The Federal Reserve is considering significant changes to its supervision framework for large banks, potentially easing restrictions on mergers and acquisitions. Currently, a bank must receive a "well managed" rating to pursue such activities. Under the proposed changes, a bank would need deficiencies in multiple supervisory categories—or a single "deficient-2" rating—to lose this status.
This adjustment could benefit about two-thirds of banks with over $100 billion in assets that are currently restricted from pursuing acquisitions due to poor ratings, even if their capital and liquidity levels are strong. Eight banks would see their ratings improve under the proposed rules.
The Fed's Vice Chair for Supervision, Michelle Bowman, supports the changes, arguing they better align ratings with banks' true financial health. However, Fed Governor Michael Barr opposes the move, warning it could weaken oversight and heighten financial risk by allowing poorly managed firms to expand through acquisitions.
The Fed may also consider future updates, such as introducing an overall composite rating for banks. The proposed changes are part of a broader effort to reassess and potentially reform the Fed's approach to bank supervision and regulation.