These horizontal evaluations, which focus on capital adequacy, liquidity resiliency and preparedness for recovery and resolution, examine practices and conditions across a group of firms simultaneously, enabling supervisors to develop peer perspectives about best practices and approaches. These programs involve a consistent and systematic assessment  2  2  Board of Governors of the Federal Reserve System. “Consolidated Supervision Framework for Large Financial Institutions.” Supervision and Regulation Letter 12–17. December 17, 2012. http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm. BIS central bankers’ speeches  of the financial strength and operational resiliency of the largest and most complex financial institutions, addressing both micro-prudential safety-and-soundness supervisory goals and broader macro-prudential financial stability objectives. Specifically, in the Comprehensive Capital Analysis and Review (CCAR), which applies to firms with at least $ billion in total assets, Federal Reserve supervisors assess whether bank holding companies have sufficient capital to continue operations through times of economic and financial stress, and whether they have robust, forward-looking capitalplanning processes that take into account whatever unique risks they might face. By including forward-looking elements, the CCAR complements the enhanced Basel capital requirements now being implemented in the United States. In addition, the Comprehensive Liquidity Analysis and Review (CLAR), which applies to LISCC firms, reviews the liquidity positions and liquidity risk management of large, complex banking organizations, including internal stress-testing practices. Finally, the Federal Reserve does an annual evaluation of the LISCC firms’ options to support recovery and progress in removing impediments to orderly resolution in the Supervisory Assessment of Recovery and Resolution Preparedness (SRP).

Just as important, we want to generate ideas for how to better assess the effectiveness of supervisory activities. In a world of limited resources, how do we deploy our people and technology in the most effective way to limit disruption and distress at individual firms and to the financial system, while still fostering an efficient and innovative financial system? In considering these questions, a good starting point is to understand more fully what supervisors do and how they do it in the current environment. The papers that are being presented here today are largely aimed at achieving this goal. As described in the first paper – “Supervising Large, Complex Financial Institutions: What do Supervisors Do?” – bank supervision has long been an integral component of the Federal Reserve’s  1  Beverly Hirtle, David Lucca and Joseph Tracy assisted in preparing these remarks. BIS central bankers’ speeches  1  responsibilities. At a broad level, Federal Reserve supervision of large financial institutions is guided by two key objectives: “enhancing the resiliency of a firm to lower the probability of its failure or inability to serve as a financial intermediary [and] reducing the impact on the financial system and the broader economy in the event of a firm’s failure or material weakness.” 2 In addressing these objectives, bank supervisors enforce laws and regulations, but there is much more to supervision than just enforcement.