Capitol Hill Criticism Spurs Fed Internal Audit

November 21st, 2014

After a year of painful Congressional hearings, the Federal Reserve is taking action to conduct an internal review of its oversight of Wall Street’s largest financial institutions.  The Federal Reserve has been criticized by lawmakers on Capitol Hill for its failure to identify and address emerging issues in the banking sector.  For example, the Federal Reserve has faced harsh questioning in the Senate Banking Committee and House Financial Services Committee for its handling of currency manipulation, dark pools and high frequency trading (HFT).

Perhaps in anticipation of a more antagonistic Republican-dominated Congress, the Federal Reserve announced yesterday, November 20, 2014, that it plans to undergo two audits.

First, the Federal Reserve will request that its Inspector General (IG) review its examination of large banking organizations and whether the Federal Reserve currently obtains all necessary supervisory information.  The Federal Reserve will also conduct its own review of its supervision of systemically important financial institutions (SIFIs).  The Federal Reserve will evaluate whether it receives “the information needed to ensure consistent and sound supervisory decisions regarding the supervision of the largest, most complex banking organizations.”  For both reviews, the Federal Reserve will assess whether or not divergent views are recognized and communicated to key decision-makers.

 

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