Keeping Banks and the System Stable
The Federal Reserve has various responsibilities for financial supervision and regulation. Among the most important: supervising state-chartered banks that are members of the Federal Reserve System as well as all bank holding companies. Broadly speaking, supervising banks means ensuring they control risks and hold adequate capital to cushion against potential losses. The Federal Reserve must also supervise nonbank financial firms that are deemed systemically important under the Dodd-Frank Act.
In addition to its supervisory responsibilities, the Federal Reserve takes a broad interest in events that affect the financial system, in part because financial instability could hinder the effectiveness of monetary policy. Another reason is that during a crisis, the Federal Reserve is likely to be called on to help inject liquidity, essentially ready money, into the financial system, even if the problem originates outside the banking system. This is known as the central bank’s lender of last resort role.
The Atlanta Fed contributes in three important ways to the Federal Reserve’s prudential regulatory responsibilities.
First, the Atlanta Fed is responsible for examining financial institutions headquartered or operating in the Sixth Federal Reserve District. These institutions include banks, bank holding companies, offices of foreign banking organizations, and certain firms that deliver technology services to financial institutions. (The Sixth District encompasses Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee.)
Second, the Atlanta Fed works with the 11 other regional Federal Reserve Banks to contribute resources that support critical national supervisory programs such as CCAR and other horizontal capital and liquidity reviews.
Third, the Atlanta Fed contributes to the national discussion on prudential regulatory issues both by deepening our understanding of what has happened and by evaluating ideas for improving future regulations.
Two parts of the Atlanta Fed contribute to prudential supervision and regulation: the Supervision, Regulation, and Credit Division and the Research Department. The Research Department helps with national supervisory issues where it can complement the skills available in the System’s financial supervision and regulation departments. Additionally, the Research Department contributes to the national policy conversation through analysis and scholarly research, aiming to improve the supervision and regulation of the financial system.