Bank Analysis School eBook

Internal Use Only MANAGEMENT

The management rating reflects the capability of the board and management, in their respective roles, to identify, measure, monitor, and control risks of an institution’s activities. To ensure safe, sound and efficient operation in compliance with applicable laws and regulations. Directors must provide clear guidance regarding risk exposure levels and ensure appropriate policies, procedures, and practices have been established; while senior management is responsible for the development and implementation of the aforementioned. Management’s practices should address risks associated with credit, market, operational, reputation, strategic, compliance, legal, liquidity, and other risks. Directors and management should demonstrate active oversight with processes that ensure an appropriate audit program, internal control environment and effective risk-monitoring and management information systems. This rating reflects the board’s and management’s ability in relation to all aspects of banking operations. Management evaluation factors may include but are not limited to: Level and quality of board and management oversight and support of all institution activities ◊ Ability to plan and respond to arising risks ◊ Adequacy and conformance with internal policies and controls ◊ Accuracy, timeliness, and effectiveness of risk monitoring and management information systems ◊ Adequacy of audits and internal controls to promote effective operations and reliable reporting, safeguard assets, and ensure compliance with laws, regulations, and internal policies ◊ Responsiveness to audit and examination recommendations ◊ Management depth and succession ◊ Influence by dominate authority ◊ Reasonableness of compensation ◊ Willingness to serve banking needs of community ◊ Overall performance and risk profile of the institution

2

3

4

5

1

•Critically deficientasset quality or credit administration practices •Board andmanagement have not demonstrated willingness or ability to correct problems and implement appropriate risk management practices •Risk exposure and problems are inadequately identified and controlled •Imminent threat tothe institution's viability •Board andmanagement replacement isrequired

•Deficient management and boardperformance •Risk management practices areinadequate •Level of problems and risk exposure isexcessive •Problems and risks are inadequately identified and controlled •Board andmanagement strengthening or replacement may be necessary

•Satisfactory performance of board and management •Satisfactory risk managementpractices •Minor weaknesses;not material to the institution's safety and soundness, are addressed •Significant risks and problems areeffectively identified, measured, monitored, and controlled

•Strong performanceby management and the board •Strong riskmanagement practices •Significant risks are consistently identified, measured, monitored,

•Board and management's performance are inneed of improvement •Risk management practices are lessthan capabilities may be insufficient for the institution's riskprofile •Inadequate oversightof significant risks and problems satisfactory •Board and management's

and controlled •Promptly and

successfully address existing andpotential problems andrisks

Internal Use Only

22