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more useful as the time between onsite examinations lengthens due to agency resource constraints. Staff at the Federal Reserve felt that a formal justification analysis would be difficult to perform because it is hard to quantify the benefits of "better supervision."


Our review disclosed a wide variety of acceptance and use by agency personnel of surveillance results. Part of the reason is that system reports are often too late to be fully useful. (See below.) However, staff training at FDIC and the Federal Reserve was not completed in time to insure proper use or acceptance by examiners. Those agencies are continuing their training efforts.

Users of new systems usually should be trained early in the system development process. Since the organization's employees must support the system in order for it to be successful, it is important to educate them sufficiently before the system becomes operational.

Our examiners' surveys showed that the Comptroller's examiners have found their system more useful than did the other agencies' examiners in five of the six areas in which surveillance is used for planning examinations, as the following figure shows.

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The next figure shows that the Comptroller's examiners also find the system more effective at performing seven of the eight functions of examination and supervision.

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8. Providing you with evidence

that can be used as suppor in discussions with bank management.




Although these figures could indicate a difference in potential quality of the systems, our discussions with examiners and other agency officials lead us to believe that differences in training and acceptance cause much of the variance. In comments included with their responses to our questionnaire, two senior FDIC examiners stated that training in the use of monitoring systems was inadequate. FDIC introduced its Integrated Monitoring System (IMS) in 1977 to its examiners without any training, which caused some initial reluctance to use the system. In early 1979, a bank analysis course was offered, and about 50 to 60 percent of the senior examiners had taken it at the time of our review. An introductory course is also given after about 6 months in the examiner program. Overall training has aided the acceptance of the IMS by agency personnel. Examiners are required to fill out an analysis page in the examination report with ratios from the IMS, so they are forced to use the system to some degree.

Although acceptance of the Federal Reserve's surveillance system has increased, resistance still exists. The Federal Reserve revised its training program in 1979, and the examiners that were not commissioned at the time that the new training began received surveillance training. As a result, the newer examiners have been trained to examine banks with knowledge of surveillance tools, while some of the more experienced examiners have not been given the training needed to make full use of surveillance. It is primarily the latter group of examiners, therefore, that resists surveillance. The Federal Reserve has been giving training in financial and ratio analysis and surveillance to its senior examiners and hopes to complete this by mid-1982. In the future, Federal Reserve examiners will be forced to use surveillance more, just to complete forms requiring surveillance information.

The Comptroller's NBSS, with the exception of the Action Control System, has essentially been accepted by agency staff. Training began in 1976 when the new examination procedures were introduced, and all the Comptroller's examiners have received training by now. Most regions do not use the Action Control System because they have already implemented some other type of system that supplies followup information on banks. The Comptroller is considering changes to the system, and we have issued a separate report to him on this subject. 1/



Inherent problems of timeliness and peer group validity limit the usefulness of surveillance to some extent. The lack of timeliness was the biggest flaw examiners in our survey found in the systems. Only 23.3 percent of examiners in general rated their system's timeliness "good" or "very good;" a greater proportion, 36.6 percent, felt the surveillance systems were "poor" or "very poor" in this regard. Dividing examiners on the basis of agency affiliation shows that the percent (41.3) of the Comptroller's examiners rating the timeliness of NBSS poorly was greater than the percent of examiners from the Federal Reserve (31.3) and FDIC (32.5) who found their systems to be untimely. This last finding, however, might be partially explained by the tendency, discussed earlier, of the Comptroller's examiners to use surveillance system data in examination preparation to a greater extent than the other agencies' examiners. If the Comptroller's examiners do rely more heavily on the data, then it would seem reasonable to conclude that they would consider timeliness to be more critical.

Poor timeliness is caused by the period needed by the agencies to process the data supplied by banks in their periodic reports ("call" reports). The relatively poor quality of the data received from the banks requires extensive editing. Although processing time varies by agency, banks are generally allowed 30 days after the end of the reporting period to submit their reports. About 2 months are required for the agencies to process the data and supply the analyses to their field offices. By the time the agencies' field offices receive initial bank data from the reporting period, it is at least 3 months old. The availability of final analyses varies, but at the earliest it is 4 months after the end of the reporting period.

The agencies have tried with mixed results to use unedited data to speed the process. FDIC supplies preliminary edited but uncorrected data to the regions via on-line computer terminals so that initial analysis can be done. This allows the regional analysts to review and analyze that data they feel is reliable, with the help of the edited copy from the previous reporting period. Although the Comptroller's staff has experimented using raw bank data for NBSS analyses, it dropped the idea because reporting errors on the experimental data sometimes ran as high as 50 percent. The loss of confidence in the data due to not verifying it was not worth the time savings achieved, they believed.

Peer groups, used to compare a bank's performance to that of similar banks, have been found to be of somewhat limited value. A number of bankers voiced their discontent with the peer groups in written comments they included with their survey responses. The complaint cited most often was that the peer groupings were too broad to be of much value to them. For example, some felt that the variety of bank sizes within the grouping was too large, while others thought that the peer groups should be confined to a limited geographical area. Other complaints we received were that the reports

--were not taking enough factors into account,

--had inaccurate breakdowns,

--used static rather than average figures, and

--incorporated banks with dissimilar functions.

Examiners also had reservations about the peer groupings, and some even questioned their overall usefulness. One FDIC examiner we talked to thought that all banks included in the same peer groups were not necessarily comparable. Another examiner said that some banks were being compared to other banks located in parts of the country with vastly different economic characteristics. The examiner felt that such comparisons might unduly alarm a banker when his bank does not compare favorably to those which realistically are not his peers. Finally, one examiner said that some bankers place more reliance on regional breakdowns which they can obtain from other sources.

But peer groups can be quite useful. As two examiners pointed out, discussions of a bank's problems with its management are more persuasive if the bank's position among its peers is shown to be unfavorable.

Agency officials believe that peer groupings can never satisfy everyone, but the groups are still useful. If the agencies tried to satisfy all possible grouping criteria, the groups would become too numerous. If viewed in perspective, they say, the groups provide valuable indicators of bank performance.


Agencies' field offices make adjustments to examination schedules based on surveillance information, but officials at all three agencies told us that surveillance will not be a primary resource allocator. This is because the agencies believe in the necessity of regularly scheduled onsite

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