The Region

So you want to be a bank examiner? You may be surprised to learn what it takes

Kathy Cobb | Associate Editor

Published December 1, 1995  | December 1995 issue

Core curriculum ... proficiency test ... specialty area of study ...
pre-test. Sound like terms from a college course catalogue?
Perhaps, but in this case the terms are from Federal Reserve training guides for banking supervision and regulation staff.

The Federal Reserve System fields an examiner staff of about 1,500, with roughly 600 at the New York Fed and 92 at the Minneapolis Fed. Including the other federal banking regulatory agencies, there are about 10,000 depository institution examiners nationwideand that figure excludes state bank examiners. That adds up to a lot of people doing a lot of examining and a lot of learning.

Examiners need a wealth of knowledge to weave their way through the maze of regulations and procedures that depository institutions must follow. With the continuous changes in the delivery of financial services, large amounts of money exchanged electronically worldwide at a lightning-rapid pace, new investment tools like derivatives, changes in standard accounting procedures and more, there are volumes of information for new and seasoned examiners to digest. Which takes us back to the academic catalogue termsthe Federal Reserve and other agencies provide a training regimen for examiners that might weary any full-time college student, but in fact is followed while examiners also do their job.

Fed examiners—what they do and need to know

Ninth District Fed examiners are responsible for supervising 104 state member banks and just over 700 bank holding companies, that is, entities that own controlling interest in one or more banks. The majority of the staff works out of Minneapolis, but some examiners assigned to Montana institutions operate from the Helena branch; altogether examiners generally spend 50 percent to 80 percent of their time on the road in the district's six states (Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan). The Minneapolis Fed conducts four kinds of examinations:

  • Safety and soundnessto determine state member banks' and bank holding companies' financial condition and compliance with laws and regulations. Examiners are responsible for analyzing the quality of these institutions' assets, such as loans and investments, and evaluating the adequacy of managerial resources, capital, earnings performance and liquidity.
  • Consumerexamine compliance with consumer protection laws and regulations, including the Community Reinvestment Act and Fair Lending regulations.
  • Electronic data processing (EDP)examine data centers from the smallest, bank-owned data centers to some of the largest, most complex centers that serve several hundred bank customers.
  • Trustexamine trust departments of state member banks and other trust companies; experienced examiners also perform other specialized examinations of banks engaged in securities broker/dealer activities and nonbank entities that extend credit secured by margin stock.

Individuals with degrees in finance or accounting, or prior examining or banking experience are good candidates for the safety and soundness section because examining banks requires complex financial analysis, says Karen Grandstrand, banking supervision vice president. She adds that consumer affairs examiners, whose job requires a knowledge of complicated laws and regulations, often have a law degree or prior compliance experience with a commercial bank.

Regardless of the area of specialization, all examiners undergo a rigorous training program. At the Minneapolis Fed some examiners are also cross-trained; for example, two safety and soundness examiners are currently learning to be EDP examiners, and other examiners cross-train in consumer affairs and trust. "Now these are the people who really have a lot of coursework and study to complete," says Grandstrand, pointing to a hefty stack of training materials.

A new examiner at the Minneapolis Fed spends the first one to two weeks in orientation before joining a field examination team. But during that first year, examiners also will spend from 15 percent to 25 percent of their time in training, according to Pat Nowak, the Minneapolis Fed's training coordinator, who is also an experienced examiner.

All new examiners are required to complete many hours of self-study through the 14 mandatory BEST (building expertise and skills training) modules, as well as pre-course work before attending any of the required Fed training programs, called "schools." For example, prior to enrolling in the Loan Analysis school, an examiner would need to complete 80 hours of independent pre-course work. About 50 percent of the schools extend over two weeks; the others usually run for a week. Many courses end with an exam of up to two hours.

Juggling teachers, students and class schedules—a logistics feat

The Minneapolis Fed training staff, with the examiner's supervisor, plans and schedules each assistant examiner's annual training agenda and keeps track of where each is on the training continuumexercises conducted by training staff in each Federal Reserve district. This information is fed to the Federal Reserve Board's training staff in Washington, D.C., which schedules all classes and instructors.

Located just around the corner from the White House and near federal financial regulators, the Fed's training facility is housed on two floors of a modern office building with state-of-the-art audio-visual equipment and break-out rooms equipped with computers that allow teams of students to work on assignments. Many of the schools meet here; however, some also are conducted at Reserve banks throughout the System.

The training center's in-house staff of 15 includes a commissioned examiner, two training staff with master's degrees and a doctoral candidate in adult education. Robert Leibowitz, manager of supervisory education in the Board's division of banking supervision and regulation, says the size of staff and well-equipped training facility are clear signs of the Board's strong commitment to high-quality training.

"We're running a small college," Leibowitz says. "We have more students than, for example, William and Mary College, with 5,000 students." In '96 the Fed's training classes will serve about 6,000 students in a number of basic and advanced schools.

While class spaces go first to Fed personnel, other agency staff, state examiners and foreign central bank personnel may fill unused slots. In the nine Loan Analysis schools in '96, some will be attended by Federal Deposit Insurance Corp. personnel, according to Leibowitz. A recent specialized lending school included staff from the Central Bank of Sri Lanka, along with state examiners from Pennsylvania and New Jersey, and examiners from several Fed banks. The converse also applies: Fed examiners may attend another regulator's classes, for example at the Federal Deposit Insurance Corp.'s training facility in Arlington, Va., which is also used for the Federal Financial Institutions Examination Council's (FFIEC) training programs, or at one of the district offices of the Office of the Comptroller of the Currency.

The importance of a unified training program

Instructors for Federal Reserve classes are drawn largely from district Feds, but often guest instructors from other regulatory agencies and from the financial services industry are invited to share their expertise. The above-mentioned specialized lending school, for example, was led by Fed instructors from the Board and the Chicago Fed, with guest speakers from the Board's community affairs staff and from a local community economic development organization.

In 1996, 387 class sessions will be taught by instructors from Federal Reserve banks, with some teaching up to five sessions of the same class, according to Leibowitz. "There are 62 instructors needed in Financial Institution Analysis alone, and each Basic and Advanced Trust and Banking Applications school requires three instructors," Leibowitz says.

Fed instructors teach from the same materialsto promote consistency in interpretation. And those materials are prepared and reviewed by committees representing district Feds to ensure that special regional issues are addressed in the classes. In addition, changes in the banking world are monitored and course committees keep the schools' curricula up to date.

Instructors from several Feds may share teaching responsibilities for some of the schools, also. Kinney Misterek, an assistant vice president in banking supervision at the Minneapolis Fed, teaches Introduction to Examinations, the first school an examiner attends, and Capital Markets, generally attended by more experienced examiners. "It's useful to see how other Feds structure themselves," Misterek says. Co-teaching with peers from other Feds "helps to provide consistency across districts," he adds. "You'd see more inconsistencies in exams if we didn't have a unified training program."

"We believe there are benefits gained by gathering examiners from throughout the System for classes," says Leibowitz, who also chairs an FFIEC task force on examiner education. "There's a special effort made to ensure that the instructors are slotted to ensure regional diversity," he adds.

Instructors are nominated by their Reserve bank. They need be competent in the subject they will teach and complete an instructor training course. Instructors also observe and teach portions of the class before assuming a major teaching role.

Training also occurs at the local level

In addition to the standard training classes offered Systemwide, each Fed supplements examiner training with its own courses and seminars. The Minneapolis Fed sends new examiners to a commercial bank for a week to become more familiar with teller and other internal operations. "It's a way for examiners understand a bank's daily operating procedures," Nowak says. These commercial bank experiences generally occur after an examiner has participated in a few field examinations, in order for them to get the most out of the experience, Nowak adds.

"You see how it all fits together," says Charlot Wobschall, a safety and soundness examiner, who spent a week at a Duluth, Minn., bank. "[The experience] also humanizes examiners," Wobschall says.

"It's good for staff to see that we have a partnership with the Fed, not an adversarial relationship," says John Seidel, president and chief executive officer of Dakota Bank in Mendota Heights, Minn., another bank that has hosted examiners in training. Seidel says his staff benefits, too, from having an examiner on hand who is in essence performing a mock examination. "The anxiety level is lower [among employees] when the real show comes to town," he says. "It makes for a much smoother exam."

And for two weeks each year, all Minneapolis examiners are pulled off the road and brought into the bank for seminars and simply to reconnect with each other, the rest of the banking supervision department staff and the bank at large. "I place a very high value on this training," says Minneapolis Fed vice president Grandstrand. "We have 92 people traveling in the field and this provides an opportunity for them to hear senior management and other department staff explain what's going on in other parts of the bank. It gives them the big picture."

In October, conference sessions ranged from travel logistics and career planning to presentations by Minneapolis Fed president Gary Stern on the district and national economies, and by local bankers about on-line banking services. In addition, they received updates on supervision issues from Minneapolis Fed and Board of Governors staff. "These sessions are important to put into perspective what the examiners are doing in the field," Grandstrand says.

Evolving issues and concerns for banking supervision staff

The System keeps an eye on trends through a steering committee of Federal Reserve bank senior vice presidents, whose mission is to ensure that courses are updated to respond to developments in the banking and financial system, and to ensure that new regulations and policy interpretations are incorporated into the training materials.

The financial services industry is changing constantly from within, and new legislation keeps the banking industry in a state of flux. Interstate banking, the new Community Reinvestment Act regulation and capital markets risk are just a few of the issues that will guarantee that the Fed's training center will not want for students and that examiners will continue to have a lot of learning to do.