US Federal Reserve to Withdraw Confidential Warnings to Banks
The United States Federal Reserve is all set to retract some of the confidential warnings it had previously issued to banks, signaling a further relaxation of its supervisory approach under the leadership of vice chair Michelle Bowman.
Reviewing Outstanding Private Directives
Earlier this month, the Fed’s supervision staff informed banks that examiners would start reviewing outstanding private directives that require firms to address operational shortcomings, according to people with knowledge of the process. These directives, known as “matters requiring attention” and “matters requiring immediate attention,” encompass a wide range of concerns, from financial health to areas such as cybersecurity and management succession planning.
Shifting Focus Towards Immediate Threats
The review will lead to the elimination of warnings that are not consistent with recent instructions for examiners to focus more on immediate threats to a bank’s financial condition and less on internal processes. Bank executives will have a say in how any remaining warnings are addressed. While the Fed will continue to issue such directives during routine examinations, the criteria for doing so will be tightened.
Reducing Regulatory Complexity
This move comes as part of efforts by US regulators during President Donald Trump’s administration to reduce regulatory complexity, which bankers argue has increased costs without always improving stability. Vice Chair Bowman has committed to making the oversight framework more transparent and risk-focused.
Emphasis on Material Financial Risks
In a memo seen by Bloomberg, the Fed stated that the review aims to help examiners “enhance the effectiveness of supervision by focusing on material financial risks to a bank’s safety and soundness.” As per the memo, the review supervisory findings are “based on deficiencies which, if not remediated in a timely manner, would create a significant probability of higher-than-normal harm to the financial condition of the supervised firm,” rather than concerns about policies, procedures, or controls.
Stress Capital Buffer Requirements and Stress Tests
Recently, the Fed decided to maintain current bank stress capital buffer requirements through 2026, delaying updates until 2027, as it seeks public input for new models. The central bank has also finalized hypothetical scenarios for its 2026 stress tests, which assess how large banks would handle a severe economic downturn.
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