US Fed to review previously flagged bank shortcomings, memo says

• MRAs that don't meet new standards for specificity and material financial risk could be downgraded to 'non-binding supervisory observations' instead of mandatory requirements
• The Fed plans to resolve clear-cut cases by end of March 2026 and complete reviews requiring further analysis by mid-July 2026
• The shift reflects Bowman's criticism that Fed examinations have become overly process-focused rather than concentrating on substantive financial risks to institutions

Summary: US Fed to Review Previously Flagged Bank Shortcomings

The Federal Reserve is conducting a comprehensive review of all "matters requiring attention" (MRAs) previously issued to banks, as part of a broader overhaul of its supervisory approach to financial institutions. MRAs are formal directives from Fed examiners instructing banks to address potential issues that could escalate to enforcement actions or fines if left unresolved.

Key Details:

Fed Vice Chair for Supervision Michelle Bowman is leading the initiative, which aims to refocus examinations on material financial risks rather than process-oriented concerns. Under the review, the Fed will assess whether existing MRAs meet new standards by being specific and flagging concerns that could cause actual financial harm to banks.

MRAs that fail to meet these criteria may be downgraded to "non-binding supervisory observations," effectively reducing regulatory pressure on banks for less critical issues.

Timeline:

• "Clear-cut cases" targeted for resolution by end of March
• More complex MRAs requiring additional review scheduled for resolution by mid-July
• The Fed will conduct outreach to banks and fellow regulators during the review period

Market Implications:

This policy shift represents a significant deregulatory pivot in banking supervision, potentially easing compliance burdens on financial institutions. The move could reduce operational constraints on banks, though critics may argue it weakens oversight safeguards. For bank stocks, this could be viewed positively as reduced regulatory pressure may lower compliance costs and operational restrictions.

The review affects the nation's largest financial institutions and reflects a broader philosophical change in how the Fed approaches bank supervision under current leadership.