Banking and Finance Law Daily Wrap Up, PRUDENTIAL REGULATION—ICBA, CBA weigh in on unsafe and unsound practices proposal, (Jan 7, 2026)

By Joe Cox, J.D.

Both groups generally supported the proposed rule, but each offered some possible refinements.

The Independent Community Bankers of America (ICBA) and the Consumer Bankers Association (CBA) each penned a comment letter in regard to the proposed rule issued by the Office of the Comptroller of Currency and Federal Deposit Insurance Corporation that would clarify the definition of unsafe and unsounds practices. While both banking groups supported the rule generally, each offered some specific revisions for consideration in the finalization of the proposed rule.

Rule history. The OCC and FDIC issued a joint notice of proposed rulemaking in October, which sought to define “unsafe or unsound practice” under the Federal Deposit Insurance Act. The underlying purpose of the rule, as noted then by FDIC Acting Chair Travis Hill, was shifting supervisory focus away from process and onto material financial risks. Another factor in the proposed rule was that a lack of clarity in the process of defining “Matters Requiring Attention” (MRAs) created inconsistencies across agencies.

Centrally, the rule proposed to define unsafe or unsound practice as “a practice, act, or failure to act, in any combination with other conduct, that is contrary to generally accepted standards of prudent operation and has materially harmed the institution’s financial condition or is likely to cause material harm or present a material risk of Deposit Insurance Fund (DIF) loss.” Additionally, the rule seeks to establish uniform standards for MRAs and limits MRA issuance to instances of an actual violation of a banking or banking-related law or regulation, or acts contrary to generally accepted standards of prudent operation which has already caused material harm to institution financial condition or is foreseeably likely to cause material harm or material risk of loss to the DIF (see Banking and Finance Law Daily, Oct. 8, 2025).

ICBA letter. In its letter, the ICBA noted that it was “supportive of the Agencies’ efforts to bring greater transparency and accountability to the supervisory process.” The ICBA asked the OCC and FDIC to clarify definitions and standards to provide a more consistent understanding and “avoid rigid quantitative thresholds that would unduly limit the appropriate exercise of judgment by supervisory staff.” Additionally, the ICBA asked the agencies to include a discussion of tailoring in the final rule, to avoid unintended constraints on MRAs to allow emergency risks to be addressed, to tailor the rule to satisfy administrative requirements, and to coordinate this effort with the Federal Reserve Board to align requirements across all federal banking regulators and to ensure consistent treatment for all banking institutions.

More specifically, the ICBA wanted clarity on the term “generally accepted standards of prudent operations” in the definition of unsafe or unsound practices, as well as in the term “likely” to cause material harm. The ICBA indicated that it was trying to avoid quantitative measures and obtain a fuller definition avoiding unnecessary supervision.

CBA letter. The CBA’s letter also applauds the proposed rule as “a significant and constructive modernization of the supervisory framework.” Vice President and Associate General Counsel Rachel Ross further writes, “By clearly defining when supervisory action is warranted and ensuring that expectations are risk-based and appropriately tailored, the rule will enhance the effectiveness of supervision and support strong, resilient banking institutions.”

Among the elements of the proposed rule drawing praise from the CBA were the establishment of uniform criteria for issuance of MRAs and the emphasis of tailoring supervisory expectations to the specific institution in question. The CBA additionally proposed issuance of FAQs and supervisory guidance giving examples of “generally accepted standards of prudent observation.” The letter also requests that all open MRAs be reviewed under the newly adopted standards to determine if they should be downgraded or closed.

Other reactions. It is worth noting that the banking institutions’ comments and support run counter to letters recently penned from consumer-based entitles (see Banking and Finance Law Daily, Jan. 5, 2026, and Jan. 6, 2026). The concerns generally arise from an expectation that the new rule will curtail supervision and could bring about financial crisis by shifting from a forward-looking analysis.

Companies: American Bankers Association; Bank Policy Institute; Better Markets; Consumer Bankers Association; Independent Community Bankers of America

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