Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—Fed’s OIG flags slow large-bank remediation validation, (Jul 24, 2026)
Five of the six reviewed horizontal findings were closed several months after institutions submitted remediation materials, a lag tied to risks that unresolved problems may persist and worsen.
The Office of Inspector General (OIG) for the Federal Reserve Board found in a July 22 evaluation that supervisory staff waited several months to finalize the validation of most reviewed horizontal supervisory findings for large and foreign banking organizations (LFBOs), even after the institutions submitted remediation materials (Evaluation Report 2026-SR-B-011 (July 22, 2026)). The OIG made no recommendations because the Fed’s Division of Supervision and Regulation (S&R) changed its LFBO supervisory approach, including by narrowing the instances when staff can independently validate remediation. Notwithstanding, the report cautioned that incomplete or ineffective fixes can persist and worsen when validation lags.
The OIG evaluation tested a follow-up for 15 judgmentally selected supervisory findings across 13 LFBOs. The review covered safety and soundness findings issued from Jan. 1, 2023, through Dec. 31, 2024, to LFBOs with over $100 billion in consolidated assets. Six of the selected findings came from horizontal reviews, and the OIG’s timeliness concern centered on that subset.
For the horizontal findings, supervisory staff closed five of the six several months after receiving remediation materials. S&R guidance did not set a deadline for closing supervisory findings, but the OIG said several-month delays after submission were untimely. The OIG primarily attributed the delays to staff waiting until the next annual horizontal review before finalizing remediation reviews.
According to the report, the timing issue is related to a changed supervisory model. In October 2025, S&R issued a Statement of Supervisory Operating Principles across Federal Reserve supervisory portfolios, including the LFBO portfolio. Under these principles, staff should not conduct horizontal reviews unless S&R’s deputy director of supervision determines that the safety and soundness or U.S. financial stability benefits outweigh the costs, the report said. Staff also should validate whether an institution fully remediated a finding only when the institution’s internal audit function has been rated unsatisfactory.
When an LFBO’s internal audit function is deemed effective, supervisory staff will still review validation packages for scope and quality, but generally will not conduct their own validation, the OIG determined. The Federal Reserve Board is considering whether its current internal audit assessment guidance remains appropriate, and the OIG said more frequent assessments should be considered given the increased reliance on internal audit.
The OIG also identified a management consideration involving OASIS, the tracking and reporting system for supervisory findings and follow-up work. Supervisory staff reported manual workarounds and difficulty querying information to determine remediation timeliness. The OIG said the Fed should assess and consider improvements to OASIS tracking and reporting capabilities to better support finding follow-up.
Because S&R had already changed its supervisory approach, the OIG did not issue recommendations. The Fed chose not to provide an official management response, and the OIG said it may consider a future review of the internal-audit reliance model.
RegulatoryActivity: BankingOperations FederalReserveSystem FinancialStability OversightInvestigations PrudentialRegulation