Smaller Banks Can Opt for Off-Site Loan Reviews, Fed Says

By Jeff Bater

April 19 — Smaller banks can opt for a review of their loan files by off-site Federal Reserve examiners under new procedures announced by the agency in a move meant to reduce regulatory burden.

State member banks (SMBs) and U.S. branches and agencies for foreign banks (FBOs) with less than $50 billion in total assets can choose the off-site review during both full-scope or target examinations — as long as loan documents can be sent securely and with the required information to Federal Reserve Banks. The program is optional, so any bank belonging to the Fed system can still choose an on-site review.

To date, most of the Fed’s off-site examination work has focused on financial performance analyses and the review of bank policies, procedures and certain bank internal reports.

Technology Enables Off-Site Exams

“However, with technological advancements, such as secure data transmission and electronic file imaging, examiners now have the ability to collect and review loan file information off-site without compromising the effectiveness of the examination process,” the Fed said in a supervisory letter announcing the procedural change.

The Fed will consider certain factors when determining whether an off-site review of loan files is appropriate for a particular bank. One question is whether the bank will submit the loan file data using a secure transmission method such as cloud-based collaboration products, secure e-mail services, encrypted removable media, virtual private networks or remote desktop control services.

Legible and Organized

Also, the Fed will look to see if the bank can provide loan data and imaged loan documents that are legible, easily viewable and properly organized to allow for timely review by examiners. In addition, the Fed will consider whether the loan files are comprehensive to allow an examiner to come up with the appropriate credit rating without having to request additional information from the institution.

The supervisory letter said on-site examination work remains “an indispensable component” of bank supervision. Examiners are expected to continue to perform on site those activities that require physical observation, such as transaction testing and direct monitoring of an institution’s operations and internal controls.

“While on-site, examiners will also review documents such as meeting minute books of the board of directors that would be inappropriate or impractical for the SMB or FBO to send to the Reserve Bank,” the letter said. “Further, Federal Reserve examiners should conduct exit meetings in-person with the institution’s management to communicate final supervisory findings and conclusions, including the final supervisory findings from any off-site loan review examination work.”

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For More Information

The supervisory letter can be accessed at