Course Outline

Asset Quality

• Explain the importance of asset quality to a bank’s financial condition and its effects on earnings and capital
• Define asset classification and criticism categories and list the assets that are typically classified in an examination
• Classify a noncomplex problem loan
• Explain the concepts of past due and nonaccrual
• Calculate the examination-related asset quality ratios and discuss the level and trend of asset classifications
• Identify and interpret the asset quality ratios in the UBPR
• Discuss the purpose of the allowance for loan and lease losses and the factors considered when assessing its adequacy
• Discuss additional key factors that affect a bank’s asset quality, including credit administration, lending policies, and internal credit review BHC Inspections
• Identify activities in which bank holding companies (BHCs) engage;
• Describe the risks inherent in BHC activities;
• Recognize regulatory concerns common to BHCs; and
• Define the rating systems used in BHC inspections and explain how the rating systems are applied.

Business Law

• Identify and discuss business law concepts related to the regulation and supervision of financial institutions;
• Describe common business organizational structures along with their advantages and disadvantages;
• Identify legal issues related to contracts;
• Explain the importance of adequate loan documentation; and
• Describe common loan documents.

Capital

• Define capital;
• Identify sources of capital;
• Describe the purpose of capital;
• Discuss the concept of risk-based capital;
• Identify elements of tier-one and tier-two capital;
• Describe the methodology for risk-weighting assets;
• Calculate risk-based and leverage capital ratios;
• Describe regulatory minimum capital requirements;

Consumer Affairs

• Describe a financial institution’s consumer compliance responsibilities.
• Describe the System’s role in supervising an institution’s compliance with fair lending regulations and the CRA.
• Describe the risks typically associated with fair lending and CRA.
• Describe the consumer compliance and CRA rating systems.
• Identify supervisory issues related to consumer compliance.
• Explain how compliance issues relate to other examination specialties.

Earnings

• Explain the importance of earnings to a bank’s overall financial condition;
• Identify the components of earnings;
• Explain how a bank’s structure affects its earnings;
• Identify and interpret the earnings ratios presented in the in the UBPR; and
• Discuss additional factors that affect a bank’s earnings including budget planning, rate sensitivity and external market conditions.

Information Technology

• Describe the risk fundamentals associated with information technology (IT) and identify IT risks;
• Describe the IT examination rating system;
• Explain the System’s supervisory role for IT examinations;
• Explain the importance of internal control and audit concepts as they apply to information systems and technology;
• Distinguish between management information systems (MIS) and IT.
• Describe the importance of an adequate MIS program;
• Explain how IT risks are incorporated into the risk assessment process;
• Describe how IT deficiencies affect other examination areas; and
• Describe the technology environment common in community banks.

Integrated Supervision

• Discuss the concept of integrated supervision
• Distinguish the various aspects of a financial institution's activities and describe the applicable supervisory process
• Describe the risk management process, including identification, measurement, monitoring, and control of risk
• Discuss the importance of assessing risk and identify the various risk components
• Explain risk assessment as it pertains to examination structure, process, and ratings
• List the risks relevant to each type of examination specialty
• Identify common regulatory concerns and how they affect the various examination types
• Identify the ratings used by each examination specialty
• Discuss supervisory tools used for off-site monitoring

Internal Controls and Audit

• Define internal controls;
• List the five elements of an internal control system;
• Discuss the relationship between internal controls and management responsibilities;
• Identify the risk potential of an inadequate internal control system;
• Identify actions that can reduce or eliminate the risk potential of inadequate internal controls;
• Discuss what an examiner should look for when evaluating internal controls; and
• Apply the concept of materiality to the review of internal controls.

Management

• Discuss the roles and responsibilities of an institution’s management and its board of directors,
• Describe the effect of the CAMELS ratings on the management rating, and
• List the significant areas considered when evaluating management.

Trust

• Identify the major functions of a financial institution engaging in trust activities and the common types of trusts;
• List an institution's duties and responsibilities related to its fiduciary activities;
• Discuss the risks typically associated with fiduciary activities;
• Explain the System's authority over a financial institution engaging in trust activities;
• Describe the rating system applied to trust examinations;
• Recognize supervisory issues relating to nondeposit investment products; and
• Explain how risks arising from trust activities can affect other examination specialties.