In June, Treasury issued a report noting that it believes duties imposed on bank boards are too voluminous, lack appropriate tailoring, and undermine the important distinction between the role of management and that of boards of directors. The Board of Governors of the Federal Reserve System is now requesting comment on a corporate governance proposal to enhance the effectiveness of boards of directors.

The Fed’s proposal would refocus the Federal Reserve’s supervisory expectations for the largest firms’ boards of directors on their core responsibilities, which will promote the safety and soundness of the firms. Boards’ core responsibilities include oversight of the types and levels of risk a firm may take and aligning the firm’s business strategy with those risk decisions. Additionally, the proposal would reduce unnecessary burden for the boards of smaller institutions.

The corporate governance proposal is made up of three parts. First, it identifies the attributes of effective boards of directors, such as setting a clear and consistent strategic direction for the firm as a whole, supporting independent risk management, and holding the management of the firm accountable. For the largest institutions, Federal Reserve supervisors would use these attributes to inform their evaluation of a firm’s governance and controls. Second, it clarifies that for all supervised firms, most supervisory findings should be communicated to the firm’s senior management for corrective action, rather than to its board of directors. And third, the proposal identifies existing supervisory expectations for boards of directors that could be eliminated or revised.