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. The Federal Reserve carries out its supervisory and regulatory responsibilities and supporting functions primarily by

• supervising the activities of financial institutions to ensure their safety and soundness (see figure 4.1);
• developing regulatory policy (rulemakings, supervision and regulation letters, policy statements, and guidance) and acting on applications filed by banking organizations; and
• monitoring trends in the banking sector by collecting and analyzing data (see box 4.1).

Supervised and Regulated Institutions

The Federal Reserve categorizes banking organizations into portfolios by size and entity type, as described in table 4.1.

Table 4.1. Summary of supervised institutions

State Member Banks

At year-end 2021, a total of 1,450 banks (excluding non-depository trust companies and private banks) were members of the Federal Reserve System, of which 705 were state chartered. Federal Reserve System member banks operated 48,400 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 2021, a total of 3,937 U.S. bank holding companies (BHCs) were in operation, of which 3,523 were top-tier BHCs. These organizations controlled 3,534 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 2021, a total of 504 domestic BHCs and 45 foreign banking organizations had FHC status. Of the domestic FHCs, 23 had consolidated assets of $100 billion or more; 56 between $10 billion and $100 billion; 193 between $1 billion and $10 billion; and 232 less than $1 billion.

Savings and Loan Holding Companies

At year-end 2021, a total of 310 savings and loan holding companies (SLHCs) were in operation, of which 154 were top-tier SLHCs. These SLHCs controlled 163 depository institutions. Approximately 94 percent of SLHCs engage primarily in depository or broker dealer activities. These firms hold approximately 53 percent ($997.5 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. Some SLHCs are engaged primarily in nonbanking activities, such as insurance underwriting (6 SLHCs), and commercial activities (4 SLHCs). The 25 largest SLHCs accounted for more than $1.82 trillion of total combined assets.

Depository institution holding companies significantly engaged in insurance activities. At year-end 2021, the Federal Reserve supervised six companies that own depository institutions but are significantly engaged in insurance activities. All six of these institutions were savings and loan holding companies. As of September 30, 2021, they had approximately $800 billion in total assets. Three of these firms have total assets greater than $100 billion, and for five of the six, insured depository assets represent less than half of total assets.

As the consolidated supervisor of these insurance organizations, 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 other regulators, including other federal banking regulators and state insurance regulators, as part of the overall supervisory assessment of insurance SLHCs.

The Federal Reserve's Insurance Policy Advisory Committee (IPAC) was established by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) to provide information, advice, and recommendations on insurance issues.¹ In 2021, the IPAC focused its advice on the impacts of the COVID event and long-term low interest rates on the U.S. insurance sector. The IPAC also provided input regarding the International Association of Insurance Supervisors' (IAIS) development of an Insurance Capital Standard (ICS), an Aggregation Method (AM), and the criteria that will be used to assess whether the ICS and AM provide comparable outcomes.

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 advance notice requirements for 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 2021, a total of 26 member banks were operating 298 branches in foreign countries and overseas areas of the United States. Thirteen national banks were operating 240 of these branches, 13 state member banks were operating 46 of these branches, and 5 nonmember banks were operating the remaining 12.

Edge Act and agreement corporations. At year-end 2021, out of 34 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 2021, a total of 135 foreign banks from 48 countries operated 144 state-licensed branches and agencies, of which 6 were insured by the FDIC, and 50 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 35 U.S. commercial banks. Altogether, the U.S. offices of these foreign banks controlled approximately 17 percent of U.S. commercial banking assets. These 135 foreign banks also operated 70 representative offices; an additional 30 foreign banks operated in the United States through a representative office.

The Federal Reserve conducted or participated with state and federal regulatory authorities in 552 examinations of foreign banks in 2021.

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 modified its supervisory programs and approaches to allow financial institutions to deploy their resources efficiently and focus on supporting their customers and local economies while meeting challenges posed by the COVID event. The Federal Reserve paused scheduled examinations or moved to monitoring activities. As conditions in the industry stabilized, many of the temporary adjustments to supervisory programs have ended and most supervisory approaches have returned to normal. All examination activities were being conducted off site at year-end. As conditions allow, examination activities will return to a mix of being conducted on site and off site. For additional information on the Federal Reserve's COVID response, see box 4.2.

In 2021, the Federal Reserve conducted 288 examinations of state member banks, 2,646 inspections of bank holding companies, and 135 inspections of 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, 2017–21

Table 4.3. State member banks and bank holding companies, 2017–21

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 Federal Reserve has instituted supervisory stress testing to strengthen capital positions of the largest banking organizations. In March 2020, the Board integrated the supervisory stress test with its non-stress capital requirements through the stress capital buffer to form one forward-looking and risk-sensitive capital framework.

Since the onset of the COVID event, the Federal Reserve has undertaken several stress tests. In June 2021, the Federal Reserve conducted its annual stress test, which showed that the 23 large banking firms tested had strong levels of capital and could continue lending to households and businesses during a severe recession. As a result of firms remaining well above their minimum risk-based capital requirements in that stress test, the additional restrictions on capital distributions the Board implemented to ensure firms would preserve capital during the COVID event ended. Since then, the largest banking firms have remained subject to the normal restrictions of the Board's stress capital buffer. For stress testing publications released in 2021, see box 4.3.

Information Technology Activities

Effective information technology (IT) and cybersecurity risk management is critical to the safety and soundness of financial institutions and the stability of the financial system. The Board publishes rules and guidance for supervised institutions regarding IT, cybersecurity, operational resilience, and other related topics. These include policies aimed at reducing the risk of cybersecurity threats and strengthening operational resiliency of the financial system. As part of its safety and soundness supervision, the Board examines and monitors supervised institutions.

During 2021, the Federal Reserve conducted examinations of IT 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) examined and assigned Uniform Rating System for Information Technology ratings for technology service providers that provide services for specific regulated financial institutions.

The Federal Reserve, together with the other members of the Federal Financial Institutions Examination Council (FFIEC), publishes interagency statements and guidance to assist financial institution examiners with risk-management assessments at supervised entities.³ In 2021, the Board published supervision and regulation (SR) letter 21-11 notifying supervised institutions that the FFIEC issued the "FFIEC Architecture, Infrastructure, and Operations Examination Handbook," one of the booklets that compose the FFIEC Information Technology Examination Handbook.⁴ The booklet provides guidance to examiners when assessing the risk profile and adequacy of an entity's information technology architecture, infrastructure, and operations.

Fiduciary Activities

In 2021, Federal Reserve examiners conducted 68 fiduciary examinations of state member banks and non-depository trust companies.

Transfer Agents

During 2021, the Federal Reserve conducted transfer agent examinations at three state member banks and one BHC 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 2021, the Federal Reserve conducted eight 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 2021, the Federal Reserve examined four 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 (NCUA).

Operational Resilience and Cybersecurity

The Federal Reserve collaborated with other financial regulators, the U.S. Department of the Treasury, private industry, and international partners to promote effective safeguards against operational and 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 coordinate 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.

In 2021, the Board and the other federal banking agencies finalized a rule that requires banking organizations to notify their regulator when a cybersecurity incident occurs and requires certain bank service providers to notify their client banks when such an incident occurs. Prompt notification of a cyber incident will help banking organizations and the agencies to react quickly to cyber threats.⁵ The Board and other FFIEC agencies issued guidance providing financial institutions with examples of effective authentication and access risk management principles and practices for customers, employees, and third parties accessing digital banking services and information systems.⁶

The Board, along with the other federal banking agencies, also proposed guidance for public comment on third‐party risk management which is intended to help banking organizations manage risks associated with third-party relationships, including relationships with financial technology-focused entities.⁷

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 promote the financial services sector's ability to respond rapidly to and recover from significant cybersecurity incidents, thereby reducing the potential for such incidents to threaten the stability of the financial system and the broader economy.

The Board leads or contributes to cybersecurity activities undertaken by groups, such as the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payment and Market Infrastructures (CPMI) (and its joint efforts with the International Organization of Securities Commissions (IOSCO)), the International Association of Insurance Supervisors, and the Group of Seven (G-7). In 2021, the Federal Reserve was actively involved in international policy coordination to address cyber-related risks and efforts to bolster cyber resiliency as well as to foster international standards in the financial services sector. The Board led the BCBS's operational resilience group, which issued the Principles for Operational Resilience and the Principles for the Sound Management of Operational Risk.^{8 ,9 ,10} The Federal Reserve also 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, civil money penalties, and letters sent pursuant to 12 U.S.C. § 1829, known as Section 19 letters.

In 2021, the Federal Reserve completed 52 formal enforcement actions. Civil money penalties totaling $396,700 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 44 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.

Internal Appeals of Material Supervisory Determinations

The Board is committed to maintaining an independent, intra-agency process to review appeals of material supervisory determinations (MSD) that complies with section 309 of the Riegle Community Development and Regulatory Improvement Act of 1994.¹¹ The appeals process includes two levels of review. A panel of Reserve Bank staff who are not employed by the Reserve Bank that issued the appealed MSD conducts the initial review. This panel determines whether the appealed MSD is consistent with applicable laws, regulations, and policy, and is supported by a preponderance of the evidence in the record. If the appealing institution is dissatisfied with the initial review panel's decision, the institution may request a final review of the MSD. A panel of senior Board staff conduct the final review. The final review panel determines whether the decision of the initial review panel is reasonable. Additional information is available regarding the Federal Reserve Board's appeals process (https://www.federalreserve.gov/supervisionreg/srletters/SR2028.htm) and Ombudsman policy (https://www.federalreserve.gov/aboutthefed/ombpolicy.htm).

In 2021, the Board received one MSD appeal from a bank holding company that filed both an initial appeal and a request for final review. The Board also received one extension request to file an MSD appeal from a bank holding company, which was resolved informally, with assistance by the Ombudsman Office, prior to a request for an initial review being filed.

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.¹²

In 2021, 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

BHCs and SLHCs with total consolidated assets of $100 billion or more, as well as any nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Board, are subject to assessments for the cost of the Board's supervision and regulation. 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 $617.4 million in 2021 for the 2020 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 throughout 2023. CECL's implementation affects a broad range of supervisory activities, including regulatory reports, examinations, and examiner training.

In 2021, the Federal Reserve released a tool to help community banks implement the CECL accounting standard. Known as the Scaled CECL Allowance for Losses Estimator or "SCALE," the spreadsheet-based tool draws on publicly available regulatory and industry data to aid community banks with assets of less than $1 billion in calculating their CECL allowances.

International Training and Technical Assistance

In 2021, the Federal Reserve continued to provide training and technical assistance on supervisory matters to foreign central banks and supervisory authorities. Due to the COVID event, training and technical assistance was exclusively offered virtually for the benefit of foreign supervisory authorities. Approximately 4,300 bank supervisors from foreign central banks and supervisory agencies attended these virtual training events during 2021.

Federal Reserve staff also took part in organizing two virtual training events offered in collaboration with the International Monetary Fund and the World Bank. Other training partners that collaborated with the Federal Reserve during 2021 to organize 25 regional virtual training events included the South East Asian Central Banks Research and Training Centre, the Association of Bank Supervisors of the Americas, the South African Reserve Bank, and the National Banking and Securities Commission of Mexico.

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.¹³ 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. For example, Federal Reserve staff reached out to MDIs to learn more about the impact of the COVID event on the communities they serve as well as to gather input on how crisis response facilities could be most helpful to these institutions and their customers.

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 2021, the Federal Reserve's MDI portfolio consisted of 14 state member banks.

Throughout 2021, the System supported MDIs and conducted a number of outreach initiatives, webinars, and conferences specific to MDIs, including the following:

• Emergency Capital Investment Program (ECIP): On March 4, 2021, the Treasury launched the Emergency Capital Investment Program, which will provide up to $9 billion in capital directly to MDIs and community development financial institutions (CDFIs).

  • Staff at the banking agencies and the Treasury established a process for consultation and information sharing regarding applicants to the ECIP program.
• Federal Reserve System Guidance issued: In March 2021, the Board published new guidance, SR letter 21-6/CA 21-4, "Highlighting the Federal Reserve System's Partnership for Progress Program for Minority Depository Institutions and Women's Depository Institutions." The SR letter clarifies guidance as it relates to the Federal Reserve System's definition for MDIs, defines women-owned depository institutions, and highlights resources available to these institutions through the PFP.
• In April 2021, the federal banking agencies released a Regulatory Capital Guide for Minority Depository Institutions and Community Development Financial Institution Banking Organizations to provide MDIs and CDFIs with an overview of key considerations regarding the effect of capital investments on their regulatory capital requirements under the agencies' regulatory capital rule.
• On May 24, 2021, the Federal Reserve jointly hosted an "Ask the Regulator" session with the Treasury, FDIC, OCC, and the NCUA. Collectively, the agencies regulate all eligible ECIP banking organizations, and were all available to answer questions from potential participants about the program.
• The Board, OCC, and FDIC released an accompanying interim final rule to help implement the ECIP program by providing a regulatory capital treatment for instruments issued under the program. The Board is reviewing comments received on the interim final rule and considering policy options that would better enable MDIs and CDFIs to attract and deploy capital as intended under ECIP.
• Board staff also issued a set of frequently asked questions on the PFP website to clarify certain aspects of the interim capital rule.
• Additional outreach: The federal banking agencies hosted a webinar to explain the FDIC's Capital Estimator Tool for Mission-Driven Banks, which is on the Federal Reserve's PFP website, and to answer questions from the industry.
• Throughout 2021, PFP staff discussed formation of de novo banks with a number of different investor groups.
• In September 2021, the federal banking agencies hosted an interagency Minority Depository Institutions and Community Development Financial Institutions conference. This conference included remarks by Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, and Acting Comptroller Michael Hsu.

International Engagement

As a member of the Financial Stability Board and 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 2021, 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.¹⁴ In 2021, significant activity at the BCBS was focused on COVID-related issues, including monitoring related risks and vulnerabilities of the global banking system. In addition, the BCBS completed a strategic re-organization intended to allow the organization to become more forward-looking and to spend more time on emerging risks and vulnerabilities and less on developing new standards.

Some examples of final BCBS documents issued in 2021 include

• Revisions to Market Risk Disclosure Requirements (issued in November and available at https://www.bis.org/bcbs/publ/d529.htm)
• G-SIB Assessment Methodology Review Process – Technical Amendment Finalization (issued in November and available at https://www.bis.org/bcbs/publ/d527.htm)
• Progress Report on Adoption of the Basel Regulatory Framework (issued in October and available at https://www.bis.org/bcbs/publ/d525.htm)
• Early Lessons from the COVID-19 Pandemic on the Basel Reforms (issued in July and available at https://www.bis.org/bcbs/publ/d521.htm)
• The Procyclicality of Loan Loss Provisions: A Literature Review (issued in May and available at https://www.bis.org/bcbs/publ/wp39.htm)
• Climate-Related Financial Risks – Measurement Methodologies (issued in April and available at https://www.bis.org/bcbs/publ/d518.htm)
• Climate-Related Risk Drivers and Their Transmission Channels (issued in April and available at https://www.bis.org/bcbs/publ/d517.htm)
• Principles for Operational Resilience (issued in March and available at https://www.bis.org/bcbs/publ/d516.htm)
• Revisions to the Principles for the Sound Management of Operational Risk (issued in March and available at https://www.bis.org/bcbs/publ/d515.htm)

Some examples of consultative BCBS documents issued in 2021 include

• Principles for the Effective Management and Supervision of Climate-Related Financial Risks (issued in November and available at https://www.bis.org/bcbs/publ/d530.htm)
• Review of Margining Practices (issued in October and available at https://www.bis.org/bcbs/publ/d526.htm)
• G-SIB Assessment Methodology Review Process (issued in July and available at https://www.bis.org/bcbs/publ/d522.htm)
• Prudential Treatment of Cryptoasset Exposures(issued in June and available at https://www.bis.org/bcbs/publ/d519.htm)
• Minimum Haircut Floors for Securities Financing Transactions (issued in January and available at https://www.bis.org/bcbs/publ/d514.htm)

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

Financial Stability Board

In 2021, 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 2021 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 Monitoring Report on Non-Bank Financial Intermediation 2021 (issued in December and available at https://www.fsb.org/2021/12/global-monitoring-report-on-non-bank-financial-intermediation-2021/)
• 2021 Resolution Report: "Glass half-full or still half-empty?" (issued in December and available at https://www.fsb.org/2021/12/2021-resolution-report-glass-half-full-or-still-half-empty/)
• Enhancing the Resilience of Non-Bank Financial Intermediation: Progress Report(issued in November and available at https://www.fsb.org/2021/11/enhancing-the-resilience-of-non-bank-financial-intermediation-progress-report/)
• Lessons Learnt from the COVID-19 Pandemic from a Financial Stability Perspective: Final Report (issued in October and available at https://www.fsb.org/2021/10/lessons-learnt-from-the-covid-19-pandemic-from-a-financial-stability-perspective-final-report/)
• Cyber Incident Reporting: Existing Approaches and Next Steps for Broader Convergence (issued in October and available at https://www.fsb.org/2021/10/cyber-incident-reporting-existing-approaches-and-next-steps-for-broader-convergence/)
• G20 Roadmap for Enhancing Cross-Border Payments: First Consolidated Progress Report (issued in October and available at https://www.fsb.org/2021/10/g20-roadmap-for-enhancing-cross-border-payments-first-consolidated-progress-report/)
• Policy Proposals to Enhance Money Market Fund Resilience: Final Report (issued in October and available at https://www.fsb.org/2021/10/policy-proposals-to-enhance-money-market-fund-resilience-final-report/)
• Regulation, Supervision, and Oversight of "Global Stablecoin" Arrangements: Progress Report on the Implementation of the FSB High-Level Recommendations (issued in October and available at https://www.fsb.org/2021/10/regulation-supervision-and-oversight-of-global-stablecoin-arrangements-progress-report-on-the-implementation-of-the-fsb-high-level-recommendations/)
• FSB Roadmap for Addressing Climate-Related Financial Risks (issued in July and available at https://www.fsb.org/2021/07/fsb-roadmap-for-addressing-climate-related-financial-risks/)
• Report on Promoting Climate-Related Disclosures (issued in July and available at https://www.fsb.org/2021/07/report-on-promoting-climate-related-disclosures/)
• Progress Report to the G20 on LIBOR Transition Issues: Recent Developments, Supervisory Issues and Next Steps (issued in July and available at https://www.fsb.org/2021/07/progress-report-to-the-g20-on-libor-transition-issues-recent-developments-supervisory-issues-and-next-steps/)
• Outsourcing and Third-Party Risk – Overview of Responses to the Public Consultation (issued in June and available at https://www.fsb.org/2021/06/outsourcing-and-third-party-risk-overview-of-responses-to-the-public-consultation/)
• COVID-19 Support Measures: Extending, Amending and Ending (issued in April and available at https://www.fsb.org/2021/04/covid-19-support-measures-extending-amending-and-ending/)
• Evaluation of the Effects of Too-Big-to-Fail Reforms: Final Report (issued in March and available at https://www.fsb.org/2021/03/evaluation-of-the-effects-of-too-big-to-fail-reforms-final-report/)

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

Committee on Payments and Market Infrastructures

In 2021, the Federal Reserve continued its active participation in the activities of the CPMI, a forum in which central banks promote the safety and efficiency of payment, clearing and settlement activities, and related arrangements.

The CPMI continued to coordinate with the FSB to advance the G-20 priority to enhance global cross-border payments. In particular, the CPMI completed fact-finding and analytical exercises for several building blocks as set out in the FSB roadmap.

In addition, in conducting its work on financial market infrastructure and market-related reforms, the CPMI often coordinated with the IOSCO. Over the course of 2021, CPMI-IOSCO advanced work on central bank digital currencies, stablecoin arrangements, client clearing at central counterparties, and fast payments. In addition, CPMI-IOSCO continued to monitor implementation of the Principles for Financial Market Infrastructures.

Some examples of 2021 CPMI publications include

• Central Bank Digital Currencies for Cross-Border Payments (published by CPMI, BIS Innovation Hub, IMF, and the World Bank in July and available at https://www.bis.org/publ/othp38.pdf)
• Application of the Principles for Financial Market Infrastructures to Stablecoin Arrangements—Consultative Report(published by CPMI-IOSCO in October and available at https://www.bis.org/cpmi/publ/d198.pdf)
• Review of Margining Practices—Consultative Report(published by CPMI-IOSCO and BCBS in October and available at https://www.bis.org/bcbs/publ/d526.pdf)
• A Discussion Paper on Client Clearing: Access and Portability (published by CPMI-IOSCO in November and available at https://www.bis.org/cpmi/publ/d200.pdf)
• Developments in Retail Fast Payments and Implications for RTGS Systems (published in December and available at https://www.bis.org/cpmi/publ/d201.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 2021 in the development of international supervisory standards for the insurance industry. The Federal Reserve participates actively in standard-setting at the 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 2021, the IAIS made progress on several initiatives while continuing to work remotely. The IAIS finalized the high-level principles that will inform the criteria for assessing whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard. The IAIS previously consulted on this subject in 2020. The IAIS also implemented the Holistic Framework for Systemic Risk in the Insurance Sector. This implementation was planned for 2020 but was partially delayed by the pandemic. The IAIS additionally continued its work on climate risk, including by forming a new high-level steering group to oversee its work in this area.

The IAIS issued several final and consultative reports in 2021.

Papers and reports:

• Redefining Insurance Supervision for the New Normal (co-authored by the Financial Stability Institute of the Bank for International Settlements) (issued in April and available at https://www.iaisweb.org/uploads/2022/01/210409-IAIS-FSI-Note-on-redefining-insurance-supervision-for-the-new-normal.pdf)
• Application Paper on the Supervision of Climate-related Risks in the Insurance Sector (issued in May and available at https://www.iaisweb.org/uploads/2022/01/210525-Application-Paper-on-the-Supervision-of-Climate-related-Risks-in-the-Insurance-Sector.pdf)
• Application Paper on Resolution Powers and Planning (issued in June and available at https://www.iaisweb.org/uploads/2022/01/210623-Application-Paper-on-Resolution-Powers-and-Planning.pdf)
• Application Paper on Supervision of Control Functions (issued in June and available at https://www.iaisweb.org/uploads/2022/01/210623-Application-Paper-on-Supervision-of-Control-Functions1.pdf)
• Application Paper on Macroprudential Supervision (issued in August and available at https://www.iaisweb.org/uploads/2022/01/210830-Application-Paper-on-Macroprudential-Supervision.pdf)
• Application Paper on Supervisory Colleges (issued in November and available at https://www.iaisweb.org/uploads/2022/01/211111-Application-Paper-on-Supervisory-Colleges.pdf)
• Application Paper on Combating Money Laundering and Terrorist Financing(issued in November and available at https://www.iaisweb.org/uploads/2022/01/211111-Application-Paper-on-Combating-Money-Laundering-and-Terrorist-Financing.pdf)
• Issues Paper on Insurer Culture (issued in November and available at https://www.iaisweb.org/uploads/2022/01/211111-Issues-Paper-on-Insurer-Culture.pdf)
• Global Insurance Market Report 2021(issued in December and available at https://www.iaisweb.org/uploads/2022/01/211130-IAIS-GIMAR-2021.pdf)

Consultative papers:

• Public Consultation on Draft Application Paper on Supervision of Control Functions (issued in January and available at https://www.iaisweb.org/uploads/2022/01/210125-Draft-Application-Paper-on-Supervision-of-Control-Functions.pdf)
• Public Consultation: Draft Application Paper on Macroprudential Supervision (issued in March and available at https://www.iaisweb.org/uploads/2022/01/210308-Draft-Application-Paper-on-Macroprudential-Supervision.pdf)
• Public Consultation: Revised Application Paper on Combating Money Laundering and Terrorist Financing (issued in May and available at https://www.iaisweb.org/uploads/2022/01/210517-Revised-Application-Paper-on-Combating-Money-Laundering-and-Terrorist-Financing-clean.pdf)
• Public Consultation on Draft Revised Application Paper on Supervisory Colleges (issued in June and available at https://www.iaisweb.org/uploads/2022/01/210623-Draft-Revised-Application-Paper-on-Supervisory-Colleges.pdf)
• Public Consultation on Draft Issues Paper on Insurer Culture(issued in June and available at https://www.iaisweb.org/uploads/2022/01/210623-Draft-Issues-Paper-on-Insurer-Culture.pdf)
• Development of Liquidity Metrics: Phase 2, Public Consultation Document (issued in November and available at https://www.iaisweb.org/uploads/2022/01/211118-PCD-on-the-Development-of-Liquidity-Metrics-Phase-2-PUBLIC.pdf)

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 2021 Shared National Credit review is available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220214a.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.

Effective January 1, 2021, the Anti-Money-Laundering Act of 2020 (the Act) amended the Bank Secrecy Act, resulting in the most significant revision of the United States' framework for anti-money laundering and countering the financing of terrorism (AML/CFT) since 2001. The purpose of the Act is to improve coordination and information sharing; modernize AML/CFT laws; encourage technological innovations and the adoption of new technology; reinforce the risk-based approach to compliance; and establish uniform beneficial ownership information reporting requirements with a secure, nonpublic database for beneficial ownership information.

The Federal Reserve also participates in the Treasury-led BSA Advisory Group, which includes representatives of regulatory agencies, law enforcement, and the financial services industry.

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 continued to participate in the work of the FSB that resulted in the publication of a roadmap to enhance cross-border payments in October 2020, and the G-20 follow-up progress report published in October 2021, confirming the next steps of the initiative.

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. In addition, the Federal Reserve participated in meetings and roundtables during the year to discuss BSA/AML issues with foreign delegations from Mexico, Australia, Central America, 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 March 31, 2021, the Federal Reserve Board finalized a rule that codified, with amendments, an interagency statement issued in September 2018 confirming the role of supervisory guidance.¹⁵ The 2018 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.¹⁶ 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 are also required to submit reports periodically to the Federal Reserve. For more information on the various reporting forms, see https://www.federalreserve.gov/apps/reportforms/.

Effective during 2021, the following regulatory reporting forms had substantive revisions:

• Consolidated Financial Statements for Holding Companies (FR Y-9C)—The Board revised the report related to the temporary asset thresholds interim final rule and the total loss-absorbing capacity (TLAC) rulemaking¹⁷ applicable to category I and category II banking organizations.¹⁸ The Board also revised the report to collect contact information for the holding company's chief executive officer (CEO) and identify institutions with 100 or more full-time equivalent employees. These items will allow the Board's Office of Minority and Women Inclusion to invite Federal Reserve-regulated institutions with 100 or more full-time equivalent employees to participate in an annual, voluntary Diversity and Inclusion Self-Assessment Questionnaire.¹⁹ This item also allows the agencies to communicate important and time-sensitive information to CEOs. An item was also added to identify early adopters of the standardized approach for counterparty credit risk (SA-CCR), and two glossary entries were revised to reflect recent changes to FDIC regulations (brokered deposits final rule).²⁰
• Capital Assessments and Stress Testing Information Collection Reports (FR Y-14)—In 2020, the Board temporarily revised the FR Y-14 to capture data regarding emerging risks arising from the COVID event. In 2021, these temporary revisions expired and are no longer required to be reported to the Federal Reserve. In addition to the expiration of these temporary revisions, the Board also revised the reports to collect data related to the TLAC requirements, adding new regulatory capital items, and amending the instructions for existing regulatory capital items consistent with the FR Y-9C revisions noted above.
• 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)—The Board revised the reports to conform with the temporary asset thresholds interim final rule, 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 through the end of 2021.
• Complex Institution Liquidity Monitoring Report (FR 2052a)—The Board revised the report to be consistent with the banking agencies' implementation of the net stable funding ratio rule, which became effective July 1, 2021. The revisions also improved the Board's insights into G-SIB interconnectedness, synthetic prime brokerage exposures, and other liquidity positions.

FFIEC Regulatory Reports

The Federal Reserve, along with the other member FFIEC agencies, requires financial institutions to submit various uniform regulatory reports.²¹ 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 2021, 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 and to improve the agencies' monitoring of certain deposits and international exposures. The following FFIEC reports had substantive revisions:

• Consolidated Reports of Condition and Income (FFIEC 031, 041, 051, collectively Call Reports)—The FFIEC member agencies revised the measurement date used for certain asset thresholds that trigger additional reporting requirements. The changes, which impacted all three versions of the Call Report, provided temporary reporting relief to institutions with asset growth in 2020 associated with participation in various COVID event-related stimulus activities. The agencies focused on asset thresholds that could impact a significant number of smaller community institutions. Additionally, the member agencies revised the reporting of certain brokered deposits and sweep deposits to be consistent with a final rule issued by the FDIC related to brokered deposits and interest rate restrictions. The agencies made revisions to each version of the Call Report but tailored the granularity and frequency of the reporting based on the size and complexity of the respondents.
• Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002)—Consistent with changes made to the Call Reports for insured depository institutions, the FFIEC member agencies revised the report to monitor certain brokered deposits and sweep deposits at the insured branches and agencies of foreign banks.
• Country Exposure Report for U.S. Branches and Agencies of Foreign Banks (FFIEC 019)—The agencies removed the five-country limit on the reporting of gross claims on foreign nations to which the U.S. branch or agency has its largest total exposures of at least $20 million. For consistency, the reporting form was revised to include the list of countries and codes that are reflected on the FFIEC 009. The agencies also made clarifications to the definitions and treatment of certain items in the instructions to be consistent with the FFIEC 009.

Staff Development Programs

The Federal Reserve's staff development program supports the ongoing development of nearly 4,000 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 2021 are summarized in table 4.4.

Table 4.4. Training for supervision and regulation, 2021

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, (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 2021, 95 examiners passed the proficiency examination (36 in CBO, 21 in consumer compliance, and 38 in LFI). In an effort to ensure minimal disruption to assistant examiners, virtual delivery of content continued throughout 2021.

Continuing Professional Development

The Federal Reserve provides 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 commissioning, learn about emerging concepts and practices, and expand knowledge into highly specialized supervisory topics. A number of learning and communication solutions are developed or curated, including Rapid Response webinars, podcasts, self-guided learning plans on specialty topics, and other content produced for just-in-time communication to supervisory staff about emerging issues and regulatory policy.

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 2021, the Federal Reserve, working with the other federal banking agencies, announced a variety of policy actions to promote the safety and soundness, transparency, and efficiency of the financial system. The Federal Reserve issued the following rules and statements in 2021 (see table 4.5).

Table 4.5. Federal Reserve or interagency rulemakings/statements/guidance (proposed and final), 2021

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 2021, the Federal Reserve acted on 1,006 applications filed under the six relevant statutes.

The Federal Reserve publishes 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