Monday, November 26, 2012

OCC Matters Requiring Attention (MRA) 
Reference Guide Revealed!

On November 15, before a meeting of the The Clearinghouse Association, Comptroller Curry referred to the OCC's adoption of “heightened expectations for corporate governance and oversight” for large national banks.   Among those heightened expectations was this statement: “We are no longer willing to accept audit and risk management functions that are simply satisfactory.... Our expectation now is that large institutions will meet the standard of “strong” for audit and risk management functions.”

What has not received much current attention, but which merits recognition, are the fruits of an earlier, parallel effort by the OCC's Midsize and Community Bank Supervision (MCBS) department to become more anticipatory in the supervision of midsize and community banks by identifying and dealing with unsatisfactory bank risk-taking practices before the consequences of those risk-taking practices escalate into significant problems.

Many of the OCC's internal lessons-learned reviews and external material loss reviews, from bank failures and "near-misses" from the most recent financial crisis and the resulting economic downturn, had a common theme:  In many instances, examiners, and their supervisory offices, could have done more earlier to address inappropriately-managed bank risk-taking behavior.  What was missing from many reports of examination was a clear description of the inappropriate risk management practices, their causes and their consequences coupled with an insistence that those unsatisfactory practices be corrected in a timely manner.  It also became apparent that this needed to be back-stopped by requirements for strong, frequent, and effective followup on the status of the bank's MRA corrective actions by the OCC examiner-in-charge and the local supervisory office.

A team of seasoned OCC examiners, managers, and executives prepared updated guidance for examiners called the “MCBS MRA Reference Guide”.  A really excellent piece of work that focuses on dealing with unsatisfactory risk management practices that have been identified during the course of the examiner's ongoing supervision of the bank and also sets explicit communications and follow-up standards.   All with the goal of dealing with unsatisfactory bank risk management practices early before they escalate into intractable problems.

Having referred to the document frequently as an Assistant Deputy Comptroller of a local OCC field office, I was always puzzled by the admonition on the Table of Contents page: “This document is created for internal use. It may not be shared with any party outside the OCC.”   The puzzling part was that it had no otherwise confidential bank-specific supervision information in it.  So in order to bring this document into the public domain, I made a request to the OCC under the Freedom of Information Act.  The OCC graciously released it unredacted.  Here is a link to the document:

MCBS MRA Reference Guide

[Editor's Note:  Some people have been experiencing trouble with this link.  If you have difficulty accessing the document, please email and we will forward a .pdf copy]

This document should be very beneficial to national bank and thrift CEOs and their boards of directors.  Now they know the rules and standards surrounding the citation of MRAs in their reports of examination.  That knowledge can improve their understanding of how the OCC expects MRAs to be handled by the bank and also has the potential to improve the quality of the dialogue between the bank or thrift CEO and the examiner-in-charge of the examination.  Particularly in the wrap-up stage of an examination, when “must fix” items, like MRAs, need to be separated from “nice to do” items, like best practice recommendations, before the draft report of examination is submitted for final processing.

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