Fed refocuses bank supervision on material risks

The Federal Reserve released new guidelines directing bank examiners to prioritize material financial risks over procedural checks. Issued internally on October 29 and published publicly on November 19, the rules aim to streamline bank supervision and reduce regulatory burden. Vice Chair Michelle Bowman praised the framework for enhancing transparency and accountability, allowing examiners to avoid non-material tasks and focus on threats to credit quality, liquidity, governance and operations. The guidance also permits banks to self-certify compliance in limited areas, cutting overlap with other regulators like the OCC. Industry groups, led by the Bank Policy Institute, welcomed the shift, arguing it clarifies actual risks and strengthens resilience. Former Vice Chair Michael Barr criticized the changes as a potential weakening of oversight, warning that narrowing examination scope and a 30% workforce reduction could hinder early detection of emerging vulnerabilities. The move forms part of a broader rollback of post-2008 financial rules and may reshape supervisory collaboration across federal and state agencies.