In the past, though, the business of bank supervision has focused on validating bank balance sheets, particularly the value of loan portfolios, which have been historically the principal source of problems for banks. Much of the prior emphasis was on determining the condition of a bank at a point in time.
In the process, we would go through the balance sheet, assuring ourselves that a bank’s assets and liabilities were essentially as stated and that its reserves and net worth were real. As part of the process, there was a review of sound management practices, internal controls, and strong internal audit activities, but that review was not the initial or primary focus.