WASHINGTON - The Federal Deposit Insurance Corp. will drop the number of safety and soundness exams it does in 1994 by 11%.
According to documents explaining the FDIC's 1994 budget, safety and soundness exams will shrink by 483 next year to 5,482. The main reason: The FDIC's power to do backup exams on national banks and thrifts was cut.
In September, the FDIC board decided it would evaluate all staff requests to conduct backup exams. The clear message was that the board believed too many of these exams were being done.
The staff was supposed to draw up a new policy to guide backup exams in the future. But that policy has yet to be announced.
More Specialty Exams
While the number of safety and soundness exams is going down next year, the volume of specialty exams, which include compliance, trust, and electronic data processing exams, is going up at the FDIC. Such exams will number 6,849 in 1994, an increase of 4.3%.
Compliance exams, to check for such things as adherence to the Community Reinvestment Act, will see the biggest jump, to 4,100 from 3,781 this year.
The total number of exams will decline 1.6% in 1994 to 12,331.
The FDIC is under pressure to shrink as the number of bank failures continues to drop. The agency is predicting 48 banks with $5.8 billion of assets will fail in 1994 - a far cry from 1991 when the FDIC inherited 124 banks with $63 billion of assets.
During the eight consecutive years when bank failures exceeded 100 a year, from 1985 to 1992, the FDIC built its staff and expanded its budget.
But 1993 brought a rude awakening for the agency. The FDIC had predicted that up to 239 banks with $116 billion in assets would be closed this year. To date, only 42 banks with $3.8 billion in assets have failed.
The agency expects its portfolio of assets seized from failed banks to fall below $20 billion next year for the first time in four years.
Thus, the FDIC's 1994 budget is being shaved 5% to $1.95 billion. The agency's chief financial officer Steven A. Seelig said in an interview Friday that the cuts would be about twice as deep if cost savings from layoffs could be realized sooner.
Work Force to Shrink
As things stand, the FDIC is facing delays in shutting down some of its liquidation offices so about $100 million in salary savings will not affect the budget until 1995.
Still the FDIC expects to shrink its work force by 20% to 12,529 by the end of 1994. In addition to 10% attrition expected in 1994, the agency expects to shed 1,573, or 27.6%, of its temporary contract employees. The agency now has 5,703 employees with limited contracts.
The number of career employees is expected to drop just 1%, or 82 positions, to 7,960 by the end of 1994. The FDIC's executive staff is budgeted to fall just one position to 239, the budget documents show.
But deeper cuts are possible in 1995 or 1996, either through early-retirement buyouts or a formal "reduction in force," Mr. Seelig said.
"For the FDIC to shrink a lot, we're going to have at some point to deal with RIFs, buyouts, things of that nature," he said. "Those are issues that the FDIC is going to have to be, in '94, dealing with."
The FDIC has a hiring freeze on and there will be no agency-wide salary increase this year. The FDIC's payroll will decline about 6% to $900 million next year, but salaries and benefits still make up 46% of the budget.
The former FDIC staffers who got the Resolution Trust Corp. started in 1989 are not expected to come back until late 1995.
Mr. Seelig said that no RIFs will occur until these people come back. That way career FDIC employees are not disadvantaged, getting the ax before the RTC people return.
The FDIC plans to bring more work in-house during 1994, decreasing its budget for outside contractors by 11% to $673 million. Outside contractors, however, still account for 35% of the agency's budget.