Federal Deposit Insurance Corporation
Office of Inspector General
Federal Deposit Insurance Corporation - Office of Inspector General

Forward Looking Supervision

Monday, August 27, 2018

Summary Announcement

Forward Looking Supervision 

August 8, 2018

The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General issued an evaluation report that highlights the FDIC’s Forward Looking Supervision approach in conducting examinations of financial institutions.  The evaluation focused on the FDIC’s Forward-Looking Supervisory initiative as part of its risk-focused supervision program.  The goals of this supervisory approach are to identify and assess risk before it impacts a financial institution’s financial condition and to ensure early risk mitigation.  

Our evaluation objective was to determine whether the Forward-Looking Supervision approach achieved its outcomes—the Division of Risk Management Supervision (RMS) pursued supervisory action upon identifying risks and the financial institutions implemented corrective measures.  Our review showed that examiners substantially achieved the intended outcomes of the Forward-Looking Supervision approach for our sampled institutions.  Examiners applied Forward-Looking Supervision concepts during their financial institution examinations, rated institutions based on risk, and recommended corrective actions based on their risk assessments.  Also, the financial institutions committed to implement the corrective actions.

We found that:

• The FDIC did not have a comprehensive policy guidance document on Forward-Looking Supervision and should clarify guidance associated with its purpose, goals, roles, and responsibilities.  

• Examiners typically documented their overall conclusions regarding the financial institutions’ concentration risk management practices; however, they did not always document certain Forward-Looking Supervision concepts in pre-examination planning documents and when reporting examination results; 

• Examiners typically reported or elevated identified overall concentration risk management conclusions and concerns; however, a greater number of these concerns should have appeared in the report section that includes issues requiring  the  attention of the institution’s board;  and

• Examiners generally identified concentration risk management concerns on a timely basis; however, in certain instances, they identified concentration risk management concerns that had not been identified during the prior examination cycle.  

We made four recommendations to the FDIC to:  (1) issue a comprehensive policy guidance document defining Forward-Looking Supervision; (2) issue guidance to reinforce how and where examiners should be documenting concentrations and an institution’s concentration risk management practices in the report of examination; (3) provide additional case studies on Forward-Looking Supervision to strengthen training for examiners; and (4) conduct recurring retrospective reviews to ensure examiners are documenting concentration risk management analysis.  The FDIC concurred with these recommendations.

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