After the Financial Crisis
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Edited by Sylvester Eijffinger and Donato Masciandaro
Chapter 18: How Do Joint Supervisors Examine Financial Institutions? The Case of Banks
18. How Do Joint Supervisors Examine Financial Institutions? The Case of State Banks Marcelo Rezende1 Introduction Banks in the United States are supervised by multiple regulators. Three federal regulators together with state banking departments supervise commercial banks and their powers and responsibilities often overlap. This fragmented regulatory structure has often been blamed for duplicating compliance costs, causing ineffective communication of information and motivating regulators to supervise and regulate institutions leniently. Supervisors, however, alleviate these inefficiencies by coordinating bank examinations. Federal supervisors are required to coordinate examinations with each other and with state banking departments to minimize the disruptive effects of multiple examinations on the operations of depository institutions.2 Banks themselves demand that supervisors cooperate too. In a recent survey, financial institutions in the United States recommended that, to reduce compliance costs, regulators increase collaboration and consistency among themselves and reduce the number of examinations where I thank Rosalind Bennett, Marc Escrihuela, David Jones, Edward Kane and seminar participants at the Central Bank of Brazil, EESP/FGV, Ibmec-Rio, IPEA-Rio, PUC-Rio, the University of São Paulo, the 2010 International Industrial Organization Conference and Finlawmetrics 2010 for comments. The views expressed herein are my own and do not necessarily reflect those of the Board of Governors or the staff of the Federal Reserve System. 2 See the Riegle Community Development and Regulatory Improvement Act of 1994. 531 1 532 The Architecture of Regulation and Supervision different regulators examine the same issue (Deloitte Center for Banking Solutions, 2007). Although most banks are jointly supervised,...
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