Meaning of the Red Flag Report
Did you have an opportunity to read the "Capture the Flag" blog post? From this post, you will see that we have developed a regulatory “Red Flag” report, and we explain how this service might assist your bank prior to an exam.
The report looks at ratios examiners commonly compare to certain guidelines or benchmarks. If you have ratios outside these guidelines, it could cause them to look deeper during an exam or even reach out to you between exam cycles. Not all flags are bad, but the story it could be telling might be reason for concern. It all depends on the flag or total number of flags your institution might have. Trends can also be an important factor.
In general, most examiners are looking at your CAMELS components as a whole and how each impacts the others. For example, if you have a flag on your Long-term Earning Assets to Earning Assets (LTEA/EA) ratio, that doesn’t mean you should expect a downgrade in your Sensitivity component, especially if your earnings and capital are sufficient to absorb some of that risk. The LTEA/EA ratio on the report doesn’t account for any optionality in those assets. You might expect them to make sure your interest rate risk model picks up any and all optionality you might have.
Asset Management Group (AMG) doesn’t just specialize in providing your institution with an interest rate risk report that works to meet regulatory requirements. We go several steps further by providing on-going support and services to help you manage your risks and balance sheet. Being part of a community bank, we know what tools provide meaningful information. We work hard for you to help minimize regulatory and balance sheet stress, while in turn working with you to help maximize profits. For more information, email us at amg@countryclubbank.comor call (800) 226-1923.