Major challenges due to a changing economy, evolving financial services industry, revisions to regulation and emerging consumer protection will have an impact on the insurance, supervision and receiver programs of the Federal Deposit Insurance Corp. (FDIC), the agency states in its 2018-22 draft strategic plan, which it released Friday for public comment.
Comments are due by Dec. 15.
The plan notes that while banks have performed well recently, the interest-rate environment and competition in lending pose challenges for many. “Some banks have responded to this environment by investing in longer-term or higher-risk assets,” the draft plan states. “In some cases, banks may be entering unfamiliar business lines or offering new products to increase profitability. The industry must manage interest-rate risk, liquidity risk, and credit risk carefully to remain on a long-run, sustainable growth path,” the plan states.
The draft plan notes some banks may be entering unfamiliar business lines or offering new products to increase profitability. “In addition, banking institutions remain vulnerable to interest rate risk when interest rates eventually normalize to their longer-run levels,” the plan adds.
The draft plan identifies other challenges for the agency and the banking industry generally, including:
- Future of Community Banking: community bankers remain concerned about their competitive position vis-à-vis larger non-community banks, the plan states, despite their “long-term resilience and continuing importance as a source of credit to the vital small business sector.”
- Large, Complex Financial Institutions: assets within the banking industry are concentrated in a small number of large, complex banks and other financial institutions that have highly diverse business strategies and complex legal and business structures “that make it difficult for the management of these companies to fully understand and manage their risks.” These risks, the draft plan states, are intertwined among both their insured and uninsured subsidiaries, and the largest and most complex of these companies often have global footprints and interdependent counterparty relationships with one another that increase their complexity and risk.
- Cybersecurity: continues to grow as a threat to banks, businesses, consumers, financial markets, and the FDIC. “In addition to addressing cybersecurity threats internally, the FDIC works collaboratively with other federal and state agencies to help ensure that FDIC-insured institutions also take appropriate steps to address this risk,” the draft plan states.
- Economic Inclusion. more than one-quarter of U.S. households do not have an account at an insured depository institution (IDI) or obtain financial services and products from alternative, nonbank financial firms (based on a 2015 FDIC survey). “The Corporation will continue to pursue the challenge of expanding the access of underserved households and communities to the products and services of FDIC-insured institutions,” the draft report states.
- Workforce Management and Development: Much of the FDIC’s current workforce will transition into retirement over the next decade, even as the need for employees with advanced technical skills continues to increase. To address these challenges, the FDIC will develop and implement strategies over the next several years to recruit, train, develop, and maintain a highly skilled and engaged workforce that embodies at all levels the principles of diversity and inclusion and workplace excellence.