Board of Governors of the Federal Reserve System

Releasing today's proposal for comment is an important step in pursuing an open and transparent rulemaking process for revising important supervisory rating frameworks: the large financial institution (LFI) framework and the insurance supervisory framework. I look forward to hearing from a broad range of stakeholders on the proposal, and I will evaluate any final proposed rule on its merits, in light of the comments received.

It is especially important to the resilience of the financial system that supervisory ratings appropriately reflect the actual condition of supervised banking organizations. I am concerned by the fact that a majority of banking organizations subject to the LFI framework, which applies to the largest banking organizations, do not qualify as "well managed."

Such unsatisfactory ratings could reflect that significant deficiencies identified by supervisors are not being remediated with appropriate speed. However, certain design features of the LFI framework, which was finalized in 2018, may have contributed to these results.

Today's proposal would mitigate the consequences of a single "deficient-1" rating for banking organizations, which may be appropriate when such a single rating would not provide an accurate view of the overall condition of the organization. However, in my view, a potentially better, more comprehensive approach—as raised in question 5 of the preamble—would be to add a composite score to the LFI framework. A composite score would produce a more holistic assessment of the organization—across individual components—and allow more nuance to distinguish well-managed from not well-managed organizations.

I thank Vice Chair for Supervision Bowman and Board staff for their efforts in preparing this proposal. I look forward to analyzing comments, feedback, and data from the public on this proposal, or alternative adjustments, including the addition of a composite score to both frameworks. I also anticipate working further with my colleagues to ensure that our supervisory frameworks accurately reflect the condition of the institutions we supervise.