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Fed Lays Bank Risk Management Egg

WASHINGTON ( TheStreet) -- Some very stupid questions included in the Federal Reserve's proposed rules to strengthen oversight of large banks show that the regulator just doesn't have any guts.

The regulator on Tuesday released its proposed rules to strengthen oversight of large banks as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama in July of last year. Most of the new rules cover bank holding companies with total assets exceeding $50 billion, and the Fed posed a host of questions to be answered by the industry or the public, by March 31.

A typical wishy-washy question from the Federal Reserve, in the section of the 173-page rule on improved risk management is:

"Should the Board consider specifying by regulation the minimum qualifications, including educational attainment and professional experience, for risk management expertise on a risk committee?"

That laugher follows the actual proposal, that large bank holding companies establish risk committees chaired by independent directors, with "at least one member of a company's risk committee to have risk management expertise that is commensurate with the company's capital structure, risk profile, complexity, activities, size, and other appropriate risk-related factors."

So, after saying that only one member of the risk committee needs to be qualified to serve on the committee, the Fed asks if it should stipulate what those qualifications should be.

Well, we can save the Fed some time: After seeing hundreds of bank failures over the past several years, with most preceded by regulatory orders requiring an institution's board of directors to begin doing its job, the answer is "yes, all of the members of a board of directors risk committee should be qualified for the task."

The fact that the Fed even needs to make a rule requiring one member of the risk committee to display competence speaks for itself. We might even add that all members of a bank's board of directors should meet some minimal qualification for the job.

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