DOGE and the OIG Report on BETR

DOGE’s focus on replacing humans with AI adds significance to this recent FRB OIG report on the Bank Exams Tailored to Risk (BETR) process, which tailors community bank exams to risk through model-driven off-site assessment.

BETR models use forward-looking metrics to assign each institution a risk classification for each of 10 risk stripes. Each risk classification is associated with a suggested range of examination hours and tailored procedures. Examiners can then use qualitative factors to override the model-recommended classifications, hours, or procedures.

The OIG report was relatively positive about BETR’s use for community banks. Considering Administration policy and the disruption to agency workforces, community banks should expect less on-site supervision and more off-site model-driven assessment over the next four years.

This is a mixed blessing, though. So far, the Administration has proven ready to act on AI outputs much faster than financial regulators (or most AI experts, for that matter.) If things move in this direction, some community banks may find themselves at the receiving end of supervisory decisions that are about as informed and well-thought-out as DOGE employee and contract terminations.