US Federal Reserve officials are conducting an internal review of bank supervision aimed at improving regulators’ response to stress in the financial system, according to people familiar with the process.
The evaluation focuses on speeding up information flows and clearing lines of communication for bank examiners who now report to both regional US Fed bank officers and the Board of Governors in Washington. One potential outcome: Strengthening the regulatory authority of the regional banks that employ most of the US Fed’s bank supervisors.
“There is no reason why the supervisory function couldn’t be run on a decentralised basis with a common set of policies,” said Robert Eisenbeis, chief monetary economist for Cumberland Advisors and former research director at the Atlanta Fed. “If you want a different result, you have to change where the responsibilities lie.”
The US Fed’s politically-appointed Board of Governors is in charge of enforcing consumer protections and bank safety, while on-site supervision is delegated to the 12 regional reserve banks. The structure has a long history of a tug-of-war over information and authority that may have slowed the US Fed’s reaction to the crisis, which has led to $1.3 trillion in bank write-downs and losses worldwide.
“Let’s face it: They didn’t see this coming, just as most investors and most bankers didn’t see it coming,” said Kevin Fitzsimmons, managing director at Sandler O’Neill Partners in New York.