Federal Deposit Insurance Corporation proposes tightening Section 8 enforcement actions and Matters Requiring Attention to material safety and soundness risks

The Federal Deposit Insurance Corporation published a proposal to refocus two core supervisory tools, enforcement actions under Section 8 of the Federal Deposit Insurance Act and Matters Requiring Attention (MRAs), on issues that are material to a bank’s safety and soundness. The approach would generally limit Section 8 actions and MRAs to practices and acts that have caused, or could be expected to cause, material financial harm or materially increase the risk of failure and a resulting cost to the Deposit Insurance Fund (DIF). Under the proposal, an “unsafe or unsound practice” would be defined as conduct contrary to generally accepted standards of prudent operation that is likely to materially harm the institution’s financial condition or present a material risk of loss to the DIF, or that has already materially harmed the institution. An MRA would similarly cover conduct contrary to prudent standards that could reasonably be expected, under current or reasonably foreseeable conditions, to materially harm the bank or present a material risk of loss to the DIF, or that has already caused material harm, and would also include actual violations of banking or banking-related laws or regulations. The FDIC would replace its current Matters Requiring Board Attention (MRBAs) framework with the proposed MRA definition, while maintaining the ability to require remediation of material issues before they surface in reported financial metrics. The proposal invites comments in response to a list of questions, and the FDIC also flagged additional supervision reforms under consideration, including potential changes to the CAMELS rating system and a broader reevaluation of supervisory manuals, rules, guidance, and internal procedures.