The Federal Reserve Board has approved final amendments to its supervisory rating framework for large bank holding companies. The finalized version largely mirrors the proposal issued in July, with refinements intended to provide a more accurate reflection of banks’ individual strength and to bring greater consistency with supervisory systems applied to other financial institutions.
Originally introduced in 2018, the Board’s large bank supervisory rating framework is designed to assess whether major firms maintain sufficient financial and operational resilience to operate safely and comply with regulatory standards under a variety of conditions. The framework evaluates three core components, namely capital, liquidity, and governance and controls, each of which can be rated as “broadly meets expectations,” “conditionally meets expectations,” “deficient-1,” or “deficient-2.”
“Bank ratings should reflect overall safety and soundness, not just isolated deficiencies in a single component,” said Vice Chair for Supervision Michelle W. Bowman. “These framework changes address this by helping to ensure that overall firm condition is the primary consideration in a bank’s rating.”
Under the finalized framework, a bank with no more than one component rated “deficient-1” will now be regarded as “well managed.” The approach remains unchanged for firms with any “deficient-2” component rating, which will continue to be classified as not well managed. Institutions falling into the latter category face restrictions on certain activities and acquisitions.
The Federal Reserve Board has also made similar updates to the supervisory rating framework it uses for insurers that fall under its oversight. The revisions are set to take effect 60 days after their publication in the Federal Register.