Board of Governors of the Federal Reserve System

Supervisory Developments

This section provides an overview of recent supervisory efforts to assess institutions' safety and soundness and compliance with laws and regulations. Supervisory approaches and priorities differ by a financial institution's size and complexity. The subsections below discuss developments separately for community and regional banking organizations with assets of less than $100 billion and large financial institutions with assets of $100 billion or more.

The Federal Reserve is responsible for overseeing compliance with certain laws and regulations relating to consumer protection and community reinvestment. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Board is responsible for supervising and enforcing federal consumer financial protection laws and regulations at state member banks with $10 billion or less in assets as well as for a more limited set of laws and regulations at state member banks with greater than $10 billion in assets. Consumer-focused supervisory work is designed to ensure that supervised institutions comply with applicable federal consumer protection laws and regulations.

More information about the Federal Reserve's consumer-focused supervisory program can be found in the Federal Reserve's 110th Annual Report 2023.¹¹

Federal Reserve Supervision

The Federal Reserve conducts examinations to evaluate a banking organization's activities, risk management, and financial condition.¹² Examinations of state member banks and other depository institutions include assessments of capital adequacy, asset quality, management quality, earnings strength and quality, liquidity position and funding sources, and sensitivity to interest rate risks. The Federal Reserve may also decide whether to further focus examinations on a bank's known and potential risks.

If supervisors find a bank's risk management or financial condition to be deficient, they provide direction and require the bank to correct its weaknesses.¹³ This direction takes the form of confidential supervisory findings called "Matters Requiring Attention" and, for more significant issues that must be corrected on a priority basis, "Matters Requiring Immediate Attention." These findings are communicated to a banking organization's management and board of directors in a written report that clearly describes the issue requiring remediation. If a bank does not address these supervisory findings or if a firm's deficiencies are significant enough to amount to an unsafe or unsound practice, supervisors may lower the bank's supervisory rating or pursue an enforcement action against the bank. The Federal Reserve has also restored the practice of issuing nonbinding supervisory observations to firms on issues that do not meet the threshold for a matter requiring attention to enhance communication and encourage earlier remediation.

Supervisory ratings, which are confidential, provide an assessment of a bank's risk management and financial condition based on examination results, supervisory findings, and other information gathered throughout the year. These ratings reflect supervisors' overall judgment of a bank's safety and soundness. Supervisory ratings are generally issued once every 12 to 18 months for banks that remain in satisfactory condition.¹⁴

Supervised Institutions

The Federal Reserve supervises bank holding companies (BHCs), savings and loan holding companies (SLHCs), state member banks (SMBs), and foreign banking organizations (FBOs) operating in the United States and certain affiliates of these banking organizations. The Federal Reserve follows a risk-focused approach by scaling supervisory work to the asset size and complexity of an institution:

• The Community Banking Organization (CBO) program supervises U.S. firms with less than $10 billion in total assets.
• The Regional Banking Organization (RBO) program supervises U.S. firms with total assets between $10 billion and $100 billion.
• The Large and Foreign Banking Organization (LFBO) program supervises non–G-SIB U.S. firms with total assets of $100 billion or more and all FBOs operating in the United States regardless of asset size.
• The G-SIB program (formerly Large Institution Supervision Coordinating Committee) supervises the U.S. G-SIBs, which are deemed to pose elevated risk to U.S. financial stability.

Table 2 provides an overview of Federal Reserve supervised organizations by portfolio, including the number of institutions and total assets in each portfolio.

Table 2. Summary of organizations supervised by the Federal Reserve (as of 6/30/2025)

Community and Regional Banking Organizations

This section of the report discusses the supervisory conditions and approach for banking organizations with assets of less than $100 billion, including CBOs, which have less than $10 billion in total assets, and RBOs, which have total assets of $10 billion or more and less than $100 billion.

Trends in Supervisory Ratings and Findings

Federal Reserve supervisors use the RFI rating system to summarize their assessments of holding companies with consolidated assets of less than $100 billion.¹⁵ In addition, the Federal Reserve and the other federal and state bank regulatory agencies utilize the Uniform Financial Institution Rating system, also known as the CAMELS rating system, to summarize supervisors' assessments of banks.¹⁶

Most CBOs and RBOs remain in satisfactory condition with effective risk-management practices (figure 13). Composite upgrades outpaced downgrades in the first half of 2025. However, supervisors cited weaknesses in financial condition or risk-management practices at some banks that resulted in downgrades.

The number of outstanding supervisory findings at CBOs and RBOs fell during the first half of 2025 compared with year-end 2024 (figure 14). For both CBOs and RBOs, the number of new findings in the first half of 2025 fell compared with the first half of 2024. For CBOs, IT/operational risk findings remained the most cited category of outstanding issues, followed by risk management and internal controls (figure 15). For RBOs, risk management and internal control findings comprised the largest portion of supervisory findings, followed by IT/operational risk (figure 16).

Supervisory Focus

Federal Reserve supervisors are focused on monitoring the financial condition of CBOs and RBOs and any material financial risks. They are also focused on tailoring supervision to each bank's risk and business profile, as discussed in the introduction.

Consistent with the new Statement of Supervisory Operating Principles, the Federal Reserve is committed to ensuring that supervision is appropriate and effective for the community bank model. To that end, the Federal Reserve is reviewing its supervisory approaches and is making necessary program changes, including adjusting certain asset thresholds, reducing and streamlining reporting requirements, improving the communication of supervisory conclusions, and increasing transparency into the supervisory process.

Financial conditions are broadly stable at CBOs and RBOs, though some banks have increased their allowances for credit losses, as well as experienced pressure on earnings arising from higher operational expenses.

Most CBO and RBO banks have lower levels of past due and classified loans than they have had compared to their average over the previous 10 years. However, as discussed above, delinquencies on CRE loans and consumer loans remain above the averages from the past decade. Supervisors remain focused on CBOs and RBOs that are concentrated in CRE lending, particularly the office and multifamily sectors. Elevated interest rates, tighter underwriting standards, and lower commercial property values may affect CRE borrowers' ability to refinance or pay off their loans. Supervisors are monitoring CRE loan trends, including trends in modifications. Supervisors are also closely reviewing CBO and RBO broader underwriting practices, classifications, and credit loss reserves levels.

Federal Reserve supervisors remain focused on agriculture concentrations at CBOs as the agricultural sector continues to face pressures. Agricultural lending has experienced an increase in credit risk as profit margins at agricultural firms continue to be tight. Loans to agricultural firms remain at historical highs for CBOs as carryover debt has increased from the previous farm production cycle. Liquidity has been tight for a growing share of farm lenders that have high loan-to-deposit ratios.

See below the core and material financial risks that CBO and RBO portfolios have prioritized in supervision. While core financial risks at all institutions are fundamental to the supervision of all firms, some priorities reflect increased focus on institutions with heightened risks within their balance sheets, such as credit and funding concentrations. Supervisors are also focused on creating an environment that does not hinder the integration of responsible innovation into regional and community bank strategies—for example, working with CBOs on engaging with fintech partnerships. Additionally, supervisors continue to prioritize supervision of firm remediation efforts on previous supervisory findings.

CBO and RBO Supervisory Priorities

Credit Risk

• high-risk credit concentrations and credit risk management
• adequacy of allowances for credit losses
• loan underwriting and collateral management practices

Liquidity Risk

• firms with higher reliance on noncore funding sources
• liquidity funding planning

Other Financial Risks

• interest-rate risk

Other Risks

• IT and cyber risk

Large Financial Institutions

This section of the report discusses the supervisory approach and outcomes for large financial institutions—namely, U.S. firms with total assets of $100 billion or more, including G-SIBs, and FBOs with combined U.S. assets of $100 billion or more. These firms are either within the G-SIB portfolio or the LFBO portfolio. Large financial institutions are subject to regulatory requirements that are tiered to the risk profiles of these firms.

Supervisory efforts for large financial institutions focus on four components:

1. Capital planning and positions,
2. Liquidity risk management and positions,
3. Governance and controls, and
4. Recovery and resolution planning.¹⁷

Trends in Supervisory Ratings and Findings

Federal Reserve supervisors summarize their assessments of large financial institutions using the LFI rating system.¹⁸ The LFI rating system evaluates whether a firm possesses sufficient financial and operational strength and resilience to maintain safe and sound operations and comply with laws and regulations, including those related to consumer protection, through a range of conditions. It includes three components: (1) capital planning and positions; (2) liquidity risk management and positions; and (3) governance and controls.¹⁹

As of June 30, 2025, about half of large financial institutions maintained satisfactory ratings across all three LFI rating components (figure 17). The remaining large financial institutions were rated less-than-satisfactory in at least one component. Supervisors identified weaknesses in capital planning and liquidity risk-management practices. In addition, supervisors identified other weaknesses in areas such as operational resilience, cybersecurity, and Bank Secrecy Act and anti-money-laundering compliance.

In the first half of 2025, the total number and average number per firm of outstanding supervisory findings at large financial institutions decreased (figure 18). The distribution of supervisory findings by category also remained largely stable over the first half of 2025 (figure 19).

Supervisory Focus

Supervisors examine and monitor large financial institutions on a continuous basis, focusing on the most important risks. These risks are constantly evolving with business practices, financial and market environments, legal requirements, and risk management capacities. Large financial institutions typically undergo multiple exams each year. These are a primary input into supervisory ratings in accordance with the Large Financial Institution ratings framework.

In the first half of 2025, the Federal Reserve prioritized reviews of liquidity, capital planning, and cybersecurity, in accordance with the Federal Reserve's prioritization of core and material financial risks. Liquidity risk management examinations focused on reviewing firms' internal liquidity stress testing deposit assumptions and derivatives methodologies, risk-management practices including limits, as well as verification of firm remediation on previous supervisory findings. Capital planning and risk management examinations included the 2025 Comprehensive Capital Analysis and Review (CCAR), which focused on firm internal estimation practices for credit card losses, commercial loan valuation for exposures to nonbank financial institutions, risk capture for options in firms' internal stress scenarios, and models to project pre-provision net revenues.²⁰ Supervisors also continue to monitor firm practices around managing interest-rate risk. Cybersecurity reviews focused on risk management and controls programs and production change controls.

In the first half of 2025, supervisors also reviewed firms' recovery plans with a focus on firm capabilities to provide timely and accurate management information for firm decisionmaking when a recovery plan is activated because of heightened exposure to significant losses. Supervisors also began reviewing the 2025 Title I targeted resolution plans. The review focuses on firms' strategies to maintain funding for material entities and critical operations through a range of resolution scenarios; actions of foreign authorities that may be necessary for the firms to carry out their preferred resolution strategies; firms' frameworks to provide assurance that their resolution capabilities will function if and when needed; and review of firms' efforts to remediate shortcomings identified in 2023 resolution plans.

Federal Reserve supervisors are reforming our supervisory practices and the supervisory action framework.

Large Financial Institution Supervisory Priorities

Capital Planning and Positions

• interest-rate risk
• market and counterparty risk
• consumer and commercial credit, including CRE

Liquidity Risk Management and Positions

• internal liquidity stress testing, including derivatives methodologies
• liquidity risk-management practices, including limits

Governance and Controls

• operational resilience, including cybersecurity
• technology change risk management and controls
• firm remediation efforts on previous supervisory findings

Recovery and Resolution Planning

• recovery planning for U.S. G-SIBs and resolution planning for large financial institutions

 

References

 

11. See Board of Governors of the Federal Reserve System, 110th Annual Report of the Board of Governors of the Federal Reserve System (Washington: Board of Governors, July 2024), https://www.federalreserve.gov/publications/files/2023-annual-report.pdf. Return to text

12. See "Understanding Federal Reserve Supervision," https://www.federalreserve.gov/supervisionreg/how-federal-reserve-supervisors-do-their-jobs.htm. Return to text

13. Supervisors include both commissioned examiners (Federal Reserve staff who have been commissioned as an examiner) and subject matter experts that provide support during examinations and off-site monitoring. Return to text

14. See Board of Governors of the Federal Reserve System, "Supervisory Ratings for State Member Banks, Bank Holding Companies and Foreign Banking Organizations, and Related Requirements for the National Examination Data System," SR letter 99-17 (June 24, 1999), https://www.federalreserve.gov/boarddocs/srletters/1999/SR9917.htm. Return to text

15. See Board of Governors of the Federal Reserve System, "Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion," SR letter 19-4/CA letter 19-3 (February 26, 2019), https://www.federalreserve.gov/supervisionreg/srletters/sr1904.htm. Return to text

16. See Notes on Data Sources and Terms for additional information on the RFI and CAMELS rating systems. Return to text

17. For more information regarding the framework for supervision of large financial institutions, see Board of Governors of the Federal Reserve System, "Consolidated Supervision Framework for Large Financial Institutions," SR letter 12-17/CA letter 12-14 (December 17, 2012), https://www.federalreserve.gov/supervisionreg/srletters/sr1217.htm; and box 4 in the Board of Governors of the Federal Reserve System, Supervision and Regulation Report 2018 (Washington: Board of Governors, November 2018), https://www.federalreserve.gov/publications/files/201811-supervision-and-regulation-report.pdf. Return to text

18. See Board of Governors of the Federal Reserve System, "Large Financial Institution (LFI) Rating System," SR letter 19-3/CA letter 19-2 (February 26, 2019), https://www.federalreserve.gov/supervisionreg/srletters/sr1903.htm. The LFI Rating system is not applicable to foreign banking institutions without a U.S. intermediate holding company. Return to text

19. In addition, the Federal Reserve and the other federal and state bank regulatory agencies utilize the Uniform Financial Institution Rating system, also known as the CAMELS rating system, to summarize supervisors' assessments of the capital, assets, management, earnings, liquidity, and sensitivity to interest-rate risk of banks. For more details, see Notes on Data Sources and Terms. Return to text

20. Pre-provision net revenue is net interest income plus noninterest income minus noninterest expenses. Return to text