Bank Examinations in General

Summary

Federal Financial Institutions Examination Council FFIEC is responsible for the standardization of exams by the various federal regulators

Many state regulators have adopted the FFIEC's standards

There are three principle types of bank examinations:

"Safety and Soundness" examinations covering the financial condition of banks and savings associations
"Compliance" examinations that review fair lending and consumer compliance areas
"Specialty" examinations that relate to specific activities such as money laundering, information technology and trust departments

Examination Frequency - Safety and Soundness

Statutes

Regulations

Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks - 72 FR 17798 - Interim rules with request for comments
12 CFR Section 4.6 - national banks
12 CFR Section 4.7 - Federal agencies and branches
12 CFR Section 208.64 - FRB
12 CFR Section 337.12 - FDIC
12 CFR Section 563.171 - OTS
12 CFR Section 741.1 - NCUA

Compliance examinations are generally conducted at the same time as safety and soundness examinations, but they result in a separate and distinct rating from the CAMELS rating resulting from a safety and soundness exam

Objectives of a safety and soundness examination are:

to provide an objective evaluation of a banks soundness and compliance with banking laws and regulations,
to permit the agency to appraise the quality of management and directors, and
to identify those areas where corrective action is required to strengthen the bank, improve the quality of its performance, and enable it to comply with applicable laws, rulings, and regulations

Agency Examination Responsibilities

FRB - State-chartered member banks; bank holding companies
OCC - National banks
FDIC - State-chartered, non-member banks
OTS - Thrifts and savings institutions; savings and loan holding companies
NCUA - Credit unions
state agencies - State chartered banks

Coordination of Examinations Among Federal and State Regulators

Bank examinations may be conducted by both the state chartering authorities and by the institution's primary federal regulator. The FRB, FDIC and the OTS have all entered into formal agreements with the various state authorities to conduct exams during alternate examination cycles

Coordination among state and federal banking regulators is handled on the state side by the Conference of State Bank Supervisors

The CSBS members have entered into a substantial number of bi-lateral and multi-party agreements among themselves and with the various federal regulators including

Memorandum of Understanding to Exchange Information
Memorandum of Understanding Regarding Money Services Business
Nationwide Cooperative Agreement
all of which can be accessed through the CSBS website

CSBS members have also entered into cooperative agreements with various non-banking agencies such as the SEC and state insurance regulators

Safety and Soundness Examination Ratings - CAMELS system

Bank Examination Statutes

Examination of Holding Companies

Index of Regulations

The actual conduct of federal safety and soundness examinations is not governed per se by regulations - their frequency is. See Examination Frequency

Disclosure of Examination Reports

OCC - 12 CFR Part 18, Section 18.9 - Disclosure of Exam Reports
FRB - 12 CFR Part 261, Section 261.14(a)(8) - Exemptions from Disclosure
FDIC - 12 CFR Part 350, Section 350.9 - Disclosure of Exam Reports
OTS - 12 CFR Part 510, Section 510.5 - Release of Unpublished OTS Information
NCUA - 12 CFR Part 792, Section 792.11(a)(8) - What Kinds of Records are Exempt from Public Disclosure

Specific Examination Types

Safety and Soundness

so-called "full scope" examinations to determine the overall financial condition of a bank, savings association or credit union
safety and soundness exams result in a composite rating between 1 and 5, with a 1 being the highest. See Exam Ratings

Information Technology IT

these exams seek to determine the reliability of the reports and records produced by an institution's data processing systems

Focus is upon:

IT audits
information security
institution supervision of outside technical service vendors
retail payment systems

Trust Operations

these exams seek to insure that an institution's policies and procedures in administering fiduciary accounts does not result in a material contingent liability or financial loss that could result in an impairment of its capital or damage to its reputation

As a result of the trust exam, institutions are assigned a composite rating according to the FFIEC Uniform Interagency Trust Rating System from 1 through 5 (1 being the most favorable) based upon the following factors;

management
operations, internal controls and auditing
earnings
compliance
asset management

Community Reinvestment Act

Community Reinvestment Act examinations result in ratings of Outstanding, Satisfactory, Needs to Improve or Substantial Non-compliance.

See also the topic Community Reinvestment

Compliance

these exams attempt to measure and rate an institution's compliance with a number of consumer and public interest-oriented laws including Fair Housing, Truth in Lending, Truth in Savings, Equal Credit Opportunity, and Fair Credit Reporting
ratings are based upon the Interagency Consumer Compliance Rating System on 1 to 5 scale with 1 being the highest

Anti-Money Laundering

these exams seek to determine compliance with the Bank Secrecy / Anti-Money Laundering Act
no separate rating system, but are considered in arriving at an overall CAMELS rating for an institution
See Inter-agency Bank Secrecy Act / Anti-Money Laundering Examination Manual - 7.28.06

Resources

The most reliable and up to date information regarding the examination processes of the agencies is contained in the examination manuals and brochures of each agency. These include:

FFIEC "Infobase" Resource for Bank Examiners - all federal banking agencies

The FFIEC InfoBase concept was developed by the FFIECs Task Force on Examiner Education to provide field examiners at the financial institution regulatory agencies with an electronic source for training and distributing needed examination information.
Financial institutions will also benefit from this training and examination information. The long-term goal of the InfoBase is to provide just-in-time training for new regulations and for other topics of specific concern to examiners within the FFIEC's five member agencies.
Perhaps most importantly, counsel advising financial institutions will find it most helpful in understanding the examiners' approach to the process.

Safety and Soundness

FDIC Risk Management Manual of Examination Policies
numerous OCC Safety and Soundness booklets

Trust Operations

Information Technology

Community Reinvestment Act

There are individual manuals for different sizes of banks and for special purpose banks

Compliance

FDIC Compliance Examination Manual

various OCC compliance manuals

Compliance and CRA Exam Guidance - for examiners
"Mortgage Loan Pre-Qualifications - Applications or Not?" - for bankers
FDIC "Guide to Fair Lending" - for bankers

Bank Secrecy / Anti-Money Laundering

Bank Secrecy Act/Anti-Money Laundering Examination Manual

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