What You Need to Know Ahead of Your FI's Next Exam

Regulatory exams are changing. As federal agencies face staffing shortages, shifting priorities, and evolving market conditions, many examiners simply don’t have the time or resources for the same in-depth reviews as in years past.

Financial institutions (FIs) expecting a comprehensive, line-by-line exam may be in for a surprise. With fewer staff, regulators are shifting to a more targeted approach — focusing on high-risk areas, new products and services, key changes in call report data, and critical milestones instead of reviewing every detail.

It’s not the first time this has happened. When I joined the Office of the Comptroller of the Currency (OCC) as a young examiner more than 30 years ago, the agency faced similar staffing shortages. Back then, we often conducted quick "drive-by" exams to allow us more time to evaluate high-risk banks.

While today’s risk landscape is far more complex, we’re seeing echoes of that same efficiency-driven model, and these snapshot-style exams are being revived.

How can your FI stay exam-ready in an era of less in-depth oversight and limited examiner feedback? It starts with focusing on the fundamentals and anticipating where regulators will look first. Let’s break it down.

Related: What is Dynamic Risk Management and How Does It Work?

Manual processes are under the microscope

Examinations are being conducted with fewer people with less time (and sometimes less subject matter expertise, depending on the examiner's experience).

Imagine this: Your exam starts in January with nine examiners. As the weeks go on, the examiners decrease. When the exam is almost finished, you're down to just one examiner handling the work initially scoped for a full team.

What could this real-life example mean for your institution? Fewer touchpoints, less feedback, and a heavier focus on perceived problem areas.

When exams are this compressed, there’s less room for nuance and more emphasis on what’s easy to spot. While operating with limited resources, examiners will still identify major red flags, which are now more likely to include a reliance on manual processes and other risk management systems that don’t reflect your institution’s growth. Both new and experienced examiners expect FIs to utilize modern tools to execute the risk management lifecycle and communicate their risks clearly, particularly to the board.

Think of your risk and compliance systems as a phone. If you're still using manual tools (e.g., a flip phone in a smartphone world), you're not just behind; you're likely missing emerging risks. If you're using automated tools to streamline and organize your processes, you're in a much stronger position — and examiners are less likely to raise concerns.

Actionable Takeaway: Ensure you can demonstrate how your institution is keeping pace with rapidly changing risks and leveraging technology to drive integrated risk management.

Related: High-Impact Risk Management: Key Strategies for Financial Institutions

Tell your story before someone else does 

As the exam environment changes, some FIs may still receive detailed, in-depth feedback. Others are experiencing more surface-level exams. It’s like a home appraisal — sometimes, the examiner comes inside, opens every drawer, and checks the plumbing. Other times, they walk the perimeter and take a few notes.

For FIs that have built long-standing relationships with their examiners, this shift can be jarring. If you’ve come to rely on that regular feedback as a key part of your risk management program, not having it is a wake-up call — and a sign that it’s time to take more ownership of your risk story.

Ultimately, your examiner’s job is to assess how well you understand and manage risk, not piece everything together for your FI. That starts with having systems that tell your institution’s story — what’s happening, why it’s happening, and how it’s being managed. Below are some questions to consider:

• What do our people, processes, and systems look like?
• Have we introduced any new systems or products that require more risk controls?
• Is the board getting the correct information to understand the risks being taken?
• What are our current risks? Are there any emerging risks/concerns we should note? What is our approach to responding to these risks?

Examiners are also leaning more on off-site tools, such as Uniform Bank Performance Reports (UBPRs), to spot trends and red flags. In other words, the focus is shifting; it’s not just about what the examiner finds, but what you already know and how effectively your FI is managing that risk.

Are you using the right tools to manage changing risks, such as the Community Reinvestment Act or information technology (IT)? Can you clearly explain how those risks are being tracked and communicated to leadership? The clearer you can explain what you’re doing — in plain terms — the smoother your exam will go. Don’t leave it up to the examiner to guess.

Actionable takeaway: Being proactive matters. Use tools that help you monitor risk, communicate with your board, and demonstrate to examiners that you’re on top of it—even when they don’t have the time to go deep.

Related: Board Reporting: FAQ for Financial Institutions

Economic uncertainty is certain

While the regulatory environment is changing, so are market conditions. FI should consider how changing economic conditions affect their market area, performance, products, and services.

Layoffs lead to ripple effects, including reduced disposable income, pressure on small business borrowers, shifts in housing demand, and potential declines in property values. For many community FIs with large commercial real estate portfolios or loans with businesses in a specific industry, these changes could directly impact their risk profiles and CAMELS ratings.

At the same time, regulators are placing more responsibility on institutions to manage their own risk. As OCC nominee Jonathan Gould noted in his recent testimony before Congress, it all comes back to prudent risk management, which is understanding risks clearly, comprehensively, and in context. That means knowing where you stand, not just in broad terms but also in how they evolve in relation to your products, services, and strategy. For example, hiring decisions may feel right today, but if conditions change, they could become liabilities.

Actionable Insight: I’ll repeat it — telling your story matters! Show examiners you’re managing risk proactively because they may not have the capacity to catch early warning signs. Oversight may feel lighter, but if you’re not prepared, the consequences can be severe.

Best practices for navigating exam uncertainty

While every exam will look different, being prepared ahead of time is crucial. Consider these best practices as you begin your prep.

1. Evaluate CAMEL components. Your examiner probably won’t be able to follow every procedure in the handbook. In some cases, exams may be limited to verifying basic information, such as whether the call report is accurate. Focus on your CAMELS components, which include capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk.
2. Make sure your board is informed. Clear communication with the board is critical. Examiners want to see that leadership understands the institution’s risk posture and is actively engaged in oversight. That includes getting the correct data, asking tough questions, and setting the tone from the top.
3. Trust your examiner — and be transparent. Examiners are being asked to do more with less. The FIs that do best in this environment are the ones that come prepared and are honest about their risks. Don’t try to cover things up or paint over issues. If there’s mold in the corner of the house, so to speak — call it out. Examiners are more likely to work with you if they understand the issue and see that you have a plan to fix it.
4. Share what you do know — and what you’re watching. You don’t have to have all the answers, but you need to show that you’re asking the right questions: What are we concerned about in the short term? What are we watching over the longer horizon? What steps are we taking now to prevent things from getting worse?
5. Avoid the “it’s fine” trap. Just like ignoring health advice can lead to bigger problems down the line, brushing off risks or examiner feedback can result in more intense scrutiny — and penalties or fines — later. Being upfront about risks you’ve identified and how you’re managing them builds examiner trust and helps avoid surprises.

Want more insights on keeping your FI exam-ready? Get the latest regulatory updates in our Mid-Year Compliance Check-In webinar.