Bank supervisors should be prepared to respond to the earliest signs of trouble by requiring operationally challenged banks to address problems quickly and completely. If corrections are made, then the regulators can move on. If not, then the regulators need to escalate enforcement. Swift and decisive corrective action is not always how federal bank regulators have responded to broken windows in the past.
In my view, for example, regulators’ response to the rampant, long-running problems in loan-servicing practices at large financial institutions was not swift and was not decisive. The point is that federal regulators must listen carefully to community input and analysis in order to keep track of where windows are breaking and how they are being broken.