Regulatory pressure eases, tone shifts! The Federal Reserve will relax requirements for banks to address deficiencies

The Federal Reserve has signaled to the banking industry that it plans to abandon some of the warnings previously issued to certain banks. As Vice Chair Michelle Bowman continues to relax regulatory oversight of U.S. financial institutions, this move further reflects a shift in regulatory tone.

According to sources cited by the media, earlier this month, the Fed’s supervisory authorities notified numerous banks across the country that examiners would begin reviewing unresolved warnings. These warnings are non-public directives requiring banks to address identified deficiencies.

If the warnings are inconsistent with the Fed’s latest regulatory focus—which emphasizes examining issues that pose direct risks to banks’ financial health and places less emphasis on processes and procedures—such warnings will be rescinded. Bank executives will have the opportunity to discuss plans for resolving remaining warnings.

This adjustment by the Fed targets so-called “Matters Requiring Attention” (MRA) and “Matters Requiring Immediate Attention” (MRIA). The latter are urgent directives demanding swift action. These warnings may stem from concerns over various operational issues, including financial condition, cybersecurity preparedness, or succession planning. While such directives can still be issued if problems are found during routine inspections, the threshold for triggering them will be raised.

A More Relaxed Regulatory Framework

Appointed by President Trump, U.S. financial regulators have committed to easing the complex regulatory system. Industry insiders believe that since the global financial crisis, layered regulations have become overly complicated, increasing costs and constraining lending, without necessarily enhancing systemic safety. Bowman has pledged to overhaul risk regulation approaches and improve transparency.

According to an internal Fed memo reviewed by the media, the purpose of this review is to help regulators “enhance effectiveness by focusing on issues that pose material financial risks to bank safety and soundness.”

The memo states that the review will ensure that findings are “based on deficiencies that, if not addressed promptly, could cause more than normal harm to the financial condition of the supervised institution,” rather than on general concerns about policies, procedures, or internal controls. Additionally, warnings must be issued in “plain, understandable, and sufficiently specific language.”

Sources say that the reduction of unresolved warnings will be phased, with examiners gradually assessing each case. Deficiencies related to consumer protection or significant risk issues are outside the scope of this review.

The Review Is Underway

Some sources indicate that the review has begun and will continue through the end of March, with decisions expected by the end of July. Banks will be required to cooperate with examiners to clarify which corrective actions they have already taken or still need to implement regarding risk management, compliance, and financial condition. In some cases, the Fed may downgrade compliance warnings to supervisory observations, which do not require banks to take corrective measures.

If warnings involve bank holding companies, the Fed may consult with their federal or state regulators.

However, some Fed officials, including Michael Barr, have warned that easing oversight could weaken supervision of large Wall Street lending institutions.

This review represents another step in the coordinated effort among major banking regulators to shift focus toward core financial risks.

In December last year, the Office of the Comptroller of the Currency (OCC) rescinded certain penalties against Citigroup from a year earlier, indicating progress in the bank’s risk management and compliance improvements.

Additionally, the Federal Deposit Insurance Corporation (FDIC) established a new supervisory appeals department in January, serving as the “final review layer for major regulatory decisions.”

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