U.S. banking oversight is undergoing a notable shift as regulators place renewed emphasis on fundamental financial metrics, moving away from assessing issues like reputational risk and climate change. This approach marks a return to evaluating bank performance through capital, liquidity, and managerial capability. Unnamed sources reveal that supervisors are adhering more closely to established examination guidelines and favor informal communication to address issues rather than formal penalties.
In contrast to earlier approaches where emerging risks such as diversity and inclusion were given prominence, current regulatory assessments are more focused on core financial risks. An earlier report in May indicated preparations by regulators to ease some of the post-2008 financial crisis constraints, signaling a gradual retraction from the wider scope they had adopted in recent years. This shift aligns with the reported intentions when Jonathan Gould’s nomination as Comptroller of the Currency was confirmed, indicating a strategic return to traditional supervisory mandates.
How is the Office of the Comptroller of the Currency Responding?
The Office of the Comptroller of the Currency (OCC) is examining its supervisory approach to better align with its statutory mission. The OCC stated,
“The OCC is reexamining its supervisory approach to ensure it conforms to its statutory mission and reflects a risk tolerance enabling banks to support economic growth.”
This reflects a broader intent to refine focus on core banking concerns to enhance economic advancement.
What Are the Perspectives of Bank Groups and Lawmakers?
Banking groups have expressed dissatisfaction with previous exams, citing them as overly subjective and obscure, diverting from a financial risk focus. On the other hand, some Democratic lawmakers advocate for a more comprehensive range of risk assessments, spanning various financial and non-financial aspects. This tension highlights the ongoing debate over what constitutes effective yet minimally intrusive bank supervision.
The nomination of Jonathan Gould as comptroller coincided with sentiments from key committees aiming to return the OCC to its foundational mission. The U.S. Senate Banking Committee GOP noted that Gould “will continue the important work started by Acting Comptroller [Rodney Hood] to return the OCC to its true purpose of chartering and supervising banks to ensure a safe and sound banking system.” This statement underscores the political undertones inherent in the regulatory redirection.
Complementary remarks from Federal Reserve Vice Chair for Supervision, Michelle Bowman, emphasize a similar priority shift among banking regulators. Bowman remarked on June 6,
“She aims to refocus supervisory and regulatory efforts on the core financial risks most critical to maintaining a healthy and resilient banking system.”
Her perspective indicates aligning efforts across supervisory bodies to solidify banking system resilience through focused regulatory practices.
Assessing these shifting priorities in the regulatory landscape hints at ongoing adjustments within the banking sector’s oversight. With a focus on fundamental financial metrics, regulators aim to balance the necessity of maintaining robust oversight with enabling banks to operate effectively. This transition may influence future regulatory frameworks, shaping how emerging risks are integrated into traditional bank supervision models, offering both challenges and opportunities for economic growth while retaining core financial stability.
