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From Banking and Finance Law Daily, June 12, 2013

Fed Sets Forth Plans to Implement Strategic Framework

By John M. Pachkowski, J.D.

The Federal Reserve Board has released its Annual Performance Plan, 2013 that sets forth the planned projects, initiatives, and activities that will contribute to the long-term objectives included in the Fed’s 2012–15 Strategic Framework.

The Fed’s Strategic Framework, approved in June 2012, is used to guide key investments, align resources, and implement changes over the 2012–2015 planning period and is organized into six themes: (1) supervision, regulation, and financial stability; (2) data governance; (3) facilities infrastructure; (4) maximizing the value of human capital; (5) management processes; and (6) cost reduction and budgetary growth.

Both the Strategic Framework and the Annual Performance Plan are issued in the “spirit of the Government Performance and Results Act (GPRA) of 1993, which requires that federal agencies, in consultation with the Congress and outside stakeholders, prepare a strategic plan covering a multiyear period and submit an annual performance plan and annual performance report.”

Regarding the theme of “supervision, regulation, and financial stability,” the Fed has six objectives to meet its goal to “continue building a robust inter-disciplinary infrastructure for regulation, supervision, and monitoring risks to financial stability.”

Strengthening stability. The Fed staff will continue to contribute to regulatory reform activities that enhance the resilience of the financial sector and coordinate with other federal supervisory agencies regarding their similar regulatory efforts. To accomplish this objective, the Fed plans to: finalize the Basel III capital rule and propose Basel III liquidity standards; finalize enhanced prudential standards for large, domestic bank holding companies; incorporate new international risk management standards for financial market utilities (FMUs) into Fed regulation and policy; and develop implementing regulations for designated FMU access to Reserve Bank accounts and services under the Dodd-Frank Act.

Market and industry practices. To better identify institution-specific risks and broad industry risks, the Fed will perform a zero-based review of surveillance activities and build a risk-monitoring framework. Fed staff will use horizontal reviews to better understand industry practice in key areas and incorporate the results into the Fed’s policy and supervisory process.

Individual institutions and infrastructures. Fed staff will continue ongoing monitoring of individual institutions and infrastructures, with particular attention to those institutions that have broader consequences for the financial system and the macro economy. The Fed also will continue to implement community and regional bank initiatives to: clarify supervisory expectations; mitigate burden; foster prudent lending activity; and improve communications.

The Fed plans to accomplish this objective by:

  1. issuing a proposed rulemaking, as part of the Dodd-Frank Act, for collecting fees from certain companies that the agency estimates are necessary and appropriate to carry out its supervisory and regulatory responsibilities with respect to such companies;
  2. revise roles and governance documents that address the Board’s expectation of effective supervision by clarifying program requirements for each supervised portfolio;
  3. build out supervisory programs for financial market infrastructures (FMI), including working with other federal agencies and international authorities to strengthen FMI supervision; and
  4. monitor and assess the risk profiles of foreign banking organization activities in the United States.

Crisis management tools. To accomplish its objective of ensuring that sufficient crisis management tools are in place, the Fed will: continue to implement a recovery and resolution plan program for large bank holding companies; develop crisis management and liquidity tools that could be used in a coordinated international response; and analyze and refine options to use the discount window and other liquidity tools.

Monetary policy. The Fed staff will continue to assess the effectiveness of various macroprudential policies and their interaction with monetary policy. The staff will accomplish this objective by monitoring risks to financial stability, analyze linkages between the financial and real sectors, and evaluate alternative policies to contain building systemic risks.

Research. Finally, the Fed and its staff will pursue research on stress tests, macroprudential regulation and tools, and other financial stability topics.

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