OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
SUPERVISION AND REGULATION
June 24, 1999
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OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 |
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| DIVISION OF BANKING SUPERVISION AND REGULATION |
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| SR 99-16 (SUP) June 24, 1999 |
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TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK
The Board recently approved changes to the System's ethics rules to allow waivers to be granted permitting employees to retain bank stock acquired prior to Federal Reserve employment or by gift, inheritance or other passive means if the stock does not present a conflict of interest with the employee's duties.1 The Board also approved amendments to the Federal Reserve Administrative Manual (FRAM) and the Reserve Banks' Code of Conduct (Code) to incorporate these policy changes. For your information, the amendments to the FRAM and the Code are attached (Attachment I and II, respectively).
Last fall, the senior officers in charge of supervision were surveyed about the proposed changes to the rules as they pertain to supervision employees. There was a general consensus that allowing employees to retain stock on an exception basis, as provided in the current rule, is an appropriate approach. Many of you also felt that seeking the concurrence of the officer in charge of supervision was an important element of the rule and would assist in its prudent application.2
To assist with the consistent application of this rule to supervision employees across the System, the amended provision of FRAM continues to require that the Reserve Bank supervision function consult with the Board's Division of Banking Supervision and Regulation when a waiver is under consideration to determine if a waiver would be appropriate. Although situations will continue to be reviewed on a case-by-case basis, the Division believes that certain situations are more likely to present the appearance of a conflict of interest, and a waiver for a supervision employee in these circumstances will be discouraged. In these cases, the Division believes that it may be preferable and appropriate to provide a reasonable time to dispose of an investment. When a divestiture is required, the Division agrees that it may be appropriate to provide a reasonable timeframe for an employee to dispose of the investment beyond the current 90-day requirement.
While the revised rule clearly provides greater latitude for supervision employees to retain investments in financial institutions, the Division would generally discourage a waiver in two types of situations. Absent a compelling reason, it is unlikely that the Division would support a waiver for a Reserve Bank supervision employee to permanently retain: (a) an investment in a banking organization with a significant presence in the local Federal Reserve District, or (b) an investment in one of the largest bank or bank holding companies (for example, one of the ten largest) supervised by the Federal Reserve.
While it is recognized that the balance of public interest considerations in specific individual situations may not always be clear, it is important that the Federal Reserve maintain both the reality and the appearance of being removed from conflicts of interest to the extent possible. As bank supervisors and as employees with access to a broad range of confidential supervisory information, it is particularly important to avoid situations that may be perceived as a conflict of interest with the organizations that we regulate or supervise. It is also important that individuals hired be prepared to perform their duties across the broadest range of banking organizations. Of course, each situation will be reviewed on its own merits.
The amended FRAM states that waivers should be in writing and that a copy be provided to the Board. Specifically, waiver documentation should be forwarded to the Supervisory Reviews and Evaluations Section (SRE), to the attention of Jamie Lenoci, MS 178. When a waiver for a supervision employee is under consideration, discussions about the appropriateness of a waiver will also continue to be handled through the SRE section. As most waiver requests are anticipated to be associated with newly hired examination staff, any applicable waiver documents should be provided with the Reserve Bank's application for an employee's examiner credentials. Finally, Reserve Banks should have procedures in place to ensure that waiver documents provided to the Board include a statement affirming that the officer in charge of supervision concurs with providing the waiver. In addition, Reserve Banks should have procedures in place to ensure that an employee's access to unauthorized information is appropriately restricted.
Questions about the policy or documentation requirements may be directed to William Spaniel, Manager of Supervisory Reviews and Evaluations, at (202) 452-3469 or Cynthia Rotruck, Supervisory Financial Analyst, at (202) 452-3633.
Deputy Director
Notes: 1. Reserve Banks received notice of the changes to the rules in S-Letter 2596, issued June 1, 1999. Return to text 2. Under the Reserve Banks’ Uniform Code of Conduct, “The Bank’s ethics officer, in consultation with the officer with responsibility for the department in which the employee works, may grant a written waiver permitting an employee to own or control a debt or equity interest…if extenuating circumstances exist and if any required disqualification from particular matters due to the financial interest would not unduly interfere with the full performance of the employee’s duties.” Return to text
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SR letters | 1999
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