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B O A R D O F G O V E R N O R S OF THE

FEDERAL RESERVE SYSTEMWASHINGTON, D. C. 2 D S S I

B E N S. B E R N A N K E

C H A I R M A N

November 8, 2011

Mr. Cass R. SunsteinAdministratorOffice of Information and Regulatory AffairsOffice of Management and BudgetWashington, D.C. 20503

Dear Mr. Sunstein:

This is a follow-up to the conversations that Governor TarUllO and Ieach have had with you about the efforts of the Federal Reserve to minimizeregulatory burden, both in the ordinary course of carrying out our regulatoryresponsibilities generally and, more specifically, in implementing the DoddFrank Wall Street Reform and Consumer Protection Act. As we each havediscussed with you, the Federal Reserve carefully reviewed the President'sExecutive Order 13563 issued January 18,2011, calling for all Federalexecutive agencies to take certain actions to reduce or minimize regulatoryburden. While the Executive Order itself recognizes that it does not apply toindependent agencies such as the Federal Reserve, we at the Federal Reservehave nonetheless for many years tried to abide by the principles described inthe Executive Order and continue to believe that our regulatory effortsshould be designed to minimize regulatory burden consistent with theeffective implementation of our statutory responsibilities. For yourinformation, I thought I would describe some of those efforts.

As a general matter, the Federal Reserve takes quite seriously theimportance of evaluating the burdens imposed by our rulemaking efforts.To become informed about these benefits and costs, before we develop aregulatory proposal we often collect information directly from parties thatwe expect will be affected by the rulemaking through surveys of affectedparties and meetings with interested parties and their representatives. Thishelps us craft a proposal that is both effective and minimizes regulatory

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burden. In the rulemaking process, we also specifically seek comment fromthe public on the costs and benefits o f our proposed approach as well as on avariety of alternative approaches to the proposal. In adopting the final rule,we seek to adopt a regulatory alternative that faithfully reflects the statutoryprovisions and the intent of Congress while minimizing regulatory burden.We also provide an analysis o f the costs to small depository organizations ofour rulemaking consistent with the Regulatory Flexibility Act and computethe anticipated cost o f paperwork consistent with the Paperwork ReductionAct.

The Federal Reserve believes strongly that public comment canenlighten our regulatory actions and inform our implementation of ourstatutory responsibilities. Consequently, the Federal Reserve has longfollowed the practice o f providing the public a minimum of 60 days tocomment on all significant rulemaking proposals, with longer periodspermitted for especially complex or significant proposals, such as our capitalrules. We also favor seeking public comment on significant statements o fregulatory guidance, and typically invite the public to comment on majorstatements of supervisory guidance, such as our guidance regardingincentive compensation. In addition, we make available to the public ourexamination manuals, supervisory letters, transaction approvals (anddenials), and other matters of interest to the public related to our regulatoryresponsibilities.

We also consult regularly with our fellow bank regulatory agencies onmatters that might affect their institutions as well as on matters of commoninterest where a single regulatory approach across banking organizations ofdifferent charters would reduce compliance burden and risk. We accomplishthis in many ways. The Federal Reserve participates in the Federal Financial

Institutions Examination Council and in the Financial Stability OversightCouncil, both of which facilitate interagency consultation and cooperation.Moreover, members of the Board as well as staff at senior levels have longestablished working associations with their peers that include regular meetsto discuss policies o f common interest and applicability. These manyavenues of consultation at multiple levels increase the coordination andconsistency of regulation across a banking industry that has multiple

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regulators and charters. We have expanded these channels to include regularconsultation with the SEC, CFPB and other agencies as changes in law havecaused our spheres of regulatory responsibilities increasingly to overlap.

The Federal Reserve also has for many years had a policy o fconducting a zero-based review of each o f its regulations on a periodicbasis--typically every five years. The purpose of this review is to updateeach rule, reduce unnecessary burden, and streamline regulatoryrequirements based on our experience in implementing the rule and wherepermitted by the authorizing statutory provisions that motivated the rule.

The Federal Reserve has paid particular attention to reducingregulatory burden on community banking organizations. For example, theFederal Reserve has established a set o f community depository institutionadvisory councils at each o f the 12 Federal Reserve banks for the purpose ofgathering input from community depository organizations on ways to reduceregulatory burden and improve the efficiency o f our supervision as well as tocollect information about the economy from the perspective of communityorganizations throughout the nation. A representative from each of these 12advisory councils serves on a national Community Depository InstitutionAdvisory Council that meets semiannually with the Board o f Governors tobring together the ideas of all the advisory groups.

The Board of Governors has also established a committee of Boardmembers for the purpose of reviewing all regulatory matters from theperspective of community depository organizations. These reviews areintended to find ways to reduce the burden on community depositoryorganizations from our regulatory policies without reducing theeffectiveness of those policies in improving the safety and soundness ofdepository organizations of all sizes.

We are also taking steps to reduce the burden on communitydepository organizations from our regulatory initiatives. For example, in itsrecent rulemaking proposals, the Federal Reserve has proposed and adoptedstreamlined approaches that reduce burden on community depositoryorganizations that engage in fewer risky activities and have less complex

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structures. The Federal Reserve has also begun to separately andprominently identify which rulemakings apply to community depositoryorganizations and what portions of particular rulemaking proposals aregermane to community depository organizations, thereby reducing theattention community depository organizations must pay to the manyrulemaking proposals that are currently pending.

In addition, we have commissioned an internal review of our processfor reviewing applications and notices for mergers and other acquisitions.This review is intended to help us find ways to reduce the inefficiencies and

delays in that process. Steps we can take to more efficiently inform theindustry o f our standards for reviewing expansion proposals and reach aconclusion on those proposals will increase certainty and reduce burden fordepository organizations of all sizes.

The Federal Reserve is committed to adopting rules and policies thatare effective in implementing its statutory responsibilities and the intent ofCongress without imposing unnecessary costs. We continue to look foropportunities to reduce regulatory burden without impeding effectiveregulation and will keep you informed of our efforts.

Sincerely,

/cJ/J-