We have begun to see some interesting trends in regulatory examinations that our clients have undergone over the past 6 months. In addition to the expected assessments of credit quality, interest rate risk management and earnings/capital performance, examiners are taking a closer look at how effectively the Board and management are managing the bank’s risk profile – and how effective they are in their respective roles. Among the issues we have seen raised are:
• Does the bank’s ethics policy cover all appropriate areas and regulatory topics and is the policy disseminated to and understood by all Bank Board members, officers and employees?
• Does the bank have a comprehensive capital plan in place that includes long-term capital objectives, a capital contingency plan and defined capital stress levels? Is the capital plan consistent with the bank’s strategic plan?
• Has the Board and management documented the bank’s risk philosophy, including an assessment of its existing risk profile, its capacity for risk and the desired level of risk?
• Does the bank have a core risk assessment process and reporting system that measures both quantitative and qualitative risk and determines the aggregate level and direction of risk by category?
• Does the bank have an independent review and validation of your interest rate risk measurement process and liquidity management process that covers all regulatory requirements?
• Is the bank’s Board fully engaged with and educated about the bank’s business and the risks associated with the business, in order to establish reasonable performance metrics and provide adequate oversight?

There is an increasing focus on corporate governance and how management and the Board develops and administers the bank’s policies and procedures. In particular, the regulatory expectations for Board members and senior management appear to be rising as examiners evaluate how banks have invested in people, processes and technology to ensure a well-run business.