Congress and the banking regulatory agencies have gradually over the last several years reemphasized safety and soundness and risk management in addition to compliance for banks. The new guidelines address issues such as compliance with legal requirements, making sound loans, interest rate risks on loans and deposits, adequate capitalization, earnings versus risk on investments, and services and activities designed to increase noninterest income. It is expected that noncompliance will generally be detected during examinations of institutions, as the agencies use the safety and soundness standards to identify and address problems. Establishment of safety and soundness compliance plans would be mandatory under the rules if the particular bank was so required by its primary regulator.

While there are many similarities in preparing for a compliance exam and preparing for a safety and soundness exam, there are also substantial differences in properly implementing such processes. For instance, because so much of compliance is blackletter law from statutes and regulations, a standard approach to address virtually identical requirements at all banks is appropriate. Thus, in the PRINGLE^® Compliance Program properly responding to a few questions to complete the variables at different institutions easily and quickly allows a bank to have in place policies and procedures which comprehensively set forth the requirements for each bank.

On the other hand, because so much of safety and soundness deals with proper use of a wide variety of options available to fit particular institutions, much more flexibility in styling the policies and procedures of each institution separately is important. Unlike compliance, most of the safety and soundness process requires reliance upon non-blackletter rules. While there are guidelines, there are also large gray areas allowing discretion. Thus, in order to appropriately approach good safety and soundness practices, a thoughtful review of alternatives is important.

The PRINGLE^® Safety and Soundness Policies and Audit Procedures provide such a process by posing questions to the bank for review and consideration. In order to make the process easier and quicker, examples, suggested language for response, and other "helps" are provided. What is important is that the institution consider the alternatives and decide what is appropriate for its particular situation. Even if the examiners would prefer a different response for a particular institution due to the many different factors that would influence a response, the fact that the institution has considered the alternatives will be given much credence. The philosophy of carefully considering policies and procedures, whether formalized and adopted in written format or not, can be expected to be well received by the examiners.