Summary
The Federal Reserve tailors regulation and supervision, taking into account both macroprudential and microprudential risks.
The Federal Reserve tailors its regulatory and supervisory approach to account for the size, complexity, risk profile, and systemic importance of regulated institutions. In response to the financial crisis, financial regulators strengthened the existing regulatory and supervisory framework by increasing capital, liquidity, and risk-management requirements for supervised financial institutions, most significantly for the largest institutions.
After a decade of post-crisis regulation, the Federal Reserve is focused on making the current regulatory and supervisory environment more efficient, transparent, and simple and ensuring that compliance burden is minimized without compromising an institution's safety and soundness. The recent passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) presents an opportunity for the Federal Reserve to continue to tailor its regulations to focus on the largest, most systemically important banking firms while reducing burden for less complex firms, especially community banks.
The Federal Reserve's supervisory work is tailored, with the most rigorous standards applied to the most systemically important financial institutions.
The Federal Reserve has substantially strengthened its supervisory program for large institutions since the financial crisis. In addition to shifting supervisory resources to its large institution supervision program, the Federal Reserve has introduced several cross-institutional (horizontal) examinations focusing on capital, liquidity, governance and controls (G&C), and resolution planning. Furthermore, information collections from large institutions have increased, providing supervisors, as well as senior management at the firms, with more timely and better insight into firms' risk profiles and activities.
At the same time, the Federal Reserve has increased its emphasis on risk-focusing examination activities for regional and community banks, conducting more in-depth examinations for banks with high-risk activities and less-intensive examinations for lower-risk banks. In addition, the Federal Reserve has taken steps to reduce the amount of supervisory burden by reducing information collection requirements for smaller banks and minimizing the burden associated with their examinations by conducting larger portions of examinations away from bank premises (off-site).
The Board continues to promote the principles of efficiency, transparency, and simplicity in its approach to supervising and regulating institutions.
Efficiency involves two components. The first is related to methods: efficient methods tailor the requirements and intensity of regulations and supervision programs based on the asset size and complexity of firms. Efficient methods also minimize compliance burdens generally while achieving regulatory objectives. The second is related to goals: the Federal Reserve has a strong public interest in an efficient financial system, just as it does in a safe and sound one. The Federal Reserve includes the efficient operation of the financial sector as one of the goals it seeks to promote through its regulation and supervision.
Transparency involves the presentation of regulations, guidance, and supervisory findings in a manner that regulated institutions and the public can understand. Transparency promotes accountability to the public and an effective regulatory process by exposing ideas to a variety of perspectives. Similarly, transparent supervisory principles and guidance allow firms and the public to understand the basis for a supervisory decision and allow firms the ability to respond constructively to supervisors.
Simplicity involves developing the Federal Reserve's regulations and supervisory framework without unnecessary complexity, and presenting them in a clear and concise manner. The objective of simplicity complements and supports the efforts of the Federal Reserve to be transparent to supervised institutions and the public on its regulations and supervisory programs. Confusion and unnecessary compliance burden resulting from overly complex regulations do not advance the goal of a safe, sound, and efficient financial system.