Alert July 13, 2010

FDIC Board Approves Revisions to FDIC’s MOU with Other Primary Federal Banking Agencies Concerning FDIC’s Backup Supervision Authority

The FDIC Board of Directors approved, by a vote of 5 to 0, revisions to its backup supervision and information sharing Memorandum of Understanding (the “Revised MOU”) with the other primary federal banking regulatory agencies, the FRB, OCC and OTS (the “Banking Agencies”).  The Revised MOU would enhance the FDIC’s backup authorities over insured depository institutions (“IDIs”) that the FDIC does not directly supervise.  The FDIC stated that the Revised MOU will “improve the FDIC’s ability to access information necessary to understand, evaluate and mitigate its exposure to [IDIs], especially the largest and most complex firms.”  The Revised MOU updates a 2002 accord among the Banking Agencies and clarifies and confirms the FDIC’s authority and ability to assess risk at weakening IDIs and to prepare and implement effective strategies to resolve IDIs after they fail.

The Revised MOU broadens the list of covered IDIs to include: (1) Problem IDIs with a composite rating of “3,” “4” or “5” or which are undercapitalized; (2) Heightened Insurance Risk IDIs where the FDIC’s insurance pricing system suggests higher risk; (3) Large IDIs (including mandatory Basel II “Advanced Approach” financial institutions and IDI subsidiaries of a non-bank financial company or large interconnected bank holding company recommended by the Financial Stability Oversight Council for heightened prudential standards; and (4) IDIs that are affiliated with entities that have had greater than $5 billion of borrowings under the FDIC’s Temporary Liquidity Guarantee Program.

The Revised MOU also covers: (a) the scope of special examinations and FDIC on-site presence; (b) how the FDIC and the other Banking Agencies will coordinate activities, including, among other things, targeted reviews and sharing of information) and (c) how the Banking Agencies will address differences in CAMELS ratings.