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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF BANKING

SUPERVISION AND REGULATION

SR 16-8

April 19, 2016

TO THE OFFICER IN CHARGE OF SUPERVISION

AT EACH FEDERAL RESERVE BANK

SUBJECT: Off-site Review of Loan Files

Applicability to Community Banking Organizations: This letter applies to all state member 

banks and U.S. branches and agencies of foreign banking organizations with less than $50 billion 

in total assets. 

The purpose of this letter is to announce to state member banks (SMBs) and U.S. 

branches and agencies of foreign banking organizations (FBOs) with less than $50 billion in total

assets that there is an option to have Federal Reserve examiners review loan files off-site during 

full-scope or target examinations. Federal Reserve examiners may conduct an off-site loan 

review provided the SMB or FBO is amenable to such an arrangement, and the SMB or FBO can 

send legible and sufficiently comprehensive loan information to the Reserve Bank in a secure 

manner.

To date, most of the Federal Reserve’s off-site examination work has focused on 

financial performance analyses and the review of bank policies, procedures and certain bank 

internal reports.

1

 However, with technological advancements, such as secure data transmission 

and electronic file imaging, examiners now have the ability to collect and review loan file 

information off-site without compromising the effectiveness of the examination process. As a 

result, Federal Reserve examiners may use the off-site loan review program when leading 

examinations of SMBs and FBOs with less than $50 billion in total assets where the bank has 

communicated its willingness to participate in the program and is able to appropriately image

and send its loan documents to the Reserve Bank in a secure manner.

 1 Refer to SR letter 95-13, “Recommendations to Increase the Portion of Examinations and Inspections Conducted in 

Reserve Bank Offices.”
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Process for Determining if an SMB or FBO can Participate in the Off-Site Loan Review 

Program

Reserve Banks should query an SMB or FBO prior to conducting an examination to 

confirm the institution’s interest in participating in the off-site loan review program.

2

 SMBs or 

FBOs interested in participating in the program should be prepared to demonstrate their ability to 

appropriately image and send loan documents to the Reserve Bank in a secure manner. The

Reserve Bank will consider the following when determining whether an off-site review of loan 

files is appropriate for a particular institution.

• Will the institution submit the loan file data using a secure transmission method such as 

cloud-based collaboration products, secure email services, encrypted removable media, 

virtual private networks, or remote desktop control services? 

• Is the institution able to provide loan data and imaged loan documents that are legible,

easily viewable, and properly organized to allow for timely review by examiners?

• Are the loan files comprehensive to allow an examiner to come to a conclusion as to the

appropriate rating of a credit without having to request additional information from the 

institution?

For SMBs or FBOs that have demonstrated these technological capabilities, Reserve 

Banks should make all efforts to accommodate the request for an off-site loan review. However, 

the Reserve Bank may decline a request if it has justifiable reasons to believe that an off-site 

review would impede the examiners from efficiently and effectively assessing the institution’s 

asset quality and credit risk management process.

Security of Loan File Data Submitted to the Reserve Banks

Loan file data obtained from an SMB or FBO will be handled in accordance with existing 

Federal Reserve information security requirements. A Reserve Bank should explain its 

procedures and practices for safeguarding loan file data to an SMB or FBO considering 

participation in the off-site loan review program, including its procedures for coordinating offsite loan reviews with state banking agencies.

Adjustments to the Examination Process 

Reserve Banks will need to adjust the examination process in order to ensure successful

execution of an off-site loan review. Generally, examiners should allocate adequate time prior to 

the start of the examination to confirm that an SMB or FBO has successfully transmitted its loan 

file data to the Reserve Bank. Further, examiners are expected to maintain ongoing 

communication with the institution’s management during the examination process. Prior to the 

start of the examination, examiners should establish a schedule with the institution’s 

management for status calls during the off-site portion of the examination. Typically, examiners 

should conduct regular calls with management to discuss loan file review and the status of other 

examination work. 

 2 In order for a Reserve Bank to be able to complete an off-site loan review, an SMB or FBO will need to submit all 

requested information in a timely manner, including confirming its interest in being considered for the off-site 

review program and providing all information needed for a Reserve Bank to confirm the institution’s technological 

preparedness.
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Scope of the Off-Site Examination Work 

As directed in SR 95-13, Reserve Banks should continue to conduct as much of the

examination work off-site as feasible without compromising the effectiveness of the examination

process. Specific to loan review, examiners should typically conduct the following portions of 

examination work off-site regardless of whether the SMB or FBO is participating in the off-site 

loan review program. This examination work includes:

• Determination of the scope of the loan review;

• Risk assessment to determine the areas to be emphasized (for example,

management of credit concentrations and the loan approval process);

• Review of the bank’s loan policies;

• Review of financial performance reports and management reports;

• Preliminary review of the loan loss reserve methodology;

• Determination of the loans to be reviewed, and the selection of individual credits;

• Grouping of loans to related obligors; and

• Preparation of loan line sheets.

In addition, for SMBs or FBOs participating in the off-site loan review program, the 

review of credit files for quality, documentation, and compliance with bank policy and laws and 

regulations will be performed off-site. Further, at the discretion of the examiners, Reserve Banks 

may hold either off-site or on-site discussions with the institution’s management regarding

preliminary loan review findingssuch as the appropriateness of individual credit ratings assigned 

by the SMB or FBO and the completeness of credit file documentation.

Scope of On-Site Examination Work

On-site examination work remains an indispensable component of bank supervision that 

plays a critical role in ensuring the Federal Reserve fulfills its supervisory responsibilities. As 

directed in SR 95-13, Reserve Banks are expected to continue to perform on-site those activities

that require physical observation such as transaction testing and direct monitoring of an

institution’s operations and internal controls. While on-site, examiners will also review 

documents such as meeting minute books of the board of directors that would be inappropriate or 

impractical for the SMB or FBO to send to the Reserve Bank. Further, Federal Reserve 

examiners should conduct exit meetings in-person with the institution’s management to 

communicate final supervisory findings and conclusions, including the final supervisory findings 

from any off-site loan review examination work.

Questions regarding this letter and the attached examiner guidance may be directed to the 

following staff in the Board’s Division of Banking Supervision and Regulation: 

• Community Banking Organizations: Anthony Cain, Manager, at (202) 912-4377; and 

Laura A. Macedo, Senior Supervisory Financial Analyst, at (202) 452-5268. 

• Regional Banking Organizations: Keith Coughlin, Manager, at (202) 452-2056.
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• Foreign Banking Organizations: Celeste Molleur, Manager, at (202) 452-2783, and 

Kwayne Jennings, Manager, at (202) 452-3088.

In addition, questions may be sent via the Board’s public website.3

Michael S. Gibson

Director

Cross reference to:

• SR letter 95-13, “Recommendations to Increase the Portion of Examinations and 

Inspections Conducted in Reserve Bank Offices”

 3 http://www.federalreserve.gov/apps/contactus/feedback.aspx