Advantages of Partnering with States in Supervising Banks
Ninth District Highlights - December 2016
Published December 14, 2016 | December 2016 issue
A fortune cookie once provided me this insightful statement: “A committee of one gets things done.” I think we can all relate to the sentiments of this quote. Working with others can sometimes seem to slow down progress.
This view might suggest that the Federal Reserve and state partnership used to supervise state member banks could be problematic. The opposite is true. I believe partnering with the states improves supervision, a bottom line I elaborate on in the rest of this article.
I will highlight five advantages of partnering with the states in the supervision of state member banks, knowing full well that others could certainly add to this list.
A tool for better decision making
Many bad decisions can arise despite good intentions and what seem like reasonable assumptions and techniques. But it is sometimes hard to see past what has become normal and routine. In banking supervision, we may not see an activity as risky if it becomes commonplace, even if the activity could pose a real risk. Alternatively, we may see a problem where one does not exist because of what we have seen in the past. Working with the states is an important tool for avoiding these types of mistakes. The states bring a different set of eyes and perhaps a different take on the same set of facts. This diversity of views is critical for making good decisions over time.
Broad state financial service responsibilities
State supervisory agencies tend to have supervisory authority for a broader range of institutions than their federal counterparts, where responsibilities are divided across separate agencies. Thus, my state counterparts have insights gained from supervising different types of firms, such as credit unions, money transfer firms and pay day lenders. They can bring these insights into our supervision of banks and into policy-related discussions.
Strong regional knowledge
The Federal Reserve Bank of Minneapolis oversees state member banks and holding companies in six states. Of course, each state banking supervisor focuses on the entities in a single state. Many of these states—Montana comes to mind—are very large and have diverse regions. Nonetheless, this more-targeted geographic focus allows the state departments to develop a deep understanding of local conditions and markets. This knowledge provides immense benefits to our partnership, by adding to our understanding of issues facing state member banks in the Ninth District.
States can try new approaches or techniques at a speed and with a range of options that can sometimes elude federal agencies, particularly when the federal agencies have to come to agreement with a wide range of federal counterparts. The federal agencies can then learn from the range of state efforts.
State collaboration and the Conference of State Bank Supervisors (CSBS)
Our state partners participate actively in the work of the CSBS, an entity that brings together the state agencies to collaborate on supervision and the key policy issues facing supervisors and supervised firms. This collaboration not only provides us with the expertise of the states in the Ninth District, but also gives us the chance to learn from states across the country and from the CSBS organization itself.