ABA Seeks Clarifications on Fed’s Proposed Large Bank Risk Management Guidance

ABA today asked the Federal Reserve to provide additional clarity around its proposed guidance setting forth core principles for effective risk management for banks with more than $50 billion in assets and foreign banking organizations with at least $50 billion in U.S. assets. The guidance builds on the Fed’s proposed supervisory risk rating scale for large bank holding companies, and includes expectations for senior management, business line management and independent risk management and controls.

In its comments, ABA urged the Fed to clarify the proposal’s role as supervisory guidance, cautioning that while guidance plays a useful role in supervision, it can be misinterpreted  to undermine the supervisory process and the efficient management of institutions. The association offered several changes to the proposal, including those that would provide greater flexibility in its coverage of roles and responsibilities; take into account the materiality of the risks in question; allow covered institutions to develop and test products with appropriately scaled risk controls and other safeguards; and re-examine the treatment of exceptions to risk limits.

ABA also pointed out that the successful implementation of any final guidance would require significant training of frontline and supervisory examination staff and noted that “the final guidance should expressly acknowledge that the Federal Reserve will rely on and give deference to the supervisory framework and conclusions of the primary federal regulator of any insured depository institution subsidiary of a covered institution.” For more information, contact ABA’s Hu Benton.