OCC and FDIC finalize rule to define ‘unsafe or unsound practices’ in bank supervision

For decades, the phrase “unsafe or unsound practice” has been one of the most powerful, and most vague, tools in a bank regulator’s arsenal. On August 27, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation jointly published a final rule that gives that phrase an actual definition. The rule establishes that an “unsafe or unsound practice” must involve conduct that deviates from generally accepted prudent operational standards and has either already caused, or could reasonably cause, material financial harm to an institution or pose significant risk to the Deposit Insurance Fund. What the rule actually changes The final rule does three concrete things that reshape how the OCC and FDIC supervise the banks under their jurisdiction. First, it creates a uniform, risk-based definition tied to Section 8 of the Federal Deposit Insurance Act. That section gives regulators the authority to issue cease-and-desist orders, remove officers, and impose civil money penalties. Second, the rule overhauls how Matters Requiring Attention, commonly known as MRAs, get issued. Under the new framework, examiners can only issue MRAs for practices that meet the newly ...