The Federal Reserve Board on 5 November 2025 finalised changes to its supervisory rating framework for large bank holding companies, allowing a firm with no more than one deficient-1 component rating to be considered well managed. The final framework is substantially similar to the proposal the Board issued in July.
The Board said the revisions more accurately reflect the strength of individual banks and better align the framework with the supervisory rating systems used for other banking organisations.
THREE COMPONENTS, FOUR RATINGS
The large financial institution rating framework, introduced in 2018, evaluates whether firms have sufficient financial and operational strength and resilience to maintain safe-and-sound operations and comply with laws and regulations through a range of conditions. It has three components: capital, liquidity, and governance and controls. Each component is assigned one of four ratings: broadly meets expectations, conditionally meets expectations, deficient-1 or deficient-2.
Consistent with the previous framework, a firm with a deficient-2 rating for any component will continue to be considered not well managed. Firms that are not well managed face limitations on certain activities and acquisitions.
“Bank ratings should reflect overall safety and soundness, not just isolated deficiencies in a single component,” said Michelle W. Bowman, the Fed's Vice Chair for Supervision. “These framework changes address this by helping to ensure that overall firm condition is the primary consideration in a bank's rating.”
INSURERS AND TIMING
The Board also finalised similar changes to its supervisory rating framework for insurance organisations it regulates. The revisions will take effect 60 days after publication in the Federal Register. Governor Michael Barr issued a separate statement on the Board's action.
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