Economic Policy Review
Supervising Large, Complex Financial Institutions: What Do Supervisors Do?
February 2017, Volume 23, Number 1
JEL classification: G21, G28
The supervision of large, complex financial institutions is one of the most important, but least understood, activities of the Federal Reserve. Supervision entails monitoring and oversight to assess whether firms are engaged in unsafe or unsound practices, and to ensure that firms take appropriate action to correct such practices. It is distinct from regulation, which involves the development and promulgation of the rules under which firms operate. This article brings greater transparency to the Federal Reserve’s supervisory activities by considering how they are structured, staffed, and implemented on a day-to-day basis at the Federal Reserve Bank of New York as part of the broader Systemwide supervisory program. The goal of the article is to generate insight into what supervisors do and how they do it. While the authors do not undertake to evaluate the effectiveness of the activities they describe, they note that understanding how supervision works is a critical precursor to determining how to measure its impact.