Fed Raises Threshold for Bank Ratings, Emphasizes Financial Strength

The Federal Reserve proposed easing its supervisory framework for large banks by raising the threshold for a “well managed” rating, allowing deficiencies in multiple categories or a single “deficient-2” rating to disqualify a bank. This change aims to focus on financial strength over governance lapses. Fed Vice Chair Michelle Bowman supports the proposal, while Governor Michael Barr dissents, citing concerns about weakened oversight. The revision is expected to increase banks’ strategic flexibility and could potentially lead to riskier deals and increased systemic risk if not carefully monitored. Public feedback will be solicited before finalizing the rule.

Read more at Quiver Quantitative: Fed’s Rule Change Ties Ratings to Capital Strength