DEFINITION of 'Bank Examination'

An evaluation of the safety and soundness of a bank. The primary focus is an examination of the banks assets and liabilities, but the exam also commonly includes a review of its adherence to regulations and standards, its compliance with various laws - such as truth-in-lending - and an examination of its electronic data processing systems.

Bank examinations for national banks are conducted by the comptroller of the currency, state chartered banks by the Federal Deposit Insurance Corporation (FDIC) or the state banking department, and bank holding companies by the Federal Reserve Board.

BREAKING DOWN 'Bank Examination'

In evaluating the safety and soundness of an institution, examiners follow the CAMELS system: Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity (to systemic risk). Banks are ranked on a scale of one to five in each category, and receive an overall assessment, with one being the strongest and five the weakest. Banks with CAMELS of four and five are ordinarily placed on a watch list and monitored closely.


RELATED TERMS
  1. General Examination

    A regulatory measure set up to give a detailed examination of ...
  2. CAMELS Rating System

    An international bank-rating system where bank supervisory authorities ...
  3. Compliance Examination

    A periodic examination of banks to make sure banks are operating ...
  4. State Bank

    A financial institution that has been chartered by a state to ...
  5. Bank

    A financial institution licensed as a receiver of deposits. There ...
  6. National Bank

    In the United States, a commercial bank chartered by the comptroller ...
Related Articles
  1. Personal Finance

    Explaining the CAMELS Rating System

    Regulators use the CAMELS rating system to evaluate a bank’s level of risk and overall condition.
  2. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  3. Investing

    How Do Financial Regulations Affect Smaller Banks?

    Not to big to fail? We explain how US financial regulations affect smaller banks.
  4. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  5. Personal Finance

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  6. Financial Advisor

    Is Greater Oversight of RIAs Coming?

    RIAs may be entering an era of greater oversight by the Securities and Exchange Commission. Here's why.
  7. Insights

    Why Is Liquidity Important?

    Learn more on why liquidity is important to consider when examining a stock, next to its share price.
  8. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
RELATED FAQS
  1. What measures can be used to evaluate the capital adequacy of a bank?

    Examine some of the different financial measurements that are most commonly used to assess capital adequacy within the banking ... Read Answer >>
  2. What is the maximum amount of time that can elapse between CFA examinations?

    According to the CFA Institute, a candidate can take as much time as necessary between examinations. Therefore, if you passed ... Read Answer >>
  3. Do I have to complete all exams within a certain period of time to receive the CFA ...

    According to the CFA Institute, a candidate can take as much time as necessary to complete all three levels of the CFA program.Therefore, ... Read Answer >>
  4. How can I withdraw from my CFA Level 1 exam?

    According to the CFA Institute, a CFA Level 1 candidate can withdraw from his or her current CFA examination (no later than ... Read Answer >>
  5. Why is the capital adequacy ratio important to shareholders?

    Understand what the capital adequacy ratio is and why it is a very important metric of financial soundness for evaluating ... Read Answer >>
  6. What is the average profit margin for a company in the banking sector?

    Learn what the average profit margin is for companies in the banking sector, along with other evaluation metrics often used ... Read Answer >>
Trading Center