We should recognize that whatever model of coordination is chosen, additional burden will result. If applied only to one portion of an industry, even a good model could have unintended consequences by forcing one set of players into riskier activities to make up for the burden. Because financial conglomerates operate as integrated entities and manage risks on a global basis, their operations typically employ centralized risk-management systems and internal control processes. These systems cut across organizational structures and separately regulated entities. The Federal Reserve believes it is important to review those centralized management and control techniques, as well as other relevant intra-organizational factors, to be able to understand fully the riskiness of the whole organization in relation to the supervised entities.
Financial markets tend to view a complex banking organization as a single economic unit.
Despite notions of legal separateness, financial or reputational problems at nonregulated entities can quickly spread to the affiliated banks. Creditors may seek to limit or reduce the exposure to all units of an organization. In addition, recent deposit insurance reforms now expose uninsured creditors to greater risks of loss, so risks of systemic disruptions may be greater now than in the past. And when under stress, bank holding companies historically have tapped the resources of bank subsidiaries. For these reasons, supervisory knowledge of the financial strength of the consolidated holding company is critical to protecting an insured subsidiary bank, the banking system, and taxpayers.