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May 6, 2022

Today’s Federal Reserve Report Shows That the Fed Continues to Fail to Oversee Wall Street’s Largest Banks, Which Continue to Fail Their Basic Risk Management Obligations

WASHINGTON, D.C.—Phillip Basil, Director of Banking Policy at Better Markets, released the following statement upon the Federal Reserve’s release today of its semi-annual report on supervision and regulation:

“Wall Street’s biggest banks remain far too dangerous due to their ongoing failures of basic risk management as highlighted by the Federal Reserve’s semi-annual report on Supervision and Regulation released today.  Adding insult to injury, these risk management failures have been ongoing while banks have been making record profits throughout the pandemic and failing to sufficiently support America’s households and businesses.  Put differently, the banks have been pocketing outsized profits because they are shortchanging essential risk management and lending.  Worse, the Fed is letting them do that year-after-year.

“The report notes that ‘some [of the largest] firms continue to face challenges, particularly related to governance and controls.’ But these are issues that have been highlighted since the first Supervision and Regulation report in 2018, which actually detailed that the weaknesses in bank processes are related to the Bank Secrecy Act and anti-money laundering as well as IT risk management (including cybersecurity), model risk management, and internal audit functions. These issues have led to and been compounded by the basic risk management failures identified in response to the Archegos debacle, which we previously detailed here.

“Governance and controls are the backbone of risk management and are fundamental to protecting the bank, the financial system, and our economy from needless risks, including failure, contagion, and taxpayer bailouts.  Fixing these inexcusable deficiencies are years overdue, proving that the Fed itself is failing to use its tools for strong and assertive enforcement for these too-big-to-fail banks.

“It is a disservice to the American people for the Fed not to hold these banks, their executives and board members accountable to fix these issues after more than four years.  It is past time for the Fed to force these banks to put some of their record pandemic profits to work to fix these egregious failures in their risk management processes and support the American economy with increased lending.”

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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.

Contact: Anton Becker at 202-618-6430 or abecker@bettermarkets.org

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