FDIC creates new units as US regulators expand for Dodd-Frank systemic oversight

Regulators in the US have begun to expand their numbers in response to the Dodd-Frank Act, which will increase supervisory responsibilities for systemic risk and consumer protection.

The Federal Deposit Insurance Corporation (FDIC) announced on August 10 it will create two new divisions in response to Dodd-Frank requirements: one unit will be responsible for handling systemic resolutions, while the other will supervise consumer protection.

Regulators are studying the supervisory implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act, before drawing up rules for industry implementation. The FDIC said on August 12 that it has an "open door policy" on consultation for the rule-making process.

"They have a lot of work to do, a big agenda and a lot of policy decisions to make," says a senior compliance manager at a large US bank. "Some regulators are going to need to add significantly to their staff. This is a major event in their histories, whether it's the FDIC, the Commodity Futures Trading Commission, the Securities and Exchange Commission (SEC) or the Federal Reserve."

The new Office of Complex Financial Institutions (OCFI) will carry out the FDIC's new responsibilities for resolving failing firms, seizing and dismantling them when necessary, and conducting continuous reviews of banks carrying more than $100 billion in assets, in addition to non-banks deemed systemically significant. It will report to the new Financial Stability Oversight Council (FSOC), the systemic risk committee of regulators created by Dodd-Frank.

One regulatory source says the SEC is scrutinising Dodd-Frank through several studies, but that the regulator has not yet decided to make changes to its own divisional structure. It has already created new market intelligence and hedge fund supervisory units as part of post-crisis reforms within the past year.

According to another US regulatory source, the Federal Reserve is expected to expand its numbers in response to Dodd-Frank, including regional expansion of the Federal Reserve banks in response to the FSOC's systemic risk supervisory requirements.

"At some point, insurance companies and large hedge funds could also come under the purview of the Fed for systemic risk oversight," says the source. "That means a lot more people will be required for supervision at some of the smaller Federal Reserve Banks that previously managed small community banks, but which will find themselves responsible for large institutions they did not supervise before."

"Right now it's just the New York, Boston, Chicago, Charlotte and San Francisco Reserve Banks that are responsible for supervising systemically significant large banks, but there are 12 Reserve Banks and some of the other smaller ones might appear on the radar screen," says the source. "So there's a potential change in the relationships between those Reserve Banks."

The source says this will require restructuring of day-to-day supervision. "Let's say, if you have 300 bank supervisors, you might need another 50 or 100 supervisors, including bringing in some more quite senior people."

This article first appeared on Risk.net