Coverage: weekly note · Information to 31 August 2026
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TGB Weekly Research Note · 31 August 2026
The OCC and the FDIC have written a materiality test into the definition of an unsafe or unsound practice and the standard for Matters Requiring Attention, as the ECB also cuts back low-severity findings.
The desk view
On 27 August 2026 the OCC and the FDIC adopted a final rule that defines an unsafe or unsound practice by reference to likely material harm to a bank's financial condition or a material risk of loss to the Deposit Insurance Fund. Matters Requiring Attention (MRAs) follow a parallel materiality test, and lesser weaknesses become informal supervisory observations. Europe is moving the same way through the ECB's tiered approach to findings. Our view is that the reset will be judged less by how many findings disappear than by whether supervisors still act early on risks that prove material.
What the final rule changes
The rule finalises a proposal published on 30 October 2025, on which the agencies received 36 comments. An unsafe or unsound practice must be contrary to generally accepted standards of prudent operation and, if continued, likely to materially harm the institution's financial condition or present a material risk of loss to the Deposit Insurance Fund, or have already caused such harm. Harm is measured against capital, asset quality, earnings, liquidity or sensitivity to market risk.
An MRA may be issued only where a practice could reasonably be expected, under current or reasonably foreseeable conditions, to cause that harm, or for an actual violation of a banking or banking-related law. Weaknesses below that line become supervisory observations, with no expectation of board presentation or corrective action. A bank's mere failure to remediate an MRA does not, under the final rule, constitute an unsafe or unsound practice. As the risk attached to a bank's complexity, activities and asset size rises, the materiality threshold falls. Compared with the proposal, the final rule removes institution-affiliated parties from scope and creates a category of "other" violations that may not rise to an MRA. It takes effect 60 days after publication in the Federal Register.