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Don't forget: Take post-exam survey!

The OBA and the other states that created the Regulatory Feedback Initiative (RFI) have partnered with FinPro, a full service management consulting firm, to help make the RFI survey process more meaningful. We recognize that you operate in a highly regulated environment, and we also know that regulatory examinations are a necessary ingredient for maintaining a safe and sound financial system.  

That having been said, examinations can often “go south” quickly and unexpectedly, for myriad reasons. Recently many of us have concluded that we are at a substantial risk of veering away from the collaborative approach to much more of a regulatory “gotcha” mentality.  

Our survey is intended to change all of that. Its focus is an anonymous electronic survey for bankers to use in providing an assessment of their most recent examination or visitation. The information is aggregated and analyzed on a national level, to improve the regulatory examination process for all banks through two fronts:

  1. Survey results are communicated to bank regulators on a routine basis when unique examination trends are discovered; and
  2. Custom bank reports are available to banks to help them prepare for an upcoming exam by identifying trending areas of focus or criticism. 

So far banks have provided feedback on over 3,000 examinations. In 2015, FinPro joined this important effort to help analyze the data generated by the RFI and provide suggestions for improving the survey.    

Working closely with FinPro's advanced analytic group and staff of former senior regulators, we've streamlined the survey process and improved the relevance of questions. We rolled out the revised survey last month and have cut the number of questions by almost 50 percent. We estimate these changes will reduce the average survey completion time from 27 minutes to less than 15 minutes. 

As is the case with any survey, its usefulness depends exclusively on banker involvement. We believe the survey results truly can help us make a difference, and we wanted to share with you some examples of how FinPro has helped us develop a survey that provides actionable feedback. 

Below are three items that, based on the responses generated by banks in the survey, the regulatory agencies should Start, Stop, and Continue: 

  • Start: Create an appeals process that eliminates any concerns of regulatory retaliation. 
    • The Riegle Community Development and Regulatory Improvement Act of 1994 required that all regulatory agencies construct an appeals process that attempts to remedy contested filings;
    • RFI data shows a high correlation where banks reported being “unsatisfied” or “extremely unsatisfied” with their examination as to whether the “examination resolved issues and recommended corrective action in a fair and reasonable manner;” 
    • Banker comments tell us they yearn for a healthy appeals process, one that's standardized across agencies and void of regulatory retaliation;   
    • From an article published in the American Banker on April 8, 2015, titled Fear of Retaliation Stifles Banks' Appeals to Regulators, FinPro's suggestions for improvement are simple and easy to implement.
      • First, examination standards and findings should be the same regardless of an FDIC, OCC, or FRB examination team;
      • Second, appeals should be reviewed and resolved by an interagency group of senior executives; and
      • Third, appeals should have all names and identifiable information redacted before submission to the interagency group. Decisions should be made based on the facts of the case. 
  • Stop:  
    • Only 25 percent of the banks responding to the RFI agreed that “examiners applied 'guidance', as opposed to enforceable regulation, appropriately” during their examination;
    • The most common divergences in expectations historically surrounded the application of Appraisal and Evaluation Guidelines (FIL-82-2010);
    • Most recently, disagreements regarding the Guidance for Managing Third-Party Risk (FIL-44-2008) have emerged as a trend; 
    • Not surprisingly, 51 percent of the bankers who disagreed with the above statement reported their examiner-in-charge had been supervising bank examinations for less than 5 years;
    • Augmenting the experience of examiners is only one part of the solution; and
    • Some FILs, such as 44-2008, contain language stating the guidance “should not be considered as a set of required procedures.”  However, others contain language that is more ambiguous. 
      • For example, 82-2010 states that “the Guidelines enhance the requirements for collateral valuation methods…” 
      • The mention of requirements is understandably confusing.  Changes in staffing must be combined with a more clear communication of expectations from the agencies to banks.
  • Continue: The most bi-polar results from the current RFI survey data surround exam preparation. 
  • Overall, institutions had positive feedback pertaining to the examination staff being “knowledgeable about important issues and regulatory requirements” and “knowledgeable about your institution;” 
  • This indicates an adequate level of preparation by staff prior to the examination.  However, there have been a significant number of comments pertaining to banks being given short-notice to prepare the bank for the examination; 
  • Examiners should continue to be vigilant in preparing for the examination and be just as proactive in communicating information about the schedule and timing of the examination as early as possible. 

Importantly, in addition to providing examiners feedback, the improved survey and greater bank participation allows for better reports to aid bankers in upcoming examinations.  

Past comments from the survey included the desires to know such items as: 

  • “that BSA and IT were growing hot topics,”
  • “there is a new focus on detailed policies,”
  • “the examiner was going to spend 75 percent of their time on interest rate risk,”
  • “application of UDAAP specifically to their bank,”
  • or generally “when the goal posts moved.”  

We hear you, and the reports from the new survey will greatly improve your bank's ability to stay aware of hot topics in preparation for examinations.  While it is always incumbent on senior managers and directors to stay educated on current industry issues and regulations, here are the areas of greatest criticism in examinations conducted over the last two years. 

Bank participation is paramount to the success of the RFI.  We encourage all institutions to visit http://www.allbankers.org to share anonymous information about their last examination.  

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