Background
The
boards of directors of a group of banks, collectively, appealed to
the Ombudsman the composite and CAMELS ratings assigned by the
supervisory office in the most recent report of examination.
The
banks expressed concern that they were being evaluated collectively
as a complex institution rather than as less complex, separate, and
independent institutions.
While all the banks appealed their composite rating, they
each appealed different component ratings. The banks requested that the
supervisory office apply the rating summary matrix and description
on risk management systems relative to a bank's size, complexity,
and risk profile as stated in OCC Bulletin 97-1, "Uniform Financial
Institutions Rating System and Disclosure of Component Ratings,"
(January 7, 1997).
Discussion
The
Ombudsman conducted a review of the information submitted by the
banks and supporting documentation from the supervisory office. The review included
discussions with the banks' senior management as well as with
members of the supervisory office.
While
the chosen corporate structure is comprised of individually
chartered financial institutions, it is evident from these
discussions that the bank management teams are significantly
influenced by one major principal. Additionally, the
organizational structure provides for centralized decision-making
and back-room operations.
Furthermore, the Ombudsman found that risk management systems
throughout the banks warrant significant improvement in the areas of
credit administration, nonaccrual
accounting, and budget reporting.
Conclusion
The
Ombudsman concluded that the composite and CAMELS ratings as
assigned by the supervisory office in the report of examination were
appropriate. The
Ombudsman encouraged the banks to strengthen their overall risk
management practices in the lending area and formalize their
planning and budgeting processes to assist them in addressing
potential risk exposures.
