Like a medical examination, a bank examination is a disciplined look for warning signs. Where warning signs are concealed, examinations may not find significant problems. U.S. regulators withdrew the privilege granted Daiwa to operate in the United States because the bank betrayed our trust. Trust is the cement that binds both the financial structure and the regulatory structure together. None of us would find the alternative acceptable .
Examinations are sometimes confused with audits.
Audits are conducted to verify the numbers in an institutions financial statements and accounting records, and to provide an extensive evaluation of an institution's internal controls. Audits have a somewhat greater tendency to detect fraudulent activity than do bank examinations, but even a complete audit may not expose deceptive practices. Fortunately, experience has shown that mutual trust can be an effective, if not perfect, foundation for the operation of markets and for bank supervision. Accordingly, bank supervisors around the world have increasingly opened up the process of developing bank regulations to the reasoned views of other market regulators and the private sector. In recent years, the Basle Committee has recognized the value of including the views of other financial regulators and the private sector in its deliberations on international supervision.