Following months of discussions, the US Federal Reserve and the Securities and Exchange Commission (SEC) have finally signed a formal agreement that explicitly allows for the two agencies to share information about the inner workings of investment banks.
According to the memorandum of understanding, the SEC will provide the Fed with “information and analysis regarding the financial condition, risk management systems, internal controls and capital, liquidity and funding resources” of the firms it oversees, and the Fed will do likewise for the SEC.
SEC chairman Christopher Cox stated: “This agreement will permit the expanded sharing of information on a confidential basis and help ensure that regulated entities receive a coherent message from Uncle Sam.”
This has meant that the Fed will be able to see an investment bank’s trading positions, its leverage and its capital requirements and expand the central bank’s oversight to include investment banks. Under the current system, the SEC has oversight of brokerage firms, while the Fed has oversight of bank holding companies and commercial banks.