This bulletin addresses current Bureau policy as it relates to the examination process. Bank Bulletin No. 15 issued March 23, 1977, is rescinded.

Priority

The Bureau will continue to concentrate its efforts on the examination, supervision and regulation of problem banks (generally, those assigned a composite CAMEL rating of 3, 4 or 5). Those institutions will receive at least one examination by the Bureau in each calendar year. Additional examinations may be conducted by the Bureau or Federal regulators as deemed appropriate. Examination activity will be supplemented with Board/management meetings, formal agreements, follow-up visits and continuing off-site surveillance.

The Bureau will ensure that each state-chartered bank is examined at least once in each calendar year. The Bureau may accept reports of examinations conducted by Federal regulatory agencies in fulfilling its annual examination responsibility. Use of the Federal agency examination will apply only to those banks which do not present unusual supervisory concern. The Bureau will conduct its own examination at least once in every 24-month period.

Scope

In determining examination scope, the Bureau will consider, among other things, prior CAMEL ratings and examination findings, uniform bank performance reports, reports of income and condition, annual stockholder reports, CPA audit findings, adequacy of audit coverage and internal controls, quality of loan review/administration, management changes, capital structure, earnings performance and liquidity. For those institutions considered in a strong or satisfactory condition, examination scope could be restricted to development of a CAMEL rating. Examination scope would be expanded accordingly if a lack of managerial or operational control becomes evident. The Bureau's Automated Services Division will continue to conduct examinations of electronic data processing facilities.

Format

Examination report format is intended to be as flexible as conditions warrant. Reports may consist of a letter to the Board of Directors or could consist of a more formal report, complete with back-up schedules and analyses. At a minimum, examination reports will be sufficiently comprehensive to disclose component and composite CAMEL ratings and disclose the rationale for the rating.

"Off-site" Examinations

The Bureau will continue to be innovative in carrying out its responsibilities in an efficient, effective manner. The increased use of off-site examination techniques allows cost savings to the Bureau while reducing disruption to the bank. "Off-site" examinations will commence with a formal request of management for specific information. The examiner-in-charge will consider that information, along with other externally generated information, in determining examination scope and assessing the condition of the bank. "Off-site" examinations will normally include a visitation to the bank to complete the examination and conduct an exit interview with management. Examination findings will be transmitted to the Board of Directors and will include, at a minimum, identification of scope and a description of both the component and composite CAMEL ratings. "Off-site" examinations, when conducted, will only be used in cases where a bank is considered to be well managed and information indicates the bank would likely be rated a CAMEL 1 or 2. No bank will receive two consecutive "off-site" examinations.

Coordinated Examinations

The Bureau is also currently involved in a cooperative effort with the Federal Reserve Bank, the Federal Deposit Insurance Corporation and the Comptroller of the Currency, to conduct simultaneous, coordinated examinations of all affiliated entities of multi-bank holding companies. The coordinated examinations not only enable the Bureau to use its examiners and administrative resources efficiently, but minimize examination burdens on the bank holding company and its affiliates. The scope for this type of examination will be developed by all participating regulatory agencies. Bureau examiners will not participate in the examination of national banks, nor will Office of the Comptroller of the Currency examiners participate in state bank examinations.

Please contact the Bank and Trust Division at 517/373-6950 if you have any questions regarding this bulletin.

Signed:	Eugene W. Kuthy, Commissioner
	Donald P. Mann, Director, Bank & Trust Division
Dated:	May 7, 1985