AMID THE INDUSTRY’S EFFORTS to emerge from the global financial crisis, banks now encounter a new era in examination management. Thiseraismarkedbycontinuingregulatoryuncertainty, economic instability, and heightened expectations from prudential regulators. The established routine is not straightforward anymore.
In 2013, the authors surveyed community and large banks, bank regulators, and other
compliance professionals about examination management. The survey was not scientific,
yet it yielded insightful information about the evolution of responding to exam find-
ings, particularly, what’s working, what’s not, and strategies to manage the challenges.
As a backdrop, we heard from bankers that exams are more challenging, yielding
more findings and lower ratings. As a result, we looked at some tangible evidence
and found the following.
The Examination Environment—
Are the Examination Results a Driver?
Compliance Ratings: Graph #1 illustrates that since
the 2007 crisis the percentage of banks assigned
a compliance rating of “less than satisfactory” or
worse has increased.
However, results also suggest we began to turn
a corner after 2011. In 2013, the percentage of
banks dropped below 6 percent.
Notwithstanding the decline in poor
ratings, industry feedback suggests challenges still exist. For example, the nature
and complexity of issues makes the
process of remediation more difficult particularly for big-ticket issues, such as fair lending and unfair,
deceptive or abusive acts or practices
(UDAAP).
Have
Expectations
Changed?
Graph #1
Compliance Ratings
Percent Less than Satisfactory or Worse
8
7
6
5
4
3
2
1
0
2007 2008 2009 2010 2011 2012
Source: www.frbsf.publications/banking/ index.html
3. 7
4.0
4. 5
6.0
7. 1
6. 5
EXAMINATION
FINDINGS
BY SCOTT ALMY, BONITA JONES, AND JOHN PODVIN
