Community Banking Advisor: FDIC gives insight into exam trends

Loans and board and management issues were the two most-cited categories deemed to be “matters requiring board attention” (MRBAs) in an article in the FDIC’s Supervisory Insights. The article sums up significant trends based on categories cited most often by examiners at satisfactorily rated institutions.

Within the loan category, 75% of MRBAs were related to credit administration, including the need to:

  • Improve appraisal review, loan review, and the loan grading system,
  • Reduce credit data or collateral documentation exceptions,
  • Prepare cash flow analyses, and
  • Properly account for troubled debt restructurings.

About 41% of loan-related MRBAs addressed elevated levels of problem assets, while about 28% involved deficiencies in the allowance for loan and lease losses.

The most common board and management issues concerned audit deficiencies; needed improvements in strategic planning, succession planning, and risk management practices; and the revision of, and compliance with, board-approved policies.

Other commonly cited categories included violations, earnings, interest rate risk, IT and liquidity.

Mortgage servicing violations and deceptive-free checking ads cited

In September, the Consumer Financial Protection Bureau (CFPB) took action against a Michigan bank for violating the new mortgage servicing rules. Violations included: 1) taking “excessive time” to process borrowers’ applications for foreclosure relief, 2) failing to alert borrowers about incomplete applications, 3) miscalculating incomes, and 4) denying loan modifications to qualified borrowers.

The CFPB ordered the bank to pay $27.5 million to those borrowers, plus a $10 million penalty.

In October, the CFPB took action against a New York bank for deceptively advertising free checking accounts. The bank promised free checking with “no strings attached,” but failed to disclose that customers who didn’t meet certain eligibility requirements — including a minimum level of account activity — would automatically be switched to fee-based accounts.

The CFPB ordered the bank to pay a $200,000 penalty and to refund $2.9 million in customer fees.

Are banks using the cloud?

In a recent survey, American Banker asked, “How much does your bank use cloud computing?” A slim majority said “not at all.” Here are the responses:

  • Not at all — The security risks are too high (52%).
  • A little — Only for non-mission-critical apps, such as risk modeling (26%).
  • A lot — The lower cost and flexibility make hosted software a no-brainer (22%).

Although many banks continue to have security concerns about cloud computing, it doesn’t mean you shouldn’t use it. But if you’re considering a move to the cloud, learn the risks involved and how to manage them.