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The economic disruptions caused by the COVID-19 pandemic resulted in an abrupt shock to financial markets and affected many credit channels that households, businesses, and state and local governments rely on. In response, the Board of Governors of the Federal Reserve System took steps to support the flow of credit to these sectors by establishing emergency lending programs that made liquidity available to ensure market stability and provide lending support to various sectors of the economy.
In addition, the Bureau of Consumer Financial Protection has continued to play a vital role throughout the pandemic by enforcing federal consumer protection laws and protecting consumers from abuse.
As the Board and the Bureau's independent inspector general, we provide robust oversight of their pandemic response efforts through continuous monitoring, audits, evaluations, and criminal investigations, as well as coordination with our oversight and law enforcement partners.
The following describes our ongoing and planned work. See the Work Plan for full details.
Monitoring of the Federal Reserve's Lending Programs
In response to the economic effects of the COVID-19 pandemic, the Federal Reserve created new lending programs to provide loans to employers, certain businesses, and communities across the country to support the U.S. economy. Specifically, the following programs have been created: the Main Street Lending Program, the Paycheck Protection Program Liquidity Facility, the Municipal Liquidity Facility, the Primary Market Corporate Credit Facility, and the Secondary Market Corporate Credit Facility. We initiated an active monitoring effort of these programs to gain an understanding of the operational, governance, reputational, and financial matters associated with them. Through this monitoring effort, we will refine our focus on the programs and identify areas for future audits or evaluations.
Evaluation of Third-Party Cybersecurity Risk Management Processes for Vendors Supporting the Main Street Lending Program (MSLP) and the Secondary Market Corporate Credit Facility (SMCCF)
In response to the economic effects of the COVID-19 pandemic, the Board created new lending programs and facilities to provide loans to employers, certain businesses, and communities across the country to support the U.S. economy. To support the implementation of specific programs and facilities, the Federal Reserve Banks have contracted with third-party vendors for various services, such as administrative, custodial, legal, design, and investment management services. These vendors provide data generated from the operations and management of the facilities to the Reserve Banks, who then provide the data to the Board. We are evaluating the effectiveness of (1) the risk management processes designed to ensure that effective information security and data integrity controls are implemented by third parties supporting the administration of the MSLP and the SMCCF and (2) select security controls managed by the Reserve Banks for selected systems that process and maintain MSLP and SMCCF data.
Evaluation of the Federal Reserve System’s Loan Purchase and Administration for Its Main Street Lending Program (MSLP)
In response to the COVID-19 pandemic, the Federal Reserve System established the MSLP—composed of five different lending facilities—to facilitate lending to small and medium-sized for-profit and nonprofit organizations. Through the MSLP, the Federal Reserve Bank of Boston (FRB Boston) purchased 1,830 loans amounting to approximately $17.5 billion from lenders; the majority of these loans were purchased during the last 2 months of the program. Following the purchase of the loans, FRB Boston is now responsible for administering the loans, including assessing overall credit risk and identifying substandard loans. FRB Boston leveraged third-party vendors to support both loan purchases and loan administration. We plan to assess the MSLP’s processes for loan purchases and loan administration, including the design, implementation, and operating effectiveness of internal controls.
Evaluation of the Federal Reserve System’s Vendor Selection and Management Processes Related to the Federal Reserve Bank of New York’s (FRB New York) Emergency Lending Programs
As part of its emergency lending program, FRB New York operated six emergency lending facilities, five of which were supported by multiple vendor contracts. FRB New York awarded some of its emergency lending program–related contracts noncompetitively because of the exigent circumstances, and other contracts pose potential conflict-of-interest risks to the System. FRB New York’s reliance on vendors highlights the importance of its monitoring of vendor performance. We plan to assess the Board’s and FRB New York’s processes related to vendor selection and management for FRB New York’s emergency lending programs.
Audit of the Bureau's Consumer Response Operations
Pursuant to the Dodd-Frank Act, the Bureau's Office of Consumer Response collects, monitors, and responds to consumer complaints on financial services and products. The Bureau uses these consumer complaints to help inform the agency's supervision activities, enforce federal consumer financial laws, and write rules and regulations. With an increase in consumer complaints as a result of the COVID-19 pandemic and a recent organizational shift to the newly created Division of Consumer Education and External Affairs, Consumer Response faces an operational risk with respect to the timeliness with which it can respond to consumer complaints. We plan to assess the Bureau's effectiveness and timeliness in responding to consumer complaints.
Major Management Challenges