Federal banking regulators recently announced that they will no longer examine banks for reputation risk. But they also went a step further by removing any references in examiner guidance to reputation risk or even the word “reputation.” These efforts come across as ham-handed, Orwellian, and more than a little silly. What is Reputation Risk? Reputation…

U.S. banking regulators have proposed changes to the Enhanced Supplementary Leverage Ratio (eSLR), which is applied to the nation’s largest financial institutions. Supporters of the proposal argue that the eSLR should act as a backstop rather than a binding constraint. But a backstop that never acts as a binding constraint doesn’t make for much of…

U.S. rules for banks adjust requirements depending on the bank’s size and exempt smaller community banks from some long-standing regulations. Congressman Andy Barr has proposed legislation to make a larger group of banks eligible for these relaxed requirements. Other legislators and regulators have made similar proposals and have also suggested adjusting thresholds for regional banks…

Much of bank supervision operates outside the public eye. Recent critiques of supposed regulatory overreach note the secretive nature of bank supervision but then make claims of their own that are hard to either verify or falsify. This can lead to an “unreliable narrator” problem. One area where this is readily apparent is in the…

The assessment of safety and soundness is among the most fundamental elements of bank supervision. But what does safety and soundness mean in practice? And what makes certain aspects of a bank’s condition or management unsafe or unsound? Some have suggested revisions to current safety and soundness regulations to base them more on objective risk…

An influential counternarrative has emerged regarding 2023’s bank failures. Official post-mortems attributed the failures in part to a light touch approach to bank supervision. The counternarrative suggests that the problem may be too much supervision. Specifically, that supervisors failed to effectively prioritize and placed too much emphasis on non-core, non-financial weaknesses. Its advocates suggest that…

We are likely to hear a lot more about “tailoring” when it comes to bank regulation in the U.S. It’s hard to argue with the concept that regulation and regulatory burden should be proportionate to a bank’s size, complexity, and risk. Applying that concept in a thoughtful, prudent way is quite another matter. Background The…

A black swan refers to a highly improbable but impactful event. The metaphor can apply to a wide range of events, even baseball records. Black swans most frequently apply to financial risk management, including regulatory capital and stress testing. The Global Financial Crisis (GFC) exposed some of the gaps in probability-based capital frameworks. Stress testing…

Recent news reports indicate the incoming administration is considering consolidating federal banking regulators as part of a broader effort to improve government efficiency. I went through two such consolidations during my 36-year career in bank supervision. Efficiency gains are likely to be meager, at best.  At the same time, having multiple banking regulators can undermine…