April 28, 2011 / 8:01 PM / 8 years ago

NY Fed deploys senior supervisors to Wall Street

* New York Fed reorganizing supervision staff

* Senior officials will be based at big banks

* Move aims to improve engagement with senior management

By Kristina Cooke

NEW YORK, April 28 (Reuters) - Wall Street executives will soon get more face time with senior bank regulators as part of an effort to strengthen supervision and plug gaps in communication laid bare by the worst financial crisis since the Great Depression.

The Federal Reserve Bank of New York has started to assign more senior officials to lead its on-site teams at big banks, aiming to strengthen its lines of communication with chief executives and directors, sources familiar with the matter said on Thursday.

Each of the largest financial firms the Fed supervises will be assigned an on-site senior supervisory officer who will be closer to New York Fed regulatory policy discussions and should bring a better sense of how the firm fits into the broader global regulatory framework, one source said.

More regular communication could also help give financial executives more clarity on how regulators will carry out myriad new capital rules and compensation reforms.

The Fed last year was charged with regulating U.S. firms whose failure could pose a risk to the entire financial system under a new U.S. financial regulatory law. The reorganization at the New York Fed focuses on teams that supervise those firms.

Firms the New York Fed regulates include Goldman Sachs (GS.N), Morgan Stanley (MS.N), JPMorgan (JPM.N) and other banking behemoths.

Financial supervisors around the world have been blamed for failing to see the crisis coming, not understanding the complexity and consequences of securitized products and being too lax in enforcing rules.

The move to add more senior staff to on-site teams comes from a review by the New York Fed’s new head of bank supervision, Sarah Dahlgren. It aims to address a lesson from the crisis: that supervisors often didn’t engage with senior management as much as they arguably should have.

A more seasoned official can engage at a different level with a CEO or a director in a one-on-one meeting, a source said.

“The question is why supervisors didn’t use their access to top management better before. What held them back? This is a cultural issue,” said Ernest Patrikis, a partner at law firm White & Case and a former general counsel at the New York Fed.

By putting more senior officials in place, the move hopes to change that culture and foster an environment in which people are not afraid to speak out, the first source said.

The reorganization also fits in with recommendations made last November by the Financial Stability Board, a global regulatory body, to improve supervision of the world’s top banks.

A key aim of the FSB recommendations was to ensure supervisors possess adequate powers and resources to challenge banks. The FSB gave supervisors a year to improve their performance or face being called to account by their peers.

As part of the U.S. financial regulatory law passed last year, the New York Fed calculated it would need to hire 75-100 people across its regulatory operation over a two- to three-year period to comply with its expanded responsibilities. It may hire additional staff as it continues its review of its supervisory operation, a source said. (Reporting by Kristina Cooke; Editing by Dan Grebler)

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