Safety & Soundness Supervision

The state member bank examination process is the Federal Reserve’s fact-finding arm in discharging its supervisory and regulatory responsibilities. The essential objectives of an examination are:

  1. to provide an objective evaluation of a bank’s soundness,
  2. to determine the level of risk involved in the bank’s transactions and activities,
  3. to ascertain the extent of compliance with banking laws and regulations,
  4. to permit the Federal Reserve to evaluate the adequacy of corporate governance and to appraise the quality of the board of directors and management, and
  5. to identify those areas where corrective action is required to strengthen the bank, improve the quality of its performance, and enable it to comply with applicable laws, regulations, and supervisory policies and guidance.

 To assess the bank’s performance and summarize its overall condition, examiners use the Uniform Financial Institutions Rating System (UFIRS), which is commonly referred to as the CAMELS rating system. The examiner’s primary objectives, under this system are to evaluate:

C: the quality and adequacy of a bank’s capital;
A: the quality of a bank’s assets:
M: the capability of the board of directors and management to identify, measure, monitor, and control the risks of the bank’s activities and to ensure that the bank has a safe, sound, and efficient operation that is in compliance with applicable laws and regulations;
E: the quantity, sustainability, and trend of the bank’s earnings;
L: the adequacy of the bank’s liquidity position; and
S: the bank’s sensitivity to market risk—the degree to which changes in interest rates, foreign-exchange rates, commodity prices, or equity prices can adversely affect the bank’s earnings, capital, and liabilities subject to market risk.

Once this process is completed, examiners will have the basis for rating these CAMELS components, which, in turn, provide the basis for assigning the bank’s overall composite rating. Evaluations of the components are to take into consideration the institution’s size and sophistication, the nature and complexity of its activities, and its risk profile.

During a safety and soundness examination, examiners evaluate the nature of the bank’s operations, the adequacy of the bank’s internal controls and its internal audit function, and the bank’s compliance with laws and regulations.

The Fed's examination processes are described in a series of comprehensive examination manuals.

Enforcement Actions

The Federal Reserve utilizes enforcement actions as supervisory tools to work with institutions to correct significant deficiencies in their risk management practices. The actions typically require institution management and boards of directors to take action to address weaknesses in an institution's operations.

Enforcement actions, including Written Agreements, Cease and Desist Orders, and Civil Money Penalties, are available to the public online.

Fed examiners are responsible for examining and inspecting the following institutions in the Eighth Federal Reserve District:

  • state member banks,
  • bank holding companies,
  • savings and loan holding companies and
  • financial holding companies.

Examiners also perform specialty exams of other entities, such as data-processing servicers, trust companies and other related financial service providers.

Supervisory & Regulatory Guidance

Supervision and Regulation staff members use numerous reference materials to carry out their responsibilities, such as supervision manuals and a variety of regulations, laws and other guidance.

These materials are made available to financial institutions as a resource for promoting regulatory compliance. (Learn more.)

Regulations

The Board of Governors web site includes a comprehensive list of Federal Reserve regulations, from A through FF. (See the list.)

The Examination Process

The Federal Reserve's commercial bank examination manual presents examination objectives and procedures that examiners follow in evaluating the safety and soundness of state member banks. (To review the manual, visit the Board of Governors website.)

Contact Us

Find Bank Holding Company Supervision contacts in our online directory.