Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—Fed issues updated statement of Supervisory Operating Principles, (May 4, 2026)

By Joe Cox, J.D.

These principles continue a trend in November’s most recent update of a supervisory focus on material financial risk rather than processes, procedures, or documentation.

The Federal Reserve Board has issued an updated statement of supervisory operating principles. The statement followed a November 2025 update and continues on the same path of significant change. (See Banking and Finance Law Daily, Nov. 18, 2025). In fact, the statement itself terms the changes “a significant shift from past operating practices.” The statement further cautions supervisory staff “should not assume that our current or past operating practices should continue going forward” but instead should consider alignment with the updated standards “and, more broadly, with the overall shift in direction and posture.”

Updated Supervisory Principles. The two primary objectives of supervision are now 1) identify as early as possible significant threats to the safety and soundness of a Board-supervised banking organization and to U.S. financial stability and any violation of law or regulation, and 2) encourage or direct each Board-supervised banking organization to take appropriate, proportionate action to eliminate or mitigate those threats and violations as promptly as possible.

The statement directs that examiners and supervisory staff should prioritize their attention to a bank or firm’s material financial risks and “should not become distracted from this priority by devoting excessive attention to processes, procedures, and documentation that do not pose a material risk to a firm’s safety and soundness.” Additionally, shortcomings which do not rise to the level of a matter requiring attention (MRA) or matter requiring immediate attention (MRIA) are to be handled by making nonbinding supervisory observations.

The directives also indicate that examiners should work to the fullest extent possible with the state banking agency and where possible, rely on their examinations or supervisory work. Fed staff are not to conduct their own examinations unless it is not reasonably possible to rely on the state supervisory work or examinations.

Additionally, examiners and supervisory staff are directed to avoid duplicative validations of whether a firm has remedied an MRA or MRIA unless the firm’s internal audits are flawed. Further, examiners are directed to not delay termination of an MRA or MRIA and not to wait to validate whether a remediation is sustainable over time.

Among the other provisions of the statement are a disfavoring of horizontal reviews and a need for consistency between supervisory criticisms communicated in a communicated in a final exit meeting and then in a written report.

MRA and MRIA documentation can not contain vague or overbroad language but must be written in plain language and with sufficient specificity that a typical bank employee can understand the deficiency. Additionally, it is a priority that the MRA or MRIAs should be limited to deficiencies with a material impact on a firm’s financial condition and not to procedural or documentary deficiencies that do not materially impact safety and soundness of the institution. Further, if a banking organization finds a deficiency that would otherwise necessitate an MRA or MRIA, but starts remediating the deficiency, that action will be treated as presumptively giving rise to a supervisory observation rather than an MRA or MRIA.

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