Strategic Theme 1: Supervision, Regulation, and Financial Stability

Continue building a robust interdisciplinary 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 propose to the Board 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 international and multilateral financial stability groups to adopt 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 the design of crisis-management tools that might be used in response to various contingencies that could threaten financial stability. Given the breadth and potential implications of this overall agenda, 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

• Continue development of the remaining major post-crisis regulatory reform rulemaking and guidance.
• Develop and implement resolution and recovery planning programs.
• Implement Supervision and Regulation Letter 12-17 through the development of supervisory expectations, tailored programs, and finalization of a new ratings framework for these firms.
• Capture and incorporate information from a broad array of internal and external sources, including consumer and other external groups, into a risk-assessment framework.
• Support the Chair, as a member of the Financial Stability Oversight Council (FSOC), in identifying risks and responding to emerging threats to financial stability.

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

To support the Board, 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 on these issues.

Projects and Initiatives

• Produce more forward-looking risk reports using new and existing data sources and metrics.
• 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.

The Board will continue ongoing monitoring of individual institutions and infrastructures, particularly those that have broader consequences for the financial system and the macroeconomy. The Board will continue implementing forward-looking risk-identification approaches 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

• Develop and implement frameworks for new supervisory programs, including nonbank systemically important financial institutions (SIFIs) and foreign banking organizations. Provide updated guidance on consumer compliance risk-focused supervision program.
• Develop supervisory approaches for community banking organizations, regional banking organizations, and savings and loan holding companies that identify and support taking action against early warning indicators of outlier risk.
• 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 financial market utilities (FMUs).
  • 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 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 FSOC with respect to monitoring systemic risk, coordinating interagency dialogue, and issues related to SIFIs and designated FMUs.
  • 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.

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

At the direction of the Board, staff will pursue a broad research agenda to assess the effectiveness and implications for the macroeconomy and financial markets of crisis-management tools 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 Federal Reserve's crisis-management tools.
• 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, Board staff will continue to assess the effectiveness of various macroprudential policies and their interactions with monetary policy. Board 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 staff 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.

Board 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 structures of internationally active institutions and changes in the regulatory environment.

Projects and Initiatives

• Contribute to basic research on financial stability and macroprudential tools through the publication of working papers, academic journal articles, and other publications, as well as 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 crossborder linkages among financial institutions and financial sectors, particularly with respect to their implications for financial stability.

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