The Federal Reserve Board published a speech by Vice Chair for Supervision Michelle W. Bowman reviewing supervisory and regulatory modernization undertaken in 2025 and setting out further reforms intended to refocus supervision on material financial risks, increase transparency, and reduce undue burden, particularly for community banks. Bowman pointed to the publication of supervisory operating principles in late October 2025 to drive early remediation of material financial risks, alongside implementation steps including guidance examples and feedback from supervised firms. She cited changes to the Large Financial Institution ratings framework so a firm’s “well-managed” status better reflects its overall ratings and risk, the elimination of “reputational risk” from supervision, and the rescission of climate guidance. On regulation, she referenced a proposal to recalibrate the community bank leverage ratio by lowering the leverage requirement for electing banks from 9 percent to 8 percent, modifications to the enhanced supplementary leverage ratio to restore its role as a backstop and support large bank-affiliated broker-dealer intermediation in the U.S. Treasury market, and ongoing work to revise stress testing to reduce volatility and improve model transparency. The speech also outlined planned work on updating and potentially indexing asset thresholds, aligning supervisory portfolios more closely to bank complexity, revisiting standards for MRAs and MRIAs and ensuring CAMELS “M” assessments are based on measurable factors, reviving non-binding supervisory observations, reviewing reporting burdens such as call report data collections, improving applications processes, and narrowing or exempting certain information-sharing from “confidential supervisory information” constraints. Staff are expected to conclude proposals that would define what constitutes “unsafe and unsound” practices for supervision and enforcement and formally remove reputational risk, aligned with Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency proposals. Bowman also flagged additional regulatory changes to be announced in the coming days and weeks, further LISCC administrative manuals to be released in the coming weeks and months, and the potential for refinement of the supervisory operating principles as implementation feedback is received.

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