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From Banking and Finance Law Daily, April 19, 2016

Fed offers off-site opt-in for loan reviews

By J. Preston Carter, J.D., LL.M.

The Federal Reserve Board has implemented new procedures for examiners to conduct off-site loan reviews for community and small regional banks. State member banks (SMBs) and U.S. branches and agencies for foreign banking organizations (FBOs) with less than $50 billion in total assets can opt to allow Fed examiners to review loan files off-site, during both full-scope or target examinations, so long as loan documents can be sent securely and with the required information (SR 16-8).

The Fed noted that most of its off-site examination work has focused on financial performance analyses and the review of bank policies, procedures, and certain bank internal reports. However, with technological advancements, such as secure data transmission and electronic file imaging, examiners now have the ability to collect and review loan file information off-site without compromising the effectiveness of the examination process.

Opt-in. FRBanks should query an SMB or FBO prior to conducting an examination to confirm the institution’s interest in participating in the off-site loan review program. SMBs or FBOs interested in participating in the program should be prepared to demonstrate their ability to appropriately image and send loan documents to the FRBank in a secure manner.

Scope of off-site v. on-site work. As directed in SR 95-13, the Fed said, FRBanks should continue to conduct as much of the examination work off-site as feasible without compromising the effectiveness of the examination process.

However, on-site examination work remains an indispensable component of bank supervision that plays a critical role in ensuring that the Fed fulfills its supervisory responsibilities. Also as directed in SR 95-13, FRBanks are expected to continue to perform on-site those activities that require physical observation, such as transaction testing and direct monitoring of an institution’s operations and internal controls.

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