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.
Keywords: Americas, US, Banking, COVID-19, Regulatory Capital, Credit Risk, Market Risk, CAMELS Rating, RFI Rating System, LFI Rating System, Guidance, US Agencies
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.