The Federal Reserve today finalized revisions to its supervisory rating framework for large banks to address the “well managed” status of the institutions.
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 Fed is amending the framework to consider a bank with no more than one deficient-1 rating to be “well managed.” Firms that do not meet this standard will be deemed not well-managed and face limitations on certain activities. A bank with a deficient-2 rating for any component will continue to be considered not well managed.
“Bank ratings should reflect overall safety and soundness, not just isolated deficiencies in a single component,” Vice Chair for Supervision Michelle Bowman said in a statement. “These framework changes address this by helping to ensure that overall firm condition is the primary consideration in a bank’s rating.”
The American Bankers Association and Bank Policy Institute endorsed the revisions in an August letter, saying the previous rating system “often merely reflects an isolated deficiency in a single component rating based on a subjective assessment.”
The revisions will take effect 60 days after publication in the Federal Register.
