Financial Services Volunteer Corps

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Financial Services Volunteer Corps

Summary Report of FDIC Secondee Activity 2009-2010

This June marked the three-year anniversary of the secondment program agreed upon between Financial Services Volunteer Corps (FSVC) and the Federal Deposit Insurance Corporation (FDIC) to place one or more FDIC employees full-time in FSVC’s Washington, DC office. Between September 2009 and August 2010, FSVC hosted four secondees:

  • Mr. Donald Saxinger, September-December 2009

  • Mr. Dennis Ankenbrand, January-March 2010

  • Mr. Claude Rollin, February-May 2010

  • Ms. Judith Dupre, April-August 2010

The secondees participated in 20 projects that took place in Albania, Algeria, Egypt, Jordan, Malawi, and Morocco. Additionally, they did work for counterparts in Albania, Egypt, Libya, and Malawi from Washington, DC, and Mr. Saxinger completed a project for the Central Bank of Iraq in Jordan. The secondees worked directly with eight overseas regulatory counterparts and trained almost 440 individuals. In these efforts, they spent over 1,850 hours providing direct technical assistance.

While at FSVC, the secondees helped shape the direction of FSVC’s global regulatory programs and worked with program staff to structure and implement specific projects. They shared their considerable regulatory expertise with FSVC employees around the world. Below, we provide highlights from their activities in support of FSVC’s mission to help build strong financial systems that enable developing and emerging market countries to realize economic opportunities and help their citizens to achieve a better quality of life. We also include descriptions of all specific projects in which the secondees were involved.

Key Results

  • Provided the Central Banks of Libya and Iraq with roadmaps for implementing their first ever supervision of bank information technology systems;

  • Provided the Banque d’Algerie with feedback on its proposed guidelines for the liquidity and management components of its new risk-rating framework;

  • Completed detailed reviews of two important procedural manuals that will enable the Reserve Bank of Malawi for the first time to implement consistent processes for overseeing bank mergers and resolutions; and

  • Guided Central Bank of Egypt instructor-trainees in the adaptation of FDIC course materials to the local context and the development of their teaching skills.

Commentary on Bank IT Examination Procedures

United States (for Libya), September 16-30, 2009
Mr. Saxinger wrote two short documents for the Central Bank of Libya (CBL) with specific, actionable recommendations on how to carry out on-site examination of bank information technology controls. One document covered “Recommendations on Improving the Framework for IT Examinations,” and the other covered “Recommendations on Implementing an IT Examination Program.” The goal of the project was to help the CBL develop consistent, documented bank examination procedures.
The documents produced by Mr. Saxinger helped the CBL’s Banking Supervision Department examine the IT systems at banks, as well as provide more concrete guidance and benchmarks for its own supervisors during bank examinations that include an IT component. Given that the documents clearly laid out how a central bank with comparatively little specialization in IT matters can nonetheless conduct effective IT examinations, they also provided a basis upon which to move forward with more specific training and consultations for the examiners in this area. While researching the Libyan context in preparation for this assignment, Mr. Saxinger also produced a series of recommendations for the Libyan Government to lay a comprehensive legal and regulatory foundation for IT examinations by the CBL in keeping with advances in technology.
U.S. Study Tour on Bank Liquidation and Conservatorship

United States (for Albania), September 28-October 2, 2009
Mr. Saxinger assisted in arranging a U.S. study tour for the Bank of Albania (BOA) to discuss with public- and private-sector specialists various means to effectively address problem bank liquidation and conservatorship. Over the course of one week, the BOA delegation met with the U.S. Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and former FDIC officials now working on related issues in the private sector.
Study tour participants learned about the operational issues involved in managing a problem bank, which better equipped the BOA to make informed decisions on: a) staffing and organizational structure of future resolution teams; b) managing potential public concern in the event of a bank failure; c) managing the institutional transfer of IT systems in the event of a bank failure; d) selecting an appropriate option for managing an insolvent bank; f) appropriate supervisory actions to stave off a bank failure; g) and selecting a bank conservator. The BOA will use this information to guide its future strategy for bank resolutions and ultimately to contribute to a procedural manual.
Assessment of BDA Bank Rating System Framework

Algeria, October 10-15, 2009
Mr. Saxinger consulted with the Banque d’Algerie’s (BDA) supervision department, the Directorate de l’Inspection Generale (DGIG), on its development of procedures to support a CAMELS-based bank risk-rating system. Alongside the U.S. Treasury Office of Technical Assistance (OTA) Resident Advisor Robert Demler, the BDA requested assistance in reviewing draft documents on the risk-rating framework and making suggestions for improvement. Mr. Saxinger also conducted a general seminar for the DGIG on the application of the risk-rating system to support and improve bank examinations.
Mr. Saxinger’s consultations with the BDA Working Group that developed the risk-rating system resulted in a substantial reorganization of the CAMELS-based draft. This use of a sitting, experienced bank examiner was directly applicable to a practical examination approach and maximized the possibility for successful integration into BDA procedures. Mr. Saxinger’s advice rendered the ratings approach more efficient and clarified and restructured the Off-Site and On-Site Department roles in the process. He also recommended that internal reporting lines be clarified in order to have an operationally effective system.
Workshop on Examiner Guidelines for Commercial Bank IT Systems

Algeria, October 18-20, 2009
Mr. Saxinger reviewed draft guidelines for the BDA to conduct evaluations of risk in IT systems in supervised institutions. He made suggestions for improvement in conjunction with consultations on the overall risk-rating framework and conducted a seminar for the DGIG on the inclusion of IT risk assessment in general bank examinations.
As a result of this assignment, the BDA substantially advanced in developing its first applied procedures for analyzing IT issues under a coherent risk-based supervisory framework. Mr. Saxinger’s advice not only clarified direct frameworks for IT analysis, but also placed IT supervision in the larger context of the BDA’s efforts at supervisory reform. This project feeds into ongoing work to develop the BdA’s first formalized examination framework for bank examiners.
Workshop on Examiner Guidelines for Commercial Bank Risk Management

Algeria, October 21-22, 2009
Mr. Saxinger reviewed draft guidelines for the BDA to conduct assessments of risk management procedures in supervised institutions. He made suggestions for improvement in conjunction with consultations on the overall risk-rating framework and conducted a seminar for the DGIG on the importance of risk assessment as the central theme to bank examinations.
During the consultations with the BDA, Mr Saxinger identified operational weaknesses in the CAMELS-based bank risk-rating system that the Director of the DGIG characterized as “very key in helping us have a truly applicable program that applies best standards to the Algerian context.” The procedures and manuals developed as a result of this project will formalize bank supervisory analysis in Algeria for the first time and create a reasonably objective risk analysis standard. Once in use, the procedures and manuals will provide valuable feedback to banks in carrying out their operations.
Commentary on Development of Deposit Insurance System

United States (for Malawi), October 6-November 5, 2009
Mr. Saxinger was one of four Volunteers, including Vijay Deshpande, also of the FDIC, who worked remotely with the Reserve Bank of Malawi (RBM) to develop a questionnaire with an introductory abstract explaining the overall policy context for the RBM to distribute to banks and non-banking financial institutions (NBFIs). The questionnaire helped determine whether banks believe the Malawian Government is ready to institute a deposit insurance system (DIS) and, if so, how the system should be structured and paid for.
As a result of the project, the RBM received a comprehensive questionnaire to evaluate the need of banks and NBFIs for a DIS. With a set of options for possible DISs, this survey of the market provided valuable feedback on ongoing efforts to assess the potential for a DIS. Specifically, this effort laid the foundation for a follow-up in-country visit in April 2010 to explore the issues raised in a deeper manner, prior to final recommendations to the RBM on whether and how to implement a DIS.
Participation in CBI Data Center Technical Advisory Committee Meeting

Jordan (for Iraq), November 15-18, 2009
Mr. Saxinger and two Volunteers from the Federal Reserve Bank of Kansas City participated in the first meeting of the Technical Advisory Committee to establish a Data Center that will collect, analyze and distribute information on the banking and wider financial sectors for the Central Bank of Iraq (CBI). They gave presentations on how their institution process financial data and how that relates to possible approaches for the CBI. Mr. Saxinger focused on the types of reports a Banking Supervision Department generally needs and the data inputs necessary.
As a result of the project, the CBI received a Project Charter identifying organizations that will provide advisory services, the roles of CBI departments and these organizations in supporting the establishment of a Data Center, available funding, and overall program objectives. During the meeting, CBI Governor Shabibi was able to get a firsthand analysis of the tremendous resources, as well as effective departmental interaction that will be required to see the program through to completion. Additional points emphasized included software applications suited to the current Iraqi financial environment, the increasingly standard XBRL reporting framework, and criteria for evaluating IT vendors.
Participation in MENA Regional Deposit Insurance Conference

Jordan (for MENA Region), November 18-20, 2009
Mr. Saxinger and Mr. Rollin participated in a two-day conference hosted by FSVC and the Jordan Deposit Insurance Corporation focused on the Basel Committee on Banking Supervision and International Association of Deposit Insurers (IADI) Core Principles for Deposit Insurance Systems and their application in the Middle East and North Africa (MENA) region. Their presentations focused on setting risk-based premiums and defining safety-net participants.
As a result of this conference, the attendees learned about the advantages and disadvantages of differing deposit insurance models used in other countries. Sessions were devoted specifically to the Effects of the Global Financial Crisis on the MENA Region, Funding and Coverage Limits, Risk-Based Premiums, Transitioning from Blanket to Limited Coverage, Insuring Sharia-Based Deposits, and Structural Issues Related to Effective Design for Deposit Insurance, all in the context of the effects of the global financial crisis on the MENA region and the way existence of a deposit insurance framework either enhances or mitigates it.
Consultations on Bank IT Supervision

Jordan (for Iraq), November 22-24, 2009
Mr. Saxinger initiated FSVC’s program of work with the CBI Banking Supervision Department (BSD) on supervision of banks’ IT systems. He consulted with senior BSD and IT staff on their overall supervisory approach and how IT exams should fit into it. Mr. Saxinger also accompanied CBI staff during a day spent with senior executives from HSBC’s headquarters in Amman to provide hands-on examples for IT-related bank examinations.
As a result of the project, the CBI obtained a workplan for creating a cadre of five specialized IT examiners within two years. CBI Governor Shabibi approved a committee to be established to select these five individuals. In the interim, the BSD representatives expressed their intent to apply the “governance” model of IT supervision introduced by Mr. Saxinger that addresses the topic within the overall framework of risk management in banks. It does not require specialized IT, but rather focuses on basic security as well as technical and physical control concepts. Mr. Saxinger also distributed a range of manuals the FDIC uses to carry out IT exams to all participants, several of which were translated into Arabic by FSVC.
Consultations on Bank Operational Risk and IT Supervision

Albania, December 14-18, 2009
Mr. Saxinger assisted the BOA with establishing a robust operational and IT risk management framework. He helped the BOA evaluate the effectiveness and accuracy of its current framework used to identify, measure, monitor, control, and analyze bank operational and IT risk and other related indirect risks. The first phase of the project consisted of consultations with BSD management, followed by a one-day training seminar for BOA examiners.
This project increased BOA awareness of operational and IT risks that are often overlooked by banks that choose to focus mostly on credit, market, and liquidity risk. It was particularly timely, as the BSD was then restructuring and planning to set up a separate group to monitor these areas exclusively. Mr. Saxinger also provided input on two regulations pertaining to e-banking transactions and operational and IT risks that will be finalized in 2010. In addition, he provided reference materials and general guidance on drafting an internal operational and IT risks supervision manual.
Workshop on Examiner Guidelines for Commercial Bank Liquidity Risk Assessment: Phases I & II

Algeria, February 9-11, 2010 & February 28-March 4, 2010
Mr. Ankenbrand consulted with the BdA Working Group developing the CAMELS-based bank risk-rating system on the treatment of liquidity risk during an exam and as part of an integrated bank rating. He also delivered a general overview of liquidity analysis to a wider group, provided comments on draft liquidity-related regulations, and met with the BDA Governor to discuss the outcome of the project.
As a result of the project, the BDA Working Group developed liquidity examination procedures. This framework represents the first written guidelines for the DGIG on the subject. During the project, Mr. Ankenbrand made recommendations that encouraged the Working Group to propose amendments to draft liquidity regulations. Specific recommendations included: inter-departmental coordination within the BDA to ensure compatibility between the ultimate liquidity regulations and exam procedures; providing a mechanism for feedback from commercial banks; considering adjustments to the key liquidity ratio to reflect more accurately the financial state of a bank; and considering additional liquidity ratios in the exam process. The liquidity risk seminar exposed a much wider group to new concepts that should assist the BDA in its transition to risk-based supervision.
Workshop on Examiner Guidelines for Commercial Bank Management Assessment

Algeria, March 7-11, 2010
Mr. Ankenbrand consulted with the BDA Working Group developing the risk-rating system on the treatment of management evaluation during an exam and as part of an integrated bank rating. He also delivered a general overview of management assessment to a wider group and met with the BDA Governor to discuss the unique nature of this examination element.
As a result of the project, the BDA Working Group developed management examination procedures. Given the more subjective nature of management assessment – and the conflict in this approach with the BdA’s current “checklist” approach – this portion of the manual will require additional consideration and revisions before completion. Mr. Ankenbrand’s management assessment seminar exposed a much wider group to new concepts that should assist the BDA in integrating more subjective elements such as this into its new risk-based approach to supervision.
Commentary on Bank Mergers and Acquisitions Procedures Manual

United States (for Malawi), February 16-March 17, 2010
Mr. Rollin reviewed the RBM’s draft guidelines for oversight of bank mergers and acquisitions. He then made recommendations on language that should be added or edited to support effective supervision by the RBM. This was undertaken in part out of the concern that recently raised capital requirements could ultimately lead to greater consolidation in the banking sector.
As a result of this project, the RBM received a bank mergers and acquisitions manual edited to: clarify the role of the RBM as Registrar; specify time limits for required action by the Registrar and bank management; define necessary intermediate steps to conclude successful mergers and acquisitions; and make reference to relevant sections of the Banking Bill and the Financial Services Act. Once approved, the manual will provide the RBM with formal, consistent guidelines to oversee productive and efficient mergers and acquisitions.
Commentary on Problem Bank Resolution Procedures Manual

United States (for Malawi), February 16-March 17, 2010
Mr. Rollin reviewed and made recommendations to the RBM regarding its draft guidelines for oversight of problem bank resolution. This was spurred by the RBM’s request for a failing local bank to close voluntarily, and the realization that there were no procedures previously developed to address such a situation.
As a result of this project, the RBM received a problem bank resolution manual edited to: clarify the role of the RBM as Registrar; specify the conditions that define a “problem” bank; define necessary enforcement powers to conclude bank resolutions; and make reference to relevant sections of the Banking Bill and the Financial Services Act. Once approved, the manual will provide the RBM with formal, consistent guidelines to oversee resolutions from start to finish.
Consultations on Revision of FDIC Introduction to Examination School Materials

Egypt, May 9-13, 2010
Ms. Dupre consulted senior management at the Egyptian Banking Institute (EBI) and the Central Bank of Egypt (CBE) and designated instructor-trainees on their comments and suggested amendments regarding adaptation of the FDIC Introduction to Examination School materials to local conditions. She reviewed their initial proposed revisions prior to arriving in-country. While in Egypt, Ms. Dupre consulted on the overall progress of the program and the next steps necessary for the instructor-trainees to ultimately deliver the adapted course to Egyptian examiners.
As a result of the project, the EBI now has a roadmap for amending the curriculum of the FDIC Introduction to Examination School. This included amendments to be introduced – such as necessary omissions and additions and rewrites to accommodate local practices – as well as procedures regarding the flow of work and information within the group. During the project, each instructor-trainee presented to the group on the progress of revisions to their individual module assignments. Ms. Dupre discussed the importance of establishing a process to adapt the School that could be replicated for future Schools, and how the course adaptation must be integrated with on-the-job-training and ongoing managerial evaluation. 
Seminar on Inter-Regulator Coordination for Financial Sector Systemic Risk Monitoring & Evaluation

Morocco, May 10-14, 2010
Mr. Rollin and two other Volunteers conducted a week of multi-regulator workshops presenting revised international thinking on macroprudential supervision in the wake of the global financial crisis, particularly with regard to cross-sector risks. The Moroccan regulatory community’s participation was spearheaded by Bank Al-Maghrib (BAM), which also heads the Commission de Coordination des Organes de Supervision du Secteur Financier(CCOSSF). They requested assistance in defining possible models, organizational needs, and appropriate tools for the creation of robust and comprehensive financial sector risk monitoring and evaluation.
As a result of the project, the Moroccan regulatory community came to several points of consensus regarding deepening and improving their financial stability framework to ensure effective cross-sector macroprudential supervisory capability, particularly in times of crisis. These included the need to agree new clarified and reinforced memorandums of understanding between the regulators for information exchange under both normal and crisis circumstances; interest in pursuing new network analysis approaches; and the need for BAM to seek a modification of its statutes to explicitly add responsibility for financial stability. The regulators also reached a consensus to consider ways of reinforcing the CCOSSF.
Observation of FDIC Introduction to Examination School

United States (for Egypt), June 14-25, 2010
Ms. Dupre, alongside Galo Cevallos, also of the FDIC, helped to facilitate the observation by three CBE designated instructor-trainees of the Introduction to Examination School that they will ultimately be teaching. In addition to attending the course, the participants met with Ms. Dupre and Mr. Cevallos to coordinate the lessons of he course with the ongoing adaptation of the curriculum of the Introduction to Examination course to the Egyptian context.
As a result of the project, the participants learned techniques to teach the Introduction to Examination School, as well as effective overall teaching techniques. All participants commented that watching the approaches of different instructors, including with varied groups, was equally as informative as the actual review of the material in preparing them for the next steps in adapting the course materials for local use. On return to Egypt, they presented the lessons of their instruction to the cadre of instructor-trainees.
Participation in FDIC Risk Management Exam

United States (for Albania), July 19-30, 2010
Ms. Dupre facilitated the participation of two BOA examiners in a live bank examination of a medium-sized branch of an international bank, alongside FDIC’s New York division staff members, for a period of two weeks. Participants spent a majority of their two-week visit at the bank location, collaborating closely with FDIC NY supervisory staff to conduct the bank examination. During the bank examination, both participants were exposed to first-hand applications of supervisory techniques. In addition to participating in the bank examination, both participants were also invited to attend discussions, based at FDIC headquarters, which focused on topics that support effective bank examination approaches.
As a result of this project, participants were able to gain a first-hand opportunity to apply risk-based supervisory approaches during a live bank examination, and received training on methods used to identify, measure, and control credit risk. In addition, observing bank supervision methodology during a live bank examination provided participants a new perspective on future trends in supervisory developments. In light of the BOA’s switch from a compliance-based supervision approach to a risk-based one, understanding possible future developments in bank supervision will enable BSD staff to more effectively reform their own systems to better align with the rapidly changing and increasingly complex financial markets.
Training for New Bank Supervisors on Financial Analysis

Malawi, August 2-6, 2010
Ms. Dupre and Bonnie Reneau, also of the FDIC, delivered a modified version of the Financial Institution Analysis School, originally prepared by the FDIC, to a group of new RBM examiners. The course covered the basic financial analysis techniques used by U.S. bank regulators to assess CAMELS. It involved lectures and case studies in which students were asked to apply financial analysis tools based on both on- and off-site information typically available to bank examiners.
As a result of the project, thirteen new examiners at the RBM have gained fundamental knowledge about CAMELS in order to conduct their jobs implementing risk-based supervision of financial institutions. The new employees learned additional critical skills, such as conducting analysis of multiple financial factors, creating a coherent report of their conclusions, and presenting them orally to their peers and supervisors. One of the participants emphasized that the training positioned her perfectly for her next assignment conducting off-site analysis of a bank prior to the on-site examination.

The secondees’ efforts have contributed significantly toward FSVC’s mission to strengthen financial institutions in developing countries to support economic development. Based on the results of the third year of the FSVC-FDIC secondment program, it has only added to the productive relationship and outcomes previously established between the two parties – and immensely benefited counterparts around the world. FSVC looks forward to welcoming new secondees for the 2010-2011 period.

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