- Key Insight: A proposed rule from the Federal Deposit Insurance Corp. would direct supervisors to concentrate their activities on "material financial risks."
- Expert quote: "The proposal would generally limit … enforcement actions … to practices and acts that have caused or could be expected to cause actual financial harm to the bank or materially impact the risk of the institution failing and imposing a cost on the Deposit Insurance Fund." — FDIC Acting Chair Travis Hill.
- Forward look: The proposals will be open for public comment for 60 days after publication in the Federal Register.
The Federal Deposit Insurance Corp.'s board advanced two proposals Tuesday to reform its supervisory standards: one narrowing what constitutes "unsafe or unsound practices" and another eliminating "reputation risk" as a factor in bank oversight.
The proposal defining "unsafe or unsound practices" would, for the first time, codify what constitutes such practices and standardize the use of matters requiring attention, or MRAs.
Under the proposal, an unsafe or unsound practice would be one "contrary to generally accepted standards of prudent operation" that, if continued, is likely to materially harm a bank's financial condition or that of the Deposit Insurance Fund.
Acting Chairman Hill said the proposal aims to give both banks and examiners clearer guidance, focusing supervisory scrutiny on actions that pose more tangible financial risks rather than procedural ones, adding that the FDIC is also reviewing potential reforms to the CAMELS rating system and its internal manuals. The board — composed of Hill, Comptroller of the Currency Jonathan V. Gould and acting Consumer Financial Protection Bureau director Russell Vought — approved the NPR unanimously and opened a 60-day comment period. The FDIC has
"The proposal would generally limit section eight enforcement actions and MRAs to practices and acts that have caused or could be expected to cause actual financial harm to the bank or materially impact the risk of the institution failing and imposing a cost on the Deposit Insurance Fund," Hill said. "The proposal would still allow supervisors to proactively identify and require remediation of material issues."
The board also advanced a separate proposed rule to codify the elimination of "reputation risk" from the FDIC's supervisory manual.
The rule would prohibit regulators from criticizing or taking action against banks, or urging them to cut ties with customers, based on political, social, or religious factors or on lawful but controversial business activities. The change formalizes steps the FDIC already took earlier this year to remove reputation risk from guidance and examination manuals.
The move is part of banking regulators efforts to follow the president's August executive order on "debanking."
The Executive Order, which President Trump
Banking lawyers
At his first in-person FDIC board meeting, Gould laid out an ambitious vision for his term as Comptroller. He pledged to work with the board to "advance the President's agenda" while strengthening the FDIC's core functions. Among his priorities are rebuilding the FDIC's resolution execution capacity, reforming Deposit Insurance premiums, reforming the agency's culture and reaffirming federal preemption rights for state banks. Gould added that the purpose of federal
"In the 1997 amendments to the Riegle-Neal Act, Congress put state banks on parity with national banks when it came to preemption of state laws affecting host state branches," Gould said. "State banks should get the benefit of this federal preemption, and I encourage the FDIC to take additional steps to support these congressionally granted rights."
