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CSBS Comment Letter to Federal Reserve: Need Clarification on Supervisory Expectations for Bank Boards

CSBS sent a comment letter to the Federal Reserve Board of Governors on Feb. 14 asking for clarification on proposed changes to how certain examination findings are communicated to supervised institutions.  

The proposed changes to the communication of exam findings are one prong of the Fed’s three-part proposed guidance released last summer that would update current supervisory expectations of banks’ boards of directors in an effort to streamline responsibilities. The underling intent of the proposed guidance is to remove the board from responsibility for the day-to-day management of a bank or firm’s operations and allow them to focus on their core responsibilities. 

State regulators support the Fed’s overall efforts to promote a board’s ability to better focus on its core responsibilities, including components of the proposed guidance that would create a framework for measuring board effectiveness at the largest financial institutions and remove more than 170 redundant, outdated or irrelevant supervisory expectations found in 27 separate Supervision and Regulation letters. 

However, under the proposal, exam findings that qualify as “Matters Requiring Immediate Attention” and “Matters Requiring Attention” would be directed to a bank’s senior management instead of its board of directors. CSBS has asked for clarity to ensure that the direction of these key supervisory findings to senior management will neither preclude a bank’s board from being aware of required actions nor limit their ability to hold management accountable for remediating supervisory findings. 

The letter also asks that the Fed consider a key issue—the inconsistent approaches taken by federal agencies in communicating exam findings. To increase consistency and ensure that banks understand who is responsible for taking corrective action in response to supervisory findings, state regulators encourage the Fed to work with the FDIC and states to create uniform language and processes for communicating key supervisory matters. CSBS recommends the FFIEC as the best venue for working toward a uniform approach. At a minimum, achieving a consistent approach between the Federal Reserve and FDIC process would promote uniformity in the supervision of all state-chartered institutions. 

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