William C Dudley: Supervising large, complex financial institutions – defining objectives and measuring effectiveness Opening remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Conference on “Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness”, Federal Reserve Bank of New York, New York City, 18 March 2016. *  *  *  Welcome. It is great to see all of you here today to discuss the objectives and measurement of supervision for large, complex financial institutions. Nearly eight years have passed since the financial crisis hit, pushing the financial system and the U.S. economy to the brink, and leaving scars that are still evident today. The hardships of the financial crisis are unfortunately still open wounds for too many people, especially those who lost their jobs, homes or businesses, or those who struggled with the sharp fall in value of their homes and with staying current on their debts and bills. Understanding what went wrong and how to avoid severe financial crises in the future is, I am sure, an issue foremost in the minds of all the distinguished speakers here today, and I am no exception. Before continuing, let me indicate that what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.

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).