The Federal Reserve has signaled to the banking industry its plan to withdraw some previously issued non-public corrective warnings, as Vice Chair for Supervision Michelle Bowman continues to ease the central bank's oversight of U.S. financial institutions.
Informed sources revealed that earlier this month, Fed examiners notified multiple banks across the country that reviewers would begin reassessing outstanding warnings. These non-public directives require banks to address deficiencies.
According to the sources, warnings that do not align with the Fed's recent directive—that examiners should focus more on immediate risks to a bank's financial health and reduce emphasis on process and procedural issues—will be canceled. Executives at the institutions will have the opportunity to participate in discussions regarding solutions for the remaining warnings, said individuals who requested anonymity as the adjustments are not yet public.
The Fed's adjustments primarily target so-called "matters requiring attention" and "matters requiring immediate attention." The latter category consists of urgent directives demanding prompt action. These warnings can be triggered by various aspects of bank operations, ranging from financial conditions and cybersecurity preparedness to succession planning. The sources indicated that while the Fed will still issue such directives if examiners identify problems during routine checks, the threshold for doing so will be higher.
Financial regulatory officials appointed by President Donald Trump have pledged to simplify Washington's complex regulatory framework. Bankers argue that the accumulation of rules since the global financial crisis has become overly complex, increasing costs, restraining lending, and not necessarily enhancing system safety. Bowman has committed to a comprehensive overhaul of the Fed's risk supervision approach to improve transparency.
A Fed spokesperson declined to comment.
A memo sent to Fed staff stated that the new assessment aims to help examiners "enhance supervisory effectiveness by focusing on issues that pose material financial risks to a bank's safety and soundness."
The memo noted that the assessment will ensure examiners' supervisory conclusions are "based on deficiencies that, if not addressed, could reasonably be expected to pose a heightened level of financial risk to the supervised institution," rather than based on concerns about policies, processes, or internal controls. Issued warnings must be "written in plain English and sufficiently specific."
The effort to reduce unresolved warnings will be phased in through examiner evaluations, the sources said. They added that the assessment does not cover consumer-related deficiencies or significant risks.
Some sources indicated that the evaluation process has already begun and will continue until the end of March. Final decisions are expected by the end of July. Banks will then be required to work with examiners to clarify what corrective actions have been taken, or not taken, in areas such as risk management, compliance, and financial condition. In some cases, the Fed may downgrade a compliance warning to a matter for supervisory observation, meaning the bank is not required to resolve the issue.
When assessing warnings for bank holding companies, the Fed may consult with the federal or state regulators of the bank's subsidiaries, the sources said.
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