Fed Propose New Governance Requirements for Bank Boards
09/11/17 – In August, the Federal Reserve (the Fed) announced proposals that would allow boards of directors at big banks to focus on their “core responsibilities” without getting too deep into a firm’s day to day operations.
According the Fed, a board’s core responsibilities include oversight of the types and levels of risk a firm may take and aligning the firm’s business strategy with those risk decisions. The proposal is meant to “enhance the effectiveness of the boards” and “promote the safety and soundness of the firms.”
The proposal is made up of three parts.
- First, it identifies the attributes of effective boards of directors, such as setting a clear and consistent strategic direction for the firm as a whole, supporting independent risk management, and holding the management of the firm accountable. For the largest institutions, the Fed supervisors would use these attributes to inform their evaluation of a firm’s governance and controls.
- Second, it clarifies that for both large and small firms, most supervisory findings, including Matters Requiring Attention (MRA) and Matters Requiring Immediate Attention (MRIA), should be communicated to the firm’s senior management for corrective action, rather than to its board of directors. MRAs and MRIAs are a formal designation of problems that supervisors identify that could lead to an enforcement action if a bank does not address those issues.
- Third, the proposal identifies existing supervisory expectations for board of directors that could be eliminated or revised.
The Fed explained that it proposed the new guidance because it found that the supervisory expectations for boards of directors and senior management have become increasingly difficult to distinguish. The Fed also found that board of directors often devote significant amounts of time satisfying supervisory expectations that do not directly relate to the board’s core responsibilities.
Comments on the proposed guidance may be submitted through October 10, 2017.