The OCC and FDIC have finalised rules formally defining ‘unsafe and unsound’ banking practices in the US.
The move gives government examiners a defined standard to apply when assessing lender conduct, replacing what had previously been a more discretionary supervisory approach.
According to Reuters, the two agencies had first put forward the proposal in October, and their joint announcement marks the first occasion on which a US bank regulator has formally codified the criteria examiners should use to identify improper practices. Furthermore, according to the agencies, the definitions are intended to provide clarity and certainty during bank examinations, reducing ambiguity for both supervisors and the institutions they oversee.
The rules arrive as part of a broader effort by the current US administration to revise how banks are supervised. Regulatory leadership has argued that examiners have, in recent years, focused too heavily on minor or procedural issues rather than concentrating on core financial risks. The new definitions are positioned as a mechanism to refocus examination priorities accordingly.
Divergent regulatory pace
Notably, the Federal Reserve, which shares supervisory responsibility for US banks and oversees several of the country’s largest institutions, has not yet issued its own proposal defining unsafe or unsound practices. This leaves a gap between the standards applied by the OCC and FDIC and those that may eventually be adopted by the Fed, raising questions about consistency across the US banking supervision framework in the near term.
Implications for the banking sector
For banks supervised by the OCC and FDIC, the finalised definitions are expected to bring more predictability to the examination process, potentially reducing instances where lenders are cited for issues considered immaterial to overall financial soundness. Industry observers note that formalising these definitions could also influence how banks structure internal compliance and risk management functions going forward, as institutions look to align more precisely with the codified criteria rather than broader supervisory discretion.
The development is part of a wider pattern of regulatory recalibration in the US financial sector, with authorities reassessing the balance between rigorous oversight and operational flexibility for regulated institutions. Whether the Federal Reserve follows with a comparable proposal, and how closely it aligns with the OCC and FDIC framework, will be a key point to watch for banks operating across multiple regulatory jurisdictions.
