The FDIC and Office of the Comptroller of the Currency today finalized a rule to formally define “unsafe and unsound practices,” which they said would bring more certainty to bank supervision.
The two agencies first proposed adopting a formal definition of the term last year, noting there was no statutory or regulatory definition of what constitutes an unsafe or unsound practice. The new joint rule defines safe and unsound practices as those that are “contrary to generally accepted standards of prudent operation” and, if continued, could materially harm the institution or present a material risk of loss to the Deposit Insurance Fund.
“The definition will promote greater clarity and certainty regarding certain enforcement and supervision standards and ensure that examiners prioritize concerns related to material financial risks over those regarding policies, process, documentation and other nonfinancial risks,” the two agencies said in a joint statement.
The rule also establishes uniform standards for when and how the agencies may issue matters requiring attention (MRA) as part of bank supervision, as well as how they will communicate supervisory observations and other violations of laws and regulations. As part of that effort, the OCC issued revised policies and procedures manuals for MRA as well as proposed rulemaking on the subject.
The American Bankers Association previously submitted recommendations for what the agencies should include in the new definition. In a statement after the rule was finalized, ABA President and CEO Rob Nichols said today’s actions and others taken by the agencies “will bolster the safety and soundness of banks of all sizes and help them better serve their customers, clients and communities by providing more consistency and predictability.”
“Importantly, the rule also ensures that requirements for banks are properly tailored,” Nichols said. “We thank the agencies for taking these significant steps and look forward to reviewing the proposed rule on matters requiring attention and providing our feedback in the comment process.”
