NEW YORK: US Federal Reserve (Fed) vice-chair for supervision Michelle Bowman says the agency is revisiting how it issues certain bank ratings, continuing a broader Trump-era effort to refocus supervision on issues posing a significant risk to lenders.
“The supervisory operating principles emphasise that examination findings and reports must focus on material financial risk,” Bowman said of the changes she envisions for the so-called framework known as Camels.
That rating system grades firms on a one-to-five scale for each component – capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.
She said the agency is working to ensure that Camels ratings reflect a bank’s risk profile and financial condition.
Bowman said the management category should be assessed on “measurable factors”.
Bank industry groups have previously said that the criteria should be revisited.
The agency is also looking at regulatory thresholds that are part of the supervisory process and will work with lawmakers to update rules that have become too low relative to the broader economy, Bowman said in prepared remarks for the California Bankers Association on Wednesday.
“A simple solution would be to adjust thresholds by nominal gross domestic product, which includes both economic growth and inflation,” she said.
The Fed has already taken several steps to reshape bank regulation over the past year, including softening some capital rules, reducing supervision staff and making it easier to large banks to get a “well managed” rating.
But some officials have criticised those moves, with Fed governor Michael Barr warning that weakening the agency’s supervision may lead to “real dangers” accumulating in the banking system.
“Supervision delivers clear benefits not only for individual banks but also for the stability of the financial system as a whole,” he said in November. Barr previously served as the Fed’s top bank cop. — Bloomberg
