Federal Reserve Board – Federal Reserve Board finalizes changes to its supervisory rating framework for large bank holding companies

The Federal Reserve Board on Wednesday finalized changes to its supervisory rating framework for large bank holding companies. The finalized framework is substantially similar to the proposal issued in July.

The revisions contained in the finalized framework more accurately reflect the strength of individual banks and better align the finalized framework with supervisory rating systems used for other banking organizations.

The Board's large bank supervisory rating framework, issued in 2018, evaluates whether these firms 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.

“Bank ratings should reflect overall safety and soundness, not just isolated deficiencies in a single component,” said Vice Chair for Supervision Michelle W. Bowman. “These framework changes address this by helping to ensure that overall firm condition is the primary consideration in a bank's rating.”

The finalized framework will now consider a firm with no more than one deficient-1 rating to be “well managed.” Consistent with the prior framework, a firm with a deficient-2 rating for any component will continue to be considered not well managed. Firms that are not well managed face limitations on certain activities and acquisitions.

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

The revisions contained in the finalized framework will take effect 60 days after publication in the Federal Register.

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