Comptroller Hsu Says Bank Supervision Must Adapt to Growing Financial Complexity
Commentary by Sebastian Souchet
Acting Comptroller of the Currency Michael J. Hsu described how the OCC continues to adapt its supervisory approach in response to the increase in both the size and complexity of the banking system.
In remarks at the Joint European Banking Authority and European Central Bank International Conference, Mr. Hsu highlighted the limitations of traditional supervisory models, the challenges posed by cyber and operational risks and the complexities introduced by bank partnerships with nonbanks. He proposed adopting a more flexible "team-of-teams" approach to supervision, emphasizing risk-based supervision over checklist compliance, and enhancing the agility and learning capabilities of supervisory staff. Mr. Hsu noted recent successes in maintaining financial stability during market disruptions, attributing these achievements to proactive and adaptive supervisory practices.
Mr. Hsu also suggested that "the time may be ripe for the U.S. banking agencies to consider a framework for formally identifying domestic systemically important banks (DSIB)." He said that such a designation "could provide helpful transparency and rigor for those banks that need it as it would clarify the stakes involved of weakly supervising and regulating such institutions."
Commentary
The preamble of the Dodd-Frank Act states, among other things, that the legislation will "end 'too big to fail.'" Acting Comptroller Hsu's suggestion of a DSIB framework may be interpreted as recognition that federal banking regulators are now reconceptualizing "too big to fail" to capture the systemic risks also posed by regional and "mid-size" banks (as seen with the collapse of Silicon Valley Bank and Signature Bank).