By now, many bankers have experienced the following situation: you have just left a management exit meeting with regulatory examiners, and you are stunned by the negative conclusions that the examiners have reached. In the wake of this disappointment, many bankers wait for the examiners to meet with their board and issue the Report of Examination before putting “their side of the story” on the record in a written response to the Report of Examination.
While we always recommend that bankers point out any factual inaccuracies in a Report of Examination via a written response, we believe that bankers may be able to help themselves by presenting additional information before the Report of Examination is issued. This approach may be particularly helpful if a bank believes its regulatory ratings are being downgraded as a result of inaccurate or incomplete findings by their examiners. As stated in a recent article by SNL Financial (subscription required):
[Danny Payne, former commissioner of the Texas Department of Savings and Mortgage Lending and now an industry consultant,] said there may be instances where examiners have been overzealous or harsh in their recommendations or findings. “But before the reports are issued, the pre-report communication processes and negotiations between the bank and examiners usually result in a fair ruling,” he said. “By the time issues reach the enforcement order stage, all subjective debates and negotiations typically have been completed and decided.”
We have found that many disagreements with examiners can be resolved through the presentation of additional information. At the very least, these discussions help bankers gain further understanding of the analysis by examiners.
As we move further into this economic cycle, we are seeing more “borderline” cases where presenting details to examiners can make a difference in the conclusions reached by examiners. As a result, we encourage bankers to communicate openly with examiners about the condition of their banks. If you would like to discuss these concepts, please contact any member of our Bryan Cave financial institutions group.