On November 18, 2025, the Federal Reserve Board (FRB) released a Statement of Supervisory Operating Principles outlining a significant shift in their supervisory principles. The stated goal of these changes is to strengthen supervision by prioritizing earlier, timely, and proportionate action to address the most important risks to the safety and soundness of banks and to the U.S. financial system. Supervisory staff at the FRB, as well as the Federal Reserve Banks, are instructed not to assume that past operational practices will continue, rather, they should actively realign work, conclusions, and messaging to conform with this new direction.
Financial institutions should treat this as both an operational and cultural cue: expect the FRB to concentrate on financial risks that may materially impact safety and soundness and only secondarily on processes, procedures, and documentation. Below, we dive into key topics for consideration.
Focus on Material Financial Risks and Reasoned Judgment
Examiners are reminded that their fundamental responsibility is promoting the safe and sound operation of banks and the stability of the U.S. financial system. Examiners are encouraged to apply reasoned judgment. If a matter arises that could pose a material financial risk and existing supervisory tools aren’t sufficient, the issue should be escalated.
Prioritization of Supervisory Attention
Examiners should prioritize attention to a firm’s material financial risks and not become distracted by lower-risk issues, like process or documentation deficiencies that don’t directly threaten safety and soundness. Additionally, the FRB will amend its existing supervisory guidance (SR 13-13) to reverse its prior elimination of “supervisory observations.” Under the new approach, non-binding supervisory observations may be used when issues do not rise to the level of Matters Requiring Attention (MRAs) or Matters Requiring Immediate Attention (MRIAs).
Reliance on Primary Supervisors and Resource-Allocation by Complexity
For bank holding companies, savings & loan holding companies, and U.S. operations of foreign banks, the FRB will rely to the maximum extent possible on the examination work of the firm’s primary state or federal depository supervisor. In addition, the FRB will tailor supervision based on the size, complexity, and systemic importance of the organization, assigning more resources to large, complex & more systemic firms & fewer resources to smaller, less complex, and less systemic institutions.
Joint Work with State Supervisors
When the FRB is the primary federal supervisor for a state-member bank, examiners should work jointly with the state banking agency. For state-member banks eligible for the alternate-year examination program (AEP), the FRB will rely as much as possible on the state agency’s work in alternate years.
Termination of MRAs/MRIAs and Post-Remediation Monitoring
The FRB is changing how it determines whether MRAs or MRIAs can be terminated. Examiners should not duplicate validations of remediation conducted by an institution’s internal audit, unless internal audit is rated “unsatisfactory.” Instead, they should rely on the institution’s internal audit for validation. Examiners should not delay terminations of an MRA or MRIA when the deficiency has been fully remediated. Examiners should monitor the remediation post-termination for sustainability rather than delaying termination for extended testing.
Horizontal Reviews Limited
For firms subject to the FRB’s Large Institution Supervision Coordinating Committee (LISCC) and Large and Foreign Banking Organization (LFBO) portfolios, horizontal reviews will no longer be programmatically undertaken. Horizontal reviews will only be conducted if the Deputy Director of Supervision determines the benefits to safety and soundness or system stability outweigh their cost. Further, the results of horizontal reviews will be evaluated against supervisory expectations and not against peer best practices. The results of the horizontal reviews will be confidentially disclosed to participating firms.
Liquidity Assumptions and the FHLB/Discount Window
Examiners should not discourage institutions from using liquidity from the Federal Home Loan Banks (FHLBs) in their internal liquidity stress testing or risk management. Additionally, institutions should not be required to pre-position assets at the Federal Reserve Bank Discount Window as a condition for future borrowings.
Supervisory ratings and MRA and MRIA issuance
Supervisory ratings must accurately reflect an institution’s financial condition and material financial risks. The “Management” and Risk Management components of CAMELS and RFI/C (D) ratings, respectively, should not be automatically given more weight than other components. Instead, all component ratings should be considered relative to their materiality.
The standard for issuing MRAs and MRIAs will also change. Going forward, emphasis will be placed on deficiencies that could have a material impact on the firm’s financial condition rather than procedural/documentation shortfalls that don’t threaten an institution’s safety and soundness.
Examiners must also communicate MRAs and MRIAs in sufficiently specific language such that a person without in-depth knowledge of banking operations can easily understand both the deficiency and the target “non-deficient” state. Examiners should engage in meaningful dialogue with institutions when issues arise and promptly respond to an institution’s questions to provide clarity when requested.
Next Steps
The principles provide an outline of broad changes to the conduct of supervision. The goal of these changes is to strengthen supervision by focusing on identifying and mitigating the most important risks threatening the safety and soundness of institutions. For institutions, this may represent a significant shift away from practices that have leaned on procedural tasks. While this update may lead to fewer reviews or a lighter touch in certain areas, institutions must remain vigilant in their governance and oversight efforts. In addition, internal audit will carry more weight in validating the remediation of MRAs or MRIAs, increasing the importance of a well-developed internal audit program.
In the heavily regulated banking industry, financial services leaders face more challenges than ever, from striving to meet shareholder and regulatory expectations to pursuing digital innovation. Forvis Mazars can help your financial institution tackle issues inherent to the industry, including market growth, internal control threats, industry consolidation, and compliance. We have the skills and experience in financial services that you can trust, combining a focus on Unmatched Client Experience® with the resources of a global firm. Serving you is our passion and privilege.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.