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April 2, 2014

Bank Risk Management Scrutinized

WASHINGTON—“Bank regulators are turning their focus from balance sheets to boardrooms as they try to forestall the chance of another financial crisis by forcing banks to better understand and manage their own risks.”

“The Federal Reserve’s rejection last week of Citigroup Inc. C +0.62% ‘s plan to reward investors stems from this effort to improve management at large, complex banks. Six years after the financial crisis, regulators remain concerned that banks lack insight into their own operations, including measuring risk and planning for a crisis.”

“Fueling those worries is that so far most large banks have failed to meet new heightened expectations on risk management outlined by the Office of the Comptroller of the Currency after the financial crisis. OCC officials, in an interview, said just two of the 19 firms subject to the new expectations meet the broad standards. The OCC declined to identify the two banks.”

“The agency also has proposed requirements on corporate boards, including having two independent directors on boards of national banks and independent offices to track and monitor activity in all business lines. The Fed in January outlined more detailed expectations for the eight largest U.S. banks when it comes to planning for a potential failure and uses its annual “‘stress tests‘” to force banks to rethink capital or management decisions.”

“Banks that don’t live up to regulators’ expectations could face repercussions, including having their plans rejected as part of the stress-test exercise or other sanctions, like a drop in supervisory ratings or an enforcement action. The OCC’s proposal calls for swifter punishment for banks that run afoul of the requirements.”


Read full Wall Street Journal article here.

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