Al­most half of big US banks are fail­ing to sat­isfy Fed

Ledger-Enquirer - - Business - BY JESSE HAMIL­TON

More than 40 per­cent of ma­jor U.S. lenders are fail­ing to sat­isfy the Fed­eral Re­serve’s ex­pec­ta­tions in key ar­eas of risk man­age­ment, the cen­tral bank said Fri­day in a re­port that re­veals the reg­u­la­tor’s over­all assess­ment of the in­dus­try.

The Fed’s in­au­gu­ral Su­per­vi­sion and Reg­u­la­tion Re­port high­lights a num­ber of pos­i­tives – in­clud­ing high cap­i­tal and liq­uid­ity re­serves – but it also shows how risks may now come from mis­man­age­ment, cy­ber­at­tacks and fail­ures to pro­tect the bank­ing sys­tem. Those faults are con­tribut­ing to so many firms fail­ing to make the top two of the five cat­e­gories – “strong” or “sat­is­fac­tory” – that mea­sure a bank’s strength.

“While most firms have im­proved in key ar­eas of su­per­vi­sory fo­cus, such as cap­i­tal plan­ning and liq­uid­ity man­age­ment, some firms con­tinue to work to meet su­per­vi­sory ex­pec­ta­tions in cer­tain risk-man­age­ment ar­eas,” the Fed said. The bot­tom three cat­e­gories are “fair,” “mar­ginal” and “un­sat­is­fac­tory,” with the lower two rungs sig­nal­ing ma­jor, im­me­di­ate prob­lems or even pend­ing col­lapse.

The Fed also tal­lied the num­ber of pri­vate in­ter­nal di­rec­tives, such as “mat­ters re­quir­ing at­ten­tion,” it is­sues to bankers to fix prob­lems. The big­gest U.S. banks get dozens of them each year, and the num­bers have gen­er­ally been declining – from about 1,000 five years ago to around 800 now.

De­spite some of the short­com­ings re­vealed in the re­port, Fed Vice Chair­man for Su­per­vi­sion Ran­dal Quar­les pointed out at a Wash­ing­ton event ear­lier in the day that “all the data would show that it’s a very healthy in­dus­try.”

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