Are bank boards expected by supervisors to do the jobs of bank management? Big banks just got an opportunity, indeed a mandate from the Federal Reserve Board, to simplify their board’s tasks while increasing their effectiveness. We urge banks to move quickly and to frame their approach while there is the maximum openness by the authorities to support constructive change.
On August 3rd the Federal Reserve Board proposed supervisory guidance on Board Effectiveness (BE) for large financial institutions (LFIs). At the same time they proposed a new supervisory rating system for LFIs, replacing a system dating back to 2004. The timing is not accidental: the proposed guidance on BE represents an important piece in the radically revamped edifice of post-crisis supervision by the Fed. It is hard to overstate the importance of especially the proposed BE guidance, and our latest Quick Reaction Note summarizes that guidance and explains what it means.