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November 10, 2022

Today’s Federal Reserve Report Shows It Is the End of the Era of “Hands Off” Supervision

WASHINGTON, D.C.—Phillip Basil, Director of Banking Policy at Better Markets, issued this statement in response to the Federal Reserve’s release today of its semi-annual Supervision and Regulation Report:

“Today’s Federal Reserve Supervision and Regulation report makes clear that the Trump-era ‘kinder, gentler’ approach to supervision of the country’s biggest too-big-to-fail banks is over. Without meaningful supervisory oversight and consequences from the Fed, there is no incentive for banks to prioritize their risk management systems, processes, and practices, which is why the largest banks have had outstanding deficiencies in basic risk management for many years. Fortunately, the Fed’s priorities have changed – the report clearly states that supervisory priorities will be focused on ‘remediation of previously identified supervisory findings,’ which are long overdue and critical to preventing financial instability.

“As we highlighted last year, the same governance and controls risks at the largest banks have been outlined in the Fed’s reports year after year, clearly indicating that the supervisors and the banks have not been working to remediate these issues on any reasonable or appropriate timeline. Again this year, these same issues related to governance and controls – which are the backbone of risk management and are fundamental to protecting the banks, the financial system, and our economy – were noted, but with a message to the banks that fixing them is once again a priority. Combined with the other stated focus from the report on the risks facing the economy and financial markets, it is clear that banking supervision is returning to its core mission – promoting the safety and soundness of the nation’s banking system by ensuring banks are appropriately managing their risks so that they don’t materialize and cause a financial crisis if not a crash.

“However, to truly fulfill this mission the Fed must also commit to utilizing meaningful supervisory consequences – such as restricting dividends, share buybacks, and bonuses or issuing public enforcement actions – when it identifies significant risks or when banks are taking too long to fix their issues. Such consequences are necessary to ensure banks prioritize risk management over shareholder payouts and bonuses and protect the American economy and taxpayer from future bank failures and bailouts.”

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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

 

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