Banks With One ‘Deficient’ Rating Could Still Be Considered ‘Well Managed’ Under New Federal Reserve Proposal

The U.S. Federal Reserve is mulling a rule change that would allow banks with one “deficient” rating to still be considered “well managed.”

The Fed’s current large financial institution (LFI) rating framework includes three components: capital, liquidity and governance/controls, each of which has four potential ratings: broadly meets expectations, conditionally meets expectations, deficient-1 and deficient-2.

Currently, a single deficient-1 or deficient-2 score in any of the three components means a bank is no longer considered “well managed.”

The Fed notes large banks must be “well managed” at each of their depository institutions to be treated as a financial holding company, which permits a firm to engage in a broader range of nonbanking activities like securities underwriting and dealing.

Michelle W. Bowman, the Fed’s vice chair

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