Federal Financial Institutions Examination Council

A NNUAL R EPORT 2005

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 Federal Financial Institutions Examination Council

A NNUAL R EPORT 2005

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

John C. Dugan, Chairman Susan Schmidt Bies, Vice Chairman Comptroller of the Currency Member, Board of Governors of the Office of the Comptroller of the Currency Federal Reserve System

Martin J. Gruenberg JoAnn Johnson John M. Reich Acting Chairman Chairman Director Federal Deposit Insurance Corporation National Credit Union Administration Office of Thrift Supervision LETTER OF TRANSMITTAL

Federal Financial Institutions Examination Council Arlington, VA 22226 March 30, 2006

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 2005 Annual Report of the Federal Financial Institutions Examination Council.

Sincerely,

John C. Dugan Chairman TABLE OF CONTENTS

vii Message from the Chairman 1 Overview of the Federal Financial Institutions Examination Council Operations 3 Record of Council Activities 5 State Liaison Report 7 Activities of the Interagency Staff Task Forces 19 The Federal Financial Institution Regulatory Agencies and Their Supervised Institutions 23 Assets, Liabilities, and Net Worth of U.S. Commercial Banks, Thrift Institutions, and Credit Unions as of June 30, 2005 24 Income and Expenses of U.S. Commercial Banks, Thrift Institutions, and Credit Unions for Twelve Months Ending June 30, 2005 25 Appendix A: Relevant Statutes 29 Appendix B: 2005 Audit Report 37 Appendix C: Maps of Agency Regions and Districts 43 Appendix D: Organizational Listing of Personnel

v MESSAGE FROM THE CHAIRMAN

I am pleased to report that the www.ffiec.gov, to provide bank­ FFIEC continued its high level of ers and consumers with answers performance and productivity to frequently asked questions throughout 2005. We continued to and other information on work together to advance the hurricane-related issues. Council’s mission of promoting • Extensive outreach activities uniformity and consistency in the with Federal and State examin­ supervision of financial institu­ ers as well as with the banking tions. We also continued to foster industry on the release of the communication, cooperation, and FFIEC’s Bank Secrecy Act/ coordination among the member Anti-Money Laundering Examina­ agencies that comprise the Council, tion Manual and regulatory its task forces, and the State Liaison expectations. The Financial Committee, an advisory committee Crimes Enforcement Network comprised of five representatives (FinCEN) and the Office of For­ of state agencies that supervise eign Assets Control (OFAC) par­ financial institutions. In addition, ticipated in the outreach activi­ we continued our work with other ties. In total, these activities outside agencies and with banking reached more than 23,000 bank­ industry and trade group represen­ ers and examiners. tatives on several significant FFIEC initiatives. • Issuance of interagency guidance John C. Dugan and rules related to numerous Specific details on the 2005 achieve­ banking practices and activities, ments are included in the Record including: of Council Activities and Activities a. Credit-risk management of the Interagency Staff Task Forces guidance for home equity sections of this report. I am pleased lending. to mention here, however, some of the more significant initiatives b. Interpretive guidance on undertaken by the Council, its task response programs for unau­ forces, and interagency working thorized access to customer groups in 2005: information and customer notice and a small entity com­ • Implementation of the Central pliance guide for information Data Repository, which stream­ security standards to help lined the collection of quarterly smaller institutions comply bank financial reports (Call with the agencies’ information Reports). security guidelines. • Establishment of a working c. Joint guidance by the agencies group, which includes represen­ and FinCEN on providing tatives from all FFIEC member banking services to money agencies and the State Liaison services businesses. Committee, to enhance the agen­ d. An advisory on accounting cies’ coordination and communi­ and reporting for commit­ cation on, and supervisory ments to originate and sell responses to, issues facing the mortgage loans. industry in the aftermath of the devastating hurricanes in Louisi­ e. Guidance on authentication ana and Mississippi. As part of in an Internet banking this effort, the FFIEC has estab­ environment. lished a page on its web site, f. Supervisory guidance to assist

vii in the determination of the limitation of liability provi­ • Continued enhancements to appropriate risk-based capital sions and certain alternative the speed and accuracy of finan­ treatment for unrated direct dispute resolution provisions cial data shared between the credit substitutes extended to in external audit engagement agencies. asset-backed commercial letters. • Enhancements to the Uniform paper programs. d. Proposed changes to the Bank Performance Report’s g. Call Report revisions for supervisory framework for (UBPR) custom peer group infor­ reporting issues related to the classification of commer­ mation and the issuance of early asset-backed commercial cial credit exposures. UBPR data for banker and public paper conduits, the reporting access. of past due loans and related • Continuation of a review of regulations to identify and elimi­ I am extremely pleased about the allowances, and purchased nate those that are outdated, significant accomplishments impaired loans and related allowances. unnecessary, or unduly burden­ achieved by the FFIEC and its task some on insured depository forces, with assistance from the h. Frequently asked questions institutions, pursuant to Section State Liaison Committee in 2005. I and answers on the new home 2222 of the Economic Growth am also pleased with our continued loan price data disclosed for and Regulatory Paperwork communications with other agen­ the first time in 2005 under Reduction Act of 1996. cies such as FinCEN and OFAC for the Home Mortgage Disclo­ Bank Secrecy Act-related informa­ sure Act; residential tract • Implementation of recommenda­ tion and with the Securities and development lending; and tions from a Community Rein­ Exchange Commission, the Finan­ independent appraisal and vestment Act (CRA) efficiency cial Accounting Standards Board, evaluation functions. review that identified cost- and the American Institute of Certi­ saving measures in the collec­ fied Public Accountants for infor­ • Issuance of joint requests by the tion, processing, and reporting mation pertaining to the reporting agencies for comment on: of CRA data. of information needed for effective a. Proposed interagency guide­ • Delivery of pertinent training supervision, the application of lines on nontraditional mort­ to over 2,500 state and federal accounting standards, and the gage products. employees, including more assessment of reporting burden. advanced focus in credit We will continue to promote our b. Proposed revisions to the analysis, cash flow construction, efforts to work together on an inter­ federal banking agencies’ fraud and anti-money launder­ agency basis to advance our mis­ domestic risk-based capital ing, and the continuation of sion of promoting uniformity and regulations. the broad-based Supervisory consistency in the supervision of c. A proposed advisory on the Updates and Emerging Issues our financial institutions. unsafe and unsound use of conferences.

viii OVERVIEW OF THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL (FFIEC) OPERATIONS

The FFIEC was established on Reform, Recovery, and Enforce­ member agencies: March 10, 1979, pursuant to title X ment Act of 1989, established the • Consumer Compliance of the Financial Institutions Regula­ Appraisal Subcommittee within the tory and Interest Rate Control Act of Council. The functions of the sub­ • Examiner Education 1978 (FIRA), Public Law 95-630. The committee are (l) monitoring the purpose of title X, entitled the Fed­ requirements, including a code of • Information Sharing eral Financial Institutions Examina­ professional responsibility, estab­ • Reports tion Council Act of 1978, was to cre­ lished by states for the certification ate a formal interagency body and licensing of individuals who • Supervision empowered to prescribe uniform are qualified to perform appraisals • Surveillance Systems principles, standards, and report in connection with federally related forms for the federal examination of transactions; (2) monitoring the The Council also established the financial institutions by the Board of appraisal standards established by Legal Advisory Group, composed Governors of the Federal Reserve the federal financial institutions of the general or chief counsel of System (FRB), the Federal Deposit regulatory agencies and the former each of the member agencies, to pro­ Insurance Corporation (FDIC), the Resolution Trust Corporation; vide support to the Council and National Credit Union Administra­ (3) maintaining a national registry staff in the substantive areas of con­ tion (NCUA), the Office of the of appraisers who are certified and cern; and the Agency Liaison Comptroller of the Currency (OCC), licensed by a state and who are Group, composed of senior officials and the Office of Thrift Supervision also eligible to perform appraisals responsible for coordinating the (OTS) and to make recommenda­ in federally related transactions; efforts of their respective agencies’ tions to promote uniformity in the and (4) monitoring the practices, staff members. The task forces and supervision of financial institutions. procedures, activities, and organi­ the Legal Advisory Group provide The Council is also responsible for zational structure of the Appraisal research and analytical papers and developing uniform reporting Foundation, a nonprofit educa­ proposals on the issues that the systems for federally supervised tional corporation established by Council addresses. financial institutions, their holding the appraisal industry in the companies, and the nonfinancial United States. institution subsidiaries of those The Council has five members: the Administration of the Council institutions and holding companies. Comptroller of the Currency, the It conducts schools for examiners The Council holds regular meetings Chairman of the Federal Deposit employed by the five agencies rep­ at least twice a year. It holds other Insurance Corporation, a member resented on the Council and makes meetings whenever called by the of the Board of Governors of the those schools available to employees Chairman or three or more Council Federal Reserve System appointed of state agencies that supervise members. by the Chairman of the Board, the financial institutions. Chairman of the Board of the The Council’s activities are funded The Council was given additional National Credit Union Administra­ in several ways. Most of the statutory responsibilities by section tion, and the Director of the Office Council’s funds are derived from 340 of the Housing and Community of Thrift Supervision. In addition, assessments on its five constituent Development Act of 1980, Public to encourage the application of uni­ agencies. The Council also receives Law 96-399. Among these responsi­ form examination principles and reimbursement for the services it bilities are the implementation of a standards by the state and federal provides to support preparation system to facilitate public access to supervisory authorities, the Coun­ of the quarterly Uniform Bank data that depository institutions cil established, in accordance with Performance Report. It receives must disclose under the Home the requirement of the statute, an tuition fees from non-agency attend­ Mortgage Disclosure Act of 1975 advisory State Liaison Committee. ees to cover some of the costs associ­ (HMDA) and the aggregation of ated with its examiner education annual HMDA data, by census To effectively administer projects program. in all its functional areas, the Coun­ tract, for each metropolitan statisti­ cil established six interagency staff In 2005, the FRB provided budget cal area. task forces, each of which includes and accounting services to the Title XI of the Financial Institutions one senior official from each of the Council, and the Federal Reserve’s

1 Associate Director for Finance served as the Council’s controller. The Council is supported by a small, full-time administrative staff in its operations office and its examiner education program, which are located at the Council’s examiner training facility in Arlington, Vir­ ginia. Each Council staff member is detailed from one of the five agen­ cies represented on the Council but is considered an employee of the Council.

2 RECORD OF COUNCIL ACTIVITIES

The following section is a chrono­ logical record of the official actions taken by the FFIEC during 2005 pur­ suant to the Federal Financial Insti­ tutions Examination Council Act of 1978, as amended, and the Home Mortgage Disclosure Act (HMDA).

February 18, 2005 Action. Approved the 2004 annual report of the Council to the Congress. Explanation. The legislation estab­ lishing the Council requires that, not later than April 1 of each year, the Council publish an annual report covering its activities during the preceding year. The Examination Council in Session.

March 24, 2005 respect to financial statement February 23, 2005 audits. Action. Accepted the annual external Action. Approved the Memorandum audit report. of Understanding (MOU) by and May 27, 2005 between the FFIEC member agen­ Explanation. The Council is audited cies and the Federal Reserve Board by an outside accounting firm annu­ Action. Approved the issuance of regarding the HMDA reports. ally. The audit report includes a the Council’s annual interagency review of the Council’s financial awards. Explanation. The HMDA MOU was statements as well as a report on developed in response to one of the internal controls and compliance Explanation. The Council has an findings of an internal FFIEC opera­ with Government Accounting interagency awards program that tions review that was presented to Standards. recognizes individuals of the mem­ the Council in 2002. The MOU out­ ber agencies who have provided lines the responsibilities that the outstanding service to the Council Federal Reserve performs related March 24, 2005 on interagency projects and pro­ to HMDA data that is collected by grams during the previous year. member agencies from financial Action. Directed that a proposed institutions that are required to file guidance on the unsafe and HMDA reports. unsound use of limitation of liabil­ September 16, 2005 ity provisions and certain alternative Action. Approved the establishment dispute resolution provisions in of a working group within the external audit engagement letters March 24, 2005 FFIEC’s Task Force on Supervision be published for public comment. to facilitate the coordination, com­ Action. Approved the appointment of six task force chairs. Explanation. The proposed guidance munication, and response to bank advises financial institutions’ boards supervision issues that were likely Explanation. The chairs for all six of directors, audit committees, and to arise in the aftermath of Hurri­ standing task forces are approved management that they should cane Katrina. The State Liaison annually and are drawn from man­ ensure that they do not enter any Committee was requested to partici­ agement and staff of the five mem­ agreement that contains auditor pate in the working group on ber agencies. limitation liability provisions with an advisory basis.

3 Explanation. The interagency efforts Data Repository (CDR) Steering and FRB regarding the duties and were formalized to underscore the Committee to approve certain responsibilities for each production importance of coordinating and expenditures for work allowed of the Uniform Bank Performance responding to emerging issues under the terms of the CDR Report (UBPR). related to the hurricane in a consis­ contract. Explanation. The UBPR is an ongo­ tent and timely fashion. Explanation. The CDR is an Internet- ing FFIEC project; however, the based application, developed by the MOU that governs the production FDIC, the FRB, and the OCC under of the UBPR is signed for a three- December 16, 2005 the auspices of the FFIEC for the year time frame to allow for peri­ Action. Approved the 2006 Council collection and processing of the odic reviews and updates. The budget. quarterly Reports of Condition and existing MOU expired at the end Income filed by insured commercial of 2005. Therefore, the MOU was Explanation. The Council is required banks and state-chartered savings updated and approved for three to approve the annual budget. banks. more years, until December 2008.

December 16, 2005 December 30, 2005 Action. Approved a delegation of Action. Approved an MOU by and authority to the FFIEC’s Central between the FFIEC, FDIC, OCC,

4 STATE LIAISON REPORT

The State Liaison Committee (SLC) nate the other three members. A worked to respond to issues facing consists of five representatives of list of the SLC members appears the financial industry and its cus­ state agencies that supervise finan­ in appendix D of this report. tomers in the aftermath of the hurri­ cial institutions. The representatives cane. The SLC’s involvement with are appointed for two-year terms. Currently, state banking regulators such groups enables state regulators An SLC member may have his or and state credit union supervisors through CSBS, NASCUS, and her two-year term extended by the are represented in an observer ACSSS to participate in substantive appointing organization for an addi­ capacity during monthly meetings policy discussions on a broad range tional, consecutive two-year term. of the FFIEC’s Task Force on Super­ of important regulatory subjects, Each year, the SLC elects one of its vision, Information Sharing Task reflecting the spirit and intent of members to serve as chair for twelve Force, the Task Force on Consumer Congress in establishing the SLC. months. The Council elects two of Compliance, and the interagency the five members. The American Bank Secrecy Act/Anti-Money The SLC looks forward to continued Council of State Savings Supervisors Laundering working group. During cooperation of the state and federal (ACSSS), the Conference of State the past year, representatives also regulators and is interested in Bank Supervisors (CSBS), and the participated in various working expanding state participation in National Association of State Credit groups, such as the Hurricane other areas of joint financial indus­ Union Supervisors (NASCUS) desig­ Katrina working group, which try supervision.

5 ACTIVITIES OF THE INTERAGENCY STAFF TASK FORCES

Task Force on agency templates used for public questions and answers regarding Consumer Compliance CRA performance evaluations. the new rules. The Task Force on Consumer Com­ Additionally, the Federal Reserve, pliance (TFCC) promotes policy the OCC, and the FDIC revised their HMDA/CRA Data Collection coordination, a common supervi­ regulations that implement the Subcommittee Activities CRA. These amendments raise the sory approach and uniform enforce­ The HMDA/CRA Data Collection small bank threshold from $250 mil­ ment of consumer protection laws Subcommittee completed drafting a lion in total assets to $1 billion in and regulations. The task force Memorandum of Understanding total assets; create a new test for identifies and analyzes emerging (MOU) between the FFIEC and the intermediate small institutions consumer compliance issues and Federal Reserve’s HMDA Data Pro­ (those with assets between $250 mil­ develops proposed policies and pro­ cessing unit, which processes the lion and $1 billion); expand the defi­ cedures to foster consistency among data on behalf of the FFIEC. The nition of community development the agencies. Additionally, the task working group created the MOU to to include activities that revitalize force addresses legislation, regula­ ensure understanding of expected and stabilize “underserved and dis­ tions, and policies at the state and levels of service between the two tressed” rural areas, as well as des­ federal level that may have a bear­ parties. The agencies executed the ignated disaster areas, and clarify ing on the compliance responsibili­ HMDA Data Processing MOU in when discrimination and other ille­ ties of the five agencies. March. gal credit practices by a bank or an During 2005, the task force used two affiliate may adversely affect CRA The HMDA/CRA Data Collection standing subcommittees to help pro­ performance evaluation for all Subcommittee undertook a CRA mote its mission: the Community banks. The OTS had already efficiency initiative in late 2004 to Reinvestment Act (CRA) Subcom­ adopted the change in the small identify and implement cost saving mittee and the Home Mortgage Dis­ bank threshold from $250 million to measures in the collection, process­ closure Act (HMDA)/CRA Data $1 billion and proposed, but has not ing, and reporting of CRA data. Collection Subcommittee. The TFCC yet adopted, changes to the commu­ Because of this initiative, the agen­ also creates ad hoc working groups nity development definition. The cies will eliminate the Aggregate to handle particular projects and three banking agencies developed and Disclosure Report CD-ROM assignments. The task force meets examination procedures for review­ product in 2006, and the reports monthly to address and resolve ing the CRA performance of inter­ will be available exclusively on the common issues in compliance mediate small institutions and pub­ FFIEC’s web site. Also related to supervision. While significant issues lished for comment proposed this initiative, the HMDA/CRA are referred with recommendations to the Council for action, the Coun­ cil has delegated to the task force the authority to make certain deci­ sions and recommendations.

Initiatives Addressed in 2005 CRA Subcommittee Activities The agencies jointly published tech­ nical amendments to the CRA regu­ lations to conform the regulations to recent actions of the Office of Man­ agement and Budget, the Census Bureau, and the Board of Governors of the Federal Reserve System. The CRA Subcommittee also launched a review of the Interagency Questions and Answers and revised the inter­ Task Force on Consumer Compliance meeting.

7 Data Collection Subcommittee requirements of each of these rules loan pricing data disclosed for the drafted a CRA Data Processing addressing electronic communica­ first time in 2005. The Remittances/ MOU, patterned after the HMDA tions with consumers. The FCC Alternative Mortgages Working Data Processing MOU. telemarketing regulations impose Group looked at possible financial penalties on all commercial approaches the agencies could Overdraft Protection Guidance telemarketers for calling phone consider to help address the finan­ numbers on the National Do Not cial services needs of the growing In response to concerns raised about Call Registry. The FTC regulations immigrant community. One initia­ overdraft protection products, com­ implementing the CAN-SPAM Act tive being considered is the devel­ monly referred to as “bounced­ reduce spam by prohibiting senders opment of a multilingual consumer check protection,” the federal bank of unsolicited commercial e-mail education brochure to assist con­ and credit union agencies issued messages from disguising the source sumers in better understanding “Joint Guidance on Overdraft Pro­ and content of their messages and options when selecting remittances tection Programs” in 2005. The joint by giving consumers the choice to services. guidance seeks to assist insured cease receiving a sender’s unsolic­ In September, the TFCC established depository institutions in the disclo­ ited commercial e-mail messages. sure and administration of overdraft a working group to explore poten­ tial interagency responses to protection programs. The guidance Emerging Issues contains three primary sections: addressing the long-term issues Safety and Soundness Consider­ Early in 2005, the TFCC formed two arising from the hurricane recovery ations, Legal Risks, and Best Prac­ new working groups to address efforts. This working group is col­ tices. The Office of Thrift Supervi­ identified emerging issues so itcould laborating with other FFIEC task sion (OTS) issued similar guidance keep abreast of potential forces to address policy issues that on this subject for thrifts. The TFCC implications of legal and regulatory continue to arise due to the severity also established a working group to developments. The additional and scale of these natural disasters. author examination procedures re­ two groups, the HMDA Data flecting the amendments to Regula­ Fallout Working Group and the tion DD, which address the market­ Remitances/Alternative Mortgages Task Force on ing of overdraft protection products. Working Group, began meeting in Examiner Education 2005. The HMDA Data Fallout Fair Credit Reporting Act (FCRA) Working Group served as a forum Responsible for overseeing the Examination Procedures Update for the agencies to share outreach FFIEC’s examiner education pro­ information and published a set gram on behalf of the Council, the The TFCC approved revised FCRA of frequently asked questions that Task Force on Examiner Education examination procedures, incorporat­ addressed the new home mortgage promotes interagency education ing provisions of the FCRA that Congress amended by the Fair and Accurate Credit Transactions Act (FACTA). The revised procedures are structured in a modular format and are designed to allow examin­ ers to risk-focus the FCRA review according to a financial institution’s operations. Some of the FACTA implementing regulations that affect the FCRA are not yet final­ ized. The modular format of the revised examination procedures will facilitate further updates upon completion of the implementing regulations.

FCC Telemarketing Rules and CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act) The TFCC approved new examina­ tion procedures to cover the Task Force on Examiner Education meeting.

8 through timely, cost-efficient, attended training programs. (See Examiner Education Office to state-of-the-art training programs the table for details of participation produce training and reference for agency examiners and staff. by program and agency.) materials that can be delivered The task force develops programs on CDs directly to all examiners on its own initiative and in response concurrent with, or shortly after, to requests from the Council or Initiatives Addressed in 2005 the issuance of interagency state­ other Council task forces. Each fall, ments, Council courses, or con­ it develops a program calendar Throughout the year, the task force ferences. For example, the new based on training demand from continued to pursue a more focused BSA/AML Examination Manual the five member agencies and state approach to the design and delivery Infobase training product was is­ financial institution regulators. The of training and information through sued in July 2005 and was made task force also oversees the delivery the use of targeted education and available to all examiners and and evaluation of programs throug­ electronic technology. The InfoBase bankers on the FFIEC web site, hout the year. During the past year, architecture implemented in 2001 www.ffiec.gov. 2,588 regulatory staff members continues to allow the FFIEC’s

2005 FFIEC Training by Agency and Sponsored—Actual, as of December 31, 2005

FRB FDIC FRB State FDIC State NCUA OCC OTS FCA FHFB Other Total Event Name Sponsored Sponsored

Advanced Cash Flow Concepts & Analysis: Beyond the Numbers 22 10 37 0 0 0 4 0 0 174 Advanced Commercial Credit Analysis 33 18 114 20 11 44 11 5 0 0 256 Anti-Money Laundering Workshop 106 31 46 1 7 2 59 0 1 6 259 Asset Management Forum 62 18 37 20 0 36 9 0 0 0182 Capital Markets Conference 19 16 45 37 23 9 6 0 14 1 170 Capital Markets Specialists Conference 15 8 43 10 2 11 0 7 2 2100

Cash Flow Construction and Analysis from Federal Tax Returns 28 14 88 26 13 23 23 3 0 0 218 Community Financial Institutions Lending Forum 6 8 6 32 11 0 3 0 1 067 Financial Crimes Seminar 58 38 84 51 25 0 17 3 1 6 283 Fraud Identification On-line Training 5 0 49 0 3 5 15 0 0 0 77 Fraud Investigations Symposium (postponed until 2006) 0 0 0 0 0 0 0 0 0 0 0 Information Technology Symposium 2 0 4 0 2 3 3 0 0 014

Information Technology Conference 57 18 47 0 25 37 20 13 5 4 226 Instructor Training School 39 2 16 2 1 12 2 2 0 076 International Banking (self study) 3 0 13 0 0 8 8 0 0 032 International Banking School 2 1 4 9 0 5 6 0 0 027 Lead Investigation Specialists Workshop 4 0 6 0 1 2 0 0 0 013 Payment Systems Risk Conference 2610 617 11 9 9 3 0 0 91

Real Estate Appraisal Review School 15 19 56 0 14 0 6 2 0 0112 Real Estate Appraisal Review On-line 0 0 13 0 2 0 1 0 0 016 Supervisory Updates & Emerging Issues 88 41 33 27 2 39 12 4 7 1 254 Testifying School 0 2 9 7 023 0 0 0 041

Grand Total 590 254 756 259 153 268 214 42 31 21 2,588 Percentage 22.80 9.81 29.21 10.01 5.91 10.36 8.27 1.62 1.20 0.81 100

Combined Agency and Sponsored Percentage 32.61 NA 39.22 NA 5.91 10.36 8.27 1.62 1.20 0.81 100

9 and anti-money-laundering arenas and in advanced credit analysis skills.

Facilities The Council training office and classrooms are located in the FDIC Seidman Center in Arlington, Vir­ ginia. Offices, classrooms, and lodg­ ing facilities are rented from the FDIC. This facility offers convenient access to a 100-seat auditorium and numerous classrooms. Large FFIEC conferences with over 200 attendees formerly held in hotels around the country will be held in the new 500-seat auditorium at the Seidman Center when it opens in Instructor Steve Gulbrandsen instructs “Advanced Cash Flow Concepts and Analysis: Beyond the early 2006. Numbers”.

The task force also continued a joint classroom-based training programs. Course Catalogue and Schedule project with the Information Tech­ Significant activities that occurred nology Subcommittee of the Task during 2005 were the development The course catalogue and schedule Force on Supervision to prepare for of more-advanced classes in credit are available online at www.ffiec. the release of the updated FFIEC analysis, continuation of the broad- gov/exam/education.htm. Information Technology Examination based Supervisory Updates and Handbook to examiners and the Emerging Issues conferences, and Additionally, a printed copy of the industry in a web-based format. modification of other courses and 2006 course catalogue and schedule curricula as appropriate. The task are available from the Examiner In addition to the focus on electronic force also continued its support and Education Office. To obtain a copy, delivery, the task force continued to development of several examiner contact: pursue its initiative to improve education programs in the fraud Karen K. Smith, Manager FFIEC Examiner Education Office 3501 Fairfax Drive, Room 3086 Arlington, VA 22226-3550 Phone: (703) 516-5588

Task Force on Information Sharing

The Task Force on Information Sharing promotes the sharing of electronic information among FFIEC agencies in support of the supervision, regulation, and deposit insurance responsibilities of financial institution regulators. The task force provides a forum for FFIEC member agencies to dis­ cuss and address issues affecting the quality, consistency, efficiency, and security of interagency infor­ Dina Biblin, FDIC Sr. Litigation Attorney, instructs the Testifying School. mation sharing. Significant matters

10 are referred, with recommendations, to the Council for action, and the task force has delegated authority from the Council to take certain actions.

To the extent possible, the agencies build on each other’s information databases to minimize duplication of effort and promote consistency. The agencies participate in a pro­ gram to share, in accordance with agency policy, electronic versions of their reports of examination, inspection reports, and other com­ munications with financial institu­ tions. The agencies also provide each other with access to their organizations’ structure, financial, and supervisory information. The task force maintains a “Data Exchange Summary” listing the data files exchanged among FFIEC agencies.

Task force members consist of repre­ sentatives from FFIEC agencies. Monthly meetings are held to Task Force on Information Sharing meeting. address and resolve issues related to information sharing. In addition, data. The working group also main­ effort to physically remove data that the task force receives demonstra­ tains a Task Scope Matrix to identify needs to be archived. tions and reports on agency, finan­ and provide status reports on all Completed projects include the cial industry, and other FFIEC initia­ outstanding work group projects. tives pertaining to technology sharing of information used to assess risk-related deposit insurance development. The task force has High-speed T1 communication lines premiums. Efforts continue to estab­ established two working groups to linking the FDIC, the FRB, and the address technology-development is­ OCC have eliminated the use of lish an automated mechanism to secure data transfers between the sues and interagency reconciliation magnetic tapes or disks for sharing FRB and the NCUA. of financial institution structure electronic data among these agen­ data. cies. Further research is being con­ ducted to ensure efficiency of data Structure Data Reconciliation utilization through the reduction of The task force’s Structure Data Rec­ volume and duplication of efforts. Initiatives Addressed in 2005 onciliation Working Group contin­ New technologies are being imple­ ues to reconcile structure data Technology Issues mented in improving data sharing, about financial institutions regu­ e.g., utilizing Connect:Direct. lated by FFIEC agencies to ensure The chief initiative of the task force that the information the agencies is to identify and implement tech­ In 2005, the group continued to report is consistent and accurate. nologies to make the sharing of work on long-term projects related The working group’s quarterly rec­ interagency data more efficient. The to the FRB’s planned new bulk data oncilements have greatly resolved task force’s Technology Working transfer and the OCC’s planned data discrepancies among the Group meets monthly to develop retirement of its mainframe. Also, agencies. technological solutions to common efforts were dedicated to revamp data-sharing issues among the agen­ the collaborative web site (FRB and Collaborative Web Site cies. The working group coordinates FDIC) by archiving much of the his­ the automated transfer of data files torical data. This involved the deter­ The Information Sharing Task Force among the agencies and suggests mination of how much historical and the Technology Working Group better and more efficient ways to information was retained on the use an FDIC-sponsored collabora­ share financial and supervisory web site, as well as a labor-intensive tive web site to share information

11 among the FFIEC agencies. The web nificant staff resources to the the Federal Reserve Bank of Kansas site is used to disseminate docu­ development of a new Internet- City and the FDIC, handled a larger ments and other critical materials based business model for processing number of calls than originally pro­ pertaining to interagency informa­ the quarterly Reports of Condition jected (mostly on user maintenance, tion exchanges. and Income (Call Reports) filed by enrollment in the CDR, and submis­ insured commercial banks and sion status). Because of the benefits state-chartered savings banks. The of the new business process and Task Force on Reports principal feature of this new model implementation of the XBRL-based is a Central Data Repository (CDR), CDR, the agencies were able to pub­ The law establishing the Council which uses XBRL business reporting lish taxonomies within the software and defining its functions requires language to collect, validate, store, that let bankers know the standards the Council to develop uniform and distribute Call Report informa­ for accepting data in advance of reporting systems for federally tion. A steering committee estab­ their filing. The agencies saw signifi­ supervised financial institutions lished by the task force continued to cant improvement in the quality of and their holding companies and coordinate the agencies’ work on data received, and bankers submit­ subsidiaries. To meet this objective, this project and used four focus ted their third quarter data slightly the Council established the Task groups to collaborate and communi­ earlier in the reporting Force on Reports. The task force cate with contractors and targeted cycle than for the previous quarter. helps to develop interagency unifor­ stakeholder communities. mity in the reporting of periodic Since implementation, the CDR information that is needed for effec­ The Call Report Software Vendors project team has focused on resolv­ tive supervision and other public Focus Group continued to monitor ing minor system issues, suggesting policy purposes. As a consequence, the progress of the vendors’ devel­ contract modifications to improve the task force is concerned with opment efforts and involve them in functionality, training agency users, issues such as the development and testing. The Financial Institutions developing plans for implementing interpretation of reporting instruc­ Focus Group continued to seek the remaining primary functionality, tions, including responding to input from banks and banking trade and evaluating secondary inquiries about the instructions organizations on implementing the options under the CDR contract from reporting institutions and the new system and provided them (including the Uniform Bank Perfor­ public; the application of accounting with updates on the project. The mance Report). Agency and contrac­ standards to specific transactions; focus group also managed the suc­ tor staff developed a transition plan the development and application cessful enrollment of approximately to move the project from its devel­ of processing standards; the moni­ 8,000 institutions in the CDR. The opment phase into its operations toring of data quality; and the XBRL Focus Group continued to and maintenance phase. This plan assessment of reporting burden. (1) ensure that the project complied included changes in project manage­ In addition, the task force works with national and international ment and other key agency person­ with other organizations, including standards and (2) help expand the nel, both at the agencies and the the Securities and Exchange Com­ range of XBRL taxonomies for bank­ contractor, that were handled mission, the Financial Accounting ing data. The Change Management seamlessly. Standards Board, and the American Focus Group was active in training Institute of Certified Public Accoun­ agency staff on the functionality of The CDR project team continues tants (AICPA). The task force is also the CDR, preparing informational to make progress on the quarterly responsible for any special projects materials and press releases for the releases of the system by prioritizing related to these subjects that the CDR web site and the media, com­ and approving work to be Council may assign. To help the municating the project’s status to included in each future quarterly task force carry out its responsibili­ stakeholders, and ensuring the release. The December 2005 release ties, working groups are organized validation of metadata prior to included high priority change as needed to handle specialized or implementation. requests and corrections of defects technical accounting, reporting, identified during the initial release. The CDR was successfully imple­ Based on the volume of calls instructional, and processing mented on October 1, 2005, for the matters. received by the CDR Help Desk as third quarter 2005 Call Report data banks prepared their Call Report submissions and performed very data during October, the project well throughout the processing team developed a plan to increase Initiatives Addressed in 2005 cycle, even during the heaviest vol­ help desk support during the first Call Report Processing Modernization ume period. Industry feedback was month of each reporting cycle. positive on the ease of use of the During 2005, the FDIC, the FRB, and CDR. The Help Desk, with support With the successful implementation the OCC continued to devote sig­ for high volume provided by staff at of the Call Report process, the CDR

12 project team is now evaluating how These changes were implemented in The task force conducted monthly best to leverage this investment by the Call Report in June 2005 and in interagency conference calls during improving other data series’ collec­ the Thrift Financial Report in Sep­ 2005 to discuss Call Report instruc­ tion and management processes. tember 2005 (except for the revi­ tional matters and related account­ sions for Ginnie Mae foreclosures, ing issues to reach uniform inter­ which will take effect in both Reporting Requirements agency positions on these issues. reports in March 2006). for the Call Report Other Activities Following task force approval in In August 2005, the task force February 2005, the FRB, the OCC, approved, and the FRB, the OCC, In April 2005, the task force and the FDIC published a Federal and the FDIC published, a Federal approved, and the FRB, the OCC, Register notice in March requesting Register notice requesting comment and the FDIC published in the Fed­ comment on the proposed addition on proposed Call Report revisions eral Register, a revised set of pro­ of three items to the Call Report in that primarily address the agencies’ posed changes to the FFIEC 009, June 2005 in response to AICPA needs for data to more effectively Country Exposure Report, for Statement of Position 03-3 on “pur­ evaluate banks’ credit risk and their implementation in September 2005. chased impaired loans,” which took liability structure and liquidity. To The revised proposal responded to effect at the beginning of 2005. The reduce reporting burden, the agen­ concerns expressed by commenters new items were intended to assist cies also proposed to eliminate cer­ on an August 2004 proposal to the agencies in evaluating loan loss tain existing items for some or all revise this report. The modified allowances. After considering the banks. The proposal’s new and revisions will harmonize U.S. data public comments received on the revised items focused on construc­ with data on cross-border exposures proposal, the task force agreed to tion loans, commercial real estate collected by other countries and dis­ proceed with the changes as pro­ loans, lease financing receivables, seminated by the Bank for Interna­ posed. The OTS published a compa­ Federal Home Loan Bank advances, tional Settlements. They will also rable proposal for the Thrift Finan­ nonaccrual assets, credit deriva­ provide additional detail on U.S. cial Report in April 2005. tives, single family residential mort­ banks’ exposure to country risk, gage banking activities, certain transfer risk, and foreign exchange During the second quarter of 2005, secured borrowings, life insurance risk while eliminating certain exist­ the task force concluded its delib­ assets, and income from interna­ ing items from the report in order to erations on a proposal issued in tional operations. The agencies reduce the reporting burden of the 2004 concerning proposed clarifica­ also proposed to revise the officer new data. After considering the tions of the Call Report and Thrift declaration and director attestation two comments received on the Financial Report treatment of mort­ requirements and signatures that April 2005 proposal, the task force gage loans backing Ginnie Mae apply to the Call Report. decided not to proceed with a por­ securities that an institution that tion of the proposal and to delay issues such securities has the option Although these revisions were pro­ implementation of the remaining to repurchase when the loans meet posed to take effect in March 2006, revisions until March 2006. The certain delinquency criteria. The many of the public comments indi­ agencies advised institutions that proposal also included an instruc­ cated that a longer implementation file the Country Exposure Report tional revision on the use of trade period would be needed to make about the revised reporting require­ data reporting for when-issued necessary systems changes for sev­ ments in October 2005 and received securities. The task force agreed on eral of the proposal’s reporting OMB approval for these changes in an approach for reporting rebooked changes. After considering the November 2005. The agencies are delinquent Ginnie Mae loans and comments, the task force agreed in completing their work on these related foreclosed properties, which December 2005 to modify some of reporting changes and the related included the addition of new items the proposed changes and to spread instructions so that they can be to the Call Report and Thrift Finan­ the implementation of the revisions implemented in banks’ Country cial Report as suggested by a num­ over the period from March 2006 Exposure Reports for the first quar­ ber of commenters on the proposal. through March 2008. The task force ter of 2006. The task force decided not to intro­ also decided to limit the proposed duce the proposed instructional changes to the signature and attesta­ change for when-issued securities. tion requirements and to defer them Task Force on Supervision until September 2006. In January The U.S. Office of Management 2006, banks were notified of the The Task Force on Supervision coor­ and Budget (OMB) approved the timetable for the phased-in imple­ dinates and oversees matters relat­ reporting revisions for purchased mentation schedule for the Call ing to safety-and-soundness impaired loans and for Ginnie Mae Report revisions, which are subject supervision and examination of loan delinquencies and foreclosures. to approval by OMB. depository institutions. It provides

13 a forum for the member agencies to promote quality, consistency, and effectiveness in examination and supervisory practices and to reduce unnecessary regulatory burden. While significant issues are referred, with recommendations, to the Coun­ cil for action, the Council has del­ egated to the task force the authority to make certain decisions and rec­ ommendations, provided all task force members agree. Meetings are held regularly to address and resolve common supervisory issues. To facilitate communication and coordination with the Council’s SLC, representatives of the SLC attend task force meetings on an advisory basis. The task force has also established and maintains Task Force on Supervision meeting. supervisory communication proto­ cols to be used in emergencies. These protocols are periodically deposits, and general ledger sys­ BSA/AML. These procedures tested through table-top exercises tems that are used by a large were completed and issued in with task force members and key number of financial institutions. 2005. These reviews can help the agen­ supervisory personnel. The task force also establishes cies identify potential systemic adhoc working groups to handle The task force has three standing risks and provide examiners with individual projects and assign­ subcommittees: information that can reduce time ments, as needed. and resources needed to examine • The Capital Subcommittee serves the software at each of the user as a forum for senior policy staff financial institutions. members to coordinate various Initiatives Addressed in 2005 • The Bank Secrecy Act/Anti- initiatives pertaining to the agen­ Information Technology cies’ regulatory capital standards. Money Laundering (BSA/AML) Working Group is responsible for Financial institutions’ growing reli­ • The Information Technology (IT) strengthening communications ance on technology and third-party Subcommittee serves as a forum among the federal and state service providers leaves them and to address information systems banking agencies and the Finan­ their customers increasingly vulner­ and technology issues as they cial Crimes Enforcement Net­ able to various operational risks and relate to financial institutions. The work, ensuring consistency in security breaches. The task force’s IT Subcommittee also oversees examination policies and proce­ IT Subcommittee serves as a focal and administers the FFIEC’s dures, and coordinating exam­ point for coordinating many of the Multi-Regional Data Processing iner training in the implementa­ agencies’ activities in these areas. A Servicer (MDPS) and Shared tion of the Bank Secrecy Act and major effort of the subcommittee Application Software Review other anti-money-laundering and agencies in 2003 and 2004 was (SASR) programs. Through the requirements. The working the revision of the 1996 FFIEC Infor­ FFIEC’s MDPS program, the group keeps the task force and mation Systems Examination Hand­ agencies conduct joint informa­ the Council apprised of BSA/ book. The 1996 handbook was re­ tion technology examinations of AML efforts related to examina­ placed by a series of twelve topical the largest technology service tion procedures and training that booklets addressing issues such as providers and other entities that are being undertaken on an inter­ business continuity planning, infor­ provide core banking services. agency basis and ensuring that mation security, and electronic The SASR program provides a projects are being completed as banking. In 2005, the group started mechanism for the agencies to planned. One of the working the process of maintaining the review and share information group’s initial priorities was the booklets by updating the Information on mission-critical software and development and issuance of Security Booklet and developed a applications, such as wire trans­ comprehensive, interagency booklet covering networks and tele­ fers, capital markets, loans, examination procedures for communications, which will be

14 completed in 2006. Three additional began in 2004 to assess the potential • Interagency Advisory on Account­ handbooks are slated for updating impact of the Basel II Framework on ing and Reporting for Commitments in 2006: The Supervision of Technology financial institution and industry- to Originate and Sell Mortgage Service Providers, Business Continuity, wide capital levels, was completed. Loans provided supplemental and Retail Payment Systems. In 2005, The QIS-4 findings suggested that, guidance on the appropriate the subcommittee also developed without modifications, the Basel II accounting and reporting for and issued, under the auspices of framework could result in unaccept­ commitments to originate mort­ the FFIEC, guidance on the risks and able reductions and dispersion gage loans that will be held for risk-management controls necessary in minimum risk-based capital resale and sell mortgage loans to authenticate the identity of cus­ require ments. As a result, on under mandatory delivery and tomers accessing Internet-based September 30, 2005, the agencies best efforts contracts. financial services. The guidance, issued a joint press release stating “Authentication in an Internet Bank­ that while they intend to move for­ • Interagency Guidance on Response ing Environment,” was issued to ward with the implementation of Programs for Unauthorized Access reflect the many significant legal Basel II, prudential safeguards must to Customer Information and Cus­ and technological changes with be incorporated into the Basel II tomer Notice interpreted the respect to the protection of customer framework to address the concerns agencies’ customer information information, increasing incidents of created by the QIS-4 findings. The security standards and stated identity theft and fraud, and the banking agencies continue working that financial institutions should introduction of improved authenti­ to develop a Notice of Proposed implement response programs to cation technologies. The Information Rulemaking for publication in the address security breaches involv­ Technology Subcommittee, in con­ Federal Register. ing customer information. junction with the Task Force on • Interagency Guidance for Determi­ The agencies have worked together Examiner Education, also sponsors nation of Risk-Based Capital to consider ways to (1) modernize an annual IT conference for the Treatment provided supervisory the risk-based capital rules for non- agencies’ examination staff to guidance for determining the Basel II banks to ensure that the explore emerging risks and industry appropriate regulatory risk- framework remains a relevant and best practices. This subcommittee based capital treatment to be reliable measure of the risks present also hosts an annual IT symposium applied to direct credit substi­ in the banking system and (2) mini­ that develops guidance on emerging tutes issued in connection with mize potentially material differ­ technologies that are expected to asset-backed commercial paper ences in capital requirements that affect the banking industry. programs. may arise between banks that adopt Basel II and those banks that remain Capital Standards • Interagency Guidance on Home under the existing rules. This effort Equity Lending focused on sound Although each of the four federal culminated in the publication of an underwriting standards and banking agencies has its own capital interagency advance notice of pro­ effective risk-management prac­ regulations, the task force’s standing posed rulemaking on October 20, tices for this type of lending. Capital Subcommittee and several 2005, to solicit comments on poten­ • Interagency Guidance on Real of its working groups coordinate ef­ tial revisions to the existing risk- forts among the agencies to promote based capital framework. Estate Appraisal Issues included frequently asked questions joint issuance of capital rules and re­ that addressed the agencies’ lated interpretative guidance, Other Supervisory Initiatives thereby minimizing interagency dif­ appraisal and real estate lending requirements for independence ferences and reducing the potential Throughout the year, the task in the appraisal process, finan­ burden on the banking force discusses and responds to industry. A major focus of the fed­ emerging supervisory issues and cial residential tract develop­ ment loans, and the calculation eral banking agencies has been the risks. During 2005, the task force of supervisory loan-to-value development of the Basel II frame­ over-saw the development and issu­ work. The agencies continued ance of the following interagency ratios. development of the notice of pro­ supervisory policy statements and • FFIEC BSA/AML Examination posed rulemaking (NPR) and advisories: Manual was released in 2005, examination guidance, which is and outreach sessions were • Interagency Joint Guidance on Pro­ intended to provide the industry held nationwide for examiners viding Banking Services to Money with regulatory perspectives for and bankers to discuss the Services Businesses focused on implementation. procedures. USA PATRIOT Act consider­ Additionally, the fourth quantitative ations for institutions when serv­ • Interagency Advisory on External impact study (QIS-4), which ing money services businesses. Auditors/Limitation of Liability

15 was developed by a Task Force implementation of uniform inter­ eral and state banking agencies, on Supervision working group agency surveillance and monitoring the task force also makes UBPRs and addressed clauses in external systems. It provides a forum for the available to banks and the public auditor engagement letters that member agencies to discuss best through a public web site, raised concerns. The guidance practices to be used in those systems www.ffiec.gov. was issued in early 2006. and to consider the development of • Interagency Proposal on the Classifi­ new financial analysis tools. The cation of Commercial Credit Expo­ task force’s principal objective has Initiatives Addressed in 2005 been to develop and produce the sures requested comment on a Early UBPR Data Delivered proposal to replace the current Uniform Bank Performance Report (UBPR). UBPRs present financial regulatory commercial loan clas­ The task force implemented a new statistics and peer group com­ sification system with a two- process that allows UBPR data to dimensional based framework. parisons of individual banks for be published up to four weeks current and historical periods. In response to the comments, sooner than was previously pos­ These reports are important tools the agencies have chosen to sible. Beginning with the UBPR postpone any action on this for completing supervisory evalua­ dated December 31, 2004, data for tions of a bank’s condition and proposal. individual banks was published performance, as well as for plan­ after the underlying Call Report • Proposed Interagency Guidance on ning onsite examinations. The data passed all supervisory edits. Nontraditional Mortgage Products banking agencies also use the data For many banks this change meant requested comment on proposed from these reports in their auto­ that UBPR information became guidelines that address loan mated monitoring systems to available before the thirty-day Call terms and underwriting stan­ identify potential or emerging Report filing deadline. dards, portfolio risk-management problems in insured banks. practices, and consumer protec­ Early Peer Group Statistics Delivered tion issues that could arise with UBPRs are produced for each com­ these products. mercial bank and insured savings After a thorough review of the bank in the United States that is underlying information, the task supervised by the FRB, the FDIC, or force decided to shorten the deliv­ Task Force on the OCC. UBPR data are also avail­ ery time for peer group statistics Surveillance Systems able to all state bank supervisors. and percentile rankings. This pro­ While the UBPR is principally cess will be continued in subse­ The Task Force on Surveillance Sys­ designed to meet the examination quent quarters. tems oversees the development and and surveillance needs of the fed- For the September 30, 2005, UBPR, peer group and percentile ranking data for peer groups composed of banks filing the 041 Call Report form was delivered approximately two and one-half weeks earlier (November 7, 2005) than was done previously. Delivery of peer group statistics and percentile rankings for peer groups composed of banks filing the 031 Call Report form was shortened by approximately five days.

Frequent Updates of the UBPR Web Site The task force decided to provide more frequent updates to the UBPR web site than was done in the past. Beginning September 30, 2005, UBPR data for individual banks was updated twice a week. Peer group statistics and percentile Task Force on Surveillance Systems meeting. rankings will also be updated on

16 the same cycle once published. This included under an option in the mance ratios for banks in each of process will be continued in subse­ CDR contract. these peer groups, (3) list the indi­ quent quarters. vidual banks included in each peer group, and (4) compare a bank to User’s Guide (Guide) for the UBPR Information Available the performance of a user-defined on the UBPR Web Site customer peer group. The Guide was updated to incorpo­ UBPR Availability rate new samples of pages and asso­ Custom Peer Group Tool ciated data. The March 31, 2005, ver­ To provide broad public access to sion of the guide is available online information about the financial con­ The Custom Peer allows bankers, bank supervisors, and the general at www.ffiec.gov. dition of insured banks, the task public to create custom peer groups force publishes a final quarterly version of the UBPR for each institu­ based on financial and geographical Enhancements to the UBPR criteria and to display all UBPR tion, typically within twenty to pages with peer group statistics In 2006, the task force is planning twenty-five days of the Call Report several enhancements to the UBPR due date. Additionally, early UBPR and percentile rankings derived from a custom peer group. that will take advantage of new and data is typically available five days existing Call Report data. Addition­ before the Call Report filing date. Please visit http://www.ffiec.gov/ ally, the task force is considering Bankers and the general public may UBPR.htm for additional informa­ expanding the number of years of access these reports on the FFIEC tion about the UBPR, including dis­ UBPR data available on the web web site at no charge. In addition to tribution schedules, descriptions of site. Finally, the custom peer search publishing current reports, the task pending changes, and instructions engine may be expanded to permit force regularly refreshes all historic on using online UBPR tools. Stan­ several additional search criteria. UBPR data on the web site. dardized UBPR quarterly data Advance notice of changes will be on cartridge is also available for provided on http://www.ffiec.gov/ Other UBPR Reports $400. Information on ordering UBPR.htm. The task force is partici­ items may be obtained by calling pating with the Task Force on Several web-based statistical reports (703) 516-5732, sending an e-mail Reports and the Central Data supporting UBPR analysis are also message to [email protected], or Repository (CDR) Steering Com­ updated on the web site. These writing the Council at: mittee in an evaluation of the Uni­ reports (1) summarize the perfor­ form Bank Performance Report for mance of each of the UBPR’s peer Federal Financial Institutions inclusion in the CDR. Processing, groups (determined by size, loca­ Examination Council storage, and delivery of UBPR data tion, and business line), (2) detail 3501 Fairfax Drive, Room D8073a areamong the features that may be the distribution of UBPR perfor­ Arlington, VA 22226-3550

17 THE FEDERAL FINANCIAL INSTITUTION REGULATORY AGENCIES AND THEIR SUPERVISED INSTITUTIONS

The five federal regulatory agencies Board of Governors of the that protect consumers in credit and represented on the Council have Federal Reserve System (FRB) deposit transactions, monitoring primary federal supervisory juris­ compliance with other statutes (for diction over 18,558 domestically The FRB was established in 1913. example, the money-laundering chartered banks, thrift institutions, It is headed by a seven-member provisions of the Bank Secrecy Act), and credit unions. On June 30, 2005, Board of Governors, each member and regulating transactions between these financial institutions held total of which is appointed by the Presi­ banking affiliates. assets of more than $12.3 trillion. dent, with the advice and consent of Policy decisions are implemented The Board of Governors of the Fed­ the Senate, for a fourteen-year term. by the FRB and the twelve Federal eral Reserve System (FRB) and the Subject to confirmation by the Sen­ Office of Thrift Supervision (OTS) ate, the President selects two Board Reserve Banks, each of which has operational responsibility within a also have primary federal supervi­ members to serve four-year terms specific geographical area. The sory responsibility for commercial as Chairman and Vice Chairman. bank holding companies and for The FRB’s activities that are most twelve Reserve Bank districts are headquartered in Boston, New savings and loan holding compa­ relevant to the work of the Council York, Philadelphia, Cleveland, nies, respectively. are the following: Richmond, Atlanta, Chicago, St. The three banking agencies on the • examining, supervising, and Louis, Minneapolis, Kansas City, Council have authority to oversee regulating state member banks Dallas, and San Francisco. Each the operations of U.S. branches and (that is, state-chartered banks Reserve Bank has a president and agencies of foreign banks. The Inter­ that are members of the Federal other officers. Among other respon­ national Banking Act of 1978 (IBA) Reserve System); bank holding sibilities, a Reserve Bank employs a authorizes the Office of the Comp­ companies; Edge Act and agree­ staff of bank examiners who exam­ troller of the Currency (OCC) to ment corporations; and, in con­ ine state member banks and Edge license federal branches and agen­ junction with the licensing Act and agreement corporations, cies of foreign banks and permits authorities, the U.S. offices of inspect bank holding companies, U.S. branches that accept only foreign banks; and examine the offices of foreign wholesale deposits to apply for • developing and issuing regula­ banks located within the Reserve insurance with the Federal Deposit tions, policies, and guidance Bank’s District. Insurance Corporation (FDIC). applicable to organizations National banks, which must be According to the Federal Deposit within the Federal Reserve’s members of the Federal Reserve Insurance Corporation Improve­ supervisory oversight authority; ment Act of 1991 (FDICIA), foreign System, are chartered, regulated, and and supervised by the OCC. State- banks that wish to operate insured • approving or denying applica­ chartered banks may apply to and entities in the United States and accept retail deposits must organize tions for mergers, acquisitions, be accepted for membership in the and changes in control by state Federal Reserve System, after which under separate U.S. charters. Exist­ member banks and bank holding they are subject to the supervision ing insured retail branches may con­ tinue to operate as branches. The companies, applications for for­ and regulation of the Federal eign operations of member banks Reserve. Insured state-chartered IBA also subjects those U.S. offices and Edge Act and agreement cor­ banks that are not members of the of foreign banks to many provisions of the Federal Reserve Act and the porations, and applications by Federal Reserve System are regu­ foreign banks to establish or lated and supervised by the FDIC. Bank Holding Company Act. The acquire U.S. banks and to estab­ The Federal Reserve has overall IBA gives primary examining authority to the OCC, the FDIC, lish U.S. branches, agencies, or responsibility for foreign banking representative offices. operations, including both U.S. and various state authorities for banks operating abroad and foreign the offices within their jurisdic­ Other supervisory and regulatory tions and gives the FRB residual responsibilities of the Federal banks operating branches in the United States. examining authority over all U.S. Reserve include regulating margin banking operations of foreign requirements on securities transac­ The Federal Reserve covers the banks. tions, implementing certain statutes expenses of its operations with rev­

19 enue it generates principally from funded through assessments paid gives the FDIC backup enforcement assessments on the twelve Federal by insured commercial banks, cer­ authority over all insured institu­ Reserve Banks. tain federal and state savings banks, tions; that is, the FDIC can recom­ and industrial banks, as well as mend that the appropriate federal through income from investments agency take action against an in U.S. government securities. The insured institution and may do so Federal Deposit SAIF, which was created in 1989 as itself if deemed necessary. Insurance Corporation (FDIC) a successor to the former Federal In protecting insured deposits, the Savings and Loan Insurance Corpo­ The Congress created the FDIC in FDIC is charged with resolving the ration (FSLIC), receives assessment 1933 with a mission to insure bank premiums from insured savings problems of insured depository deposits and reduce the economic institutions at the least possible cost associations. SAIF assessment rates disruptions caused by bank failures. to the deposit insurance fund. In and BIF assessment rates are cur­ Management of the FDIC is vested rently the same—ranging from zero carrying out this responsibility the in a five-member Board of Direc­ FDIC engages in several activities, to twenty-seven cents for every $100 tors. Three of the directors are including paying off deposits, of assessable deposits, depending on directly appointed by the President, the degree of risk to the respective arranging the purchase of assets with the advice and consent of the and assumption of liabilities of deposit insurance fund. On Febru­ Senate, for six-year terms. One of failed institutions, effecting insured ary 8, 2006, the President signed leg­ the three directors is designated by islation that contains the Deposit deposit transfers between institu­ the President as Chairman for a tions, creating and operating tempo­ Insurance Reform Act of 2005. As a term of five years, and another is rary bridge banks until a resolution result, the BIF and SAIF will be designated as Vice Chairman. The merged into a new fund, the can be accomplished, and using its other two Board members are the conservatorship powers. Deposit Insurance Fund, no later Comptroller of the Currency and than July 6, 2006. the Director of the Office of Thrift Supervision. No more than three Any depository institution that National Credit Union board members may be of the same receives deposits may be insured Administration (NCUA) political party. by the FDIC after application to and examinmation and approval by The NCUA, established by an act of The FDIC’s supervisory activities the FDIC. After considering the Congress in 1934, is the agency that are conducted by the Division of (1) applicant’s financial history and supervises the nation’s federal credit Supervision and Consumer Protec­ condition, (2) adequacy of the capi­ union system. A three-member tion. The division is organized into tal structure, (3) future earnings bipartisan board appointed by the six regional offices and two area prospects, (4) general character of President for six-year terms man­ offices. The regional offices are the management, (5) risk presented ages the NCUA. The President also located in Atlanta, Chicago, Dallas, to the insurance fund, (6) conve­ selects a member to serve as Chair Kansas City, New York, and San nience and needs of the community of the board. Francisco. The two area offices are to be served, and (7) consistency of located in Boston (reports to New The main responsibilities of the corporate powers, the FDIC may NCUA are the following: York) and Memphis (reports to Dal­ approve or deny an application for las). In addition to the regional and insurance. FDICIA expanded the • charter, examine, and supervise area offices, the FDIC maintains FDIC’s approval authority to more than 5,400 federal credit fifty-three field territory offices for include national banks, all state- unions nationwide; risk management and thirty-two chartered banks that are members • administer the National Credit field territory offices for compliance, of the Federal Reserve System, and Union Share Insurance Fund with dedicated examiners assigned federal and state-chartered savings (NCUSIF), which insures member to the six largest financial institu­ associations. tions. Bank liquidations are handled share accounts in more than 8,800 by the Division of Resolutions and The FDIC has primary federal regu­ U.S. federal and state-chartered Receiverships. latory and supervisory authority credit unions; and over insured state-chartered banks The FDIC administers two deposit • manage the Central Liquidity that are not members of the Federal Facility, a central bank for credit insurance funds: the Bank Insurance Reserve System, and it has the Fund (BIF) and the Savings Associa­ unions, which provides liquidity authority to examine for insurance to the credit union system. tion Insurance Fund (SAIF). The purposes any insured financial insti­ basic insured amount for a deposi­ tution, either directly or in coopera­ The NCUA also has statutory tor is $100,000 at each insured tion with state or other federal authority to examine and supervise depository institution. The BIF is supervisory authorities. The FDICIA NCUSIF-insured, state-chartered

20 credit unions in coordination with mission-critical programs include Office of Thrift Supervision state agencies. the following responsibilities: (OTS) The NCUA has five regional offices • chartering national banks and The OTS was established as a across the United States that admin­ issuing interpretations related to bureau of the U.S. Department of ister its responsibility to charter and permissible banking activities; the Treasury in 1989. The OTS char­ supervise credit unions. Its examin­ ters and is the primary regulator for • establishing and communicating ers conduct on-site examinations all federal savings associations, and and supervision of each federal regulations, policies, and operat­ shares joint responsibility with state ing guidance applicable to credit union and selected state- authroities for supervision of all national banks; and chartered credit unions. The NCUA state savings associations. The OTS is funded by the credit unions it • supervising the national banking is also the primary regulator for all regulates and insures. system through on-site examina­ savings and loan holding compa­ tions, off-site monitoring, sys­ nies, and has been affirmed by the temic risk anaylsis, and appropri­ European Union to be the consoli­ ate enforcement activities. dated, coordinating regulator for Office of the Comptroller specific holding companies conduct­ of the Currency (OCC) To meet its objectives, the OCC ing operations in Europe. The OCC is the oldest federal bank maintains a nationwide staff of bank examiners and other professional The mission of the OTS is to per­ regulatory agency, established as a form the following tasks: bureau of the U.S. Department of and support personnel. Headquar­ the Treasury by the National Cur­ tered in Washington, D.C., the • effectively and efficiently super­ rency Act of 1863. It is headed by OCC has a district office in Chicago, vise savings associations; Dallas, Denver and New York. In the Comptroller of the Currency, • supervise savings and loan hold­ who is appointed to a five-year term addition, the OCC maintains a net­ ing company enterprises to assess by the President with the advice and work of forty-one field offices and twenty-five satellite locations in cit­ corporate-wide risk and capital consent of the Senate. The Comp­ adequacy; troller also serves as a director of ies throughout the United States, as both the FDIC and the Neighbor­ well as resident examiner teams in • maintain the safety, soundness, hood Reinvestment Corporation. the twenty-three largest national and viability of the industry; and banking companies and an examin­ The OCC was created by Congress ing office in London, England. • encourage a competitive industry to charter national banks, to over­ to meet America’s housing, com­ see a nationwide system of banking The Comptroller receives advice on munity credit, and financial institutions, and to assure that policy and operational issues from services needs and to provide national banks are safe and sound, an executive committee consisting access to financial services for all competitive and profitable, and of the First Senior Deputy Comp­ Americans. capable of serving in the best pos­ troller and Chief Counsel; Chief of sible manner the banking needs of Staff and Public Affairs; Senior The OTS carries out its mission by their customers. As such, it cur­ Deputy Controller and Chief (1) adopting regulations governing rently regulates and supervises National Bank Examiner; Ombuds­ the thrift institution industry, approximately 1,918 national banks man; Chief Information Officer; (2) examining and supervising and fifty-one federal branches of Executive Officer for Leadership, savings associations and their affili­ foreign banks in the United States, Learning and Workplace Fairness; ates, (3) taking appropriate action accounting for approximately 67 and Senior Deputy Comptrollers to enforce compliance with federal percent of the total assets of all U.S. for Mid-Size and Community Bank laws and regulations, and (4) acting commercial banks and branches of Supervision, Large Bank Supervi­ on applications to charter or acquire foreign banks. sion, International and Economic a savings association. The OTS also Affairs, and Management and Chief has the authority to regulate, exam­ The OCC seeks to assure a banking Financial Officer. ine, supervise, and take enforcement system in which national banks action against savings and loan soundly manage their risks, comply The OCC is funded primarily by holding companies and other affili­ with applicable laws, compete effec­ semiannual assessments on national ates, as well as entities that provide tively with other providers of finan­ banks, interest revenue from its services to savings assoications. cial services, offer products and investment in U.S. Treasury securi­ services that meet the needs of cus­ ties, and licensing and other fees. The OTS is headed by a Director tomers, and provide fair access to The OCC does not receive congres­ appointed by the President, with the financial services and fair treatment sional appropriations to fund any advice and consent of the Senate, to of their customers. The OCC’s of its operations. serve a five-year term. The Director

21 determines policy for the OTS and ton, D.C., and four regional offices rily through fees and assessments makes final decisions on regulations located in Jersey City, New Jersey levied on the institutions it regu­ governing the industry as a whole (Northeast Region); Atlanta, Geor­ lates. and on measures affecting indi­ gia (Southeast Region); Dallas, vidual institutions. The Director Texas (Midwest Regional); and also serves as a member of the Daly City, California (West board of the FDIC and the Neigh­ Region). borhood Reinvestment Corporation. The OTS uses no congressional The agency conducts its operations appropriations to fund its opera­ from its headquarters in Washing­ tions. It draws its revenues prima­

22 ASSETS, LIABILITIES, AND NET WORTH of U.S. Commercial Banks, Thrift Institutions1 and Credit Unions as of June 30, 2005 (Not subject to External Auditor review) Billions of dollars

Thrift Institutions

U.S. Credit Branches U.S. Commercial Banks2 OTS-Regulated4 Unions3 and Other Agencies FDIC- State of Insured State Non- Foreign Federal State Savings Federal State Item Total National Member Member Banks5 Charter Charter Banks Charter Charter

Total assets 12,354 5,774 1,278 1,625 1,257 1,412 22 316 372 298

Total loans and receivables (net) 7,035 3,216 761 1,049 308 1,059 14 195 225 198 Loans secured by real estate6 4,153 1,666 447 704 17 938 12 165 108 96 Consumer loans7 1,102 565 80 137 0 80 0 14 126 100 Commercial and industrial loans 1,215 645 166 169 165 47 2 14 3 4 All other loans and lease receivables8 645 385 78 52 126 1 0 3 0 0 LESS: Allowance for possible loan and lease losses 82 45 10 14 0 7 0 2 2 2 Federal funds sold and securities purchased under agreements to resell 578 329 32 31 163 16 0 3 3 1 Cash and due from depository institutions9 596 243 77 59 79 28 1 8 57 44 Securities and other obligations10 2,158 930 281 370 169 212 6 86 62 42 U.S. government obligations11 681 121 69 134 35 158 5 66 57 36 Obligations of state and local governments12 124 57 19 40 0 5 0 3 0 0 Other securities 1,355 753 193 196 134 49 1 17 5 7 Other assets13 1,985 1055 127 116 538 96 1 23 16 13

Total liabilities 11,206 5,203 1,147 1,448 1,257 1,256 19 280 331 265

Total deposits and shares14 8,026 3,689 898 1,207 633 787 16 224 318 254 Federal funds purchased and securities sold under agreements to repurchase 950 457 89 95 220 68 1 17 3 0 Other borrowings15 1,457 609 116 122 180 376 3 36 7 8 Other liabilities16 774 448 44 24 224 25 0 3 3 3

Net worth17 1,145 570 131 176 0 156 2 36 41 33

Memorandum: Number of institutions reporting 17,999 1,861 904 4,779 265 774 96 449 5,494 3,377

Footnotes to Tables ritories and possessions, and FDIC family, and other personal expenditures, insured banks in Puerto Rico and U.S. including both installment and single 1. The table covers institutions, including territories and possessions. Excludes payment loans. Net of unearned income those in Puerto Rico and U.S. territories bank holding companies. on installment loans. and possessions, insured by the Federal 3. Data are for federallyinsured natural per­ 8. Includes loans to financial institutions, Deposit Insurance Corporation or son credit unions only. for purchasing or carrying securities, to National Credit Union Savings Insurance 4. Data for thrift institutions regulated by finance agricultural production and other Fund. All branches and agencies of for­ the OTS are unconsolidated except for loans to farmers (except those secured by eign banks in the United States, but operating and finance subsidiaries. real estate), to states and political subdivi­ excluding any in Puerto Rico and U.S. sions and public authorities, and miscella­ 5. These institutions are not required to file territories and possessions, are covered neous types of loans. whether or not insured. Excludes Edge reports of income. Act and agreement corporations that are 6. Includes loans secured by residential 9. Includes vault cash, cash items in process not subsidiaries of U.S. commercial property, commercial property, farmland of collection, and balances with U.S. and banks. (including improvements), and unim­ foreign banks and other depository insti­ tutions, (including demand and time 2. Reflects the fully consolidated statements proved land; and construction loans secured by real estate. deposits and certificates of deposit for all of FDIC-insured U.S. banks—including categories of institutions). their foreign branches, foreign subsidiar­ 7. Includes loans, except those secured by ies, branches in Puerto Rico and U.S. ter­ real estate, to individuals for household, Notes continue on the next page

23 INCOME AND EXPENSES of U.S. Commercial Banks, Thrift Institutions1, and Credit Unions for Twelve Months Ending June 30, 2005 (Not subject to External Auditor review) Billions of dollars

Thrift Institutions

Credit U.S. Commercial Banks2 OTS-Regulated4 Unions3 Other FDIC- State Insured State Non- Federal State Savings Federal State Item Total National Member Member Charter Charter Banks Charter Charter

Operating income 696 385 68 106 82 1 16 21 17 Interest and fees on loans 373 183 36 64 54 1 10 14 11 Other interest and dividend income 111 66 10 16 10 0 4 3 2 All other operating income 210 135 22 25 18 0 2 4 4

Operating expenses 511 284 47 74 62 0 11 18 15 Salaries and benefits 145 82 14 21 14 0 3 6 5 Interest on deposits and shares 107 53 10 18 14 0 3 5 4 Interest on other borrowed money 57 34 4 6 12 0 1 0 0 Provision for loan and lease losses 26 15 2 4 3 0 0 1 1 All other operating expenses 172 99 16 24 19 0 3 6 5

Net operating income 184 101 21 32 21 0 4 3 2

Securities gains and losses 6 2 0 0 4 0 0 0 0

Income taxes 59 33 7 10 8 0 1 0 0

Net income 130 70 14 22 16 0 3 3 2

Memorandum: Number of institutions reporting 17,734 1,861 904 4,779 774 96 449 5,494 3,377

10. Includes government and corporate secu­ banks, also includes net due from head Home Loan Banks, subordinated debt, rities, including mortgage-backed securi­ office and other related institutions. For limited life preferred stock, and other ties and obligations of states and political SAIF-insured institutions, also includes nondeposit borrowing. subdivisions and of U.S. government equity investment in service corporation 16. Includes depository institutions' own agencies and corporations. subsidiaries. mortgage borrowing, liability for capital­ 11. U.S. Treasury securities and securities of, 14. Includes demand, savings, and time ized leases, liability on acceptances and loans to, U.S. government agencies deposits, (including certificates of deposit executed, various accrual accounts, and and corporations. at commercial banks, U.S. branches and miscellaneous liabilities. For U.S. agencies of foreign banks, and savings branches and agencies of foreign banks, 12. Securities issued by states and political bank), credit balances at U.S. agencies also includes net owed to head office subdivisions and public authorities, of foreign banks, and share balances at and other related institutions. except for savings and loan associations savings and loan associations and credit 17. Includes capital stock, surplus, capital and U.S. branches and agencies of foreign unions, (including certificates of deposit, reserves, and undivided profits. banks that do not report these securities NOW accounts, and share draft separately. Loans to states and political accounts). For U.S. commercial banks, NOTE: Data are rounded to nearest billion. subdivisions and public authorities are includes deposits in foreign offices, Consequently some information may not included in “All other loans and lease branches in U.S. territories and posses­ reconcile precisely. Additionally balances receivables.” sions, and Edge Act and Agreement less than $500 million will show as zero. 13. Customers' liabilities on acceptances, corporation subsidiaries. real property owned, various accrual 15. Includes interest-bearing demand notes accounts, and miscellaneous assets. For issued to the U.S. Treasury, borrowing U.S. branches and agencies of foreign from Federal Reserve Banks and Federal

24 APPENDIX A: RELEVANT STATUTES

Federal Financial Institutions 12 U.S.C. § 3303. Financial 12 U.S.C. § 3304. Costs and Examination Council Act Institutions Examination expenses of Council Council 12 U.S.C. § 3301. Declaration of One-fifth of the costs and expenses (a) Establishment; composition of the Council, including the salaries purpose of its employees, shall be paid by There is established the Financial It is the purpose of this chapter to each of the Federal financial institu­ Institutions Examination Council tions regulatory agencies. Annual establish a Financial Institutions which shall consist of— Examination Council which shall assessments for such share shall be prescribe uniform principles and (1) the Comptroller of the levied by the Council based upon its standards for the Federal examina­ Currency, projected budget for the year, and tion of financial institutions by the additional assessments may be made (2) the Chairman of the Board of during the year if necessary. Office of the Comptroller of the Cur­ Directors of the Federal Deposit rency, the Federal Deposit Insurance Insurance Corporation, Corporation, the Board of Gover­ nors of the Federal Reserve System, (3) a Governor of the Board of 12 U.S.C. § 3305. Functions of the Federal Home Loan Bank Board, Governors of the Federal Reserve Council and the National Credit Union System designated by the Chair­ Administration and make recom­ man of the Board, (a) Establishment of principles and mendations to promote uniformity standards (4) the Director, Office of Thrift in the supervision of these financial Supervision, and The Council shall establish uniform institutions. The Council’s actions principles and standards and report shall be designed to promote consis­ (5) the Chairman of the National forms for the examination of finan­ tency in such examination and to Credit Union Administration cial institutions which shall be insure progressive and vigilant Board. applied by the Federal financial supervision. (b) Chairmanship institutions regulatory agencies. The members of the Council shall (b) Making recommendations 12 U.S.C. § 3302. Definitions select the first chairman of the regarding supervisory matters and Council. Thereafter the chairman­ adequacy of supervisory tools As used in this chapter— ship shall rotate among the mem­ (1) The Council shall make rec­ (1) the term “Federal financial bers of the Council. ommendations for uniformity in institutions regulatory agencies” (c) Term of office other supervisory matters, such as, means the Office of the Comp­ but not limited to, classifying troller of the Currency, the Board The term of the Chairman of the loans subject to country risk, iden­ of Governors of the Federal Council shall be two years. tifying financial institutions in Reserve System, the Federal (d) Designation of officers and need of special supervisory atten­ Deposit Insurance Corporation, employees tion, and evaluating the soundness the Office of Thrift Supervision, of large loans that are shared by and the National Credit Union The members of the Council may, two or more financial institutions. Administration; from time to time, designate other In addition, the Council shall officers or employees of their respec­ (2) the term “Council” means make recommendations regarding tive agencies to carry out their the Financial Institutions Exami­ the adequacy of supervisory tools duties on the Council. nation Council; and for determining the impact of holding company operations on (e) Compensation and expenses (3) the term “financial institu­ the financial institutions within tion” means a commercial bank, a Each member of the Council shall the holding company and shall savings bank, a trust company, a serve without additional compensa­ consider the ability of supervisory savings association, a building tion but shall be entitled to reason­ agencies to discover possible fraud and loan association, a homestead able expenses incurred in carrying or questionable and illegal pay­ association, a cooperative bank, or out his official duties as such a ments and practices which might a credit union. member. occur in the operation of financial

25 institutions or their holding (g) Flood insurance Home Loan Banks, with or without companies. reimbursement therefor. The Council shall consult with and (2) When a recommendation of assist the Federal entities for lending (c) Compensation, authority, and the Council is found unacceptable regulation, as such term is defined duties of officers and employees; by one or more of the applicable in section 4121(a) of Title 42, in experts and consultants Federal financial institutions regu­ developing and coordinating uni­ latory agencies, the agency or form standards and requirements In addition, the Council may— agencies shall submit to the Coun­ for use by regulated lending institu­ (1) subject to the provisions of cil, within a time period specified tions under the national flood insur­ Title 5 relating to the competitive by the Council, a written state­ ance program. service, classification, and General ment of the reasons the recom­ Schedule pay rates, appoint and mendation is unacceptable. fix the compensation of such offic­ (c) Development of uniform 12 U.S.C. § 3306. State liaison ers and employees as are neces­ reporting system sary to carry out the provisions of To encourage the application of uni­ this chapter, and to prescribe the form examination principles and The Council shall develop uniform authority and duties of such offic­ standards by State and Federal reporting systems for federally ers and employees; and supervised financial institutions, supervisory agencies, the Council their holding companies, and nonfi­ shall establish a liaison committee (2) obtain the services of such nancial institution subsidiaries of composed of five representatives experts and consultants as are nec­ such institutions or holding compa­ of State agencies which supervise essary to carry out the provisions nies. The authority to develop uni­ financial institutions which shall of this chapter. form reporting systems shall not meet at least twice a year with the restrict or amend the requirements Council. Members of the liaison of section 78l(i) of Title 15. committee shall receive a reasonable allowance for necessary expenses 12 U.S.C. § 3308. Access to (d) Conducting schools for exam­ incurred in attending meetings. books, accounts, records, etc., iners and assistant examiners by Council The Council shall conduct schools For the purpose of carrying out this for examiners and assistant examin­ 12 U.S.C. § 3307. Administration chapter, the Council shall have ers employed by the Federal finan­ access to all books, accounts, (a) Authority of Chairman of records, reports, files, memoran­ cial institutions regulatory agencies. Council Such schools shall be open to enroll­ dums, papers, things, and property ment by employees of State finan­ The Chairman of the Council is belonging to or in use by Federal cial institutions supervisory agen­ authorized to carry out and to del­ financial institutions regulatory cies and employees of the Federal egate the authority to carry out the agencies, including reports of exami­ Housing Finance Board under con­ internal administration of the Coun­ nation of financial institutions or ditions specified by the Council. cil, including the appointment and their holding companies from what­ supervision of employees and the ever source, together with work- (e) Affect on Federal regulatory distribution of business among papers and correspondence files agency research and development members, employees, and adminis­ related to such reports, whether or of new financial institutions trative units. not a part of the report, and all with­ supervisory agencies out any deletions. (b) Use of personnel, services, and Nothing in this chapter shall be con­ facilities of Federal financial institu­ strued to limit or discourage Federal tions regulatory agencies, Federal regulatory agency research and Reserve banks, and Federal Home 12 U.S.C. § 3309. Risk development of new financial insti­ Loan Banks management training tutions supervisory methods and tools, nor to preclude the field test­ In addition to any other authority (a) Seminars ing of any innovation devised by conferred upon it by this chapter, in The Council shall develop and any Federal regulatory agency. carrying out its functions under this administer training seminars in risk (f) Annual report chapter, the Council may utilize, management for its employees and with their consent and to the extent the employees of insured financial Not later than April 1 of each year, practical, the personnel, services, institutions. the Council shall prepare an annual and facilities of the Federal financial report covering its activities during institutions regulatory agencies, (b) Study of risk management the preceding year. Federal Reserve banks, and Federal training program

26 Not later than end of the 1-year nations as determined by the Excerpts from Statute period beginning on August 9, 1989, Council, or the appropriate Fed­ Governing Appraisal the Council shall— eral banking agency); and Subcommittee (1) conduct a study on the feasibil­ (2) at regular intervals, provide ity and appropriateness of establish­ notice and solicit public comment 12 U.S.C. § 3332. Functions of ing a formalized risk management on a particular category or catego­ Appraisal Subcommittee training program designed to lead ries of regulations, requesting (a) In general to the certification of Risk Manage­ commentators to identify areas of ment Analysts; and the regulations that are outdated, The Appraisal Subcommittee shall— unnecessary, or unduly burden­ (1) monitor the requirements (2) report to the Congress the some. results of such study. established by States for the certifi­ (c) Complete review cation and licensing of individuals who are qualified to perform The Council or the appropriate Fed­ appraisals in connection with 12 U.S.C. § 3310. Establishment eral banking agency shall ensure federally related transactions, of Appraisal Subcommittee that the notice and comment period including a code of professional described in subsection (b)(2) of this responsibility; There shall be within the Council a section is conducted with respect to subcommittee to be known as the all regulations described in subsec­ (2) monitor the requirements “Appraisal Subcommittee”, which tion (a) of this section not less fre­ established by the Federal finan­ shall consist of the designees of the quently than once every 10 years. cial institutions regulatory agen­ heads of the Federal financial insti­ cies and the Resolution Trust tutions regulatory agencies. Each (d) Regulatory response Corporation with respect to— such designee shall be a person who The Council or the appropriate Fed­ (A) appraisal standards for has demonstrated knowledge and eral banking agency shall— competence concerning the federally related transactions appraisal profession. (1) publish in the Federal Regis­ under their jurisdiction, and ter a summary of the comments (B) determinations as to which received under this section, iden­ federally related transactions tifying significant issues raised under their jurisdiction require 12 U.S.C. § 3311. Required and providing comment on such review of regulations the services of a State certified issues; and appraiser and which require (a) In general (2) eliminate unnecessary regu­ the services of a State licensed appraiser; Not less frequently than once every lations to the extent that such 10 years, the Council and each action is appropriate. (3) maintain a national registry appropriate Federal banking agency (e) Report to Congress of State certified and licensed represented on the Council shall appraisers who are eligible to conduct a review of all regulations Not later than 30 days after carrying perform appraisals in federally prescribed by the Council or by any out subsection (d)(1) of this section, related transactions; and the Council shall submit to the such appropriate Federal banking (4) Omitted. agency, respectively, in order to Congress a report, which shall identify outdated or otherwise include— (b) Monitoring and reviewing unnecessary regulatory require­ (1) a summary of any significant Foundation ments imposed on insured deposi­ issues raised by public comments The Appraisal Subcommittee shall tory institutions. received by the Council and the monitor and review the practices, (b) Process appropriate Federal banking procedures, activities, and organiza­ agencies under this section and tional structure of the Appraisal In conducting the review under sub­ the relative merits of such issues; Foundation. section (a) of this section, the Coun­ and cil or the appropriate Federal bank­ ing agency shall— (2) an analysis of whether the appropriate Federal banking 12 U.S.C. § 3333. Chairperson of (1) categorize the regulations agency involved is able to address Appraisal Subcommittee; term of described in subsection (a) of this the regulatory burdens associated Chairperson; meetings section by type (such as consumer with such issues by regulation, or (a) Chairperson regulations, safety and soundness whether such burdens must be regulations, or such other desig­ addressed by legislative action. The Council shall select the Chair­

27 person of the subcommittee. The 12 U.S.C. § 2803. Maintenance of shall compile each year, for each pri­ term of the Chairperson shall be two records and public disclosure mary metropolitan statistical area, years. metropolitan statistical area, or con­ (f) Data disclosure system; opera­ solidated metropolitan statistical tion, etc. area that is not comprised of desig­ Excerpts from Home Mortgage The Federal Financial Institutions nated primary metropolitan statisti­ Disclosure Act Examination Council, in consulta­ cal areas, aggregate data by census tion with the Secretary, shall imple­ tract for all depository institutions which are required to disclose data 12 U.S.C. § 2801. Congressional ment a system to facilitate access to data required to be disclosed under section 2803 of this title or findings and declaration of which are exempt pursuant to sec­ purpose under this section. Such system shall include arrangements for a tion 2805(b) of this title. The Council (a) Findings of Congress central depository of data in each shall also produce tables indicating, primary metropolitan statistical for each primary metropolitan statis­ The Congress finds that some area, metropolitan statistical area, tical area, metropolitan statistical depository institutions have some­ or consolidated metropolitan statis­ area, or consolidated metropolitan times contributed to the decline of tical area that is not comprised of statistical area that is not comprised certain geographic areas by their designated primary metropolitan of designated primary metropolitan failure pursuant to their chartering statistical areas. Disclosure state­ statistical areas, aggregate lending responsibilities to provide adequate ments shall be made available to the patterns for various categories of home financing to qualified appli­ public for inspection and copying at census tracts grouped according cants on reasonable terms and such central depository of data for to location, age of housing stock, conditions. all depository institutions which are income level, and racial characteristics. (b) Purpose of chapter required to disclose information under this section (or which are (b) Staff and data processing The purpose of this chapter is to exempted pursuant to section resources provide the citizens and public offi­ 2805(b) of this title) and which have cials of the United States with suffi­ a home office or branch office The Board shall provide staff and cient information to enable them within such primary metropolitan data processing resources to the to determine whether depository statistical area, metropolitan statisti­ Council to enable it to carry out the institutions are filling their obliga­ cal area, or consolidated metropoli­ provisions of subsection (a) of this tions to serve the housing needs of tan statistical area that is not com­ section. the communities and neighbor­ prised of designated primary (c) Availability to public hoods in which they are located metropolitan statistical areas. and to assist public officials in their The data and tables required pursu­ determination of the distribution of ant to subsection (a) of this section public sector investments in a man­ 12 U.S.C. § 2809. Compilation of shall be made available to the public ner designed to improve the private by no later than December 31 of the investment environment. aggregate data year following the calendar year on (c) Construction of chapter (a) Commencement; scope of data which the data is based. and tables Nothing in this chapter is intended to, nor shall it be construed to, Beginning with data for calendar encourage unsound lending prac­ year 1980, the Federal Financial tices or the allocation of credit. Institutions Examination Council

28 APPENDIX B: 2005 AUDIT REPORT

KPMG LLP 2001 M Street, NW Washington, DC 20036

Independent Auditors' Report on Financial Statements

To the Federal Financial Institutions Examination Council:

We have audited the accompanying for designing audit procedures that accepted in the United States of balance sheets of the Federal Finan­ are appropriate in the circum­ America. cial Institutions Examination Coun­ stances, but not for the purpose of In accordance with Government cil (the Council) as of December 31, expressing an opinion on the effec­ 2005 and 2004, and the related state­ tiveness of the Council's internal Auditing Standards, we have also issued reports dated March 7, 2006, ments of revenues and expenses and control over financial reporting. on our consideration of the changes in cumulative results of Accordingly, we express no such operations, and cash flows for the opinion. An audit also includes Council’s internal control over financial reporting and our tests years then ended. These financial examining, on a test basis, evidence of its compliance with certain provi­ statements are the responsibility of supporting the amounts and disclo­ the Council’s management. Our sures in the financial statements. sions of laws, regulations, contracts, and other matters. The purpose of responsibility is to express an opin­ An audit also includes assessing those reports is to describe the scope ion on these financial statements the accounting principles used and based on our audits. significant estimates made by man­ of our testing of internal control over financial reporting and com­ agement, as well as evaluating the pliance and the results of that test­ We conducted our audits in accor­ overall financial statement presen­ dance with auditing standards gen­ tation. We believe that our audits ing, and not to provide an opinion on the internal control over erally accepted in the United States provide a reasonable basis for our financial reporting or on compli­ of America and the standards appli­ opinion. cable to financial audits contained ance. Those reports are an integral in Government Auditing Standards, In our opinion, the financial state­ part of an audit performed in accor­ issued by the Comptroller General ments referred to above present dance with Government Auditing of the United States. Those stan­ fairly, in all material respects, the Standards and should be read in con­ dards require that we plan and per­ financial position of the Federal junction with this report in assess­ form the audits to obtain reasonable Financial Institutions Examination ing the results of our audits. assurance about whether the finan­ Council, at December 31, 2005 and cial statements are free of material 2004, and the results of its opera­ misstatement. An audit includes tions, and its cash flows, for the consideration of internal control years then ended, in conformity over financial reporting as a basis with accounting principles generally March 7, 2006

KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

29 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Balance Sheets

As of December 31, 2005 2004

ASSETS CURRENT ASSETS

Cash $ 598,259 $ 607,944 Accounts receivable from member organizations (Note 3) 1,808,511 2,765,680 Other accounts receivable 557,347 231,411

Total current assets 2,964,117 3,605,035

CAPITAL ASSETS

Furniture and equipment, at cost 60,446 60,446 Central Data Repository, at cost (Note 4) 12,055,244 9,083,760 Less accumulated depreciation (629,743) (60,446)

Net capital assets 11,485,947 9,083,760

Total assets $ 14,450,064 $ 12,688,795

LIABILITIES AND CUMULATIVE RESULTS OF OPERATIONS

CURRENT LIABILITIES

Accounts payable and accrued liabilities payable to member organizations $ 1,099,400 $ 751,049 Other accounts payable and accrued liabilities (Note 4) 1,482,102 2,511,889 Accrued payroll and annual leave 297,202 217,736 Deferred revenue (current portion) (Note 2, Note 4) 2,277,189 486,630

Total current liabilities 5,155,893 3,967,304

LONG-TERM LIABILITIES

Deferred revenue (non-current portion) (Note 2, Note 4) 9,208,758 8,597,130 Deferred rent (Note 5) 75,604 80,045

Total long-term liabilities 9,284,362 8,677,175

Total liabilities 14,440,255 12,644,479

CUMULATIVE RESULTS OF OPERATIONS 9,809 44,316

Total liabilities and cumulative results of operations $ 14,450,064 $ 12,688,795

See accompanying notes to financial statements.

30 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Statements of Revenues and Expenses and Changes in Cumulative Results of Operations

For the years ended December 31, 2005 2004

REVENUES

Assessments on member organizations (Note 3) $ 419,055 $ 560,100 Central Data Repository (Note 4) 3,205,813 0 Home Mortgage Disclosure Act (Note 6) 2,574,809 2,596,768 Tuition 1,991,263 1,834,021 Community Reinvestment Act 821,390 855,958 Uniform Bank Performance Report 524,350 522,265 Appraisal Subcommittee 183,566 180,079

Total revenues 9,720,246 6,549,191

EXPENSES

Data processing 3,623,133 3,719,826 Professional fees (Note 4) 3,241,435 530,003 Salaries and related benefits 1,303,342 1,228,026 Depreciation and net losses on disposals (Note 4) 569,297 97 Rental of office space 437,564 525,972 Administration fees 175,000 133,500 Travel 116,098 77,839 Books and subscriptions 98,361 103,941 Other seminar expenses 71,285 59,785 Rental and maintenance of office equipment 50,775 65,250 Office and other supplies 35,506 21,342 Printing 14,468 19,978 Postage 17,195 19,371 Miscellaneous 1,294 1,017

Total expenses 9,754,753 6,505,947

RESULTS OF OPERATIONS (34,507) 43,244

CUMULATIVE RESULTS OF OPERATIONS, Beginning of year 44,316 1,072

CUMULATIVE RESULTS OF OPERATIONS, End of year $ 9,809 $ 44,316

See accompanying notes to financial statements.

31 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Statements of Cash Flows

For the years ended December 31, 2005 2004

CASH FLOWS FROM OPERATING ACTIVITIES

RESULTS OF OPERATIONS $ (34,507) $ 43,244 Adjustments to reconcile results of operations to net cash provided by operating activities: Depreciation and net losses on disposals 569,297 97 (Increase) decrease in assets: Accounts receivable from member organizations 957,169 983,639 Other accounts receivable (325,936) (14,428) Increase (decrease) in liabilities: Accounts payable and accrued liabilities to member organizations 348,351 (52,760) Other accounts payable and accrued liabilities (1,029,787) (1,094,495) Accrued payroll and annual leave 79,466 20,861 Deferred revenue (current and non-current) 2,402,187 1,644,010 Deferred rent (4,441) (75,058) Net cash provided by operating activities 2,961,799 1,413,388

CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (Note 4) (2,971,484) (1,644,010) Net cash used in investing activities (2,971,484) (1,644,010)

NET INCREASE (DECREASE) IN CASH (9,685) (230,622)

CASH BALANCE, Beginning of year 607,944 838,566

CASH BALANCE, End of year $ 598,259 $ 607,944

See accompanying notes to financial statements.

32 Notes to Financial Statements as of and for the due to differences between actual and 2005 2004 Years Ended December 31, 2005 and 2004 expected cash needs flow into “Cumulative Results of Operations” during the year and The Council provides seminars in the Wash­ (1) Organization and Purpose then are used to offset or increase the next ington area and at The Federal Financial Institutions Examination year's assessment. Deficits in “Cumulative regional locations Council (the “Council”) was established under Results of Operations” can be made up in the throughout the coun­ Title X of the Financial Institutions Regulatory following year's assessments. try for member organ­ and Interest Rate Control Act of 1978. The pur­ Tuition revenue is adjusted at year-end so ization examiners and pose of the Council is to prescribe uniform prin­ other agencies. The ciples and standards for the federal examination that total tuition revenue equals expenses incurred by the Examiner Education Council received of financial institutions and to make recommen­ tuition payments from office. Any difference between revenue and dations to promote uniformity in the supervi­ member organizations sion of these financial institutions. The five expense is reported in accounts payable to in the amount of: $1,858,296 $1,673,468 agencies which are represented on the Council, member organizations if revenues exceeds referred to hereinafter as member organiza­ expenses, and in accounts receivable from The FRB provided tions, are as follows: member organizations if expenses exceed administrative support revenue. services to the Council Board of Governors of the Federal Reserve at a cost of: 175,000 133,500 System (FRB) Capital Assets—Furniture and equipment is Federal Deposit Insurance Corporation recorded at cost less accumulated deprecia­ Member organizations (FDIC) tion. Depreciation is calculated on a straight- provided office space, National Credit Union Administration line basis over the estimated useful lives of data processing related (NCUA) the assets, which range from four to ten to HMDA and CRA, Office of the Comptroller of the Currency years. Upon the sale or other disposition of and printing services (OCC) a depreciable asset, the cost and related accu­ to the Council. The Office of Thrift Supervision (OTS) mulated depreciation are removed from the Council paid member organizations: 3,809,989 3,594,606 Appraisal Subcommittee—The Council's financial accounts and any gain or loss is recognized. statements do not include financial data for The Central Data Repository (CDR), a soft­ The Council coordinates the production and the Appraisal Subcommittee. The Appraisal ware project, is recorded at cost. (See Note 4). distribution of the Uniform Bank Performance Reports (UBPR) through the Federal Deposit Subcommittee of the Council was created pur­ Deferred Revenue—Deferred revenue repre­ suant to Public Law 101–73, Title XI of the Insurance Corporation (FDIC). The Council is sents cash collected and accounts receivable reimbursed for the direct cost of the operating Financial Institutions Reform, Recovery, and related to the CDR. (See Note 4) Enforcement Act of 1989. The functions of the expenses it incurs for this project. Appraisal Subcommittee are related to the certi­ Estimates—The preparation of financial state­ Council employees are paid through the payroll fication and licensing of individuals who per­ ments in conformity with accounting principles systems of member organizations. Salaries and form appraisals in connection with federally generally accepted in the United States of fringe benefits, including retirement benefit related real estate transactions. Members of the America requires management to make esti­ plan contributions disbursed on behalf of the Appraisal Subcommittee consist of the desig­ mates and assumptions that affect the reported Council are reimbursed in full to these organiza­ nees of the heads of those agencies which com­ amounts of assets and liabilities and the disclo­ tions. The Council does not have any post­ prise the Council and the designee of the head sure of contingent assets and liabilities at retirement or post-employment benefit liabili­ of the Department of Housing and Urban the date of the financial statements and the ties since Council employees are included in Development. reported amounts of revenues and expenses the plans of the member organizations. during the reporting period. Actual results All functions and responsibilities assigned to could differ from those estimates. Member organizations are not reimbursed for the Council under Title XI are performed the costs of personnel who serve as Council directly by the Appraisal Subcommittee with­ (3) Transactions with Member Organizations members and on the various task forces and out any need for approval or concurrence from committees of the Council. The value of these the Council. The Appraisal Subcommittee has 2005 2004 contributed services has not been included in its own policies and procedures and submits its Accounts Receivable from the accompanying financial statements. own Annual Report to the President of the Sen­ Member Organizations ate and Speaker of the House. The Council is (4) Central Data Repository (CDR) not responsible for any debts incurred by the Board of Governors of Subcommittee, nor are Subcommittee funds the Federal Reserve In 2003, the Council entered into a ten-year available for use by the Council. System $ 306,704 $ 407,074 agreement with UNISYS, totaling approxi­ Federal Deposit mately $38,000,000, to enhance the methods and Reclassifications—Certain 2004 amounts have Insurance systems used to collect, validate, process and been reclassified to conform with the 2005 Corporation 1,426,385 2,251,800 distribute Call Report information. presentation. National Credit Union Administration 0 0 Capitalized Assets-CDR: (2) Significant Accounting Policies Office of the Comptroller of the 2005 2004 The Council prepares its financial state­ Currency 58,160 67,778 CDR beginning ments in accordance with accounting prin­ Office of Thrift ciples generally accepted in the United balance $ 9,083,760 $7,439,750 Supervision 17,262 39,028 Additions 2,971,484 1,644,010 States of America based upon accounting $1,808,511 $2,765,680 standards issued by the Financial CDR ending balance $12,055,244 $9,083,760 Accounting Standards Board (FASB). The five member The CDR was placed into production in October organizations are each 2005. At that time, the Council began depreciat­ The financial statements have been prepared assessed one-fifth of the ing the CDR project on the straight-line basis on the accrual basis of accounting. expected cash needs over its estimated useful life of sixty-three based on the annual Revenues—Assessments made on member months. For 2005, the council recorded $569,297 operating budget. The in depreciation expense and recognized the organizations for operating expenses and annual assessment for same amount of deferred revenue. The value additions to property are based on expected each member organiza­ cash needs. Amounts over or under assessed tion was: $ 83,811 $ 112,020 Notes continue on the following page.

33 of the CDR asset includes the fully accrued deferred revenue that matches the depreciation 2005 2004 and paid cost, including amounts withheld charged for the year and $2,636,516 in hosting from payment for retainage in the amount of and maintenance fees. The Council recognized $1,205,524, which is included in “Other the following revenue accounts payable and accrued liabilities.” Expenses-Professional fees from the Mortgage Insurance Companies of Other CDR Balances: Beginning in 2005, hosting and maintenance America for performing fees totaling $2,636,516 were charged to profes­ HMDA related work: 258,257 260,847 2005 2004 sional fees and reimbursed by participating members through billings included in the CDR The balance of the Deferred revenue revenue. HMDA revenue for Beginning balance $9,083,760 $7,439,750 2005 and 2004 was Additions 2,971,484 1,644,010 Capital expenditures from sales to the Less: Revenue as presented in the Statement of Cash Flows public: 27,261 23,495 recognized (569,297) 0 Ending balance $11,485,947 $9,083,760 CDR capital expenditures were $2,971,484 Total HMDA $2,574,809 $2,596,768 in 2005 and $1,644,010 in 2004. These amounts Current portion are included in the CDR asset total of Community Reinvestment Act (CRA) deferred revenue $2,277,189 $ 486,630 $12,055,244. Long-term deferred The Council recognized revenue for support of operating expenses from the participating revenue 9,208,758 8,597,130 (5) Deferred Rent member agencies. $11,485,947 $9,083,760 In 1998, the Council entered into a lease for Uniform Bank Performance Report (UBPR) The Council bills participating agencies for the office space at 2000 K Street, Washington, DC. full cost of the CDR project and records the This lease contains rent abatements and sched­ The Council recognized revenue for coordinat­ amounts billed as deferred revenue (see uled rent increases. In 2005, the Council entered ing and providing certain administrative sup­ Note 2). into a lease for office and classroom space at port to the UBPR project. an FDIC facility that contains scheduled rent Deferred revenue is amortized to match the increases over the term of the lease. In accor­ Appraisal Subcommittee depreciation expense charged. The amount dance with accounting principles generally reported for 2005, the year depreciation began, accepted in the United States of America, rent The Council recognized revenue for providing was $569,297. abatements and scheduled rent increases must space to the Appraisal Subcommittee. be considered in determining the annual rent 2005 2004 (7) Operating Leases expense to be recognized. The deferred rent Monthly amortization represents the difference between the actual The Council entered into operating leases to (CDR asset amortized lease payments and the rent expense secure office and classroom space. Mini­ over 63 months) $ 189,766 0 recognized. mum future rental commitments under Recognized revenue those operating leases having an initial or (3 months) 569,297 0 (6) Other Revenue remaining noncancellable lease term in 2005 2004 excess of one year at December 31, 2005, are Other accounts payable and accrued liabilities as follows: Home Mortgage The amount reported as other accounts pay­ Disclosure Act (HMDA) 2006 $ 458,995 able and accrued liabilities includes $1,428,574 2007 467,203 The Council recognized in 2005 and $2,474,760 in 2004 payable to 2008 417,980 the following revenue UNISYS for the CDR project. The balance 2009 255,261 from member organi­ is payable to other vendors unrelated to the 2010 — zations for the produc­ CDR project. $1,599,439 tion and distribution Revenues-Central Data Repository of reports under the Rental expenses under these operating HMDA: $1,786,287 $1,868,000 leases were $437,564 and $525,972 in 2005 The Council is funding the project by billing the and 2004, respectively. three participating Council member organiza­ The Council recognized tions (FRB, FDIC, and OCC). The OCC's the following revenue participation in cost sharing will not begin from the Department until the UBPR portion of the CDR becomes of Housing and Urban operational. Development's partici­ pation in the HMDA CDR revenue in 2005 consists of $569,297 from project: 503,004 444,426

34 KPMG LLP 2001 M Street, NW Washington, DC 20036

Independent Auditors' Report on Internal Control over Financial Reporting

To the Federal Financial Institutions Examination Council:

We have audited the balance sheets of expressing our opinion on the normal course of performing their of the Federal Financial Institutions financial statements. We limited our assigned functions. Because of in­ Examination Council (the Council) internal control testing to those con­ herent limitations in any internal as of December 31, 2005 and 2004, trols necessary to achieve the objec­ control, misstatements due to error and the related statements of rev­ tives described in Government Audit­ or fraud may occur and not be enues and expenses and changes in ing Standards. The objective of our detected. However, we noted no cumulative results of operations, and audit was not to provide assurance matters involving the internal con­ cash flows for the years then ended, on the Council's internal control trol and its operation that we con­ and have issued our report thereon over financial reporting. Conse­ sider to be material weaknesses as dated March 7, 2006. We conducted quently, we do not provide an opin­ defined above. our audits in accordance with audit­ ion thereon. We noted additional matters that ing standards generally accepted in Our consideration of internal control the United States of America and the we have reported to the manage­ over financial reporting would not ment of the Council in a separate standards applicable to financial necessarily disclose all matters in letter dated March 7, 2006. audits contained in Government the internal control over financial Auditing Standards, issued by the reporting that might be material This report is intended solely for the Comptroller General of the United weaknesses under standards issued information and use of the Council's States. by the American Institute of Certi­ management, the Office of the In planning and performing our fis­ fied Public Accountants. Material Inspector General of the Board of Governors of the Federal Reserve cal year 2005 audit, we considered weaknesses are conditions in which System, the Government Account­ the Council’s internal control over the design or operation of one or financial reporting by obtaining more of the internal control compo­ ability Office, and the U.S. Congress and is not intended to be and an understanding of the Council’s nents does not reduce to a relatively should not be used by anyone other internal control, determining low level the risk that misstate­ whether internal controls had been ments, in amounts that would be than these specified parties. placed in operation, assessing con­ material in relation to the finan­ trol risk, and performing tests of cial statements being audited, may controls in order to determine our occur and not be detected within a auditing procedures for the purpose timely period by employees in the March 7, 2006

KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

35 KPMG LLP 2001 M Street, NW Washington, DC 20036

Independent Auditors' Report on Compliance and Other Matters

To the Federal Financial Institutions Examination Council:

We have audited the balance sheets applicable to the Council. As part The results of our tests of compli­ of the Federal Financial Institutions of obtaining reasonable assurance ance described in the preceding Examination Council (the Council) about whether the Council’s fiscal paragraph, disclosed no instances of as of December 31, 2005 and 2004, year 2005 financial statements are noncompliance or other matters that and the related statements of rev­ free of material misstatement, we are required to be reported under enues and expenses and changes in performed tests of the Council's Government Auditing Standards. cumulative results of operations, compliance with certain provisions and cash flows, for the years then of laws, regulations, and contracts, This report is intended solely for the ended, and have issued our report noncompliance with which could information and use of the Council's thereon dated March 7, 2006. We have a direct and material effect management, the Office of the conducted our audits in accordance on the determination of financial Inspector General of the Board of with auditing standards generally statement amounts. We limited our Governors of the Federal Reserve accepted in the United States of tests of compliance to the provisions System, the Government Account­ America and the standards appli­ described in the preceding sentence, ability Office, and the U.S. Congress cable to financial audits contained and we did not test compliance with and is not intended to be and in Government Auditing Standards, all laws, regulations, and contracts should not be used by anyone other issued by the Comptroller General applicable to the Council. However, than these specified parties. of the United States. providing an opinion on compliance with laws, regulations, and con­ The management of the Council is tracts was not an objective of our responsible for complying with audit and, accordingly, we do not laws, regulations, and contracts express such an opinion. March 7, 2006

KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

36 APPENDIX C: MAPS OF AGENCY REGIONS AND DISTRICTS

38 Board of Governors of the Federal Reserve System 39 Federal Deposit Insurance Corporation 40 National Credit Union Administration 41 Office of the Comptroller of the Currency 42 Office of Thrift Supervision

37 THE FEDERAL RESERVE SYSTEM DISTRICTS

WA ME MT ND MN 1

VT MI NY WI 9 NH Boston SD OR WY Minneapolis 2 MA CT CA ID RI NV IA PA NJ NE MI OH 3 New York UT IL Philadelphia 7 Chicago IN Cleveland 12 MD CO DE WV San Francisco MO 4 Washington, D.C. 10 KS Kansas City St. Louis Richmond VA KY AZ 8 NC NM OK 5 AR TX TN SC MS AL GA Atlanta

Dallas LA 6

FL 11

ALASKA

HAWAII

12

38 FEDERAL DEPOSIT INSURANCE CORPORATION REGIONS (SUPERVISION AND COMPLIANCE)

WA ME MT ND MN New York

VT MI RegionNY WI NH SD OR WY MA CT CA ID Kansas City RI NV IA PA NJ NE MI UT IL OH Region IN MD CO Chicago DE San Francisco MO WV KS Region Region VA KY AZ NC TN NM OK AR TX SC MS AL GA Atlanta LA Region Dallas Region FL

ALASKA PUERTO RICO VIRGIN ISLANDS

HAWAII

GUAM

San Francisco Region New York Region

* Two area offices are located in Boston (reports to New York) and Memphis (reports to Dallas)

39 NATIONAL CREDIT UNION ADMINISTRATION

WA ME MT ND MN

VT MI NY WI NH SD OR WY I MA Albany I CT CA ID RI NV IA MI PA NJ NE UT IN OH MD V CO IV DE MO WV Alexandria, VA KS II IL VA KY AZ NC NM OK TN AR TX III SC GA MS AL Atlanta Tempe LA

FL

Austin

ALASKA PUERTO RICO VIRGIN ISLANDS

HAWAII

GUAM

V III

40 COMPTROLLER OF THE CURRENCY DISTRICT ORGANIZATION

WA ME MT Northeastern ND MN

DistrictVT MI NY Central WI NH SD OR WY District MA CT CA ID RI NV IA PA NJ NE MI NewYork UT OH Chicago IN MD CO DE MO WV Washington, D.C. KS Western District Denver IL VA KY AZ NC TN NM OK AR TX SC AL GA MS Southern Dallas LA District FL

ALASKA PUERTO RICO VIRGIN ISLANDS

HAWAII

GUAM

Western District Northeastern District

41 OFFICE OF THRIFT SUPERVISION

WA ME MT ND MN Northeast

VT MI NY WI NH SD OR WY MA CT CA ID RI NV IA PA NE MI UT IL Jersey City OH N IN J MD West CO DE MO WV Washington, D.C. KS Daly City VA Midwest KY AZ NC NM OK TN AR TX SC GA MS AL Atlanta Southeast Dallas LA

FL

HAWAII ALASKA PUERTO RICO VIRGIN West ISLANDS

NORTHERN MARIANA ISLANDS Southeast

GUAM

42 APPENDIX D: ORGANIZATIONAL LISTING OF PERSONNEL

Organization, December 31, 2005 Jerrie J. Lattimore Task Force on Examiner Education Administrator, William Spaniel, Chairman (FRB) Members of the Council North Carolina Cheryl Davis (OCC) Credit Union Division John C. Dugan, Chairman Elizabeth Dwyer (OTS) Comptroller Jonathan Smith Julie Howland (FDIC) Office of the Comptroller of the Review Examiner Joy Lee (NCUA) Currency (OCC) Delaware State Banking Susan Schmidt Bies, Vice Chairman Department Task Force on Information Sharing Member Pamela Schaar, Chairperson (OTS) Board of Governors of the Federal Roger Blake (NCUA) Reserve System (FRB) Council Staff Officers Karl Krichbaum (FDIC) Martin J. Guenberg Tamara J .Wiseman Michael Kraemer (FRB) Acting Chairman Executive Secretary Robin Stefan (OCC) Federal Deposit Insurance Corporation (FDIC) Task Force on Reports JoAnn Johnson Interagency Staff Groups Robert F. Storch, Chairman (FDIC) Chairman Agency Liaison Group Zane D. Blackburn (OCC) National Credit Union James Caton (OTS) Administration (NCUA) Roger T. Cole (FRB) Charles Holm (FRB) George French (FDIC) Debra Tobin (NCUA) John M. Reich David M. Marquis (NCUA) Director W. Bernard Mason (OTS) Office of Thrift Supervidion Task Force on Supervision Emory W. Rushton (OCC) Chris Spoth, Chairman (FDIC) Legal Advisory Group Scott Albinson (OTS) State Liaison Committee (SLC) Joy Lee (NCUA) Emory Wayne Rushton (OCC) Richard C. Houseworth, Chairman Julie L. Williams, Chairperson (OCC) Richard Spillenkothen (FRB) Superintendent of Banks Scott Alvarez (FRB) Arizona State Banking John Bowman (OTS) Department Robert M. Fenner (NCUA) Task Force on Surveillance Systems John S. Allison William F. Kroener, III (FDIC) Charles W. Collier, Commissioner, Chairman (FDIC) Mississippi Department of Task Force on Consumer Compliance Kevin M. Bertsch (FRB) Banking & Consumer Finance James Caton (OTS) Glenn Loney, Chairman (FRB) Mississippi Michael Ryan (NCUA) Donna Gambrell (FDIC) Steven L. Antonakes Elizabeth Habring (NCUA) Robin Stefan (OCC) Commissioner of Banks Ann Jaedicke (OCC) Boston, MA Robyn Dennis (OTS)

43