Federal Reserve releases new guidance for bank oversight in move praised by industry

Core Viewpoint - The Federal Reserve has introduced new guidelines aimed at enhancing the supervision of the financial system, focusing on material financial risks rather than procedural compliance, which has garnered both praise and criticism from various stakeholders [1][2][4]. Regulatory Changes - The new principles emphasize that bank examiners should concentrate on material financial risks and avoid excessive focus on processes and documentation [2]. - Under the new rules, banks will be tested primarily for material risks to their businesses or balance sheets, such as bad loans or unsound business practices [5]. - Banks will also have the ability to self-certify on certain risk and supervision issues, a change that has been a priority for the banking industry since the Trump administration [5]. Industry Reactions - Industry trade groups have praised the new guidelines, indicating that prioritizing material financial risks will enhance the resilience of banks [6]. - Conversely, former Fed governor Michael Barr criticized the changes, warning that they may weaken supervision and make it more difficult for examiners to act against excessive risk buildup [4].