The Federal Reserve’s top banking regulator on Tuesday released new guidelines for the agency’s supervision of the financial system.
In a set of sweeping changes, the principles call for bank examiners to focus on material financial risks and to “not become distracted from this priority by devoting excessive attention to processes, procedures, and documentation.” The guidelines are set out in a memo originally distributed to Fed employees October 29 but released Tuesday.
Michelle Bowman, the Fed’s vice chair for supervision, said the principles will “sharpen” the central bank’s focus and build “a more effective supervisory framework.”
“By anchoring our work in material financial risks, we strengthen the banking system’s foundation while upholding transparency, accountability, and fairness,” Bowman said in a written statement.
Under the Fed’s new rules, banks can only be tested for material risks to their businesses or balance sheets, such as bad loans or unsound business practices. Banks will also able to self-certify on certain risk and supervision issues. These changes have been among the top priority for the banking industry since President Trump was elected into office.
“Banks are most resilient when their examiners prioritize material financial risks, not check-the-box compliance exercises,” said Greg Baer, president and CEO of the Bank Policy Institute.