The Federal Reserve on 5 November 2025 finalised changes to its supervisory rating framework for large financial institutions, updating the methodology used to assess the overall condition of large bank holding companies and placing greater emphasis on quantifiable metrics covering capital adequacy, liquidity positions, and governance standards. The revisions were announced in a press release published on the Federal Reserve Board's website and take effect under the Board's existing supervisory authority.
The revised framework reduces the degree to which supervisory ratings are tied to subjective risk assessments, moving instead toward a more structured set of criteria that can be applied consistently across the population of large institutions subject to the Fed's oversight. The change reflects a broader shift in supervisory philosophy toward transparency and predictability in how ratings are determined and what consequences flow from different rating outcomes.
CAPITAL AND LIQUIDITY METRICS TAKE CENTRE STAGE
Under the updated methodology, capital and liquidity metrics assume a more prominent role in the overall rating determination. Both dimensions have been central to the Federal Reserve's post-crisis supervisory agenda since the introduction of enhanced prudential standards under the Dodd-Frank Act, and their formalised weighting within the rating framework reflects lessons drawn from episodes in which institutions with apparently robust business models encountered severe stress when capital or liquidity buffers proved insufficient under adverse conditions.
Governance is also elevated as an explicit component of the rating framework, acknowledging that weaknesses in board oversight, risk management culture, and internal controls have featured in a number of high-profile bank failures and near-failures in recent years. By embedding governance more directly into the rating structure, the Fed signals that supervisory assessments will scrutinise the quality of institutional decision-making processes and not simply the numerical outputs of balance sheet and income statement metrics.
The reduction in reliance on subjective risk assessments is intended to make ratings more reproducible and comparable across similarly situated institutions, and to limit the potential for assessor discretion to generate inconsistent outcomes. Predictability in supervisory methodology is considered an important feature for large banking organisations that must integrate supervisory expectations into their own capital planning, stress testing, and strategic decision-making processes.
IMPLICATIONS FOR LARGE BANK HOLDING COMPANIES
The framework applies to large bank holding companies supervised by the Federal Reserve, a category that encompasses the major domestic and foreign banking organisations with significant US operations. These institutions are already subject to the annual Comprehensive Capital Analysis and Review stress testing process, the enhanced prudential standards applicable above various asset-size thresholds, and a range of other heightened supervisory requirements that distinguish their regulatory treatment from that of community and regional banks.
The finalised changes do not alter the capital or liquidity requirements themselves, but the ratings produced under the new methodology carry material consequences. A weaker supervisory rating can trigger heightened examination intensity, supervisory restrictions on business activities, and limitations on capital distributions such as dividends and share repurchase programmes — actions that have direct implications for shareholder returns and strategic flexibility.
The announcement comes as the Federal Reserve has been engaged in a broader review of its large-bank supervision framework, a process that has involved significant engagement with the banking industry and with Congress. The finalisation of the rating methodology represents one component of that broader effort to clarify and modernise supervisory practices for the largest and most systemically important institutions in the US financial system.