FDIC updates statement on external audits for nonmember banks.

The Federal Deposit Insurance Corporation has revised its policy statement on independent external auditing programs for state-chartered banks that do not belong to the federal reserve system. Amendment to Statement of Policy Regarding Independent External Auditing Programs of State Nonmember Banks is intended to eliminate inconsistencies in the FDIC policy statements issued since 1988, when the original statement was issued. It is part of the congressionally mandated FDIC review of all written policies under the Riegle Community Development and Regulatory Improvement Act of 1994.

The original statement strongly encouraged each state nonmember bank to adopt an external auditing program that included an annual financial statement audit by an outside auditor. In 1991, the Federal Deposit Insurance Corporation Improvement Act amended the 1988 statement for larger institutions by (1) requiring all insured banks with $500 million or more in total assets at the beginning of their fiscal year to have annual audits by outside auditors and audit committees consisting entirely of outside directors and (2) encouraging banks falling below the $500 million threshold to establish audit committees with solely outside directors.

For new applicants, the amendment includes language from a 1992 policy statement that requires applicants for deposit insurance coverage to have annual independent audits for at least five years after the FDIC grants insurance coverage. The 1988 policy statement had required those banks to have the audits for only three years after insurance was granted.

To obtain more information on the amendments to the FDIC policy statement, contact Doris L. Marsh, FDIC examination specialist, at [phone].