To Whom It May Concern:
The Bank Policy Institute strongly supports the Office of the Comptroller of the Currency’s
and Federal Deposit Insurance Corporation’s proposed rulemaking defining “unsafe or unsound
practices” and establishing standards for issuing Matters Requiring Attention (MRAs).[1] These are necessary and important reforms that would improve bank supervision by focusing agency
examiners on material financial risks. The proposed rule should be adopted without delay with the additional refinements recommended in this letter, which are intended to ensure that the text of the final rule provides clear and objective standards that align with binding case law and promote the proposal’s goals.
I. Introduction
The proposed standards are necessary to refocus bank examination on material risks to an
institution’s financial condition and to align supervisory practices with statutory authority and
binding case law. Specifically, we strongly support the proposal to (i) define “unsafe or unsound
practices” by regulation to focus on material harm to an institution’s financial condition or
material risk of loss to the Deposit Insurance Fund and (ii) establish uniform standards for issuing MRAs that would similarly focus supervisory resources on material financial risk rather than immaterial procedural matters.
“Safety and soundness” is a cornerstone of bank supervision. U.S. state laws have used
the term “unsafe or unsound practices” or its variants going back to the 1830s. [2] Subsequently,
Congress charged the agencies with ensuring the safety and soundness of the institutions they
examine and granted the agencies enforcement authority specifically with respect to “unsafe or
unsound practices.” Over time, however, the concept of “safety and soundness,” as it has been
applied in practice, has become untethered from both material financial risks and the law that
established the framework. It has yielded a system that encourages examiners to focus on
process and immaterial issues and thereby deemphasizes material financial risks. We agree with
the agencies’ observation in the preamble to the proposal that this dynamic has resulted in “a
proliferation of supervisory criticisms for immaterial procedural, documentation, or other
deficiencies that distract management from conducting business and that do not clearly improve
the financial condition of institutions.” [3] We submit that this overbroad interpretation of the
meaning of an “unsafe or unsound” practice weakens supervision, diverting finite agency and
bank resources.
The proposal, if adopted, would help to reverse this trend. It would provide, for the first time, a clear regulatory definition of the bedrock concept of “unsafe or unsound” and would establish a clear standard for issuance of MRAs by the agencies. Accordingly, we encourage the agencies to adopt the proposed changes without delay, with the refinements discussed below.
Part II of this letter discusses the evidence supporting the proposed reforms, the expected
benefits of adopting them, and the cost of continuing current examination practices without these reforms. Part III provides recommendations on the proposed definition of “unsafe or unsound practices.” Part IV provides recommendations on the proposed standards for MRAs and informal supervisory communications. Part V provides recommendations on additional regulatory reforms, including reforms to the CAMELS rating system, that are necessary for the proposed changes to be fully effective. Appendix A to this letter provides direct responses to the questions raised by the agencies in the proposed rule. Appendix B to this letter provides legal background and analysis on the meaning of “unsafe or unsound practices.” Appendix C to this letter provides legal background and analysis on the agencies’ authority to issue MRAs.
To read the full comment letter, please click here, or click on the download button below.
[1] The Bank Policy Institute is a nonpartisan public policy, research, and advocacy group that represents universal banks, regional banks, and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.
[2] See Appendix B for legal background and analysis on the meaning of “unsafe or unsound practices” and the statutory text and case law interpreting this term.
[3] Unsafe or Unsound Practices, Matters Requiring Attention, 90 Fed. Reg. 48,835, 48,840 (Oct. 30, 2025) (hereinafter, “Proposed Rule”).
