Fed Changes Supervisory Operating Principles

The Federal Reserve Board’s Division of Supervision and Regulation ("Division") issued guidance outlining changes to supervisory operating principles and examiner expectations.

In a memo, the Division's Acting Director ("Director") stated that this shift in supervisory policy reflects a renewed focus on identifying material risks early and taking timely, proportionate action. The Director further noted that these changes represent a departure from prior operating practices and require both Board and Reserve Bank staff to align their supervisory work and communications with this updated posture.

The Director identified the following supervisory changes:

1. Materiality and Examiner Judgment. The Division stated that examiners should focus on a firm’s material financial risks and avoid excessive attention to process- or documentation-based issues that do not affect safety and soundness. Examiners were encouraged to use professional judgment and issue nonbinding supervisory observations for lower-level concerns—a practice the Division will reinstate by amending SR 13-13 ("Supervisory Considerations for the Communication of Supervisory Findings.)" The Director also emphasized prompt escalation of material risks not adequately addressed by existing tools.
2. MRA/MRIA Framework and Enforcement Practices. The Director stated that Matters Requiring Attention ("MRAs") and Matters Requiring Immediate Attention ("MRIAs") will be issued only for deficiencies that could materially affect a firm’s financial condition. Examiners must communicate these findings with clear, specific language and rely on a firm’s satisfactory-rated internal audit function to validate remediation rather than conducting duplicative reviews. The Division instructed examiners to terminate MRAs, MRIAs, and enforcement-action requirements once deficiencies are corrected and to monitor sustainability after closure. The memo also advised against conducting "capstone" reviews unrelated to identified issues.
3. Interagency Coordination and Tailored Supervision. The Director reiterated that examiners must rely "to the maximum extent possible" on examinations performed by a firm’s primary federal or state regulator for depository institution subsidiaries. Supervisory efforts should be tailored to an institution’s size, complexity, and systemic importance, with heightened oversight for large, complex organizations.
4. Examination and Ratings Practices. The Director stated that horizontal reviews will be conducted only when benefits outweigh costs, with results measured against supervisory expectations rather than peer-group best practices. The memo noted that CAMELS and RFI/C (D) ratings should accurately reflect a firm’s financial condition, and that management and risk-management components should not receive disproportionate weight in determining composite ratings. The Director also instructed examiners not to discourage use of Federal Home Loan Bank liquidity or require firms to preposition collateral at the discount window.