Bank regulators have a bigger role to play in preventing cybercrime and should focus more on connecting financial institutions with national security agencies, Federal Reserve Vice Chair for Supervision Randal Quarles said Friday.
Speaking at a gathering in New York hosted by the Group of Thirty, Quarles described cybersecurity as the biggest risk facing the financial sector. He also said that federal banking regulators should be “bringing more of the resources of the government to bear” to boost digital defenses.
“We have a variety of resources in the government that we can appropriately and usefully bring that are really separate from the financial regulatory complex,” Quarles said at the event, which was held at UBS' corporate offices. Describing cyber threats as a “matter of national security,” he said he sees the “most benefit” in facilitating communication with security agencies.
“My hope is that the financial regulators can be catalysts to helping encourage that direct communication,” Quarles said.
The remarks came just about a month after he was sworn in as vice chairman for supervision. He is the first person at the Fed to hold the post, which was created under the Dodd-Frank financial overhaul.
During the event, which was part of the G30's winter meeting, Quarles reiterated his previous calls for regulators to take a fresh look at crisis-era regulations and balance efficiency with safety and soundness.
He also said the Fed will soon put out a request for comment on a proposal to increase transparency in the stress testing process.
Still, while he reiterated his commitment to “significantly more transparency” than the Fed has shown in recent years, he cautioned the industry not to expect “full transparency” when it comes to the annual tests. He cited the need for regulators to keep some level uncertainty with risk modeling.
“The banks are figuring it out,” Quarles said. “They are very smart people who have devoted lots of resources to figuring out what’s in the model.”
Quarles was also asked about the role of federal regulators in supervising bank culture. The issue has come into focus over the past year, following the phony-accounts scandal at Wells Fargo.
New York Fed President Bill Dudley, for instance, has made bank culture one of his key priorities, calling out the mismatch between sales incentives and corporate values at the San Francisco-based Wells. Dudley suggested last year that new laws or regulations may be needed to ensure banks have ethical compensation systems in place.
Quarles said that culture should be a top priority for banks, but creating measurable benchmarks for supervision of it is tricky.
“What’s more difficult is to think about how do you regulate that?” Quarles said. “It’s perhaps not impossible but very difficult for a financial supervisor to come up with useful, predictable interventions.”