly
Bank Call Reports.


March 13
Action. The Council unanimously
approved the appointments of New
Jersey Bank Commissioner Nicholas
J. Ketcha Jr., and Georgia Bank
Commissioner Stephen D. Bridges
to the Council’s State Liaison
Committee.
Explanation. The State Liaison Com­
mittee was established by FIRREA
to ensure the participation of state
financial institution regulators as
advisors to the Council on matters
of mutual concern. Each of the five
members of the Committee serves
two-year terms. Two are appointed
by the Council, and the remaining
three members are appointed by the
Conference of State Bank Supervi­
sors, the National Association of        Chairman Meyer.
State Credit Union Supervisors, and
the American Council of State Sav­       report covering its activities during   June 12
ings Supervisors.                        the preceding year.
                                                                                 Action. Unanimously approved the
                                                                                 issuance of a press release on retail
March 21                                                                         credit classifications.
                                         March 27
                                                                                 Explanation. The Council announced
Action. Approved the issuance of a       Action. Unanimously approved the        that federal bank and thrift regula­
joint interagency press release to       issuance of the annual interagency      tors had issued a revised policy to
discuss lessons learned from the         awards.                                 guide institutions in the classifica­
century date change.
                                         Explanation. The Council has an         tion and write-off of delinquent
Explanation. The Council announced       established interagency awards          retail loans and lines of credit.
that bank, thrift, and credit union      program that recognizes individual
regulators issued a document dis­        staff members of the member agen­
cussing lessons learned from the         cies who have provided outstand­        September 7
preparation for the year 2000 date       ing service to the Council on inter-    Action. Unanimously approved the
change, and urged financial institu­     agency projects and programs            press release announcing a pro-
tions to incorporate the knowledge       during the previous year.               posed policy statement for loan and
gained from the experience into                                                  lease losses.
future project and technology risk
management.                              June 7                                  Explanation. The Council issued a
                                                                                 request for comments from financial
                                         Action. Unanimously approved the        institutions and the public on a pro-
                                         annual external audit report.           posed interagency policy statement
March 24
                                         Explanation. The Council is audited     on allowance for loan and lease
Action. Unanimously approved the                                                 losses methodologies and documen­
                                         by an outside accounting firm
1999 annual report of the Council to                                             tation for banks and savings
                                         annually. The audit report includes
the Congress.                                                                    institutions.
                                         a review of the Council’s financial
Explanation. The legislation estab­      statements as well as a report on
lishing the Council requires that, not   internal controls and compliance        September 13
later than April 1 of each year, the     with government auditing
Council publish an annual                standards.                              Action. Unanimously approved the

4

elimination of certain interagency       Task Force on Reports                      of financial assets.
training courses.
                                         •	 October 13—Approved revisions         •	 November 3—Issued an inter-
Explanation. The Council approved           to the proposed securitization           agency advance notice of pro-
the recommendation of the Task              schedule in the Reports of Condi­        posed rulemaking on the possible
Force on Examiner Education to              tion and Income (Call Report).           development of a simplified capi­
eliminate three interagency exam­           The revisions are effective June         tal framework for noncomplex
iner training courses that, due to          30, 2001.                                banking organizations.
their obsolescence or continued
                                         •	 December 20—Approved pro-             •	 November 28—Issued guidance
irrelevance, no longer meet the
                                            posed revisions to the Report of         on financial institutions’ manage­
interagency training requirements
                                            Assets and Liabilities of U.S.           ment of risk arising from technol­
of the member agencies.
                                            Branches and Foreign Banks               ogy services supplied by outside
                                            (form FFIEC 002) that take effect        firms.
                                            June 30 and December 31, 2001,
November 7                                  and the publication of a Federal
Action. Unanimously approved the            Register notice requesting com­       Task Force on Surveillance
request to produce nonpublic Com­           ment on the proposal.                 Systems
munity Reinvestment Act (CRA)
                                                                                  •	 April 12—Authorized the place­
data for the U.S. Department of Jus­
                                                                                     ment of all nonconfidential Uni­
tice, Civil Rights Division.             Task Force on Supervision                   form Bank Performance Report
Explanation. The Department of Jus­      •	 January 18—Approved for issu­            (UBPR) data, including five years
tice, Civil Rights Division, requested      ance an advisory letter about the        of history, on the Council’s public
that the Board of Governors of the          practice at some financial institu­      Internet web site.
Federal Reserve System provide              tions of not reporting customer       •	 June 15—Established simplified
access to all 1999 nonpublic CRA            lines or high credit balances to         earnings and profitability analy­
data. The Civil Rights Division is          credit bureaus.                          sis of banks electing subchapter S
conducting inquiries into the fair
                                         •	 February 17—Issued a joint inter-        treatment for income taxes.
lending practices of a variety of
lending institutions for their compli­      agency proposal that amends the       •	 June 15—Revised the peer group
ance with the Equal Credit Opportu­         agencies’ risk-based capital stan­       analysis in the UBPR, resulting in
nity Act relating to their business         dards. The proposal addresses            statistics that represent the “bank
lending practices. The Board of Gov­        the regulatory capital treatment         in the middle” or median, as well
ernors prepares the CRA data for            of recourse obligations and direct       as data that is stable over time.
the Council.                                credit substitutes that expose
                                            banking organizations to credit
December 4                                  risk.
Action. Unanimously approved the         •	 June 12—Issued a revised uni­
Council’s 2001 budget.                      form retail-credit classification
Explanation. The Council conducts a         and account-management policy
formal review of the proposed inter-        clarifying provisions regarding
agency annual budget based on               the re-aging of open-end
funding requests from the Council’s         accounts and extensions, defer­
task forces and the Office of the           rals, renewals, and rewrites of
Executive Secretary.                        closed-end loans.
                                         •	 September 7—Approved the issu­
                                            ance of a proposed policy state­
Actions Taken by the Council’s              ment on allowance for loan and
Task Forces Under Delegated                 lease losses methodologies and
Authority                                   documentation practices.

Task Force on Consumer                   •	 September 27—Issued an inter-
                                            agency proposal to amend the
Compliance
                                            agencies’ respective risk-based
•	 April 26—Approved for                    and leverage capital standards
   interagency use examinations             for the treatment of certain
   procedures for the Homeowners            residual interests in asset
   Protection Act.                          securitization or other transfers

                                                                                                                      5

                          STATE LIAISON COMMITTEE REPORT





In section 1007 of Public Law 95-630,    financial institutions. The represen­    tion quality meets the agencies’ con­
the Congress authorized the estab­       tatives are appointed for two-year       sistency requirements, and improv­
lishment of the Stat1e Liaison Com­      terms. An SLC member may have            ing how the agencies collect and
mittee (SLC) “to encourage the           his or her two-year term extended        share information.
application of uniform examination       by the appointing organization for
                                                                                  The combined Call Report project
principles and standards by state        an additional, consecutive two-year
                                                                                  continues to benefit from the
and federal supervisory agencies.”       term. Each year, the SLC elects one
                                                                                  involvement of several states. An
The SLC carries out this responsibil­    of its members to serve as chair for
ity by assuming an active advisory       12 months. The Council selects two       extensive proposal to reduce regula­
role in all Council deliberations,       of the five members. The American        tory burden received detailed com­
                                                                                  ments from state supervisors of
especially when matters pertaining       Council of State Savings Supervi­
                                                                                  financial institutions. The CSBS
directly to joint state and federal      sors (ACSSS), the Conference of
                                                                                  actively supported this effort.
regulatory concerns or jurisdictional    State Bank Supervisors (CSBS), and
overlaps are at issue. The primary       the National Association of State        In October, the SLC attended the
objectives of the SLC are to foster      Credit Union Supervisors                 FFIEC’s Securitization Conference, a
communication and cooperation            (NASCUS) designate the other             one-day interagency seminar
between state and federal supervi­       three. A list of the SLC members ap­     intended to provide a forum for the
sory authorities and to reduce           pears on page __ of this report.         discussion of current practices in the
redundant supervisory procedures.                                                 securitization markets and banks’
                                                                                  roles in those markets. The active
The SLC believes that the Council
                                         Participation in Council                 participation of outside speakers,
can effectively coordinate activities
                                         Activities                               banking representatives, and the
among the federal agencies and
                                                                                  regulatory agencies resulted in a
between federal agencies and their       In 2000, the State Liaison Commit-       successful conference.
state counterparts to economize on       tee actively participated in several
the combined state and federal           key projects with a long-term effect     The SLC looks forward to the con­
resources devoted to the supervision     on the financial industry. The SLC       tinued cooperation of state and fed­
and regulation of financial institu­     continues to participate with the        eral regulators and is interested in
tions. The Council provides the          Supervision Task Force, as a non-        expanding state participation in
SLC with a staff position, which         voting member. As a result, com­         other areas of joint financial indus­
allows the SLC members to be fully       munications between state and fed­       try supervision.
informed of Council matters and to       eral supervisors on core policy
participate in all Council activities,   issues are greatly enhanced. Mem­
including task force assignments         bers also support continued efforts
and other projects.                      to automate examination reports.
                                         State supervisors also participate in
Organization                             the Task Force on Information Shar­
                                         ing. This task force is charged with
The SLC consists of five representa­     facilitating the sharing of electronic
tives of state agencies that supervise   information, ensuring that informa­




                                                                                                                      7

                          ADMINISTRATION OF THE COUNCIL





Regular meetings of the Council are       •	 scheduling Council meetings,          •	 managing the Council’s
held quarterly. Special meetings             preparing agendas for Council            examiner-education program
may be scheduled whenever matters            meetings, preparing minutes
                                                                                   Six interagency staff task forces and
of high priority must be considered          of Council meetings, and review­
                                                                                   the Legal Advisory Group (LAG)
without delay.                               ing all material for Council
                                                                                   provide most of the staff support in
                                             consideration
The Council’s activities are funded                                                the substantive areas of concern to
in several ways. Most of the              •	 monitoring the work of all inter-     the Council. The task forces and the
Council’s funds are derived from             agency staff groups involved in       LAG are responsible for the research
semiannual assessments on its five           the Council’s activities and help­    and other investigative work that
constituent agencies. The Council            ing staff groups set priorities and   agency staff members perform on
also receives reimbursement for the          define key issues                     behalf of the Council and for reports
services it provides to support                                                    and policy recommendations pre-
preparation of the quarterly Uni­         •	 undertaking special projects and      pared for Council consideration. In
form Bank Performance Report                 studies as requested by the           addition, the Council has estab­
(UBPR). It receives tuition fees             Council                               lished the Agency Liaison Group,
from nonagency attendees to cover         •	 working closely with members          an interagency group of senior offi­
some of the costs associated with            of the State Liaison Committee to     cials responsible for coordinating
its examiner-education program.              ensure adequate communication         the efforts of their respective agen­
                                             among the members, Council,           cies’ staff members in support of the
The Federal Reserve Board provides
                                             and interagency staff groups          Council. The Executive Secretary of
budget and accounting services to
                                                                                   the Council is an ex officio member
the Council, and the Federal
                                          •	 coordinating public information       of the six interagency staff task
Reserve’s Associate Director for
                                             activities, including preparation     forces as well as the Agency Liaison
Management serves as the Council’s
                                             and distribution of Council press     Group. The staff time and other
Controller. The Council is supported         releases                              resources expended on Council-
by a small, full-time administrative                                               related projects in 2000 were pro­
staff in its operations office, and its   •	 maintaining liaison with the          vided by the five agencies without
examiner-education program is                Congress and with federal             reimbursement and are not reflected
administered by Council staff                departments and agencies              in the Council budget. Without
at its examiner training facility in
                                          •	 preparing the Council’s annual        those contributions by the agencies
Arlington, Virginia. Each Council
                                             report to the Congress                and individual staff members, sig­
staff member is detailed from one
                                                                                   nificant progress on Council projects
of the five agencies represented          •	 coordinating the production and       during 2000 would have been
on the Council but is considered             distribution of the quarterly         impossible.
an employee of the Council. All              UBPR and related data
Council employees are in the Office
of the Executive Secretary. The           •	 coordinating the collection, pro­
major responsibilities of the Office of      duction, and distribution of
the Executive Secretary are the              Home Mortgage Disclosure Act
following:                                   data




                                                                                                                      9

Organization, December 31, 2000       Council Staff Officers                 Jim Dudine (FDIC)
                                                                             William Schneider (FRB)
Members of the Council                Keith J. Todd,                         Nancy Wentzler (OCC)
                                      Executive Secretary
Laurence H. Meyer, Chairman
                                      Joanne M. Giese,                       Reports Task Force
  Member
  Board of Governors of the Federal   SLC Coordinator and                    Robert F. Storch, Chairman (FDIC)

    Reserve System (FRB)                Assistant Executive Secretary        Patrick G. Berbakos (OTS)

Donna Tanoue, Vice Chairman                                                  Zane D. Blackburn (OCC)

 Chairman                                                                    Gerald A. Edwards, Jr. (FRB)

                                      Interagency Staff Groups               Polly Kennedy (NCUA)

 Federal Deposit Insurance
   Corporation (FDIC)
                                      Agency Liaison Group                   Supervision Task Force
Norman E. D'Amours
 Chairman                             Roger T. Cole (FRB)
                   Richard Spillenkothen,
 National Credit Union                David M. Marquis (NCUA)
                 Chairman (FRB)
   Administration (NCUA)              John C. Price (OTS)
                   Richard M. Riccobono (OTS)
                                      Emory W. Rushton (OCC)
                Emory W. Rushton (OCC)
John D. Hawke, Jr.                    Michael Zamorski (FDIC)
               Marcia Sarrazin (NCUA)
  Comptroller of the Currency                                                Michael Zamorski (FDIC)
  Office of the Comptroller of the    Legal Advisory Group
    Currency (OCC)                                                           Surveillance Systems Task Force
                                      J. Virgil Mattingly, Chairman (FRB)

Ellen M. Seidman
                                      Carolyn B. Buck (OTS)
                 Charles W. Collier, Chairman (FDIC)

  Director
                                      Robert M. Fenner (NCUA)
               Kevin M. Bertsch (FRB)

  Office of Thrift
                                      Douglas H. Jones (FDIC)
               Polly Kennedy (NCUA)

    Supervision (OTS)
                                      Julie L. Williams (OCC)
               William Shively (OTS)

                                                                             Robin S. Stefan (OCC)

State Liaison Committee               Consumer Compliance Task Force

G. Edward Leary, Chairman             Ralph Sharpe, Chairman (OCC)
          Members of the Appraisal
  Commissioner of Financial           Stephen M. Cross (FDIC)
               Subcommittee
    Institutions                      Glenn E. Loney, (FRB)

                                      Richard Riese (OTS)
                   Thomas E. Watson, Jr., Chairman
  Utah                                                                         (OCC)
                                      Tracy Bombarger (NCUA)

Steven D. Bridges                                                            Virginia Gibbs (FRB)
  Commissioner/Department of                                                 Mark W. Holman (HUD)
                                      Information Sharing Task Force
    Banking & Finance                                                        John C. Price (OTS)
  Georgia                             William Shively, Chairman (OTS)        Jesse G. Snyder (FDIC)
                                      Roger Blake (NCUA)                     Herbert S. Yolles (NCUA)
James E. Forney
  Superintendent of Credit Unions
  Iowa
Nicholas J. Ketcha, Jr.
  Director/Department of Banking
    and Insurance
  New Jersey
James L. Pledger
  Commissioner of Savings & Loan
    Department
  Texas


Examiner Education Task Force
William R. Casey, Chairman (OTS)

Simona L. Frank (FDIC)

Jennifer Kelly (OCC)

Marcia Sarrazin (NCUA)

Sidney M. Sussan (FRB)
               Appraisal Subcommittee meeting.

10

             ACTIVITIES OF THE INTERAGENCY STAFF GROUPS





Section 1006 of Public Law 95-630        Task Force on Consumer                       Procedures, Home Mortgage Disclo­
sets forth the functions of the Coun­    Compliance                                   sure Act, and Fair Lending.
cil. Briefly summarized, these func­
tions are the following:                 The Task Force on Consumer Com­
                                         pliance promotes policy coordina­
                                         tion and uniform enforcement of
                                                                                      Automation Subcommittee
• 	establish uniform principles, stan­
   dards, and report forms for the       consumer laws by the five agencies           The Automation Subcommittee pro­
   examination of financial institu­     represented on the Council. It con­          vides the task force with technical
   tions and make recommendations        sists of senior personnel with knowl­        support by undertaking projects
   for uniformity in other supervi­      edge of consumer compliance mat­             that require coordination with other
   sory matters                          ters. The task force identifies and          automation groups and by develop­
                                         studies problems concerning con­             ing applications for FFIEC benefit.
• 	develop uniform reporting sys­        sumer compliance and fosters uni­            In 2000, the subcommittee main­
   tems for federally supervised         formity in the policies and proce­           tained the FFIEC CRA ratings
   institutions, their holding compa­    dures used by member agencies.               database.
   nies, and subsidiaries of those       The task force is responsible for
   institutions and holding              those laws and regulations that pro­
   companies                             tect consumers who conduct busi­             Community Reinvestment Act
                                         ness with insured depository institu­        Subcommittee
• 	conduct schools for examiners         tions. The task force also addresses
   employed by the federal supervi­      other legislation, regulations, or           The Community Reinvestment Act
   sory agencies and make those          policies at the state and federal lev­       (CRA) Subcommittee provides tech­
   schools available to employees        els that could affect agencies con­          nical, programmatic, and policy
   of state supervisory agencies         sumer compliance responsibilities.           support to the task force on issues
   under conditions specified by         During 2000, the task force had six          associated with the agencies’ imple­
   the Council.                          standing subcommittees: Automa­              mentation of the CRA. During 2000,
                                         tion, Community Reinvestment Act,            the CRA Subcommittee focused on
To effectively administer projects in
                                         Electronic Banking, Examination              the interagency effort to foster con-
all its functional areas, the Council
established six interagency staff task
forces, each of which includes one
senior official from each agency:
• Consumer Compliance

• Examiner Education
• Information Sharing
• Reports
• Supervision
• Surveillance Systems
The Council also established the
Legal Advisory Group, composed
of a senior legal officer from each
agency. The task forces and the
Legal Advisory Group provide
research and analytical papers and
proposals on the issues that the
Council addresses.                       Task Force on Consumer Compliance meeting.



                                                                                                                        11

sistency in the public evaluations       regulation and the Children’s               dures. The alternative procedures
produced by the agencies. As a           On-line Privacy Protection Act              are designed for use in certain
result, uniform core tables for pre­     (COPPA); this work will continue            noncomplex institutions that exhibit
senting institutional performance        into early 2001. Both the privacy and       low discrimination risk. The sub-
in the public evaluations were           COPPA procedures are expected to            committee also worked on develop­
adopted. The Subcommittee also           be approved in early 2001. Upon             ing an enforcement policy statement
developed an updated and consoli­        their completion, the subcommittee          for review by the agencies. In 2001,
dated list of CRA questions and          plans to determine which of the             the subcommittee plans to expand
answers for publication in the Fed­      other interagency examination pro­          examination guidance on analyzing
eral Register. In 2001, the subcommit­   cedures needs to be updated.                the terms and conditions of loans
tee will begin a complete review of                                                  and on analyzing commercial loans.
the CRA regulations.
                                         Home Mortgage Disclosure Act
                                         Subcommittee                                Task Force on Examiner
Electronic Banking                                                                   Education
                                         The Home Mortgage Disclosure Act
Subcommittee                             (HMDA) Subcommittee supervises              Charged with spearheading exam­
The Electronic Banking Subcommit­        the collection and dissemination of         iner education on behalf of the
tee helps develop uniform policies,      HMDA data reported to the agen­             Council, the Task Force on Examiner
principles, and standards associated     cies and aggregated by the Council.         Education promotes interagency
with member agencies’ implementa­        In 2000, the subcommittee focused           education through timely, cost-effi­
tion of the consumer protection and      on the transition to paperless              cient, state-of-the-art training pro-
fair lending laws and regulations        HMDA submissions and products.              grams for agency examiners.
as they relate to emerging electronic                                                The task force develops programs
banking technology. The subcom­                                                      on its own initiative or in response
mittee serves as an ongoing inter-       Fair Lending Subcommittee
                                                                                     to requests from the Council or from
agency working group to conduct          The Fair Lending Subcommittee               other Council task forces. Each fall,
research and analysis, produce           provides technical, programmatic,           the task force develops a program
interagency reports and recommen­        and policy support to the task force        calendar based on training demand
dations, and educate the industry        on issues associated with fair hous­        from the five member agencies and
and general public on developments       ing and fair lending. In 2000, the          state financial institution regulators,
in electronic banking technology         subcommittee reported on the                and then oversees the delivery and
and regulatory matters. In 2001, the     implementation of the interagency           evaluation of programs throughout
subcommittee plans to respond to         fair lending examination proce­             the year. During 2000, 3,494 regula­
the passage of the Electronic Signa­     dures. As a result of these monitor­        tory staff attended training pro-
tures in Global and National Com­        ing efforts, the subcommittee sub­          grams (see table on page 13 for
merce Act and any regulatory             mitted for review a set of alternative      details of participation by program
updates associated with electronic       fair lending examination proce­             and by agency).
banking.


Examination Procedures
Subcommittee
The Examination Procedures
Subcommittee is responsible for
maintaining updated interagency
examination procedures for the com­
pliance and consumer protection
laws that the agencies enforce. In
2000, the subcommittee drafted, and
the task force approved, examina­
tion procedures (1) for the Gramm-
Leach-Bliley Act (GLB Act) changes
to the Fair Credit Reporting Act
(FCRA) and (2) for the Homeowners
Protection Act (HPA). The subcom­
mittee also began drafting examina­
tion procedures for the new privacy      Task Force on Examiner Education meeting.

12

2000 Regulatory Attendance at FFIEC Courses by Agency—Actual
                                      Number of
Courses/Conferences                    Sessions                FDIC        OTS         FRB    NCUA    OCC      FCA    Other    Total
Advanced Anti-Money Laundering            5                      33         32           0      2       39       0       9      115
Advanced Credit Anaylsis                  3                     164         20          17      9       43       8       6      267
Advanced White Collar Crime               4                     159         24          95     27       47       3       0      355
Capital Markets                           3                     148         10          62     29       30       0       1      280
Cash Flow “Tax Analysis”                  5                     175          8          33      4      223       0       0      443
Cyberbanking                              1                      20         10          21      6       20       4       0       81
Emerging Issues—Community                 6                     295         46         122      0       57       4       6      530
Emerging Issues—Multinational             2                      46          0          94      0       38       1       0      179
Information Systems and Technology        1                      95         26         101      7       98      12       1      340
Instructor Training                       8                      22          2          51      6        8       2       0       91
International Banking Conference          1                      35          0          50      0       17       0       0      102
International Banking School              2                      19          0          12      0        7       3      30       71
International Banking Self Study          0                      49          4          18      0       16       3       8       98
Testifying                                3                      18          0           8      0       18       0       1       45
Trust Conference                          1                      57         28          53      0       34       0       2      174
Web Banking & Payment systems Risks       3                      97         34          23     56      100       0       0      310


Subtotal                                 48                   1,432        244         760    146      795      40      64     3,481

Risk Management Planning                   1                     ...       ...            6    ...     ...       3       4       13
Bankers                                  ...                     ...       ...          ...    ...     ...     ...     183      183


Total                                    49                    1,432       244         766    146      795      43     251     3,677



2000 Initiatives                               success of an initial CD on subprime              be completed shortly after publica­
                                               lending, the task force oversaw                   tion of the interagency examination
Early in 2000, the Council members             development of a second CD pro­                   procedures on privacy. The task
appointed senior-level representa­             viding training and reference                     force also budgeted funds for
tives to the task force and chal­              materials on privacy issues. An                   additional InfoBase products in
lenged them to pursue a more stra­             updated version of this CD should                 2001.
tegic approach to the design and
delivery of programs particularly
programs that would occur “just in
time” for examiner application and
that could be delivered through
electronic technology. The task force
responded on two fronts: comple­
tion of an electronic architecture
(InfoBase) to produce training mate-
rials quickly in response to the issu­
ance of interagency statements, and
a comprehensive review of the en-
tire examiner education curriculum
and the development of a plan to
improve or raise the bar on current
and future programs.
With the new InfoBase in full opera­
tion, the task force can now produce
training materials within 90 days of
the Council’s issuing an interagency
policy or regulation. Following the            “Cash Flow (Taxanalysis)” conference.


                                                                                                                                  13

For its review of the current train­    held on October 16, 2000, at the             rium, numerous classrooms, and a
ing programs, the task force relied     Seidman Center in Arlington,                 lodging facility. Regional sessions
on the perspectives of key stake-       Virginia. OCC staff designed the             are usually conducted in the cities
holders in each agency regarding        program agenda, and the task force           in which district or Reserve Bank
the longer-term usefulness of the       arranged for logistical support.             offices of the member agencies are
training rather than on participant     Each Council member also brought             located.
evaluations completed at the con­       up to 10 senior staff for a compre­
clusion of each training session. The   hensive examination of securitiza­
task force developed criteria that      tion risk issues with presentations          Examiner Education Office
every program must meet as well         by both industry and agency
as other desirable criteria, then ex­   experts.                                     The task force completes most of its
amined each program in light of                                                      work through a training office staff
them. As a result, all but two pro-                                                  that coordinates design and deliv­
grams required some modification        Costs                                        ery of training programs in con-
to warrant continued expenditure                                                     junction with subject-matter experts
                                        The task force attempts to keep              in each of the member agencies.
of agency resources. Late in 2000,      costs as low as possible by holding
staff completed revisions to the        its programs in facilities at member
instructor training program by          agencies when feasible and draw­
adding a segment on coaching            ing on agency experts to present             Course Catalog and Schedule
skills. Work is under way on four       some or all of the program content.
other high-priority programs. Some                                                   The 2001 course catalog and sched­
                                        In addition, the task force expects          ule are available from the Council
modified programs will be tested in     to benefit from technological
2001 sessions while others will be                                                   training office. To obtain a copy,
                                        advances in delivering training (for         contact:
modified during 2001 and deliv­         example, CDs, videoconferencing)
ered in 2002.                           that will reduce agencies’ costs over          Karen K. Smith, Acting Manager

                                        time.                                          FFIEC Examiner Education

In another technological success,
                                                                                         Office

on January 31, 2000, an expert
                                                                                       3501 Fairfax Drive, Room 3086

from the law firm of Silver, Freed-
                                        Facilities                                     Arlington, VA 22226-3550

man and Taff delivered a two-hour
presentation on financial modern­       The Council training office and                Phone: (703) 516-5588

ization simultaneously to a live        classrooms are located in the FDIC             Fax: (703) 516-5487

audience and to two of the five         Seidman Center in Arlington, Vir­              Internet: KKSmith@fdic.gov

Council agencies through their          ginia. Offices, classrooms, and
videoconference systems. Although                                                    The training catalog, schedule, and
                                        lodging facilities are rented at             other information are available on
this technology requires some           approximately market rates from
adjustments by both the presenters                                                   the Internet:
                                        the FDIC. This facility offers conve­
and the participants, the task force    nient access to a 100-seat audito­             http://www.ffiec.gov
confirmed its technical capability to
simultaneously offer programs to
multiple agencies in different loca­
tions, when appropriate.
In addition to its programs aimed
at all examiners, the task force
delivered or coordinated two
unique programs: First, the statuto­
rily mandated conference on risk
management for industry represen­
tatives (bankers and other financial
institution officials) was offered
on June 1-2 in Chicago. The confer­
ence drew 196 participants, and
response was very favorable. Next
year, one session will be offered in
San Francisco in October. The sec­
ond program was a conference on
securitization risk developed spe­
cifically for Council members and       The Seidman Center in Arlington, Virginia.

14

Task Force on Information                 between the FDIC and OCC via the        banking agencies, using an OTS
Sharing                                   T1 lines.                               extranet (a private network that
                                                                                  uses the Internet and telecommuni­
The Task Force on Information Shar­       In June, the technology work group
                                                                                  cations to securely share part of a
ing facilitates the sharing of elec­      was organized and began meeting         business information or operations
tronic information among the FFIEC        monthly to develop technological        with another entity) site that is
agencies to support the supervision,      solutions to common data-sharing
                                                                                  under development.
regulation, or insuring of financial      issues among the agencies. The
institutions. Created in 1997, the        work group coordinates the auto-        The structure data reconciliation
task force provides a forum for the       mated transfer of data files among      group plans to broaden its reconcili­
financial institution regulatory          the agencies.                           ation process to include credit
agencies to promote quality, consis­                                              union data. The group would like
tency, efficiency, and security of        Structure Data Reconciliation           to reconcile structural reporting dif­
interagency information sharing.                                                  ferences back through time so that
Significant issues are referred, with     The structure data reconciliation       historical reporting is more accu­
recommendations, to the Council for       work group reconciles structure         rate. Efforts to automate the entire
action, and the task force has del­       data for financial institutions regu­   reconciliation process also are
egated authority from the Council to      lated by the FFIEC agencies to          planned.
take certain actions.                     ensure they are reporting consis­
                                          tently and accurately. The group
Task force members consist of rep­        maintains a quarterly reconciliation    Task Force on Reports
resentatives from the FFIEC agen­         process that identifies and resolves
cies. Monthly meetings are held to        data discrepancies among the agen­      The law establishing the Council
address and resolve issues related        cies. Process improvements the          and defining its functions requires
to information sharing. The task          work group implemented over the         the Council to develop uniform
force has established work groups         past year enhanced the efficiency       reporting systems for federally
to address technology-development         of the quarterly reconciliations and    supervised financial institutions
issues and interagency reconcilia­        reduced the quarterly number of         and their holding companies and
tions of data on financial institution    interagency data differences to be      subsidiaries. To meet this objective,
structure.                                reconciled.                             the Council established the Task
                                                                                  Force on Reports, which has also
                                                                                  received other responsibilities
                                          Data Exchange Inventory
                                                                                  related to the development of inter-
Initiatives Addressed in 2000             The task force maintains tables         agency uniformity in the reporting
                                          showing all data files shared           of periodic information needed for
Technology Issues
                                          among the FFIEC agencies. Data          effective supervision. The task force
The chief initiative of the task force    maintained include file name, file      is concerned with issues such as the
is to identify and implement tech­        description, security classification,   development and interpretation of
nologies that improve efficiency in       technical and data content contacts,    reporting instructions, including
the sharing of interagency data.          data frequency, and media form.         responding to inquiries about the
High-speed (1.544 megabits per sec­       The data are reviewed and updated       instructions from reporting institu­
ond) T1 communication lines link­         semiannually and are sources of         tions and the public; the application
ing the FDIC, FRB, and OCC were           ideas for pursuing additional data-     of accounting standards to specific
installed in 1999 to allow the elec­      sharing efficiencies.                   transactions; the development and
tronic transfer of large data files and                                           application of processing standards;
to phase out use of magnetic tapes                                                the monitoring of data quality; the
or disks for sharing electronic data      Initiatives to Be Addressed             assessment of reporting burden;
among the agencies. Work commen­          in 2001                                 and liaison with other organiza­
ced to automate bulk data transfers                                               tions, including the Securities and
between the FDIC and the FRB.             The task force and technology work      Exchange Commission, Financial
Early in 2000, a weekly T1 data           group will continue to explore          Accounting Standards Board,
transfer of structure, financial, and     opportunities to improve on the         American Institute of Certified Pub­
supervisory data files was under          current information-sharing tech­       lic Accountants, and Independence
way between the FDIC and FRB. By          nologies. Work is under way to ini­     Standards Board. The task force is
midyear, the automated transfer of        tiate a weekly transfer of bank call    responsible for any special projects
data files between the FDIC and           report data between the FDIC and        related to these subjects that the
the OCC was established. At year-         OCC. Later in the year, the work        Council may assign. To help carry
end, Uniform Bank Performance             group plans to explore data-sharing     out its responsibilities, the task
Report data were being transmitted        opportunities between OTS and the       force organizes working groups as

                                                                                                                     15

needed to handle specialized or          the fourth quarter of 1999, the task       standard loan category defini­
technical accounting, reporting,         force consulted with the agencies’         tions found in the Call Report
instructional, and processing            users concerning the merits of the         loan schedule;
matters.                                 proposal and sought their assistance
                                         in identifying the agencies’ critical    •	 a combining of the three sepa­
                                         new supervisory information needs.          rate report forms for banks of
                                         To determine which new types of             different sizes that have only
Activities                               supervisory data the agencies               domestic offices (the current
During 2000, the task force’s princi­    should first pursue, the task force         FFIEC 032, 033, and 034 report
pal activities involved the Reports      met with the Task Force on Supervi­         forms) into a single form (desig­
of Condition and Income (Call            sion in February 2000 to learn its          nated the FFIEC 041), while
Report) filed quarterly by insured       priorities for these data.                  retaining the separate form for
commercial banks and FDIC-super-                                                     banks with foreign offices (the
                                         After considering the input of users        FFIEC 031 report form);
vised savings banks. The effect of
                                         at the agencies and the results of
this work on the Call Report carried                                              •	 new information collections on
                                         separate efforts to identify and
over to the quarterly regulatory                                                     nontraditional and higher-risk
                                         narrow regulatory reporting differ­
report for U.S. branches and agen­                                                   bank activities, that is, subprime
                                         ences among banks, savings associa­
cies of foreign banks. In addition,                                                  lending, securitizations and asset
                                         tions, and bank holding companies,
the task force addressed the                                                         sale activities, and categories of
                                         the task force devised a proposed
Council’s two Country Exposure           framework for revising the existing         noninterest income for fee-
Reports.                                 bank regulatory reporting require­          generating activities and asset
With respect to the Call Report,         ments, which it presented to the            sales;
the task force continued its efforts     Council at its March 13, 2000, meet­
                                                                                  •	 replacement of the Council’s two
to implement sections 307(b) and         ing. In addition to addressing
                                                                                     separate trust activities reports
(c) of the Riegle Community Devel­       aspects of the Riegle Act require­
                                                                                     (the FFIEC 001, Annual Report of
opment and Regulatory Improve­           ments, this framework was
                                                                                     Trust Assets, and the FFIEC 006,
ment Act of 1994 (the Riegle Act).       designed to complement the agen­
                                                                                     Annual Report of International
These sections direct the banking        cies’ emphasis on risk-focused
                                                                                     Fiduciary Activities) with a
agencies to work jointly toward          supervision and to make the content
                                                                                     single, streamlined trust Call
more uniform reporting, review           of the Call Report more relevant in
                                                                                     Report schedule; and
the infor-mation that institutions       today’s evolving financial services
currently report, and eliminate          environment. The task force recom­       •	 elimination of the confidential
existing reporting requirements that     mended that these reporting                 treatment for loans, leases, and
are not warranted for safety-and-        changes be implemented in March             other assets that are reported as
soundness or other public purposes.      2001. The more significant elements         past due 30 through 89 days (and
Before 2000, the task force’s reviews    of the proposed framework, which            on the amount of restructured
of existing bank reporting require­      the Council approved, included              loans and leases that are past due
ments had eliminated numerous                                                        90 days or more and still accru­
                                         •	 a decrease of approximately 10
items and reduced the detail in sev­                                                 ing or in nonaccrual status) in
                                            percent in the overall number of
eral areas of the Call Report. The                                                   Call Report Schedule RC-N.
                                            individual data items currently
task force also performed a compre­
                                            contained on the four existing        In addition, the Riegle Act calls on
hensive review of the uses of indi­
vidual Call Report items after sur­         versions of the Call Report forms     the four federal banking and thrift
veying the various user groups              (excluding items reported for         agencies to work jointly to adopt
                                            regulatory capital purposes), the     a single form for the filing of core
within the agencies and state bank­
                                            collection of which is no longer      information by banks, savings
ing authorities.
                                            warranted;                            associations, and bank holding com­
Based on the information obtained        •	 a revised regulatory capital          panies. In 1999, the task force
on the uses of Call Report items, sta­                                            reviewed the regulatory reports for
                                            reporting approach and schedule
tistical data on individual items, and                                            these institutions and completed a
                                            that uses step-by-step “building
comments about reporting burden                                                   draft set of core schedules contain­
                                            blocks” to compute the key ele­
previously received from bankers,                                                 ing data items common to the
                                            ments of the capital ratios for all
the task force in 1999 developed an                                               reports for these three types of orga­
                                            banks;
extensive proposal for streamlining                                               nizations. However, the draft core
the agencies’ regulatory reports,        •	 adoption of uniform loan cat­         schedules and the separate sets of
thereby improving the relevance of          egory definitions for all banks       supplementary information for
the information the agencies cur­           across all schedules that collect     banks, savings associations, and
rently collect from banks. During           loan information based on the         bank holding companies, when

16

taken together, largely represented      included the Federal Register notice    •	 deferring the implementation
a reorganization of the data items       and the sample report form that            dates for the collection of new
these three types of organizations       would be applicable to the bank in         data on securitizations until
already report on their respective       2001. Both of the sample report            June 30, 2001, and for the new
regulatory reports. Thus, the intro­     forms were posted on the Council’s         trust activities schedule until
duction of a new regulatory report­      web site.                                  December 31, 2001, respectively;
ing scheme based on a common set
of core schedules and three separate     The FDIC, FRB, and OCC collec­          •	 permitting banks with domestic
sets of supplemental schedules           tively received approximately 110          offices only and less than $300
would likely cause these organiza­       comments on the Call Report pro­           million in assets to use their best
tions, and the banking and thrift        posal from various segments of the         efforts through December 31,
agencies themselves, to incur sig­       public, including banking organiza­        2001, to report information on
nificant costs to revamp their           tions, banking trade groups, com­          loan income, loan averages, past-
reporting systems without any            munity groups, and state bank              due and nonaccrual loans, and
substantive change in the overall        supervisors. In its evaluation of the      loan charge-offs and recoveries
data being reported.                     comments, the task force consulted         by loan category using the stan­
                                         with the agencies’ subject matter          dard loan category definitions;
Based on the above considerations,       experts on various aspects of the          and
the task force concluded that the        proposal. In response to concerns
most reasonable way to implement                                                 •	 setting March 31, 2002, as the
                                         raised by the comments received,
the spirit of the Riegle Act, at least                                              date when banks with less than
                                         the task force recommended several
for the immediate future, would                                                     $25 million in assets would begin
                                         modifications to the proposal,
be to view the “core report” as an                                                  reporting loan income and aver-
                                         which the Council approved at its
alternative output of the regulatory                                                ages by loan category.
                                         September 13, 2000, meeting. The
reporting process and not as an          Council also assented to the task       The Council’s announcement also
input device for reporting to the        force’s using its delegated author­     advised that the proposed reporting
agencies. This would mean that the       ity to approve a limited number of      of subprime lending data had been
agencies could identify on the exist­    open issues after the agencies          delayed until further notice and
ing input forms the individual items     resolved them. In addition, the         would not be implemented as of the
on the separate regulatory reports       Council requested that the task         March 31, 2001, report date. Further-
for banks, savings associations, and     force, in concert with the agencies’    more, banks would be notified of
bank holding companies that are          staff experts, consider options for     any Council decision to begin col­
core items. An output or core report     proceeding with the proposed col­       lecting information on subprime
could then be generated from the         lection of information on banks’        lending in advance of the scheduled
identified core items on the input       involvement in subprime lending         effective date.
forms. The task force therefore rec­     activities.
ommended to the Council at its                                                   In mid-December 2000, revised
March 13, 2000, meeting that the         By the end of October 2000, the task    samples of the FFIEC 031 and 041
agencies should initially view the       force had resolved the proposal’s       report forms for March 31, 2001,
“core report” as an alternative out-     open issues except for subprime         which incorporated the modifica­
put. The Council concurred with          lending, which remains under            tions described in the Council’s
this recommendation.                     study. To provide banks and their       November 2, 2000, announcement,
                                         service providers with information      were placed on the Council’s web
Following the March 2000 Council         about the status of the Call Report     site. On January 17, 2001, the Coun­
meeting, the task force prepared an      revisions that had been proposed        cil issued detailed information on all
initial Paperwork Reduction Act          for implementation in March 2001,       of the revised Call Report require­
Federal Register notice describing in    the task force prepared an              ments for 2001, along with the
detail the proposed revisions to the     announcement describing the             instructions for the new schedules
Call Report that would take effect       decisions that had been reached         on securitization and asset sale
on March 31, 2001. It also developed     on the proposed reporting changes.      activities and on fiduciary and
samples of the proposed FFIEC 031        The Council issued this document        related services. These materials
and 041 forms for that report date.      on November 2, 2000, and sent cop­      were made available on the Internet
The FDIC, FRB, and OCC jointly           ies of it to all banks to help them     and, together with the revised
published this Federal Register notice   plan for 2001. The modifications        sample report form applicable to
on May 31, 2000, requesting com­         made to the Call Report proposal        each institution, were mailed to all
ment on the proposed reporting           included                                banks.
changes in 60 days. On June 7, 2000,
the Council sent a letter to all banks   •	 eliminating some of the proposed     On December 20, 2000, the task
advising them of the proposal, and          new items to the Call Report;        force, acting under delegated

                                                                                                                    17

authority, approved proposed revi­       FFIEC 009 and 009a) as they relate      The task force has a standing sub-
sions to the Report of Assets and        to credit derivatives effective June    committee to address information
Liabilities of U.S. Branches and         30, 2000. The same instructional        system and technology issues as
Agencies for Foreign Banks (Form         clarification was made to the Coun­     they relate to financial institution
FFIEC 002). The revisions include        try Exposure Report for U.S.            supervision. Another task force
changes that would streamline the        Branches and Agencies of Foreign        subcommittee reviews issues per­
existing reporting requirements of       Banks (Form FFIEC 019) as of the        taining to regulatory capital. In ad­
this Report, consistent with the         September 30, 2000, report date.        dition, ad hoc working groups are
elimination of items and reduction                                               created to handle particular
in detail that the Council has                                                   projects and assignments.
approved for the Call Report in
2001. The proposal endeavors to          Task Force on Supervision
make the FFIEC 002 more relevant         The Task Force on Supervision has       Activities
by adding information that will          oversight responsibility for matters
enable the agencies to monitor new                                               Following two-and-a-half years of
                                         relating to the supervision and         preparation, the year 2000 century
activities and other recent develop­     examination of depository institu­
ments that may expose institutions                                               date change passed without serious
                                         tions. It provides a forum for the      disruption in the banking industry
to new or different types of risk. For   agencies that supervise banks,
example, as on the Call Report, the                                              or the banking regulatory agencies.
                                         thrifts, and credit unions to promote   Lessons learned from the year 2000
banking agencies would introduce a       quality, consistency, and effective­
new schedule that would compre­                                                  preparation process were passed
                                         ness of examination and supervi­        on to the industry. After the year
hensively capture information on         sory practices and to minimize
securitization and asset sale activi­                                            2000 efforts were completed, the
                                         regulatory burden. While signifi­       task force and its various ad hoc
ties by U.S. branches and agencies.      cant issues are referred, with recom­
Branches and agencies that file the                                              working groups and subcommit­
                                         mendations, to the Council for          tees focused attention on a number
existing Annual Report of Trust          action, the Council has delegated to
Assets (Form FFIEC 001) would                                                    of other projects and activities.
                                         the task force the authority to make
instead file a new annual schedule       certain decisions and recommenda­
on fiduciary activities as part of the                                           Year 2000 Century Date Change
                                         tions, provided all task force mem­
FFIEC 002. In addition, the proposal     bers agree. Task force members are      The year 2000 project was one of
would eliminate the confidential         the senior supervisory officials of     the most expensive and resource-
treatment currently accorded to the      the constituent agencies. Meetings      intensive information technology
information that branches and agen­      are held regularly to address and       challenges ever faced by the finan­
cies report on the amounts of their      resolve common supervisory issues.      cial services industry. The project
loans, leases, and other assets that
are past due, in nonaccrual status,
or restructured and in compliance
with modified terms.
The agencies would implement
these proposed changes for U.S.
branches and agencies, except for
the fiduciary activities schedule, as
of the June 30, 2001, report date. The
reporting of the proposed new fidu­
ciary information would take effect
on December 31, 2001. The Federal
Reserve Board published an initial
Paperwork Reduction Act Federal
Register notice on behalf of the three
banking agencies on December 28,
2000, requesting comment on the
proposed changes to the FFIEC 002
in 60 days.
Finally, the task force clarified the
instructions for the Country Expo-
sure Report and the Country Expo-
sure Information Report (Forms           Task Force on Supervision meeting.

18

posed a technology-based problem          •	 more formalized and effective        claims on securities firms. In addi­
that had to be managed on an                 strategies and standards for test­   tion, the agencies issued an advance
enterprise-wide basis. It transcen­          ing information technology           notice of proposed rulemaking
ded corporate boundaries and                 systems;                             (ANPR) on the possible develop­
required organizations to work                                                    ment of a simplified capital frame-
                                          •	 detailed contingency plans that
together to review information tech­                                              work for noncomplex banking
                                             analyzed the effect of potential
nology systems and business prac­                                                 organizations.
                                             system failures on core business
tices and develop a comprehensive
                                             processes (for example, deposit-     Recourse and direct credit substitutes.
strategy to address technology-
                                             taking, lending, or fiduciary        On February 17, the OCC, FRB,
related risks and business-
                                             services);                           FDIC, and OTS issued a joint inter-
continuity plans.
                                                                                  agency proposal that would amend
                                          •	 better safeguards to detect fraud­
The extensive final phase of the                                                  the agencies’ risk-based capital stan­
                                             ulent, malicious, and negligent
FFIEC’s year 2000 supervisory pro-                                                dards to address the regulatory
                                             acts from both internal and
gram included the issuance of policy                                              capital treatment of recourse obliga­
                                             external sources;
guidance, the conduct of on-site                                                  tions and direct credit substitutes
examinations, intensive monitoring        •	 internal auditor review of testing   that expose banking organizations
of financial institutions and markets,       and contingency planning             to credit risk. The proposed revi­
contingency planning to respond to           processes;                           sions would use credit ratings to
disruptions or potential problems,                                                match the risk-based capital assess­
                                          •	 open information sharing for         ment more closely to an institution’s
and event management for the year-           developing strategies and
end rollover period. The program                                                  relative risk of loss in certain asset
                                             responding to media reports or       securitizations. The Basel Commit-
focused on promoting industry and            perceptions that could reduce
consumer awareness; establishing                                                  tee on Banking Supervision has
                                             public confidence in the financial   requested comment on making
targets for the completion of testing,       services industry;
implementation, and contingency                                                   some of the same revisions to the
plans; and providing feedback to          •	 improved public relations with       Basel Accord. The comment period
institutions, in part through exami­         customers; and                       has ended on the U.S. proposal and
nations, about their progress and                                                 the agencies are now discussing
identifying any outstanding issues        •	 thorough legal review to assist in   what future action should be taken.
to them.                                     vendor management, documen­          In addition to potential revisions
                                             tation retention, and legal          to the capital standards, the agen­
The year 2000 project provided               defense.                             cies are considering whether addi­
many valuable lessons that financial                                              tional supervisory guidance might
institutions can use in future project-   Revisions to Capital Regulations        be warranted.
management processes and technol­
                                          Although each of the four federal       Residual interests. On September 27,
ogy risk management. Guidance
                                          banking supervisory agencies has        the OCC, FRB, FDIC, and OTS
issued by the FFIEC in March 2000
                                          its own capital regulations, the task   issued a proposed rule to amend
highlighted the characteristics of the
                                          force and several of its working        their respective risk-based and
best-prepared institutions as lessons
                                          groups coordinate efforts among         leverage capital standards for the
for the industry as a whole. These
                                          the agencies to promote the joint       treatment of certain residual inter­
characteristics included
                                          issuance of capital rules, thereby      ests in asset securitizations or other
•	 involvement of senior manage­          minimizing interagency differences      transfers of financial assets. This
   ment and directors to ensure           and reducing the potential burden       proposed rule would require that a
   that project plans were clearly        on the banking industry. During         banking organization hold risk-
   defined, supported, and                2000, capital-related initiatives       based capital in an amount equal to
   monitored;                             included the following.                 the amount of the residual interest
                                                                                  that is retained on the balance sheet
•	 consolidation, elimination or          Capital adequacy standards. The fed­    in a securitization or other transfer
   integration of technology on an        eral banking agencies issued an         of financial assets. The proposed
   enterprise-wide basis accom­           interim final rule that amended         rule also would restrict excessive
   plished, by developing current         their capital standards for cash col­   concentrations in residual interests
   inventories of information tech­       lateral associated with securities-     by limiting the amount, when
   nology systems and applications;       borrowing transactions. The agen­       aggregated with nonmortgage­
                                          cies also issued three proposals        servicing assets and purchased
•	 improved oversight of service          to amend their capital standards        credit- card relationships, that may
   providers, software vendors, and       for recourse and direct credit          be included in capital to 25 percent
   consultants;                           substitutes, residual interests, and    of tier 1 capital.

                                                                                                                     19

Securities-borrowing transactions. On   issuer or debt rating in one of the        collateral, loans secured by residen­
December 5, the OCC, FRB and            three highest investment-grade rat­        tial real estate, and loans in
FDIC issued an interim rule to          ings from a nationally recognized          bankruptcy.
revise the capital treatment of cash    statistical rating organization.
collateral that is posted in connec­                                               Policy statement on allowance for loan
tion with securities-borrowing trans-                                              and lease losses (ALLL). On Septem­
                                        Simplified Capital Framework for
                                                                                   ber 7, the agencies issued a pro-
actions. The effect of the rule is to   Noncomplex Institutions
                                                                                   posed policy statement on ALLL
more appropriately align the capital
                                        On November 3, the OCC, FRB,               methodologies and documentation
requirements for these transactions
                                        FDIC, and OTS issued an ANPR on            practices. The agencies continue to
with the risk involved and to pro-
                                        the possible development of a sim­         work toward a final policy state­
vide a capital treatment for U.S.
                                        plified capital framework for non-         ment. The proposed policy state­
banking organizations that is more
                                        complex banking organizations.             ment was developed in consulta­
in line with the capital treatment
applied to their domestic and for­      The options outlined in the proposal       tion with SEC staff. Specifically, the
eign competitors. Specifically, the     include a simplified risk-based            proposal
rule permits banking organizations      framework, a leverage-ratio-only
                                                                                   •	 clarifies that the board of direc­
operating under the agencies’ mar­      approach, and a modified leverage-
                                                                                      tors of each institution is respon­
ket-risk rules to exclude from risk-    ratio approach. The goal of such a            sible for ensuring that controls
weighted assets receivables arising     framework would be to relieve                 are in place to determine the
from the posting of cash collateral     potential regulatory burden associ­
                                                                                      appropriate level of the ALLL;
associated with securities-borrowing    ated with the existing capital rules
transactions, to the extent such        for many noncomplex domestic               •	 states that the ALLL process
receivables are collateralized by the   banking institutions. The main                must be thorough, disciplined,
market value of the securities bor­     objective of this ANPR is to obtain           and consistently applied and
rowed, subject to certain conditions.   preliminary industry and public               must incorporate management’s
                                        views regarding such a framework.             current judgments about the
                                                                                      credit quality of the loan
Claims on securities firms. On                                                        portfolio;
                                        Other Areas of Coordination
December 6, the OCC, FRB, FDIC,
and OTS proposed to accord a 20         Credit bureau reporting practices. On      •	 emphasizes the banking agen­
percent risk weight under the agen­     January 18, the federal banking               cies’ long-standing position that
cies’ risk-based capital standards to   agencies issued an advisory letter            institutions should maintain and
claims on, and claims guaranteed        about the practice at some financial          support the ALLL with docu­
by, qualifying securities firms in      institutions of not reporting cus­            mentation that is consistent with
countries that are members of the       tomer credit lines or high credit bal­        their stated policies and proce­
Organization for Economic Coopera­      ances to credit bureaus. The agencies         dures, GAAP, and applicable
tion and Development (OECD). This       advised financial institutions that if        supervisory guidance; and
interagency proposal would reduce       they do not modify their credit-risk-
                                                                                   •	 provides guidance on maintain­
the risk weight on these claims from    management processes to compen­               ing and documenting policies
100 percent to 20 percent, consistent   sate for omitted data in credit               and procedures that are appro­
with a 1998 revision to the Basel       bureau reports they could inadvert­
                                                                                      priately tailored to the size and
Accord. Qualifying U.S. securities      ently expose themselves to increased
                                                                                      complexity of the institution and
firms would be broker-dealers           credit risk.
                                                                                      its loan portfolio.
registered with the Securities and
Exchange Commission (SEC). The          Uniform retail-credit classification and   Guidance on technology outsourcing.
firms must be subject to and comply     account-management policy. On June         On November 28, the FFIEC issued
with the SEC’s net capital rules and    12, the FFIEC issued a revised uni­        guidance on financial institutions
be subject to the margin and other      form retail-credit classification and      management of risk arising from
regulatory requirements applicable      account-management policy. Among           technology services supplied by
to registered broker-dealers. Quali­    other things, the revised policy clari­    outside firms. Institutions out-
fying securities firms incorporated     fies provisions regarding the re-          source a wide range of technology
in other OECD countries must be         aging of open-end accounts and             services that include aggregation,
subject to consolidated supervision     extensions, deferrals, renewals, and       digital certification, security moni­
and regulation, including risk-based    rewrites of closed-end loans. The          toring, and information- and
capital requirements, comparable to     revisions also include additional          transaction-processing and settle­
those applied to depository institu­    examiner guidance on the classifica­       ment activities to support banking
tions under the Basel Accord. All       tion of retail portfolios and modifica­    functions. The guidance stresses the
qualifying securities firms, or their   tions to the treatment of specific cat­    need for boards of directors and
consolidated parents, must have an      egories of loans, such as loans with       senior management of financial

20

institutions to oversee and manage      or the Office of the Comptroller of        their respective states. In the
outsourcing relationships. Financial    the Currency.                              future, some of the state banking
institutions should institute an                                                   agencies that are developing
outsourcing process that includes                                                  information systems may ulti­
                                        Activities                                 mately receive UBPR data from
•	 a risk assessment to identify
                                                                                   the web site or tape delivery
   the institution’s needs and          During 2000, the Surveillance Task         instead of the printed copies they
   requirements;                        Force and Surveillance Working             currently receive. Additionally,
•	 proper due diligence to identify     Group completed the following              printed UBPR reports were sent
   and select a provider;               projects:                                  to all banks. Several thousand
                                        •	 Simplified the earnings and prof­       copies of individual bank UBPRs
•	 written contracts that clearly
                                           itability analysis of banks elect­      were provided to the general
   outline duties, obligations and
                                           ing subchapter S treatment for          public.
   responsibilities of the parties
   involved; and,                          income taxes.                         •	 Notified users of changes to the
•	 ongoing oversight of outsourced      •	 Revised the peer group analysis          2000 UBPR in a memo. The
   technology services.                    in the in the UBPR. Peer group           User’s Guide for the UBPR will
                                           average ratios will now be calcu­        be reprinted again in 2001. The
Asset securitization. The task force                                                guide and related information
                                           lated using an adjusted mean
oversaw the development of and                                                      are available on the FFIEC web
                                           process. The new process will
participated in the one-day asset                                                   site (www.ffiec.gov).
                                           result in statistics that represent
securitization conference held in
                                           the “bank in the middle” or           While the UBPR is primarily a
October for Council members and
                                           median, as well as data that is       supervisory tool for the three fed­
senior supervisory staffs. The con­
                                           stable over time.                     eral banking agencies, it is used by
ference explored various issues
with securitization activities and      •	 Hosted an interagency surveil-        others. Copies of the UBPR are rou­
structures, including emerging             lance systems conference.             tinely distributed to banks and
industry trends; incentives and risk       Attendees included state and          state banking agencies as described
transference of securitization struc­      federal bank supervisors. The         below in the distribution policy. In
tures; asset valuations, capital and       conference provided a forum to        addition to the numerous individu­
accounting issues; and non-credit          discuss and compare information       als who obtain UBPRs on-line and
risk exposures associated with             systems and monitoring tools          in printed form, several companies
securitization activities.                 used in the supervision of finan­     purchase UBPR data in bulk for-
                                           cial institutions and was consid­     mat. A major goal of the task force
                                           ered a success.                       is to ensure timely production and
Task Force on Surveillance                                                       distribution of UBPRs and related
                                        •	 Provided comments on the com­         data, according to the following
Systems                                    bined call report proposed by the     distribution policy.
The Task Force on Surveillance Sys­        Reports Task Force.
                                                                                 •	 Each insured bank will receive
tems oversees the development and       •	 Placed the UBPR on the                   one copy of the current UBPR
implementation of uniform inter-           FFIEC public web site (at                per quarter.
agency surveillance and monitoring         www.ffiec.gov). Extensive
systems. The task force’s primary          financial information for any         •	 UBPR data will be provided to
objective has been to develop and          bank in the country is now avail-        each federal banking agency
produce the Uniform Bank Perfor­           able to the general public. All          each quarter.
mance Report (UBPR), an analytical         non-confidential UBPR data,
tool created for supervisory pur­                                                •	 Two copies of the UBPRs for
                                           including five years of history, is      the banks in their states will be
poses. The UBPR is used to monitor         available for viewing, printing,
the condition and performance of                                                    made available to state bank
                                           and downloading. The web site            supervisors. Alternatively,
banking institutions on a quarterly        version of the UBPR has proven
basis and to identify potential or                                                  the printed reports may be
                                           to be successful.                        requested in tape form.
emerging problems in those finan­
cial institutions. A UBPR is pro­       •	 Produced and distributed four         •	 State banking agencies may pur­
duced quarterly for each commer­           quarterly versions of the UBPR.          chase UBPR data files in elec­
cial bank and insured savings bank         The federal banking agencies             tronic form.
in the United States that is super-        each received UBPR data in elec­
vised by the Board of Governors of         tronic format. State banking          •	 UBPRs and call report data are
the Federal Reserve System, Fed­           agencies were provided two sets          available to the public in printed
eral Deposit Insurance Corporation,        of printed UBPRs for banks in            format for a fee.

                                                                                                                        21

•	 UBPRs, the User’s Guide for the     Planned Activities                       will consider limited on-line cus­
   UBPR, and call report data are                                               tom peer group analysis.
   available to the public at no       Several projects planned for 2001
   charge on the FFIEC web site        should provide further enhance­        •	 Analyze and possibly revise cur-
   (www.ffiec.gov).                    ments to the UBPR:                        rent peer groupings in the UBPR.
                                       •	 Revise, produce, and distribute        Possible new peer groups could
The general public may purchase                                                  include line of business (trust
printed copies of UBPRs for $45. A        four versions of the UBPR.
                                                                                 company, agricultural, real
User’s Guide, which describes the      •	 Re-evaluate the design of the          estate) as well as changed asset
content of the report and defines         UBPR in conjunction with               groupings. The task force will
ratio calculations, is available for      changes resulting from the com­        also consider the relevance of
$25. The peer group report, show­         bined call report project.             structural factors.
ing average ratios for all peer
groups, is available for $65. The      •	 Review UBPR treatment of            •	 Consider ways to begin reducing
state average report is available         banks that have elected subchap­       distribution of the UBPR in
for $45. Peer group and state             ter S status for taxes.                paper format.
average percentile distribution        •	 Revise the UBPR User’s Guide to     •	 Adjust the UBPR to reflect
reports are available for $65 and         incorporate changes planned for        changed regulatory capital
$45, respectively.                        2001. Distribute to banking regu­      definitions.
Standardized UBPR quarterly data          lators and banks.
                                                                              •	 Adjust UBPR data for the effects
on magnetic tape are available for     •	 Implement the changes emanat­          of push-down accounting.
$400. Information on ordering             ing from the 2001 call report.
items may be obtained by calling          Revisions to the UBPR will
  (202) 872-7500,                         occur in more than one quarter
                                          because the new call report will
e-mailing                                 be phased in.
  SMULLENJ@FRB.GOV,                    •	 Continue to develop the public
or writing the Council:                   UBPR web site as a substitute for
                                          paper-based copies. Possible
  Federal Financial Institutions          enhancements for 2001 include
  Examination Council                     improved peer group analysis,
  2000 K Street, NW Suite 310             additional reports, and more
  Washington, D.C. 20006                  printing options. The task force




22

THE FEDERAL FINANCIAL INSTITUTIONS REGULATORY AGENCIES

           AND THEIR SUPERVISED INSTITUTIONS





The five federal regulatory agencies     Board of Governors of the              National banks, which must be
represented on the Council have          Federal Reserve System (FRB)           members of the Federal Reserve
primary federal supervisory juris­                                              System, are chartered, regulated,
diction over about 21,000 domesti­       The FRB was established in 1913. It    and supervised by the Office of the
cally chartered banks, thrift institu­   is headed by a seven-member Board      Comptroller of the Currency. State-
tions, and credit unions. On June 30,    of Governors, each member of           chartered banks may apply to and
2000, these financial institutions       which is appointed by the President,   be accepted for membership in the
held total assets of more than $8.5      with the advice and consent of the     Federal Reserve System, after which
trillion. The Board of Governors of      Senate, for a fourteen-year term.      they are subject to the supervision
the Federal Reserve System (FRB)         Subject to confirmation by the Sen­    and regulation of the Federal
and the Office of Thrift Supervision     ate, the President selects two Board   Reserve. Insured state-chartered
(OTS) also have primary federal          members to serve four-year terms as    banks that are not members of the
supervisory responsibility for com­      Chairman and Vice Chairman. The        Federal Reserve System are regu­
mercial bank holding companies           FRB’s activities that are most rel­    lated and supervised by the FDIC.
and for savings and loan holding         evant to the work of the Council are   The Federal Reserve has overall
companies, respectively.                 •	 examining, supervising, and         responsibility for foreign banking
                                            regulating state member banks;      operations, including both U.S.
The three banking agencies on the                                               banks operating abroad and foreign
Council have authority to oversee           bank holding companies; Edge
                                                                                banks operating branches in the
the operations of U.S. branches and         Act and agreement corporations;
                                                                                United States.
agencies of foreign banks. The Inter-       and in conjunction with the
national Banking Act of 1978 (IBA)          licensing authorities, the U.S.     The Federal Reserve covers the
authorizes the Office of the Comp­          offices of foreign banks and        expenses of its operations with rev­
troller of the Currency (OCC) to         •	 approving or denying applica­       enue it generates principally from
license federal branches and agen­          tions for mergers, acquisitions,    interest received on Treasury and
cies of foreign banks and permits           and changes in control by state     federal-agency securities held as
U.S. branches that accept only              member banks and bank holding       assets by the Reserve Banks. The
wholesale deposits to apply for             companies, applications for for­    funding for these investments is
insurance with the Federal Deposit          eign operations of member banks     derived partially from noninterest­
Insurance Corporation (FDIC).               and Edge Act and agreement cor­     earning reserves that member
According to the Federal Deposit            porations, and applications by      banks and other depository institu­
Insurance Corporation Improve­              foreign banks to establish or       tions are required to hold at the
ment Act of 1991 (FDICIA), foreign          acquire U.S. banks and to estab­    Reserve Banks and partially from
banks that wish to operate insured          lish U.S. branches, agencies, or    noninterest-bearing Federal Reserve
entities in the United States and           representative offices.             notes (currency) issued by the
accept retail deposits must organize                                            Reserve Banks. The Reserve Banks
under separate U.S. charters. Exist­     Policy decisions are implemented       pay assessments to the Federal
ing insured retail branches may          by the FRB and the 12 Federal          Reserve Board, which are used to
continue to operate as branches.         Reserve Banks, each of which has       meet its expenses. Excess revenues
The IBA also subjects those U.S.         operational responsibility within a    are turned over to the Treasury gen­
offices of foreign banks to many         specific geographical area. Each       eral fund and categorized as interest
provisions of the Federal Reserve        Reserve Bank has a president and       on Federal Reserve notes.
Act and the Bank Holding Com­            other officers. Among other respon­
pany Act. The IBA gives primary          sibilities, a Reserve Bank employs a
examining authority to the OCC,          staff of bank examiners, who exam­     Federal Deposit Insurance
the FDIC, and various state author­      ine state member banks and Edge        Corporation (FDIC)
ities for the offices within their       Act and agreement corporations,
jurisdictions and gives the FRB          inspect bank holding companies,        The Congress created the FDIC in
residual examining authority over        and examine the offices of foreign     1933 with a mission to insure bank
all U.S. banking operations of for­      banks located within the Reserve       deposits and reduce the economic
eign banks.                              Bank’s District.                       disruptions caused by bank failures.



                                                                                                                  23

Management of the FDIC is vested        applicant’s financial history and         union system. A three-member
in a five-member Board of Directors.    condition, adequacy of the capital        bipartisan board appointed by the
Three of the directors are directly     structure, future earnings prospects,     President for six-year terms man-
appointed by the President, with        general character of the manage­          ages the NCUA. The President also
the advice and consent of the Senate,   ment, risk presented to the insur­        selects a member to serve as Chair
for six-year terms. One of the three    ance fund, convenience and needs          of the board.
directors is designated by the Presi­   of the community to be served, and
dent as Chairman for a term of five     consistency of corporate powers,          The main responsibilities of the
years, and another is designated as                                               NCUA are the following:
                                        the FDIC may approve or deny an
Vice Chairman. The other two Board      application for insurance. FDICIA         •	 charters, examines, and super-
members are the Comptroller of the      expanded the FDIC’s approval                 vises more than 6,400 federal
Currency and the Director of the        authority to include national banks,         credit unions nationwide
Office of Thrift Supervision. No        all state-chartered banks that are
more than three Board members           members of the Federal Reserve            •	 administers the National Credit
may be of the same political party.     System, and federal and state-               Union Share Insurance Fund
                                        chartered savings associations.              (NCUSIF), which insures member
The FDIC’s supervisory activities are                                                share accounts in nearly 10,300
conducted by the Division of Super-     The FDIC has primary federal regu­           U.S. federal and state-chartered
vision (DOS) and the Division of        latory and supervisory authority             credit unions
Compliance and Consumer Affairs         over insured state-chartered banks
                                        that are not members of the Federal       •	 manages the Central Liquidity
(DCA). Each of these divisions is
                                        Reserve System, and it has the               Facility, a central bank for credit
organized into eight regional offices
                                        authority to examine for insurance           unions, which provides liquidity
headed by a DOS regional director
                                        purposes any insured financial insti­        to the credit union system.
and a DCA regional director. Bank
liquidation activities are handled by   tution, either directly or in coopera­    The NCUA also has statutory
the Division of Resolutions and         tion with state or other federal          authority to examine and supervise
Receiverships.                          supervisory authorities. FDICIA           NCUSIF-insured, state-chartered
                                        gives the FDIC back-up enforcement        credit unions in coordination with
The FDIC administers two federal        authority over all insured institu­       state agencies.
deposit insurance funds: the Bank       tions; that is, the FDIC can recom­
Insurance Fund (BIF) and the Sav­       mend that the appropriate federal         The NCUA has six regional offices
ings Association Insurance Fund         agency take action against an             across the United States that admin­
(SAIF). The basic insured amount        insured institution and may do so         ister its responsibility to charter and
for a depositor is $100,000 at each     itself if deemed necessary.               supervise credit unions. Its examin­
insured depository institution. The                                               ers conduct on-site examinations
BIF is funded through assessments       In protecting insured deposits, the       and supervision of each federal
paid by insured commercial banks,       FDIC is charged with resolving the        credit union and select state-
certain federal and state savings       problems of insured depository            chartered credit unions. The NCUA
banks, and industrial banks, as well    institutions at the least possible cost   is funded by the credit unions it
as through income from investments      to the deposit insurance fund. In         regulates and insures.
in U.S. government securities. The      carrying out this responsibility, the
SAIF, which was created in 1989 as a    FDIC engages in several activities,
successor to the former Federal Sav­    including paying off deposits,
                                        arranging the purchase of assets
                                                                                  Office of the Comptroller of the
ings and Loan Insurance Corpora­                                                  Currency (OCC)
tion (FSLIC), receives assessment       and assumption of liabilities of
premiums from insured savings           failed institutions, effecting insured    The OCC is the oldest federal bank
associations. SAIF assessment rates     deposit transfers between institu­        regulatory agency, having been
and BIF assessment rates are cur­       tions, creating and operating tempo­      established as a bureau of the Trea­
rently the same—ranging from zero       rary bridge banks until a resolution      sury Department by the National
to 27 cents for every $100 of assess-   can be accomplished, and using its        Currency Act of 1863. It is headed
able deposits, depending on the         conservatorship powers.                   by the Comptroller of the Currency,
degree of risk to the respective                                                  who is appointed to a five-year term
deposit insurance fund.                                                           by the President with the advice
                                        National Credit Union                     and consent of the Senate. The
Any depository institution that         Administration (NCUA)                     Comptroller also serves as a Direc­
receives deposits may be insured                                                  tor of the Federal Deposit Insurance
by the FDIC after application to and    The NCUA, established by an act of        Corporation and a Director of the
examination and approval by the         Congress in 1934, is the agency that      Neighborhood Reinvestment
FDIC. After considering the             heads the nation’s federal credit         Corporation.

24

The OCC is the charterer, regulator,      Bank Supervision Department              •	 Public Affairs manages the
and supervisor of the national bank­      supervises the largest national             OCC’s external relations with
ing system. As such, it currently         banks and oversees operations               the general public, bank custom­
regulates and supervises approxi­         in the OCC’s London office;                 ers, community organizations,
mately 2,400 national banks and 59        Compliance Operations; and                  the Congress, the news media,
federal branches and agencies of          OCC’s Continuing Education                  and trade associations. It dis­
foreign banks in the United States,       and Supervision Support depart­             seminates information about the
accounting for 57 percent of the          ments. Specific responsibilities            OCC’s initiatives, policies, and
nation’s banking assets. As the only      include directing programs for              activities and works to increase
federal banking agency with author­       the examination and regulation              public understanding of the
ity to charter commercial banks, the      of national banks and overseeing            OCC’s mission.
OCC shapes the structure of the           supervision of national trust com­
national banking system through           panies, federal branches and             •	 The First Senior Deputy Comp­
its authority to approve or deny          agencies of foreign banks, and              troller and Chief Counsel (Chief
applications for new bank charters        the international activities of             Counsel)advises the Comptroller
and new bank activities, the estab­       national banks with global                  on legal matters arising from the
lishment of branches, relocations         operations.                                 administration of laws, rulings,
of head offices, and mergers of                                                       and regulations governing
national banks.                         •	 Bank Supervision Policy formu­             national banks. Specific respon­
                                           lates and disseminates the OCC’s           sibilities include drafting regula­
The national interest requires that        supervision policies to promote            tions, responding to requests for
the United States have a safe and          safety and soundness and com­              legal interpretations, and repre­
stable financial system that pre-          pliance with laws and regula­              senting the OCC in all legal mat­
serves public confidence and makes         tions at national banks. Specific          ters and proceedings. The Chief
available a wide variety of financial      responsibilities include issuing           Counsel oversees corporate
services in a competitive market-          policy, guidance, and examina­             application activities, including
place. The OCC serves this interest        tion procedures related to risk            establishing corporate policies
by maintaining and promoting a             evaluation and to national bank            and processing corporate appli­
system of bank supervision and             operations, including credit,              cations from national banks.
regulation through certain mission-        asset management, capital mar­             The Chief Counsel also oversees
critical core processes that include       kets, bank technology and con­             the community development
                                           sumer compliance activities; and           activities of national banks and
•	 licensing national banks and their      coordinating the OCC’s partici­            OCC’s community affairs
   activities;                             pation in Federal Financial Insti­         activities.
•	 establishing and communicating          tutions Examination Council
   regulations, policies, and operat­      activities.                             •	 Information Technology Ser­
   ing guidance applicable to                                                         vices, through the Chief Informa­
                                        •	 International and Economic                 tion Officer, advises the Comp­
   national banks;                         Affairs oversees the OCC’s inter-          troller on technology matters
•	 supervising the national banking        national and economic research             and directs the development,
   system through on-site examina­         activities. Specific responsibilities      administration, and readiness
   tions, off-site monitoring, and         include providing policy advice            of the OCC’s electronic systems
   appropriate enforcement activi­         and technical expertise on issues          and technological infrastructure.
   ties; and                               related to international banking           It also represents the OCC at the
                                           and the condition and trends in            Department of Treasury and
•	 addressing systemic risks and           the financial industry; formulat­          partners with other federal finan­
   market trends by identifying,           ing policies and procedures for            cial regulators on IT issues.
   analyzing, and responding to            the supervision and examination
   emerging risks that could have an       of federal branches and agencies        •	 The Office of Management is
   impact on the safety and sound­         of foreign banks; and serving              responsible for the efficient and
   ness of national banks or the           as liaison with the international          effective administrative function­
   national banking system.                financial community and foreign            ing of the OCC. Major units
To meet its objectives, the OCC is         supervisory organizations. This            supervised by the office are
organized into eight main areas:           unit also provides on-site techni­         Workforce Effectiveness, Man­
                                           cal support to field examiners on          agement Services, and Deputy
•Bank Supervision Operations               the assessment of banks’ risk-             Chief Financial Officer. The
  oversees examinations and other          measurement methods and the                Senior Deputy Comptroller for
  supervision activities in the            use of statistical tools to assess         Management also serves as the
  OCC’s six districts; the Large           fair lending compliance.                   OCC’s Chief Financial Officer.

                                                                                                                       25

•	 The Ombudsman’s office over-           thrift industry, (2) examining and         agency’s accounting policies. The
   sees the national bank appeals         supervising thrift institutions and        Office of Research and Information
   process and the Customer Assis­        their affiliates, (3) taking appropriate   Systems is responsible for both tra­
   tance Group. The national bank         action to enforce compliance with          ditional information systems, and
   appeals process resolves indi­         federal laws and regulations, and (4)      financial data and modeling
   vidual appeals from national           acting on applications to charter or       systems.
   banks and acts as a liaison            acquire a savings association. OTS
                                          also has the authority to regulate,        The other major functions of OTS
   between the OCC and anyone
                                                                                     are
   with unresolved problems in            examine, and supervise savings and
   dealing with the OCC regarding         loan holding companies.                    •	 the Chief Counsel, who oversees
   its regulatory activities. The                                                       the legal activities of the agency.
                                          OTS is headed by a Director
   Ombudsman functions indepen­                                                         This responsibility includes rep­
                                          appointed by the President, with
   dently and reports directly to         the advice and consent of the Senate,         resenting OTS on pending litiga­
   the Comptroller. The Customer          to serve a five-year term. The Direc­         tion; preparing the record for
   Assistance Group is a centralized      tor determines policy for the OTS             final agency action in accordance
   function that handles all com­         and makes final decisions on regula­          with legal requirements; pursu­
   plaints from customers of              tions governing the industry as a             ing enforcement actions relating
   national banks.                        whole and on measures affecting               to thrift institutions; providing
                                          individual institutions. The Director         legal advice and opinions; and
The OCC’s six geographic districts                                                      drafting support on regulatory
are headquartered in New York,            also serves as a member of the board
                                                                                        projects, statutes, and regula­
NY; Atlanta, GA; Chicago, IL; Kan­        of the FDIC and the NRC. The Office
                                          of the Director also includes the             tions; and
sas City, MO; Dallas, TX; and San
Francisco, CA. The agency is funded       Office of Equality and Workplace           •	 the External Affairs function,
through assessments on the assets of      Principles, Office of Internal Review,        which manages congressional
national banks.                           Office of the Ombudsman, and liai­            matters and press relations. It
                                          son with the FDIC.                            interacts with members of the
                                          The Deputy Director of OTS assists            Congress as well as with execu­
Office of Thrift Supervision              the Director in managing various              tives of other federal agencies to
(OTS)                                     agency programs. While the empha­             accomplish the legislative and
                                          sis is on regulatory issues, the              regulatory objectives of the OTS.
The OTS was established as a                                                            The office convenes press confer­
bureau of the Treasury Department         Deputy Director is responsible for
                                          the five regional offices, the Office         ences; distributes news releases;
on August 9, 1989. OTS has the                                                          and communicates and explains
authority to charter federal thrift       of Supervision, the Office of Compli­
                                          ance Policy and Community Affairs,            policy directives, objectives, and
institutions. It is the primary regula­                                                 actions of the agency to the Con­
tor of all federal and many state-        Research and Information Systems,
                                          Human Resources and Professional              gress, the press, the thrift indus­
chartered thrifts.                                                                      try, other government agencies,
                                          Development, Procurement and
The mission of the OTS is to              Administrative Services, and Plan­            and employees.
•	 effectively and efficiently super-     ning, Budget and Finance. The              The OTS’s five geographic regional
   vise thrift institutions,              Deputy Director is responsible for         offices are located in Jersey City,
                                          the supervisory and day-to-day             NJ; Atlanta, GA; Chicago, IL; Dal­
•	 maintain the safety, soundness,        operations of the Agency. Major            las, TX; and San Francisco, CA.
   and viability of the industry          responsibilities include the supervi­
                                          sion and examination of OTS-               The OTS uses no tax money to fund
•	 encourage a competitive indus­                                                    its operations. Its expenses are
   try to meet America’s housing,         regulated thrifts to ensure the safety
                                          and soundness of the industry, trust,      funded through fees and assess­
   community credit, and financial                                                   ments levied on the institutions it
   services needs and to provide          information technology, compliance
                                          with consumer protection, Commu­           regulates.
   access to financial services for all
   Americans.                             nity Reinvestmen Act and fair lend­
                                          ing requirements, the development
OTS carries out its mission by (1)        of policies affecting those functions,
adopting regulations governing the        applications of all types, and the




26

ASSETS, LIABILITIES, AND NET WORTH of U.S. Commercial Banks and Thrift Institutions1 as of June 30, 2000
Billions of dollars

                                                                                                      Thrift Institutions


                                                                                U.S.                     Other
                                                                                                         FDIC-        Credit
                                                                              Branches
                                                          U.S. Commercial Banks2       OTS-Regulated 17
                                                                                                        Insured      Unions3
                                                                                and
                                                                              Agencies
                                                                        State    of                       State
                                                                 State  Non-  Foreign Federal   State    Savings Federal   State
Item                                             Total National Member Member Banks16 Charter Charter     Banks Charter Charter


Total assets                                     8,491   3,343     1,540     1,079       923        857        31       291        244       183

Total loans and lease receivables (net)          5,036   2,146       782      699        329        588        22       182        161       127
  Loans secured by real estate4                  2,456     889       336      400         18        521        20       161         61        50
  Consumer loans5                                  788     335        89      131          *         48         1        12         98        74
  Commercial and industrial loans                1,275     648       249      135        210         21         1         9          1         1
  All other loans and lease receivables6           580     311       118       43        101          3         *         2          1         1
  LESS: Allowance for possible loan
         and lease losses                          71      38         12        11         *          5         *            2       2          1
Federal funds sold and securities
  purchased under agreements to resell            350     110        107        27        93          4         *            8       1          *
Cash and due from depository
  institutions7                                    507    192        101       46         83         17         1            7      35        25
Securities and other obligations8                1,489    515        280      250        111        190         7           82      34        20
  U.S. government obligations9                     618    127         91      107         64        163         6           55       3         2
  Obligations of state and local
    governments10                                   94     40         19       31          *          2         *            2       ‡          ‡
  Other securities                                 734    348        169      112         47         25         1           25       3          4
Other assets11                                   1,101    380        270       57        307         58         1           12       9          7

Total liabilities                                7,898   3,064     1,422      979        923        792        28       263        244       183

Total deposits and shares12                      5,557   2,197       965      811        498        495        23       198        212       158
Federal funds purchased and securities
  sold under agreements to repurchase              705    268        161       50        140         66         1           18       1          *
Other borrowings13                               1,007    426        133      100         80        216         4           44       2          2
Other liabilities14                                579    172        163       17        205         15         *            3       2          2

Net worth15                                       668     279        118      100          *         65         3           28      44        31

Memorandum: Number of institutions
 reporting                                      20,931   2,301       996     5,171       359        925       166       533      6,468      4,012


Symbols Appearing in Tables                        2. Reflects the fully consolidated statements          ily, and other personal expenditures,
* = Less than $500 million                            of FDIC-insured U.S. banks—including                including both installment and single-
† = Not available separately                          their foreign branches, foreign subsidiar­          payment loans. Net of unearned income
‡ = Not applicable                                    ies, branches in Puerto Rico and U.S. ter­          on installment loans.
                                                      ritories and possessions, and FDIC-
Footnotes to Tables                                   insured banks in Puerto Rico and U.S.           6. Loans to financial institutions, loans for
                                                      territories and possessions. Excludes              purchasing or carrying securities, loans to
 1. The table covers institutions, including                                                             finance agricultural production and other
    those in Puerto Rico and U.S. territories         bank holding companies.
                                                                                                         loans to farmers (except loans secured by
    and possessions, insured by the Federal        3. The credit union data are for federally-           real estate), loans to states and political
    Deposit Insurance Corporation or                  insured credit unions only.                        subdivisions and public authorities, and
    National Credit Union Savings Insurance                                                              miscellaneous types of loans.
    Fund. All branches and agencies of for­        4. Loans secured by residential property,
    eign banks in the United States, but              commercial property, farmland (includ­          7. Vault cash, cash items in process of
    excluding any in Puerto Rico and U.S.             ing improvements), and unimproved                  collection, and balances with U.S. and
    territories and possessions, are covered          land; and construction loans secured by            foreign banks and other depository
    whether or not insured. The table                 real estate. For SAIF-insured institutions,        institutions, including demand and
    excludes Edge Act and agreement                   also includes mortgage-backed securities.          time deposits and certificates of deposit
    corporations that are not subsidiaries of      5. Loans, except those secured by real                for all categories of institutions. SAIF-
    U.S. commercial banks.                            estate, to individuals for household, fam­         insured institutions data are for cash and
                                                                                                                     Notes continue on the next page


                                                                                                                                                 27
INCOME AND EXPENSES of U.S. Commercial Banks and Thrift Institutions1 for the Twelve Months Ending June 30, 2000
Billions of dollars

                                                                                                           Thrift Institutions

                                                                                                                           Other
                                                                                                                           FDIC-          Credit
                                                                     U.S. Commercial Banks2            OTS-Regulated17    Insured         Unions3

                                                                                   State                                   State
                                                                            State  Non-  Federal                 State    Savings Federal       State
Item                                                        Total National Member Member Charter                Charter    Banks Charter       Charter

Operating income                                               650     318       124          95         56          3           20       19        15
 Interest and fees on loans                                    371     174        56          60         42          2           14       13        10
 Other interest and dividend income                            124      50        31          16         14          1            5        4         3
 All other operating income                                    155      94        37          19          *          *            1        2         2

Operating expenses                                             519     255        96          76         45          1           16       17        13
 Salaries and benefits                                         105      49        22          16          8          *            3        4         3
 Interest on deposits and shares                               174      71        31          29         20          1            8        8         6
 Interest on other borrowed money                               79      40        16           7         14          *            2        *         *
 Provision for loan and lease losses                            27      17         3           4          1          *            *        1         1
 All other operating expenses                                  134      78        24          20          2          *            3        4         3

Net operating income                                           131      63        28          19         11          1            4        3         2

Securities gains and losses                                      1       0         0            0         1          *            *        *          *

Income taxes                                                    43      22        10            6         4          *            1        ‡         †

Net income                                                      89      41        18          13          8          1            3        3         2

Memorandum: Number of institutions
 reporting                                                 20,572    2,301       996       5,171        925       166        533       6,468     4,012




     demand deposits only; time deposits are          accounts, and miscellaneous assets. For                 life preferred stock, and other nondeposit
     included in “Other securities.”                  U.S. branches and agencies of foreign                   borrowing.
 8. Government and corporate securities,              banks, also includes net due from head              14. Depository institutions' own mortgage
    including mortgage-backed securities and          office and other related institutions. For              borrowing, liability for capitalized leases,
    obligations of states and political subdivi­      SAIF-insured institutions, also includes                liability on acceptances executed, various
    sions and of U.S. government agencies             equity investment in service corporation                accrual accounts, and miscellaneous liabil­
    and corporations. For SAIF-insured                subsidiaries.                                           ities. For U.S. branches and agencies of
    institutions, also includes time deposits      12. Demand, savings, and time deposits,                    foreign banks, also includes net owed to
    and excludes mortgage-backed securities.           including certificates of deposit at com­              head office and other related institutions.
 9. U.S. Treasury securities and securities of,        mercial banks, U.S. branches and agen­
                                                       cies of foreign banks, and savings banks;          15. Capital stock, surplus, capital reserves,
    and loans to, U.S. government agencies                                                                    and undivided profits for SAIF-insured
    and corporations.                                  credit balances at U.S. agencies of foreign
                                                       banks; and share balances at savings and               institutions.
10. Securities issued by states and political          loan associations and credit unions,               16. U.S. branches and agencies of foreign banks
    subdivisions and public authorities,               including certificates of deposit, NOW                 are not required to file reports of
    except for savings and loan associations           accounts, and share draft accounts. For                income.
    and U.S. branches and agencies of foreign          U.S. commercial banks, includes deposits
    banks that do not report these securities          in foreign offices, branches in U.S. territo­      17. Data for thrifts regulated by OTS are
    separately. Loans to states and political          ries and possessions, and Edge act and                 unconsolidated, except for operating and
    subdivisions and public authorities are            agreement corporation subsidiaries.                    finance subsidiaries.
    included in “All other loans and lease
    receivables.”                                  13. Interest-bearing demand notes issued               NOTE: Because of rounding, details may not
                                                       to the U.S. Treasury, borrowing from               add to totals.
11. Customers' liabilities on acceptances,             Federal Reserve Banks and Federal Home
    real property owned, various accrual               Loan Banks, subordinated debt, limited-

28
                            APPENDIX A: RELEVANT STATUTES





Title X of Public Law 95–630                (3) the term “financial institu­     Expenses of the Council
                                          tion” means a commercial bank,
Title X of Public Law 95–630 estab­       a savings bank, a trust company,         Sec. 1005. One-fifth of the costs
lishes the Federal Financial              a savings and loan association, a      and expenses of the Council,
Institutions Examination Council.         building and loan association, a       including the salaries of its employ­
As amended, it reads as follows:          homestead association, a coop­         ees, shall be paid by each of the fed­
  Sec. 1001. This title may be cited      erative bank, or a credit union.       eral financial institutions regulatory
as the “Federal Financial Institu­                                               agencies. Annual assessments for
tions Examination Council Act of                                                 such share shall be levied by the
1978.”                                                                           Council based upon its projected
                                        Establishment of the Council             budget for the year, and additional
                                                                                 assessments may be made during
                                          Sec. 1004. (a) There is established    the year if necessary.
Purpose                                 the Financial Institutions Examina­
  Sec. 1002. It is the purpose of       tion Council which shall consist of
this title to establish a Financial
                                           (1) the Comptroller of the            Functions of the Council
Institutions Examination Council
                                          Currency,
which shall prescribe uniform                                                      Sec. 1006. (a) The Council shall
principles and standards for the            (2) the Chairman of the Board        establish uniform principles and
Federal examination of financial          of Directors of the Federal            standards and report forms for the
institutions by the Office of the         Deposit Insurance Corporation,         examination of financial institu­
Comptroller of the Currency, the                                                 tions, which shall be applied by the
Federal Deposit Insurance Corpora­          (3) a Governor of the Board of
                                          Governors of the Federal Reserve       federal financial institutions regula­
tion, the Board of Governors of the                                              tory agencies.
Federal Reserve System, the Office        System designated by the Chair-
of Thrift Supervision, and the            man of the Board,                          (b)(1) The Council shall make
National Credit Union Administra­                                                  recommendations for uniformity
                                           (4) the Director of the Office of
tion, and make recommendations to                                                  in other supervisory matters,
                                          Thrift Supervision and
promote uniformity in the supervi­                                                 such as, but not limited to, classi­
sion of these financial institutions.        (5) the Chairman of the               fying loans subject to country
The Council’s actions shall be            National Credit Union Admin­             risk, identifying financial institu­
designed to promote consistency in        istration Board.                         tions in need of special supervi­
such examinations to insure pro­                                                   sory attention, and evaluating the
gressive and vigilant supervision.       (b) The members of the Council            soundness of large loans that are
                                        shall select the first Chairman of the     shared by two or more financial
                                        Council. Thereafter the chairman           institutions. In addition, the
Definitions                             shall rotate among the members of          Council shall make recommenda­
                                        the Council.                               tions regarding the adequacy of
  Sec. 1003. As used in this title—
                                         (c) The term of the Chairman of           supervisory tools for determining
    (1) the term “federal financial     the Council shall be two years.            the impact of holding company
  institutions regulatory agencies”                                                operations on the financial insti­
  means the Office of the Comptrol­      (d) The members of the Council            tutions within the holding com­
  ler of the Currency, the Board of     may, from time to time, designate          pany and shall consider the abil­
  Governors of the Federal Reserve      other officers or employees of their       ity of supervisory agencies to
  System, the Federal Deposit           respective agencies to carry out           discover possible fraud or ques­
  Insurance Corporation, the            their duties on the Council.               tionable and illegal payments and
  Office of Thrift Supervision, and                                                practices which might occur in
                                         (e) Each member of the Council            the operation of financial institu­
  the National Credit Union
                                        shall serve without additional com­        tions or their holding companies.
  Administration;
                                        pensation but shall be entitled to
    (2) the term “Council” means        reasonable expenses incurred in              (b)(2) When a recommendation
  the “Financial Institutions Exami­    carrying out his or her official           of the Council is found unaccept­
  nation Council”; and                  duties as such a member.                   able by one or more of the appli-

                                                                                                                     29

  cable federal financial institutions    a reasonable allowance for neces­         agencies, including reports of
  regulatory agencies, the agency         sary expenses incurred in attending       examination of financial institutions
  or agencies shall submit to the         meetings.                                 or their holding companies from
  Council, within a time period                                                     whatever source, together with
  specified by the Council, a writ-                                                 workpapers and correspondence
  ten statement of the reasons the        Administration                            files related to such reports,
  recommendation is unacceptable.                                                   whether or not a part of the report,
                                            Sec. 1008. (a) The Chairman of the      and all without any deletions.
  (c) The Council shall develop uni­
                                          Council is authorized to carry out
form reporting systems for feder­
                                          and to delegate the authority to
ally supervised financial institu­
                                          carry out the internal administra­        Risk Management Training
tions, their holding companies, and
                                          tion of the Council, including the
nonfinancial institution subsidiaries                                                 Sec. 1009A. (a) Seminars. The
                                          appointment and supervision of
of such institutions or holding com­      employees and the distribution of         Council shall develop and adminis­
panies. The authority to develop          business among members, employ­           ter training seminars in risk man­
uniform reporting systems shall not                                                 agement for its employees and the
                                          ees, and administrative units.
restrict or amend the requirements                                                  employees of insured financial
of section 12(I) of the Securities          (b) In addition to any other            institutions.
Exchange Act of 1934.                     authority conferred upon it by
                                          this title, in carrying out its func­       (b) Study of Risk Management
  (d) The Council shall conduct           tions under this title, the Council       Training Program. Not later than
schools for examiners and assistant       may utilize, with their consent and       the end of the one-year period
examiners employed by the federal
                                          to the extent practical, the person­      beginning on the date of the enact­
financial institutions regulatory
                                          nel, services, and facilities of the      ment of the Financial Institutions
agencies. Such schools shall be
                                          federal financial institutions regula­    Reform, Recovery, and Enforce­
open to enrollment by employees
                                          tory agencies, Federal Reserve            ment Act of l989, the Council shall
of state financial institutions' super­
                                          Banks, and Federal Home Loan
visory agencies and employees of                                                        (l) conduct a study on the feasi­
                                          Banks, with or without reimburse­
the Federal Housing Finance Board                                                     bility and appropriateness of
                                          ment therefor.
under conditions specified by the                                                     establishing a formalized risk
Council.                                   (c) In addition, the Council may           management training program
  (e) Nothing in this title shall be           (1) subject to the provisions of       designed to lead to the certifica­
construed to limit or discourage            Title 5, United States Code, relat­       tion of Risk Management Ana­
federal regulatory agency research          ing to the competitive service,           lysts; and
and development of new financial            classification, and General Sched­          (2) report to the Congress the
institutions supervisory methods            ule pay rates, appoint and fix the        results of such study.
and tools, nor to preclude the field        compensation of such officers and
testing of any innovation devised           employees as are necessary to
by any federal regulatory agency.           carry out the provisions of this
                                            title, and to prescribe the author­     Audit by the
  (f) Not later than April 1 of each                                                Comptroller General
                                            ity and duties of such officers and
year, the Council shall prepare an
                                            employees; and                          Sec. 1010. Section 117 of the
annual report covering its activities
during the preceding year.                    (2) obtain the services of such       Accounting and Auditing Act of
                                            experts and consultants as are          1950, as amended by the Federal
                                            necessary to carry out the provi­       Banking Agency Audit Act (Public
                                            sions of the title.                     Law 95–320), is further amended by
State Liaison
                                                                                         (1) redesignating clauses (A),
  Sec. 1007. To encourage the appli­                                                  (B), (C) and of subsection (e)(1)
cation of uniform examination prin­       Access to Information                       as (B), (C), and (D), respectively,
ciples and standards by state and         by the Council                              and inserting in subsection (e)(1)
federal supervisory agencies, the                                                     the clause “(A) of the Financial
Council shall establish a liaison           Sec. 1009. For the purpose of car­        Institutions Examination Coun­
committee composed of five repre­         rying out this title, the Council shall     cil”; immediately following
sentatives of state agencies which        have access to all books, accounts,         “audits”; and
supervise financial institutions          records, reports, files, memoranda,
which shall meet at least twice a         papers, things, and property                   (2) striking out in subsection
year with the Council. Members of         belonging to or in use by federal           (e)(2) “and (C)” and inserting in
the liaison committee shall receive       financial institutions regulatory           lieu thereof “(C), and (D).”

30

 Sec. l0ll. Establishment of              shall implement a system to facili­      and data processing resources to
Appraisal Subcommittee                    tate access to data required to be       the Council to enable it to carry out
                                          disclosed under this section. Such       the provisions of subsection (a).
There shall be within the Council a
                                          system shall include arrangements
subcommittee to be known as the           for a central depository of data in        (c) The data and tables required
“Appraisal Subcommittee,” which           each primary metropolitan statisti­      pursuant to subsection (a) shall be
shall consist of the designees of the                                              made available to the public by no
                                          cal area, metropolitan statistical
heads of the federal financial insti­                                              later than December 31 of the year
                                          area, or consolidated metropolitan
tutions regulatory agencies. Each                                                  following the calendar year on
                                          statistical area that is not comprised
such designee shall be a person                                                    which the data is based.
                                          of designated primary metropolitan
who has demonstrated knowledge
                                          statistical areas. Disclosure state­
and competence concerning the
                                          ments shall be made available to the     Excerpts from Title XI of
appraisal profession.
                                          public for inspection and copying
                                                                                   Public Law l0l–73
                                          at such central depository of data
                                          for all depository institutions which      Sec. ll03. Functions of Appraisal
Excerpts from Title III of                are required to disclose information     Subcommittee.
Public Law 94–200                         under this section (or which are
                                          exempted pursuant to section               (a) In General. The Appraisal Sub-
Following are those sections of title     306(b)) and which have a home            committee shall
III of Public Law 94–200, the Home        office or branch office within such
Mortgage Disclosure Act, as amended,                                                    (l) monitor the requirements
                                          primary metropolitan statistical           established by States for the certi­
that affect the Federal Financial         area, metropolitan statistical area,
Institutions Examination Council.                                                    fication and licensing of individu­
                                          or consolidated metropolitan statis­       als who are qualified to perform
                                          tical area that is not comprised of        appraisals in connection with
                                          designated primary metropolitan            federally regulated transactions,
Findings and Purpose                      statistical areas.                         including a code of professional
  Sec.302. (a) The Congress finds                                                    responsibility;
that some depository institutions                                                      (2) monitor the requirements
have sometimes contributed to the         Compilation of Aggregate Data              established by the federal finan­
decline of certain geographic areas                                                  cial institutions regulatory agen­
by their failure pursuant to their          Sec. 310. (a) Beginning with data
                                                                                     cies and the Resolution Trust
chartering responsibilities to pro-       for calendar year 1980, the Federal
                                                                                     Corporation with respect to
vide adequate home financing to           Financial Institutions Examination
qualified applicants on reasonable        Council shall compile each year, for           (A) appraisal standards for
terms and conditions.                     each primary metropolitan statisti­          federally related transactions
                                          cal area, metropolitan statistical           under their jurisdiction, and
  (b) The purpose of this title is to     area, or consolidated metropolitan
provide the citizens and public offi­     statistical area that is not comprised          (B) determinations as to
cials of the United States with suffi­    of designated primary metropolitan           which federally related transac­
cient information to enable them          statistical areas, aggregate data by         tions under their jurisdiction
to determine whether depository           census tract for all depository insti­       require the services of a State
institutions are fulfilling their obli­   tutions which are required to dis­           certified appraiser and which
gations to serve the housing needs        close under section 304 or which are         require the services of a State
of the communities and neighbor-          exempt pursuant to section 306(b).           licensed appraiser.
hoods in which they are located           The Council shall also produce               (3) maintain a national registry
and to assist public officials in their   tables indicating, for each primary        of State certified and licensed
determination of the distribution of      metropolitan statistical area, metro­      appraisers who are eligible to
public sector investments in a man­       politan statistical area, or consoli­      perform appraisals in federally
ner designed to improve the private       dated metropolitan statistical area        related transactions; and
investment environment.                   that is not comprised of designated
                                          primary metropolitan statistical             (4) transmit an annual report
                                          areas, aggregate lending patterns          to the Congress not later than
Maintenance of Records and                for various categories of census           January 3l of each year which
Public Disclosure                         tracts grouped according to loca­          describes the manner in which
                                          tion, age of housing stock, income         each function assigned to the
  Sec.304. (f) The Federal Financial      level and racial characteristics.          Appraisal Subcommittee has
Institutions Examination Council in                                                  been carried out during the pre-
consultation with the Secretary,            (b) The Board shall provide staff        ceding year.

                                                                                                                         31

  (b) Monitoring and Reviewing
Foundation. The Appraisal Subcom­
mittee shall monitor and review the
practices, procedures, activities,
and organizational structure of the
Appraisal Foundation.
  Sec. ll04. Chairperson of
Appraisal Subcommittee: Term
of Chairperson; meetings.
  (a) Chairperson. The Council
shall select the Chairperson of the
subcommittee. The term of the
Chairperson shall be two years.




32

                            APPENDIX B: 2000 AUDIT REPORT





Independent Auditors' Report
To the Federal Financial Institutions
Examination Council


We have audited the accompanying         form the audit to obtain reasonable       ciples generally accepted in the
balance sheets of the Federal Finan­     assurance about whether the finan­        United States of America.
cial Institutions Examination Coun­      cial statements are free of material
cil (the Council) as of December 31,                                               In accordance with Government
                                         misstatement. An audit includes
2000 and 1999, and the related state­                                              Auditing Standards, we have also
                                         examining, on a test basis, evidence
ments of revenues and expenses and                                                 issued our report dated February
                                         supporting the amounts and disclo­
changes in fund balance, and of cash                                               20, 2001, on our consideration of
                                         sures in the financial statements. An
flows for the years then ended.                                                    the Council’s internal control over
                                         audit also includes assessing the
These financial statements are the                                                 financial reporting and on our tests
                                         accounting principles used and sig­
responsibility of the Council’s man­                                               of its compliance with certain provi­
                                         nificant estimates made by manage­
agement. Our responsibility is to                                                  sions of laws, regulations, contracts,
                                         ment, as well as evaluating the over-
express an opinion on these finan­                                                 and grants. That report is an inte­
                                         all financial statement presentation.
cial statements based on our audits.                                               gral part of an audit performed in
                                         We believe that our audits provide a
                                                                                   accordance with Government Audit­
                                         reasonable basis for our opinion.
We conducted our audits in accor­                                                  ing Standards and should be read in
dance with auditing standards gen­       In our opinion, the accompanying          conjunction with this report in con­
erally accepted in the United States     financial statements present fairly,      sidering the results of our audit.
of America and the standards appli­      in all material respects, the financial
cable to financial audits contained in   position of the Council as of Decem­
Government Auditing Standards            ber 31, 2000 and 1999, and the
issued by the Comptroller General        results of its operations and its cash
of the United States. Those stan­        flows for the years then ended in
dards require that we plan and per-      conformity with accounting prin­          February 20, 2001




                                                                                                                      33

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Balance Sheets as of December 31, 2000 and 1999

                                                                      ASSETS
                                                                                                               2000                  1999

CURRENT ASSETS
  Cash                                                                                                    $     821,155          $     689,393
  Accounts receivable from member organizations                                                                 507,042                431,539
  Other accounts receivable                                                                                     196,537                317,553
        Total current assets                                                                                  1,524,734              1,438,485
FURNITURE AND EQUIPMENT
  Furniture and equipment, at cost                                                                            273,849                273,849
     Less accumulated depreciation                                                                            261,494                253,624
        Net furniture and equipment                                                                            12,355                 20,225
        Total assets                                                                                      $ 1,537,089            $ 1,458,710

                                                  LIABILITIES AND FUND BALANCE
CURRENT LIABILITIES
  Accounts payable and accrued liabilities to member organizations                                        $   743,939            $   495,354
  Other accounts payable and accrued liabilities                                                              136,193                131,328
  Accrued annual leave                                                                                         40,104                 48,684
        Total current liabilities                                                                             920,236                675,366
DEFERRED RENT (Note 5)                                                                                        135,572                114,036
FUND BALANCE                                                                                                  481,281                669,308
        Total liabilities and fund balance                                                                $ 1,537,089            $ 1,458,710




See notes to financial statements.


Notes to Financial Statements for the Years        Council and the designee of the head of the         sure of contingent assets and liabilities at the
Ended December 31, 2000 and 1999                   Department of Housing and Urban Develop­            date of the financial statements and the
                                                   ment. Although it is a subcommittee of the          reported amounts of revenues and expenses
(1) Organization and Purpose                       Council, the Appraisal Subcommittee main­           during the reporting period. Actual results
                                                   tains separate financial records and administra­    could differ from those estimates.
The Federal Financial Institutions Examination     tive processes. The Council's financial state­
Council (the “Council”) was established under      ments do not include financial data for the         (3) Transactions with Member Organizations
Title X of the Financial Institutions Regulatory   Appraisal Subcommittee other than that pre­
and Interest Rate Control Act of 1978. The                                                                                           2000         1999
                                                   sented in note 4.
purpose of the Council is to prescribe uniform                                                         The five member organi­
principles and standards for the federal           (2) Significant Accounting Policies                 zations are each assessed
examination of financial institutions and to                                                           one-fifth of the expected
make recommendations to promote unifor­            Revenues and Expenses—Assessments made
                                                                                                       cash needs based on the
mity in the supervision of these financial         on member organizations for operating
                                                                                                       annual operating bud-
institutions. The five agencies which are          expenses and additions to property are calcu­
                                                                                                       get. Annual assessment
represented on the Council, referred to            lated based on expected cash needs. Assess­
                                                   ments, other revenues, and operating                for each member
hereafter as member organizations, are as                                                              organization was         $ 256,000        $ 326,800
follows:                                           expenses are recorded on the accrual basis
                                                   of accounting.                                      The Council provides
     Board of Governors of the Federal Reserve                                                         seminars in the Wash­
       System                                      Furniture and Equipment—Furniture and
                                                                                                       ington area and at
     Federal Deposit Insurance Corporation         equipment is recorded at cost less accumu­          regional locations
     National Credit Union Administration          lated depreciation. Depreciation is calcu­          through out the country
     Office of the Comptroller of the Currency     lated on a straight-line basis over the esti­       for member organiza­
     Office of Thrift Supervision                  mated useful lives of the assets, which range       tion examiners and
                                                   from four to ten years. Upon the sale or            other agencies. The
The Appraisal Subcommittee of the Council          other disposition of a depreciable asset, the       Council received
was created pursuant to Public Law 101–73,         cost and related accumulated depreciation           tuition payments from
Title XI of the Financial Institutions Reform,     are removed from the accounts and any               member organizations
Recovery, and Enforcement Act of 1989. The         gain or loss is recognized.                         in the amount of        1,699,315         1,526,707
functions of the Appraisal Subcommittee are
related to the certification and licensing of      Estimates—The preparation of financial state­       The Board of Gover­
individuals who perform appraisals in con­         ments in conformity with accounting principles      nors of the Federal
nection with federally related real estate         generally accepted in the United States of          Reserve System pro­
transactions. Members of the Appraisal Sub-        America requires management to make esti­           vided administrative
committee consist of the designees of the          mates and assumptions that affect the reported      support services to the
heads of those agencies which comprise the         amounts of assets and liabilities and the disclo­   Council at a cost of          62,966         62,400


34
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Statements of Revenues and Expenses and Changes in Fund Balance for the Years Ended December 31, 2000 and 1999

                                                                                                            2000                  1999

REVENUES
  Assessments on member organizations                                                                  $ 1,280,000             $ 1,634,000
  Tuition                                                                                                1,811,065               1,657,257
  Other revenue (Note 4)                                                                                 2,993,150               2,809,341
    Total revenues                                                                                       6,084,215               6,100,598
EXPENSES
  Salaries and related benefits                                                                          1,419,587               1,339,517
  Data processing                                                                                        3,302,051               2,972,811
  Rental of office space                                                                                   589,821                 586,705
  Professional fees                                                                                        270,105                 258,375
  Books and subscriptions                                                                                  150,734                   8,753
  Travel                                                                                                    98,862                 101,409
  Other seminar expenses                                                                                    94,916                  53,111
  Rental and maintenance of office equipment                                                                93,436                  77,209
  Office and other supplies                                                                                 70,596                  47,001
  Printing                                                                                                  69,643                  71,738
  Administrative fees                                                                                       62,966                  62,400
  Postage                                                                                                   20,691                  15,280
  Telephone                                                                                                 15,843                   5,481
  Depreciation and amortization                                                                              7,870                  16,154
  Miscellaneous                                                                                              5,121                  10,990
    Total expenses                                                                                       6,272,242               5,626,934
REVENUES OVER (UNDER) EXPENSES                                                                            (188,027)                473,664
FUND BALANCE, Beginning of year                                                                            669,308                 195,644
FUND BALANCE, End of year                                                                              $   481,281             $   669,308


See notes to financial statements.

                           2000         1999      been included in the accompanying financial                                    2000        1999
                                                  statements.
Member organizations                                                                                The Council received
                                                  (4) Other Revenue                                 the following from the
provided office space,
data processing and                                                                                 Mortgage Insurance
                                                                            2000         1999
printing services                                                                                   Companies of America
to the Council. The                               Home Mortgage                                     for performing HMDA
Council paid member                                 Disclosure Act       $1,776,137 $ 1,645,563     related work for them $      168,809 $   185,741
organizations          $ 3,593,793 $ 3,424,234    Uniform Bank
                                                                                                    The balance of the
                                                    Performance Report      264,948     267,656
                                                                                                    HMDA revenue for
The Council coordinates the production and        Appraisal Subcommittee    213,537     190,155
                                                                                                    2000 and 1999 was
distribution of the Uniform Bank Performance      Community
                                                                                                    received from sales to
Reports (UBPR) through the Federal Deposit          Reinvestment Act        738,525     705,864
                                                                                                    the public                   29,633       44,912
Insurance Corporation (FDIC). The Council is      Miscellaneous                   3         103
reimbursed for the direct cost of the operating                          $2,993,150 $ 2,809,341     Uniform Bank Performance Report (UBPR)
expenses it incurs for this project.
                                                  Home Mortgage Disclosure Act (HMDA)                                            2000        1999
Council employees are paid through the            The Council produces                              The Council coordi­
payroll systems of member organizations.          and distributes reports                           nated and provided
Salaries and fringe benefits, including retire­   under the Home Mort-                              certain administrative
ment benefit plan contributions disbursed         gage Disclosure Act                               support to the UBPR
on behalf of the Council are reimbursed in full   (HMDA). The Council                               project. The Council
to these organizations. The Council does          received the following                            received the following
not have any post-retirement or post-             from member                                       for operating expenses
employment benefit liabilities since Council      organizations           $1,227,613   $1,108,326   incurred in support of
employees are included in the plans of the                                                          the UBPR project       $     264,948 $   267,656
member organizations.                             The Council received
                                                  the following from the
Member organizations are not reimbursed           Department of Hous­
for the costs of personnel who serve as           ing and Urban Devel­
Council members and on the various task           opment (HUD) to fund
forces and committees of the Council. The         HUD's participation
value of these contributed services has not       in the HMDA project       350,082      306,584


                                                                                                    Notes continue on the following page.


                                                                                                                                                    35
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Statements of Cash Flows for the Years Ended December 31, 2000 and 1999

                                                                                                            2000                 1999

CASH FLOWS FROM OPERATING ACTIVITIES
  Revenues over (under) expenses                                                                        $   (188,027)      $      473,664
     Adjustments to reconcile revenues over (under) expenses to net cash
          provided by (used in) operating activities:
        Depreciation and amortization                                                                          7,870               16,154
        (Increase) decrease in accounts receivable from member organizations                                 (75,503)             292,482
        (Increase) decrease in other accounts receivable                                                     121,016             (123,104)
        (Increase) decrease in prepaid expenses                                                                    0               25,319
        Increase (decrease) in accounts payable and accrued liabilities to member organizations              248,585             (405,949)
        Increase (decrease) in other accounts payable and accrued liabilities                                  4,865               62,103
        Increase (decrease) in accrued annual leave                                                           (8,580)                  59
        Increase (decrease) in deferred rent                                                                  21,536               45,579
     Net cash provided by (used in) operating activities                                                     131,762              386,307
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                                                                             0              (16,758)
     Net cash used in investing activities                                                                         0              (16,758)
NET INCREASE (DECREASE) IN CASH                                                                              131,762              369,549
CASH BALANCE, Beginning of year                                                                              689,393              319,844
CASH BALANCE, End of year                                                                               $    821,155       $      689,393


See notes to financial statements.


Appraisal Subcommittee                             (5) Deferred Rent                                 those operating leases having an initial or
                                                                                                     remaining noncancellable lease term in
                             2000        1999      In 1992 and 1998, the Council entered into
                                                   leases for office space. These leases contain
                                                                                                     excess of one year at December 31, 2000, are
The Council provided                               rent abatements and scheduled rent increases,     as follows:
space and certain                                  which, in accordance with accounting prin­
administrative support                             ciples generally accepted in the United States                  2001        $ 313,281
to the Appraisal Sub-                              of America, must be considered in determining                   2002          320,232
committee. The                                     the annual rent expense to be recognized by the                 2003          330,555
Council received the                               Council. The deferred rent represents the dif­                  2004          347,624
following from the                                 ference between the actual lease payments and                   2005          354,575
Appraisal Subcommit­                               the rent expense recognized.                               After 2005        1,010,269
tee for these services $ 213,537       $ 190,155                                                                               $2,676,536
                                                   (6) Commitments
Community Reinvestment Act
                                                   The Council entered into operating leases to      Rental expenses under these operating
In 1995, development                               secure office and classroom space for peri­       leases and the operating lease that expired
work began to prepare                              ods ranging from two to ten years. Mini-          in 1999 were $532,096 and $572,210 in 2000
an information system                              mum future rental commitments under               and 1999, respectively.
to assist financial insti­
tutions with certain
Community Reinvest­
ment Act (CRA)
requirements. The first
full year of operations
was 1996. The Council
received the following
from participating
member agencies for
operating expenses
incurred in support of
the CRA project              738,525     705,864




36
Independent Auditors' Report on Internal Control over Financial Reporting
and Compliance Based upon the Audit Performed in Accordance
with Government Auditing Standards
To the Federal Financial Institutions
Examination Council
We have audited the financial state­    necessarily disclose all matters in    Council’s financial statements are
ments of the Federal Financial Insti­   the internal control over financial    free of material misstatement, we
tutions Examination Council (the        reporting that might be material       performed tests of its compliance
Council) as of and for the year         weaknesses. A material weakness        with certain provisions of laws,
ended December 31, 2000, and have       is a condition in which the design     regulations, contracts, and grants,
issued our report thereon dated Feb­    or operation of one or more of the     noncompliance with which could
ruary 20, 2001. We conducted our        internal control components does       have a direct and material effect on
audit in accordance with auditing       not reduce to a relatively low level   the determination of financial state­
standards generally accepted in the     the risk that misstatements in         ment amounts. However, providing
United States of America and the        amounts that would be material in      an opinion on compliance with
standards applicable to financial       relation to the financial statements   those provisions was not an objec­
audits contained in Government          being audited may occur and not be     tive of our audit and accordingly,
Auditing Standards, issued by the       detected within a timely period by     we do not express such an opinion.
Comptroller General of the United       employees in the normal course of      The results of our tests disclosed no
States.                                 performing their assigned functions.   instances of noncompliance that are
                                        We noted no matters involving          required to be reported under Gov­
                                        the internal control over financial    ernment Auditing Standards.
                                        reporting and its operation that we
Internal Control over Financial         consider to be material weaknesses.
                                                                               This report is intended solely for the
Reporting                                                                      information and use of the Members
                                        However, we noted other matters        and management of the Council and
In planning and performing our          involving the internal control over    the Inspector General of the Board
audit, we considered the Council’s      financial reporting that we have       of Governors of the Federal Reserve
internal control over financial         reported to the management of the      System, and is not intended to be
reporting in order to determine our     Council in a separate letter dated     and should not be used by anyone
auditing procedures for the purpose     February 20, 2001.                     other than these specified parties.
of expressing our opinion on the
financial statements and not to pro-
vide assurance on the internal con­     Compliance
trol over financial reporting. Our
consideration of the internal control   As part of obtaining reasonable
over financial reporting would not      assurance about whether the            February 20, 2001




                                                                                                                  37

     APPENDIX C: MAPS OF AGENCY REGIONS AND DISTRICTS





40   Board of Governors of the Federal Reserve System

41   Federal Deposit Insurance Corporation

42   National Credit Union Administration

43   Office of the Comptroller of the Currency

44   Office of Thrift Supervision





                                                         39

      THE FEDERAL RESERVE SYSTEM DISTRICTS





40

FEDERAL DEPOSIT INSURANCE CORPORATION REGIONS

         (SUPERVISION AND COMPLIANCE)





                                                 41

      NATIONAL CREDIT UNION ADMINISTRATION





42

COMPTROLLER OF THE CURRENCY DISTRICT ORGANIZATION





                                                 43

      OFFICE OF THRIFT SUPERVISION





44


				
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