Advanced Search Su Home | Deposit Insurance | Consumer Protection | Industry Analysis | Regulations & Examinations | Asset Sales | News & Events | About FDIC Home > Regulation & Examinations > Bank Examinations > Risk Management Manual of Examination Policies Risk Management Manual of Examination Policies Section TOC | Manual Home | Manual Index Section 1.1 - Basic Examination Concepts and Guidelines Rationale of Bank Examinations What are the purposes of bank examinations? Although many answers to this question could be given, several fundamental reasons can be identified. The first relates to the maintenance of public confidence in the integrity of the banking system and in individual banks. Such confidence is clearly essential because the system's customers serve as the source of funding, without which banks would be unable to meet their most fundamental objective of providing financial services. The existence of unhealthy or deteriorating conditions, which may threaten this integrity, should be disclosed through the examiner's evaluation of the bank's capital adequacy, asset quality, management, liquidity position, earnings capacity, and sensitivity to market risk. Second, the periodic on premise examination provides the best means of determining the bank's adherence to laws and regulations. Compliance with statutory and regulatory requirements has traditionally been given high priority by bank supervisors, and Congress has frequently reaffirmed this posture. A third response to the question concerns the role examinations play in protecting the financial integrity of the deposit insurance fund. That is, the examination process can help prevent problem situations from remaining uncorrected and deteriorating to the point where costly financial assistance by the FDIC, or even a payoff of depositors, becomes unavoidable. Finally, the examination supplies the supervisor with an understanding of the nature, relative seriousness and ultimate cause of a bank's problems, and thus provides a factual foundation to soundly base corrective measures, recommendations and instructions. The examination thus plays a very key role in the supervisory process.