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The bottom line: If bankers want to change their exams they will have to go toe to toe with their examiners, pointing out specifically what they deem unreasonable. Bankers will have to take their complaints up the chain of command.
September 1
The banker-examiner relationship has not been this strained for 20 years, but a provision in the Dodd-Frank Act will alleviate some pressure on the examiners.
The reform law significantly raises the threshold for investigating failed banks. Examiners will only be subject to second-guessing by their agency's inspector general when a bank failure costs the Deposit Insurance Fund $200 million or more.
The previous trigger was $25 million, or 2% of an institution's total assets.
In the last two years, as the financial performance of many banks deteriorated along with the economy, the IG offices at the Treasury, the Federal Deposit Insurance Corp. and the Federal Reserve have been consumed with writing these "material loss reviews."
The FDIC's IG has done 43 of these detailed autopsies so far this year; the Fed's IG is up to a dozen, and the Treasury's IG has done seven.
These reports explain why a bank failed and how its supervision went awry. Bankers claim examiners are so afraid of being fingered in these reports that they have become unreasonable in their demands and much too quick to issue enforcement orders.
Dodd-Frank retains the $200 million threshold through 2011.
For the succeeding two years, through 2013, the material loss review trigger is $150 million, and it falls to $50 million for any failure after Jan. 1, 2014.
It was the IG offices that asked Congress to redefine "material loss," arguing they were so busy investigating bank failures that they had little time to police other agency functions.
