Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Bank Examination - Explained

What is a Bank Examination?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Bank Examination?How Does a Bank Examination Work?

What is a Bank Examination?

Bank Examination is a regular inspection of banks (and other depository institutions), conducted periodically by a federal agency appointed by the country's central bank. This process ensures a bank is operating within the scope of standards and regulations, abided by the law. It also reviews a banks financial stability, asset quality, risk profile, management of funds, lending policy and quality of the managing team.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does a Bank Examination Work?

The inspection is done by the Comptroller of the Currency for National Banks and for the State Chartered Banks, the Federal Deposit Insurance Corporation (FDIC) or the State Banking Department conducts the examination. U.S. Federal Reserve Board conducts the inspection for bank holding companies. The examinations have two parts, the objective system is known as CAMELS and a subjective part contains notes. In CAMEL the C denotes capital adequacy. It is to ensure a bank is maintaining adequate capital to resist any damage caused by any shock to its system. The A stands for asset quality which includes loan and investment. The M is for Management. In this part, examiners evaluate the quality of the management team of the bank and confirm the leaders of the bank have a clear insight into their institution and know how to move forward adhering to the regulations. The E in this system denotes earnings. A banks customers deposit money in their accounts and some of these accounts earn interests from the bank, on the other hand, the bank lends these funds to the borrowers and receives interest from them. Here the examiners ensure the concerned bank is adequately maintaining the balance between the rate paid for funds and rate receive from borrowers as the banks earning depends on it. The L represents, liquidity. This test commonly includes the current ratio, quick, and the cash ratio. The S stands for sensitivity, it assesses how a bank would get affected by systemic factors and market risks such as interest rate change or political disturbance in the country. The examiners rate the banks in each of these categories within the scale of 1 to 5, where 1 is considered to be the highest. The scores of Bank Examination are not revealed in public or to other banks. Only the concerned banks management gets to know the score. Exemption 8 of the Freedom of Information Act protects this information from disclosure.

bank examination

Was this article helpful?

Yes
No

Related Articles

  • Set Off Clause - Explained
  • Adjustable-Rate Mortgage - Explained
  • End Loan - Explained
  • Financial Holding Company - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand