UPDATE 1-Fed's Raskin: Regulators don't have "gotcha mentality"

Tue Oct 16, 2012 2:18pm EDT

By Ros Krasny

BOSTON Oct 16 (Reuters) - U.S. financial regulators have not overcompensated for past behavior in their approach toward regulation since the financial meltdown of recent years, and do not approach their work with a "gotcha mentality," a top Federal Reserve official said on Tuesday.

"Overcorrection is not preached as best practice in regulation," said Federal Reserve Governor Sarah Raskin. "I haven't seen overzealous examinations."

In most cases, problems found during examinations rarely proceed quickly to the harshest level of penalty, but instead are escalated in a series of steps, she said.

At a panel discussion on financial regulation at Suffolk University, Raskin called for a "culture of compliance" within financial institutions, which she said was incompatible with pure self-regulation.

"I don't put all my faith in regulation and none in institutions," Raskin said, adding that the primary responsibility of regulation lies with the institutions themselves, not with the regulators.

Raskin did not discuss monetary policy or the economic outlook.

Citing discussions with bank examiners, she noted a "disturbing uptick" in operational risk at financial institutions."

The mortgage robo-signing problem, where institutions outsourced mortgage compliance work to third parties without providing strong oversight, was "a failure of operational risk," Raskin said.

"There is a very strong correlation between failures to manage operational risk and other risks to your institution," Raskin said.

Raskin, a former Maryland financial regulator, said there has been a greater effort in recent years to coordinate efforts between federal and state agencies.

"I think state regulators are very well positioned to actually see developing trends from a regulatory perspective and a new product perspective," she said.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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