Fed Pivots Supervision Toward Core Financial Stability

The review of the MRAs will be guided by Fed Vice Chair for Supervision Michelle Bowman’s directive that the central bank’s examiners focus on material financial risks at banks, rather than process, according to the report.

While determining if previously issued MRAs meet this standard, the Fed expects to resolve “clear-cut cases” by the end of March and more complicated cases by the middle of July, per the report.

Reached by PYMNTS, the Federal Reserve declined to comment on the report.

Bowman said in February 2025 that supervisory ratings had led to a de-prioritization of core financial risks. Pointing to a Fed report that said most large financial institutions met supervisory expectations with respect to capital and liquidity but only one-third had satisfactory ratings across all relevant ratings components, Bowman said this raised a question about whether non-core or non-financial risks had been over-emphasized.

When Bowman was picked to serve as vice chair for supervision at the Fed in March, PYMNTS reported that Bowman, who has been on the central bank’s Board of Governors since 2018, had advocated for “regulatory tailoring.”

“Tailoring can help ensure regulators focus on the most critical risks over time and avoid the over-allocation of resources or imposition of unnecessary costs on the banking system,” Bowman said in a January speech.

In October, two other banking regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) said in a joint notice of proposed rulemaking that they aimed to codify what qualifies as an “unsafe or unsound” practice under Section 8 of the Federal Deposit Insurance Act to “promote greater clarity and certainty” in supervision and enforcement.

The agencies said in the notice that the goal is to “prioritize material financial risks over concerns related to policies, process, documentation and other nonfinancial risks.” That means examinations would concentrate on issues that could meaningfully affect a bank’s capital, liquidity or earnings rather than on risks of “minor harm.”