US Bank Regulator Shifts Supervision Focus to Material Financial Risks

The Office of the Comptroller of the Currency released two updated policy manuals and proposed changes to its violations framework on Thursday, redirecting supervisory resources toward the most serious risks facing financial institutions.

Comptroller Jonathan V. Gould explained the shift in approach in a social media post, noting that compliance-focused supervision can pull examiners and bank leaders away from genuine financial threats that could jeopardise institutional stability. The agency's updated framework aims to restore safety and soundness through risk-based oversight, he said.

The regulator's revised PPM 5310-3 manual, covering enforcement actions, now centres on material financial risks and allows the OCC to escalate enforcement measures against large or complex institutions based on practices that wouldn't trigger action against smaller community banks.

Updates to PPM 5400-11, which governs Matters Requiring Attention, clarify that the agency will only issue an MRA when specific standards are met, and that such notices must be customised according to risk-related financial factors.

The OCC also opened public comment on a proposed rulemaking that would create two distinct categories for violations of laws or regulations, concentrating supervisory attention on the tier with the greatest impact on the institution or its customers.

It is critical that examiners and institutions prioritize material financial risks and substantive violations of law over concerns related to policies, process, documentation and other nonfinancial risks, and that the agencies' supervision and enforcement standards further that prioritization, Gould said in the announcement.

In a separate announcement Thursday, the OCC and Federal Deposit Insurance Corporation released a final rule establishing a uniform definition of "unsafe or unsound practice" as part of their coordinated push to emphasise material financial risks.

FDIC Chairman Travis Hill described the rule as reshaping supervisory criticism in two fundamental ways: directing attention toward underlying risks rather than risk-management processes, and imposing a materiality threshold for evaluating potential threats.

In combination, the result is that examiners will focus only on issues that can have a material impact on the financial condition of an institution and on actual violations of relevant laws or regulations, Hill stated.