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 contributing to regulatory reform activities that enhance the resilience of the financial sector and coordinate with other federal supervisory agencies regarding related regulatory efforts. Staff will also develop and implement a wide array of policies and guidance to supervisory programs that address legislative mandates and changes in economic environments. In addition, staff will collaborate with financial stability groups to incorporate a multidisciplinary approach to emerging financial stability risks. These efforts will include steps to develop and implement macroprudential policies that will limit the probability of, and adverse consequences from, financial crisis. Finally, under the direction of the Board and Federal Open Market Committee (FOMC), staff will engage in designing potential crisis-management tools to respond as appropriate to various contingencies that could threaten financial stability. 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 macroeconomy.

Projects and Initiatives

• Develop additional policies and tools to strengthen financial stability and develop work programs that support these initiatives.
• Support the Chair, as a member of the Financial Stability Oversight Council, in identifying and monitoring threats to financial stability, and to propose actions to mitigate them.
• Develop and implement new policy proposals and amend supervisory programs as needed to address legislative mandates and changes in the economic and international environments.
  • Finalize and implement major rulemakings and guidance, including enhanced prudential standards, capital surcharges, liquidity regulation, long-term debt requirements, organizational changes, incentive compensation, and Consumer Financial Protection Bureau coordination.
  • Develop and implement a Systemwide program for resolution and recovery planning.
• Collaborate with groups inside and outside the System that are engaged in financial stability assessments to identify macroprudential and emerging risks and to determine actions to be taken in response; communicate the identified risks and the associated responses to key stakeholders.
  • Continue to look for ways to incorporate a multidisciplinary view to identify macroprudential and emerging risks, incorporating information generated by other parts of the Federal Reserve System (FRS) and other agencies engaged in financial stability assessment.

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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, risks and risk-management practices, and regulatory and other incentives for financial institutions to appropriately manage risk exposures. Ongoing communications will inform the staff about financial market developments that bear on financial stability and U.S. monetary policy. Staff will engage in ongoing communications with the Board and the FOMC about financial market developments that bear on financial stability and U.S. monetary policy.

Projects and Initiatives

• Develop and implement a forward-looking and proactive approach to the identification and mitigation of risk with potential systemic implications within and across supervisory portfolios.
  • Issue and implement an advisory letter to better coordinate System risk efforts and resources.
  • Produce forward-looking risk reports better utilizing new and existing data sources and metrics.
  • Develop and implement an approach to capture and incorporate a broad array of internal and external sources into the risk-assessment framework. Sources should include consumers and other external groups to evaluate banking products and strategies that could pose risks to the banking system.
  • Expand data available for systemic risk analysis, including developing protocols to access over-the-counter derivatives data maintained in trade repositories located in the United States and abroad and encouraging the collection of new data on securities financing trades.
  • Develop systemic risk-monitoring tools and conduct analysis of Financial Market Utilities (FMU).
• Develop analytical tools, conduct monitoring activities, and use horizontal reviews of multiple financial institutions to enhance the Board's understanding of evolving market structures and practices and incorporate the results into the policy and supervisory process.
• Continue to provide analysis to the Board and the FOMC about financial market developments that bear on financial stability and U.S. monetary policy.
  • Continue to enhance quantitative surveillance (QS) financial stability assessments.

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Objective 1.3: Monitor and supervise individual institutions and infrastructures.

Staff will continue ongoing monitoring of individual institutions and infrastructures, particularly those that have broader consequences for the financial system and the macroeconomy. Board staff will continue implementing forward-looking risk-identification aspects to supervisory programs across all portfolios. Board staff will seek comment on a number of proposed rules and revisions covering various financial entities and sectors as outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

Projects and Initiatives

• Implement forward-looking aspects to supervisory programs focused on banks and bank holding companies to incorporate data analytics and a fully integrated process to respond to risks at the institution-level and at the portfolio and industry level; clarify and communicate expectations for reliance on other supervisors.
  • Develop and implement frameworks for new supervisory programs, including nonbank systemically important financial institutions (SIFIs), foreign banking organizations, and consumer compliance risk-focused supervision.
  • Develop supervisory approaches for community banking organizations, regional banking organizations, and savings and loan holding companies that identify and support supervisory action informed by early warning indicators of financial institution risk outliers.
  • Implement supervisory letters and develop programs to tailor capital and liquidity planning and expectations.
• Implement a supervisory data and technology strategy in collaboration and consistent with the framework established under strategic theme 2 of this document.
• Seek comment on rules and revisions covering various financial entities and sectors as outlined in the Dodd-Frank Act.

• Execute effectively the Federal Reserve's supervisory programs for FMUs.

  • Finalize revisions to the risk-management standards in Regulation HH for designated financial market utilities (FMU) subject to the Board's supervision and companion revisions to the Board's policy on payment system risk.
  • Enhance quantitative oversight of FMUs, particularly with respect to the margining of new, more complex clearable instruments, stress-testing practices, and liquidity arrangements.
  • Continue to actively coordinate with other federal supervisory agencies regarding their supervisory efforts related to FMUs; in particular, foster improvements to central counterparty risk policies and promote consistent regulations.
  • Coordinate effectively on regulatory and supervisory matters that cut across the institutional and infrastructure portfolios within the Federal Reserve.
• Support the Chair as a member of the Financial Stability Oversight Committee with respect to monitoring systemic risk, coordinating interagency dialogue, and issues related to SIFIs and designated FMUs.

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

Board staff will use a broad research agenda to assess the macroeconomic and financial market effectiveness of crisis-management tools, such as the discount window, and work to build the capacity to assess quickly the nature of financial stresses that might threaten financial stability in a crisis.

Projects and Initiatives

• Continue to improve the effectiveness of the discount window as a crisis-management tool.
• Contribute to domestic and international efforts to improve the quality of financial data that can better inform crisis-management decisions.

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Objective 1.5: Analyze for the Board and 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 interactions with monetary policy. Staff will contribute to supervisory exercises to increase the resilience of financial institutions through financial stability assessments from the 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.

Projects and Initiatives

• Assess the effectiveness of macroprudential policies and their interaction with monetary policy.
• Monitor risks to financial stability, analyze linkages between the financial and real sectors, and evaluate alternative policy options to potentially address building systemic risks.

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

Staff will continue to undertake research to assess the economic effects of proposed macroprudential policies on financial institutions in the United States and abroad throughout the year, including in response to changes to the structure of internationally active institutions and changes in the regulatory environment.

Projects and Initiatives

• Contribute to basic research on financial stability and macroprudential tools through publication of working papers, academic journal articles, other publications, and participation in professional conferences.
• Promote research on related topics through Federal Reserve System efforts, including long-term research projects integrated with the QS process.
• Integrate, as appropriate, research results into ongoing policy discussions at the Board through briefings and participation in associated work streams.
• Continue work identifying and analyzing cross-border linkages among financial institutions and financial sectors, particularly with respect to their implications for financial stability.

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