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Supervising large, complex financial companies: what do supervisors do?

Author

Listed:
  • Thomas M. Eisenbach
  • Andrew F. Haughwout
  • Beverly Hirtle
  • Anna Kovner
  • David O. Lucca
  • Matthew Plosser

Abstract

The Federal Reserve is responsible for the prudential supervision of bank holding companies (BHCs) on a consolidated basis. Prudential supervision involves monitoring and oversight to assess whether these firms are engaged in unsafe or unsound practices, as well as ensuring that firms are taking corrective actions to address such practices. Prudential supervision is interlinked with, but distinct from, regulation, which involves the development and promulgation of the rules under which BHCs and other regulated financial intermediaries operate. This paper describes the Federal Reserve?s supervisory approach for large, complex financial companies and how prudential supervisory activities are structured, staffed, and implemented on a day?to?day basis at the Federal Reserve Bank of New York as part of the broader supervisory program of the Federal Reserve System. The goal of the paper is to generate insight for those not involved in supervision into what supervisors do and how they do it. Understanding how prudential supervision works is a critical precursor to determining how to measure its impact and effectiveness.

Suggested Citation

  • Thomas M. Eisenbach & Andrew F. Haughwout & Beverly Hirtle & Anna Kovner & David O. Lucca & Matthew Plosser, 2015. "Supervising large, complex financial companies: what do supervisors do?," Staff Reports 729, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:729
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    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr729.pdf
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    References listed on IDEAS

    as
    1. Frederic S. Mishkin, 2001. "Prudential Supervision: What Works and What Doesn't," NBER Books, National Bureau of Economic Research, Inc, number mish01-1, June.
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    Cited by:

    1. Beverly Hirtle & Anna Kovner & Matthew Plosser, 2020. "The Impact of Supervision on Bank Performance," Journal of Finance, American Finance Association, vol. 75(5), pages 2765-2808, October.
    2. Andrew W. Lo, 2016. "The Gordon Gekko effect: the role of culture in the financial industry," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 17-42.
    3. Connel Fullenkamp & Céline Rochon, 2017. "Reconsidering bank capital regulation: a new combination of rules, regulators, and market discipline," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 20(4), pages 343-359, October.
    4. Thomas M. Eisenbach & David O. Lucca & Robert M. Townsend, 2016. "The economics of bank supervision," Staff Reports 769, Federal Reserve Bank of New York.

    More about this item

    Keywords

    bank supervision; large and complex financial companies;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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