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For Immediate Release
June 11, 2008
Report Confirms that Regulatory Exams for Independent Banks in West Show Level of Scrutiny is Increasing Significantly
CRE Concentrations, BSA, ALLL and Flood Insurance Receive Highest Scrutiny
SAN FRANCISCO, June 11, 2008 —
The survey results indicated that examiners expect banks with CRE concentrations, to perform stress testing on their loan portfolios to determine how well they will hold up in an environment of falling property values. “We are not surprised by the increased focus on CRE, since the majority of loan portfolios at community banks in the Western states are concentrated in commercial real estate,” said Kevin Watson, president, AuditOne. “Those few banks that entered into the current economic downturn with diversified loan portfolios including a mix of commercial and industrial loans, will have a much easier time weathering the storm.”
While the above issues were prominent, the survey indicated a diverse set of other issues that cannot be ignored including liquidity, information technology, information privacy, internal audit, and flood insurance which was reported as receiving increased scrutiny under both the safety and soundness (22%) and compliance (49%) exams.
“Despite the regulators’ increased focus on credit quality, it appears that they are not reducing the pressure to comply with the onerous requirements of BSA,” stated Nancy Sheppard, president & CEO, Western Independent Bankers. She noted that of the banks that received criticism for their BSA program, 24% reported BSA training received the highest level of criticism. She pointed to one banker’s comments, “[The] BSA exam was intimidating and blown through without a lot of ability to discuss findings.”
Of the bankers who had an exam during the last 16 months, 80% indicated that the overall tone of their most recent examination was constructive. However, for banks over $500M, a positive view of their exam fell to 64%. When asked if their latest exam was appropriate for the current conditions, twice as many national banks (20%) reported that their exam was inappropriate as state banks (10%).
As a result of this survey, WIB and AuditOne presented the results to a panel of regulators on June 3 at the WIB CFO, Investments and Operational Risk Conference and sponsored a webinar for bankers on June 10 addressing what banks might expect during an examination in 2008.
This is the fourth regulatory survey that WIB has conducted. During the down credit cycles of the 1990s, WIB issued similar reports in order to provide bankers with additional insights on what to expect in their regulatory exams.
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