The Federal Reserve is considering modifying the "satisfactory" rating criteria for large banks.

The Federal Reserve is considering modifying its "satisfactory" regulatory rating system for large banks. Currently, public feedback is being sought on the proposal. The framework rates banks based on three categories - capital, liquidity, and governance and controls. Each category has four possible ratings - meet expectations, conditionally meet expectations, deficient-1, and deficient-2. The Federal Reserve's proposal would adjust the framework to specify that as long as a bank has no more than one "deficient-1" rating, it can be considered "satisfactory". Banks that receive a "deficient-2" rating in any category will still be considered unsatisfactory. The Federal Reserve is also proposing similar adjustments to its regulatory rating framework for insurance companies. In addition, it will evaluate other changes, including incorporating an overall rating in both frameworks, and modifying other regulatory rating systems. Vice Chair Bowman, responsible for supervisory work at the Federal Reserve, stated that although large financial institutions have capital and liquidity levels far above regulatory requirements, nearly two-thirds of such institutions have poor management under the current framework. She added, "This proposal will more comprehensively assess a company's overall condition, thereby playing a greater role in determining whether its management is adequate." However, Federal Reserve Governor Tarullo (former Fed regulatory official) opposes this proposal, as he believes it will weaken regulatory oversight of large banks and reduce their incentive to address serious problems. He warned, "Struggling companies will be allowed to engage in activities that only healthy companies should engage in, increasing the risks faced by individual banks, consumers, and the entire financial system."