FDIC and OCC Advance Rules to Narrow Supervision Regarding Material Financial Risks and Reputation Risk

The FDIC and OCC recently released joint notices of proposed rulemaking setting forth two rules to focus supervision on material financial risks, and codify the elimination of reputation risk from supervisory standards.

The first rule would define the previously undefined term, “unsafe or unsound practice,” to promote greater clarity regarding certain enforcement and supervision standards and to ensure bank supervisors prioritize concerns related to material financial risks over those regarding policies, process, documentation, and other nonfinancial risks.  In addition, the rule would establish uniform standards for issuing matters requiring attention (MRAs) in examinations, to be in line with the proposed unsafe or unsound practice definition.

The second rule would codify the elimination of reputation risk from the agencies’ supervisory programs.  Specifically, the agencies would be prohibited from criticizing or taking adverse action against a bank on the basis of reputation risk and from requiring, instructing, or encouraging a bank to close an account or refrain from providing an account, product, or service because of an individual or entity’s political, social, cultural, religious views, or lawful but politically disfavored business activities.  The rule would also prohibit the broad use of the Bank Secrecy Act and anti-money laundering supervision as a pretext for reputation risk. 

Comments to both rules are due 60 days after the date of publication in the Federal Register.