Now that any bank employee can be questioned during a Federal Deposit Insurance Corp. examination, senior managers are prepping their staffs as never before.
Whether holding cramming sessions just before exams or implementing formal compliance training, bank executives say educating employees is a must under procedures that took effect in July.
Take MC Bank & Trust Co. in Morgan City, La., which completed an FDIC exam two weeks ago. Larry J. Callais, the $177 million-asset bank's chief executive, said he went over its policies and procedures with his staff days before the examiners arrived, then tested them on the material. The employees all passed, but they are still keeping policy books at their workstations just in case an examiner's question stumps them.
In the past FDIC regulators would communicate only with senior managers during an exam, and only if there was a problem, Mr. Callais said.
The new approach is more risk-based. Examiners are looking more at procedures behind a bank's processes rather than at the processes themselves. They still inspect files, but they also talk to employees to find out how well they understand their responsibilities and if they are keeping up with changes to consumer protection laws and regulations.
"I was hesitant at first, not knowing what kinds of questions they would ask," Mr. Callais said. "But the questions are not so they will catch you and stick you in a corner. They are all practical things that you should know and understand."
The FDIC, which regulates roughly 6,000 state-chartered banks, said the process is less adversarial than it was in the past, when examiners focused almost solely on finding violations. The Office of the Comptroller of the Currency and the Office of Thrift Supervision have adopted similar approaches to exams in recent years.
Albert "Kell" Kelly, the chief executive of the $571 million-asset SpiritBank in Tulsa, said his bank, which has not had an exam since the FDIC changed its procedures, is emphasizing compliance more during training and plans to test employees more frequently.
"These exams may not necessarily reflect the quality of the entire staff, but just the interview of the weakest link," Mr. Kelly said.
Some employees at Community Business Bank in Sauk City, Wis., were not prepared for FDIC questions during a summer exam, and as a result they gave inaccurate answers, according to Deb Lins, the CEO.
The $47 million-asset bank plans to revamp its training. In the past its program was weighted toward things like technology and sales, Ms. Lins said, but now it will focus more on issues such as computer security, flood insurance requirements, and changes to the Real Estate Settlement Procedure Act.
"We felt we had a good training program, but now we know we need some work," she said.
Firstbank Corp. in Mount Pleasant, Mich., completed an exam two months ago. Thomas R. Sullivan, the $162 million-asset holding company's president and CEO, said that examiners talked mainly with compliance and middle managers. He expects that as the examiners get more comfortable with the process they will start interviewing more employees.
To ensure that everyone is ready at Firstbank and the four other subsidiaries, the parent company will hold more frequent, intensive sessions on compliance-related matters and require more employee participation, Mr. Sullivan said.
Bankers and consultants agree that additional training is necessary, because regulations are getting more numerous and more complex.
And because of the nature of the changes, more employees need to be familiar with them, said Jim McLaughlin, the director of regulatory and trust affairs at the American Bankers Association.
Most employees need to know the compliance guidelines for money laundering under the USA Patriot Act, for instance, and many must be aware of the recent changes to the Home Mortgage Disclosure Act, Mr. McLaughlin said.
"There are so many new rules and regulations that keep coming out and coming up at banks that to keep up to date [requires more than] just the compliance officers' implementing the new procedures and rules," he said. "And the exam is where the rubber meets the road."
Still, Mr. Kelly at SpiritBank said that, despite the heavy emphasis on training and testing, employees could still be caught off guard.
"I tell employees to always be prepared to answer questions from examiners, but if they don't know something to simply say, 'I don't know,' " he said. "There's nothing wrong with that."
