EMENT
EXAMINATIONS HAVE HISTORICALLY BEEN A CORNERSTONE “EVENT” used to periodically gauge the health and stability of the banking industry. Today when we talk to colleagues about exams it seems the
term “periodically” is evolving into “continuously.” At least it feels that way. Think
about it. In conversations today with a colleague or peer, some questions come up
a lot more than they have in the past: Have you had your exam lately? How’s your
examination going? What did they focus on? And, simply, did you survive?
In the past, colleagues or peers would likely respond
with “Oh, we just had an exam. Things went fine.”
However, now that same banker can be heard saying,
“Whew, we just had an exam and I can’t figure out what
these regulators really want!”
Of course, as bankers we acknowledge that regulators
are charged with ensuring that the financial industry
is operating in a safe and sound manner, the financial
service needs of the communities we support are met,
and consumers are provided with the facts necessary to
make informed decisions. We also know that conducting
EXAMINATION MANAGEMENT PRINCIPLES
PRINCIPLE #1: examination management should be a formal
component and ongoing element of an effective compliance
program. (Formalize exam management as an ongoing
control).
PRINCIPLE #2: careful planning, solid compliance programs,
and good organization can turn most examinations into a
positive experience for the financial institution. (effective
program and exam preparation).
PRINCIPLE #3: substantive and effective communication
at all levels of the institution is essential to successful
examination. (effective communication with stakeholders).
PRINCIPLE #4: establishing and maintaining positive relations
with regulators is an integral element of examination
management and facilitates each of the other principles.
(maintain positive relationships).
examinations allows the regulators to understand our
institutions, the products and services we offer, and the
channels we use to deliver them. The reviews also enable
regulators to assess the quality of the information that we
communicate to our customers. However, responses to the
2007 crisis have substantively changed the dynamics. The
responses are extensive and include, among other things,
a plethora of new rules issued at an unprecedented pace,
the addition of a new regulator, and a shuffling of regulator and examiner responsibilities, as well as examiners
being shuffled to other agencies. The resulting execution
of traditional examiner charges is challenging for all—
bankers and regulators alike. Consequently, compliance
professionals are asking the question: “Do the old exam
management principles still apply?” Before answering that
question, it’s first important to review the key principles.
Second, to provide context, we need a sense of the
environment in which the principles are to be applied.
The question is—what is the general state of compliance
at banking institutions? The incidence and content of
enforcement actions, civil money penalties (CMPs), and
settlement agreements definitely suggests that overall compliance ratings are down. National aggregate examination
data1 affirms this perception, showing the percentage of
institutions with compliance ratings of less than satisfactory or worse steadily increasing from 3. 7 percent on
December 31, 2007 to 7. 1 percent on December 31, 2011.
