Seeking to make safety-and-soundness exams less taxing, the Office of the Comptroller of the Currency released a revised small-bank examiner handbook Thursday.
"This new handbook will help alleviate unnecessary burdens by making exams more efficient and less burdensome by focusing examiner attention on key areas of risk," said Julie L. Williams, acting comptroller.
The handbook, which applies to the 2,365 national banks with less than $1 billion of assets, requires examiners to evaluate a bank's practices rather than its written policies. It supersedes two manuals: "Community Bank Procedures for Noncomplex Banks" and "Community Bank Risk Assessment Systems."
Industry officials welcomed the new guidance. "Community bankers will be pleased that two manuals have been combined into one," said Karen M. Thomas, director of regulatory affairs at the Independent Bankers Association of America. "That makes it easier for community banks to reference the procedures and easier for examiners to use."
"This is completely consistent with how bank management is operating," said Paul A. Smith, senior counsel at the American Bankers Association. "That has to make it better. They are asking where is the biggest risk in order that the examiner spends more time on it."
The manual introduces a three-pronged framework for exams.
The first prong-"core knowledge"-requires examiners to understand the bank's culture, risk tolerance, products, and supervisory history.
For instance, some banks may have a very conservative culture and shun all but traditional investments; others may have a more entrepreneurial culture and use innovative financial instruments. Similarly, some banks may have centralized management structures; others may permit decisions to be made at lower levels.
Next is "core assessment," which contains the standards a bank must meet. The institution's Camels rating will depend upon how well it meets these standards.
As an example, the handbook includes a standard for loan and lease-loss reserves. To conduct this review, the handbook says, examiners should evaluate the method the bank used to calculate the reserves. If that method is suspect, examiners must make their own calculation.
The final prong is "optional procedures," which details how examiners should review activities not included in the core assessment section. For the most part, this section refers examiners to other handbooks, such as guidance on how to review credit card operations.
The handbook also requires examiners to inform bank managers promptly of their findings and to obtain commitments by bank managers to correct shortcomings.
This is the sixth handbook that the Comptroller's Office has issued this year. Copies of the small-bank handbook are being sent to affected community banks and all OCC examiners.