BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
SR 95-40 (SUP)
July 18, 1995
TO THE OFFICER IN CHARGE OF SUPERVISION
AT EACH FEDERAL RESERVE BANK
SUBJECT: Interagency Statement on Guidelines for Relying on State Examinations
Enclosed is a copy of the FFIEC's Statement on Guidelines for Relying on State Examinations. These guidelines were issued pursuant to section 349 of the Riegle Community Development and Regulatory Improvement Act of 1994 and were effective June 27, 1995. The guidelines were drafted by an interagency working group consisting of representatives of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FFIEC's State Liaison Committee.
The interagency statement, which is being distributed with this SR Letter, is consistent with current Board policy regarding the acceptance and reliance on independent State reports of examination in lieu of Federal Reserve examinations. Currently, the Federal banking agencies, individually, have entered into formal or informal arrangements or working agreements with most State Banking departments. The new interagency guidelines maintain the flexibility of these arrangements or working agreements and provide criteria, to be considered in whole or in part, by a Federal banking agency when determining the acceptability of an independent State report of examination.
Reserve Banks should review this statement and ensure that their procedures for reliance on independent State examinations are consistent with this statement and current Board policy.
Any questions regarding this policy statement should be directed to Frederick M. Struble, Associate Director, at (202) 452-3794.
ENCLOSURES TRANSMITTED ELECTRONICALLY BELOW
Cross-reference: SR 81-678
For immediate release June 22, 1995
The Federal Financial Institutions Examination Council (FFIEC) announced today its adoption of Guidelines for Relying on State Examinations. The guidelines were issued pursuant to section 349 of the Riegle Community Development and Regulatory Improvement Act of 1994 and will be effective upon publication in the Federal Register.
Section 349 requires the FFIEC to issue guidelines establishing standards for the purpose of determining the acceptability of State reports of examination under section 10(d) of the Federal Deposit Insurance Act. The guidelines describe the current working relationships with the States and sets forth general criteria for determining the acceptability of State reports. Section 349 states that the standards are to be used at the discretion of the appropriate Federal banking agency.
The guidelines were drafted by an interagency working group consisting of representatives of the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the FFIEC's State Liaison Committee.
[Billing Code 6210-01-M]
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Guidelines for Relying on State Examinations
Agency: Federal Financial Institutions Examination Council
ACTION: Notice and Final Guidelines.
SUMMARY: The Federal Financial Institutions Examination Council (FFIEC) announces the adoption of its Guidelines for Relying on State Examinations pursuant to section 349 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRI Act), codified at 12 U.S.C. 1820(d)(9). This section requires the FFIEC to issue guidelines establishing standards for the purpose of determining the acceptability of State reports of examination under section 10(d)(3) of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1820(d)(3). Under section 10(d)(3), a Federal banking agency may conduct an annual, on-site examination of an insured depository institution in alternate 12-month periods (except those insured institutions with total assets of less than $250 million for which an 18-month examination cycle is permitted) if the Federal banking agency determines that a State examination of that institution conducted during the intervening period is adequate. Section 349 of the CDRI Act states that the standards issued by the FFIEC are to be used at the discretion of the appropriate Federal banking agency.
EFFECTIVE DATE: These guidelines are effective on [Insert date of publication in the Federal Register].
FOR FURTHER INFORMATION CONTACT:
BOARD: Frederick M. Struble, Associate Director, (202/452-3794), Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/452-3544), Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551.
FDIC: Daniel M. Gautsch, Examination Specialist, (202/898-6912), Office of Policy, Division of Supervision, or Ken A. Quincy, Section Chief, (202/942-3083), Consumer Compliance & Analysis Branch, Division of Compliance and Consumer Affairs. For legal issues, Lisa R. Chavarria, Attorney, (202/898-6891), Supervision and Legislation Branch, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
OCC: Bill Morris, National Bank Examiner, (202/874-5190), Office of the Chief National Bank Examiner, Office of the Comptroller of the Currency, 250 E Street, SW., Washington DC 20219.
OTS: Scott M. Albinson, Special Assistant to the Director of Supervision, (202/906-7984), Supervision, Office of Thrift Supervision, 1700 G. Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION: The supervisory divisions of the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Office of Thrift Supervision (Federal banking agencies) responsible for the examination of state-chartered, insured depository institutions, and the branches and agencies of foreign banks that have been chartered by the States have a long history of coordinating with the State banking departments1 in fulfilling a mutual goal of promoting a safe and sound banking system.2 It is recognized that this close cooperation between the Federal and State regulators promotes efficiency in the examination process, reduces the regulatory burden on state-chartered, insured depository institutions, and improves the supervisory process.
The Federal and State banking agencies have worked together, to varying degrees, in the following areas:
- Conducting alternate, joint and concurrent safety and soundness examinations of insured depository institutions and of the branches and agencies of foreign banks that have been chartered by the States.
- Processing safety and soundness examination reports and applications on a timely basis.
- Using common examination report and application forms.
- Developing and issuing informal (e.g., board resolutions, memoranda of understanding or other similar agreements) and formal enforcement actions.
- Exchanging supervisory information.
- Offering Federal agency training programs to State Examiners.
- Providing access to the Federal agency data bases.
The Federal banking agencies intend to continue these cooperative efforts to the maximum extent possible. It is recognized, however, that the adequacy of State budgeting, examiner staffing, and training are important factors to enhancing Federal and State coordination. Currently, the Federal banking agencies, individually, have entered into formal or informal arrangements or working agreements with most State banking departments. These working agreements or informal arrangements generally address the following areas:
- The number of state-chartered, insured institutions to be examined on an alternating basis by the State banking department and by the Federal banking agency.
- The frequency of safety and soundness examinations.
- The type of examinations to be conducted (independent, joint, or concurrent) by each agency.
- The pre-examination procedures to be performed.
- The responsibilities of each agency for processing reports of examination.
- The responsibilities of each agency for conducting specialty examinations (compliance, information systems, trust, etc.).
- The procedures for coordinating informal and formal enforcement actions.
- The procedures for processing joint applications.
- The procedures for sharing supervisory information.
These working agreements or informal arrangements are structured to permit both Federal and State agencies the flexibility to conduct an independent examination subject only to notification to the other party. Generally, only institutions rated "1" or "2" are examined on an alternating basis allowing for a reasonable interval between examinations. The appropriate Federal banking agency and the State banking department periodically meet and coordinate examination schedules.3
A hallmark of the successful program to date has been this flexibility to tailor cooperation to the particulars of each State and to the specifics of individual banks within a State, plus the reality of changing circumstances at both the Federal and the State levels. The FFIEC guidelines strive to maintain that flexibility.
Therefore, the FFIEC issues the following guidelines pursuant to 12 U.S.C. 1820(d)(9):
GUIDELINES FOR RELYING ON STATE EXAMINATIONS: The Federal banking agencies will accept and rely on State reports of examination in all cases in which it is determined that State examinations enable the Federal banking agencies to effectively carry out their supervisory responsibilities. The following criteria may be considered, in whole or in part, by a Federal banking agency when determining the acceptability of a State report of examination under section 10(d) of the Federal Deposit Insurance Act:
- The completeness of the State examination report. The State report of examination of a state-chartered, insured depository institution or a state-chartered branch or agency of a foreign bank should contain sufficient information to permit a reviewer to make an independent determination on the overall condition of the institution as well as each component factor and composite rating assigned under the "Uniform Financial Institutions Rating System" used for insured depository institutions and commonly referred to as the "CAMEL" rating system or the ROCA rating system used for branches and agencies of foreign banks.
- The adequacy of documentation maintained routinely by State examiners to support observations made in examination reports.
- The ability over time of a State banking department to achieve examination objectives. At a minimum, the Federal banking agencies will consider the adequacy of State budgeting, examiner staffing and training, and the overall review and follow-up examination process of a State banking department. Accreditation of a State banking department by the Conference of State Bank Supervisors is among the factors that also will be considered.
- The adequacy of any formal or informal arrangement or working agreement between a State banking department and a Federal banking agency.
The Federal banking agencies, as part of their routine review of State examination reports, will assess the quality and scope of the reports to determine whether they continue to meet the above general criteria. The Federal banking agencies retain the option in cases in which a State examination report appears insufficient or the condition of an insured institution, as indicated in the examination report or other sources, appears to be seriously deteriorating, to conduct a follow-up examination.
The appropriate Federal banking agency and State banking department will continue to share, discuss and work to resolve any problems or concerns regarding the acceptability of each other's work or the operation of these guidelines and the alternating examination program, as well as other issues of mutual interest.
Dated: June 22, 1995
Joe M. Cleaver
Executive Secretary/Federal Financial
Institutions Examination Council
3. In 1992, the FDIC and the Federal Reserve, individually, entered into joint resolutions with the Conference of State Bank Supervisors designed to encourage the negotiation and formation of working agreements with the State banking departments. The objective of these agreements is to foster closer supervisory cooperation between the State departments and the FDIC or the Federal Reserve. The working agreements generally identify those state-chartered banks that will be examined on an alternating basis, and other banks that will be examined on a joint or concurrent basis, if practicable. Return to text
SR letters | 1995