Banking in the Ninth

Saftey and Soundness Off-Site Work Update

Safety & Soundness Update - September 2017

Aaron Zabler | Assistant Vice President
Mark Rauzi | Vice President

Published September 19, 2017  | September 2017 issue

In the September 2014 issue of Banking in the Ninth, we shared our efforts to conduct more aspects of our examinations off-site (i.e., not at the bank). Three years later, that trend continues as we strengthen and improve the process. Overall, the shift is mutually beneficial, but not without challenges. In this article, we recap the progress made—the benefits and challenges of conducting off-site exams—and we share and solicit feedback on this change.

As technology has surely changed at your institutions, it has, in turn, changed the way we conduct exams. Now that institutions largely maintain their records electronically, and we have built and use systems to manage and securely transmit electronic files, we conduct a significant portion of bank examinations and holding company inspections off-site. The most recent phase in this evolution is banks’ migration to electronic loan files. This change creates opportunities for us to conduct loan reviews off-site. When we do this, we are able to conduct the majority of the examination off-site, because we already complete most of the financial analysis off-site. Either way, we always have some on-site presence. (Please note that there is no requirement for banks to image loan files or for us to conduct the loan review off-site. Some bankers request that we review loans on-site so that their lenders have face-to-face time with examiners; we continue to accommodate these requests.)

Off-site work clearly has mutual benefits. It provides cost savings, lessens the travel burden on examiners and reduces the burden created by an on-site exam team. A related benefit that may not be apparent to banks is that it allows us to assign large training teams to exams without creating the space needs and disruption of a large training crew on-site. We then send smaller groups of trainees to the bank during the final on-site week to give them on-site exposure that is critical to their development as examiners.

The shift to off-site work is not without its challenges. One of the main challenges is conducting conversations by conference call. Poor connections, the inability to see nonverbal cues or difficulties referencing specifics in documents because neither party can easily “point” to a document can make the process difficult. The key to success for off-site examination work is good communication between bank management and examiners. To promote this, examiners work with our banks ahead of time to establish how contacts are made, by whom and how frequently communication will occur. To make conference calls more efficient and effective, examiners send questions in advance of meetings whenever possible, cover multiple topics in each meeting to reduce the number of meetings and, when something is too difficult to discuss over the phone, examiners pass it along to the team that wraps up the examination on-site.

Some banks have video conference capabilities that we would like to explore as an option on examinations. If you have the technology and are interested in using it for conference calls at your next examination, please let your relationship manager know before the examination to allow time to test the technology.

Feedback from bankers on our off-site work has been largely positive. Bankers appreciate the reduced burden on the bank. While the shift to more off-site processes changes where we complete the work, it does not change the tasks we complete. Completing more work off-site often requires banks to provide more information in advance of the examination to facilitate the off-site work; however, this offsets the information that bankers historically assembled and held on-site for examiner review. While bankers’ feedback notes the more extensive advance requests, they also acknowledge the trade-off for less disruption at their bank.

Thank you for the feedback thus far and for working with us through these changes. Please continue to provide feedback or ideas on how we can continue to improve the examination experience.

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