Credit administration among top OCC “Matters Requiring Attention” (MRAs)
Recently, the Office of the Comptroller of the Currency’s National Risk Committee released its Semiannual Risk Perspective, a twice-yearly report that outlines some of the emerging threats to the safety and soundness of the U.S. financial system.
Using data as of Dec. 31, 2012, the report outlined at a high level the types of issues that have arisen recently during the supervisory process. These Matters Requiring Attention (MRAs) are issues where bank practices deviate from sound risk management principles, according to the OCC. “Such deviations, if not addressed appropriately, may adversely affect a bank’s earnings, capital, risk profile, compliance, or reputation and could lead to formal enforcement action,” according to the report.
For small banks, the top 5 MRA categories and each category’s share of total MRAs were:
• Credit administration (32 percent)
• Compliance (12 percent)
• Management (11 percent)
• Information technology (9 percent) and
• Audit (6 percent).
For large banks, the top 5 MRA categories were:
• Credit-risk-related issues (36 percent)
• Operational risk (16 percent)
• Bank Secrecy Act/Anti-Money Laundering (BSA/AML) (14 percent)
• Consumer compliance (10 percent) and
• Internal controls (8 percent)
All U.S. banks and credit unions must undergo a safety and soundness examination every 12 to 18 months, but depending on the agency and particular examiners involved, the region and the time period, among other factors, the specific areas of focus can vary.
Sageworks, a financial information company that provides risk management solutions to financial institutions, found that some of the issues cited in the Semiannual Risk Report have remained a focus by examiners in recent months. The Sageworks Bank & Credit Union Examination Survey asked financial institutions that had recently undergone examinations for their input on major focus areas of examiners and on areas of criticism.
Seventy-eight percent of survey respondents whose banks were examined by the OCC named asset quality as the area receiving the most focus. Other, major focus areas were capital adequacy and sensitivity to market risk, each of which garnered votes by 27 percent of respondents at OCC-examined institutions. Management was also cited as an area of focus.
Of nearly 40 respondents providing open-ended descriptions of trouble spots, more than one third named something related to asset quality. Asset quality, one respondent said, “can make or break you.”
Ensure consistency in your credit analysis and documentation.
Some institutions examined by the OCC pointed to problems with documentation, including tracking financial statements, appraisals and personal financial statements. Others encountered criticism for annual reviews that weren’t completed in a timely manner and for credit exceptions.
Advice from financial institutions examined by the OCC included tips on documentation of loan files, tracking information and cash flow analyses. A few comments by respondents:
• “Document, document, document.”
• “Make sure credit files have financials in them. Make sure they are current with all regs and that your credit officer has interpreted all OCC bulletins correctly.”
• “Document your files as to what is happening in the credit.”
To view the full survey results, please visit Sageworks Bank & Credit Union Examination Survey.