logo-newlogo-newlogo-newlogo-new
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books
✕
  • Home
  • Chambers on Internal Audit
  • Uncategorized
  • Internal Audit’s Role in the Too-big-to-fail Debate

Internal Audit’s Role in the Too-big-to-fail Debate

No Internal Audit Function? Investors Beware!
June 15, 2015
Internal Audit Should Never “Belong” to the CFO
June 29, 2015
June 22, 2015

The July 1 deadline for some of the United States’ largest banking institutions to submit “living wills” for review is looming, and there will be a lot of ink and internet space invested in predicting whether those banks will pass regulatory muster and what the fallout will be for those that do not.

The “living wills,” mandated by the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, require the periodic submission of resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both public and confidential sections.

Last year, the nation’s 11 largest banks had their “living wills” rejected as inadequate, so there is indeed tremendous regulatory pressure for them to provide what regulators are looking for by the July 1 deadline. Essentially federal regulators are demanding “credible” plans that demonstrate how these banks can fail in an orderly manner without disrupting the U.S. financial system or relying on government support.

These challenges should place any affected organization’s internal audit function squarely in the midst of the matter. The Fed and the FDIC have commented on the inadequacy on the previously proposed plans, and these financial institutions would be remiss not to task internal audit with assessing what will be reported.

With limited guidance from the regulators themselves, this not only creates challenges for the financial institution but also for internal audit (and compliance) to have a credible basis to review and evaluate the sufficiency of a planned submission.

Some have questioned the value of this exercise for banks that already have been identified by the international Financial Stability Board as “systemically important financial institutions,” or SIFIs. After the spectacular banking failures of the 2000s, the international community moved to protect the global financial system by committing to prevent the failure of SIFIs in the future, or limiting the adverse effects should one fail.

From a critical viewpoint, there is circular logic and legislative contradiction to then require “living wills” from financial institutions, essentially already designated “too big to fail.”  Dodd-Frank was supposed to end “too big to fail,” yet the legislation also created an organization – the Financial Stability Oversight Council – empowered to designate an organization as a SIFI.  To then require these institutions to demonstrate how they would go through a rapid and orderly resolution seems contradictory.

Far be it from me to question how far the Fed and FDIC will go to force compliance with the living will requirement. For example, the FDIC has the authority to order divestment of assets or operations of banks that fail to submit credible living wills after two years. Only time and circumstances will tell us whether they have the political will to take such drastic steps.

But the debate brings up an important lesson for internal audit. Just as I have urged CAEs to get to know and understand their organizations’ business plans and objectives (regardless of their industry), so should they understand that legislative intent, politics and regulatory mandates are complex. Lots of valuable internal audit resources can be wasted if we don’t understand how the system works, and what is truly risky for the organization rather than what sounds risky because it is the topic du jour.

Internal audit can provide better insight on allocation of resources to meet regulatory demands if it is attuned to the legislative intent and political will behind the creation of regulation. At a minimum, CAEs should keep boards and audit committees abreast of the hours spent on compliance assessments in relation to all the other important work they do across the entire risk universe, as well as having an informed view on the potential impact of new regulations that may be on the horizon.

Having a resource to help internal auditors working in financial services stay on top of such regulatory questions would be helpful, and The IIA is stepping up on that front. Today, we launch the Financial Services Audit Center, which will provide members with direction, thought leadership, and advocacy for internal auditors who are so vital to the financial services industry.

I urge you to look at the ​Center’s website, which is offering a one-time, open-access period through September to what will be an exclusive members’ website, and give us your feedback.

Share

Related posts

March 13, 2023

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


Read more
May 16, 2022

THE STAGGERING TOLL OF COVID RELIEF FRAUD: WHERE WERE THE THREE LINES?


Read more
February 3, 2022

To Live a Life in Color, You May Have to Change Channels


Read more

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

What’s Trending

03-20-23

New Report Reveals Surprising Insights from Internal Audit Executives


03-13-23

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


03-02-23

6 Things Audit Committee Members Often Won’t Say to Internal Audit


Read More

Archive

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009

Contact Us

PO Box 1441
New Smyrna Beach, FL 32170

+1-407-463-9389
rchambers@richardchambers.com

About AuditBeacon.com

AuditBeacon.com is a resource center for internal auditors and risk professionals from around the world. In addition to more than 500 blogs authored by Richard Chambers, the site includes links to news and insights on internal audit and other information that illuminates the value of this important profession. AuditBeacon.com is provided as a service by Richard F. Chambers and Associates, LLC.

Copyright © 2023 Richard F. Chambers & Associates. All Rights Reserved.
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books