Final Rule: Unsafe or Unsound Practices, Matters Requiring Attention Reforming supervision at the FDIC has been one of my top priorities since becoming Chairman.1 Today, the FDIC and the Office of the Comptroller of the Currency issued a final rule that defines the terms “unsafe or unsound practice” for purposes of Section 8 of the Federal Deposit Insurance Act and “matters requiring attention” (MRAs) and make other improvements to the agencies’ supervisory approach. The final rule is an important milestone in our continued efforts to refocus bank supervision on issues most relevant to safety and soundness, while, at the same time, maintaining rigorous supervisory standards. It is one of a number of steps we are taking to fundamentally reform supervision, which includes forthcoming amendments to the CAMELS rating system, among others. The final rule shifts the nature of supervisory criticisms in two key ways. First, it shifts our attention towards underlying fundamental risks and away from banks’ processes for managing those risks, and second, it imposes a materiality threshold for evaluating those potential risks. 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. As I discussed when the proposed rule was issued, the final rule does not prevent examiners from proactively identifying issues.2 It does not require examiners to wait until a financial harm actually occurs to issue a supervisory criticism. However, as noted in the final rule, the risk that a practice or act would materially harm the financial condition of the institution must be “more than speculative or merely possible.” In parallel to the rulemaking process, the FDIC has completed a “lookback” review of all outstanding matters requiring board attention and supervisory recommendations3 to assess which meet the MRA standard under the final rule and which should be closed out. The FDIC has concluded that a large majority of outstanding supervisory criticisms do not meet the standard under the final rule and thus will be (or in some cases already have been) closed out. At the same time, many outstanding supervisory criticisms do meet the new standard and thus will be converted into MRAs. The result will be more attention and focus by banks and examiners on issues truly relevant to safety and soundness. I thank staff at the FDIC and OCC for their work on this final rule. | 1 | See, e.g., Travis Hill, Federal Deposit Insurance Corporation, Charting a New Course: Preliminary Thoughts on FDIC Policy Issues (Jan. 10, 2025); Travis Hill, Federal Deposit Insurance Corporation, Statement from Acting Chairman Travis Hill (Jan. 21, 2025) (Listing as among my priorities, “Improve the supervisory process to focus more on core financial risks and less on process…”). | | 2 | See Travis Hill, Federal Deposit Insurance Corporation, Proposal Regarding Unsafe and Unsound Practices, Matters Requiring Attention (Oct. 7, 2025) (“The proposal would still allow supervisors to proactively identify, and require remediation of, material issues. Poor decisions a bank makes today may not show up in its financial metrics for an extended period of time. For example, poorly underwritten loans may not result in immediate delinquency or default, as borrowers may make payments for a few months or years before ceasing to pay. A bank’s balance sheet may look fine under current economic conditions, but underwater if conditions change. So, it is important that supervisors have the capacity to identify problems and require remediation before it is too late.”). | | 3 | The FDIC historically has used the terms Matters Requiring Board Attention and Supervisory Recommendation to characterize supervisory criticisms and is now replacing those terms following the issuance of the final rule. |