How Trump's bank regulators are paring back supervision

• Regulators have eliminated 'reputational risk' as a supervisory metric and restricted use of MRAs (matters requiring attention), now requiring they only be issued for material financial risks rather than minor process issues
• Examiners are directed to rely more on banks' internal audits and other agencies' work to minimize duplicative oversight, with the Fed conducting independent exams only when not 'reasonably possible' to rely on others
• The agencies are overhauling the CAMELS rating system to deemphasize management quality and other subjective factors, while limiting 'horizontal reviews' of similar banks unless deemed critically necessary by leadership

Summary: Trump Administration Scales Back Bank Supervision

Trump administration regulators are implementing the most significant rollback of bank supervision since the 2008 financial crisis across three key agencies: the Federal Reserve, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC).

Key Changes:

Refocused Supervision: Regulators are directing bank examiners to concentrate on "material" financial risks rather than paperwork and process issues. As part of this shift, agencies have eliminated reputational risk as a supervisory metric, which banks claimed gave examiners excessive subjective authority.

Restricted MRA Usage: "Matters Requiring Attention" (MRAs)—confidential directives that have been examiners' primary enforcement tool for over a decade—can now only be issued for material financial risks. Lesser issues receive non-binding "observations." The OCC and FDIC are also proposing narrower definitions of "unsafe and unsound" practices.

Reduced Oversight: Examiners must minimize duplicative work by coordinating between agencies and relying more heavily on banks' internal audit functions. The Fed has instructed staff to depend on other agencies' examination work whenever possible.

Reformed Rating System: The three agencies are overhauling the CAMELS rating system to emphasize financial risk factors while de-emphasizing subjective criteria like management quality.

Enhanced Appeals Process: The FDIC and OCC have created independent bodies to adjudicate bank disputes, addressing industry complaints about opaque processes. The Fed has encouraged banks to report examiners who don't adhere to new standards.

Limited Horizontal Reviews: The Fed is halting "horizontal reviews"—examinations of multiple similar banks on the same issue—unless critically necessary, addressing banks' concerns about unprompted fishing expeditions.

Market Implications: Critics warn these changes collectively weaken the financial system by reducing examiners' ability to identify early-stage problems before they become material risks.