New Supervisory Rating System for Large Banking Organizations: Federal Reserve Establishes a New Rating System for the Supervision of Large Financial Institutions

Sullivan & Cromwell LLP - November 5, 2018
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On November 2, the Board of Governors of the Federal Reserve System (the FRB) issued a final rule (the Final Rule) that establishes a new rating system for the supervision of large financial institutions (LFIs). The LFI rating system applies to all bank holding companies with total consolidated assets of $100 billion or more; all non-insurance, non-commercial savings and loan holding companies with total consolidated assets of $100 billion or more; and all U.S. intermediate holding companies of foreign banking organizations with total consolidated assets of $50 billion or more.  The LFI rating system is designed to align with the FRB’s existing supervisory program for LFIs,  enhance the clarity and consistency of supervisory assessments, and provide greater transparency regarding the consequences of a given rating. For LFIs, the new rating system replaces the RFI/C(D) rating system currently used by the FRB for holding companies of all sizes.

The LFI rating system includes a new four-level rating scale and three component ratings. The four levels are: Broadly Meets Expectations; Conditionally Meets Expectations; Deficient-1; and Deficient-2.  The component ratings are assigned for: Capital Planning and Positions; Liquidity Risk Management and Positions; and Governance and Controls. Unlike the RFI/C(D) system, the LFI rating system does not include a standalone composite rating.

The FRB will assign initial ratings under the new rating system in 2019 for those bank holding companies and U.S. intermediate holding companies that are subject to the Large Institution Supervision Coordinating Committee (LISCC) framework  and in 2020 for all other LFIs.