Fed’s Powell: New plan won’t 'lighten load' for bank boards
WASHINGTON — The lead regulator at the Federal Reserve is defending a proposal issued earlier this month by the agency that would revise the types of information sent to banks’ boards of directors, saying the changes would not lessen supervisory standards.
Federal Reserve Gov. Jerome Powell, who chairs the central bank’s supervisory committee, said Wednesday during a speech at the Federal Reserve Bank of Chicago that the proposed changes are intended to eliminate an impediment to bank boards’ effective execution of their core duties, not to make it easier for bad actions to go undetected.
“We do not intend that these reforms will lower the bar for boards or lighten the loads of directors,” Powell said. “The intent is to enable directors to spend less board time on routine matters and more on core board responsibilities: overseeing management as they devise a clear and coherent direction for the firm, holding management accountable for the execution of that strategy, and ensuring the independence and stature of the risk management and internal audit functions.”
The Fed issued a pair of proposals Aug. 3 aimed at improving the agency’s supervisory relationship with bank boards.
The first revises 2013 guidance that had required that boards of directors be briefed on all Matters Requiring Attention and Matters Requiring Immediate Attention issued by bank supervisors. The second introduces a revised rating system that sets out assessments for each individual bank’s capital planning and positions, liquidity risk management and positions, and governance and controls. The proposals are open for public comment until Oct. 10 and Oct. 16, respectively.
But critics have not waited until then to voice their concerns, namely that the Fed is loosening its controls over boards of directors — in whose hands the ultimate responsibility of a bank’s activities lie — at a time when significant concerns remain about whether banks are being operated safely and in accordance with the law.
Powell said that one of the biggest problems facing boards is that too much of their time is spent conducting pro forma reviews of various supervisory issues brought to them because of directives that have been issued by the Fed in the last few years, including the 2013 guidance and many subsequent guidance documents that have unnecessarily lumped senior management and boards of directors together.
“Some of this granular information was likely driven by our supervisory guidance, which included specific expectations not only for the management of the institution, but also for the board of directors,” Powell said. “Over time, this guidance has increased the number of specific directives aimed at boards well into the hundreds, which may have fostered a ‘check-the-box’ approach by boards.”
With respect to the proposal that MRAs and MRIAs not necessarily be sent directly to the board on first instance, Powell said boards will still be responsible for and have access to all supervisory information about their banks and will be expected to use that information in their assessments of management.
“We fully expect the board to actively manage the information flow related to MRAs and to hold management accountable for remediating them,” Powell said. “In doing so, a board may choose to track progress and closure of MRAs through an appropriate board committee, rather than getting into the granular detail on every individual MRA.”