Supervisory Process
The main objective of the supervisory process is to evaluate the
overall safety and soundness of the banking organization. This evaluation
includes an assessment of the organization’s risk management systems, financial
condition, and compliance with applicable banking laws and regulations.
The supervisory process entails both onsite examinations and
inspections and offsite surveillance and monitoring. Typically, state member
banks must have an onsite examination at least once every twelve months. Banks
that have assets of less than $250 million and that meet certain management,
capital, and other criteria may be examined once every eighteen months. The
Federal Reserve coordinates its examinations with those of the bank’s
chartering state and may alternate exam cycles with the bank’s state
supervisor.
The Federal Reserve generally conducts an annual inspection of large
bank holding companies (companies with consolidated assets of $1 billion or
greater) and smaller bank holding companies that have significant nonbank
assets. Small, noncomplex bank holding companies are subject to a special
supervisory program that permits a more flexible approach that relies on
offsite monitoring and the supervisory ratings of the lead subsidiary
depository institution. When evaluating the consolidated condition of the
holding company, Federal Reserve examiners rely heavily on the results of the
examination of the company’s subsidiary banks by the primary federal or state
banking authority, to minimize duplication of efforts and reduce burden on the
banking organization.