Academic journal article ABA Banking Journal

Adding Value to Bank Supervision

Academic journal article ABA Banking Journal

Adding Value to Bank Supervision

Article excerpt

Bank exams too often are failing their purpose to keep banking strong and banks focused on serving customers. Too many banks are worse off as a result of their exams.

A recent ABA-sponsored study--"Value-Added Bank Supervision: A Framework for Safely Fostering Economic Growth"--is our latest initiative to help restore exams to what they should be. Dr. Robert Litan of the Kauffman Foundation and the Brookings Institution, and former Comptroller of the Currency Jerry Hawke conducted the study. They interviewed 15 bank executives, representing a broad range of charters, asset sizes, and business models. They tested their ideas against a survey of executives from more than 90 ABA-member banks.

Here, in brief, are eight recommendations Litan and Hawke developed to improve the exam process, so banks can get back to the business of promoting economic growth.

* Customized supervision. Examiners should customize exams to fit a bank's business model, geography, charter, size, and borrower record.

* Focus on the "big picture." The overall approach should be risk-based. It should focus on things that really matter, rather than "gotcha" exercises, which focus on technicalities and minor issues that have little bearing on safety and soundness.

* Clarity in capital requirements. Banks need to know their real capital requirements. The need for ever-higher capital levels would be reduced with a more effective supervisory and examination system.

* Stress testing. …

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