Federal Reserve Bowman: Bank Rating Systems and Regulatory Thresholds Are Being Revisited

The Zhitong Finance App learned that Michelle Bowman (Michelle Bowman), the Federal Reserve's vice chairman in charge of regulatory affairs, said that the Federal Reserve is re-examining its method of rating some banks, continuing a broader effort initiated during the Trump era, to refocus the regulatory focus on issues that pose a major risk to banks.

Referring to her proposed adjustments to the so-called CAMELS rating framework, Bauman said: “The principles of regulatory operation emphasize that inspection findings and reports must focus on substantial financial risks.” The rating framework scores each component of a bank on a scale of 1 to 5, including capital adequacy, asset quality, management level, profitability, liquidity, and sensitivity to market risk. She said the Federal Reserve is working to ensure that the CAMELS rating reflects a bank's risk profile and financial position. Bauman pointed out that the “management” category should be evaluated based on “measurable factors.” Earlier, banking groups had indicated that the evaluation criteria needed to be re-examined.

Bauman said that the Federal Reserve is also studying various regulatory thresholds as part of the regulatory process and will cooperate with legislators to update rules that seem too low compared to the overall economy. “One simple solution is to adjust these thresholds according to nominal GDP, which includes both economic growth and inflation factors,” she said.

Over the past year, the Federal Reserve has taken a number of steps to reshape the banking supervision system, including easing some capital rules, reducing the size of regulators, and making it easier for large banks to obtain “well-managed” ratings. However, these measures have also been criticized by some officials. Federal Reserve Governor Michael Barr (Michael Barr) warned that weakening regulation could cause “real and dangerous problems” to accumulate in the banking system. “Regulation not only brings clear benefits to individual banks, but also contributes to the stability of the entire financial system,” he said in November last year.