Banning use of reputation risk by regulators and focusing supervision on material financial risks are both subjects of proposals issued Tuesday by two federal bank regulators Tuesday.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) Board issued the proposals concurrently.
Under the proposal banning use of reputation risk, the agency said they would codify the elimination of reputation risk from their supervisory programs. Previously, the agencies removed the concept from their guidances.
“The proposed rule would define ‘reputation risk’ and prohibit the agencies from criticizing or taking adverse action against an institution on the basis of reputation risk,” the agencies said.
They noted that the proposal would also bar the agencies from “requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.”
Under the latter proposal, the agencies said it would, among other things, define the term “unsafe or unsound practice” for purposes of section 8 of the Federal Deposit Insurance Act (FDIA) and revise the supervisory framework for the issuance of matters requiring attention (MRAs) and other supervisory communications.
“By establishing a uniform definition for the term ‘unsafe or unsound practice’ for the purposes of the agencies’ enforcement and supervisory authority under 12 U.S.C. 1818, the proposed rule would promote greater clarity and certainty regarding certain enforcement and supervision standards and ensure bank supervisors prioritize concerns related to material financial risks over those regarding policies, process, documentation, and other nonfinancial risks,” the agencies said.
The proposal, the regulators said, would also create uniform standards for when and how the agencies may communicate MRAs and “non-binding supervisory observations” as part of the examination process. Finally, the proposal would provide for the tailoring of enforcement actions and MRAs.
Both proposals were issued with 60-day comment periods.
Agencies Issue Proposal to Focus Supervision on Material Financial Risks
Agencies Issue Proposal to Prohibit Use of Reputation Risk by Regulators
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