This memorandum, prepared in consultation with the FDIC’s Board of Directors,
represents the FDIC’s response to the findings and recommendations related Board member
involvement in and reporting of, the Oakar estimated insured deposit allocation issue raised in
the draft Office of the Inspector General (OIG) audit entitled FDIC Reserve Ratio and
Assessment Determinations (Assignment No. 2005-032) (“OIG audit”). The stated objective of
the OIG audit was to determine whether the FDIC accurately determines the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF) reserve ratios and whether the
Corporation has adequate internal controls in place to ensure that the FDIC accurately calculates,
projects, and processes assessments for financial institutions. The OIG audit contains several
findings and one recommendation related to the calculation of the reserve ratio and assessment
determinations. These findings and the recommendation are addressed in a separate FDIC
management response from the Division of Insurance and Research. In its draft report, the OIG
also raises findings and two additional recommendations related to the Corporation’s processes
for communicating information relevant to assessment determinations, as well as other corporate
matters and activities, to the Board. As discussed below, the FDIC concurs with the findings in
the OIG audit pertaining to these processes, supports the OIG’s recommendations, and intends to
implement them in a timely manner.
The OIG audit findings related to Board member involvement in, and reporting of, the
Oakar estimated insured deposit allocation issue are as follows:
- The OIG audit concludes that while internal discussion among senior FDIC officials
involved in the Oakar estimated insured deposit allocation issue was adequate;
communication of the issue with the FDIC Board and Deputies was limited. The FDIC
concurs with this finding, and will accordingly implement the recommendations made by
the OIG in regard to communications with the Board as discussed below.
- The OIG audit concludes that the FDIC could have done more to publicly communicate
the Oakar issue and change in estimating methodology to the banking industry and the
public. The FDIC concurs, and shall consider how to improve such public
communications as part of its overall review of policies and procedures for keeping
Board members informed about Corporate matters of importance.
With respect to these findings, the OIG audit recommends that the Acting Deputy to the
Acting Chairman, in coordination with the Deputies to the other Board members:
Review the existing Corporate Bylaws, specifically the powers and duties delegated to
the Chief Financial Officer and the Directors of the Division of Finance and the Division
of Insurance and Research to ensure that those delegations reflect the Board members’
intent and expectations with regard to the deposit insurance fund reserve ratio and
assessment determination processes, and make recommendations deemed appropriate to
the Board, and
Work with FDIC management to evaluate procedures and practices for keeping Board
members informed of Corporation matters and activities and make recommendations
deemed appropriate to the Board. Consideration should be given to:
the FDIC Board members’ expectations regarding communication and
coordination with FDIC management, including the types of issues suitable for
Board review and approval, and
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the adequacy of existing mechanisms for providing the Board current, accurate
and complete information needed to monitor FDIC operations, sucb as the
Deputies briefings and other informational reports and briefings.
The FDIC supports these recommendations and intends to implement them as soon as
possible through the formation of a working committee composed of Deputies to the Board
members and FDIC representatives. While the FDIC General Counsel concluded that the new
Oakar estimated insured deposit allocation methodology was adopted in accordance with
delegated authorities, we agree that a review of the existing bylaws by the working committee,
including a review of the powers and duties delegated to FDIC senior officials, will be beneficial
to ensure that those delegations reflect the Board members’ intent and expectations with regard
to the deposit insurance fund reserve ratio and assessment determination processes. As part of
this review, the working committee will make recommendations concerning appropriate
delegations of authority deemed appropriate to the Board.
We also agree that the working committee should work with FDIC management to
evaluate procedures and practices for keeping Board members informed of Corporation matters activities and communicating matters of importance to the public. The working committee
will prepare recommendations to the Board, giving consideration to Board members’
expectations regarding communication and coordination with FDIC management, including the
types of issues suitable for Board review and approval, and the adequacy of existing mechanisms
for providing the Board current, accurate and complete information needed to monitor FDIC
operations, such as the Deputies briefings and other informational reports and briefings.
The recommendations of the working committee will be drafted and submitted to the
Board for review by September 30, 2006.
