The Federal Reserve Board is seeking feedback on a proposal to revise its supervisory rating framework for large banks.
The proposal addresses the “well managed” status of these firms. Specifically, the revisions would better align the supervisory rating framework with and more accurately reflect the strength of banks and the banking system as a whole. Further, the proposal would better align the framework with the supervisory rating systems used for other banking organizations.
The Fed’s large bank supervisory rating framework, issued in 2018, evaluates whether these banks have sufficient financial and operational strength and resilience to maintain operations through a range of conditions.
The framework includes three components: capital, liquidity, and governance and controls. Each of these components has four potential ratings: broadly meets expectations, conditionally meets expectations, deficient-1, or deficient-2.
This new proposal would amend the framework by considering a bank with no more than one “deficient-1” rating to be “well managed.” Firms that do not meet this standard would be deemed not well managed and would face limitations on certain activities. Further, a bank with a deficient-2 rating for any component would continue to be considered not well managed.
In addition, the Fed is proposing to make similar changes to its supervisory rating framework for insurers regulated by the board.
Comments on this proposal are due 30 days after publication in the Federal Register.