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A Risk-Management Upgrade For US Bank Regulators
The Federal Deposit Insurance Corporation protects the stability of US banks—and thus confidence in them—by guaranteeing their deposits. But a high rate of bank failures in 2003 diminished the FDIC's reserves, raising the possibility that it would need to increase the insurance premiums banks pay it. Taking a cue from the private sector, the agency decided to overhaul its financial-risk-management practices. After improving the accuracy of the way it calculates its reserve funds, it set out to develop a better understanding of its total risk exposure.
The take-away: The FDIC's enhanced risk management will give banks more confidence in the agency and should improve its stewardship of the banking industry's resources. In addition, more accurate and timely information can generate a better understanding of financial-public-policy decisions that affect not just depositors but also all consumers of financial services—as well as taxpayers.
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