Pub. 1 2012 Issue 5

18 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s ABA Study Focuses on Ways to Improve Bank Examination Process E fforts to divide the banking industry be- tween “big” and “small” won’t solve the bad fit of regula - tions for a banking system far more diverse than a simplified division in two, according to a recent study released by the American Bankers Association. The white paper provides a framework to encourage policymakers to restore the value of the bank supervision and examination process and return it to its mission of strengthening the banking system and enhancing banks’ ability to serve their customers. The study, titled “Value-Added Bank Supervision: AFramework for Safely Fostering Economic Growth,” draws from a survey of executives at more than 90 ABAmember banks. The paper’s authors, Dr. Robert Litan of the Kaufman Foundation and the Brookings Institution, and former Comptroller of the Currency Jerry Hawke, found that bank exams and rules were often a bad fit for banks examined — a sentiment expressed by big and small banks alike. “When it works well, bank examination and supervision helps ensure the safety and soundness of the overall financial system, and can help individual banks better serve their customers and communi- ties,” said Frank Keating , ABA president and CEO. “Unfortunately, too many banks in recent years are reporting they are actually worse off as a result of their exams, when our industry firmly believes the exact opposite should be true.” The study found that 73 percent of survey respondents believe bank exams added value before the financial crisis. In contrast, only 45 percent of banks believe this to be true since the crisis. Even more startling is the increase in bankers who see the examination as being counterproductive, jumping from just 3 percent before the crisis to 34 percent after it. Litan and Hawke offer detailed recommendations to improve the examination process and focused on the following areas: • Customized Supervision • Focus on the “Big Picture” • Clarity in Capital Requirements • Stress Testing • Risk Management of Loan Losses • Experienced Examiners • Cooperation with State Bank Examiners • Self-Review by Regulators