Fed considering changes to what constitutes a well-managed' bank

The Federal Reserve is taking another step toward easing regulation for big financial institutions, this time changing the definition for a “well-managed” bank.

Under a proposal put up for comment Thursday, the Fed would allow banks with one “deficient” rating to still be considered well-managed. The ratings run across three criteria: capital, liquidity and governance and controls.

Rules released in 2018 say any deficiencies prevent banks from meeting the management standard, which in turn prevents from them certain activities such as making acquisitions.

“In this way, the proposal would provide greater recognition of a firm's overall condition in determining well-managed status,” Fed Vice Chair for Supervision Michelle Bowman said in a statement. “By addressing this mismatch between ratings and overall firm condition, the proposal adopts a pragmatic approach to determining whether a firm is well managed.”

However, the move drew an immediate rebuke from Bowman's predecessor, Michael Barr, who said the idea would weaken important safeguards.

“The current proposal would fundamentally change the long-established concept of well managed and would introduce greater risk to the banking system,” Barr said in a statement.

Governor Adriana Kugler also signaled apprehension about the move, saying she agrees there are problems with the current system but said there are “risks going too far in the other direction” with the new plan.

The proposal comes just a few weeks after the Fed approved new capital rules for big banks, which also drew objections from Barr and Kugler.