Pub. 6 2016-2017 Issue 2

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S September • October 2016 21 Below are three items that, based on the responses generated by banks in the survey, the regulatory agencies should Start, Stop, and Continue: Start: Create an appeals process that eliminates any concerns of regulatory retaliation. The Riegle Community Development and Regulatory Improvement Act of 1994 required that all regulatory agencies construct an appeals process that attempts to remedy contested filings. RFI data shows a high correlation where banks reported being “unsatisfied” or “extremely unsatisfied” with their examination to whether or not the “examination resolved issues and recommended corrective action in a fair and reasonable manner.” Bankers’ comments yearn for a healthy appeals process that is standardized across agencies and void of regulatory retaliation. From an article published in the American Banker on April 8, 2015 titled Fear of Retaliation Stifles Banks’ Appeals to Regulators, FinPro’s suggestions for improvement are simple and easy to implement. First, examination standards and findings should be the same regardless of an FDIC, OCC, or FRB examination team. Second, appeals should be reviewed and resolved by an interagency group of senior executives. Third, appeals should have all names and identifiable information redacted before submission to the interagency group. Decisions should be made based on the facts of the case. Stop: Only 25% of the banks responding to the RFI agreed that “examiners applied ‘guidance’, as opposed to enforceable regulation, appropriately” during their examination. The most common divergences in expectations historically surrounded the application of Appraisal and Evaluation Guidelines (FIL-82-2010), but most recently disagreements regarding the Guidance for Managing Third-Party Risk (FIL-44-2008) have emerged as a trend. Not surprisingly, 51% of the bankers who disagreed with the above statement reported their examiner-in-charge had been supervising bank examinations for less than 5 years. Augmenting the experience of examiners is only one part of the solution though. Some FILs, such as 44- 2008, contain language stating the guidance “should not be considered as a set of required procedures.” However, others contain language that is more ambiguous. For example, 82-2010 states that “the Guidelines enhance the requirements for collateral valuation methods…” The mention of requirements is understandably confusing. Changes in staffing must be combined with a more clear communication of expectations from the agencies to banks. Continue: The most bi-polar results from the current RFI survey data surround exam preparation. Overall, institutions had positive feedback pertaining to the examination staff being “knowledgeable about important issues and regulatory requirements” and “knowledgeable about your institution.” This indicates an adequate level of preparation by staff prior to the examination. However, there have been a significant number of comments pertaining to banks being given short-notice to prepare themselves for the examination. Examiners should continue to be vigilant in preparing for the examination and be just as pro-active in communicating information about the schedule and timing of the examination as early as possible. In combination with providing examiners feedback, the improved survey and greater bank participation allows for better reports to aid bankers in upcoming examinations. Past comments from the survey included the desires to know such items as: • “that BSA and IT were growing hot topics,” • “there is a new focus on detailed policies,” • “the examiner was going to spend 75% of their time on interest rate risk,” • “application of UDAAP specifically to their bank,” • or generally “when the goal posts moved.” We hear you, and the reports from the new survey will great- ly improve your bank’s ability to stay aware of hot topics in preparation for examinations. While it is always incumbent on senior managers and directors to stay educated on current industry issues and regulations, here are the areas of greatest criticism in examinations conducted over the last two years.  Bank participation is paramount to the success of the RFI. We encourage all institutions to visit http://www.allbankers.org to share anonymous information about their last examination. This article was written by Scott Polakoff, Executive Vice President, and Stephen Brown Klinger Director, of FinPro Inc. For more information on FinPro’s strategic planning, capital planning, regulatory advisory, new director orientation, and board retreat facilitation services, contact them at 908-234-9398 or by emailing finpro@finpro.us.