U.S. banking regulators are refining their enforcement and supervisory frameworks to concentrate more closely on significant financial risks facing banks. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) recently announced a series of rule changes aimed at emphasizing “material financial risk” in bank oversight.

This regulatory adjustment is part of a broader deregulatory agenda that gained momentum during the Trump administration and continues under the current leadership. One notable change includes the removal of “reputational risk” from the supervisory guidelines, a move intended to reduce what regulators view as unwarranted restrictions on banking activities, such as “debanking.” The agencies also described prior examination practices as overly focused on checklist compliance rather than prioritizing the risks that pose the greatest threat to financial stability.

Key elements of the update include a clearer, more precise definition of “unsafe or unsound practice,” a term previously subject to broad interpretation. Additionally, the threshold for issuing formal corrective notices known as “Matters Requiring Attention” (MRA) has been raised, with a focus on curtailing notices related to minor or technical infractions. For example, notices pertaining to small breaches of IT handbook rules are expected to be phased out under the new supervisory approach.

The regulators' shift comes in the wake of criticism of their handling of the 2023 collapse of Silicon Valley Bank, where oversight focused heavily on governance, controls, and anti-money laundering risks but insufficiently addressed core financial threats such as interest rate and liquidity risks. A regulatory official involved in the reform stated that prior notices to Silicon Valley Bank should have targeted the actual risks to the institution rather than a disparate collection of issues.

In addition to narrowing its focus, the OCC plans to publicly release its policies and procedural manuals for the first time, aiming to enhance transparency and accountability. The agency also signaled a differentiated supervisory stance toward banks based on their size and complexity, with more rigorous enforcement expected for large or complex institutions than for smaller community banks.

Under the new framework, the OCC will categorize legal and regulatory violations into “substantive” and “technical” types. Non-substantive violations will generally be handled outside of formal written notices, reducing the regulatory burden on banks for less critical issues.

Jonathan V Gould, head of the OCC, emphasized the importance of prioritizing significant financial risks and substantive violations of law, while ensuring that core policy and process concerns receive appropriate attention. Overall, the regulatory overhaul seeks to refocus supervisory resources on the financial risks that fundamentally impact banks’ balance sheets and liquidity positions, enabling bank executives to concentrate on managing these critical areas rather than navigating extensive compliance exercises.