Identifying and analyzing the main aspects of the supervision and regulation functions in the Federal Reserve System, it is necessary to explain what the Federal Reserve actually is. As at his been already mentioned, its main functions lay in the supervision and regulation of authoritative means over a wide range of economic activities concerning the financial institutions. The Federal Reserve System “works with other federal and state supervisory authorities to ensure the safety and soundness of financial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions” (Supervision and regulation, p. 59).
Following this, one should notice that the extensive and steady relationships of the Federal Reserve System with the other countries central banks and with the wide range of financial supervisors, contributes to the execution of the supervision and regulation functions greatly, as those ties enable the System to coordinate its actions and operations with the other countries during the process of managing possible international financial and economic crises, and during the process of supervising certain financial institutions with the reliable international presence.
I refer to the Federal Reserve System’s official commentary policy, then its supervisory responsibilities (of the Federal Financial Institutions Examination Council and Federal Banking Agencies) appear to be as follows:
- Risk – Focused Supervision (the main objective of this process is to identify and forecast “… the greatest risks to a banking organization and assess the ability of the organization’s management to identify, measure, monitor, and control these risks” (Supervision and regulation, p. 63). Thus, it is possible to conclude that the Federal Reserve System tries to predict the risks for itself connected with certain organizations’ business activities.)
- Supervisory Rating System (this tool is used to “communicate to banking organizations the agency’s assessment of the organization and to identify institutions that raise a concern or require special attention” (Supervision and regulation, p.63). Basically, it is based on the six components widely recognized in the bank sphere CAMELS system.
- Financial Regulatory Reports (are used as the base for the entire work of the Federal Reserve System. Those reports are filed by institutions and include examinations and inspections information, publications in the financial press, and other media resources.)
- Off-Site Monitoring (can be explained as the off-site supervision of bank institutions conducted with the help of automated screening systems (like SEER) which identify the organizations’ financial profiles, which enables the Federal Reserve System to detect adverse banks.)
- Accounting Policy and Disclosure (it promotes sound accounting policies as well as meaningful public disclosure in regard with the financial institutions)
There are some other supervisory functions exercised by the Federal Reserve System: “Umbrella Supervision and Coordination with Other Functional Regulators, Anti-Money-Laundering Program, Business Continuity, Enforcement, Supervision of International Operations of U.S. Banking Organizations, Supervision of U.S. Activities of Foreign Banking Organizations, Supervision of Transactions with Affiliates” (Supervision and regulation, pp. 65-70). All of these supervisory functions are making the work of the bank’s system easier and safer.
The Regulatory Functions can be listed and described as follows:
- Acquisitions and Mergers (its function is to avoid the establishment of monopoly or the process of the artificial trade restrain, and to keep the bank and commerce institutes separate from one another)
The Regulatory Functions should also cover the following matters: “Formation and Activities of Financial Holding Companies, Capital Adequacy Standards, Financial Disclosures by State Member Banks, Securities Credit” (Supervision and regulation, pp. 73-74). Therefore, one can note that by the means of its Regulator Functions, the Federal Reserve establishes standards intended to secure the work of those banking organizations which operate under the banking law’s provisions.
Works Cited
Supervision and Regulation. The Federal Reserve System: Purposes and Functions. pp. 59 – 74. Web.