Richard J. Osterman, Jr. Assistant General Counsel Federal Deposit Insurance Corporation USA

1. General Guidance for Effective Deposit Insurance Mandates Resource Availability for an Effective Deposit Insurance System: Funding, Human Resources, Information Technology Richard J. Osterman, Jr. Assistant General Counsel Federal Deposit Insurance Corporation USA Fifth Annual Conference of IADI November 2006

2. Funding • An effective deposit insurance system should include the mechanisms necessary to • Ensure adequate funds are available to reimburse depositors promptly; and • Cover the system’s operating expenses. • The cost that members and/or the national authorities are ready to absorb is a major factor in determining the type of the deposit insurance mandate.

3. FDIC Experience • FDICIA (1991) provided for risk based premiums • Designated Reserve Ratio at 1.25% of EID • FDIRA (2006) • FDIRA allows FDIC to manage fund within a range of 1.15-1.5% • Provides for dividends of 50% above 1.35% and all above 1.5% • Rates: 5-43 basis points • Current FDIC Fund at approximately $50 billion

4. Human Resources • One of the principal prerequisites of a well functioning deposit insurance system is a skillful, honest and dedicated workforce. • Standards of conduct: position of public trust; no conflicts of interest; act impartially • Confidentiality of information supplied to employees • The number and skills of a deposit insurance system’s employees predictably vary with the system’s responsibilities.

5. FDIC experience • Today FDIC has approximately 4,600 employees to carry out its mandate as insurer, supervisor and liquidator. • In 1991 FDIC had over 22,500 employees, including RTC, at the height of the banking and thrift crisis. • In 1991, the FDIC’s liquidation function, including RTC employees, was staffed by over 18,000 employees. • Today less than 500 people staff FDIC’s liquidation function.

6. Outsourcing • May opt to keep workforce at minimal levels by relying on outside service providers • Outsourcing can be useful for obtaining specialized services • Maintain some dedicated, skilled staff for each core function • Skilled supervisory staff are necessary to oversee the work of the outside contractors

7. Training • A key element in maintaining a skilled workforce is for the deposit insurer to provide professional training courses. • Staff training and development on an ongoing basis should be a routine practice by deposit insurers. • FDIC Experience: Corporate University serves as the agency’s training and employee development arm supports the FDIC’s mission.

8. Information Technology • Most important and basic function of all deposit insurance systems is to reimburse depositors promptly in the event of bank failure • Authorities must appropriate sufficient budget for IT support of this function. • Should know IT systems of banks that are insured and be able to interface with those systems.

9. The percentage of how much an insurance system’s budget is devoted to IT is dependent on the system’s functions and mandate • In general, paybox systems spend 1-2% of their annual operating budgets on IT • Paybox with extended powers allocate 5-6% of annual operational budgets to IT • Risk minimizer systems spend 6-10% of their annual budgets on IT

10. CONCLUSIONS • The broader the objectives or mandates the more resources will be required. • Funding must be adequate to pay depositors and for operations. • Inadequate funding can delay the resolution of failed institutions and significantly increase costs. • A dedicated, competent staff is essential even if outsourcing used. • Training is a key element in maintaining a skilled workforce. • IT is critical for supporting mandate of insurer.