Research

Issues in Financial Regulation

 

Federal Reserve Bank of Richmond

Financial Reform and the Fed:
An overview and Richmond Fed perspective

Supervision 

The Federal Reserve's responsibility for the examination and inspection of banking institutions to ensure their safety and soundness is vital to its functions as the nation’s central bank, especially monetary policy and lending to financial institutions.

Governance 

The structure of Federal Reserve Banks has been questioned by some who have said that the independent nature of the Banks does not provide sufficient public oversight. Proposals were introduced during the drafting of the Dodd-Frank Act to change the process for appointing directors and presidents of Reserve Banks to increase the influence of the federal government.

GAO Audits 

Before the Dodd-Frank Act, the Government Accountability Office had authority to review many Federal Reserve System activities and operations. Congress considered several proposals to expand the GAO’s authority to include review of monetary policymaking. The Dodd-Frank Act ended up establishing several reviews of Federal Reserve governance and lending programs but did not allow the GAO to review the Fed's deliberations, decisions and actions on monetary policy.

Resolution Authority 

The Dodd-Frank Act changes the responsibilities of the Fed and other agencies, prescribes new regulations for "systemically important firms" and creates new procedures for handling those firms when they fail. One important aspect to any change in the regulatory environment is the extent to which it provides clear and credible limits to the federal financial safety net.

The federal financial safety net – the protection, both explicit and implicit, that the federal government extends to firms in danger of failure and their creditors – arguably has increased risk-taking by many financial institutions and reduced their creditors’ incentive to appropriately assess risk and related costs. In addition, the likely provision of federal financial assurance may have reduced the incentive of an institution to hold adequate reserves in the case of a liquidity crisis.

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Richmond

Jim Strader
(804) 697-8956
(804) 332-0207 (mobile)

Laura Fortunato
(804) 697-8196
(804) 698-0927 (mobile)

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The Richmond Fed is the region's connection to the nation's Central Bank.