The Federal Deposit Insurance Corp. performed nearly 10% fewer safety-and-soundness exams than it was required to do in 1998.

Of the 3,081 banks FDIC examiners were supposed to inspect last year, 297 went unexamined. James L. Sexton, the agency's supervision director, blamed the gap on a combination of examiner shortages and year-2000 responsibilities.

"It's a serious thing for us to meet our goals," he said. "We didn't get there last year."

Like other federal bank regulators, the FDIC had to conduct on-site year-2000 examinations at each of the institutions it supervises. The agency also had an unusually difficult time hiring new and replacement examiners because of the tight labor market, Mr. Sexton said. Both issues spread the agency's resources thin, he said.

In addition, when it became clear that FDIC examiners would not be able to conduct every required exam, the supervision division adopted a risk- focused approach. For example, 33 of the 297 unexamined banks were due to be merged out of existence, which Mr. Sexton called a "valid reason" for not examining them. Many of the remaining banks were left unexamined because they were healthier than average, he said. "We have to manage our risk, just like we ask banks to do."

Examiner shortages also caused the FDIC to fall behind on its compliance exams. The agency conducted 1,989 compliance exams in 1998, but left 523 other scheduled exams uncompleted.

Ronald F. Bieker, acting director of the FDIC's compliance and consumer affairs division, defended the agency's performance. He said his division examined nearly 400 more banks than it had planned to do, despite the examiner shortage.

Mr. Bieker said the compliance division also took a risk-focused approach. None of the unexamined banks scored less than "satisfactory" on its previous compliance or Community Reinvestment Act exam, he said. Moreover, nine in 10 of the unexamined banks were less than a year past due for their reviews.

Mr. Bieker predicted that his division, now at full examiner strength, would complete virtually all of its 2,315 scheduled compliance exams in 1999.

A spokesman for the Federal Reserve Board said the agency performed every safety-and-soundness and compliance exam it was required to last year. The Office of the Comptroller of the Currency was compiling the examination data but could not provide that information in time for publication.

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