US Agencies Publish Examiner Guide to Assess Institutions Amid Crisis
US Agencies (FDIC, FED, NCUA, and OCC), in conjunction with the state bank and credit union regulators, issued examiner guidance to promote consistency and flexibility in the supervision and examination of financial institutions affected by COVID-19 pandemic. In assessing an institution under the principles in the guidance, examiners will consider the institution’s asset size, complexity, risk profile, and the industry and business focus of its customers. In conducting their supervisory assessment, examiners will consider whether institution management has managed risk appropriately, including taking appropriate actions in response to stresses caused by the COVID-19 pandemic.
The interagency guidance highlights that examiners should evaluate management’s initial and ongoing assessment of the risk that the pandemic presents to the institution. Examiners should determine whether management’s assessment of credit risk reasonably reflects the institution’s asset quality, given the prevailing economic conditions in its business markets. In addition to determining the effect on asset quality, examiners should assess management’s understanding of the pandemic’s effects on the institution’s earnings prospects and capital adequacy as well as its effect on funding, liquidity, operations, and sensitivity to market risk. The risks associated with the COVID-19 pandemic, as well as impact of policy responses, can be challenging to assess in real time. Examiners will assess an institution’s risk identification and reporting processes, given the level of information available and the stage of local economic recovery. The quality of an institution’s risk assessments will be considered, as appropriate, in the examiner’s assessment of supervisory ratings.
The guidance also specifies that, to promote consistency and transparency across the agencies, examiners will continue to assign supervisory ratings in accordance with the applicable rating system, including the Uniform Financial Institutions Rating System (CAMELS rating) and the interagency Rating System for U.S. Branches and Agencies of Foreign Banking Organizations (ROCA rating). Similarly, FED examiners will apply the principles outlined in the document in assigning supervisory ratings to bank holding companies, U.S. intermediate holding companies, and savings and loan holding companies using the RFI/C(D) rating system or Large Financial Institution (LFI) rating system, as applicable, and to the U.S. operations of foreign banking organizations. When assigning the composite and component ratings, examiners will review management’s assessment of risks presented by the pandemic.
Related Links
Keywords: Americas, US, Banking, COVID-19, Regulatory Capital, Credit Risk, Market Risk, CAMELS Rating, RFI Rating System, LFI Rating System, Guidance, US Agencies
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.