FDIC: Strengthening Financial Risk Management at the FDIC


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Strengthening Financial Risk Management at the FDIC

Final report - July 16, 2003

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Executive Summary

Introduction

Improving financial reporting – Horizon 1

Building best-practice financial risk management – Horizon 2

Anticipating future needs – Horizon 3

Improving Financial Reporting – Horizon 1

Recommendation 1.1: Refine the Contingent Loss Reserve methodology

How the CLR is calculated

Performance of the CLR

Specifics of Recommendation 1.1 (Refining the CLR methodology)

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

How the 2-year Projection is calculated

Performance of the 2-year Projection

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

Recommendation 1.3: Adopt a set of new FRC organizational practices

The current FRC organization and process

Performance of the FRC process

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

Building Best-Practice Financial Risk Management – Horizon 2

Recommendation 2.1 – Accelerate development of the new integrated model for financial risk management

The credit risk model concept

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

Recommendation 2.2 – Build a more integrated risk management organization

Observations on the FDIC’s risk management today

Specific recommendations for strengthening the NRC

Specific recommendations for strengthening the RAC

Specific recommendations for strengthening the FRC

Anticipating Future Needs – Horizon 3

Recommendation 3.1 – Annually assess whether to move to Horizon 3

The Horizon 3 environment

The potential benefits of Horizon 3

The likely costs of Horizon 3

Last Updated 08/21/2003

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