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By Michelle Price
WASHINGTON, Jan 17 (Reuters) - The U.S. Federal Reserve on
Friday signaled it would take a lighter touch when supervising
banks, in another win for the industry which has long complained
that the regulator's closed-door supervisory process is opaque
and capricious.
In particular, foreign lenders Deutsche Bank,
Credit Suisse, UBS and Barclays
should no longer be held to the same supervisory standard as big
U.S. banks after shrinking their combined U.S. assets by more
than 50% over the past decade, said Fed governor Randal Quarles.
"We have been giving significant thought to the composition
of our supervisory portfolios and, in particular, to whether and
how we should address the significant decrease in size and risk
profile of the foreign firms," Quarles, who is also vice chair
for Fed supervision, told a Washington conference.
His comments come as the Fed pivots from rewriting a raft of
rules introduced following the 2007-2009 global financial
crisis, to reviewing the way it puts them into practice.
While regulation draws bright lines on what lenders can and
cannot do, Fed supervisors have discretion as to how those often
highly complex rules are interpreted and implemented daily by
each institution depending on their business profile.
Banks have complained that the Fed's supervisory process,
which is confidential, is too inflexible and applied unevenly
and have lobbied for greater transparency and predictability.
The Fed supervises institutions according to different
buckets, with the eight riskiest U.S. banks and UBS, Credit
Suisse, Deutsche and Barclays, subject to the strictest
scrutiny.
On Friday, Quarles said it no longer made sense to hold
those foreign lenders to the same standard as the likes of Wells
Fargo and Citigroup because their riskiness has
declined. He suggested supervising them in line with regional
banks such as PNC or Capital One, potentially
changing the competitive landscape for firms in that bucket.
In addition, Quarles outlined a number of "incremental"
changes to the broader supervisory system that he said should
"increase transparency, accountability and fairness."
These include allowing banks to share confidential
supervisory information with third parties, such as consultants,
to make it easier for them to fix issues; limiting the number of
written slaps on the wrist the Fed dishes out to banks for minor
lapses; and increasing the transparency of models it uses to
test banks' resilience to potential economic shocks.
(Reporting by Michelle Price
Editing by Chizu Nomiyama)
