The Wall Street Journal's Dennis Berman wrote a rather disturbing story in today's edition concerning the actual work of bank oversight, as performed by the Philadelphia Fed's corps of bank examiners.
When an examiner describes himself not as an auditor, but as a "government-paid consultant," you should be worried. Very worried.
Berman really conveys a sort of quill and inkwell style of 'bank examination.' Instead of, say, resident software programs which flag questionable money flows or worrisome rates of loan delinquencies or defaults, you get the sense that these guys are literally poring over paper printouts generated by bank employees. That they can, and are, easily overwhelmed by data.
Then there is Berman's observation that the examiners are motivated by their senior managers. And since the Fed's main mission is monetary policy, examiners generally feel they are second-class citizens to begin with.
I must admit, if only for this reason, I would understand moving primary bank oversight and examination into another entity. Perhaps the FDIC, whose insurance role makes it a reasonable domicile for examining the risks of those institutions it is charged with ultimately underwriting.
Berman's very brief piece contains outsized weight by virtue of his writing. In a few paragraphs, he paints a picture of a few lone, under-armed road warriors trying to ferret out warning signs of bank health erosion.
As I wrote last week in this post, it supports and reinforces my own view that bank regulation requires far more a priori research in order to provide clearer, more objective knowledge about what signals predict bank failure or malfeasance.
It's not a pretty picture at all.
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