Supervision criteria for large banks will soon be published by the Federal Reserve, a member of the agency’s board said Monday, calling the publication an “important step” in improved transparency in the oversight program by the central bank.
Speaking to the American Bankers Association in Orlando, Fla., Federal Reserve Board Gov. Michelle W. Bowman said the publication of the supervision criteria applied by the agency’s Large Institution Supervision Coordinating Committee – also known as the LISCC manual – fulfills a duty of transparency by the Fed to all its regulated institutions.
“Banks should have some assurance that they are being held to the same standards as their peers over time,” Bowman said. “While publication of the manual may be only a modest improvement in transparency, I think it will be an important step.”
However, Bowman said, increased transparency does not mean the agency is going soft on banks. “We hold banks of all sizes to high standards, commensurate with their size and risk, and being transparent does not dilute the rigor of our regulatory standards,” she said. “Transparency helps ensure that banks are aware of these standards and expectations so that they can work more effectively and efficiently to meet them.”
In other comments alluding to discouraging banks from lending to certain industries, Bowman – who serves as the community banking representative on the Fed Board — said the appropriate role of her agency is not to make credit allocation decisions for banks.
“The Fed’s role as a banking supervisor is not to replace a bank’s management and board of directors in adopting a banking strategy and risk appetite,” she said. She said the regulator’s role is to apply “appropriate, targeted regulation and supervision,” to assess that when a bank engages in an activity, it does so in compliance with applicable laws and in a safe and sound manner.
“This can be a difficult balance to strike but it is something I believe we must always bear in mind whenever the Fed uses or proposes using its regulatory or supervisory tools,” she said. “Banking regulation and supervision should not be the place to implement new policies that are not mandated by Congress.”
On a bank merger framework, now under review by the Fed and other federal banking agencies, Bowman indicated that the time taken to consider a merger could be improved.
“While an application can come to the board for many reasons, the most common reason is that the board has received a protest on the application from a member of the public,” she said. “I think it is helpful to consider whether this process could be improved, so that bona fide concerns raised by the public are appropriately considered, while still ensuring timely decision-making.”
Bowman added that the merger application process should not be used as a substitute for rulemaking. “If the rules applicable to a firm or group of firms needs to be updated, we should follow the rulemaking process to update those rules,” she said.