‘Unsafe, unsound practice’ redefined by bank agencies in interest of prioritizing material financial risks over policies

A uniform definition for the term “unsafe or unsound practice” for use in enforcement actions that is designed, banking regulators said, to ensure examiners prioritize concerns related to material financial risks and not policies or procedures was included in a final rule issued by the agencies late Thursday.

The Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) said the final rule is consistent with the proposal they issued nearly a year ago (in October 2025), but includes some changes to the agencies’ enforcement and supervisory authority.

The FDIC Board adopted the final rule by notation vote late Thursday; the OCC adopted the rule that same evening.

The final rule defines the term unsafe or unsound practice “to mean a practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that (1) is contrary to generally accepted standards of prudent operation; and (2)(i) if continued, is likely to (A) materially harm the financial condition of the institution; or (B) present a material risk of loss to the (FDIC’s Deposit Insurance Fund) DIF; or (ii) materially harmed the financial condition of the institution.”

The agencies said the definition will provide “greater consistency for institutions and appropriately focus supervisory and institution resources on the most critical financial risks to institutions and the financial system.”

The final rule also sets up uniform standards for when and how the agencies may, as part of the examination process, issue Matters Requiring Attention (MRAs) and communicate supervisory observations and other violations of laws and regulations, the agencies said.

“In the final rule, the agencies clarify how the agencies will tailor their use of the unsafe or unsound practices definition and the MRA standard based on risk factors specific to an institution,” the FDIC said in a release. “The final rule also explicitly limits its scope to institutions the agencies supervise.”

Agencies Issue Final Rule to Prioritize Material Financial Risks