|For immediate release|
The Federal Reserve has issued guidance to supervisory staff and bankers on overseeing large complex banking organizations during a time of dramatic change in the financial system. The guidance, issued in a supervisory letter, emphasizes the importance of assessing key risk management processes and ongoing monitoring of an institution's risk profile, as well as tailoring the supervision program to an institution's principal business lines and risks.
Key elements of the program include designating a senior supervisor as the central point of contact for each institution and establishing a dedicated supervisory team with specialized skills and experience suited to each institution.
The approach recognizes that a small number of large and highly complex institutions account for a growing share of total banking assets. These institutions have moved into nontraditional activities including securities underwriting and dealing, derivatives trading, and loan securitizing. They are expanding their activities across both state and international borders. And, ongoing advances in information technology have increased the speed, complexity and volume of financial transactions, and thus have heightened the potential for swift changes in the risks confronting these institutions.
Under the approach outlined in the letter, the supervisory team will update its supervisory plan at least quarterly by reviewing a steady flow of relevant information, including internal management reports, internal and external audits and publicly available information. In some cases, supervisors may have direct on-line access to management information.
These streamlined techniques, emphasizing oversight of an institution's internal procedures for identifying and managing risk in contrast with traditional point-in-time examinations, should reduce the cost and burden of regulation. This approach also considers an institution's performance and risk-management procedures in relation to the performance and procedures of its peers.
To minimize duplicative regulatory effort, the approach requires close consultation with other domestic banking agencies, state insurance commissioners, securities regulators and foreign bank supervisors. The Federal Reserve is developing an information system, the Banking Organization National Desktop, to be introduced next year, to provide supervisors a user- friendly way of sharing information.
The supervisory letter is attached.
1999 Banking and consumer regulatory policy