Government regulation and supervision of the banking industry assures the safety and soundness of banks capable of guaranteeing their communities access to two essential components of economic development: adequate credit and financial products and services. The primary vehicle for ascertaining the safety and soundness of banks is the bank examination, a resource-intensive reconnaissance function relying heavily upon individual examiner judgment. In 1989, faced with high examiner turnover and increasingly complex duties, the Kentucky Department of Financial Institutions undertook development of the Financial Institutions eXpert examination (FIXX) system to reduce training time and raise the minimum competence of all examiners, regardless of experience.
FIXX is a personal computer-based system, using artificial intelligence technology to capture in a knowledge base the skills of the best examiners and make their expertise available more widely. FIXX prompts examiners through the intellectual process that is bank examination, revolutionizing both the training function and the examination function. Highly interactive, user-friendly FIXX screens pose a sequence of questions requiring and documenting examiner responses. An "expert system" reaction to each examiner response follows, thereby inducing comparison and rationale.
The Pre-Examination Planning Module bridges the analytical gap between the bank's last examination and the upcoming one. It also requires an estimation of examiner resources needed for the examination. The Earnings Module creates a report documenting an examiner's premises and conclusions concerning asset growth, return on assets, loan loss allowance, net interest margin, interest rate sensitivity, overhead expense, and earnings trends. This report also facilitates examiner evaluation and signals the need for training or remediation.
FIXX enables 44 field examiners to pursue the public mission of conducting efficient, consistent examinations of 225 state banks in 318 Kentucky communities, protecting the financial assets of Kentuckians amounting to $24 billion. The system focuses and combines the department's information systems resources and its examining expertise.
One important qualitative measure of program success has been the response of other jurisdictions and the industry to FIXX. In demonstrations of the system to banking industry representatives, the response to the concept and the system has been overwhelmingly positive. A second important measure is the fact that pre-planning now occurs for virtually every examination. In 1992, 65 percent of all examinations were pre-planned with FIXX. In 1993, 85 percent of all examinations were preplanned. The third important measure of program success has been an 87 percent decrease in the number of Kentucky's state-chartered "problem" banks from 30 to 4 in the last 27 months. Although improved economic conditions have contributed to this decrease, the department believes some of the decrease is directly attributable to the positive impact FIXX has had on the examination process.