Strenghtening Financial Risk Management at the FDIC
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Strenghtening Financial Risk Management at the FDIC

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  • Description:
    Strengthening Financial Risk Management at the FDIC – Executive Summary (Pg 1)

    Introduction (Pg 1)

    Improving financial reporting – Horizon 1 (Pg 3)

    Building best-practice financial risk management – Horizon 2 (Pg 4)

    Anticipating future needs – Horizon 3 (Pg 7)

    Improving Financial Reporting – Horizon 1 (Pg 8)

    Recommendation 1.1: Refine the Contingent Loss Reserve methodology (Pg 9)

    How the CLR is calculated (Pg 9)

    Performance of the CLR (Pg 10)

    Specifics of Recommendation 1.1 (Refining the CLR methodology) (Pg 16)

    Recommendation 1.2: Replace the 2-year Projection with a confidence interval around the CLR and a 2-year loss estimate (Pg 20)

    How the 2-year Projection is calculated (Pg 20)

    Performance of the 2-year Projection (Pg 22)

    Specifics of Recommendation 1.2 (Replacing the 2-year Projection) (Pg 24)

    Recommendation 1.3: Adopt a set of new FRC organizational practices (Pg 26)

    The current FRC organization and process (Pg 27)

    Performance of the FRC process (Pg 29)

    Specifics of Recommendation 1.3 (Adopting a new set of FRC organizational practices) (Pg 30)

    Building Best-Practice Financial Risk Management – Horizon 2 (Pg 34)

    Recommendation 2.1 – Accelerate development of the new integrated model for financial risk management (Pg 34)

    The credit risk model concept (Pg 36)

    Specifics of Recommendation 2.1 (Accelerate development of the integrated model) (Pg 36)

    Recommendation 2.2 – Build a more integrated risk management organization (Pg 40)

    Observations on the FDIC’s risk management today (Pg 42)

    Specific recommendations for strengthening the NRC (Pg 44)

    Specific recommendations for strengthening the RAC (Pg 47)

    Specific recommendations for strengthening the FRC (Pg 50)

    Anticipating Future Needs – Horizon 3 (Pg 51)

    Recommendation 3.1 – Annually assess whether to move to Horizon 3 (Pg 51)

    The Horizon 3 environment (Pg 51)

    The potential benefits of Horizon 3 (Pg 52)

    The likely costs of Horizon 3 (Pg 54)

  • Content Notes:
    Exhibit 1-1: The Three-Step CLR Methodology (Pg 9)

    Exhibit 1-2: Comparison of Failure Rates (Pg 14)

    Exhibit 1-3: Bounding the FRC's Subjectivity (Pg 17)

    Exhibit 1-4: Net Improvement to the CLR (Pg 18)

    Exhibit 1-5: The Challenge of Reserving for Unanticipated Failures (Pg 19)

    Exhibit 1-6: Constructing the 2-Year Projection (Pg 21)

    Exhibit 1-7: Predictive Power of Input Models to 2-Year Projection (Pg 23)

    Exhibit 1-8: Creating a Confidence Interval for the CLR (Pg 25)

    Exhibit 1-9: FDIC Constitutencies Represented on the FRC (Pg 27)

    Exhibit 1-10: Example FRC Mission Statement (Pg 31)

    Exhibit 1-11: Sample FRC Dashboard at Horizon 1 (Pg 32)

    Exhibit 2-1: Risk Model Concept and Methodology at Horizon 2 (Pg 35)

    Exhibit 2-2: Developing the Credit Risk Model (Pg 39)

    Exhibit 2-3: Structuring to Deliver on FDIC's Overall Objectives (Pg 43)

    Exhibit 2-4: Sample NRC Dashboard at Horizon 2 (Pg 46)

    Exhibit 2-5: Sample RAC Dashboard at Horizon 2 (Pg 49)

    Exhibit 3-1: Risk Model Architecture and Methodology at Horizon 3 (Pg 55)

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  • Agencies Involved:
    Federal Deposit Insurance Corporation (FDIC);Board of Governors of the Federal Reserve System (The Fed);Office of the Comptroller of the Currency (OCC);Office of Thrift Supervision (OTS);
  • Other Institutions Involved:
    McKinsey & Company
  • Source:
    FDIC Website
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