New Bank Supervision Rules
U.S. Bank Regulators Finalize New Rules Focusing Strictly on Material Financial Risks
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Key Points
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Enforcement actions across the OCC, FDIC, and Federal Reserve have fallen dramatically—from more than 500 in 2015 to 245 in 2025—with the Federal Reserve reporting declines in recent periods of roughly 48% to 58%.
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The regulatory shift toward prioritizing material financial risks has accelerated under the Trump administration, with Fed Vice Chair for Supervision Michelle W. Bowman driving the realignment away from broad checkbox enforcement toward targeting genuine threats.
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A separate rule would restrict confidential warnings to lenders to actions tied to material financial risks, aiming to remove what regulators described as 'virtue signaling' from supervisory practice.
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The final rule clarifies that there is a uniform definition of 'unsafe or unsound practice' and establishes uniform standards for when Matters Requiring Attention can be issued, with enforcement limited to entities within the OCC and FDIC supervisory perimeter under 12 U.S.C. § 1818.
U.S. bank regulators have finalized a rule that narrows their focus to material financial risks—the threats that genuinely harm a bank's balance sheet and liquidity. MLEX reports the OCC, FDIC, and Federal Reserve adopted the change to clarify what counts as an "unsafe or unsound" banking practice and when they can issue formal warnings to lenders. The shift marks a sharp pivot away from broad compliance checkboxes toward targeting real threats to the banking system.
Enforcement actions have plummeted. Federal Register sources show that combined enforcement actions across all three agencies fell from over 500 in 2015 to 245 in 2025. The Federal Reserve alone reports declines of roughly 48% to 58% in recent periods. This reflects a broader deregulatory push under the Trump administration, with regulators aiming to eliminate what they call "virtue signaling" in banking supervision.
Narrowing Scope Removes Reputational Risk From Oversight
The final rule applies only to "material" financial risks—those that affect a bank's balance sheet, liquidity, or operational capacity. WDEZ News reports the OCC and FDIC removed reputational risk and other nonfinancial concerns from the supervisory framework. This means regulators will no longer flag issues tied to a bank's public image or social considerations unless they pose measurable financial harm.
The rule also clarifies a uniform definition of "unsafe or unsound practice" across agencies. It sets uniform standards for issuing Matters Requiring Attention—formal supervisory warnings. Enforcement is now limited to banks within the OCC and FDIC supervisory perimeter, excluding entities outside their direct authority.
Higher Enforcement Bar Takes Effect by 2026
Regulators are introducing a higher legal standard for enforcement actions: an "abnormal probability of abnormal harm" test. This requirement means agencies must demonstrate not just that a practice is risky, but that it poses an unusual and substantial threat before they can take action. The change effectively raises the bar for formal enforcement, making violations harder to prove.
Public enforcement actions have already dropped sharply under this philosophy. MLEX reports public actions have decreased substantially since 2015. The Federal Reserve's data shows the steepest declines in recent periods, reflecting a deliberate shift away from aggressive supervision toward a more targeted approach focused on systemic threats.
Crypto-Adjacent Banking and Confidential Warnings Affected
The rules have particular implications for crypto-adjacent banking. A separate rule restricts confidential supervisory warnings to actions tied to material financial risks only. This removes what regulators described as "virtue signaling"—warnings issued for procedural violations or reputational concerns that don't threaten a bank's financial health. The change reduces the volume of informal supervisory guidance.
Fed Vice Chair for Supervision Michelle W. Bowman has driven this realignment. Federal Register sources show her push to eliminate "check-the-box" compliance and focus oversight on genuine threats. The shift accelerated under the Trump administration and reflects a philosophy that overly broad supervision hampers bank lending and competition.
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