The U.S. banking industry is applauding changes to bank oversight by the U.S. Federal Reserve Board that aim to target major compliance issues.
The Fed issued a statement on bank supervision on Tuesday, which sets out guidance to the management and staff of its compliance teams. The statement calls for its examiners to focus on “material financial risks” that pose a threat to the safety and soundness of banks — and calls for “timely, proportionate action” to address those kinds of risks.
The new guidance represents a “significant shift” from past practice, it said, stressing that its supervisory efforts should target material risks and not “become distracted” by issues with banks’ processes, procedures and documentation that don’t pose a major threat to a firm’s soundness.
Among other things, it also called for Fed examiners to rely more on the work of other bank regulators, to avoid duplicating supervisory efforts. And, it said that industry-wide reviews should only be taken in cases where the deputy director of supervision determines that the benefits to financial stability outweigh the costs.
“The principles align bank examination and ratings to material financial risks, reduce duplication between exams from different supervisors, and streamline the remediation of issues cited by supervisors,” the Fed said in a release.
“Our supervisory approach is not about narrowing our focus — it is about sharpening it,” said Michelle Bowman, vice-president for supervision at the Fed, in a statement.
“By anchoring our work in material financial risks, we strengthen the banking system’s foundation while upholding transparency, accountability and fairness,” she said.
The Bank Policy Institute (BPI), an industry trade group, applauded the new guidance.
“These sensible changes will promote a more coherent, better focused and more effective supervisory framework,” said Greg Baer, president and CEO of BPI, in a statement. “Banks are most resilient when their examiners prioritize material financial risks, not check-the-box compliance exercises.”