Strategic Theme 1: Supervision, Regulation, and Financial Stability

Continue building a robust inter-disciplinary infrastructure for regulation, supervision, and monitoring risks to financial stability.

Objective 1.1: Strengthen the stability of the financial sector through the development of policies, tools, and standards.

Under the direction of the Board, Board staff will continue to contribute to regulatory reform activities that enhance the resilience of the financial sector and coordinate with other federal supervisory agencies regarding their similar regulatory efforts. Staff will also develop additional policies and tools to strengthen financial stability, including incorporating capital and liquidity analyses and reviews into the supervisory program and develop work programs that support these initiatives. Finally, under the direction of the Board and the Federal Open Market Committee (FOMC), staff will develop and deploy crisis management tools as appropriate. As part of ongoing activities, staff will monitor and analyze the effect of such regulations, policies, and tools on financial institutions, financial markets, and more generally on the macro economy.

Accomplishments

• Finalize Basel III capital rule and propose Basel III liquidity standards.

  • The U.S. regulatory capital rule that revises risk-based and leverage capital requirements for banking organizations was completed, www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.
  • The banking agencies proposed a rule to strengthen the liquidity positions of large financial institutions, www.federalreserve.gov/newsevents/press/bcreg/20131024a.htm.
• Finalize enhanced prudential standards for large, domestic bank holding companies (BHCs) as required by sections 165 and 166 of the Dodd-Frank Act.
  • Work progressed in this area with a target completion date of the first quarter of 2014.
• Incorporate new international risk management standards for financial market utilities (FMUs) into Federal Reserve regulation and policy.
  • Proposed amendments to Regulation HH and the Board's policy on payment system risk were issued for public comment on January 10, 2014, www.federalreserve.gov/newsevents/press/other/20140110b.htm.
• Develop implementing regulations for designated FMU access to Reserve Bank accounts and services under Title VIII of the Dodd-Frank Act.
  • On December 5, the Board approved a final rule amending Regulation HH to provide for regulations governing designated FMU access to Reserve Bank accounts and services under Title VIII of the Dodd-Frank Act, www.federalreserve.gov/newsevents/press/bcreg/20131205b.htm.

• Additional Dodd-Frank Act accomplishments

  • On December 10, the Board and four other agencies jointly issued final regulations implementing the "Volcker rule" requirements of section 13 of the Bank Holding Company Act, www.federalreserve.gov/newsevents/press/bcreg/20131210a.htm.
  • Continued to work with other prudential regulators and the U.S. Commodity Futures Trading Commission toward ultimately finalizing rules implementing the provisions of the Dodd-Frank Act requiring minimum margin requirements on uncleared swaps.

• Expand and improve Dodd-Frank stress tests and Comprehensive Capital Analysis and Review (CCAR).

  • The Dodd-Frank stress tests and CCAR began in November when supervisory macroeconomic stress scenarios were sent to the firms and were expanded to include 12 more firms, as required by the Dodd-Frank Act. The Federal Reserve staff issued a paper summarizing best practices for stress tests in August and has continued to advance modeling efforts.

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Objective 1.2: Monitor financial markets and industry practices and structures.

Staff will develop analytical tools and conduct monitoring activities that enhance the Board's understanding of evolving market structures and practices, including changes in global financial intermediation and capital allocation, evolving risks and risk-management practices, and regulatory and other incentives for financial institutions to appropriately manage risk exposures. As part of this effort, staff will continue to use horizontal reviews to better understand industry practice in key areas and incorporate the results into the policy and supervisory process. Ongoing communications will inform the Board and the FOMC about financial market developments that bear on financial stability and U.S. monetary policy.

Accomplishments

• Improve the Board's processes for identifying both institution-specific risks and broad industry risks by performing a zero-based review of surveillance activities and building a risk-monitoring framework.
  • Developed an internal policy governing the Supervision function's risk. The draft is in the final review stage with an expected issuance date of first quarter 2014.
  • Formed a Systemwide group to conduct a review of the surveillance business process with expected completion of the project in June 2014.
• Enhance Quantitative Surveillance (QS) Financial Stability Assessment
  • Completed four quarterly QS Assessment of Financial Stability reports highlighting various topics during the year.

• Enhanced program of data collection to monitor vulnerabilities of financial institutions. In particular, continued to revise and improve data collections from banks on trading, banking, operational risks, and liquidity positions.

• Worked with other financial stability authorities, including the Financial Stability Oversight Council (FSOC) created by the Dodd-Frank Act and the Financial Stability Board, in programs to identify and monitor threats to financial stability and to propose actions to mitigate them.

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Objective 1.3: Monitor and supervise individual institutions and infrastructures.

The Board will continue to implement community and regional bank initiatives to: clarify supervisory expectations, mitigate burden, foster prudent lending activity, and improve communications. The Board will seek comment on a number of proposed rules and revisions covering various financial entities and sectors as outlined in the Dodd-Frank Act. Staff will continue to monitor, on an ongoing basis, individual institutions and infrastructures, particularly those that have broader consequences for the financial system and the macroeconomy.

Accomplishments

• As part of the Dodd-Frank Act, issue for public comment a rule for collecting fees from certain companies that the Board estimates are necessary and appropriate to carry out its supervisory and regulatory responsibilities with respect to such companies.
  • Final assessment regulations became effective on October 25, 2013. Issued assessment invoices and collected fees from all institutions. Total collections of $433.5 million were transferred to the U.S. Treasury, www.federalreserve.gov/newsevents/press/bcreg/20130816a.htm.

• Revise roles and create governance documents that establish the Board's expectation of effective supervision by clarifying program requirements for each supervised portfolio and incorporating the results of horizontal reviews.
  • Completed horizontal reviews and a review of SR letters and internal guidance for community banking organizations, regional banking organizations, and savings and loan holding companies.
  • A review of SR letters and internal guidance for Foreign Banking Organizations is in progress.

• Consistent with the framework established in theme 2, develop and implement a comprehensive data governance and sharing plan to effectively receive, store, manage, and control access to data.

  • The Federal Reserve System Data Inventory Workgroup finalized and distributed a white paper summarizing enhancing data transparency.
  • The Subcommittee on Supervisory Administration and Technology and the Large Institution Supervision Coordinating Committee (LISCC) Operating Committee endorsed the S&R Data Technology Roadmap Initiative.
  • Planning for the CCAR 2014 and Federal Reserve (FR) Y-14 operational support model enhancements was completed. Requirements were finalized and technical design was initiated for the build-out of CCAR 2014.

• Build out Federal Reserve supervisory programs for financial market infrastructures (FMI), including working with other federal agencies and international authorities to strengthen FMI supervision.

  • Developed and piloted new risk-based examination planning procedures for FMIs, implemented a rigorous risk-based tool, and piloted new internal FMI supervisory rating system.
  • Conducted or participated in review of all eight designated financial market utilities under Title VIII of the Dodd-Frank Act.

• Monitor and assess the risk profiles of foreign banking organization activities in the United States.

  • Developed new instructions for forms to identify potentially missed cross-border positions with nonbank affiliates of reporting banks.

• Other

  • Supported the Chairman, in his capacity as a member of the Financial Stability Oversight Council (FSOC), with respect to the designation process for nonbank systematically important financial institutions (SIFIs) under Title I of the Dodd-Frank Act; the FSOC designated three institutions as nonbank SIFIs in July.

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Objective 1.4: Ensure that sufficient crisis-management tools are in place.

The Board will use a broad research agenda to assess the macroeconomic and financial market effects of crisis-management tools and contribute to domestic and international efforts to improve the quality of financial data that can better inform crisis-management decisions.

Accomplishments

• Continue to implement a recovery and resolution plan program for large BHCs.

  • Completed communication for first wave plan filers regarding plan submissions and supervisory standards in the second quarter of 2013.
  • Completed initiative to develop guidance for crisis-management groups through training at face-to-face meetings.

• Develop crisis-management and liquidity tools, including coordination of international response.

  • Published for comment proposed amendments to Regulation A (Extension of Credit by Federal Reserve Banks, 12 CFR Part 201) that would implement the amendments enacted by the Dodd-Frank Act to the Federal Reserve's emergency lending authority in section 13(3) of the Federal Reserve Act, www.federalreserve.gov/newsevents/press/bcreg/bcreg20131223a1.pdf.
  • Conducted background work and developed a proposal for the FOMC, which led to the Committee's decision, along with the decisions of the Federal Reserve's counterparty central banks, to convert the central bank liquidity swap lines from temporary lines with pre-set expiration dates to standing lines, http://federalreserve.gov/newsevents/press/monetary/20131031a.htm.

• Analyze and refine options to use the discount window and other liquidity tools.

  • Continued work on improving the effectiveness of the discount window as a crisis-management tool.

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Objective 1.5: Analyze for the Board and the FOMC the role that financial stability policy should play in the setting of monetary policy.

Under the direction of the Board, staff will continue to assess the effectiveness of various macroprudential policies and their interaction with monetary policy. Staff will contribute to supervisory exercises to increase the resilience of financial institutions through financial stability assessments from the quantitative surveillance (QS) process. Staff will monitor risks to financial stability, analyze linkages between the financial and real sectors, and evaluate alternative policies to contain building systemic risks. Staff will continue briefing the Chair, other Board members, and the FOMC, as appropriate.

Accomplishments

• Staff studied the effectiveness of various macroprudential policies and their interaction with monetary policy.
• Staff performed ongoing monitoring of risks to financial stability, analyzing linkages between the financial and real sectors, and evaluating alternative policies to contain emerging systemic risks.
• Incorporated the latest QS assessment into the Tealbook.

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Objective 1.6: Pursue research on stress tests, macroprudential regulation and tools, and other financial stability topics.

In addition to pursuing the research areas defined in this strategic objective, staff will continue to work on efforts to develop and enhance analytical tools and data. Developmental rotational opportunities will be available to support the Board's Office of Financial Stability Policy and Research. Staff will consider possible policy responses to changes in financial globalization and interdependence as issues arise. Staff will assess the economic effects of proposed macroprudential policies on financial institutions in the United States and abroad throughout the year.

Accomplishments

• Used developmental rotational opportunities to support the Board's Office of Financial Stability Policy and Research.
• Staff evaluated potential policy responses to ongoing financial globalization and interdependencies and assessed the economic effects of proposed macroprudential policies on financial institutions in the United States and abroad throughout the year.
• Staff within the research divisions published more than 40 working papers (in the Finance and Economics Discussion Series (FEDS) or the International Finance Discussion Papers (IFDP) series) on financial stability topics throughout 2013, www.federalreserve.gov/econresdata/workingpapers.htm.

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