Fed’s Raskin Says Bank Operational Risk is on the Rise

Federal Reserve Governor Sarah Bloom Raskin said risk at some financial institutions has increased because of lax management within the firms.

“I have seen a disturbing uptick in what we call operational risk,” Raskin said on a panel today in Boston, referring to errors stemming from substandard bank management.

“The easiest example of this is robo-signing, which we saw quite a bit going on in the mortgage crisis, where institutions were outsourcing a lot of their mortgage compliance work to third parties,” Raskin said. This sort of error can lead to reputational and legal risk, she said at Suffolk University Law School. She didn’t discuss the outlook for monetary policy or the economy or mention a particular financial institution.

The Fed is implementing the Dodd-Frank Act, the biggest overhaul of financial regulation since the 1930s, and pushing to raise capital standards for the largest banks, subjecting them to annual stress tests and boosting scrutiny of their lending and trading practices.

Raskin said regulators are taking appropriate steps to implement Dodd-Frank and that “I have not seen over-correction by the regulators” or “overzealous rule-writing.”

Raskin, 51, was appointed to the Fed’s board of governors by President Barack Obama in 2010. She previously served as commissioner of banking regulation for the state of Maryland.

To contact the reporter on this story: Joshua Zumbrun in Boston at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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