Comments are due Aug. 14 on the Federal Reserve Board’s proposal to ease its large financial institution (LFI) rating system and the ratings system for depository institution holding companies “significantly engaged” in insurance activities, according to a notice in the Federal Register.
The proposal, announced July 10, would permit firms receiving a single “Deficient-1” component rating in any of the three key areas of supervision – capital, liquidity, and governance and controls – to still be considered “well managed” under Fed rules.
The Fed, in its notice, said the changes would revise the LFI framework so a firm with at least two “broadly meets expectations” or “conditionally meets expectations” component ratings, plus no more than one “Deficient-1” component rating, would be considered “well managed” under the framework.
A firm that receives a Deficient-1 rating or two or more component ratings, or a Deficiet-2 rating for any of the component ratings, would not be considered “well managed” under the proposed LFI framework changes, the Fed said.
The proposal was issued on a vote of 6-1, with Fed Board Gov. Michael Barr dissenting. Formerly vice chair for supervision, Barr said the proposal as drafted “would fundamentally change the long-established concept of well managed and would introduce greater risk to the banking system.” He said the proposal would remove the presumption that firms will take action to remediate significant deficiencies, resulting in a “deficient-1” rating.
He noted in particular the implications of a deficient rating for governance and controls, stating that “is inconsistent” with the definition of well managed.
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