Banks, Supervisors Must Balance Responsibilities, Says Fed Governor Raskin
A critical step to a more effective bank supervision program is finding the right balance of responsibilities between banks and supervisors, said Federal Reserve Governor Sarah Bloom Raskin during an April 7 speech.
Although the recent crisis underscored the need for more effective regulation and a new approach to bank examinations, "banks have a fundamental—arguably the fundamental—role to play in improving financial system resilience," she explained.
Bank management plays key role in safety, soundness
Similarly, well-informed managers and employees contribute to safety and soundness, too. This is especially true of community banks, she said, where employees' deep knowledge of the business and customer base can help them identify problems before they spread.
Other equally important functions and processes, including enterprise-wide risk management programs and strong internal audit functions, form the remaining inner rings, she said.
Supervision shores up inner rings
Effective supervision is made up of several key functions, she explained. For one, examiners set high standards for banks through their policies and supervisory programs. They also play an important role in monitoring banks' internal processes and looking behind the numbers for weaknesses in governance, risk management, or internal controls that could expose banks to losses. Importantly, supervisors lend much-needed context and perspective by measuring a bank's performance against that of its peers while also considering the institution's unique circumstances, Raskin said.
More than just a model
April 22, 2011