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Glossary
Safety and Soundness

The nation's banking system is only as safe and sound as the banks within the system. So the Federal Reserve examines banks regularly to identify and contain bank risks.

In the past, Reserve Bank examiners reviewed each bank in much the same way —looking over the bank's books on-site and evaluating the quality of its assets and its ability to cover loan losses. Today, Fed examinations are more customized for each bank; they take into account that each bank differs markedly in its services and products and that a bank's own management should be held responsible for monitoring the institution's exposure to risks.

Lenders   Borrowers
A large urban bank may make loans to commercial office developers.
A midsize community bank may make loans to subdivision developers.
A rural bank may make loans to farmers to purchase equipment.

By studying the bank's risk-management procedures and internal controls, Reserve Bank examiners assess whether a bank lends money wisely and can manage the level of loans it makes to customers. Examiners also review a bank's performance in complying with its own internal policies, as well as with federal and state laws and regulations.