This section provides an overview of key developments related to the Federal Reserve's prudential supervision of financial institutions, including large financial institutions (LISCC firms and LFBOs) as well as regional and community banking organizations.
The Federal Reserve is also responsible for timely and effective supervision of consumer protection and community reinvestment laws and regulations. Consumer-focused supervisory work is designed to promote a fair and transparent financial services marketplace and to ensure that the financial institutions under the Federal Reserve's jurisdiction comply with applicable federal consumer protection laws and regulations. The scope of the Federal Reserve's supervisory jurisdiction varies based on the particular law or regulation and on the asset size of the state member bank.
More information about the Federal Reserve's consumer-focused supervisory program can be found in the Federal Reserve's 105th Annual Report 2018.2 The Federal Reserve also publishes the Consumer Compliance Supervision Bulletin, which shares information about examiners' supervisory observations and other noteworthy developments related to consumer protection.3
Large Financial Institutions
This section of the report discusses issues and priorities related to the supervision of firms in the LISCC and LFBO portfolios.
The safety and soundness of large financial institutions continue to improve.
Large financial institutions are in sound financial condition, although nonfinancial weaknesses remain. As of the second quarter of 2019, common equity tier 1 capital levels remain strong, at over 12 percent of risk-weighted assets for LISCC domestic firms and over 10 percent of risk-weighted assets for LBOs (figure 10). Recent stress test results show that the capital levels of large firms after a hypothetical severe recession would remain above regulatory minimums (figure 11).
Although liquidity buffers declined slightly in recent quarters, large financial institutions continue to maintain adequate liquid assets. Liquid assets make up approximately 17 percent of total assets for both U.S. LISCC firms and LBOs (figure 12). Currently, all large financial institutions regulated by the Federal Reserve maintain enough liquid assets to withstand a month of stressed liquidity outflow.4
Large financial institutions continue to remediate a significant number of supervisory findings (matters requiring attention (MRAs) or matters requiring immediate attention (MRIAs)). As a result, the number of outstanding supervisory findings has decreased over the past year for all groups of domestic and foreign firms (figure 13).
Material risk-management weaknesses persist at a number of firms.
Supervisory ratings for large firms have generally held steady over the past year (figure 14). Firms with less-than-satisfactory ratings generally exhibit weaknesses in one or more areas such as compliance, internal controls, model risk management, operational risk management, and/or data and information technology (IT) infrastructure. Some firms also continue to exhibit weaknesses in their Bank Secrecy Act (BSA) and anti-money-laundering (AML) programs.
Box 3. New Supervisory Rating System
Following the 2007–09 financial crisis, the Federal Reserve developed a supervisory program designed to enhance resiliency and address financial stability risks posed by large financial institutions. Following these changes, the Federal Reserve designed and adopted a new rating system that closely aligns with the current supervisory program and practices.1.
The rating system applies to
- U.S. bank holding companies (BHCs) with total consolidated assets of $100 billion or more,
- noninsurance, noncommercial SLHCs with total consolidated assets of $100 billion or more, and
- U.S. intermediate holding companies (IHCs) of foreign banking organizations with total consolidated assets of $50 billion or more.
The Federal Reserve assigned initial ratings to LISCC firms in early 2019 and will assign ratings to LFBO firms in early 2020. Smaller banks will continue to be rated using the RFI rating system.
Under the new rating system, the Federal Reserve will assign three component ratings:
- capital planning and positions
- liquidity risk management and positions
- governance and controls
In contrast to the prior rating system, the new rating system does not assign a standalone composite or subcomponent rating.
The new system uses a four-category rating system:
- The Broadly Meets Expectations rating indicates that the firm is in safe and sound condition.
- The Conditionally Meets Expectations rating indicates that certain material, financial, or operational weaknesses in a firm's practices or capabilities may place the firm's prospects for remaining safe and sound through a range of conditions at risk if not resolved in a timely manner during the normal course of business.
- The Deficient-1 rating indicates that financial or operational deficiencies in a firm's practices or capabilities put the firm's prospects for remaining safe and sound through a range of conditions at significant risk.
- The Deficient-2 rating indicates that financial or operational deficiencies in a firm's practices or capabilities present a threat to the firm's safety and soundness or have already put the firm in an unsafe and unsound condition.
1. See SR 19-3 / CA 19-2 Letter, Large Financial Institution (LFI) Rating System at https://www.federalreserve.gov/supervisionreg/srletters/sr1903.htm Return to textReturn to text
Box 4. Stress Testing Conference
In 2009, the Supervisory Capital Assessment Program, or SCAP, helped restore market confidence in the largest banks. Since then, stress tests have become an important supervisory and financial stability tool and have continued to evolve based on feedback from a wide range of stakeholders.
On July 9, 2019, the Federal Reserve hosted the "Stress Testing: A Discussion and Review" conference, bringing together academic researchers, bankers, regulators, and other stakeholders to discuss the present and future state of bank stress testing as a policy tool. The conference was broadcast live via webcast to enhance transparency.
The conference was organized into three panel sessions devoted to the following themes:
- the effectiveness of stress testing as a policy tool,
- transparency and how to keep stress testing dynamic and effective in an evolving economy, and
- the effect of stress testing on the banking sector and the real economy (e.g., bank risk-taking and capital allocation, and the access to, and pricing of, credit).
The conference proceedings highlighted a number of issues that will likely inform policy development related to the Federal Reserve's stress test and capital regulation. These issues included the role of stress testing in normal economic times versus its role in stressful economic conditions, the tradeoffs between transparency and dynamism, and the role of stress testing as a countercyclical tool.
The full set of conference materials and a video of the conference proceedings are available here: https://www.federalreserve.gov/conferences/stress-testing-a-discussion-and-review.htm.
Supervision of LISCC Firms
In general, LISCC firms are continuing to improve in key areas.
The overall safety and soundness of LISCC firms continue to improve. LISCC firms maintain capital levels above regulatory capital requirements, and this year the Board did not object to the capital plans of any LISCC firm as part of CCAR.5 LISCC firms also generally have adequate liquidity positions.
Firms in this portfolio remain focused on improving governance practices and effectively managing compliance and operational risks. Both supervisors and the firms have increased attention to operational resilience, including business continuity planning.
The number of supervisory findings issued to LISCC firms, as well as the number outstanding, has declined over the past five years.
The number of supervisory findings issued by the Federal Reserve per year has steadily declined over the past five years.6 During the same period, as firms implemented and sustained improvements in governance, risk management, and controls, more supervisory findings were closed than were issued, resulting in an overall 35 percent reduction in outstanding findings. The number of supervisory findings issued by the Federal Reserve in any given period will vary somewhat depending on contemporaneous regulations, policies, and practices. However, the general trend in the overall level of supervisory findings indicates improved risk management at LISCC firms.
Weaknesses persist, particularly in governance and controls.
Over half of the supervisory findings issued in the past five years were related to governance and risk-management control issues. Of the supervisory findings currently outstanding, over 60 percent relate to this category of issues, including weaknesses in firms' BSA/AML programs, internal audit functions, IT risk management (including cybersecurity), and model risk management (figure 15). There are also a number of outstanding supervisory findings related to how firms gather, validate, and report data for regulatory purposes.
Over the past year, the percentage of outstanding supervisory findings related to governance and control issues has increased slightly. This is consistent with supervisory concerns regarding weaknesses in these areas and improvements in capital planning and liquidity. Supervisory work shows that firms are in different stages of improving their technology platforms and data quality and controls.
Improvements are also required in other areas.
With regard to capital, outstanding supervisory findings relate to firms' methods for developing assumptions used in internal stress tests and internal governance of capital models, as well as some areas of credit risk management. Federal Reserve supervisors have also asked some firms to make additional improvements in liquidity risk management to fully meet supervisory expectations. Examples include internal stress tests and cash flow forecasting capabilities.
With regard to resolution planning for LISCC domestic firms, certain weaknesses were highlighted by the Federal Reserve in 2017, including the feasibility of selling off business units under stress, complexity in derivatives portfolios, and issues around legal entity structures. The Federal Reserve Board and the FDIC are currently reviewing the resolution plans submitted in July 2019 by these firms.7
In December 2018, the Federal Reserve Board and the FDIC identified areas for improvement in the resolution plans of the four foreign-based LISCC firms, including weaknesses in how each firm communicates and coordinates between its U.S. operations and its foreign parent in stress.8 These firms are required to submit resolution plan updates related to the remediation of these weaknesses in July 2020.
Changes in technology, the competitive environment, and some firms' business models highlight the importance of supervisory monitoring.
As firms look to the future and formulate their strategic plans, supervisors will focus on emerging vulnerabilities. Supervisors will monitor how banks implement appropriate governance and controls as operations and businesses change because of external factors, such as Brexit, and internal drivers, such as shifts in business focus. For example, supervisors will be following trends in firms' search for yield, possibly resulting in growing complexity of investment products and greater vulnerabilities to liquidity shocks.
Rapidly occurring changes in technology present opportunities for firms as well as threats. Supervisors will be following developments in information technology, cybersecurity, and data management, such as the increasing use of third-party cloud services, artificial intelligence, and evolving retail digital platforms. Examples of potential impacts on firms include increased competition for core customer relationships and volatile or reduced revenues due to technology challenges in certain business lines.
Supervisory Priorities for 2020
In 2020, supervisors will be reviewing emerging risks and their potential impact on LISCC firms and will continue to conduct cross-firm and firm-specific supervisory examinations for firms within the LISCC portfolio. In addition, supervisors will review actions firms have taken to address safety and soundness weaknesses previously identified in existing supervisory findings and outstanding public enforcement actions (box 5).
Box 5. Upcoming LISCC Supervisory Priorities
- practices supporting stressed loss/revenue forecasting
- underwriting standards
- credit risk management
- current expected credit loss (CECL) implementation
- internal liquidity stress test assumptions
- liquidity position
- risk management and governance, for example for liquidity data and new products
- compliance with liquidity regulation
Governance and controls
- operational resilience of critical systems
- information technology and cyber-related risks
- compliance risk management
- internal audit
- LIBOR preparedness
Recovery and resolution planning
- LISCC domestic firm resolution plans follow-up (as needed)
- LISCC foreign bank IHC resolution shortcoming remediation plans
- preparation for LISCC firm targeted resolution plans
- recovery planning
Supervision of Large and Foreign Banking Organizations
Overall, large and foreign banking organizations remain safe and sound.
LFBOs continue to meet supervisory expectations for capital and liquidity. The majority of supervisory concerns for this portfolio of firms are concentrated in the area of governance and controls. For LFBO firms, outstanding supervisory findings declined approximately 20 percent between June 2018 and June 2019.
Nonfinancial risks continue to be the most significant findings identified in the LFBO portfolio.
For LFBO firms, including all FBOs, over 90 percent of supervisory findings outstanding are related to governance and controls (figure 16). Areas of concern continue to include compliance control deficiencies from long-standing BSA/AML issues, as well as IT risk management issues. The majority of public enforcement actions currently open for LFBO firms are related to BSA/AML and Office of Foreign Asset Control (OFAC) compliance.
Findings opened over the last year continue to center around IT risk management topics such as cybersecurity and information security programs, including patch management, penetration testing, and privacy. Weaknesses in firms' disaster recovery/business continuity planning and risk management have also been identified. Compliance issues related to BSA/AML and OFAC continue, particularly within FBO branches and agencies that are at inherently higher risk for BSA/AML exposures.
Capital and liquidity planning, risk management, and positions remain within supervisory expectations.
The majority of LFBO firms have capital planning that is appropriate for their risk profiles. Although improvement in firms' practices is noted in a range of areas, one area of supervisory concern remains around loss projection methodologies. While the majority of firms have appropriate methodologies, a few firms need improvement in loss projection methodologies for large loan exposures and model adjustment governance.
Most domestic LBO and large FBO firms have established appropriate liquidity risk management practices that are consistent with supervisory expectations and regulations. That said, for some large FBOs, insufficient support for certain underlying assumptions for liquidity stress testing practices, such as for funding of off-balance-sheet commitments, was noted.
Opportunities for improvement in credit risk management have been identified.
Federal Reserve examiners have recently observed some credit risk management issues in the LFBO portfolio, including weaknesses in credit administration (such as policies and procedures related to underwriting, and risk and data reporting), and independent loan review functions. The Federal Reserve will continue to monitor this area and issue supervisory findings as appropriate.
Supervisory Priorities for 2020
For the LFBO portfolio, planning for 2020 supervisory efforts is under way. Capital, liquidity, and governance and controls supervisory activity in 2020 will address regulatory changes arising from the final tailoring rules. For nonfinancial risks, examiners will conduct a combination of horizontal reviews and firm-specific target reviews, in addition to continuous monitoring efforts. For the portfolio as a whole, the supervisory focus will be on the areas listed in box 6.
Box 6. Upcoming LFBO Supervisory Priorities
- capital planning and risk management, including credit loss estimation and governance
- wholesale credit underwriting and controls and independent loan review functions
- CECL implementation
- internal liquidity stress testing assumptions and business-as-usual cash flow projections
- governance over liquidity data
- daily and short-term liquidity risk management monitoring programs
Governance and controls
- cyber-related and information technology risks
- BSA/AML programs and OFAC compliance
- third-party or vendor risk management
- LIBOR preparedness
Box 8. The Shared National Credit Program
The Shared National Credit (SNC) program is an interagency supervisory program employed by the Federal Reserve, the FDIC, and the OCC ("the agencies") to assess more than $5 trillion in wholesale commercial credit exposures within the financial system, including leveraged loans. The SNC program assesses credit risk and trends as well as underwriting and risk-management practices associated with the largest and most complex loans shared by multiple regulated financial institutions. Since the program facilitates a single review of loan exposures held by multiple firms, it provides for uniform treatment and increased efficiency in credit risk analysis and classification.
While lending exposures from all major sectors are reviewed, the SNC program's semiannual examinations may focus on specific sectors based on early warning signs from emerging risks. In recent years, examiner attention has been drawn toward oil and gas lending, CRE exposures, large national retail businesses, and loans to nonbank financial institutions. In the third quarter of 2019, the SNC exam again looked at bank leveraged lending activity, as well as targeted loans to oil and gas extraction and service-related companies.
The credit quality of loans in the SNC portfolio improved in 2018, largely because of improving economic conditions in the oil and gas sector. Despite the improvement, credit quality metrics of the overall SNC portfolio remain modestly weaker compared with similar periods in prior economic cycles. A significant portion of these weaker loans are concentrated in transactions identified as leveraged loans. In contrast to the overall portfolio, risks associated with leveraged lending activities are building. The agencies have found that while bank practices with respect to leveraged lending have improved in several areas since 2014, other lending practices have emerged that are cause for supervisory concern and may not be well monitored through bank internal risk-management practices.
Through the examination process, the agencies remind banks that risk management must evolve as market conditions change and new risk vectors emerge. While the proportion of SNC loans with weakened repayment capacity is relatively low today, leveraged borrowers are highly susceptible to changes in the economy, and a downturn could result in a significant increase in problem loan exposures and higher financial losses. As such, the agencies will remain focused for the foreseeable future on assessing the impact of leveraged loans on firms' asset quality.
Box 7. Supervisory Communications—MRAs, MRIAs, and Enforcement Actions
The Federal Reserve has various tools available to ensure that banking organizations operate both in compliance with all applicable laws and regulations and in a safe and sound manner. Examiners use a number of channels to identify and communicate areas where banking organizations do not meet supervisory expectations.
Table A. Supervisory communication channels
|Degree of severity||Communication channel||Description|
|Least severe (top) to most severe (bottom)||Supervisory findings||MRAs are a call for action to address weaknesses that could lead to deterioration in a banking organization's soundness. MRAs are confidential and not publicly issued.|
|MRIAs are a call for more immediate action to address acute or protracted weaknesses that could lead to further deterioration in a banking organization's soundness, may result in harm to consumers, or have caused, or could lead to, noncompliance with laws and regulations. MRIAs are confidential and not publicly issued.|
|Enforcement actions||Informal enforcement actions are not public and are used when circumstances warrant a less severe form of action than a formal action.|
|Formal enforcement actions are publicly issued actions designed to prevent, deter, and correct violations of law and unsafe and unsound banking practices.|
MRAs and MRIAs are not enforcement actions.
It is typically the case that MRAs or MRIAs are the first step in communicating supervisory findings to a banking organizations and are done so through the report of examination. Most MRAs and MRIAs are resolved without the need to escalate.
If it is determined that there is a need to escalate to an enforcement action, among the factors considered by the Federal Reserve are
- the overall condition of the institution; and
- whether or not the deficiency has been cited in a prior MRIA or an MRA that the examiners have determined has not been remediated.
Generally, MRIAs serve as the basis for the provisions included in an enforcement action. There may be a few cases where some issues are so acute they require immediate issuance of an enforcement action.
Enforcement actions can be informal or formal. Informal enforcement actions include commitment letters, board resolutions, and memoranda of understanding. Formal enforcement actions include written agreements and cease and desist orders. Formal enforcement actions are publicly issued actions designed to prevent, deter, and correct violations of law and unsafe and unsound banking practices. These actions derive from, and carry the full weight and enforceability of law.
Regional and Community Banking Organizations
The majority of the firms in the regional and community bank portfolios are in satisfactory condition.
Regional and community banking organizations are generally in satisfactory financial condition. Aggregate common equity tier 1 capital remains strong, at nearly 12 percent of risk-weighted assets for RBOs and 14 percent of risk-weighted assets for CBOs, as of the second quarter of 2019 (figure 17). Less than 1 percent of organizations in these portfolios report capital levels that do not meet the "well-capitalized" designation.
Management and risk-management practices are generally satisfactory. Outstanding supervisory findings in this area have decreased in recent years, reflecting improved practices.
The number of RBOs and CBOs in less-than-satisfactory condition has declined.
Supervisory ratings reflect the generally stable or improving condition of RBOs and CBOs. Less than 5 percent of firms are rated less than satisfactory, down from 12 percent in 2014 (figure 18).
Supervisory findings continue to decline.
Outstanding supervisory findings continue to decline for both portfolios, as existing findings are closed and fewer findings are issued (figure 19). The average number of outstanding findings per institution has declined over the past five years for CBOs, from 0.8 to 0.5, and for RBOs, from nine to three. The most frequent categories for supervisory findings pertain to IT and operational risk for CBO firms, and risk management and internal controls for RBO firms.
Supervision of Regional Banking Organizations
Most RBOs are in satisfactory condition.
Most RBOs are in satisfactory condition with respect to asset quality, earnings, and liquidity. All RBOs currently reporting capital ratios meet the "well-capitalized" designation under interagency capital guidelines. However, a recent increase in capital redemptions across the portfolio has slightly reduced the aggregate level of common equity. Though some increase in liquidity, credit, and operational risks has been noted, most risk categories appear relatively stable.
Recent areas of supervisory focus include mergers and acquisitions risks, information technology/cybersecurity, and operational risks.
The number and size of organizations in the RBO portfolio have grown recently as a result of mergers and acquisitions (see box 10). Such activity may heighten operational risks, as companies seek to integrate data and IT systems and consolidate operations.
In addition to operational risks from merger activities, other IT and operational concerns exist. Cybersecurity remains a key supervisory concern for RBOs as in other portfolios.
Federal Reserve staff continue to identify opportunities for RBOs to improve corporate governance practices and IT risk management.
Box 10. Growth in the RBO Portfolio
Over the past five years, the number of RBOs has increased from 59 firms and roughly $1.2 trillion in total assets in 2014 to 88 firms and about $2.1 trillion in total assets as of June 30, 2019 (figure A).1
New entrants have primarily been the result of mergers or acquisitions. A small number of firms transitioned from the LFBO portfolio into the RBO portfolio following the implementation of an EGRRCPA provision that raised the lower bound of the asset threshold for certain enhanced prudential standards from $50 billion to $100 billion.
Federal Reserve staff strive to ensure that entrants to the portfolio understand applicable regulations and relevant guidance and have policies that are commensurate with their increased size and complexity.
Risk management and internal controls at RBOs remain the top area for supervisory focus.
Similar to previous years, the most prominent category of supervisory findings pertains to risk management and internal controls, followed by IT and operational risk, and BSA/AML (figure 20). Notwithstanding an increase in the total number of RBOs, the total number of outstanding MRAs has decreased (figure 19).
Opportunities for improvements in credit underwriting practices have been identified.
In 2019, Federal Reserve staff conducted an offsite analysis and comparison of commercial credit underwriting practices at certain RBO SMBs. Similar to the prior year, results indicate that a majority of loans included acceptable structures, terms, and adequate credit analysis. However, a number of firm-specific weaknesses were identified related to policy exceptions, financial covenants, financial analysis, guarantor support, and liberal credit structures. Results also highlighted "risk layering," where more liberally underwritten credits had several areas of weakness.
Box 9 details the list of upcoming RBO supervisory priorities.
Box 9. Upcoming RBO Supervisory Priorities
concentrations of credit
- commercial real estate
- construction and land development
- commercial and industrial credits with high levels of leverage
- merger and acquisition risks
- information technology and cybersecurity
- understanding transition risk and plans for LIBOR
- monitoring the implementation process for CECL
Supervision of Community Banking Organizations
The financial condition of CBOs is robust.
Capital levels at CBOs have remained high over the past five years. Aggregate capital, earnings, and asset quality are sound. Common equity tier 1 ratios average nearly 14 percent, a five-year high. Similar to the RBO portfolio, there has been a slight uptick in liquidity risk associated with this portfolio, though it is still low-to-moderate at the majority of CBO firms. The overall risk level in the portfolio continues to decline.
Consolidation continues to reduce the number of community banks.
Bank consolidation has continued, resulting in a steady decline in the number of community banks over the past five years. Charter conversions have played a more subdued role in the decline in community SMBs. Over the past five years, there has been no SMB de novo activity in the portfolio, and there have been no SMB failures since 2017. As of June 2019, the Federal Reserve supervised 719 CBO SMBs as compared with 742 SMBs in June 2018. This decline is roughly in line with trends from recent years.
Box 11: The Community Bank Leverage Ratio
On October 29, 2019, the OCC, the FDIC and the Federal Reserve Board finalized the community bank leverage ratio (CBLR) rule that simplifies capital requirements for community banks by allowing them to adopt a simple leverage ratio to measure capital adequacy. The CBLR framework removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that opts into the framework.
To qualify for the framework, a community bank must have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent.
In response to comments, several changes were made to reduce compliance burden. In particular, components to measure the leverage ratio were modified for simplicity and a grace period was introduced. If a firm falls below the leverage ratio requirement, it will have a two-quarter grace period to increase its capitalization.
The agencies estimate approximately 85 percent of community banks will qualify for the CBLR framework. The final rule is consistent with EGRRCPA.
The CBLR framework will first be available for banking organizations to use in their March 31, 2020, Call Report or Form FR Y-9C, as applicable.
For CBOs, the number of outstanding findings has declined over the past five years.
During 2018, the Federal Reserve completed examinations at over 200 CBO SMBs and conducted 2,840 holding company inspections.9 The volume of outstanding supervisory findings at CBOs has steadily declined over the past five years (figure 19), as has the number of firms under enforcement actions. Over the past year, there has been a net decrease in outstanding IT and operational risk supervisory findings, indicating continued progress. That said, IT and operational risk continues to hold the largest share of outstanding supervisory findings (figure 21).
Box 12 details the focus of this upcoming year's CBO supervisory priorities.
Box 12. CBO Supervisory Priorities
concentrations of credit
- commercial real estate lending
- agricultural lending
- loan underwriting and credit administration
- information technology and cybersecurity
- liquidity risk
- understanding transition risk and implementation plans for LIBOR and CECL
2. See 105th Annual Report 2018, section 5, "Consumer and Community Affairs," at https://www.federalreserve.gov/publications/annual-report.htm. Return to text
3. See The Consumer Compliance Supervision Bulletin at https://www.federalreserve.gov/publications/consumer-compliance-supervision-bulletin.htm. Return to text
4. As required by the liquidity coverage ratio rule. See https://www.govinfo.gov/content/pkg/FR-2014-10-10/pdf/2014-22520.pdf. Return to text
5. See the Federal Reserve 2019 CCAR press release at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190627a.htm. Return to text
6. Note that supervisory findings related to resolution plans are not classified as MRAs or MRIAs. Shortcomings and deficiencies found in firm-specific resolution plans can be found at https://www.federalreserve.gov/supervisionreg/resolution-plans.htm. Return to text
7. See the Federal Reserve press release at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190723a.htm. Return to text
8. See the Federal Reserve press release at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20181220c.htm. Return to text
9. For noncomplex holding companies with less than $3 billion in assets (referred to as "small shell holding companies") the Federal Reserve uses an offsite inspection program that relies substantially on the work performed by the insured depository institution regulator. There has been a year-over-year reduction in the number of CBO SMB exams because of the implementation of the expanded exam cycle for certain banks. To be eligible, SMBs under $3 billion in total assets must be well-capitalized, have a satisfactory management and CAMELS composite rating, not under formal enforcement action, and must not have been acquired within the previous year. Currently, around 90 percent of all CBO SMBs may be eligible for the expanded 18-month exam cycle. Return to text