Board of Governors of the Federal Reserve System

A large financial institution's (LFI) management rating should be reflective of a holistic assessment by examiners. The proposal indicates that, under the current rating system, an LFI holding company may be considered not "well managed" because of "a discrete deficiency that does not necessarily reflect the overall condition of the firm." I agree that this is a problematic outcome. However, the proposal risks going too far in the other direction. Specifically, under the proposal, if examiners observe multiple deficiencies that fall within a single component rating the institution could still be considered "well managed" because the proposal does not include a composite rating to determine whether a bank is well managed. This would no more reflect a holistic assessment of the firm than the current framework does. I would favor developing a composite measure that fosters a more comprehensive assessment of an LFI firm to determine its "well managed" status. Question 5 in the proposal addresses this option and I will be paying close attention to comments addressing this topic.

The proposal also indicates that further changes to supervisory ratings systems may be considered in the near future. I expect that the Board will have the opportunity to consider any such proposed changes, as it has in the past. If any such proposal comes before the Board, I will carefully assess the net effects of all the changes made to ratings systems with a view to ensuring that any changes are appropriately calibrated in light of the Board's statutory mandates.