The Office of the Comptroller of the Currency issued updated exam guidelines for large national banks Wednesday.

The revisions are intended to help examiners better implement supervision-by-risk policies and carry out a new OCC initiative designed to halt the erosion of underwriting standards.

"We're trying to get more systematic about how examiners collect basic information on the institutions they supervise," said acting Comptroller Julie L. Williams.

"In particular we want them to do more drilling down into specific transactions."

The revisions are being incorporated into the 86-page handbook examiners use to supervise the 80 national banks with more than $1 billion of assets.

The primary change adds step-by-step instructions to help examiners measure a bank's exposure to the nine risk categories identified when the OCC implemented its supervision-by-risk policy in September 1995.

This is the first revision of the large bank exam handbook since initial supervision-by-risk guidelines were issued in January 1996.

Under that policy, examiners were required to look at a sample of loans in a bank's portfolio and grade how well the institution managed various types of risk.

Ms. Williams said the revisions are especially timely because of the recent spate of giant merger deals such as Citicorp/Travelers Group and NationsBank Corp./BankAmerica Corp. She stressed, however, that the new guidelines were already under development when the megamerger wave began this spring.

Still, examiners are being instructed to scrutinize banks involved in mergers.

"As an organization grows larger, more diverse and complex, risk management must keep pace," Ms. Williams said.

The new procedures should also help examiners wage the agency's crusade against falling underwriting standards, she said. When risk management deficiencies are spotted, the examiners are expected to dig deeper into portfolios to identify specific loans with structural weaknesses such as inadequate collateral requirements or high risk of default.

"By instituting more verification and testing procedures, the manual will help us deal with slippage in credit underwriting standards," Ms. Williams said.

Allen W. Sanborn, president of Robert Morris Associates, welcomed the additional guidance. "Supervision-by-risk was a brand new way of looking at examinations," he said.

"After a major change like that it's not surprising they might make some changes."

The nine categories of risk are credit, interest rate, liquidity, price, foreign currency, transaction, compliance, strategic, and reputation.

For each of category, examiners are being asked to determine whether the bank has a low, medium, or high level of risk and issue a grade of strong, satisfactory, or weak for the institution's ability to manage the particular risk.

The new guidance spells out what factors should be considered for each category. For instance, the components of credit risk include how often a bank deviates from its underwriting standards, loan concentration, and the impact of economic, political, or technological changes.

Credit risk management will be gauged by a bank's ability to adhere to its risk limits and whether specific personnel are held accountable at every level of the loan review process.

The bank's procedures for monitoring marketing, compliance, and loan collections will also be judged.

To grade interest rate risk management, examiners will determine whether the bank has established policies to limit its exposure to rate changes and has "reasonable" policies for approving exceptions.

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