Peer Benchmarking Strengthens Regulatory Risk Management

*This article appears in the second quarter 2026 issue of Bank Director magazine.

Now more than ever, companies in heavily regulated industries are realizing that how they are being viewed by their regulators is no longer a function of their own performance. Rather, through peer comparisons and horizontal reviews, companies are also being evaluated on how well they are doing relative to their competitors.

Peer comparison reviews can cover a broad variety of topics. Examples might include compliance risk, information technology and cybersecurity, Bank Secrecy Act and anti-money laundering compliance, resolution planning and fair lending.

In the financial institutions regulatory space, much peer comparison is done through “horizontal examinations.” During those reviews, examiners conduct horizontal examinations on a single topic across several banks at the same time. The purpose of a horizontal examination is to provide perspective on the level of risk at an individual bank and the appropriateness of its related risk management practices and financial resources while also identifying similar risks and common trends across several banks. Horizontal examinations occur annually but do not always cover each major risk area each year. These examinations may be conducted by a team that specializes in horizontal examinations in a particular area or through a horizontal examination program executed by dedicated supervisory teams separately but in a similar manner.

The reason for a peer comparison may differ in impetus as well as level of formality. For example, during the subprime crisis of the late 2000s, the federal regulatory agencies launched a horizonal examination of residential mortgage foreclosure practices. This was largely spawned by the so-called “robo-signing” scandal. During this review, the federal regulatory agencies examined the foreclosure practices across the largest residential mortgage servicing companies in the country. Some might argue this was a politically-driven peer comparison and was certainly of the more “formal” type of review. Other investigations are also the outgrowth of policy-driven supervision, such as the current debanking reviews.

Peer reviews may also be less formal. For example, in financial institutions’ fair lending compliance, examiners frequently use comparison with peers as a key metric. If Bank A’s peers are able to penetrate underserved census tracts or demographics in a region, then the examiners will expect that Bank A should be able to do so as well — and if they fall short, there are supervisory consequences. The practice of peer comparison is not merely a tool for regulators to gather data. Regulators utilize peer comparison to justify adverse actions, such as matters requiring attention in reports of examination and formal enforcement actions.

With the prospect of being compared to peers over which an institution has no control, what can a bank do? First, institutions need to incorporate peer group monitoring and evaluation into their own risk management compliance programs. Such systems gather data on a broad cross-section of regulated entities and evaluate trends that are developing. These trends have the capability of predicting areas of risk across leading competitors.

Another strategy is learning from the mistakes of peers before those mistakes are visited upon your company. With the 24-hour news cycle and ubiquitous bloggers looking to scoop their mainstream news outlet counterparts, there is a constant flow of information on the latest public enforcement actions that befall a financial institution. Companies should study the facts underlying such moves and the remedies that regulators order to correct the perceived faults. Simply put, if your competitors are being required to implement certain corrective actions, you should consider whether to do the same.

Lastly, financial institutions should seek out experienced counsel to guide them in the compliance process. This includes counsel who are experienced not only in providing preventative compliance advice but also in defending financial institutions that find themselves in the regulatory crosshairs. Knowing the regulators’ next move and having witnessed what happens when multiple agencies bring their full weight down upon a financial institution is invaluable. This can help a bank avoid the potential contagion of zealous examiners and prosecutors. Sometimes the best advisers are those who have had to clean up the mess of an enforcement action or litigation against your competitors.

In summary, the best defense against a potentially costly and reputation-tarnishing enforcement action is an effective risk management program and effective legal counsel experienced in regulatory compliance, enforcement and litigation.