Federal banking agencies issue final rules expanding examination cycles for qualifying institutions

Mike Meserve, Audit Manager
January 4, 2019

On December 21, 2018, the Federal banking agencies adopted the interim rules under section 210 of the Economic Growth Act, with respect to qualifying insured depository institutions’ (IDIs) on-site examination cycles, as final without change. The rules were an amendment to section 10(d) of the Federal Deposit Insurance Act and now permit agencies to examine qualifying IDIs “not less than once during each 18-month period” as opposed to “not less than once during each 12-month period.” The amendment permits agencies to extend the on-site examination cycle for an IDI that meets the following criteria:

  1. Has total assets of less than $3 billion
  2. Is well capitalized (as defined in 12 U.S.C. 1831o (prompt corrective action)
  3. Was found, at its most recent examination, to be well managed, meaning:
    1. IDI has a composite CAMELS rating of “outstanding” (i.e. a composite rating of 1);
    2. IDI has a composite rating of “good” (i.e. a composite rating of 2), and has a management rating of “outstanding” or good” (i.e. a Management rating of 1 or 2); or
    3. IDI is less than $200 million in total assets and has a composite CAMELS rating of “outstanding” or “good” (i.e. has a composite rating of 1 or 2)
  4. Is not subject to a formal enforcement proceeding or order by the FDIC or appropriate Federal banking agency
  5. Has not undergone a change in control during the previous 12-month period in which a full-scope, on-site examination otherwise would have been required

Federal banking agencies believe that extending the cycle for eligible IDIs from 12 to 18 months will not significantly increase the risk of financial deterioration or failure given the small size and simple risk profiles of the IDIs defined above. As a result, the agencies expect to better focus their supervisory resources on financial institutions that present capital, managerial or other risks going forward. The final rule will become effective on January 28, 2019.

If you would like to discuss these matters further, contact Mike Meserve or your BNN advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.