Bank Supervision and Regulation

supervision meeting between four peopleBank supervision and regulation is the governmental process of monitoring bank performance and compliance with laws, regulations and tenets of safe and sound operation with the goal of insuring a stable, competitive and fair banking system. The two main reasons why banks are governmentally supervised and so heavily regulated are that they:

  • offer deposit products insured by the federal government through the FDIC and
  • put insured funds at risk through loans and investments.

The laws and regulations that govern banking have evolved over the years and accomplish several other broad purposes, including maintaining or promoting:

  • a safe, sound and stable banking system;
  • an efficient and competitive banking system; and
  • an "even-handed" or fair banking system.

Each bank regulator employs its own cadre of bank examiners. Some of the examination work is performed at a location other than the bank, or offsite, while the remainder is done at the bank, or onsite. Typically, examiners and bank management meet at the beginning of an examination to discuss the scope of the exam and at the conclusion of the examination to discuss exam results. Directors may attend but will be asked specifically to attend when examiners find significant problems.

Results are in confidential reports of examination (ROE), copies of which are furnished to the board of directors. The ROE is an important supervisory tool that periodically assesses the bank’s condition, risk profile, and compliance with laws and regulations. Significant issues will be prominently identified under headings that include:

  • Matters Requiring Immediate Attention and
  • Matters Requiring Attention.

These matters, as well as other statements in the ROE containing words such as “is required to immediately” or “is required to” are mandatory and require action. Responsibility for corrective action must be assigned to specific bank staff. The board should monitor corrective actions to achieve timely completion.