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Transferring the supervision of savings and loan holding companies to the Federal Reserve
The Office of Thrift Supervision (OTS) currently supervises savings institutions and their holding companies. The Dodd-Frank Act transfers responsibility for supervising these institutions to the other bank regulatory agencies. The Federal Reserve will have supervisory and rule-writing authority for savings and loan holding companies (SLHCs). To ensure a smooth transition, the OTS and bank regulatory agencies including the Federal Reserve have been working closely together to plan for this transfer and educate the thrift industry about their supervisory frameworks.5 The Federal Reserve will assume supervisory authority for over 400 SLHCs on the July 21, 2011, transfer date.
Most of these companies are traditional “shell” holding companies that conduct little activity outside the savings institution subsidiary. Others are commercial enterprises or insurance companies. The Federal Reserve believes that companies controlling depository institutions should be held to appropriate prudential standards and intends to create an oversight regime for SLHCs that is consistent with what is applied to bank holding companies. These companies differ in important ways, and will remain governed by different statutes. The Federal Reserve will be mindful of these differences and of the unique characteristics of the thrift industry at it develops a supervisory approach for SLHCs.
Staff members are reviewing all elements of this supervisory program to determine whether and how to incorporate SLHCs into the framework in a manner consistent with the Home Owner’s Loan Act of 1933. This law governs the conduct and supervision of thrift activities and was preserved by the Dodd-Frank Act.6
The Federal Reserve Bank of San Francisco is making a unique contribution to the transition of supervisory authority for SLHCs by temporarily assigning a senior officer to the Federal Reserve Board to coordinate the transition of supervisory authority for SLHCs within the Federal Reserve System. This officer is responsible for managing a range of policy, supervisory, and operational issues leading up to the July 2011 transfer date, including establishing supervisory standards for SLHCs, incorporating SLHCs into holding company programs, communicating with the savings and loan industry, and addressing issues related to reporting and data access.
The Twelfth Federal Reserve District is home to about three dozen SLHCs with total assets ranging from about $100 million to over $100 billion. Most of these companies mainly carry out traditional thrift or bank activities. However, several have substantial business lines outside the thrift subsidiary, including insurance underwriting and securities brokerage.
The Dodd-Frank Act calls for a large number of studies, rulemaking procedures, and policy decisions over the next several years. This is a vast effort that requires close collaboration among U.S. financial regulatory agencies.7
The Federal Reserve is committed to working with other financial regulatory agencies in the United States and abroad to ensure effective implementation of the Dodd-Frank Act. The Federal Reserve is also determined to improve regulations and supervisory programs by incorporating lessons learned from the financial crisis. This must be a transparent process that encourages all interested parties to take part in rulemaking. Input from a wide variety of industry participants will help regulators develop stronger rules that avoid creating unnecessary burden on supervised institutions. To promote participation, the Federal Reserve Board has created a comprehensive website covering regulatory reform developments. In addition, the Federal Reserve's recently established Community Depository Institutions Advisory Council should provide useful input for supervisory and regulatory policy decisions.8
At the Federal Reserve Bank of San Francisco, many employees, particularly in the Banking Supervision and Regulation, and Economic Research Departments, are deeply involved in implementing these changes. These departments are mobilizing resources and cultivating expertise as we assume our expanded responsibilities. The Banking Supervision and Regulation Department expects to increase staffing levels about 20 percent by mid-2012. And the Economic Research Department has created a team of risk modeling experts to support the new supervisory initiatives. Throughout this transition, the Federal Reserve will remain dedicated to promoting a strong financial system that supports a healthy and stable economy.
5. See Joint Implementation Plan regarding sections 301-326 of the Dodd-Frank Act.
6. On February 3, 2011, the federal banking agencies proposed changes to the reporting requirements for entities regulated by the OTS.
7. See, for example, the Financial Stability Oversight Council's Integrated Implementation Roadmap .
8. See the Federal Reserve Board's October 1, 2010 press release about the formation of the Community Depository Institutions Advisory Council (CDIAC).