Federal Deposit Insurance Corporation
Office of the Director
Division of Resolutions and Receiverships
Washington, D.C. 20429

DATE: August 11, 2004

MEMORANDUM TO: Stephen M. Beard, Deputy Assistant Inspector General for Audits

FROM: Mitchell L. Glassman, [Electronically produced version; original signed by Mitchell L. Glassman], Director

SUBJECT: Draft Report Entitled Retention Strategies for Failed Insured Depository Institution Employees (Assignment No. 2003-062)

The following is in response to the recommendations made in the subject draft report dated July 14, 2004:

Audit Recommendation #1
Establish guidance in the Failed Financial Institution Closing Manual that clarifies the nature and extent of anaylsis that should be conducted and documented by the RIC and post-closing Asset Management Team Leader for use in assessing the consideration given to (a) the costs to the receivership of retention incentives in comparison to the costs should former institution employees leave, (b) industry retention standards, and (c) alternative retention strategies.

DRR concurs with this recommendation and will review current guidelines and, where necessary, clarify or compose additional guidelines for inclusion into the Failed Financial Institution Closing Manual. Recommended revisions will be presented to DRR's Senior Management Oversight Committee for approval by October 31, 2004.

Audit Recommendation #2
Revise Directive 1610.2 to include guidance for determining when a receivership is of a long-term nature and warrents consideration of background investigations for retained failed institution employees.

DRR concurs with the recommendation that a "long-term" receivership needs to be defined in DRR's guidelines. DRR, in conjunction with DOA, will establish guidelines to address receiverships which are considered long-term in nature. This effort will be completed by December 31, 2004.

Audit Recommendation #3
Revise the Closing Manual to require that the RIC and the post-closing Asset Management Team Leader assess the risk of compromise of sensitive institution and customer information for each failed insured depository institution that will require a long-term receivership and for which former institution employees will be retained. Based on the assessment, a decision should be made regarding whether any or all of the following should be completed for the retained institution employees: OPM background investigations, FBI fingerprint checks, credit checks, or signed statements of nondisclosure.

DRR concurs with the recommendation. DRR will review the risk assessment guidelines contained in DOA Directive 1610.2 and will revise the Closing Manual as it pertains to the retention of employees of a failed institution and their involvement with customer information in a long-term receivership. These revisions will be completed by December 31, 2004.

Audit Recommendation #4
Revise the Closing Manual to require that the RIC and the post-closing Asset Management Team Leader document the results of the risk assessment described in recommendation 4 in the receivership's Strategic Resolution Plan and/or subsequent post-closing receivership reports.

DRR concurs with the recommendation that documentation of a risk assessment of an employee needs to be retained and noted in the post Strategic Resolution Plan. The documentation which will be required to be retained will be part of the guidelines established in recommendation #3. These guidelines will be completed by December 31, 2004.

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