Fed approves revisions to rating framework for large banks

The Federal Reserve Board approved revisions to its supervisory rating framework for large bank holding companies, maintaining a structure largely consistent with the proposal issued in July.

According to the Fed, the updates are designed to reflect the strength of individual institutions more accurately and to align the framework with supervisory rating systems used for other types of banking organizations.

“Bank ratings should reflect overall safety and soundness, not just isolated deficiencies in a single component,” said Vice Chair for Supervision Michelle W. Bowman. “These framework changes address this by helping to ensure that overall firm condition is the primary consideration in a bank’s rating.”

Initially introduced in 2018, the large bank supervisory rating framework evaluates whether firms possess adequate financial and operational resilience to operate safely and comply with applicable laws under various conditions. The framework assesses three key components—capital, liquidity, and governance and controls—each rated on a four-tier scale: broadly meets expectations, conditionally meets expectations, deficient-1, or deficient-2.