Do as Much as You Can Off-Site, The Fed Tells Its Bank Examiners

WASHINGTON - The Federal Reserve Board has directed its examiners to conduct as much of their bank reviews as possible in field offices, a move that could reduce on-site exams by a week or more.

"We have advised reserve banks to do everything off-site that can be done off-site," said a senior official in the Fed's division of banking supervision and regulation. The increased off-site preparation will make examiners "more focused" when they do go on-site, the official said.

Depending on the size and complexity of the institution, the pre-exam review will cut time spent in the bank by one or two weeks, according to Fed estimates. For some holding companies, the Fed may complete an entire exam off-site, the official said.

The policy change, announced in a March memorandum, should save the Fed money by reducing travel costs, and make exams less disruptive to the 7,000 institutions it regulates, the official said.

The Fed conducted more than 2,600 examinations in 1994.

Bankers applauded the change, saying they welcomed any policy that reduces the amount of time they need to spend with examiners.

Willis Gouwens, president of South Holland (Ill.) Trust and Savings Bank, said he would much rather prepare documents for shipping than respond to examiners' requests during business hours.

"If it's off-site we can dispense the information according to our timing," he said.

Also, exams are less disruptive if regulators spend less time at the bank, said Tom Grove, president of Oregon Pacific Bank, Florence.

Mr. Grove said he must devote at least two staffers to accommodate regulators during inspections. This leaves him with fewer employees to serve customers, he said.

"With all the electronic data we're reporting right now, I think they can complete 95% of an examination off-site," he said.

Mr. Grove said he's noticed regulators making more of an effort to meet bank needs and he attributes this to a general "attitude change" among agencies.

"Instead of a police force, they've decided to be a support force," he said.

This is the Fed's second stab at off-site exams. The central bank tried a similar program in the late 1980s, but congressional pressure during the banking crisis forced it to revert to an on-site emphasis.

Fed officials said they expect to have better luck this time for several reasons. First, bankers are storing more of their data on computers. That makes it easier for examiners to review records off-site. Second, demonstration projects at the reserve banks in Chicago, Richmond, and Minneapolis worked well.

The Fed said it is willing pay the mailing costs for its member banks.

Mr. Lumetta writes for Medill News Service.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER