A report summarizing banking conditions and the Federal Reserve’s supervisory and regulatory activities in advance of next week’s congressional testimony on same was release Friday by the Federal Reserve Board.
This first-ever Federal Reserve Supervision and Regulation Report was published in conjunction with appearances before Congress slated next week by Vice Chairman for Supervision Randal Quarles. Quarles is slated to testify Nov. 14 before the House Financial Services Committee and Nov. 15 before the Senate Banking Committee on the board’s recent supervisory and regulatory actions. As the Fed’s top supervision official, he is required by statute to report semiannually to Congress.
Friday’s report gives the Fed’s perspective on regulatory policies implemented over the past decade to strengthen the system and the Fed’s effort now to calibrate those measures to make regulation more efficient and less burdensome.
“Today, U.S. banking firms are significantly better capitalized and have much stronger liquidity positions. They rely less on short-term wholesale funding, which can evaporate quickly during periods of stress,” according to a summary at the front of the report. “The largest banking firms have also developed resolution plans that reduce the potential negative systemic impact that could result in the event of their failures.”
Now, it notes, “Compliance burden should be minimized without compromising the safety and soundness gains that have been made in recent years. In addition, the Federal Reserve continues to tailor its regulations, ensuring that the rules vary with the risk of the institution.”
The report notes that the financial crisis “made clear” the need to better address the threat that the largest, most complex banking organizations pose to financial stability. To that end, it says the Fed has strategically shifted supervisory resources to its large bank supervision programs. At the same time, it says, the Fed has enhanced supervision for smaller institutions to address lessons learned from the crisis.
The report provides a look at banking system conditions as of the second quarter of this year, regulatory developments, and supervisory developments (addressing large financial institutions and, separately, regional and community banking organizations).
The regulatory section gives a run-down of proposed and final rules, and statements, issued since the beginning of the year. Statements and rulemakings addressing changes required under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155), include the following:
- July 6 interagency statement regarding the impact of EGRRCPA;
- July 6 Fed statement describing how, consistent with EGRRCPA, the Fed Board will no longer subject primarily smaller, less complex banking organizations to certain board regs;
- Aug. 22 interagency interim final rule on the treatment of certain municipal securities as high-quality liquid assets (via revisions to the liquidity coverage ratio rule);
- Aug. 23 interagency interim final rule expanding examination cycles for qualifying small banks (under $3 billions assets) and U.S. branches and agencies of foreign banks;
- Aug. 28 Fed interim final rule expanding the applicability of the board’s Small Bank Holding Company Policy Statement;
- Sept. 11 interagency statement reaffirming the role of supervisory guidance;
- Sept. 18 interagency proposed rule regarding the regulatory capital treatment of high-volatility commercial real estate.
- Oct. 31 Fed proposal to tailor the applicability of enhanced prudential standards for large holding companies;
- Oct. 31 interagency proposed rule revising applicability thresholds under and liquidity and capital rules.
Supervision and Regulation Report (November 2018)