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The US regulatory landscape: who oversees what

Regulatory FrameworkModule 82 of 111
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The US Regulatory Landscape: A Practitioner's Map

Your bank is regulated by multiple agencies, and each has a piece of ALM. The Federal Reserve cares about systemic risk. The OCC cares about national bank safety. The FDIC cares about deposit insurance. The SEC cares about disclosure. The CFPB cares about consumer protection. Understanding who oversees what—and which agency to call when—is essential.

For a junior ALM professional, the regulatory landscape can feel overwhelming. But it's actually logically structured. Each agency has turf; each has expectations for ALM. Know the structure, and you can navigate it.

The Regulator Landscape

1. The Federal Reserve

What they regulate: Bank holding companies (BHCs), state-chartered banks that are members of the Fed system, and systemically important financial institutions (SIFIs).

What they care about in ALM:

  • Liquidity: Stress testing (CCAR, DFAST), LCR, NSFR

  • Capital: Interest rate risk; how much EVE risk can a bank take?

  • Market risk: Large exposures to single counterparties, foreign exchange, commodities

  • Systemic risk: Is this bank's failure a threat to the system?


Their tools: Guidance documents, supervisory stress tests (CCAR, DFAST), enforcement, capital requirements.

Their examiners: Fed staff conduct annual examinations of BHCs and state-chartered Fed member banks. They look at ALM governance, interest rate risk models, liquidity position, and stress testing.

2. The OCC (Office of the Comptroller of the Currency)

What they regulate: National banks and federal savings associations.

What they care about in ALM:

  • Interest rate risk: The OCC publishes the most detailed guidance on IRR (the Handbook)

  • Liquidity: Contingency funding plans, liquidity stress testing

  • Credit risk: How does the loan portfolio interact with rates?

  • Market risk: Trading activities, large positions


Their tools: The Interest Rate Risk Handbook (a detailed best practices document), guidance, enforcement, capital requirements.

Their examiners: OCC examiners conduct annual examinations of national banks. They're very hands-on on ALM, requesting models, testing assumptions, comparing to peers.

3. The FDIC (Federal Deposit Insurance Corporation)

What they regulate: Insured depositories (which is most banks). They're the insurer and the backstop.

What they care about in ALM:

  • Liquidity: Can the bank meet withdrawal demands? If not, FDIC pays depositors.

  • Deposit composition: How much is insured? How much is rate-sensitive?

  • Funding strategy: Is the bank over-reliant on brokered deposits? Single sources?

  • Failures and resolution: If the bank fails, can FDIC resolve it quickly?


Their tools: Guidance, enforcement, the Least Cost Resolution doctrine (FDIC wants to minimize its losses), capital requirements.

Their examiners: FDIC examiners (sometimes jointly with Fed or OCC) look at liquidity, deposit composition, and funding stability.

4. State Banking Regulators

What they regulate: State-chartered banks that aren't Fed members. If a state bank is FDIC-insured (which most are), it's regulated by the state AND the FDIC (dual regulation).

What they care about: Usually the same things as Fed/OCC (interest rate risk, liquidity, credit) but may have state-specific expectations.

Note: This is less relevant to ALM than Fed/OCC, unless you work at a state bank.

5. The SEC

What they regulate: Disclosure. If your bank is public, you must file 10-Qs and 10-Ks.

What they care about in ALM:

  • Risk disclosure: Your 10-K must include a full discussion of interest rate risk and liquidity risk

  • Material events: Large hedges, repositioning, breaches of risk limits

  • Management Discussion and Analysis (MD&A): Discussion of how interest rates, liquidity, and funding affect earnings


Their tools: Enforcement, accounting standards (via FASB), disclosure requirements.

Note: The SEC doesn't regulate banks' operations (that's Fed/OCC), but they do regulate what you disclose about operations.

The Examination and Supervision Process

Examination is how regulators check that you're following policy. Here's how it works:

Year 1: Large Bank Examination (every 12-24 months for large banks; 24-36 months for smaller banks)

  • Pre-exam: Examiners request documents (ALCO minutes, risk limits, models, recent stress test results, regulatory capital calculations)
  • On-site: Examiners come for 3-6 weeks, depending on bank size. They interview Treasurer, CRO, ALM team. They test models, review data quality, compare assumptions to peers.
  • Findings: Examiners identify issues: "Your deposit beta assumption is stale." "Your liquidity stress test doesn't include deposit runoff under your specific risk profile." "Your interest rate risk governance is unclear."
  • Remediation: Bank responds with a plan to fix issues within 30-90 days
  • Follow-up: Examiners may return to verify fixes
Year 2-3: Off-site Monitoring
  • Examiners review quarterly reports and ALCO minutes
  • They run their own models to compare to the bank's models
  • If something looks wrong, they may conduct an exam of that area
Ratings:

Banks receive CAMEL ratings (Capital, Asset quality, Management, Earnings, Liquidity). Each component is 1-5. A 1 is excellent; a 5 is troubled. The overall CAMEL rating is the worst component.

For ALM, the most relevant components are:

  • Capital: Do you have enough capital relative to risk?

  • Management: Is your ALM governance strong? Do you have clear policies? Do you enforce them?

  • Earnings: Are you profitable? Is NII stable?

  • Liquidity: Can you survive a stress?


A bank with a CAMEL rating of 1-2 has strong supervision. A bank with 3+ may face increased examination, restrictions on growth, or demands to strengthen capital/governance.

The Key Regulatory Expectations for ALM

Across all regulators, the expectations are:

1. Documented governance: ALCO charter, policies (IRR policy, liquidity policy), risk limits. In writing. Board-approved. Enforced.

2. Models and measurement: You must measure EVE and NII. You must stress-test. You must validate models annually. The OCC's Handbook is the gold standard; the Fed expects at least that level of rigor.

3. Contingency funding plan: You must have a written CFP with trigger, sources, and accountability. It must be exercised (tabletop tested) annually.

4. Stress testing: You must stress your balance sheet under Fed scenarios (CCAR/DFAST if you're large enough) and your own scenarios (based on your specific risk profile). SVB didn't stress-test for a 80% deposit outflow; regulators now expect you to.

5. Breach management: If you exceed a risk limit, you must identify it, report it, and remediate it. Hiding a breach is a regulatory violation.

6. Data quality: The data feeding your models must be accurate. Regular reconciliation, validation, and audit.

7. Disclosure: If you're public, you must disclose interest rate risk and liquidity risk clearly.

Takeaway

The regulatory landscape is complex, but it's organized:

  • Fed: BHCs; systemic risk; capital and liquidity

  • OCC: National banks; interest rate risk (detailed guidance); operations

  • FDIC: All insured banks; deposit insurance and resolution

  • SEC: Public banks; disclosure

  • State regulators: State banks; local requirements


Your bank may be under multiple regulators (e.g., a national bank BHC is under both OCC and Fed). Know which examiner is your primary contact. Build relationships. Bring them into ALCO discussions. A mature bank views regulators as partners in risk management, not adversaries.