Financial Update (October-December 2000)
Fed Offers Guidance on Supervising Financial Holding Companies
o provide guidance to its staff and to the financial holding companies it supervises, the Federal Reserve recently released a supervisory letter outlining the purpose and scope of its supervision of financial holding companies.
The Feds supervisory letter examines the Gramm-Leach-Bliley Acts provisions for working with the functional regulators of the financial holding companies securities, insurance and commodities subsidiaries. Banking organizations electing to be treated as financial holding companies numbered 455 nationally, 67 of these in the Sixth Federal Reserve District, as of mid-September 2000.
According to the supervisory letter, there should be minimal, if any, noticeable change in the well-established relationships between the Federal Reserve and the primary supervisors of depository institutions controlled by financial holding companies.
The letter describes how the Federal Reserve will rely on reports filed with or prepared by bank, thrift and functional regulators as well as on publicly available information for both regulated and nonregulated subsidiaries in supervising financial holding companies. Where necessary and appropriate, the Federal Reserve may conduct or participate in reviews at banks, thrifts or functionally regulated subsidiaries to verify that risk management and internal control policies established at the holding company level are being effectively implemented.
Most of the concepts discussed in the letter are already applied by the Federal Reserve in the consolidated supervision of complex bank holding companies. The Feds supervision of financial holding companies will evolve as the internal control policies established at the holding company level are being effectively implemented.
Supervisory letters are the Federal Reserves primary means of communicating key policy directives to its examiners, supervisory staff and the banking industry. Supervisory letters are available on the Boards Web site at www.federalreserve.gov/boarddocs/srletters.