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Board of Governors of the Federal Reserve System
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Annual Performance Report 2012

Strategic Themes


Strategic Theme 1


Continue Building a Robust Infrastructure for Regulation, Supervision, and Monitoring Risks to Financial Stability

The financial crisis of 2007-2009 has resulted in an enhanced approach to supervision and regulation, which places a heightened emphasis on the health of both individual institutions and the financial system as a whole. As a result, the Board has emphasized its interdisciplinary approach to regulation and supervision, regularly involving economists, legal experts, and regulatory experts in supervisory exercises and in rulewriting.

In addition, the Board has increased its base of knowledge and experience concerning fundamental business drivers, related risks, the interconnectedness of the modern financial landscape, and potential outcomes in a complex and dynamic market environment.

Finally, the Board's role in the supervisory oversight of systemically important firms has expanded. The Dodd-Frank Act gives the Federal Reserve responsibilities and powers to oversee additional financial institutions that the interagency council (FSOC) designates as systemically important. The act also formalized several of the macroprudential tools that supervisors and regulators use, including stress tests, resolution and recovery planning, source-of-strength guarantees, and early remediation requirements.

With the new legal authority in place, the Board has begun to design and build a new policy infrastructure to support its financial stability and prudential supervisory strategies. The Board is coordinating supervision across systemically important firms and leading the development and execution of supervisory efforts. As a coordinator directly participating in supervisory exercises, the Board is uniquely positioned to bring a horizontal perspective concerning systemically important institutions--particularly how changing market conditions are affecting individual firms and financial stability as a whole.

Strategic Objectives

Strategic objective 1: Strengthen the stability of the financial sector through the development of policies, tools, and standards.

Strategic objective 2: Monitor financial markets and industry practices and structures.

Strategic objective 3: Monitor and supervise individual financial institutions and infrastructures.

Strategic objective 4: Ensure that sufficient crisis management tools are in place.

Strategic objective 5: Analyze for the Board and FOMC the role that financial stability concerns should play in setting monetary policy.

Strategic objective 6: Pursue research on stress tests, macroprudential regulation and tools, and other financial stability topics.

Roles and Responsibilities

The policy infrastructure for financial stability will bring resources and expertise together from multiple Board divisions. Three economics divisions (IF, MA, and R&S) and the OFS will continue to drive the Board's research agenda, participate in market monitoring, and collaborate with BS&R and the Federal Reserve Banks on stress tests and cross-institutional reviews focused on particular practices in the financial industry as a whole (horizontal reviews).

These functional areas will also participate and support the Large Institution Supervision Coordinating Committee (LISCC) activities, as required, and develop crisis management tools. OFS will coordinate much of the Federal Reserve's involvement in interagency and international financial stability policymaking groups, including FSOC and the FSB. The Legal Division will lead some Dodd-Frank Act implementation initiatives and review all new rules. Legal will also continue to provide advice to the banking supervision function.

Potential Risks and Challenges

The success of the Board's financial stability and supervisory strategy depends on retaining the right mix of skills and expertise, developing sufficient Federal Reserve System capacity, and ensuring high levels of coordination across divisions and across the System.

Without these additional resources, the Board risks delaying its expanded mandate for institutional regulation and financial stability. Failure to fully implement new supervisory rules, activities, and processes could jeopardize the soundness of individual institutions and the financial system at large.

The Board also faces risks to its operational capabilities through staff turnover, as some staff continue to labor under crisis-levels demands on their time and functional capacity. They may leave the Board due to the demanding pace of work, and the Board would have difficulty replacing their specialized skills.

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Strategic Theme 2


Redesign Data Governance and Management Processes to Enhance the Board's Data Environment

Data and data management play a critical role in fulfilling the Board's mission. As the Board's mandate has expanded in the wake of the financial crisis and the passage of the Dodd-Frank Act, so has the need for data to meet the breadth and depth of analytical issues that staff are now addressing.

The Board's current process for managing data served the organization well when the Board managed relatively small and predictable data sets that required limited sharing across divisions and within the System. However, the Board and the System now require a data governance and management structure that supports a growing quantity of data and an increased need to share data more broadly while ensuring the operational flexibility required by the Board's data users.

The success of the Board's strategy concerning financial system stability and supervisory strategy depends on proper data management. Implementing a data governance framework will be an important complement to the Board's investment in enhanced research capability. Effective and efficient data management will enhance staff's ability to obtain, interpret, and analyze the large volume of data that new supervisory responsibilities will require. As supervision is a delegated function that is coordinated by the Board, data management for the supervision function will require a System perspective.

Strategic Objectives

Strategic objective 1: Improve data governance by establishing a new Office of the Chief Data Officer and ensuring that there are clear roles and responsibilities among the chief data officer, the Board Data Council, and data users.

Strategic objective 2: Ensure that all enterprise data are handled, processed, stored, and disseminated by professional data management groups.

Strategic objective 3: Strengthen the Board's data environment by establishing an infrastructure to share data and improve opportunities for data integration that supports the Board's research and analytical capabilities.

Roles and Responsibilities

Economists and analysts across the Board's economics divisions, OFS, BS&R, RBOPS, and C&CA will provide input on the development of data policies, including the types of data needed, consistency of policies, and the degree of coordination across the System.

The Board's IT division will play a critical role in designing the overall data environment, including providing the supporting IT infrastructure in coordination with System and Reserve Bank IT partners (as required to support the data needs of Board functions delegated to Reserve Banks). The Board's Legal Division will work closely with the Board's Research Library to develop standards for license-usage agreements with vendors to ensure appropriate use.

Potential Risks and Challenges

The financial crisis and the Board's mandate under the Dodd-Frank Act have created five specific challenges related to data: quantity, sharing, awareness, access and controls, and quality.

Quantity. Since the financial crisis, the quantity of data required for economic research, policy analysis, and supervisory purposes--both its variety and volume--has increased dramatically, straining current arrangements.

Sharing. The need to share data among Board divisions, the System, and other federal agencies has also increased. There are many more instances where data are already shared, either in an organized manner or informally. However, data sharing has been difficult due to large file sizes and constraints in the existing data environment. The increased need to share data places a burden on the owners of the data since they must serve not only as data managers but also as service providers.

Awareness. Board staff members are not aware either of what data are available or of the full characteristics of such data due to the limitations of available catalogs. In addition, it is important to know the full range of data that the Board collects from the public and regulated parties in order to ensure the Board's continued compliance with the requirements of the Paperwork Reduction Act of 1980.

Controls and access. The Board does not have a uniform set of policies for data security and controls beyond the Federal Information Security Management Act of 2002. This constrains the process of both granting and gaining access to data.

For acquired data, users need to be aware that the data may be subject to a unique set of licensing restrictions. The Board has developed a set of standards for license and usage agreements with vendors to ensure appropriate use; as new license agreements are negotiated, these standards will be implemented for additional data sets.

Quality. Since the onset of the financial crisis, ad hoc data collections have increased; thus, uniformity and guidance are necessary to ensure appropriate data quality.

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Strategic Theme 3


Ensure a Modern, Safe Work Environment that Emphasizes the Need to Maintain Data Quality and Integrity and the Importance of Enhanced Collaboration within the Organization and with the Public

Data Center Relocation

The Board's Data Center provides the infrastructure that makes data and servers available to the Board and System for monetary policy, financial supervision, consumer protection, and economic research. Data Center and operational staff are critical in maintaining the Board's computer systems and associated components. Board staff, primarily from its IT and economics divisions, are responsible for determining the infrastructure needs and maintenance requirements of the Data Center.

To be able to meet the increased quantity of data demanded by the economic and supervision function after the financial crisis, the Data Center has had to increase its capacity significantly. In the past two years alone, the Data Center's storage capacity has nearly quadrupled as the number of physical and virtual servers has increased and has also driven the growth of supporting infrastructure. The resulting increased density of storage and computer systems has exceeded the cooling and power capacity of the Data Center.

Strategic Objectives

Strategic Objective 1: Create the capacity for increased data demand.

Strategic Objective 2: Address critical Data Center subsystem requirements.

Roles and Responsibilities

IT, R&S, and MGT will be the primary divisions involved in the Data Center relocation. These divisions will work together to coordinate an agreement, plan the Data Center relocation, and ensure the continuity of operations during the transition.

Potential Risks and Challenges

The Data Center relocation includes a significant initial investment because of the requirement to build out the associated space. Unintended issues or challenges could result in cost overruns or late delivery, which would impact accomplishment of the Board's mission.

Martin Building Renovation

Ensuring a safe and adequate work environment for individuals and groups to work and meet is a key component of the Board's overall strategy. There have been no significant renovations completed on the Martin Building facility since its construction in 1974.

Short-term upgrades have been made as issues have arisen, but the drive to reduce upfront capital costs has made it more difficult to reduce long-term operating costs. This trade-off has led to an outdated, inefficient building that does not meet the current needs of the Board in fulfilling its missions. Efforts associated with the renovation will focus on security, energy efficiency, meeting and conference space, and physical plant capacity.

Strategic objective 3: Create a safe and secure work environment.

Strategic objective 4: Upgrade physical infrastructure.

Strategic objective 5: Reduce utility consumption and expenses.

Roles and Responsibilities

MGT is responsible for securing sufficient leasing space to accommodate staff during the construction period, overseeing the renovation, and ensuring that the project is completed according to plan while meeting the Board's needs.

Potential Risks and Challenges

A renovation of this scope is a complex undertaking and there are significant implementation risks and transition-oriented challenges that must be managed, particularly as it relates to costs. Risks include disruption to staff during the renovation and ensuring that planning efforts address future space requirements.

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Strategic Theme 4


Create a Work Environment Built on Market-oriented Compensation and Support for Academic and Personal Achievement that Attracts and Retains Top Talent While Reinforcing Collegiality

The Board has added almost 400 positions in response to the financial crisis, the implementation of the Dodd-Frank Act, and the general functional support necessary to manage an organization of the Board's complexity and importance to the U.S. financial system and economy.

Over the next four years, the Board will add more full-time employees consistent with the themes described in this strategic framework. Maximizing the value of the Board's human capital will depend on enhancing processes for effective recruitment, development, and retention of qualified staff.

Strategic Objectives

Strategic objective 1: Increase efficiency and effectiveness of the existing performance management process.

Strategic objective 2: Reduce administrative burden associated with the adverse-action process while respecting employees' due-process rights.

Strategic objective 3: Enhance the talent management process (succession planning, development programs, training, etc.).

Strategic objective 4: Increase equitability in compensation and benefits, in closer alignment with the Federal Reserve System and market.

Roles and Responsibilities

MGT, working closely with all Board divisions and offices, will develop and implement the strategic objectives.

Potential Risks and Challenges

Performance Management

The Board will need to ensure that any change it makes to its performance management process does not prevent meaningful distinctions between high and low performers. The Board must also ensure that changes do not make the process more complicated.

Adverse Action

Changes that affect the rights of Board employees must be carefully considered and implemented to ensure compliance with law and to minimize negative effects on morale.

Succession Planning

Lack of a systematic approach to succession planning may lead to concerns that qualified staff are being lost. Moving toward a Board-wide succession-planning process will require significant staff support for governors and division directors as they prepare for talent-assessment sessions. Legal concerns must also be addressed in any succession-planning approach.

Compensation

There are three primary challenges that the Board needs to address in order to increase the effectiveness of its compensation administration system:

  • The Board has a fragmented system for administering compensation. Divisions have different standards for writing job descriptions, and because the salary of a position is linked to the job description, the variance in job descriptions allows different salaries for comparable work.
  • The current system does not link market rates to Board salaries and benefits for comparable positions. Failing to link market rates to salaries and benefits will limit the Board's ability to attract and retain top talent.
  • Variable pay (e.g., cash awards, targeted awards) for staff is limited and too fragmented, making it difficult to adequately distinguish and reward high performers with additional compensation.

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Strategic Theme 5


Strengthen Management Processes to Enable Effective Implementation of Strategic Themes, Increase Operating Efficiencies, and Reduce Administrative Burden

The Board defines "management processes" to mean the internal support processes necessary for long-term planning and short-term execution of the Board's priorities. Management processes can include strategic planning, budgeting, identification of cost savings, performance management, risk management, talent management, and knowledge sharing.

Enhancements to the Board's management processes will allow for increased ownership and accountability of leadership decisions, an enhanced ability to prioritize strategic needs, and a potentially reduced administrative burden.

Strategic Objectives

Strategic objective 1: Focus on enterprise issues.

Strategic objective 2: Strengthen financial planning accountability.

Strategic objective 3: Reduce financial management administrative burden.

Roles and Responsibilities

DFM will have primary responsibility for developing the framework to implement the strategic objectives.

Potential Risks and Challenges

Well-designed management processes are essential to driving enterprise-wide decisions, ensuring better coordination, and reducing administrative burden. However, organizational structure and role changes may be equally important, and these changes are difficult to raise and resolve. It is essential to have a single point of accountability for executing and ensuring compliance with these processes.

Another challenge with implementation is the difficulty with defining performance metrics and markers of progress related to strategic outcomes. For example, it is difficult to measure the delivery of high-quality policy insight. As such, it will be important to identify indirect indicators that will show that the Board is on the right track toward achieving desired outcomes.

Finally, the planned changes will require broad commitment from the workforce. To earn that commitment, leaders will need to invest sufficient time to explaining the need for change and what will be different. Appropriate communication of the Board's strategy to both internal and external audiences will be particularly important.

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Strategic Theme 6


Establish a Cost-reduction Approach and a Budgetary Growth Target that Maintains an Effective and Efficient Use of Financial Resources

The Board recognizes the importance of continuing to identify opportunities to enhance its operational efficiency and control growth in its operational costs. Implementing these changes will help ensure that the strategic investments remain within a sustainable budgetary range and provide the appropriate level of support so that the Board continues to meet its mandates and builds the capabilities to improve the way it fulfills its mission.

Strategic Objectives

Strategic objective 1: Use financial resources efficiently and effectively.

Strategic objective 2: Achieve budgetary savings and expense growth in line with Board-approved targets.

Roles and Responsibilities

The chief operating officer and the chief financial officer, working with the ECB and other senior staff across the organization, will have primary responsibility for developing the approach, quantifying expected savings, and overseeing implementation.

Potential Risks and Challenges

As part of this strategy, the Board expects to capture sufficient savings in its operating budget to offset some of the costs of the strategic priorities. There is inherent risk in trying to establish the proper balance between implementing cost-reduction initiatives and ensuring the appropriate level of resource investment to achieve the goals and objectives outlined in the strategic framework. The Board must ensure that reductions in its administrative and overhead functions do not impede day-to-day operations.

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Last update: May 15, 2013

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