Common Elements of Failed Financial Institutions (FDIC)

Yes, I admit it…I was surfing the FDIC web site this past weekend and I was spending some time reviewing past Financial Institution Letters that the FDIC releases to advise the banking industry of supervisory changes and guidelines.

I came across a Financial Institution Letter for Newly Insured FDIC-Supervised Depository Institutions that included the new changes, as well as a list of common elements from troubled or failed institutions.

The list offers some potential lessons learned for organizational leaders (board of directors, executive management, compliance and others) and so I thought I would share the list.

• Rapid growth
• Over-reliance on volatile funding, including brokered deposits
• Concentrations without compensatory management controls
• Significant deviations from approved business plans
• Noncompliance with conditions in the deposit insurance orders
• Weak risk management practices
• Unseasoned loan portfolios, which masked the potential deterioration during an economic downturn
• Weak compliance management systems leading to significant consumer protection problems
• Involvement in certain third-party relationships with little or no oversight

The list identifies the difficulties and complexities of “connecting the dots” and reminds bank leaders about many different types of “dots” that need better management to ensure better results.

If you are an organizational leader in the financial sector, this is good information!