From FDIC, Outsourcing-Risk Management

Article excerpt

The Federal Deposit Insurance Corp. knows that many community banks would like to go the outsourcing route for at least some of their technology needs.

The FDIC has also learned that community bankers do not want anything that looks like a new set of rules about how to handle the process.

As a result, the agency will release to banks today a set of pointers not regulations providing information on selecting a service provider, setting up risk-mitigation contracts, and working with more than one provider.

"This is not intended to be used as an examination procedure. You can take them or leave them, although we certainly hope you take them," said Cynthia Bonnette, the assistant director of the FDIC's bank technology group.

The FDIC developed the pamphlets because it believes community banks need more hand-holding than large banks in managing the risks involved with technology outsourcing. It and other regulators issued general guidance on the subject last fall, but that three-page "white paper" was aimed at thrifts, banks, and credit unions of all sizes.

Ms. Bonnette said the agency felt more detailed instruction was needed since community banks do not have the same negotiating power as large banks and few small banks have technology experts on staff.

Bank and thrift trade groups worked with the FDIC in developing the pamphlets, which range from 10 to 15 pages each. Viveca Y. Ware, the director of payment systems for the Independent Community Bankers Association, said the guidance will be "extremely helpful," especially at institutions that do not have divisions dedicated to managing outsourcing.

"This is really going to help community banks home in on areas that are important to their outsourcing relationship," she said.

Technology vendors have also reviewed the pamphlets, and Ms. Bonnette said they found the recommendations useful because they now have a better understanding of what banks -- and regulators -- want. Regulators have no formal examination process for vendors, but they will conduct reviews on a case-by-case basis.

Ms. Bonnette said bankers "have to be more diligent in educating vendors and specify what they need and what they expect, because vendors won't necessarily know. …