WASHINGTON, May 26 - Regulators overseeing U.S. banks under the Trump administration are implementing what officials describe as the most significant shift in supervisory approach since the 2008 crisis, redirecting examination resources toward core financial vulnerabilities and away from procedural and reputational matters. The Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) have issued guidance and proposed rules to change how examiners identify, document and escalate problems.
Refocusing supervision on material risks
All three agencies have raised the bar on which issues warrant formal supervisory findings. Examiners are being told to prioritize "material financial risks" - those that pose an immediate threat to a lender's safety and soundness - rather than citing banks for paperwork, process shortfalls or other issues that do not present an immediate hazard.
As part of this reorientation, regulators have stopped treating reputational risk as a primary enforcement metric. For years banks argued that reputational risk gave examiners broad discretion to penalize lenders on subjective grounds; regulators no longer rely on reputational concerns as a standalone reason to cite a bank. The move responds in part to public criticism that reputational risk had been used to justify actions against banks for reasons the banks say were not tied to their financial condition.
Critics argue that narrowing supervision in this way reduces examiners' ability to address governance, control lapses or other process deficiencies that could degrade a bank's condition over time, even if those problems are not immediately material.
Restricting the use of MRAs
Regulators have curtailed the circumstances under which examiners may issue "matters requiring attention" or MRAs, the confidential directives that historically required lenders to fix problems or face potential enforcement. For more than a decade MRAs have been a primary supervisory tool, but bankers have long contended that MRAs are often issued for comparatively minor concerns.
Under the new guidance, MRAs should be reserved for situations involving material financial risks. For issues that do not meet that standard, examiners are directed to use nonbinding "observations" instead. The agencies say that if a bank self-identifies a condition that would formerly have prompted an MRA and begins remediation, examiners should issue an observation rather than an MRA.
In addition, the OCC and FDIC have proposed rules that would narrow the definition of "unsafe and unsound" practices subject to regulatory policing, a change that aligns with the shift to a higher materiality threshold.
Reducing duplicate work and relying on banks' internal audit
To limit redundancy across the supervisory ecosystem, regulators have instructed examiners to coordinate more closely with their counterparts and to rely on other agencies' examinations when those agencies are the primary regulator for a given lender. The Fed has specifically directed staff to rely on the work of other agencies to the "fullest extent possible," conducting independent examinations only when relying on another agency's work is not "reasonably possible."
Similarly, the Fed has advised examiners to rely on a bank's internal audit function when it is deemed sufficient, using internal audit findings to determine whether an issue has been remediated instead of performing duplicative analysis.
Confidential ratings under revision
All three agencies are overhauling the private ratings system used to grade banks. The CAMELS rating framework - which assesses capital, assets, management, earnings, liquidity and sensitivity, among other factors - has long been a cornerstone of supervisory assessment, but industry participants have criticized it as susceptible to subjectivity.
Proposals circulating within the agencies would update the CAMELS metrics to put renewed emphasis on financial-risk measures, while de-emphasizing factors banks describe as more nebulous, such as subjective assessments of management efficacy.
Appeals process changes and internal dispute mechanisms
The FDIC and OCC are revamping the internal appeals routes banks use to challenge supervisory findings like MRAs and regulatory ratings. Officials say the agencies are moving to make the process more structured, independent and transparent. Banks have complained that the prior appeals system gave too much influence to the examiners who made the original determinations, and both the FDIC and OCC have created new, independent adjudicatory bodies to hear disputes.
At the Federal Reserve, banks have been instructed that if they believe their examiners are not applying the new standards, they should raise those concerns with senior Fed officials.
Limiting horizontal reviews and exam intensity
The so-called horizontal review - a supervisory technique in which examiners review a common issue across a set of similar banks - has been curtailed under the new guidance. Banks long viewed horizontal reviews as potential fishing expeditions that could lead to examinations probing for problems without a clear triggering cause. The Fed's updated principles direct staff to suspend horizontal reviews of large banks unless Fed leadership determines they are critically necessary.
Taken together, the set of supervisory changes shifts regulatory focus toward immediate, demonstrable financial exposures and away from process-oriented findings and broad-based reviews. Supporters argue this concentrates scarce supervisory resources on the most pressing risks; critics counter that it may leave unaddressed weaknesses that could erode safety and soundness over time.