Fed Vows Not to Hobble Holding Companies

Article excerpt

The Federal Reserve Board's second-in-command gave the most detailed look yet Friday at how the agency plans to supervise financial holding companies, and tried to allay fears it will be heavy-handed. In a speech to the National Association of Urban Bankers in San Francisco, Fed Vice Chairman Roger W. Ferguson Jr. said the central bank's main task will be assessing the overall risk profile and capital adequacy of the new diversified conglomerates permitted by the Gramm-Leach-Bliley Act of 1999. Mr. Ferguson pledged that in fulfilling its role, the central bank will use information collected by the functional regulators of the company's subsidiaries as extensively as possible to minimize regulatory burden. However, he said that under some circumstances those subsidiaries may have to report directly to the Fed, and that the central bank might join functional regulators in joint examinations. In all cases Fed officials will meet regularly with the board and top management of financial holding companies, and will conduct reviews of their centralized risk management and audit practices. Financial holding companies were created by Gramm-Leach-Bliley as a vehicle for increased affiliation between banks, insurance companies, and securities firms. The law makes the Fed responsible for overall supervision of financial holding companies, while allowing for state and federal agencies with specific areas of expertise -- such as insurance or securities -- to supervise those activities of affiliates. That structure, he said, requires an agency responsible for assessing overall risk. "Even if individual subsidiaries are considered to be financially strong and well-managed by bank, thrift, or functional regulators, their risk profiles may change when they are amalgamated into a consolidated organization," he said. Mr. Ferguson tried to assuage nonbank financial services companies' fears about increased regulatory burden under a Fed-administered system. …