The Federal Reserve Board has put forward a proposal to revise its supervisory rating framework for large bank holding companies. The aim is to address the “well managed” status of these firms and ensure better alignment with other banking organizations’ supervisory rating systems. The revisions seek to reflect more accurately the strength of bank holding companies and the overall banking system.
The existing framework, established in 2018, evaluates banks based on their financial and operational strength, resilience, and compliance with laws and regulations. It comprises three components: capital, liquidity, and governance and controls. Each component is rated as broadly meets expectations, conditionally meets expectations, deficient-1, or deficient-2.
Under the proposed changes, a bank would be considered “well managed” if it has no more than one “deficient-1” rating. Banks not meeting this criterion would face restrictions on certain activities. Those with a deficient-2 rating in any component would continue to be regarded as not well managed.
The Board also suggests similar adjustments to its supervisory rating framework for insurers under its regulation. Further comprehensive changes are being considered, including the potential addition of composite ratings to both frameworks.
Comments on the proposal are invited within 30 days following its publication in the Federal Register.
