FRB – Conducting Offsite Bank Examinations

June 29, 2020 – FRB published an article entitled conducting offsite bank examinations in its 2020 the second issue of community banking connections, supervision and regulation resource.

The article discusses FRB’s use of offsite examinations as part of its safety and soundness supervision, the relevance of these during unique situations, such as COVID-19 pandemic. When determining the ability to conduct examination offsite, examiners consider several factors such as risk profile, management preferences, and technology capabilities.

Benefits of Offsite Examination Work

Over the past decade, significant technological advances have radically transformed the supervision process, which includes the proliferation of offsite examination work. Today, a considerable amount of monitoring, examination work is performed offsite. From convenience to continuity, conducting examinations offsite can be particularly useful for both bankers and examiners, especially under extenuating circumstances. Offsite examinations may require more coordination, preparation than onsite reviews. Examinations offsite offer benefits including procedural efficiencies, greater flexibility for Reserve Banks to manage resources, and training/mentoring for newer examiners.

Supervisory Work During Exigent Circumstances

Pandemics and natural disasters affect how both bankers and regulators conduct work. In light of COVID-19, the Fed adjusted its supervisory approach to focus on monitoring, outreach to help institutions understand challenges, risks due to the current environment. Unique COVID-19 challenges have highlighted the importance of offsite monitoring and examination support in the short term will result in many supervisory lessons learned.

Communication Remains Key

Regardless of where examination activities are conducted, it is essential that Reserve Bank staff effectively communicate with bank management throughout the process. When appropriate, it remains effective for examination leadership to visit with bank management onsite to foster open dialogue, build positive relationships, and rapport. Communication between the offsite examination team and bank staff can be challenging because of lag time between messages, mitigated with prompt responses.
From a monitoring perspective, bank, examination staff communication is paramount.

Technological and Logical Considerations

The bank’s technological capability plays a key role in determining whether it is feasible for certain examinations to be effectively completed in an offsite manner. Examiners have various tools to support the effective completion of an offsite examination. A Reserve Bank’s first-day letter notifies bank management of upcoming examinations and requests documentation needed by examiners in support of the supervisory event. Bank management uploads requested documents to a secure website, saving examiners time by allowing them to review documentation before, during the examination. One of the primary, relatively recent offsite examination functions is loan file review. It is expected the offsite loan review process will continue to evolve and be refined. During contingency telework situations, such as pandemics, with facilities unavailable, examination staff have stringent security guidelines regarding offsite loan review.

Feedback and Concluding Thoughts

FRB has conducted various quality assurance reviews to determine whether an offsite examination is compromising the effectiveness of these community bank examinations. Reviews found offsite examination work does not materially affect overall outcomes. If some well-managed banks prefer onsite examinations, Fed plans to honor requests. Especially in times of operational, economic stress, it is a crucial examination process, offsite or otherwise, be conducted with flexibility, open communication, and risk-focused.

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