Banking on Deficiencies 🤑

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In the grand tradition of bureaucratic doublespeak, the U.S. Federal Reserve has concocted a plan to redefine the term “well managed” for banks. It seems that having one “deficient” rating is no longer a barrier to being considered a paragon of financial virtue. 🙄

The Fed’s current rating framework is a byzantine system of three components: capital, liquidity, and governance/controls. Each component has four potential ratings, because who needs simplicity when you can have complexity? 🤯

Currently, a single “deficient-1” or “deficient-2” score in any of the three components means a bank is no longer considered “well managed.” But fear not, dear bankers, for the Fed is proposing a change that would allow banks with one “deficient” rating to still be considered “well managed.” 🎉

But why, you ask, would the Fed want to make such a change? Well, it seems that nearly two-thirds of large financial holding companies aren’t considered “well managed” under the current system, despite having capital and liquidity levels that are “substantially above regulatory requirements.” 🤑

“This is because the LFI framework currently assigns a firm’s ‘well-managed’ status based on a single deficiency in any one rating component, rather than taking a complete look at the financial and managerial health of a firm,” says Michelle W. Bowman, the Fed’s vice chair for supervision. In other words, the current system is too harsh, and we need to make it easier for banks to be considered “well managed.” 😊

The proposed new system would require a deficiency in either a large bank holding company’s capital or liquidity ratings, in addition to a deficiency in its governance and controls, in order to be classified as not well-managed. Because, you know, having a single “deficient-2” score is still a big no-no. 🚫

The Fed is currently asking for public input on the proposal, because who doesn’t love a good game of “spot the deficiency”? 🤔

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2025-07-11 22:06