Bank examiner interview questions

At a recent Federal Reserve conference for community bank examiners, a significant amount of time was devoted to the discussion of banks’ appraisal function and compliance with the Federal Reserve’s appraisal regulation, including appraisal review practices.¹ Several examiners noted that when evaluating commercial real estate loans, they occasionally do not find adequate documentation of appraisal reviews. 

When examiners evaluate a credit and the accompanying loan file, they are trying to determine whether the bank has:

1. Reviewed the reasonableness of the facts and assumptions in the appraisal, and
2. Concluded that the appraisal provides a credible opinion of value to support the credit decision.

Examiners rely on a bank’s review to assist them in understanding both the credit and the appraisal. For examiners, the appraisal review provides valuable information about a bank’s assessment of its collateral risk in the event that bank management has to consider the property as a secondary source of repayment. This article seeks to clarify the discussion of appraisal reviews in the Interagency Appraisal and Evaluation Guidelines and to assist bankers in understanding supervisory expectations for appraisal reviews.²