The Federal Reserve today requested comment on a proposal to revise its supervisory rating framework for large bank holding companies to address the “well managed” status of the firms.
According to a Fed summary, the current rating 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,” the Fed said. Firms that do not meet this standard would be deemed not well managed and would face limitations on certain activities. A bank with a deficient-2 rating for any component would continue to be considered not well managed.
“It is our responsibility to ensure that supervisory ratings are current, credible, and accurately reflect material financial risks,” Fed Vice Chair for Supervision Michelle Bowman said in a statement. “We have observed instances where the supervisory process – and its accompanying ratings – could be improved to better reflect a firm’s condition. A comprehensive evaluation of the supervisory process and implementation of appropriate reforms will be necessary to improve the rating system’s efficacy.”
