WASHINGTON -- As many as 1,700 community banks with national charters may qualify for streamlined examination procedures outlined Thursday by the Office of the Comptroller of the Currency.
Banks that qualify will be subject to a standardized set of examination procedures that will require less documentation than is currently needed. The procedures will cut down on paperwork and reduce demands on examiners as well, the agency said.
"These procedures respond to complaints from bankers that examiners are trying to micromanage their banks," said Susan Krause, senior deputy comptroller for bank supervision policy.
To Save Costs, Time
Diane Casey, executive director of the Independent Bankers Association of America, praised the guidelines, which were first announced at the trade group's annual convention this year.
"When we did our study of regulatory burden, exams were right up there" at the top of the list of bankers' complaints, she said.
"We hope this is going to be both a cost savings and a time savings for small banks," she added.
Although the procedures apply only to community banks now, Ms. Krause said the Comptroller's office is considering whether any part of the new guidelines could be extended to larger institutions.
The new procedures provide a standardized set of examination guidelines for community banks that are designated "noncomplex." Qualifying banks will generally have assets of less than $100 million, though banks with assets up to $1 billion may qualify.
In addition, the banks will have a rating of 1 or 2 on the five-point Camel scale, and will be not be heavily involved in nontraditional products, such as mutual funds or annuities or complicated commercial real estate loans.
However, Ms. Krause said banks involved in mutual funds or annuities could still qualify for the streamlined procedures if they meet other criteria.
They would likely be subject to a separate exam targeted at their compliance with mutual fund disclosure regulations.
Paperwork Reduction Seen
The new procedures arc expected to cut down significantly on the paperwork bankers must assemble in preparation for an examination, though they will not necessarily reduce the time spent under the scrutiny of examiners, according to the Comptroller's office.
However, the pre-exam period is the time in which much of the paperwork burden comes into play.
"The examiners spend one to two days on preplanning," deciding which documents they want to see for an individual bank, said Mary Johnson, a national bank examiner assigned to the chief examiner's office.
"They usually have to do it on their own time, and if they don't, they usually just request everything," she added.
The agency said that when it field tested the new program with 12 community banks that fit the "noncomplex" profile required for the new program, they found a "small reduction in staff time required for the exams," and a bigger reduction in paperwork generated in the preplanning stage.
The bankers who participated in the field test said they were happy with the new procedures, said agency officials, who did not identify the 12 participating banks.
Ms. Johnson said the new procedures will be "results-oriented."
For example, examiners will sample up to 30% of a bank's loan portfolio. If the loans generally appear to be in line with sound underwriting procedures, the examiner will assume the bank is achieving sound results.
Ms. Johnson said that under the new rules, banks need not necessarily have written loan underwriting standards.
"We will be emphasizing in training to our examiners that if banks are applying good standards, it is okay if they are not in written form."
In written materials provided Thursday, the Comptroller's office said the new procedures would not lead to the kind of breakdown in examination discipline that led to the savings and loan crisis.
"These procedures will only be used on well-managed 1- and 2-rated institutions that have demonstrated consistent performance," the agency said.
Moreover, "nothing in these procedures tells bankers to abandon sound principles. Rather, the OCC expects these sound principles to still be in place."
A National Bank Can Qualify If ...
Assets are under $1 billion (most under $100 million)
It rates a 1 or 2 on the 5-point Camel scale
Management and ownership are stable
It has had no significant changes since last exam
Financial performance has been consistent and strong
The local economy poses no threat