The Federal Reserve may examine such functionally regulated entities only if (1) the Board has reasonable cause to believe that the entity is engaged in activities that pose a material risk to an affiliated depository institution, (2) the Board determines that an examination is necessary to inform the Board of the entity’s risk-management systems, or (3) the Board has reasonable cause to believe that the entity is not in compliance with the banking laws.
We are in the process of working out satisfactory procedures with functional regulators. But it seems to me that we also must work harder to cooperate and share information among the umbrella and bank supervisors in a manner that is satisfactory to both and that minimizes regulatory burden and overlap.