Regulatory policies implemented over the past decade have contributed significantly to improving the safety and soundness of banking organizations and the financial system so they are able to support the needs of the economy through good times and bad. Today, U.S. banking firms are significantly better capitalized and have much stronger liquidity positions. They rely less on short-term wholesale funding, which can evaporate quickly during periods of stress. The largest banking firms have also developed resolution plans that reduce the potential negative systemic impact that could result in the event of their failures.

As the regulatory framework has been strengthened, the Federal Reserve has also focused on the efficiency of financial institution supervision. Compliance burden should be minimized without compromising the safety and soundness gains that have been made in recent years. In addition, the Federal Reserve continues to tailor its regulations, ensuring that the rules vary with the risk of the institution.

In an effort to refine the post-crisis supervisory and regulatory framework, the Board promotes the principles of efficiency, transparency, and simplicity.

Efficiency involves developing and implementing regulations and supervision programs that tailor requirements and intensity appropriately based on the size and complexity of institutions. In addition, the Federal Reserve aims to minimize compliance burden while achieving regulatory and financial stability objectives.2

Transparency is not only a core requirement for accountability to the public, but also benefits the regulatory process by exposing ideas to a variety of perspectives. Similarly, transparent supervisory principles and guidance allow firms and the public to understand the basis on which supervisory decisions are made and allow firms the ability to respond constructively to supervisors.

Simplicity complements and reinforces transparency by promoting the public's understanding of the Board's regulatory and supervisory programs. Confusion and unnecessary compliance burden resulting from overly complex regulation do not advance the goal of a safe financial system.

Since the crisis, the Federal Reserve has substantially strengthened its supervisory programs for the largest institutions.

The financial crisis made clear that policymakers needed to address more substantially the threat to financial stability posed by the largest and most complex banking organizations, in particular those considered systemically important. As a result, the Federal Reserve has strategically shifted supervisory resources to its large bank supervision programs. For the largest, most systemically important financial institutions, the Large Institution Supervision Coordinating Committee (LISCC) was established in 2010 to oversee a national program for these firms.3 An increased number of horizontal examinations were introduced, focusing on capital, liquidity, governance and controls, and resolution planning.4 In addition, financial and management information collections from large institutions increased, giving supervisors more timely and better insight into firms' risk profiles and activities.

The Federal Reserve also enhanced its supervision programs for smaller institutions to address lessons learned during the crisis…

During the financial crisis of 2007-09, a large number of regional and community banks failed or experienced financial stress. Accordingly, the Federal Reserve took steps to improve its regional and community bank supervision programs to enhance expectations for examinations, particularly for those conducted at banks with significant concentrations of credit risk in particular loan segments or that relied significantly on less-stable funding sources.

…and has more recently focused on tailoring its supervisory expectations to minimize regulatory burden whenever possible without compromising safety and soundness.

As banking conditions have improved and regulators have gained more experience implementing the post-crisis regulatory regime, the Federal Reserve, along with other regulatory agencies, has recalibrated supervisory programs to ensure they are effectively and efficiently achieving their goals. As a result, the agencies have implemented several burden-reducing supervisory changes, including

  • reducing the volume of financial data that smaller, less-risky banks must submit to the agencies each quarter,
  • increasing the loan size under which regulations require banks to obtain formal real estate appraisals for commercial loans, and
  • proposing changes to simplify regulatory capital rules.

In addition, the Federal Reserve has taken steps to reduce the amount of undue burden associated with examinations, including conducting portions of examinations offsite. There has also been an increased emphasis on risk-focusing examination activities, where more in-depth examinations are conducted for banks identified as high risk or in areas with high-risk activities, and less-intensive examinations are conducted at lower-risk banks, or in lines of businesses at banks that have historically been lower in risk.



 2. As discussed in Box 9, "State Member Bank and Consolidated Supervision," the Federal Reserve's bank holding company supervision program also involves reliance on--and extensive coordination with--the insured depository primary regulator in order to reduce burden and duplicative efforts, thereby promoting efficiency. Return to text

 3. See also Supervision and Regulation (SR) letter 15-7, "Governance Structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program," at to text

 4. Horizontal examinations are exercises in which several institutions are examined simultaneously. Doing so encompasses both firm-specific supervision and the development of broader perspectives across firms. Return to text

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Last Update: June 21, 2022