Former Regulator Defends New Fed Proposal for Bank Boards in Op-Ed

The Federal Reserve’s recent proposal to streamline supervisory expectations for bank boards of directors will not lessen the workload for bank boards as some critics have suggested, said former regulatory official and retired American Bankers Association SVP Richard Riese today in an op-ed in American Banker magazine. The proposal, issued earlier this month, is intended to more clearly delineate the responsibilities of the bank board to allow directors to focus on their core responsibilities, rather than routine management tasks.

“Too often in the past, supervisory guidance and examination conclusions have described expectations for boards of directors in conjunction with those of senior management — as if ‘senior management and the board’ were one undifferentiated entity,” Riese explained, citing a 2014 FDIC study that suggested bank boards were being required to take on management duties like loan grading and cash flow analysis. “This has confused roles, wasted scarce board resources and compromised the independence of the board.”

“Under the proposal, regulators are not taking a ‘load off’ directors; they are exchanging one obligation (operations) for another (oversight) to encourage more efficient board governance practices,” Riese added. “To realize the benefits of this realignment, banking agencies must discipline themselves to conduct examinations, identify findings and recommend remediation that differentiate the roles of staff, management and the board so that the road to success is constructively executed in accordance with the specifications for enterprise-wide risk management that regulators have long professed to support.” Riese’s op-ed echoed comments made earlier this week by Federal Reserve Governor Jerome Powell, who confirmed that the Fed will continue to hold bank boards to a higher standard than ever before.