Asset Quality Biggest Concern for Compliance Auditors

U.S. banks and credit unions report asset quality as the number one focus for regulatory examiners.

Financial institutions ranked asset quality as the top focus by examiners when surveyed about the annul FDIC safety and soundness exam, according to the 2013 Sageworks Bank and Credit Unions Examination Survey.

About 80% of financial intuitions examined by the FDIC reported that asset quality was a main focus. Asset quality includes risk rating systems, higher rates of non-performing and delinquent loans, incomplete or inconsistent loan reviews, and other quality issues related to financial institutions’ problems as a result of the economy or and the real estate crash.

Those respondents who answered open-ended questions stated that examiners wanted to see in-depth analysis on spreadsheets showing losses such as loans, according to Sageworks, which provides web-based solutions for credit analysis and risk rating.

Institutions examined by the FDIC and OCC reported that the next biggest focus was capital adequacy, followed by sensitivity to risk. The Federal Reserve focused on capital adequacy and management after asset quality, the survey found.

Out of the 165 financial institutions surveyed, the FDIC examined 46.7%. Most financial institutions that were examined by the FDIC had between $75 million to $500 million in assets. The OCC examined 35.8% of the institutions, most of which had under $500 million in assets. The Federal Reserve examined about 8%, ranging in $75 million to $1 billion in assets. Finally, the NCUS examined 10% of the financial institutions, with assets ranging from $1 billion to $10 billion.

Zarna Patel is a staff writer for InformationWeek's Financial Services brands, which include Bank Systems & Technology, Insurance & Technology and Wall Street & Technology. She received her B.A. in English and journalism from Rutgers University College of Arts and Sciences in ... View Full Bio