The Federal Reserve System uses the System to Estimate Examination Ratings, or
SEER model, as one of its principal off-site surveillance tools. Surveillance staff at the
Board of Governors use one form of this model, the risk rank model, to compute a
probability of failure for each bank. Because bank failures have been so rare during the
last decade, the coefficients on this model have been “frozen” since 1991. Each quarter
supervisors at each of the twelve Reserve Banks receive information from the
surveillance staff of the Board of Governors about the probabilities of failure by the
banks that are supervised by Federal Reserve staff. Probabilities of failure are calculated
using the latest call report data for each bank and the “frozen” coefficients of the model
estimated to predict bank failure.