Federal Reserve Board ("FRB") Vice Chair Randal K. Quarles recommended several approaches for improving the supervision of banks.

In remarks at the American Bar Association's Banking Law Committee Meeting, Mr. Quarles supported supervision not being subject to a formal framework and cautioned against "capriciousness, unaccountability, unequal application, and excessive burden." Mr. Quarles outlined specific proposals that would clarify expectations and encourage good risk management practices by banks.

Large Bank Supervision

To better supervise large banks, Mr. Quarles proposed:

  • updating the composition of the Large Institution Supervision Coordinating Committee ("LISCC") portfolio to align with recent tailoring categorizations regarding foreign banks;
  • making public the FRB's internal procedural materials used to supervise LISCC firms (a/k/a the "Program Manual") so that banks can better understand the supervisory actions taken by the FRB;
  • monitoring the recently implemented large financial institutions (or "LFI") ratings framework; and
  • enhancing the transparency of stress tests under the Comprehensive Capital Analysis and Review ("CCAR") by providing clarity on the models used in the CCAR, giving banks more time to understand and assess their stress-test results before requiring them to produce their final capital plan, and minimizing the volatility of stress-test requirements from year to year.


To improve the transparency of the FRB's processes for supervising banks, Mr. Quarles called for:

  • creating a word-searchable database on the FRB's website that includes historical interpretations of significant rules;
  • requesting public comment on significant supervisory guidance; and
  • submitting significant supervisory guidance to Congress in alignment with the Congressional Review Act.

Overall Supervisory Process Improvements

Additionally, Mr. Quarles proposed that the FRB:

  • allow supervised firms to share an increased amount of FRB confidential supervisory information to encourage compliance with laws and responsiveness to enforcement actions;
  • adopt a rule regarding how the FRB uses guidance in the supervisory process;
  • improve supervisory communication by (i) restoring the "supervisory observation" category for lesser safety and soundness issues and (ii) limiting future matters requiring attention (or "MRAs") to "violations of law, violations of regulation, and material safety and soundness issues"; and
  • make routine existing practices regarding the independent review of certain supervisory communications and guidance documents.

Commentary - Mark Chorazak

A central theme of Mr. Quarles' comments at the ABA meeting was transparency, with many of his proposals aimed at giving banks, and those who advise them, greater insight and clarity into what the "law" is in many areas. One change Mr. Quarles proposed is to have all major regulatory interpretations available in a readily searchable format on the FRB's website. This may sound like "small stuff," particularly in 2020 when seemingly everything is accessible online, but for regulatory lawyers this change is an important one. For decades, banking law and regulators' compliance expectations have been rooted in lore or opaque interpretations and guidance. It doesn't have to stay that way.

Primary Sources

1. Federal Reserve Board Speech, Randal K. Quarles: Spontaneity and Order - Transparency, Accountability and Fairness in Bank Supervision.

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