What Is the National Bank Surveillance System (NBSS)?

The National Bank Surveillance System (NBSS) is a computerized monitoring system developed to collect data and evaluate the financial performance of national banks. The off-site surveillance system was first established by the U.S. Office of the Comptroller of the Currency (OCC), a federal agency that oversees the execution of laws relating to national banks, in 1975.

Key Takeaways

  • The National Bank Surveillance System (NBSS) is a computerized monitoring system developed to collect data and evaluate the financial performance of national banks.
  • The off-site surveillance system was created in 1975 by the U.S. Office of the Comptroller of the Currency (OCC).
  • Computerized systems enabled regulators to quickly and systematically analyze the enormous amounts of data that banks report on their Call Reports.
  • The NBSS's quarterly Bank Performance Report compares each bank to a group of its peers, making it easier to spot those displaying signs of financial trouble.

Understanding the National Bank Surveillance System (NBSS)

The National Bank Surveillance System (NBSS) acts as an early warning system. Its task is to identify banks displaying signs of financial trouble, alerting regulators so that they can take action and step in before the situation turns ugly.

The National Bank Surveillance System's (NBSS) primary tool is its quarterly Bank Performance Report, which compares each bank to a group of its peers to develop an accurate picture of how they are individually faring. Information is often sourced from Call Reports, financial health updates that banks are obligated to file on a quarterly basis.

The off-site surveillance system analyzes and predicts capitalization ratios, equity ratios, and other quantifiable pieces of information in order to attempt to understand which banks are in danger of failure. Ideally, the National Bank Surveillance System (NBSS) will notify the OCC of any red flags before it is too late.

Newer models allow regulators to predict a bank's probability of failure over the following two years.

The purpose of the OCC is, as its motto proclaims, "ensuring a safe and sound national banking system for all Americans." The OCC charters, regulates, and supervises all U.S. national banks, conducting on-site reviews and stringent oversight of their operations. In theory, banks highlighted by the National Bank Surveillance System (NBSS) system as showing distress should have their on-site examinations pushed forward to an earlier date. According to the OCC, banks are normally subject to a full-scope, on-site examination every 12 or 18 months.

History of the National Bank Surveillance System (NBSS)

The National Bank Surveillance System (NBSS) made its debut after the failure of two national banks in the early 1970s. The OCC, facing considerable scrutiny for not foreseeing these shortcomings, commissioned a study to be conducted by accounting firm Haskins & Sells. The report, issued in 1975, recommended that banks provide more updates and championed the creation of a computerized off-site system, noting that the cost and difficultly of analyzing Call Reports via computer had dropped significantly over the past decade.

Then the savings and loan (S&L) crisis reared its head. Between 1986 and 1995, nearly a third of the 3,234 savings and loan associations in the United States collapsed. This devastating chain of events made it increasingly clear that off-site surveillance was not sufficient to accurately predict bank failure and should not be a substitute for frequent, periodic on-site examinations.

The cake celebrating the OCC's 120th anniversary was in the shape of a computer, illustrating just how dependent the federal agency had become on the National Bank Surveillance System's (NBSS) ability to analyze Call Reports.

Studies since the 1980s have found that frequent on-site examinations make for more accurate Call Reports, as they allow bank examiners to scrutinize loans closely and encourage banks to report loan losses in a timelier fashion.

Changes to the National Bank Surveillance System (NBSS) during the 1990s allowed regulators to more closely monitor banks between periodic on-site examinations in order to determine whether an additional, unscheduled examination was warranted to surveil a particular bank. Eventually, the National Bank Surveillance System (NBSS) was transformed into the Uniform Bank Surveillance System (UBSS), and the Bank Performance Report became the Uniform Bank Performance Report (UBPR).