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 promote 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 2023, a total of 1,411 banks (excluding non-depository trust companies and private banks) were members of the Federal Reserve System, of which 706 were state chartered. Federal Reserve System member banks operated 47,166 branches and accounted for 34 percent of all commercial banks in the United States and 67 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 2023, a total of 3,794 U.S. bank holding companies (BHCs) were in operation, of which 3,407 were top-tier BHCs. These organizations controlled 3,486 insured commercial banks and held approximately 95 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 2023, a total of 502 domestic BHCs and 45 foreign banking organizations had FHC status. Of the domestic FHCs, 23 had consolidated assets of $100 billion or more; 62 between $10 billion and $100 billion; 191 between $1 billion and $10 billion; and 226 less than $1 billion.

Savings and Loan Holding Companies

At year-end 2023, a total of 287 savings and loan holding companies (SLHCs) were in operation, of which 148 were top-tier SLHCs. These SLHCs controlled 160 depository institutions. Approximately 94 percent of SLHCs engage primarily in depository or broker-dealer activities. These firms hold approximately 62 percent ($852.6 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 (5 SLHCs) and commercial activities (4 SLHCs). The 25 largest SLHCs accounted for almost $1.3 trillion of total combined assets.

At year-end 2023, the Federal Reserve supervised five companies that own depository institutions and are significantly engaged in insurance activities. All five of these institutions were SLHCs. As of December 31, 2023, they had approximately $425 billion in total assets. Two of these firms have total assets greater than $100 billion, and insured depository assets represent less than half of total assets for four of the five SLHCs.

In 2022, the Federal Reserve proposed and finalized a supervisory framework for insurance organizations that are overseen by the Board. The supervisory framework consists of a risk-based approach to supervisory expectations and activities; a unique supervisory ratings system; and reliance, to the fullest extent possible, on the work performed by other relevant supervisors, including the state insurance regulators. In 2023, the Federal Reserve made progress in implementing this framework, including by issuing ratings under the new system for four supervised insurance organizations.

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.

In July 2012, the Financial Stability Oversight Council (FSOC) 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.¹ 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 2023, a total of 21 member banks were operating 251 branches in foreign countries and overseas areas of the United States. Ten national banks were operating 197 of these branches, 11 state member banks were operating 42 of these branches, and 5 nonmember banks were operating the remaining 12.

Edge Act and agreement corporations. At year-end 2023, out of 33 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 2023, a total of 131 foreign banks from 47 countries operated 139 state-licensed branches and agencies, of which 6 were insured by the FDIC, and 48 OCC-licensed branches and agencies, of which 4 were insured by the FDIC. These foreign banks also owned six Edge Act and agreement corporations. In addition, they held a controlling interest in 33 U.S. commercial banks. Altogether, the U.S. offices of these foreign banks controlled approximately 17.8 percent of U.S. commercial banking assets. These 131 foreign banks also operated 88 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 684 examinations of foreign banks in 2023.

Supervisory Developments

Supervisory and Regulatory Initiatives

The Federal Reserve's supervision activities include examinations and inspections to help ensure that financial institutions operate in a safe and sound manner and comply with laws and regulations, including consumer protection. These include an assessment of a financial institution's risk-management systems, financial conditions, governance and controls, 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.

Supervisory priorities are focused on both previously identified supervisory findings and emerging concerns arising from changing economic conditions. Examiners monitor and assess a supervised institution's remediation of supervisory findings in areas, such as independent risk management and controls, compliance, operational and cyber resilience, and information technology.

In 2023, the Federal Reserve conducted 316 examinations of state member banks, 2,894 inspections of bank holding companies, and 120 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. Additionally, the Federal Reserve took a number of actions, including enhanced monitoring to stabilize the banking environment after two bank failures (box 4.2).

Table 4.2. Savings and loan holding companies, 2019–23

Table 4.3. State member banks and bank holding companies, 2019–23

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.

In June 2023, the Federal Reserve conducted its annual stress test, which showed that the large banking firms tested had sufficient levels of capital and could continue lending to households and businesses during a severe recession. In July 2023, the Federal Reserve announced the individual capital requirements for large banks, which include the stress capital buffer requirement based on the results of the 2023 stress test. These requirements became effective as of October 1, 2023.

For the first time, the Federal Reserve also published an exploratory market shock that applied only to U.S. global systemically important banks and posed a different set of risks than the global market shock component.² Consistent with the nature of an exploratory exercise, the exploratory market shock did not contribute to the capital requirements set by the 2023 stress test. For stress testing publications released in 2023, see box 4.3.

Fiduciary Activities

In 2023, Federal Reserve examiners conducted 73 fiduciary examinations of state member banks and non-depository trust companies.

Transfer Agents

During 2023, the Federal Reserve conducted transfer agent examinations at three state member banks and two 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 the U.S. Treasury regulations governing dealing and brokering in government securities. During 2023, 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 2023, the Federal Reserve examined six 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.

Operational Resilience, Information Technology, and Cybersecurity

Effective operational risk management and resilience are vital to the safety and soundness of financial institutions and the stability of the U.S. financial system.³ The Federal Reserve provides guidance, tools, and educational resources to assist supervised institutions in managing such risks.

In June 2023, the Board, the FDIC, and the OCC issued the Interagency Guidance on Third-Party Relationships: Risk Management that describes principles and considerations for banking organizations' risk management of third-party relationships, including key considerations for cybersecurity and operational risks associated with such relationships.

In July 2023, staff from the Board and other federal banking agencies conducted an "Ask the Regulator" session to highlight key aspects of the third-party risk-management guidance and its application to banks. In November 2023, Board staff conducted an "Ask the Fed" session to address questions about the guidance from banks, including smaller banks.

The Federal Reserve examined and monitored supervised institutions for operational risks as part of its safety and soundness supervision:

• In 2023, Federal Reserve examiners, in close coordination with the other federal banking agencies, conducted examinations of IT activities (inclusive of cyber risk-management activities) and targeted cybersecurity assessments of the large financial institutions, and service providers.
• Federal Reserve examiners also conducted tailored cybersecurity assessments at community and regional banking organizations.
• Under the authority of the Bank Service Company Act, the federal banking agencies examined technology service providers that provide services for specific regulated financial institutions.

The Federal Reserve collaborated with other financial regulators, U.S Treasury, and private industry to promote effective safeguards against operational and cyber risks to the financial services sector and its critical infrastructure. This included contributions to the Federal Financial Institutions Examination Council's (FFIEC's) IT Subcommittee and Cybersecurity and Critical Infrastructure Subcommittee, the Financial and Banking Information Infrastructure Committee, the Cybersecurity Forum for Independent and Executive Branch Regulator, the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency Cyber Incident Reporting Council, and Cyber Incident Reporting for Critical Infrastructure Act-related deliberations. The Federal Reserve, together with the other members of the Financial Banking Information Infrastructure Committee (FBIIC) and the Financial Services Sector Coordinating Council, collaborated on financial sector resilience initiatives, including participation in the Cloud Executive Steering Group.⁴

The Board led or contributed to cybersecurity activities undertaken by various international groups. Board staff continued to participate in the work of the Financial Stability Board (FSB) to address current and emerging operational risks. This resulted in the publication of the policy documents, "Enhancing Third-Party Risk Management and Oversight: A toolkit for financial institutions and financial authorities" and "Recommendations to Achieve Greater Convergence in Cyber Incident Reporting: Final Report.⁵

 

Crypto-Asset Supervision

Novel Activities Supervision Program

In 2023, the Federal Reserve System launched the Novel Activities Supervision Program to enhance the supervision of novel activities conducted by banking organizations supervised by the Federal Reserve.⁶ The goal of the program is to foster innovation at banking organizations while recognizing and appropriately addressing risks to help ensure the safety and soundness of the banking system. The program focuses on novel activities related to crypto-assets; distributed ledger technology; and complex, technology-driven partnerships with nonbanks to deliver financial services to customers.

The Federal Reserve established this program with dedicated staff to maintain strong and consistent oversight of novel activities at supervised institutions, and to help ensure that the novel risks associated with innovation are appropriately addressed. By bringing together staff focused on novel activities, the Federal Reserve's knowledge of these activities can grow more rapidly and continue to build upon and enhance technical expertise related to novel activities. The program will also inform the development of supervisory approaches and guidance for banking organizations engaging in novel activities, as warranted.

Crypto-Related Activities

In 2023, the Federal Reserve issued a number of statements with respect to banking organizations' engagement in crypto-asset related activities and with the crypto-sector. On January 3, 2023, the Federal Reserve, the OCC, and the FDIC issued a joint statement of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of. The highlighted risks included fraud and scams; legal uncertainties; inaccurate or misleading representations and disclosures; volatility; runs on stablecoins; interconnectedness among crypto-asset participants; immature governance and risk management practices; and heightened risks associated with open, public, and/or decentralized networks, among others.

On February 23, the agencies issued a second statement focused on liquidity risk and the potential volatility of funding inflows and outflows associated with crypto-asset activity. On August 8, 2023, the Federal Reserve published SR letter 23-08/CA letter 23-08, "Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens," describing the process through which state member banks may seek a supervisory nonobjection before conducting certain activities involving "dollar tokens."⁷ The supervisory nonobjection expectation was first articulated in the Board's January 27, 2023, Policy Statement on section 9(13) of the Federal Reserve Act (Policy Statement).⁸ The SR letter does not create any new substantive expectations but lays out the process state member banks should follow to obtain such supervisory nonobjection. The letter notes that Federal Reserve staff will focus on operational, cyber security, liquidity, illicit finance, and consumer compliance risks.

Climate-Related Financial Risks

In 2023, the Board launched a pilot Climate Scenario Analysis exercise to learn about large banking organizations' climate risk-management practices and challenges and to enhance the ability of both large banking organizations and supervisors to identify, measure, monitor, and manage climate-related financial risks. As described in the Participant Instructions released on January 17, 2023, the exercise considered the impact of physical and transition risk scenarios of varying levels of severity on participating banks' balance sheets. The exercise was exploratory in nature and does not have consequences for bank capital or supervisory implications.⁹

On October 24, 2023, the Board, along with other federal banking regulatory agencies, finalized principles that provide a high-level framework for the safe and sound management of exposures to climate-related financial risks for large financial institutions.¹⁰ The principles are intended for institutions with $100 billion or more in total assets and address physical and transition risks associated with climate change. General climate-related financial risk management principles are provided with respect to a financial institution's governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Additionally, the principles describe how climate-related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks.

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 or unsound practices and violations of 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 2023, the Federal Reserve completed 63 formal enforcement actions. Civil money penalties totaling $542,329,952.20 were assessed. As directed by statute, all civil money penalties are remitted to either the U.S. Treasury or the Federal Emergency Management Agency. The Reserve Banks completed 99 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).

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.¹¹

In 2023, one state member bank was required to submit data to the Federal Reserve. These data are made available upon request and are primarily used for disclosure to the bank's shareholders and public investors.

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 1994.¹² The appeals process includes two levels of review. A panel of Reserve Bank staff who are not employed by the Reserve Bank with supervisory responsibility of the financial institution 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 not satisfied with the initial review panel's decision, the institution may request a final review of the MSD. A panel of senior Board staff conducts 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 and Ombuds policy.¹³

In 2023, the Board received one MSD appeal from a state member community banking organization. The Board also granted one request for an extension to file an appeal from another state member community banking organization.

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 FSOC 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 to the U.S. Treasury $771,050,870 from 53 institutions for the 2022 S&R Regulation TT assessment in 2023.

Training and Technical Assistance

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

International Training and Technical Assistance

In 2023, 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. The Federal Reserve organized 20 training seminars, held both onshore and overseas, for the benefit of foreign supervisory authorities. Approximately 900 financial institution supervisors from foreign central banks and supervisory agencies attended these training events during 2023.

Federal Reserve staff also collaborated with the International Monetary Fund and the World Bank to organize two training events for senior supervisory officials. Other training partners that collaborated with the Federal Reserve during 2023 to organize training events included the Association of Bank Supervisors of the Americas, the National Banking and Securities Commission of Mexico, and the European Central Bank.

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.¹⁴ 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 program supports an inclusive financial system and helps facilitate access to credit and other financial services in traditionally underserved areas.

The Federal Reserve maintains the PFP website, which supports MDIs by providing them with technical information and links to useful resources.¹⁵ 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 2023, the Federal Reserve's MDI portfolio consisted of 16 state member banks.

Throughout 2023, the System supported MDIs and conducted a number of outreach initiatives, webinars, and conferences specific to MDIs, including the following:

• 2023 Interagency Minority Depository Institution and CDFI Bank Conference: The Federal Reserve along with the FDIC and OCC, hosted the biennial interagency conference for MDI and Community Development Financial Institution (CDFI) banks on November 15–16, 2023, at the Federal Reserve Bank of Dallas. The conference theme was "MDI and CDFI Bank Partnership Exchange" and focused on collaboration, partnership, and promoting the mission of MDIs and CDFIs among leaders at these institutions.
• September 2023 Minorities in Banking Forum: The Federal Reserve Bank of Dallas hosted the System's annual Minorities in Banking Forum on September 27–28, 2023. This forum was for mid-level and senior banking leaders in the financial services industry and focused on leadership, diversity, and career enhancement.
• National Bankers Association: Board staff represented PFP at the National Bankers Association conference in Washington, D.C. The conference focused on building partnerships, technology, capital, and deposits.
• Bank Term Funding Program: The PFP team hosted a special "Ask the Fed" webinar on the Bank Term Funding Program for MDIs and CDFIs.
• Emergency Capital Investment Program (ECIP):¹⁶ The PFP, along with the FDIC and OCC, hosted an ECIP Interagency Webinar to provide MDIs with technical assistance on supervisory expectations for ECIP recipients.

International Engagement

As a member of the FSB 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.

Financial Stability Board

In 2023, 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 practices. Priority areas for the year included enhancing cross-border payments, finalizing recommendations for regulating and supervising crypto-assets and stablecoins, revising recommendations to address vulnerabilities of open-ended funds, and developing a toolkit for enhancing third-party risk management and oversight. The full range of the Federal Reserve's FSB 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. Examples issued in 2023 include

• The Financial Stability Risks of Decentralised Finance (issued in February and available at https://www.fsb.org/2023/02/the-financial-stability-risks-of-decentralised-finance/)
• The Financial Stability Aspects of Commodities Markets (issued in February and available at https://www.fsb.org/2023/02/the-financial-stability-aspects-of-commodities-markets/)

• High-level Recommendations for the Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets: Final Report (issued in July and available at https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-markets-final-report/)
• The Financial Stability Implications of Leverage in Non-Bank Financial Intermediation (issued in September and available at https://www.fsb.org/2023/09/the-financial-stability-implications-of-leverage-in-non-bank-financial-intermediation/)
• Annual Progress Report on Meeting the Targets for Cross-Border Payments: 2023 Report on Key Performance Indicators (issued in October and available at https://www.fsb.org/2023/10/annual-progress-report-on-meeting-the-targets-for-cross-border-payments-2023-report-on-key-performance-indicators/)
• Final Report on Enhancing Third-Party Risk Management and Oversight – A Toolkit for Financial Institutions and Financial Authorities (issued in December and available at https://www.fsb.org/2023/12/final-report-on-enhancing-third-party-risk-management-and-oversight-a-toolkit-for-financial-institutions-and-financial-authorities/)
• Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (issued in December and available at https://www.fsb.org/2023/12/revised-policy-recommendations-to-address-structural-vulnerabilities-from-liquidity-mismatch-in-open-ended-funds/)

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

Basel Committee on Banking Supervision

During 2023, the Federal Reserve contributed to Basel Committee on Banking Supervision (BCBS) supervisory policy recommendations, reports, papers, and consultations designed to improve the supervision of banking organizations' practices.¹⁷ In 2023, the BCBS was particularly focused on supporting the implementation of Basel III reforms, reviewing the 2023 banking turmoil, analyzing the digitalization of finance, and tracking emerging risks to the banking system.

Examples of final BCBS documents issued in 2023 include

• Progress in Adopting the Principles for Effective Risk Data Aggregation and Risk Reporting (issued in November and available at https://www.bis.org/bcbs/publ/d559.htm)
• Newsletter on the Implementation of the Principles for the Effective Management and Supervision of Climate-Related Financial Risks (issued in November and available at https://www.bis.org/publ/bcbs_nl33.htm)
• Finalisation of Various Technical Amendments (issued in November and available at https://www.bis.org/bcbs/publ/d557.htm)
• Report on the 2023 Banking Turmoil (issued in October and available at https://www.bis.org/bcbs/publ/d555.htm)
• Basel III Monitoring Report (issued in September and available at https://www.bis.org/bcbs/publ/d554.htm)
• Newsletter on Credit Risk Issues (issued in July and available at https://www.bis.org/publ/bcbs_nl32.htm)

Examples of consultative BCBS documents issued in 2023 include

• Recalibration of Shocks for Interest Rate Risk in the Banking Book (issued in December and available at https://www.bis.org/bcbs/publ/d561.htm)
• Disclosure of Climate-Related Financial Risks (issued in November and available at https://www.bis.org/bcbs/publ/d560.htm)

• Disclosure of Cryptoasset Exposures (issued in October and available at https://www.bis.org/bcbs/publ/d556.htm)
• Core Principles for Effective Banking Supervision (final consultation issued in July and available at https://www.bis.org/bcbs/publ/d551.htm)

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

Committee on Payments and Market Infrastructures

In 2023, 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 continued to coordinate with the FSB to advance the G-20 priority to enhance global cross-border payments. In 2023, the program moved into a phase focused on practical improvements. In this phase, the CPMI's focus was to encourage and facilitate action by both the public and private sectors as well as facilitate collaboration and engagement with a broad group of stakeholders.

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 2023, CPMI-IOSCO advanced work on practices for addressing non-default losses at CCPs and margining practices. In addition, CPMI-IOSCO continued to monitor implementation of the Principles for Financial Market Infrastructures.

Some examples of 2023 CPMI publications include

• Exploring Multilateral Platforms for Cross-Border Payments (published by CPMI, the BIS Innovation Hub, the International Monetary Fund, and the World Bank in January and available at https://www.bis.org/cpmi/publ/d213.pdf)
• Operational and Technical Considerations for Extending and Aligning Payment System Operating Hours for Cross-Border Payments: An Analytical Framework (published by CPMI in February and available at https://www.bis.org/cpmi/publ/d214.pdf)
• Facilitating Increased Adoption of Payment Versus Payment (PvP) (published by CPMI in March and available at https://www.bis.org/cpmi/publ/d216.pdf)
• Margin Dynamics in Centrally Cleared Commodities Markets in 2022 (published by CPMI, IOSCO, and BCBS in May and available at https://www.bis.org/bcbs/publ/d550.pdf)
• Report on Current Central Counterparty Practices to Address Non-Default Losses (published by CPMI and IOSCO in August and available at https://www.bis.org/cpmi/publ/d217.pdf)
• Harmonised ISO 20022 Data Requirements for Enhancing Cross-Border Payments (published by CPMI in October and available at https://www.bis.org/cpmi/publ/d218.pdf)
• Considerations for the Use of Stablecoin Arrangements in Cross-Border Payments (published by CPMI in October and available at https://www.bis.org/cpmi/publ/d220.pdf)

Example of a consultative CPMI document issued in 2023 include

• Linking Fast Payment Systems Across Borders: Considerations for Governance and Oversight (published by CPMI in October and available at https://www.bis.org/cpmi/publ/d219.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 2023 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 standards that have the potential to significantly impact the U.S. insurance market.

In 2023, the IAIS made progress on several initiatives. The IAIS finalized the criteria for assessing whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard (ICS), consulted on several associated ICPs, and progressed work on incorporating climate risk guidance into certain ICPs.

Examples of IAIS documents issued in 2023 include

• Issues Paper on Roles and Functioning of Policyholder Protection Schemes (PPSs) (issued in December and available at https://www.iaisweb.org/2023/12/iais-publishes-issues-paper-on-roles-and-functioning-of-policyholder-protection-schemes-ppss/)
• Public Consultation on Insurance Capital Standard as a Prescribed Capital Requirement (issued in June and available at https://www.iaisweb.org/uploads/2023/06/ICS-as-a-PCR-Public-consultation-document.pdf)
• Explanatory Note on the Final Criteria for the Aggregation Method Comparability Assessment (issued in March and available at https://www.iaisweb.org/uploads/2023/03/explanatory-note-on-the-final-criteria-for-the-aggregation-method-comparability-assessment.pdf)
• Public Consultation on ICP 14 (Valuation) and ICP 17 (Capital Adequacy) (issued in June and available at https://www.iaisweb.org/uploads/2023/06/Draft-Revised-ICP-14.pdf and https://www.iaisweb.org/uploads/2023/06/Draft-Revised-ICP-17.pdf)
• Public Consultation on Climate Risk Supervisory Guidance – Part One (issued in March and available at https://www.iaisweb.org/uploads/2023/03/climate-risk-supervisory-guidance-part-one.pdf)

A comprehensive list of IAIS publications is available at https://www.iaisweb.org/publications.

The Federal Reserve's Insurance Policy Advisory Committee (IPAC) continued to provide advice to the Board in 2023 on various matters under consideration at the IAIS among other insurance issues. The IPAC was established by the Economic Growth, Regulatory Relief, and Consumer Protection Act to provide information, advice, and recommendations on international insurance capital standards and other insurance issues.¹⁸ In 2023, the IPAC commented on the IAIS's consultation on the ICS from a U.S. life insurance industry perspective. The IPAC also explored potential liquidity concerns for life insurers due to rising rates. The Working Group concluded that life insurers have strong liquidity positions and that the rising rates were unlikely to cause issues within the industry. Additionally, the IPAC established a Climate Working Group to advise the Board on the climate insurance issues in the United States.

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 2023 Shared National Credit review is available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230224a.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.

During 2023, the Federal Reserve continued to participate 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 and Office of Foreign Assets Control examination process.

The Anti-Money-Laundering Act of 2020 (AML 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 continues to work with the U.S. Treasury, federal banking, and other agencies to implement the relevant sections of the AML Act.

The Federal Reserve continued to participate in the U.S. 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 participated in a number of international coordination initiatives related to sanctions, money laundering, and terrorism financing. The Federal Reserve continued to monitor and share information with relevant groups regarding the changing sanctions landscape and, in particular, the ongoing global sanctions resulting from Russia's invasion of Ukraine.

Additionally, 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 also continued to participate in the work of the FSB that resulted in the publication of the October 2023 publication of the G–20 Roadmap for Enhancing Cross-border Payments Consolidated progress report for 2023.¹⁹

The Federal Reserve also continued to participate in committees and subcommittees through the Bank for International Settlements. Specifically, the Federal Reserve actively participated in the AML Experts Group under the BCBS that focuses on AML and CFT issues. The Federal Reserve participated in meetings and roundtables during the year to discuss AML/CFT issues with delegations from countries and regions, such as the European Union, Japan, Singapore, the United Kingdom, and Uzbekistan. Additionally, the Federal Reserve provided technical training regarding AML/CFT risks and examinations via seminars hosted by banking supervisors in the Caribbean and West African regions. These dialogues are designed to promote information sharing and understanding of AML/CFT issues between U.S. and country-specific financial sectors.

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.²⁰ 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 2023, the following regulatory reporting forms had substantive revisions:

• Capital and Asset Report for Foreign Banking Organizations (FR Y-7Q)—The Board revised the FR Y-7Q report to (1) collect the total combined U.S. assets net of intercompany balances and transactions, based on a quarterly average, (2) require the three items that capture U.S. assets to be filed by all respondents on a calendar quarter-end or year-end basis, (3) as of December 31, 2023, change the due date for all FR Y-7Q filers that also file the Systemic Risk Report (FR Y-15; Office of Management and Budgets (OMB) No. 7100‑0352) from 90 days to 70 days after the report date and as of December 31, 2024, change the due date for the remaining FR Y-7Q filers who are not eligible to file the FR Y-15, from 90 days to 70 days after the report date, and (4) make other minor clarifications and conforming edits to the form and instructions. The revisions were effective as of the December 31, 2023, report date for FR Y-7Q respondents that are also required to file the FR Y-15 report. For all other FR Y-7Q respondents, the revisions will be effective as of the December 31, 2024, report date.²¹
• Consolidated Financial Statements for Holding Companies (FR Y-9C)—Section 604 of the Financial Services Regulatory Relief Act of 2006 requires the Board, OCC, and FDIC (the banking agencies) to perform every five years, a review of information collected in the FFIEC Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC 051) (statutorily mandated review) to reduce or eliminate information or schedules that the banking agencies determine are no longer necessary. The banking agencies completed the statutorily mandated review in 2023 and eliminated or consolidated certain line items from the Call Reports.²² To reduce burden, the Board made conforming revisions to the FR Y-9C.²³ The revisions were effective as of the September 30, 2023, report date.
• Capital Assessments and Stress Testing (FR Y-14)—The Board revised the FR Y-14Q in connection with a proposal finalized in 2022.²⁴ These revisions serve to better identify risks not currently captured in the supervisory stress test, facilitate data reconciliation, and mitigate ambiguity within the instructions. The revisions were effective as of the June 30, 2023, report date.
• Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies and Annual Report of Merchant Banking Investments Held for an Extended Period (FR Y-12 and FR Y-12A)—The Board revised the FR Y-12 and FR Y-12A to (1) specify when respondents should submit their reports if the submission deadline falls on a weekend or holiday, (2) add a recordkeeping requirement that respondents must maintain a record of the data submitted for three years and maintain either a physical or an electronic scanned copy of the manually signed and attested submission, (3) clarify what is included in the amount of the aggregate nonfinancial equity investment, and (4) align the submission deadline of the FR Y-12A with that of the FR Y-12. The revisions were effective as of the December 31, 2023, report date.²⁵
• Single-Counterparty Credit Limits (FR 2590)—The Board revised the FR 2590 to (1) add a table for calculating derivative transaction exposures using the standardized approach for counterparty credit risk (SA-CCR) that captures collateral received, (2) clarify a respondent that is an FBO subject to a large exposure standard on a consolidated basis established by its home-country supervisor is not required to provide additional documentation as part of its submission, (3) clarify that respondents should use the tier 1 capital and total consolidated assets data that is concurrent with its FR 2590 submission, and (4) make other minor clarifications and conforming edits.²⁶ The revisions were finalized December 28, 2023, and will be effective as of the June 30, 2024, report date.

FFIEC Regulatory Reports

The Federal Reserve, along with the other FFIEC member agencies, requires financial institutions to submit various uniform regulatory reports.²⁷ 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 2023, the FFIEC member agencies completed a statutorily mandated review of the FFIEC Call Reports and revised other reports to improve the monitoring of certain hedging activity and country exposures.

• Consolidated Reports of Condition and Income (FFIEC 031, 041, 051)—As noted above, every five years, section 604 of the Financial Services Regulatory Relief Act of 2006 requires the banking agencies to conduct a review of the information and schedules that are required to be filed by an insured depository institution on the Call Reports. Under the auspices of the FFIEC, the banking agencies completed the statutorily mandated review in 2022 and, following a request for public comment and approval by the OMB, the FFIEC member agencies eliminated or consolidated certain data items on the Call Reports effective as of the September 30, 2023, report date.²⁸
• Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002)—The FFIEC member agencies revised the FFIEC 002 to be consistent with changes made to the Call Reports resulting from the 2022 statutorily mandated review.²⁹ These changes were effective as of the September 30, 2023, report date.

Staff Development Programs

The Federal Reserve's staff development program supports the ongoing development of nearly 4,200 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 2023 are summarized in table 4.4.

Table 4.4. Training for supervision and regulation, 2023

Examiner Commissioning Program

An overview of the Federal Reserve System's Examiner Commissioning Program for assistant examiners is set forth in SR letter 17-6/CA letter 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 2023, 74 examiners passed the proficiency examination (35 in CBO, 6 in consumer compliance, and 33 in LFI).

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 2023, 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 2023 (see table 4.5).

Table 4.5. Federal Reserve or interagency rulemakings/statements/guidance (proposed and final), 2023

Banking Applications

The Federal Reserve reviews applications submitted by BHCs, state member banks, SLHCs, foreign banking organizations, and other entities for approval to undertake various transactions and to engage in new activities. In 2023, the Federal Reserve acted on 752 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