Report: Examiners achieved goals of ‘forward-looking supervision,’ but some tweaks necessary

Examiners substantially achieved the intended outcomes of a program designed to identify and assess risk before both affect a financial institution’s financial condition and to ensure early risk mitigation, according to a report issued Thursday by the federal bank deposit insurance agency, but some tweaks are necessary for the program going forward.

In a report by its office of inspector general, the Federal Deposit Insurance Corp. (FDIC) said its “Forward-Looking Supervisory” initiative, launched in 2011 as part of its risk-focused supervision program, Examiners applied concepts of the initiative during their financial institution examinations, rated institutions based on risk, and recommended corrective actions based on their risk assessments. Financial institutions, in turn, committed to implement the corrective actions, the report stated.

However, the report also identified some shortcomings in the implementation, including in such things as: no comprehensive policy guidance document; inconsistent documentation of certain “Forward-Looking Supervision” concepts in line with examiner guidance; only 27% of reports sampled elevated concerns to the financial institution’s board of directors within the examination report.

The OIG report made four recommendations for the program:

  • That a comprehensive policy guidance document be issued defining Forward-Looking Supervision, including its purpose, goals, roles, and responsibilities;
  • That guidance be provided to reinforce how and where examiners should be documenting concentrations and an institution’s concentration risk management practices in the report of examination;
  • That additional case studies be shared on Forward-Looking Supervision to strengthen training for examiners on the analysis and identifications of potential financial institution risk management weaknesses; and
  • That recurring retrospective reviews be conducted to validate that examiners thoroughly documented their written analyses of the financial institutions’ practices regarding concentration risk management.

FDIC OIG Report: Forward-Looking Supervision