Risk Management Watch: Fed Moves to Boost Oversight
Recent stress in the financial markets has prompted the Fed to move to improve its ability to oversee the stability of the financial system. Fed Chairman, Ben Bernanke, and SEC Chairman, Christopher Cox, recently signed a memorandum of understanding (MOU) between the two agencies that will deepen their information sharing and cooperation as well as enhance their performance.
In a statement, the Fed states that under the MOU, the agencies would share information and cooperate across a number of important areas of common interest, including anti-money laundering (AML), bank brokerage activities under the Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industries, and the regulation of transfer agents. More specifically the memorandum covers bank holding companies and so-called Consolidated Supervised Entities that own securities firms.
According to the Fed, “It builds on and formalizes the long-standing cooperative arrangements between the SEC and the Board, as well as the more recent cooperation on matters including banking and investment banking capital and liquidity following the Board’s emergency opening of credit facilities to primary dealers.”
Fed Chairman Ben Bernanke expressed his approval of this agreement. “It formalizes and strengthens the ongoing cooperation between our two agencies to enhance the stability of the financial system,” he said.
The evolution of commercial and investment banking has necessitated the MOU, according to SEC Chairman Cox. “Today, the interconnectedness of mortgage and lending markets, credit derivatives, securitizations, and counterparty relationships requires the U.S. government to adopt a more coherent and coordinated approach.”
Paulson Pushes for More Oversight
Meanwhile, U.S. Treasury Secretary Henry Paulson recently issued a warning that Britain and the U.S. must overhaul their outdated banking regulatory systems to give better advance warning of future economic turbulence, according to the AP.
Paulson said the Fed needs sweeping new powers to give it easier access to information on financial institutions in order to intervene to avert future crises.
The AP cited excerpts of a Paulson speech which states, “As U.S. and global regulators respond to recent events, we must recognize that the stability and vitality of our markets require both robust oversight and market discipline.” The report also quotes Paulson as saying the Fed Reserve should be granted wider access to data on the activities of commercial and investment banks and hedge funds.
In an attempt to avoid a bankruptcy, the Fed fast-tracked the sale of Bear Stearns to JPMorgan Chase back in March. The Fed also stepped in to mitigate risk, agreeing to fund up to $30 billion of Bear Stearns’ less liquid assets - the troubled mortgage and other assets that got the nation’s fifth-largest investment bank into trouble.
Paulson already proposed an overhaul of the country’s financial regulation system back in April. The Treasury’s Blueprint for a Modernized Financial Regulatory Structure, which includes a broad expansion of the Fed’s powers, underscores the continued and growing emphasis on risk - primarily within investment banks that have been accused of indulging on hugely overvalued complex derivatives. According to Paulson, the proposed changes are designed to attack problems as they occur rather than prevent them.
Firms Focusing on Risk Management
Right now, the emphasis on risk management is growing. The industry has realized just how important it is to look at underlying risk. Mitch Feldman, President of executive search firm, A.E. Feldman, says the risk office must absolutely be more aware of where the risks are and where the value is. Today, risk managers must be able to determine how deep the problem is, who is being paid out first and what is the risk for the investor. Now, A.E. Feldman notes that risk management jobs are gaining significance as firms continue to shore up their risk teams and replace or add new Chief Risk Officers.
GE Money Home Lending recently appointed a new Chief Risk Officer, according to Money Marketing. The new CRO will be responsible for leading the company’s risk division in continuing to develop and implement rigorous processes to ensure best practice across its risk function. The report quotes GE Money Home Lending’s Chief Executive Officer, Colin Shave, as saying, “The role of Risk Leader is strategically important to the continued success of our business.”
In addition, Northern Rock has also appointed a Chief Risk Cfficer as part of its strategy to strengthen “the risk and control environment throughout the company,” according to FT Advisor.
To learn more about these issues or inquire about job trends in risk management the lines of communication are open. Contact the Mitch Feldman, President of A.E. Feldman, and the firm’s executive recruiting team here.
