On November 26th, the Board of Governors of the Federal Reserve System published its second annual ‘Supervision and Regulation Report.’  It shows that 45% of U.S. banks with more than $100 billion in assets have less than satisfactory supervisory ratings. 
According to the report, large financial institutions continue to remediate a significant number of adverse supervisory findings — matters requiring attention (MRAs) or matters requiring immediate attention (MRIAs).  But while it notes that the number of outstanding supervisory findings has decreased over the past year, the report doesn’t provide details on what these findings entail, which banks have supervisory problems, or how these challenges are being addressed.

Importantly, the report notes that “large financial institutions are in sound financial condition, although nonfinancial weaknesses remain.”  Across the globe, banks and other financial institutions struggle to manage non-financial risk successfully, regularly resulting in reputational damage, stock price impairment, regulatory enforcement action and career-ending punitive fines.  

There is a marked paucity of reliable metrics that successfully anticipate the appearance of these material risks.  This has poor consequences for risk governance, internally, and for forward-oriented supervision, externally.  It would therefore be helpful to have more meaningful insight into trends regarding: (1) the prevalence of non-financial risk across the financial system, (2) the form in which such risks most often manifest, and (3) the successful remediation of these risks.  We hope the Board of Governors will address these themes in future reports.

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