Managing Your Regulator Relationship

by Mike Murphy, EVP & Chief Risk Officer

As a long-time banker who used to be an examiner, I am sometimes conflicted like the guy with the angel and the devil arguing on each of my shoulders. This is especially true when working with regulators whether during the exam process, filing regulatory reports or even doing a branch application. You can get so frustrated, but then you ask yourself why, and try to look at it from their perspective. 

From the Fed’s Commercial Bank Exam Manual, “Regulation and supervision are distinct, but complementary activities. Regulation entails establishing the rules within which banks must operate…Once (the rule is adopted), the Federal Reserve’s supervision process includes monitoring, inspecting, and examining banks to assess whether a bank is in compliance with (those rules).” How many of you have read the sections of the exam manuals that deal with your areas of responsibility at your bank? To aid in gaining that perspective, here are some tips:

The bank supervision team is often made up of people who are relatively new to banking. They have not seen everything you have seen in the banking industry, and they certainly do not know your bank like you do. That is why you need to create the narrative – in your minutes, in your policies, your procedures, your credit memos, and your responses to their questions. This does not have to be TLDR (too long didn’t read), but it does need to tell the story you want to tell honestly. 

Know your examiners. Each agency now uses a Central Point of Contact approach. This CPC is the one reviewing your quarterly numbers offsite and calling you with questions. If your bank’s team is choosing to try a new product or service, especially one that is out of the ordinary, then call them and walk them through your plan. Give them time to research the matter, discuss it with others and get back to you. Be proactive.

Take the time to do an honest and thorough review of the CAMELS components at least annually and certainly before an examination. Know where you stand, where your strengths are and your weaknesses. This process will help you gain a plan on how to address your weaknesses and accentuate your strengths. And again, it will help you tell the story you want the regulators to hear.

A final reminder: be kind and respectful to the exam team or your regulator. Follow the golden rule.  

If you want to talk with someone confidentially about your exam, regulatory requirements, or something else that might impact your relationship with the regulators, I would be happy to help. Just call me at 405.613.8018 or email me at mmurphy@tbb.bank.