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Part II
Board of Governors of the Federal Reserve System
A. Introduction
The Board of Governors of the Federal Reserve System is the federal supervisor
and regulator of all U.S. bank holding companies and of state-chartered
commercial banks that are members of the Federal Reserve System. In addition,
the Federal Reserve has responsibility for the supervision of all Edge Act and
agreement corporations; the international operations of state member banks and
U.S. bank holding companies; and the operations of foreign banking companies in
the United States. In overseeing these organizations, the Federal Reserve primarily
seeks to promote their safe and sound operation and their compliance with laws
and regulations.
As part of its efforts to promote sound practices and to improve the quality and
consistency of supervision, the Federal Reserve has continued its extensive
program of regulatory review to help minimize the burden of regulation on
banking organizations. The objectives of the program are to ensure that all
regulations, existing and proposed, represent the best course of action; to afford
interested parties the opportunity to participate in the design of regulations and to
comment on them; and to ensure that regulations are written in simple, clear
language. Staff members regularly review Federal Reserve regulations for their
adherence to these objectives and their consistency with the mandates of section
303(a) of the Riegle Community Development and Regulatory Improvement Act
of 1994 (CDRI), to the Regulatory Flexibility Act (which requires that
consideration be given to the economic consequences of regulation on small
business), and to other statutes providing guidance on the regulatory process.
Since the filing of the original CDRI section 303 study1, the Federal Reserve has
worked assiduously in continuing to carry out the goals of section 303. We are
pleased to report here an overview of the significant accomplishments of the
Federal Reserve in furthering the goals of regulatory burden relief and regulatory
uniformity since the filing of the 1996 report. These significant accomplishments
are followed by a summary of the status of each Federal Reserve regulation
regarding our efforts in achieving these objectives.
1 Joint Report: Streamlining of Regulatory Requirements (September 23, 1996).
Part II
Board of Governors of the Federal Reserve System
A. Introduction
The Board of Governors of the Federal Reserve System is the federal supervisor
and regulator of all U.S. bank holding companies and of state-chartered
commercial banks that are members of the Federal Reserve System. In addition,
the Federal Reserve has responsibility for the supervision of all Edge Act and
agreement corporations; the international operations of state member banks and
U.S. bank holding companies; and the operations of foreign banking companies in
the United States. In overseeing these organizations, the Federal Reserve primarily
seeks to promote their safe and sound operation and their compliance with laws
and regulations.
As part of its efforts to promote sound practices and to improve the quality and
consistency of supervision, the Federal Reserve has continued its extensive
program of regulatory review to help minimize the burden of regulation on
banking organizations. The objectives of the program are to ensure that all
regulations, existing and proposed, represent the best course of action; to afford
interested parties the opportunity to participate in the design of regulations and to
comment on them; and to ensure that regulations are written in simple, clear
language. Staff members regularly review Federal Reserve regulations for their
adherence to these objectives and their consistency with the mandates of section
303(a) of the Riegle Community Development and Regulatory Improvement Act
of 1994 (CDRI), to the Regulatory Flexibility Act (which requires that
consideration be given to the economic consequences of regulation on small
business), and to other statutes providing guidance on the regulatory process.
Since the filing of the original CDRI section 303 study1, the Federal Reserve has
worked assiduously in continuing to carry out the goals of section 303. We are
pleased to report here an overview of the significant accomplishments of the
Federal Reserve in furthering the goals of regulatory burden relief and regulatory
uniformity since the filing of the 1996 report. These significant accomplishments
are followed by a summary of the status of each Federal Reserve regulation
regarding our efforts in achieving these objectives.
1 Joint Report: Streamlining of Regulatory Requirements (September 23, 1996).
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B. Major Accomplishments
1. Risk-focused Supervision Framework
In 1997, the Federal Reserve formally adopted a framework for risk-focused
supervision of large complex institutions and parallel frameworks for community
banks and shell bank holding companies. The main objective of this program is to
sharpen the focus of the supervisory process on those business activities that pose
the greatest risks to the soundness of a banking organization and the financial
system more generally. Central to accomplishing this objective is an assessment of
an organization's management systems to identify, measure, monitor, and control
its risks. Such an assessment allows supervisors to identify and address
weaknesses on a timely basis. It can also be more cost-effective for supervisors
and less burdensome to banking organizations.
In June 1999, the Federal Reserve introduced enhancements to its existing risk-
focused framework by providing more specific guidance on the applicability of the
program to large complex banking organizations (LCBOs). These enhancements
are intended to provide a flexible framework that can respond to changes taking
place in the financial system and adapt to the risk profile of individual banking
organizations, while still achieving all key supervisory objectives. The LCBO
program is expected to also improve supervisory coordination and efficiency and
lessen burden on banking organizations.
The Federal Reserve has also taken steps to increase the efficiency of its state
member bank consumer compliance examinations. In January 1999, the Board
adopted a risk-focused supervisory approach designed to utilize Federal Reserve
System consumer compliance examination resources more effectively and to
reduce the examination burden on the banks supervised by the Federal Reserve.
This program incorporates several components and includes: new examination
procedures that target the areas of greatest risk to a state member bank; a
monitoring program which enables Federal Reserve staff to keep abreast of
changes in a bank’s compliance risk profile between examinations; and an outreach
program designed to promote compliance in a setting outside of the examination or
monitoring function.
B. Major Accomplishments
1. Risk-focused Supervision Framework
In 1997, the Federal Reserve formally adopted a framework for risk-focused
supervision of large complex institutions and parallel frameworks for community
banks and shell bank holding companies. The main objective of this program is to
sharpen the focus of the supervisory process on those business activities that pose
the greatest risks to the soundness of a banking organization and the financial
system more generally. Central to accomplishing this objective is an assessment of
an organization's management systems to identify, measure, monitor, and control
its risks. Such an assessment allows supervisors to identify and address
weaknesses on a timely basis. It can also be more cost-effective for supervisors
and less burdensome to banking organizations.
In June 1999, the Federal Reserve introduced enhancements to its existing risk-
focused framework by providing more specific guidance on the applicability of the
program to large complex banking organizations (LCBOs). These enhancements
are intended to provide a flexible framework that can respond to changes taking
place in the financial system and adapt to the risk profile of individual banking
organizations, while still achieving all key supervisory objectives. The LCBO
program is expected to also improve supervisory coordination and efficiency and
lessen burden on banking organizations.
The Federal Reserve has also taken steps to increase the efficiency of its state
member bank consumer compliance examinations. In January 1999, the Board
adopted a risk-focused supervisory approach designed to utilize Federal Reserve
System consumer compliance examination resources more effectively and to
reduce the examination burden on the banks supervised by the Federal Reserve.
This program incorporates several components and includes: new examination
procedures that target the areas of greatest risk to a state member bank; a
monitoring program which enables Federal Reserve staff to keep abreast of
changes in a bank’s compliance risk profile between examinations; and an outreach
program designed to promote compliance in a setting outside of the examination or
monitoring function.