Fed revises supervisory rating system for large banks

WASHINGTON — The Federal Reserve Board unanimously voted Friday to finalize changes to its supervisory ratings system to better reflect the agency’s post-crisis emphasis on bank capitalization, liquidity and governance.

The final rule eliminates the so-called RFI ratings system, which the Fed has used to assess banks’ safety and soundness since 2004. The RFI system focuses on risk management, financial condition and the impact of a firm's non-depository activities on its depository subsidiaries.

But the central bank will now use a "large financial institution" — or LFI — ratings system, which parallels a supervisory program the central bank established in 2012 to emphasize capital, liquidity, and governance and controls. In the wake of the financial crisis, the Fed began to apply new attention to other aspects of bank safety and soundness, particularly with respect to the role that liquidity plays in in bank solvency.

The Fed said in a press release that the final rule simply conforms what had been an outdated ratings system to the newer supervisory program, which “is aligned with the core areas most important to supporting a large firm's safety and soundness and U.S. financial stability.”