Supervision and Regulation of Financial Institutions

Role of Supervision and Regulation

The primary objectives of the Supervision and Regulation function include protecting depositors’ funds, maintaining a stable monetary system, promoting an efficient and competitive banking system and protecting consumer rights related to banking relationships and transactions.

The Supervision and Regulation (“S&R”) Department of the Federal Reserve Bank of Cleveland provides high-quality supervision and regulation services to ensure the safe and sound operation of Fourth District financial institutions. More specifically, examiners supervise the activities of bank holding companies and financial holding companies, their nonbank subsidiaries, and state-chartered member banks. Examiners also monitor the financial condition of these institutions and review for compliance with federal laws and regulations.

In order to provide the highest quality of bank supervision, the S&R Department has adopted a philosophy and approach known as “Value-Added Banking Supervision”. Its intent is to supervise Fourth District institutions in a more thoughtful and purposeful manner. This approach is also an integral part of the Federal Reserve Bank of Cleveland's total quality initiative. The primary focus of Value-Added Banking Supervision is to be responsive to the needs and concerns of the banking community and to educate bankers about the regulatory environment in which they operate.

Functional Areas of Supervision and Regulation

Communications, Applications, Studies & Emerging Risk (CASE)

This section is responsible for four functional activities. Specifically, the section oversees the regulatory applications process associated with the merger, acquisition and general expansion activities of Fourth District state member banks and bank holding companies. Second, the section is responsible for identifying and communicating emerging risks within the financial services industry and the Fourth Federal Reserve District. Through trend analysis and research, the group provides information to a variety of stakeholders including Reserve Bank staff, bankers, and the general public. Products consist primarily of newsletters (ex., Fourth District Conditions), studies, presentations, and trend reports which are used by stakeholders to gain insight into the banking environment and to shape supervisory strategy. Third, through surveillance, CASE provides institution-specific analysis to the Board of Governors. Lastly, the section provides support to other departments within the Reserve Bank, such as condition monitoring and vendor reviews.

Consumer Affairs and CRA Supervision

This section examines state member banks for compliance with consumer protection laws and regulations, including the Community Reinvestment Act and Fair Lending regulations. Consumer complaints are also investigated and referrals are made to the appropriate federal regulatory agency.

Foreign Activities Supervision

This function examines the overseas facilities, lending, foreign exchange, and investment activities of state member banks; Edge Act agreement corporations; and domestic branches, bank holding companies, and representative offices of foreign banking organizations.

Information Technology Supervision

This area supervises information systems, operations, independent service bureaus, and technology activities for all Fourth District organizations. This area examines the banking organizations corporate-wide information systems.

Safety and Soundness Supervision - Commercial Banks and Financial and Bank Holding Companies

This function engages in supervisory activities and conducts examinations/inspections of state member banks and financial bank holding companies located in the Fourth Federal Reserve District. Supervisory examiners are assigned responsibility for those financial and bank holding companies which exceed $10 billion in consolidated assets. State member banks and financial and bank holding companies whose assets aggregate less than $10 billion are supervised in portfolios by banking supervisors based in either Cleveland, Cincinnati, or Pittsburgh.

Specialized Activities Section

This section is comprised of examiners with specialized skills in reviewing the fiduciary, capital markets, insurance, and securities activities of bank and financial holding companies, state member banks, and nonbank subsidiaries. Reviews of fiduciary activities include asset management, corporate and personal trust, employee benefit, global custody, investment advisory, mutual fund, private banking, securities lending, securities processing, and transfer agent services. Reviews of capital markets activities include funding and liquidity, securities and investments, asset securitization, and private equity merchant banking as well as modeling for capital allocation, value-at-risk, and interest rate risk. Reviews of insurance and securities activities include insurance and securities sales, consumer sales disclosures, use of insurance as a risk mitigant, as well as coordination with state insurance commissioners regarding insurance activities and the SEC/NASD regarding securities brokerage and investment advisory services. The section is also responsible for conducting inspections of nonbank lenders who extend credit secured by margin stock under Regulation U.