Fed reliance on bank examiners’ judgment can be `risky,’ congressional report says

15 May 2019 9:42pm
The Federal Reserve alone among US bank regulators lacks specific guidelines for bank examiners to use in deciding whether to escalate a supervisory concern to a possible enforcement action, the nonpartisan Government Accountability Office said.

The Fed counts instead on the judgment and experience of examiners, Reserve Bank management and Fed staff, Congress’s research and analysis arm said yesterday.

“Reliance on a single mechanism or tool can be risky,” the 74-page report said. “For instance, institutional knowledge can disappear in times of turnover, such as occurred after the 2007-2009 financial crisis. In addition, reliance on judgment alone can produce inconsistent escalation practices”.