Summary of the speech & Key Themes:
This speech, delivered by the Vice Chair for Supervision, focuses on improving regulation and supervision, particularly for community banks. The speaker identifies several key problems with the current system and outlines steps to address them. Here’s a breakdown of the main points:
1. Addressing Request backlogs & Lack of Clarity:
* Problem: Slow processing of applications and a lack of clear standards/processes. The current system is described as “opaque.”
* Solution: Implementing clear standards, forms, and prompt action on applications. A new approach is being taken to address this.
2. Improving Transparency in Capital Regulations (Mutual Banks):
* Action Taken: The Board released FAQs and templates to help mutual banks raise capital, offering options for Tier 1 and Additional Tier 1 equity.
* Future Outlook: This is a starting point, open to refinement based on feedback from mutual banks.
3. “Tailoring” Supervision to Bank Size & Risk:
* Problem: A “one-size-fits-all” approach to supervision is inappropriate for community banks, leading to overregulation. This tailoring approach was previously ignored.
* Solution: Regulators are working to allocate resources based on a bank’s size, risk, complexity, and business model. This includes possibly revising non-binding guidance.
4. Increasing Transparency of Supervisory Practices:
* Problem: Supervisory practices lack public scrutiny. They are developed without public input and shielded by “confidential supervisory Information” (CSI).
* Solution: Revising the definition and scope of CSI to allow for greater public transparency and accountability.
5. Calibrating Supervisory standards:
* Problem: Supervisory findings (and resulting ratings) can have significant negative consequences for banks (M&A limitations, higher costs, resource diversion).
* Solution: Ensuring ratings accurately reflect a bank’s financial condition and material financial risks.
Overall Message: The speaker is advocating for a more reasonable, obvious, and tailored approach to bank regulation and supervision, with a particular emphasis on reducing the burden on community banks and fostering a healthy banking system. The core theme is right-sizing regulations to fit the specific characteristics of each institution.
