Executive Summary

The Federal Reserve Systems is an institution in the United States of America integral to the administration of wealth as well as economic resources. The role and responsibilities of the Federal Reserve System are to uphold fiscal policies, sustain as well as supervise the monetary policies on behalf of the Federal Government of the United States. To safeguard its roles and responsibilities, the Federal Reserve System oversees the procedures and tasks involved in the fiduciary acquisition process within the financial institutions.  Additionally, the Federal Reserve System oversees the administration of large institutions that solely operate on economic aspects in the country. The conceptual framework to the undertakings of the Federal Reserve Systems is to ensure as well as sustain the financial stability of the country. The authority bestowed upon the institutions can be blinding to outsiders who see the organization as immune to scrutiny and evaluation. This is due to the confidentiality of the operations of the institution as mandated in the American constitution. To ensure that the organization operates within the confines of the law, the Large Institution Supervision Coordinating Committee was set up to ease the public’s burden on the integrity and authenticity of the institution.

The purpose of the current paper is to delineate on the institution, Large Institution Supervision Coordinating Committee with specifications on the members and operations. Operations will span from supervisory activities, staffing, as well as the execution of supervisory strategies and goals. The evaluation in the present paper will explain in detail the firm-firm supervisory activities including techniques and tools in addition to executive actions that aim at correcting illegal practices. The purpose of this analysis is to ensure that stability of the American GDP is maintained through the institution. As such, the research in the current paper shall rely on secondary sources of literature that are peer-reviewed journals and articles.

Introduction

The Large Institution Supervision Coordinating Committee (LISCC) is a committee that was instituted as a result of the constitutional amendment under the Federal Reserve System to include a check and balance agency. The committee is expansive and is chaired by a director general who is tasked with the duties of oversight and regulation of the agency. Also, the director is responsible for the banking system regulation. In general, the committee is authorized to manage as well as supervise the Federal Reserve System in America to ensure that it maintains its credibility.  The reason for the formation of LISCC is due to the powers that the Federal Reserve System holds. According to the constitutional provision, the Federal Reserve System was created as a result of a legislative amendment to establish an agency that handles American currency besides sustaining its potency (Federal Reserve Act 1913). For example, the Federal Reserve System is tasked with the role of re-discounting commercial papers in addition to enacting safe strategies for supervising the financial industry in America, to mention some of the responsibilities. The Federal Reserve Act (1913) establishes that the Federal Reserve System’s primary role is to guide the financial institutions especially limiting the industry’s capabilities of running the economy down. The Federal Reserve should not be compared to other standard banks despite carrying out normal functions just like a bank. The reason is that the Federal Reserve under the LISCC carries out prudential management of large banking organizations such as the BHC (Bank holding companies) which are consolidated under the supervision of the Board of Governors of the Federal Reserve system (2016).

The LISCC authorization to operate is constituted under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law stipulates that the Board of Directors including the Governors are tasked with the duty to manage the more important fiscal agencies including the larger banks in America, prominent banks that have international subsidiaries in addition to non-financial institutions that have a substantial contribution to the American economy. They are regulated under the law of Financial Stability Oversight Council (FSOC).

The need to have an oversight committee to the managing institution, the Federal Reserve, is to ensure that there is no repeat of the economic crises that historically hit the American economy crippling businesses and its citizens. The lessons from the financial crises led to the formation of the Federal Reserve System which in turn created strategic frameworks through which short-term and long-term measures are used to limit a re-occurrence of the economic crisis. Inherently, these form the primary functions of the Federal Reserve Systems.

The LISCC comprises of senior officers from several boards of Reserve Banks. The roles and responsibilities of the officers are to enact disciplinary instruments in addition to management of institution-specific as well as cross-firm direct administration of the organization. The ideology of this is to significantly foster a laborious besides a cautious administration of specific companies while entrenching the utilization of vertical and horizontal reviews to the evaluation of risks associated with the financial industry. Regarding the approach to assessment and management of the industry, the LISCC is tasked with the duty of presenting subservient risks related to the industry.

The presentation of risks is done through analysis of both microeconomic as well as macro-economic financial risks of the markets. From this premise, the LISCC can establish the substantial risks associated with local banks, larger banks, and the general Federal Reserve Systems. The first perspective, therefore, of the LISCC is to comprehend the stages as well as phases to take to ensure the safety and precautionary economic resilience sustenance in the financial institutions considering that the economic stability can wobble at any time (Boros et al., 2016). By undertaking the necessary steps and precautions according to the LISCC roles and responsibilities, the possibility of occurrences of risk associated with an economic meltdown is significantly reduced.

The Principal Functions of the LISCC

The core roles of the LISCC is to include a provisioning policy in addition to a strategic overview of the supervisory actions through the Federal Reserve Systems. Thus, the central role of the LISCC is to improve on the continuity and the management of the quality of supervision, standards in addition to the inception of systemic deliberations on risk management such as improvising of supervisory programs. The design of the members of the committee, the LISCC can view, analyze and conclude on the best outlook for the financial industry. These range from entities such as research economists, market specialists in addition to the regulatory bodies among others. From this approach, the committee can effectively incorporate the quantitative analysis of the supervisory plans as well as procedures. The financial institutions, as well as the non-financial institutions managed under the LISCC framework, are considered to pose an elevated risk to the nation’s economic stability. Therefore, a lot of oversight is done onto such financial institutions and other associated bodies to minimize the risks (Board of Governors of the Federal Reserve System (U.S.) 2016).

For the supervisory roles, the LISCC has constructed programs that are designed to combine the safety and the strategic ways in which both the firm-specific and cross-firm companies can mitigate any threats. The program is set to improve on the broadness, the horizontal options and the entire industry overview of the different ways to minimize any risks or threat that arise in the financial institutions. Therefore, the LISCC ensures that the stability of the country’s economy is maintained through the supervisory oversight of the Federal Reserve System. For instance, a safety program under the LISCC covers the macro-prudential and the macro-prudential aspects. They entail the input of the whole Federal Research System as well as the multi-disciplinary agencies within the financial system.

The next step is the execution as well as the direction of supervisory roles and the programs on safety precautions. They include inputs on supervisory committee directors, the payment systems professionals, research economists, and the market forecasters. Additional mechanisms include the intermittent stress-testing, formal horizontal tests, and scenario evaluations. The purpose of the committee’s needs to undertake such functions is to improve on the collection and the utilization of consistent reports in time such as for a specific company or a cross-firm basis (Boros et al. 2016).  Having established this, the subsequent study sets out the tasks and roles of the commissions, its subsections, and the devoted managerial teams that extricate the broad ascendency construction of LISCC.

The Governance Structure of the Supervisory Program of LISCC

The ascendency system of the LISCC comprises of a collaborative institution that offers a cross-disciplinary as well as system-wide outlooks on the supervision of organizations under its range.  As such, the governance of the LISCC emerges from the central intelligence that is reliant on the institutional information that is accrued over a long period (sometimes years) thus, the economic expertise is entrenched within the Federal Reserve System. The committee uses the information to offer advice to the strategic direction of the portfolio under LISCC supervision (Kemmerer, 2015). Through such guidance, leadership, and commendations, the chair of LISCC conveys the information to the Board of Governors about the efficiency of the administrative role of the LISCC portfolio.

LISCC Operating Committee (OC)

Additionally, a noteworthy functioning arm of the LISCC is the Effective Committee (OC). Mostly, this arm in unification with LISCC hasa accountability to achieve the performance of the managerial program besides set its significances. The OC is also a multi-disciplinary assembly that encompasses of senior officers from different partitions of reserve banks and Board of Governors.  For example, a senior official from the Board’s Division is accountable for the directive and Investment Supervision acts as head of the OC. Besides, the OC propositions course to firms beneath the LISCC portfolio through interested supervisory parties (Kemmerer, 2015). The purpose directly oversees many other subcategories discussed in the succeeding paragraphs that are equally tasked with the performance of the LISCC managerial program.

Dedicated Supervisory Teams of LISCC

The Fed has devoted supervisory teams answerable for managing discrete firms. These teams labor with the OC and its subcategories. The directive of such assemblies is to execute the superintendent strategies intended for a specific firm, under their watch. Their primary task is to ensure that the implemented policies are aligned with the priorities of LISCC and OC. In turn, it contributes to the LISCC program’s ad hoc horizontal and formal supervisory exercises. By executing firm-specific regulation, the devoted teams by LISCC play a vital role in helping LISCC to attain its program’s objectives. The goal is to ensure resilience in the financial sector so that large firms continue lending to businesses and households during times of uncertainty.  Besides, the dedicated teams participate actively in contributing to internal forums whereby they deliberate on portfolio considerations and financial stability as well as make related decisions and proposals (Board of Governors of the Federal Reserve System (U.S.) 2016).

Supervisory Program Management Committee (SPMC)

The Supervision Program Management Committee (SPMC) is another arm of the LISCC tasked with the coordination of LISCC firms.  The primary objective of the SPMC is designing various processes that sustain the LISCC supervisory programs. It ensures that the required infrastructure is put in place to ensure that the programs are effective.  To satisfy these tasks, the SPMC goes out of its way to ensure that there is an alignment between OC roles and supervisory activities. These parties work together to realize the planned results for the LISCC supervisory programs.

The Vetting Committee

The Vetting Committee is the forum under the LISCC that discusses the results of the essential components of the supervisory programs. The discussion then provides guidance and feedback to the dedicated supervisory teams or LISCC horizontal teams.  The main objectives of the Vetting Committee are promoting consistency and quality in the approaches used in supervision. Other goals include conducting examination works, risk management and assessments related to communication, making decisions, and disseminating messages to specific firms (Kemmerer, 2015).

Risk Secretariat

The LISCC’s risk Secretariat is responsible for identifying risks that many firms face under its portfolio. It evaluates and reviews the risk management practices that the firms use and prioritizes the various actions to manage the anticipated risks. Other measures include taking priority risk management actions and mitigation strategies for risks. It also makes suggestions for the OC as regards the normal supervisory activities, correct types of threats to address, and the risk supervision functions. Additionally, the risk secretariat administers the specific risk teams about the following types of threats: retail credit risk, wholesale credit risk, liquidity and capital risks, market risks, compliance and operational risks, legal risks and model risks (Board of Governors of the Federal Reserve System (U.S.) 2016).

Capital and Performance Secretariat

There is also the Capital and Performance Secretariat (CaPS) of LISCC. This secretariat is tasked with supporting the identification of emerging risks and analyzing and monitoring of LISCC firms’ performance as well as their financial conditions.  In particular, CaPS is in charge of the identification of key trends, developments, and outliers that relate to LISCC firms’ financial positions and performance. The Secretariat also coordinates and oversees different business lines with the aim of analyzing them at firm-specific and cross-firm level. The parsed data is then centralized and shared as intelligence and apparatus that support the work of CaPS (Boros et al., 2016).

Other OC Subgroups

Other groups under the LISCC include data teams that the OC charter to sustain its data needs. Through the gathered information and the derived data, the OC subgroups collaborate to give precise data analysis that is used to recognize gaps in data needs. For instance, the LISCC Supervisory Communications Team is responsible for making sure that written reports relating to OC priority initiatives are sent firms under its watch (Boros et al., 2016). It also ensures that such information is consistent across the LISCC portfolio and is of good quality.

Horizontal Exercises

The horizontal exercises include the various strategies that the LISCC uses through the OC to oversee its programs that multiple committees have implemented. Under these programs, the LISCC conducts three annual exercises for its firms at the horizontal level. These exercises include the Comprehensive Liquidity Analysis, the Comprehensive Capital Analysis and Review (CCAR) for LISCC firms, as well as the Review (CLAR) and the Supervisory Assessment of Recovery and Resolution Preparedness (SRP). Through the CCAR, the Federal Reserve System evaluates the capital adequacy of LISCC firms under stressful and normal conditions. On its part, the CLAR includes the Federal Reserve’s horizontal, annual, forward-looking program that evaluates the liquidity position risk management practices and resilience by LISCC firms. Finally, the SRP is responsible for assessing the progress and recovery processes by companies in removing any impediments to orderly resolutions of identified risks and assures methodical decisions (Board of Governors of the Federal Reserve System (U.S.) 2016).

Supplementary Elements of the LISCC Supervisory Programs

The LISCC also has other additional groups that help it to execute its mandate effectively. The OC oversees these additional groups. The groups include the Quantitative Surveillance (QS) group which makes use of various quantitative methods in monitoring the financial system in the United States to identify any vulnerability that may increase shocks and threaten the financial stability (Kemmerer, 2015). The QS is accountable to the LISCC and gives periodic reports on financial stability developments with a specific reference to those concerning to the largest financial institutions. There is also the Systemic Risk Integration Forum that operates under OC Subgroup structure (Boros et al. 2016).  The primary responsibility of this group is to ensure that the potential risk to the financial stability of the nation is managed through a consistent reflection of the outlined policy actions and insights from LISCC‘s analysis and supervisory activities.

The List of Portfolio Firms Under LISCC

Having evaluated the structure and operations of the LISCC, this analysis further looks at the portfolio firms that the organization supervises. As noted earlier, the primary role of the LISCC is to monitor large and complex financial institutions that are critical to the steadiness of the financial system in the United States. The firms include both local and international companies in the finance and banking industry as well as related services. The LISCC portfolio firms are not specific, and their list is modified based on the reviews of the particular importance of different financial institutions doing business in the United States. There are some factors that the Federal Reserve takes into account when selecting firms to be under its supervision. These factors include size and interconnectedness of financial institution, firms that do not have ready substitutes for their product and services, the complexity of firms, and the global nature of a company’s activities. The supervision of LISCC firms focuses on four priority areas, including ensuring capital adequacy and capital planning, resolution planning, liquidity resiliency and sufficiency, and corporate governance (Bodden, 2016). All these provide regular assessment of the efficiency by the management boards and senior management in firms.

Some of the firms currently under the LISCC portfolio include:

Bank of America Corporation

Citigroup Inc.
The Bank of New York Mellon Corporation
Morgan Stanley

Barclays PLC

Wells Fargo & Company
Credit Suisse Group AG

Deutsche Bank AG
JP Morgan Chase & Co.
State Street Corporation
UBS AG
The Goldman Sachs Group, Inc.

Conclusion

The Federal Reserve is mandated to carry out prudential supervision of large financial institutions and nonbank financial institutions that include comparatively small and noncomplex commercial banks and BHCs. It also extends to savings and loan holding companies, foreign banks that operate in the US in addition to large and complex financial institutions. The authority of the Federal Reserve to conduct this supervision through LISCC is anchored in laws and regulations that guide the financial sector in the US. Accordingly, the specific laws include The Federal Reserve Act of 1913, the Bank Holding Company Act of 1956, and its subsequent amendment by the Governor’s board of the Federal Reserve System. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act are also used to bolster the Federal Reserve’s prudential supervisory authority. This analysis extensively evaluated the Large Institution Supervision Coordinating Committee (LISCC), its functionalities, composition, mandate, and some of the firms under its watch.

References

Board of Governors of the Federal Reserve System (U.S.). (2016). The Federal Reserve System: Purposes & functions.

Bodden, V. (2016). Federal Reserve system.

Boros, J. E., Puretz, J. S., & Practising Law Institute. (2016). Securities products of insurance companies, 2016.

Kemmerer, E. W. (2015). ABC of the federal reserve system: Why the federal reserve system was called into being, the main … features of its organization, and how it works. Place of publication not identified: FORGOTTEN Books.