Presents examination objectives and procedures that Federal Reserve System examiners follow in evaluating the safety and soundness of state member banks. Intended as guidance for planning and conducting bank examinations.

ABOUT THIS MANUAL
The goal of the Commercial Bank Examination Manual is to organize and formalize longstanding examination objectives and procedures that provide guidance to the examiner, and to enhance the quality and consistent application of examination procedures.

The manual provides specific guidelines for -

• determining the scope of an examination;
• determining the procedures to be used in examining all areas of a bank, including those procedures that may lead to the early detection of trends that, if continued, might result in a deterioration in the condition of a bank;
• evaluating the adequacy of the bank's written policies and procedures, the degree of compliance with them, and the adequacy of its internal controls;
• evaluating the work performed by internal and external auditors;
• evaluating the performance and activities of management and the board of directors;
• preparing workpapers that support examination reports and aid in evaluating the work performed; and
• using objective criteria as a basis for the overall conclusion, and for the resulting comments and criticism, regarding the condition and quality of the bank and its management.

The examiner-in-charge must properly plan and organize the examination before work begins. Initial decisions concerning examination scope can usually be made based on the nature of the bank's operations; its size; the past experience of the examiner-in-charge with the bank; information in the previous examination report, including the condition of the bank at that examination; communications with the bank between examinations; and analysis from the Uniform Bank Performance Report. The planning of work and preexamination procedures are covered in the Examination Planning section of this manual.

Examiners should view the manual as a working tool rather than as a reference manual. In most sections of the manual, examination procedures and internal control questionnaires are provided to form the basis for the examination of a bank. These procedures should lead to consistent and objective examinations of varying scopes. The bank's condition is disclosed by the performance of examination procedures, including review of internal controls and audit function, and the evaluation of the results therefrom, not by the examiner's judgment alone.

For larger banks, additional examination procedures need to be incorporated into the process to effectively examine those institutions' complex organizational reporting and accounting systems. Conversely, some of the procedures contained in this manual do not apply to smallersized banks. Additionally, state laws and local characteristics necessitate supplemental procedures.

For example, specific procedures relating to various types of agricultural lending have not been developed in this manual. Similarly, state banking laws must be considered when applying the procedures to various areas, such as lending, capital adequacy, and pledging requirements. When modifying the procedures, the examinerin-charge is responsible for determining that the examination objectives are met and that the examination meets the needs of the individual bank.

The manual is also intended to guide examiners in their efforts to encourage banks to develop written policies and related procedures in all areas where none exist, and to correct situations where there are deficiencies in or a lack of compliance with existing procedures. To aid the examiner, this manual includes topics such as loan portfolio management, investment portfolio management, asset and liability management, earnings analysis, capital analysis, and service area analysis.

A section on the appraisal of bank management guides the examiner in assembling and evaluating information from all other manual sections and helps uncover inconsistencies in the application of bank policies among various management groups. Examiners should be able to increase the level of professionalism and the soundness of the banking system by encouraging all banks to follow the best practices that currently exist in the banking industry. In no case, however, should this approach discourage the development and implementation of conceptually sound and innovative practices by individual banks.

Although this manual is designed to provide guidance to the examiner in planning and conducting bank examinations, it should not be considered a legal reference. Questions concerning the applicability of and compliance with federal laws and regulations should be referred to appropriate legal counsel.

In addition, the manual should not be viewed as a comprehensive training guide. Separate training programs provide more detailed instructions to assist the examiner in better understanding banking operations and applying examination procedures.

Visit Commercial Bank Examination Manual Download Page

You can download the entire bok in PDF format.

Inquiries or comments relating to the contents of this manual should be addressed to:
Director, Division of Banking Supervision and Regulation
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Copies of this manual may be obtained from:
Publications Fulfillment
Mail Stop 127
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

The manual is updated twice a year.
For information about ordering manuals and updates, please call 202-452-3244.

Visit The Federal Reserve Board Supervision Manuals Website

The bank examination process is the Federal Reserve’s fact-finding arm in discharging its regulatory and supervisory responsibilities. The essential objectives of an examination are (1) to provide an objective evaluation of a bank’s soundness and compliance with banking laws and regulations, (2) to permit the Federal Reserve to appraise the quality of management and directors, and (3) to identify those areas where corrective action is required to strengthen the bank, improve the quality of its performance, and enable it to comply with applicable laws, rulings, and regulations.

To accomplish these objectives, the examiner should evaluate the prudency of the bank’s practices, the bank’s adherence to laws and regulations, the adequacy of the bank’s liquidity and capital, the quality of the bank’s assets and earnings, the nature of the bank’s operations, and the adequacy of the bank’s internal control and internal audit. The scope of an examination may cover every phase of banking activity, or it may concentrate on specific areas that deserve greater emphasis because of their potential effect on a bank’s soundness.

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