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Number of Regulators Embedded With Wall Street Firms on the Rise Number of Regulators Embedded With Wall Street Firms on the Rise

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Economy / finance

Number of Regulators Embedded With Wall Street Firms on the Rise

photo of Catherine Hollander
June 20, 2011

The Federal Reserve Bank of New York and the Office of the Comptroller of the Currency will increase the number of in-house regulators at the banks and securities firms they oversee, The Wall Street Journal reported on Monday.

The “embeds” work alongside the people they inspect. They check the bank or firm’s safety and soundness, financial performance, and management quality. The Fed gives in-house regulators the power to review all of the company’s books and records. A firm’s No. 1 embed is expected to meet with the CEO monthly, at a minimum. The embeds are also charged with identifying weak spots that could lead to another financial crisis. Embeds generally work in five-year rotations to prevent them from getting too comfortable inside their assigned Wall Street firm.

The Federal Reserve says the number of embedded regulators has increased 40 percent since 2006, for a current total of 1,948. Proponents of increasing the number of in-house regulators cite the need to get tougher on banks and securities firms in the wake of the financial crisis. Critics say that the ability to use technology to gather information from afar makes having in-house regulators obsolete. Others complain that regulators’ requests for information are not always coordinated.

 

There are currently about 150 so-called field regulators under the New York Fed’s oversight. The Journal reports that number will double in the fall. The New York Fed oversees firms and banks including Bank of America Corp., Morgan Stanley, and Deutsche Bank AG.

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