Board of Governors of the Federal Reserve System

Supervision and Regulation

The Federal Reserve promotes a safe, sound, and efficient banking and financial system that supports the growth and stability of the U.S. economy. This section discusses the institutions supervised and regulated by the Federal Reserve as well as the key supervisory and regulatory activities undertaken by the Federal Reserve during 2020 (also see figure 4.1):

• supervising the activities of financial institutions to ensure their safety and soundness
• developing regulatory policy (for example, rulemakings, policy statements, and guidance) and acting on applications filed by banking organizations

The Federal Reserve also monitors trends in the banking sector by collecting and analyzing data, along with the other federal financial regulatory agencies (see box 4.1).

Supervised and Regulated Institutions

The Federal Reserve categorizes banking organizations into different groups based on their risk profiles, as described in table 4.1.

Table 4.1. Summary of supervised institutions

State Member Banks

At year-end 2020, a total of 1,501 banks (excluding non-depository trust companies and private banks) were members of the Federal Reserve System, of which 734 were state chartered. Federal Reserve System member banks operated 50,123 branches and accounted for 34 percent of all commercial banks in the United States and 68 percent of all commercial banking offices. State-chartered commercial banks that are members of the Federal Reserve, commonly referred to as state member banks, represented approximately 17 percent of all insured U.S. commercial banks and held approximately 17 percent of all insured commercial bank assets in the United States.

Bank Holding Companies

At year-end 2020, a total of 4,032 U.S. bank holding companies (BHCs) were in operation, of which 3,603 were top-tier BHCs. These organizations controlled 3,712 insured commercial banks and held approximately 94 percent of all insured commercial bank assets in the United States.

BHCs that meet certain capital, managerial, and other requirements may elect to become financial holding companies (FHCs). FHCs can generally engage in a broader range of financial activities than other BHCs. As of year-end 2020, a total of 502 domestic BHCs and 44 foreign banking organizations had FHC status. Of the domestic FHCs, 22 had consolidated assets of $100 billion or more; 59 between $10 billion and $100 billion; 178 between $1 billion and $10 billion; and 243 less than $1 billion.

Savings and Loan Holding Companies

At year-end 2020, a total of 328 savings and loan holding companies (SLHCs) were in operation, of which 169 were top-tier SLHCs. These SLHCs controlled 177 depository institutions. Approximately 92 percent of SLHCs engage primarily in depository activities. These firms hold approximately 16.6 percent ($344 billion) of the total combined assets of all SLHCs. The Office of the Comptroller of the Currency (OCC) or the Federal Deposit Insurance Corporation (FDIC) is the primary federal regulator for subsidiary savings associations of SLHCs. Thirteen SLHCs are engaged primarily in nonbanking activities, such as insurance underwriting (7 SLHCs), securities brokerage (2 SLHCs), and commercial activities (4 SLHCs). The 25 largest SLHCs accounted for more than $1.98 trillion of total combined assets.

Savings and loan holding companies significantly engaged in insurance activities. At year-end 2020, the Federal Reserve supervised seven insurance SLHCs, with $1.1 trillion in estimated total combined assets, and $166 billion in insured depository assets. Four of these firms have total assets greater than $100 billion and for six of the seven, insured depository assets represent less than half of total assets.

As the consolidated supervisor of insurance SLHCs, the Federal Reserve evaluates an organization's risk-management practices, the financial condition of the overall organization, and the impact of the nonbank activities on the depository institution. The Federal Reserve relies to the fullest extent possible on the work of the primary regulators, including other federal banking regulators and state insurance regulators, as part of the overall supervisory assessment of insurance SLHCs.

In 2020, the Federal Reserve's Insurance Policy Advisory Committee (IPAC) focused its advice on the Board's proposed Building Block Approach to establish capital requirements for insurance depository institution holding companies.¹ The IPAC, established by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) to provide information, advice, and recommendations on insurance issues, consists of 21 insurance experts and usually meets three times each year. For more information on IPAC efforts, see https://www.federalreserve.gov/aboutthefed/ipac.htm.

Financial Market Utilities

Financial market utilities (FMUs) manage or operate multilateral systems for the purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial institutions or between financial institutions and the FMU. The Federal Reserve supervises FMUs that are chartered as member banks or Edge Act corporations, and coordinates with other federal banking supervisors to supervise FMUs considered bank service providers under the Bank Service Company Act (BSCA).

In July 2012, the Financial Stability Oversight Council voted to designate eight FMUs as systemically important under title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). As a result of these designations, the Board assumed an expanded set of responsibilities related to these designated FMUs that includes promoting uniform risk-management standards, playing an enhanced role in the supervision of designated FMUs, reducing systemic risk, and supporting the stability of the broader financial system. For certain designated FMUs, the Board established risk-management standards and expectations that are articulated in the Board's Regulation HH.

In addition to setting minimum risk-management standards, Regulation HH establishes requirements for the advance notice of proposed material changes to the rules, procedures, or operations of a designated FMU for which the Board is the supervisory agency under title VIII. Finally, Regulation HH also establishes minimum conditions and requirements for a Federal Reserve Bank to establish and maintain an account for, and provide services to, a designated FMU.² Where the Board is not the title VIII supervisory agency, the Federal Reserve works closely with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission to promote robust FMU risk management and monitor systemic risks across the designated FMUs.

International Activities

Foreign operations of U.S. banking organizations. At the end of 2020, a total of 27 banks were operating 308 branches in foreign countries and overseas areas of the United States. Fourteen national banks were operating 248 of these branches, 13 state member banks were operating 47 of these branches, and 5 nonmember banks were operating the remaining 13.

Edge Act and agreement corporations. At year-end 2020, out of 35 banking organizations chartered as Edge Act or agreement corporations, 3 operated 6 Edge Act and agreement branches. These corporations are examined annually.

U.S. activities of foreign banks. As of year-end 2020, a total of 137 foreign banks from 48 countries operated 148 state-licensed branches and agencies, of which 6 were insured by the FDIC, and 51 OCC-licensed branches and agencies, of which 4 were insured by the FDIC. These foreign banks also owned 7 Edge Act and agreement corporations. In addition, they held a controlling interest in 36 U.S. commercial banks. Altogether, the U.S. offices of these foreign banks controlled approximately 17 percent of U.S. commercial banking assets. These 137 foreign banks also operated 66 representative offices; an additional 32 foreign banks operated in the United States through a representative office.

The Federal Reserve conducted or participated with state and federal regulatory authorities in 540 examinations of foreign banks in 2020.

Supervisory Developments

Supervisory and Regulatory Initiatives

The Federal Reserve's supervision activities include examinations and inspections to ensure that financial institutions operate in a safe and sound manner and comply with laws and regulations. These include an assessment of a financial institution's risk-management systems, financial conditions, and compliance. The Federal Reserve tailors its supervisory approach based on the size and complexity of firms—supervisory oversight ranges from a continuous supervisory presence with dedicated teams of examiners for large firms to regular point-in-time and targeted periodic examinations for small, noncomplex firms.

At the start of the COVID event, the Federal Reserve temporarily adjusted its supervisory approach. From March through the beginning of June, examiners focused on monitoring and reduced examination activities, with the greatest reduction occurring at the smallest banks. The Federal Reserve's supervisory approach gave firms time to adapt to the COVID event and provide customers with needed assistance. Financial institutions implemented contingency operating plans and adapted operations to the new environment. In June, examination activities resumed for all firms. All examination activities are currently being conducted off site, until local conditions improve to facilitate on-site examinations. For additional information on the Federal Reserve's COVID response, see box 4.2.

In 2020, the Federal Reserve conducted 263 examinations of state member banks, 2,704 inspections of bank holding companies, and 146 inspections at savings and loan holding companies. Tables 4.2 and 4.3 provide information on examinations and inspections conducted by the Federal Reserve during the past five years.

Table 4.2. Savings and loan holding companies, 2016–20

Table 4.3. State member banks and bank holding companies, 2016–20

Specialized Examinations

The Federal Reserve conducts specialized examinations of supervised financial institutions in the areas of capital planning and stress testing, information technology, fiduciary activities, transfer agent activities, government and municipal securities dealing and brokering, and cybersecurity and critical infrastructure. The Federal Reserve also conducts specialized examinations of certain nonbank entities that extend credit subject to the Board's margin regulations.

Capital Planning and Stress Testing

Since the 2007–09 financial crisis, the Board has led a series of initiatives to strengthen the capital planning practices and positions of the largest banking organizations. The Federal Reserve's Dodd-Frank Act stress test (DFAST) includes annual supervisory and company-run stress tests. In March 2020, the Board integrated the stress test with its non-stress capital requirements through the stress capital buffer into one forward-looking and risk-sensitive capital framework.

In 2020, the Federal Reserve evaluated the capital planning processes and capital positions of 33 of the largest banking firms. In June, the Board conducted its annual stress test and an additional assessment of bank capital during the COVID event. The results showed that large banks had strong levels of capital, but considerable economic uncertainty remained. In response, the Board required subject firms to resubmit their capital plans and implemented capital distribution restrictions to ensure that banks would preserve capital. A second round of stress test results were released in December, which also found that large banks remained well-capitalized under two separate hypothetical recessions. For stress tests and sensitivity analysis results, see box 4.3.

Information Technology Activities

During 2020, the Federal Reserve conducted examinations of information technology activities (inclusive of cyber risk management activities) at financial institutions. Additionally, under the authority of the BSCA, the Federal Reserve, FDIC, and OCC (the federal banking agencies) examine and assign Uniform Rating System for Information Technology ratings to technology service providers that provide services for specific regulated financial institutions.

In 2020, the Federal Financial Institutions Examination Council (FFIEC), of which the Federal Reserve is a member, issued guidance for the examination of financial institutions and their service providers.³

In April, the FFIEC also issued a statement to address the use of cloud computing services and security risk management principles in the financial services sector.⁴

Fiduciary Activities

In 2020, Federal Reserve examiners conducted 70 fiduciary examinations of state member banks and non-depository trust companies.

Transfer Agents

During 2020, the Federal Reserve conducted transfer agent examinations at two state member banks and three BHCs that were registered as transfer agents.

Government and Municipal Securities Dealers and Brokers

The Federal Reserve is responsible for examining state member banks and foreign banks for compliance with the Government Securities Act of 1986 and with Treasury regulations governing dealing and brokering in government securities. During 2020, the Federal Reserve conducted four examinations of government securities activities at these organizations.

The Federal Reserve is also responsible for ensuring that state member banks and BHCs that act as municipal securities dealers comply with the Securities Act Amendments of 1975. Municipal securities dealers are examined, pursuant to the Municipal Securities Rulemaking Board's rule G-16, at least once every two calendar years. During 2020, the Federal Reserve examined five entities that dealt in municipal securities.

Securities Credit Lenders

Under the Securities Exchange Act of 1934, the Board is responsible for regulating credit in certain transactions involving the purchasing or carrying of securities. As part of its general examination program, the Federal Reserve examines the banks under its jurisdiction for compliance with the Board's Regulation U. In addition, the Federal Reserve maintains a registry of persons other than banks, brokers, and dealers who extend credit subject to Regulation U. Throughout the year, Federal Reserve examiners conducted specialized examinations of these lenders if they are not already subject to supervision by the Farm Credit Administration or the National Credit Union Administration.

Cybersecurity and Critical Infrastructure

The Federal Reserve collaborated with other financial regulators, the U.S. Treasury, private industry, and international partners to promote effective safeguards against cyber threats to the financial services sector and to bolster the sector's cyber resiliency. Throughout the year, Federal Reserve examiners conducted targeted cybersecurity assessments of the largest and most systemically important financial institutions, FMUs, and service providers. The Federal Reserve worked closely with the OCC and FDIC to implement improved examination procedures for the cybersecurity assessments of the largest, most systemically important banking organizations and of service providers. Federal Reserve examiners also continued to conduct tailored cybersecurity assessments at community and regional banking organizations.

The Federal Reserve actively participated in interagency groups, such as the Financial and Banking Information Infrastructure Committee (FBIIC), to share information and collaborate on cybersecurity and critical infrastructure issues affecting the financial sector. In coordination with FBIIC members, the Federal Reserve collaborated with government and industry stakeholders to discuss strategies to operate safely and effectively throughout the pandemic and plan for the return to normal operations.

In addition, the Federal Reserve was actively involved in international policy coordination to address cyber-related risks and efforts to bolster cyber resiliency. The Federal Reserve participated in the development of the Cyber Incident Response and Recovery Survey of Industry Practices issued by the Financial Stability Board (FSB). As part of the G-7 Cyber Expert Group, the Federal Reserve participated in activities to support the G-7 members' preparedness to coordinate communications in the event of a significant cross-border cyber incident.

Enforcement Actions

The Federal Reserve has enforcement authority over the financial institutions it supervises and their affiliated parties. Enforcement actions may be taken to address unsafe and unsound practices or violations of any law or regulation. Formal enforcement actions include cease and desist orders, written agreements, prompt corrective action directives, removal and prohibition orders, and civil money penalties.

In 2020, the Federal Reserve completed 59 formal enforcement actions. Civil money penalties totaling $192,179,939 were assessed. As directed by statute, all civil money penalties are remitted to either the Treasury or the Federal Emergency Management Agency. The Reserve Banks completed 38 informal enforcement actions. Informal enforcement actions include memoranda of understanding, commitment letters, supervisory letters, and board of directors' resolutions.

Enforcement orders and prompt corrective action directives, which are issued by the Board, and written agreements, which are executed by the Reserve Banks, are made public and are posted on the Board's website (https://www.federalreserve.gov/apps/enforcementactions/search.aspx).

Other Laws and Regulation Enforcement Activity/Actions

The Federal Reserve's enforcement responsibilities also extend to the disclosure of financial information by state member banks and the use of credit to purchase and carry securities.

Financial Disclosures by State Member Banks

Under the Securities Exchange Act of 1934 and the Federal Reserve's Regulation H, certain state member banks are required to make financial disclosures to the Federal Reserve using the same reporting forms that are normally used by publicly held entities to submit information to the SEC.⁵

In 2020, two state member banks were required to submit data to the Federal Reserve. The information submitted by these two state member banks is available to the public upon request and is primarily used for disclosure to the bank's shareholders and public investors.

Assessments for Supervision and Regulation

On May 24, 2018, EGRRCPA amended provisions in the Dodd-Frank Act as well as other statutes administered by the Board. One amendment made by EGRRCPA raised the minimum asset threshold for assessing BHCs and SLHCs for the cost of supervision. Starting with 2018 assessments, BHCs and SLHCs with total consolidated assets between $50 billion and $100 billion were no longer subject to assessments.

On November 19, 2020, the Board adopted a final rule to raise the minimum threshold for assessed BHCs and SLHCs and adjusted the amount charged to assessed companies with total consolidated assets between $100 billion and $250 billion. This aligns the Federal Reserve's assessment rule with its enhanced prudential standards framework for large banking organizations and EGRRCPA-related changes to the Federal Reserve's supervision and regulation of those companies.

As a collecting entity, the Board does not recognize the supervision and regulation assessments as revenue nor does the Board use the collections to fund Board expenses; the funds are transferred to the U.S. Treasury. The Board collected and transferred $606,871,191 in 2020 for the 2019 supervision and regulation assessment.

Training and Technical Assistance

The Federal Reserve provides training and technical assistance to foreign supervisors and minority-owned depository institutions, and engages in industry outreach in connection with supervisory objectives.

Current Expected Credit Losses Implementation

The Financial Accounting Standards Board issued an accounting standard in 2016 that overhauls the accounting for credit losses with a new impairment model based on the Current Expected Credit Losses (CECL) methodology. Approximately 200 banking organizations adopted the CECL methodology in 2020. Remaining banking organizations will adopt through 2023. CECL's implementation affects a broad range of supervisory activities, including regulatory reports, examinations, and examiner training.

During 2020, Board staff closely monitored the industry's first year of CECL implementation, provided industry outreach materials on CECL capital transition, and updated examiner training materials and work programs for CECL. Separately, in May and September 2020, the Board along with the OCC and FDIC issued an Interagency Policy Statement on Allowances for Credit Losses and a Regulatory Capital Rule: Revised Transition of the CECL Methodology for Allowances, respectively.

International Training and Technical Assistance

In 2020, the Federal Reserve continued to provide training and technical assistance on supervisory matters to foreign central banks and supervisory authorities. Technical assistance normally involves visits by Federal Reserve staff members to foreign authorities as well as consultations with foreign supervisors who visit the Board of Governors or the Reserve Banks. Due to travel restrictions resulting from the pandemic, the Federal Reserve offered a number of training programs virtually for the benefit of foreign supervisory authorities.

During 2020, Federal Reserve staff took part in training assignments led by the International Monetary Fund and the World Bank. Other training partners that collaborated with the Federal Reserve during 2020 to organize regional training programs included the South East Asian Central Banks Research and Training Centre and the Association of Bank Supervisors of the Americas.

Efforts to Support Minority-Owned Depository Institutions

The Federal Reserve System implements its responsibilities under section 367 of the Dodd-Frank Act primarily through its Partnership for Progress (PFP) program. Established in 2008, this program promotes the viability of minority depository institutions (MDIs) by facilitating activities designed to strengthen their business strategies, maximize their resources, and increase their awareness and understanding of supervisory expectations. The Federal Reserve has also taken MDIs into consideration when developing crisis response facilities.

In addition, the Federal Reserve continues to maintain the PFP website, which supports MDIs by providing them with technical information and links to useful resources (https://www.fedpartnership.gov). Representatives from each of the 12 Federal Reserve Districts, along with staff from the Divisions of Supervision & Regulation and Consumer & Community Affairs at the Board of Governors, continue to offer technical assistance tailored to MDIs by providing targeted supervisory guidance, identifying additional resources, and fostering mutually beneficial partnerships between MDIs and community organizations. As of year-end 2020, the Federal Reserve's MDI portfolio consisted of 14 state member banks.

Throughout 2020, the System supported MDIs and conducted a number of outreach initiatives, webinars, and conferences specific to MDIs, including the following:

• Throughout 2020, PFP staff hosted calls with a number of minority investor groups seeking advice on how to navigate the complex regulatory and statutory requirements for organizing their planned de novo banking organizations.
• Over the course of 2020, PFP staff also fielded inquiries from nonbank investors on how they might best organize for investment into MDIs.
• In March and April, the PFP individually, and in collaboration with the National Bankers Association (NBA), organized conference calls with MDIs to discuss the Federal Reserve's discount window operations and explain the Federal Reserve's newly expanded credit options.
• In April, Governor Michelle Bowman hosted a call with the NBA's senior leadership to gather their input on the impact of the COVID event on the NBA's members and the communities they serve. The NBA referenced the recommendations in its April 7, 2020, paper on the COVID event legislative and regulatory agenda.
• In May, the PFP helped promote to the NBA's MDI membership an "Ask the Regulator" call outlining the Federal Reserve's Paycheck Protection Program Liquidity Facility.
• In May, PFP staff hosted the majority of the Federal Reserve's 14 state-member MDIs on a conference call with Governors Lael Brainard and Michelle Bowman, where the MDIs' executives shared their perspectives on the effect of the COVID event on their organizations and on the communities they serve.
• During May, the Community Development Financial Institutions Research Conference was transformed into a four-part webinar series, the second of which featured academic research on MDIs and credit access for minority-owned firms. The NBA provided the practitioner perspective as a respondent. Over 130 people attended the webinar.
• In July, the NBA invited its membership to listen in on an "Ask the Fed" session on the Federal Reserve's Main Street Lending Program that was targeted to nonprofit entities.
• In September, the Federal Reserve Bank of Kansas City, in partnership with the Board and several other Reserve Banks, hosted the fifth annual forum designed to provide minority bankers with industry knowledge and development to enhance their careers and grow their professional networks. The virtual forum included discussions on economic updates and professional development as well as diversity and inclusion strategies.

International Engagement on Supervisory Policies

As a member of several international financial standard-setting bodies, the Federal Reserve actively participates in efforts to share information and advance sound supervisory policies for internationally active financial organizations and to enhance the strength, stability, and resilience of the international financial system.

Basel Committee on Banking Supervision

During 2020, the Federal Reserve contributed to supervisory policy recommendations, reports, and papers issued for consultative purposes or finalized by the Basel Committee on Banking Supervision (BCBS) that are designed to improve the supervision of banking organizations' practices and to address specific issues that emerged during the 2007–09 financial crisis and, more recently, the COVID event.⁶ In 2020, significant activity at the BCBS was focused on COVID-related issues, including monitoring related risks and vulnerabilities of the global banking system.

Some examples of final BCBS documents issued in 2020 include

• Capital treatment of securitisations of non-performing loans (issued in November and available at https://www.bis.org/bcbs/publ/d511.htm);
• Implementation of Basel standards— A report to G20 Leaders on implementation of the Basel III regulatory reforms(issued in November and available at https://www.bis.org/bcbs/publ/d510.htm);
• Sound management of risks related to money laundering and financing of terrorism: revisions to supervisory cooperation(issued in July and available at https://www.bis.org/bcbs/publ/d505.htm);
• Climate-related financial risks: a survey on current initiatives (issued in April and available at https://www.bis.org/bcbs/publ/d502.htm); and
• Progress in adopting the Principles for effective risk data aggregation and risk reporting (issued in April and available at https://www.bis.org/bcbs/publ/d501.htm).

Some examples of consultative BCBS documents issued in 2020 include

• Principles for operational resilience (issued in August and available at https://www.bis.org/bcbs/publ/d509.htm);
• Revisions to the principles for the sound management of operational risk (issued in August and available at https://www.bis.org/bcbs/publ/d508.htm); and
• Capital treatment of securitisations of non-performing loans (issued in June and available at https://www.bis.org/bcbs/publ/d504.htm).

A comprehensive list of BCBS publications is available at https://www.bis.org/bcbs/publications.htm.

Financial Stability Board

In 2020, the Federal Reserve continued its participation in a variety of activities of the FSB, an organization whose mission is to promote international financial stability. The FSB helps coordinate the work of national financial authorities and international standard-setting bodies, and shares information on supervisory and regulatory practice. As with the Basel Committee, a significant amount of FSB work in 2020 related to monitoring vulnerabilities and sharing information on COVID event-related developments. The full range of the Federal Reserve's Financial Stability Board activities is discussed in section 3, "Financial Stability."

The FSB also produces a variety of publications, including progress reports, monitoring reports, guidance, consultative documents, and compendia of better practice. Recent examples include

• Global Transition Roadmap for LIBOR(issued in October and available at https://www.fsb.org/wp-content/uploads/P161020-1.pdf);
• Enhancing Cross-border Payments: Stage 3 roadmap (issued in October and available at https://www.fsb.org/wp-content/uploads/P131020-1.pdf);
• Regulation, Supervision and Oversight of "Global Stablecoin" Arrangements(issued in October and available at https://www.fsb.org/wp-content/uploads/P131020-3.pdf);
• The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications (issued in October and available at https://www.fsb.org/wp-content/uploads/P091020.pdf);
• Effective Practices for Cyber Incident Response and Recovery: Final Report (issued in October and available at https://www.fsb.org/wp-content/uploads/P191020-1.pdf);
• 2020 Status Report: Task Force on Climate-related Financial Disclosures (issued in October and available at https://www.fsb.org/2020/10/2020-status-report-task-force-on-climate-related-financial-disclosures/);
• Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships: Discussion paper (issued in November and available at https://www.fsb.org/2020/11/regulatory-and-supervisory-issues-relating-to-outsourcing-and-third-party-relationships-discussion-paper/);
• Guidance on Financial Resources to Support CCP Resolution and on the Treatment of CCP Equity in Resolution (issued in November and available at https://www.fsb.org/2020/11/guidance-on-financial-resources-to-support-ccp-resolution-and-on-the-treatment-of-ccp-equity-in-resolution/);
• Update to G20 Leaders— COVID-19 pandemic: Financial stability impact and policy responses (issued in November and available at https://www.fsb.org/2020/11/covid-19-pandemic-financial-stability-impact-and-policy-responses/);
• Holistic Review of the March Market Turmoil (issued in November and available at https://www.fsb.org/wp-content/uploads/P171120-2.pdf); and
• OTC Derivatives Market Reforms: Note on Implementation Progress for 2020 (issued in November and available at https://www.fsb.org/wp-content/uploads/P251120.pdf).

A comprehensive list of FSB publications is available at https://www.fsb.org/publications.

Committee on Payments and Market Infrastructures

In 2020, the Federal Reserve continued its active participation in the activities of the Committee on Payments and Market Infrastructures (CPMI), a forum in which central banks promote the safety and efficiency of payment, clearing and settlement activities, and related arrangements.

The CPMI coordinated with the FSB to advance the G-20 priority to enhance global cross-border payments. In addition to contributing to the FSB's report on existing challenges (stage 1) and the final roadmap (stage 3), the CPMI identified and published a report on the building blocks (stage 2) that can help address the frictions identified in stage 1 and shape the work going forward as detailed in stage 3. The CPMI also continued its work on financial inclusion, publishing two follow-up reports to its 2016 paper "Payment Aspects of Financial Inclusion."

In addition, in conducting its work on financial market infrastructure and market-related reforms, the CPMI often coordinated with the International Organization of Securities Commissions (IOSCO). Over the course of 2020, CPMI-IOSCO continued to monitor implementation of the Principles for Financial Market Infrastructures and published an issues paper on central counterparty default management auctions.

Some examples of 2020 CPMI publications include

• Enhancing cross-border payments: building blocks of a global roadmap (published in July and available at https://www.bis.org/cpmi/publ/d193.pdf);
• Payment aspects of financial inclusion: application tools(published in September and available at https://www.bis.org/cpmi/publ/d195.pdf);
• Payment aspects of financial inclusion in the fintech era (published in April and available at https://www.bis.org/cpmi/publ/d191.pdf); and
• Central counterparty default management auctions— Issues for consideration (published in June and available at https://www.bis.org/cpmi/publ/d192.pdf).

A comprehensive list of CPMI publications is available at https://www.bis.org/cpmi_publs.

International Association of Insurance Supervisors

The Federal Reserve continued its participation in 2020 in the development of international supervisory standards for the insurance industry. The Federal Reserve participates actively in standard-setting at the International Association of Insurance Supervisors (IAIS) in consultation and collaboration with state insurance regulators, the National Association of Insurance Commissioners, and the Federal Insurance Office. The Federal Reserve's participation focuses on those aspects most relevant to financial stability and consolidated supervision.

In 2020, the IAIS focused on monitoring the impact of the COVID event on the insurance industry and facilitating discussions among supervisors. It replaced its planned yearly monitoring of the industry with more frequent and targeted monitoring. The IAIS published the results of the first part of this monitoring on its website. This analysis concluded that the insurance industry showed resilience during the crisis. Solvency ratios declined only slightly around the world from pre-pandemic levels. However, risks remained from the continued low-interest rate environment, potential for additional credit losses, and additional claims on some lines of business.

The IAIS also made progress on many other projects over the year by working remotely and increasing the use of virtual conferences. The IAIS issued several final and consultative reports in 2020.

Papers and reports:

• Issues Paper on Use of Big Data Analytics in Insurance (issued in February and available at https://www.iaisweb.org/page/supervisory-material/issues-papers/file/89244/issues-paper-on-use-of-big-data-analytics-in-insurance
• Issues Paper on the Implementation of the Recommendations of the Task Force on Climate-related Financial Disclosures(issued in February and available at https://www.iaisweb.org/page/supervisory-material/issues-papers/file/88991/issues-paper-on-the-implementation-of-the-tcfd-recommendations
• Level 2 Document: ICS Version 2.0 for the Monitoring Period (issued in March and available at https://www.iaisweb.org/page/supervisory-material/insurance-capital-standard/file/89208/level-2-document-for-ics-version-20-for-the-monitoring-period)
• Application Paper on Liquidity Risk Management (issued in June and available at https://www.iaisweb.org/page/supervisory-material/application-papers/file/90720/application-paper-on-liquidity-risk-management)
• Supervisory Issues Associated with Benchmark Transition from an Insurance Perspective (issued in July and available at https://www.iaisweb.org/page/supervisory-material/other-supervisory-papers-and-reports/file/90888/iais-report-on-supervisory-issues-associated-with-benchmark-transition-from-an-insurance-perspective)
• Cyber Risk Underwriting Identified Challenges and Supervisory Considerations for Sustainable Market Development (issued in December and available at https://www.iaisweb.org/page/supervisory-material/other-supervisory-papers-and-reports/file/94255/cyber-risk-underwriting-identified-challenges-and-supervisory-considerations-for-sustainable-market-development)
• Global Insurance Market Report: Covid-19 Edition (issued in December and available at https://www.iaisweb.org/page/supervisory-material/financial-stability/global-insurance-market-report-gimar/file/94221/iais-global-insurance-market-report-2020)

Consultative papers:

• Draft Application Paper on the Supervision of Climate-related Risks in the Insurance Sector (issued in October and available at https://www.iaisweb.org/page/consultations/closed-consultations/2021/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector/file/92570/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector)
• Draft Definition and High-level Principles to Inform the Criteria that Will Be Used to Assess Whether the Aggregation Method Provides Comparable Outcomes to the Insurance Capital Standard (issued in November and available at https://www.iaisweb.org/page/consultations/closed-consultations/2021/draft-definition-of-comparable-outcomes-and-high-level-principles/file/93092/public-consultation-on-the-draft-definition-of-comparable-outcomes-and-high-level-principles)
• Public Consultation on the Development of Liquidity Metrics: Phase 1— Exposure Approach (issued in November and available at https://www.iaisweb.org/page/consultations/closed-consultations/2021/development-of-liquidity-metrics-phae-1-exposure-approach/file/93103/pcd-on-development-of-liquidity-metrics-phase-1-exposure-approach-public)
• Draft Application Paper on Resolution Powers and Planning (issued in November and available at https://www.iaisweb.org/page/consultations/closed-consultations/2021/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector/file/93230/application-paper-on-resolution-powers-and-planning)

Shared National Credit Program

The Shared National Credit (SNC) program is an interagency review and assessment of risk in the largest and most complex credits shared by multiple regulated financial institutions. The SNC program is governed by an interagency agreement among the Board, FDIC, and OCC. SNC reviews are completed in the first and third quarters of the calendar year. Large agent banks receive two reviews each year while most other agent banks receive a single review each year.

More information on the 2020 Shared National Credit review is available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210225a.htm.

Bank Secrecy Act and Anti-Money Laundering Compliance

The Federal Reserve is responsible for examining institutions for compliance with the Bank Secrecy Act (BSA) and applicable anti-money laundering (AML) laws and regulations and conducts such examinations in accordance with the FFIEC's Bank Secrecy Act/Anti-Money Laundering Examination Manual.

The Federal Reserve is currently participating in an ongoing interagency effort to update this manual. Many of the revisions are designed to emphasize and enhance the risk-focused approach to BSA/AML supervision and to continue to provide transparency into the BSA/AML examination process.

International Coordination on Sanctions, Anti-Money Laundering, and Counter-Terrorism Financing

The Federal Reserve participates in a number of international coordination initiatives related to sanctions, money laundering, and terrorism financing. The Federal Reserve has a long-standing role in the U.S. delegation to the intergovernmental Financial Action Task Force and its working groups, contributing a banking supervisory perspective to the formulation of international standards. The Federal Reserve participated in the work of the FSB that resulted in the publication of a roadmap to enhance cross-border payments in October 2020.

The Federal Reserve also continues to participate in committees and subcommittees through the Bank for International Settlements. Specifically, the Federal Reserve actively participates in the AML Experts Group under the BCBS that focuses on AML and countering financing of terrorism (CFT) issues and assisted in amending, in July 2020, a BCBS publication on the sound management of risks related to money laundering and financing of terrorism, to introduce guidelines on cooperation and information exchange among prudential and AML/CFT supervisors for banks. In addition, the Federal Reserve participated in meetings and roundtables during the year to discuss BSA/AML issues with foreign delegations from Mexico and the United Kingdom. These dialogues are designed to promote information sharing and understanding of BSA/AML issues between U.S. and country-specific financial sectors.

Role of Supervisory Guidance

On November 5, 2020, the Federal Reserve Board and the other federal financial regulatory agencies invited comment on a proposal that would codify, with amendments, a statement issued in September 2018 confirming the role of supervisory guidance.⁷ The statement explained that unlike a law or regulation, supervisory guidance does not have the force and effect of law. Accordingly, the statement also clarified that examiners will not criticize a financial institution for a "violation" of supervisory guidance as they would for a violation of a law or regulation.

The Federal Reserve has taken additional steps since issuance of the statement that further align with its objectives. For instance, staff has conducted additional examiner training, more closely reviewed draft supervisory communications to institutions, and coordinated with other banking agencies on guidance-related practices. The Federal Reserve remains committed to ensuring the proper role of guidance in the supervisory process.

Regulatory Reports

The Federal Reserve, along with the other member FFIEC agencies, requires banking organizations to periodically submit reports that provide information about their financial condition and structure.

Federal Reserve Regulatory Reports

The Federal Reserve requires that U.S. holding companies periodically submit reports that provide information about their financial condition and structure.⁸ This information is essential to formulating and conducting financial institution regulation and supervision. It is also used to respond to information requests by Congress and the public about holding companies and their nonbank subsidiaries. Foreign banking organizations and other entities also are required to periodically submit reports to the Federal Reserve. For more information on the various reporting forms, see https://www.federalreserve.gov/apps/reportforms/default.aspx.

Effective during 2020, the following regulatory reporting forms had substantive revisions:

• Consolidated Financial Statements for Holding Companies (FR Y-9C)

  • implemented instructions and report form revisions pertaining to capital simplification, the community bank leverage ratio (CBLR), rules to modify regulations for large banking organizations to more closely align with measures of their risk, high volatility commercial real estate (HVCRE), operating lease liabilities, and the standardized approach for counterparty credit risk (SA-CCR);
  • revised reporting instructions related to interim final rules issued in response to the COVID event that included a three-to-five year CECL transition provision, a revised definition of "eligible retained income," changes to the CBLR qualifying criteria, provisions for the early adoption of SA-CCR, a specific capital treatment for Paycheck Protection Program (PPP) loans, and a specific capital treatment for participation in the Money Market Liquidity Facility and Paycheck Protection Program Liquidity Facility (MMLF and PPPLF);
  • added four new data items related to PPP loans and PPPLF activity;
  • consistent with section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), updated reporting instructions related to troubled debt restructurings and added two new items to capture the volume and amount outstanding of modified loans;
  • updated instructions consistent with the changes to the definition of savings deposits in the Board's Regulation D;
  • updated instructions and added 11 new line items related to the stress capital buffer for holding companies subject to the capital plan rule;
  • clarified the reporting of shared fees for securities and insurance activities and the reporting of pledged non-trading equity securities; and
  • revised reporting instructions related to the Board's interim final rule that provides temporary relief for certain community banking organizations related to certain regulations and reporting requirements as a result, in large part, of their growth in size from the coronavirus response (the Temporary Asset Thresholds interim final rule).⁹
• Statements of Foreign Subsidiaries of U.S. Banks (FR 2314/2314S); Reports of Foreign Banking Organizations (FR Y-7N/FR Y-7NS); Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies (FR Y-11/FR Y-11S)—provided temporary changes associated with the Temporary Asset Thresholds interim final rule, beginning with the annual FR 2314/FR 2314S, FR Y-7N/FR Y-7NS, and FR Y-11/FR Y-11S respondents for the December 31, 2020, report date, which allows for the use of the lesser of total assets as of December 31, 2019, or the most recent applicable measurement period to determine the applicability of asset-based filing thresholds for December 31, 2020, through the end of 2021.
• Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies (FR Y-12)—implemented new items and revisions to align the form and instructions with Accounting Standards Update 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities."
• Capital Assessments and Stress Testing Information Collection Q&As Reports (FR Y-14)—implemented revisions to (1) collect items necessary to comply with the stress capital buffer requirement; (2) temporarily capture data pertaining to certain aspects of the CARES Act, including information on firm activity associated with various Federal Reserve lending facilities, and information regarding emerging risks arising from the COVID event; (3) address questions related to the reporting of certain CECL and capital data; (4) require firms to submit data necessary for the Board to conduct additional analysis in connection with the resubmission of firms' capital plans; and (5) better identify risk as part of the stress tests, such as risks related to wholesale, trading, and counterparty exposures, as well as information related to capital simplifications, total loss-absorbing capacity, and SA-CCR.
• Systemic Risk Report (FR Y-15)—implemented revisions to the report forms and instructions in response to the enactment of EGRRCPA. These revisions included raising the reporting threshold from $50 billion to $100 billion in total consolidated assets for U.S. BHCs and covered SLHCs. In addition, foreign banking organizations with combined U.S. assets of $100 billion or more must now file newly created Schedules H through N on behalf of their U.S. intermediate holding company (IHC), if any, and their combined U.S. operations. Further, three new items were added to the memoranda section of Schedule A, two of which clarify the calculation of risk-based indicators. The third item captures total non-bank assets. The FR Y-15 forms and instructions were also revised to add trading volume items to the memoranda section of Schedule C to capture the trading of securities issued by public sector entities, other fixed income securities, listed equities, and other securities.
• Complex Institution Liquidity Monitoring Report (FR 2052a)—implemented certain instructional revisions to better align the reporting requirements for large banking organizations with their risk profiles and to implement a change in the agencies' liquidity regulations associated with an institution's participation in the MMLF or PPPLF.
• Single Counterparty Credit Limits (FR 2590)—created a new form that will allow the Board to monitor a covered company's or covered foreign entity's credit exposure to counterparties in accordance with the Board's Single-Counterparty Credit Limits rule.¹⁰ The FR 2590 report collects general information about the covered company or covered foreign entity, including its full legal name, the amount of its capital stock and surplus, and whether it would be considered a "major covered company" or "major foreign banking organization." The report also collects descriptive information about the covered company or covered foreign entity's exposure to its top 50 counterparties and the data required to calculate its gross credit exposure, net credit exposure, and aggregate net credit exposure to those counterparties.
• Consolidated Report of Condition and Income for Edge and Agreement Corporations (FR 2886b)—updated instructions consistent with the changes to the definition of savings deposits in the Board's Regulation D.¹¹

FFIEC Regulatory Reports

The Federal Reserve, along with the other member FFIEC agencies, requires financial institutions to submit various uniform regulatory reports.¹² This information is essential to formulating and conducting supervision and regulation and for the ongoing assessment of the overall soundness of the nation's financial system. For more information on FFIEC reporting forms, see https://www.ffiec.gov/ffiec_report_forms.htm. During 2020, revisions were made to certain FFIEC reporting forms to reflect actions taken by the member agencies to provide regulatory relief in response to the COVID event, described in "Regulatory Developments" later in this section, and certain sections of the CARES Act. The reporting also was revised to implement certain regulatory capital and other rulemakings, and the impact of accounting standards. The following FFIEC reports had substantive revisions:

• Consolidated Reports of Condition and Income (FFIEC 031, 041, 051, collectively "Call Reports")—implemented instructional and reporting form revisions related to simplification of the agencies' regulatory capital rule, the CBLR framework, HVCRE, SA-CCR, assets excluded from regulatory capital ratios, and the tailoring of requirements for large domestic banking organizations and IHCs. Consistent with the Board's FR Y-9C report, additional data items were incorporated related to troubled debt restructurings, PPP loans, and usage of the PPPLF. In addition, data items were added to the Call Reports to reflect usage of the MMLF and assist the FDIC's deposit insurance assessment. Instructional changes included the treatment of eligible retained income, the definition of savings deposits, reporting of extensions of credit to insiders consistent with the Board's Regulation O, and transitions for the adoption of CECL and SA-CCR. Recognizing that programs to address the COVID event may cause institutions to grow temporarily in 2020 and consistent with the Temporary Asset Thresholds interim final rule, instructional revisions permitted certain institutions to report under the CBLR framework that may otherwise have been excluded due to their asset size.
• Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101)—implemented instructions and report form revisions related to the tailoring of capital requirements for large banking organizations and the exclusion of certain assets from the supplementary leverage ratio requirements for custodial banks. Member agencies also made instructional revisions related to HVCRE, SA-CCR, transitions for the adoption of CECL, and the exclusion from regulatory capital ratios of certain low-risk assets and assets resulting from participation in the MMLF or PPPLF.
• Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002)—added four new items and implemented revisions to the instructions related to the reporting of troubled debt restructurings under section 4013 of the CARES Act, the impact of participation in the MMLF and PPPLF on FDIC deposit insurance assessments, and the definition of savings deposits under the Board's Regulation D.

Also, in response to business disruptions related to the COVID event, the Federal Reserve and other member FFIEC agencies permitted reporting institutions to use electronic signatures to meet signing requirements.

Staff Development Programs

The Federal Reserve's staff development program supports the ongoing development of approximately 3,700 professional supervisory staff, ensuring that they have the requisite skills necessary to meet their evolving supervisory responsibilities. The Federal Reserve also provides course offerings to staff at state banking agencies. Training activities in 2020 are summarized in table 4.4.

Table 4.4. Training for supervision and regulation, 2020

Examiner Commissioning Program

An overview of the Federal Reserve System's Examiner Commissioning Program for assistant examiners is set forth in SR 17-6/CA 17-1, "Overview of the Federal Reserve's Supervisory Education Programs." Three examiner commissioning tracks are available: (1) community banking organization (CBO), (2) consumer compliance, and (3) large financial institutions (LFI). On average, individuals move through a combination of in-person training, self-paced learning, virtual instruction, and on-the-job training over a period of about three to four years. Achievement is measured by completing the required course content, demonstrating on-the-job knowledge, and passing a professionally validated proficiency examination.

In 2020, 99 examiners passed the proficiency examination (42 in CBO, 22 in consumer compliance, and 35 in LFI). Proactive measures were taken to ensure minimal disruption to assistant examiner progress during the COVID event, including converting courses from in-person to virtual delivery format.

Continuing Professional Development

Throughout 2020, the Federal Reserve continued to provide supervisory staff (and in many cases, state examiners through existing partnerships with the Conference of State Banking Supervisors and FFIEC) with opportunities to maintain job knowledge after commission, get exposure to emerging concepts and practices, and expand knowledge into highly specialized supervisory topics. A number of learning and communication solutions were developed, including Rapid Response webinars, special COVID communications, self-guided learning plans on specialty topics, and other content produced for just-in-time communication to supervisory staff about pandemic-related and other emerging issues and policy guidance. Training, consultation, and materials were also provided to quickly acclimate the Supervision workforce to virtual meeting tools and best practices needed in the remote work environment.

Regulatory Developments

The Federal Reserve carries out its regulatory responsibilities by developing regulatory policy (rulemakings, supervision and regulation letters, policy statements, and guidance) and reviewing and acting on a variety of applications filed by banking organizations.

Rulemakings and Guidance

The Federal Reserve issues new regulations or revises existing regulations in response to laws enacted by Congress or because of evolving conditions in the financial marketplace. Over 2020, the Federal Reserve, working with the other federal banking agencies, announced a variety of policy actions related to addressing the economic effects of the COVID event and promoting the safety and soundness of the financial system. The Federal Reserve issued the following rules and statements in 2020 (see table 4.5).

Table 4.5. Federal Reserve or interagency rulemakings/statements (proposed and final), 2020

Banking Applications

The Federal Reserve reviews applications submitted by bank holding companies, state member banks, savings and loan holding companies, foreign banking organizations, and other entities for approval to undertake various transactions and to engage in new activities. In 2020, the Federal Reserve acted on 824 applications filed under the six relevant statutes.

The Federal Reserve published the Semiannual Report on Banking Applications Activity, which provides aggregate information on proposals filed by banking organizations and reviewed by the Federal Reserve. The current report as well as historical reports are available at https://www.federalreserve.gov/publications/semiannual-report-on-banking-applications-activity.htm.

Public Notice of Federal Reserve Decisions and Filings Received

The Board's website provides information on orders and announcements (https://www.federalreserve.gov/newsevents/pressreleases.htm) as well as a guide for U.S. and foreign banking organizations that wish to submit applications (https://www.federalreserve.gov/bankinforeg/afi/afi.htm).

Footnotes