District Circular Letters
November 12, 1997
BANKING SUPERVISION AND REGULATION:
RISK-FOCUSED PROCESS FOR EXAMINATIONS
OF STATE CHARTERED COMMUNITY BANKS
RULES REGARDING
AVAILABILITY OF INFORMATION
To Banks, Bank Holding Companies,
Uninsured State Chartered Branches and
Agencies of Foreign Banks, and Others Concerned
in the Twelfth Federal Reserve District
Risk-Focused Process for the Examination of State Chartered
Community Banks
The Federal Reserve Board, the Federal Deposit Insurance Corporation
(FDIC), and the state banking departments have begun full implementation
of a common risk-focused process for the examination of state-chartered
community banks, as of October 1, 1997. The process targets
the activities posing the highest level of risk at each institution and
enhances examiners' ability to diagnose emerging problems.
Implementation of this process will provide greater consistency in examinations
conducted by the Federal Reserve, the FDIC, and the states, and is expected
to result in examinations that are more efficient and effective and less
burdensome on institutions.
Critical to the implementation of the risk-focused approach is the exercise
of examiner judgment in determining the scope of the examination during
the planning process. This allows examiners to customize, based on the
bank's risk profile, procedures performed on-site.
The Federal Reserve and the FDIC have developed examination procedure
modules to assist examiners in their analysis of seven of the most important
activities of community banks including loan portfolio management, securities,
management and internal controls, earnings, and capital.
Six supplemental modules are provided for the review of activities such
as electronic banking, mortgage banking, and international banking. Both
agencies have conducted extensive field testing of the modules. These
modules emphasize evaluation of a bank's ability to manage the risks associated
with a particular activity so that examiners can better diagnose emerging
problems. The modules employ a tiered structure that permits an examiner
to draw conclusions after completing a core analysis requiring a limited
number of procedures. An expanded analysis involving further procedures
would be performed only if the core analysis indicated more in-depth review
is necessary.
The modules have been automated for use on virtually all laptop computers
currently in field use through a stand-alone software program called ELVIS
(Examiner Laptop Visual Information System). ELVIS provides a documentation
vehicle for work performed on an examination, as well as electronic access
to the two agencies' examination manuals. Examiners at both agencies have
been trained on the risk-focused examination process and the use of ELVIS.
The FDIC began work on developing a risk-focused examination process
in l996 as part of a Corporate Operating Plan project. When the FDIC examiners
working on the project learned that the Federal Reserve had undertaken
a similar effort, the two agencies decided to join in a cooperative effort.
The state banking departments, through the Conference of State Bank Supervisors,
provided input to the development work.
Training on the risk-based examination process has included examiners
from all of the 50 state banking departments. Since all three groups conduct
examinations of state-chartered banks, implementation of the risk-focused
approach is expected to improve the consistency of examination procedures
applied to state-chartered institutions.
Final Amendments to the Rules Regarding Availability of Information
(Docket R-0975)
The Board has amended its Rules Regarding Availability of Information
(Rules) to reflect recent changes in the Freedom of Information Act (FOIA)
as a result of the Electronic Freedom of Information Act Amendments (EFOIA).
The review of the Board's Rules that produced this final rule was conducted
in accordance with section 303 of the Riegle Community Development and
Regulatory Improvement Act of 1994. In this regard, the amendments to
the Rules clarify certain provisions and simplify the processing of requests
for access to information in certain circumstances.
This final rule is effective November 19, 1997.
Last year, Congress passed the Electronic Freedom of Information Act
Amendments (EFOIA) of 1996. Among other things, EFOIA requires agencies
to promulgate regulations that provide for expedited processing of requests
for records, and permits agencies to promulgate regulations that provide
for multitrack processing of requests. In addition to amending its Rules
to comply with EFOIA, the Board has taken this opportunity, in accordance
with section 303 of the Riegle Community Development and Regulatory Improvement
Act of 1994, to review and streamline those Rules. In addition, the Board
is amending the Rules to take account of various statutes that have been
enacted since the Rules were last revised in 1988.
Copies
Copies of the Board's notice (Docket
R-0975) are available from our Corporate Services Department.
To request copies to be sent via mail, please call (415) 974-2748.
To request copies to be sent via fax, please call (415) 974-3333,
and specify document number 4153.
Additional Information
For additional information regarding these matters, please contact our
Banking Supervision and Regulation Department, at (415) 974-2998
[for the risk-focused examination process], and (415) 974-3007
[for the Rules Regarding Availability of Information].
FEDERAL RESERVE BANK OF SAN FRANCISCO
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