jerome h powell : anti - money laundering and the bank secrecy act testimony by mr jerome h powell, member of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 7 march 2013. * * * chairman johnson, ranking member crapo, and other members of the committee, thank you for inviting me to discuss the important role the federal reserve plays in the u. s. government ’ s effort to combat money laundering and terrorist financing. i will begin by describing our efforts to ensure banking industry compliance with the requirements of the bank secrecy act ( bsa ) and the economic sanctions authorized by the president and congress. i will also highlight some of the important actions we have taken to enforce the law and to promote safe and sound practices in this area. background congress enacted the bsa in 1970 to help safeguard the u. s. financial system and our financial institutions from the abuses of financial crime, and has revised and strengthened the act many times since. the federal reserve has issued regulations to implement the bsa, including regulations that require the institutions we supervise to establish a bsa compliance program, and has integrated bsa examinations into our supervisory program. the federal reserve also works closely with treasury ’ s financial crimes enforcement network ( fincen ) to ensure that the institutions we supervise provide law enforcement with the reports prosecutors need to investigate suspicious activity. the particular steps a banking organization must take to develop a bsa compliance program have been documented extensively. the foundation for such a program begins with a welldeveloped and documented risk assessment that identifies and limits the risk exposures of the banking organization ’ s products, services, customers, and geographic locations. monitoring systems should be in place to identify and report suspicious activity, in particular any account or transaction activity that is not consistent with the bank ’ s expectations. these systems should be accompanied by a strong training program to ensure that personnel, including those in offshore offices, are familiar with u. s. regulatory requirements and bank policies. the bsa compliance program should be reviewed by management, subjected to periodic independent tests that measure whether the program is functioning properly, and improved as needed. finally, a qualified bank officer should be given sufficient authority to ensure that regulatory requirements and bank policies are being followed on a day - to - day basis. banking organizations are also expected to maintain a program for ensuring compliance with u. s. economic sanctions administered by the treasury ’ s office of foreign assets control

not support this recommendation and believes that, at this time, the current ceiling should be maintained. in the board ’ s judgment, it is unlikely that increased coverage, even by indexing, today would add measurably to the stability of the banking system. macroeconomic policy and other elements of the safety net, combined with the current, still - significant level of deposit insurance, continue to underpin the stability of the financial system. thus, the problem that increased coverage is designed to solve must be related to either the individual depositor, the party originally intended to be protected by deposit insurance, or to the individual bank or thrift. clearly, both groups would prefer higher coverage if there were no costs. but congress needs to be clear about the problem for which increased coverage would be the solution. depositors at the federal reserve, we frequently receive letters from banks urging that we support increased deposit insurance coverage. but we virtually never receive similar letters from depositors, who are not shy about sharing their many other concerns. this experience may reflect the fact that, as our surveys of consumer finances suggest, depositors are adept at achieving the level of deposit insurance coverage they desire by opening multiple accounts. such spreading of asset holdings is perfectly consistent with the counsel always given to investors to diversify their assets – whether stocks, bonds, or mutual funds – across different issuers. the cost of diversifying for insured deposits is surely no greater than doing so for other assets. an individual bank would clearly prefer that the depositor maintain all of his or her funds at that bank, and would prefer to eliminate the need for depositor diversification by being able to offer higher deposit insurance coverage. nonetheless, the depositor appears to have no great difficulty – should he or she want insured deposits – in finding multiple sources of fully insured accounts. in addition, the singular characteristic of postwar household financial asset holdings has been the increasing diversity of portfolio choices. the share of household financial assets in bank deposits has been declining steadily throughout the postwar period as households have taken advantage of innovations that make available to them attractive financial instruments with market rates of return. there has been no break in that trend that seems related to past increases in insurance ceilings. indeed, the most dramatic substitution out of deposits in recent years has been from both insured and uninsured deposits to equities and mutual funds. it is difficult to believe that a change in ceilings during the 1990s would have made any measurable difference in that shift