Federal Reserve Board – Federal Reserve Board requests comment on targeted proposal to revise its supervisory rating framework for large bank holding companies to address the “well managed” status of these firms

The Federal Reserve Board on Thursday requested comment on a targeted proposal to revise its supervisory rating framework for large bank holding companies to address the “well managed” status of these firms. The revisions would better align the supervisory rating framework with and more accurately reflect the strength of bank holding companies and the banking system as a whole. The proposal would also better align the framework with the supervisory rating systems used for other banking organizations.

The Board’s large bank supervisory rating framework, issued in 2018, evaluates whether these banks have sufficient financial and operational strength and resilience to maintain safe-and-sound operations and comply with laws and regulations through a range of conditions. The framework includes three components: capital, liquidity, and governance and controls. Each component has four potential ratings: broadly meets expectations, conditionally meets expectations, deficient-1, or deficient-2.

The 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. Consistent with the current framework, a bank with a deficient-2 rating for any component would continue to be considered not well managed.

The Board is also proposing to make similar changes to its supervisory rating framework for insurers regulated by the Board.

The Board will evaluate additional comprehensive changes, including options to consider adding composite ratings to both frameworks, as well as changes to other supervisory rating systems.

Comments on today’s proposal are due 30 days after publication in the Federal Register.

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