Fed Board denies requests for regulatory action on changes to CAMELS ratings, disclosure of ‘Black Lives Matter’ support

Two requests for regulatory action – one on disclosure of financial commitments to corporate initiatives – including “Black Lives Matter” — the other on changes to the agency’s rating system for banks — were denied by the Federal Reserve Board, for “legal and policy considerations” the board said in a statement released Friday.

The Fed said it denied rulemaking petitions for the two actions, noting legal and policy considerations.

According to the Fed, the first petition asked the agency board to develop a framework requiring Fed-supervised firms to disclose promised financial commitments to certain corporate initiatives. More specifically, the request – made by economist William Michael Cunningham of a group called Creative Investment Research — requested that the Fed “initiate notice-and-comment rulemaking to develop a comprehensive framework requiring any companies under Board jurisdiction that have promised financial support for Black Lives Matter (“BLM Pledge”) to accurately disclose, on a timely basis, all activity related to that pledge.”

The second request, made by the Bank Policy Institute (BPI, which describes itself as a research and advocacy group representing the “nation’s leading banks”) requested changes to the Fed’s “Uniform Financial Institutions Rating System” (UFIRS), also commonly referred to as the CAMELS rating system, including alterations to the UFIRS framework; modifications to the “well managed” definition for purposes of financial holding company (FHC eligibility); and further study of the effectiveness of the UFIRS framework.

On the first petition, the Fed said it was “not aware of any existing legal authority that would provide a clear legal basis for the Board to promulgate the rule requested in the Petition.” For that reason, it denied the request.

On the second, the Fed noted that BPI was requesting the changes in the wake of a “request for information” (RFI) from the Fed made in 2019 regarding the ratings system. However, the Fed noted, the RFI (issued jointly with the Federal Deposit Insurance Corp. (FDIC)) was “’not a proposal to modify the CAMELS rating definitions,” as “[s]uch definitions were issued through the FFIEC,’” as stated in the 2019 RFI.

In response to the petitioner, the Fed said, generally, implementing the changes proposed by BPI “would not be an effective use of the Board’s limited resources at this time;” does not think “it is appropriate to change the ratings rubric to consider ‘3’-rated depository institutions to be well managed for the purpose of their parent bank holding company’s FHC election; and asserted that the Fed “regularly engages in efforts to consider the effectiveness of its supervisory approach, including the UFIRS framework, consistent with its statutory mandates.”

“To the extent this portion of the petition was a request for rulemaking, action, or release of information by the Board, such request is denied,” the agency wrote.

Federal Reserve Board announces its denial of two rulemaking petitions due to legal and policy considerations