Examiners will focus on material financial risks threatening safety and soundness of the banks they review and on taking “timely, proportionate action” to ensure the risks are “properly addressed,” the Federal Reserve said Tuesday in releasing its revamped supervisory operating principles.
However, a staff memo outlining the new focus acknowledges the changes in focus “represent a significant shift from past operating practices.”
According to the agency’s top supervisor, Vice Chair for Supervision Michelle W. Bowman, the Fed is not narrowing its focus “but sharpening it.” In a statement, Bowman said “This is not about what we are leaving behind—it is about building a more effective supervisory framework that truly promotes safety and soundness across our financial system, which is the Federal Reserve’s core supervisory responsibility.”
In a release, the Fed said the principles align bank examination and ratings to material financial risks. They also, the Fed said, “reduce duplication between exams from different supervisors, and streamline the remediation of issues cited by supervisors,” among other things.
“The Federal Reserve is training examiners to help ensure prompt implementation of the principles,” the agency contended. “Supervision leadership will continue to refine these principles and expects to formalize them in public supervisory guidance or regulatory changes, where appropriate.”
The agency said the new supervisory operating principles were provided to all Federal Reserve supervisory leadership and staff. They were first outlined in an Oct. 29 memo by staff of the agency’s division of supervision and regulation (S&R), Mary Aiken (acting director) and Julie Williams (acting deputy director). The memo was intended to provide “directional guidance on the changes the vice chair expects us to undertake,” it states.
“Board S&R and Reserve Bank staff should take note of the significant shift in direction and implement the changes necessary to align our supervisory work and messaging with this new approach,” the memo states. “As a guiding principle, staff should not assume that our current or past operating practices should continue going forward. Staff should continually consider whether their work, conclusions, messaging, and other actions are aligned with the specific changes outlined in this statement of supervisory operating principles and, more broadly, with the overall shift in direction and posture.”
Federal Reserve Board releases information regarding enhancements to bank supervision
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