In addition to the reports and statements which banks are required to make they are subject to a variety of examinations as a precaution against negligence and fraud. National banks are examined periodically (at present twice a year) by examiners acting under the authority of the Comptroller of the Currency, and similar examinations of state banks are made by agents of the superintendent of banking or other officers responsible for the supervision of banks under state laws.
The visit of the bank examiner comes at irregular intervals and without previous notice to the bank. The regular examinations cover the whole business of the bank, but special examinations may be made to check up the figures given in the report, to appraise the assets, or to scrutinize the work of a particular department. In making the examination the examiner will count the cash, examine the discounts and loans, scrutinize the securities and investments, examine the expense account, and make himself acquainted with the more important features of the bank's business, so as to determine whether the bank is being properly managed and is in a sound condition. The examiner sends in a report to the Comptroller of the Currency or to the head of the state banking department, as the case may be, and if the report shows that the bank is in an unsatisfactory condition in some particular, notice is sent to the bank with suggestions for correcting the defect.
For purposes of examination the country is divided into a number of districts containing a suitable number of banks the examination of which is intrusted to one examiner. Some of the larger cities form special districts. In order that an examiner shall not, by too long service, relax his vigilance, the plan has been adopted in the national bank system of rotating the examiners from one district to another. The efficiency of national bank examinations has been greatly improved in recent years. The national examiners meet several times a year for a confidential comparison of ideas and methods. In some states the national and state bank examiners cooperate by making examinations of national and state banks in the same city on the same day. In a few states the banking laws provide for calls on the same days as those of the Comptroller of the Currency. State bank examiners generally receive a fixed salary, but until recently the national bank examiners received their remuneration in fees, varying from $20 in the case of banks with capital of less than $100,000 up to $75 where the capital exceeds $600,000. These amounts were assessed by the Comptroller and paid by the respective banks. The fee system is open to the objection that the examiner, being dependent for the amount of his remuneration on the number of banks he examines, is tempted to do his work hastily.
The Federal Reserve Act abolished the fee system and made other important changes in the matter of bank examinations. The old law provided for the examination of national banks "as often as shall be deemed necessary and proper"; now every member bank in the Federal reserve system must be examined at least twice a year, and oftener if necessary. The Federal Reserve Board is empowered to authorize examinations by the state authorities of state banks and trust companies, but it may at any time direct the holding of a special examination of such state institutions if they are members of the Federal reserve system. The expense of examination is to be assessed by the Comptroller of the Currency upon the banks examined, in proportion to assets or resources held by them at the time of their examination.
In addition to the examinations made by the Comptroller, every Federal reserve bank may, with the approval of the Federal reserve agent or of the Federal Reserve Board, provide for the special examination of member banks within its district. Provision is made, also, for the examination by the Federal Reserve Board at least once a year of each Federal reserve bank, and upon joint application of ten member banks the Federal Reserve Board is required to order a special examination of any Federal reserve bank. Congress, or any duly authorized committee of either House, is also authorized to examine the affairs of any such bank.
The antiquated fee system of compensating examiners is abolished and the Federal Reserve Board is given the power, upon the recommendation of the Comptroller, to fix the salaries of all examiners. To remove all temptation to partiality the Act provides that no member bank, or any of its officers, directors, or employees shall make any loan or grant any annuity to a bank examiner under penalty of imprisonment not exceeding one year, or a fine of $5,000, or both, in addition to a fine equal to the sum loaned or gratuity given. Any examiner accepting a loan or gratuity from a bank examined by him shall be liable to imprisonment for not exceeding one year or a fine of not more than $5,000, or both, and may be fined a further sum equal to the loan or gratuity; and shall thereafter be disqualified from holding a position as national bank examiner.