Ron J. Feldman - Executive Vice President and Senior Policy Adviser
Published March 11, 2014 | March 2014 issue
This issue of Banking in the Ninth focuses on key employees responsible for the supervisory relationship between the Minneapolis Fed and the banks and holding companies we supervise. A relationship-focused supervisory position may seem out of place. Firms typically have relationship functions to maintain effective connections with customers for the ultimate purpose of meeting profitability and sales goals.
Of course, supervisors do not make sales or earn profits. But building a deep and constructive relationship with the institutions we supervise is entirely appropriate. Establishing an effective relationship with supervised institutions helps us achieve our primary objective: effectively supervising banks and holding companies.
This quarter’s article provides a number of examples showing how strong relationships lead to better supervision. One example makes this point clear: Getting to know a bank or holding company well—especially the economy in which the firm operates and the strategy it pursues—typically leads to a strong relationship with firm management. This same knowledge also leads to better supervision, because the relationship manager or Consumer Affairs contact has a stronger understanding of potential risks that could affect the firm.
Therefore, I do not see a conflict between effective supervision and strong relationships between supervisors and banks and holding companies. Rather I see strong relationships facilitating effective supervision. That said, I understand that some people may initially see tension between the two. A strong relationship between the supervisor and the supervised firm may indicate one where the firm “gets off easy.”
We avoid this concern through several straightforward steps. First, the direct supervision of the firm is facilitated by the relationship staff, but not controlled by it. Second, and, most importantly, supervisory assessments receive multiple reviews by parties that are one step removed from the direct supervision of the firm. Both the Fed and supervised firms benefit from this combination of strong relationship and independent oversight.
A separate challenge is assessing our performance as supervisors on an ongoing basis so that we identify how we can improve our relationship function and our supervision more generally. I noted that supervisors do not make sales or tally profits. Society certainly does not want government supervisors selling their services to the highest bidder. Profits, however, do provide a concrete metric, one that supervisors often lack in assessing their performance.
One concrete measure of assessing our performance is the feedback we receive from supervised entities. I encourage readers to contact me with comments on this issue of Banking in the Ninth or any other matter on your mind.