Proposed guidance would complement rating system for $50B and higher financial institutions

Core principles of effective senior management, board oversight, the management of business lines, and independent risk management and controls for banks and savings institutions with $50 billion or more in assets are outlined in guidance to be proposed by the Federal Reserve.

In filings with the Federal Register, the Fed said the proposed supervisory guidance is part of a broader initiative to develop a supervisory rating system and related supervisory guidance that would align with its consolidated supervisory framework for large financial institutions (LFIs).

In August, the Fed released for comment two proposals: one on an LFI rating system, and the other addressing supervisory expectations for boards of directors (“BE proposal”). In November, the Fed extended the comment periods for both, which now expire Feb. 18.

The proposals, the Fed said, were intended to “provide a supervisory evaluation of whether a firm possesses sufficient financial and operational strength and resilience to maintain safe and sound operations through a range of conditions.” According to the Fed, the LFI rating system would include assessments of a firm’s capital, liquidity, and governance and controls. The BE proposal, the Fed said, sets forth attributes of an effective board of directors.

The guidance proposal filed by the Fed will set forth (by consolidating and clarifying) the central bank’s supervisory expectations existing supervisory expectations regarding risk management, the Fed said in its filings. In addition, the Fed said, it would complement the BE proposal by aligning the attributes of senior management with those of “an effective board of directors.”

Comments will be due on the proposed guidance, the Fed said, by March 15.

Federal Reserve: Proposed supervisory guidance.

 

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