Proposal from FDIC and OCC Would Completely Destroy Bank Supervision

The phrase “Proposal from FDIC and OCC Would Completely Destroy Bank Supervision” refers to a sharp criticism of an October 2025 joint rule proposal by the FDIC and OCC that would narrow the definition of “unsafe or unsound practices” and tighten when examiners can issue supervisory criticisms called Matters Requiring Attention (MRAs). Critics argue that by legally constraining examiners in this way, the proposal would dramatically weaken federal oversight and allow emerging problems to go unaddressed until they threaten banks’ financial condition.​

What the FDIC–OCC proposal does

• The proposal would, for the first time, codify a formal definition of an unsafe or unsound practice under section 8 of the Federal Deposit Insurance Act, tying it to practices that create a reasonably foreseeable, material risk to a bank’s capital, asset quality, earnings, liquidity, market risk, or the Deposit Insurance Fund.​

• It would raise and standardize the bar for when examiners can issue MRAs, expecting them to focus on issues that could reasonably be expected to cause material financial loss rather than on process, documentation, or control weaknesses that have not yet produced clear financial deterioration.​

Elimination of “reputation risk” and debanking

• In a companion proposal, the agencies would formally remove “reputation risk” as a basis for supervisory criticism, barring examiners from taking adverse action against a bank solely because of potential public backlash not tied to concrete financial or operational risk.​

• The same package would prohibit regulators from requiring or encouraging banks to open, close, or modify customer relationships based on the customer’s political, social, cultural, or religious views or other lawful but politically disfavored activities, targeting so‑called “debanking” practices.​

Why critics say it would “destroy” supervision

• Legal and policy analysts note that by hard‑coding these standards into regulation, the FDIC and OCC would significantly limit examiners’ ability to act on early warning signs—such as weak controls, poor risk management, or governance failures—unless they are closely and demonstrably tied to imminent, material financial harm.​

• Commentators warn that supervisors could be effectively barred from addressing “tail risks” or problems in non‑core businesses until losses show up in capital or earnings, undermining the preventive, forward‑looking nature of modern bank supervision and making enforcement slower and more constrained.​

How supporters defend the proposal

• Supporters in industry and some legal commentators say the proposal simply refocuses supervision on measurable, material financial risks and reduces what they view as overuse of MRAs and subjective criticisms that burden banks without improving safety and soundness.​

• The agencies themselves state that the aim is to create clearer, more objective standards, promote consistency, and ensure that supervisory resources and bank compliance costs are directed at issues most likely to cause real losses or bank failures.​

What to watch next

• The proposal is at the notice‑and‑comment stage, with comments due 60 days after Federal Register publication, so banks, public‑interest groups, and state officials can still submit feedback and potentially influence the final rule.​

• Observers are watching whether the Federal Reserve joins or distances itself from this approach, how strongly public‑interest organizations and state regulators oppose it, and whether the final rule preserves more discretion for examiners to address emerging non‑financial and governance risks before they become material losses.​