By Nupur Anand and Lananh Nguyen
NEW YORK (Reuters) -U.S. regulators are pulling back on some bank exams and the use of confidential disciplinary notices, a sign lenders are already benefiting from a softer touch under President Donald Trump’s administration, said more than half a dozen industry executives.
In recent months, the Office of the Comptroller of the Currency, the Federal Reserve, and the Consumer Financial Protection Bureau have postponed, scaled back or canceled bank exams. The new, lighter approach mostly applies to non-core banking issues, such as reputational risk, climate change risk, and diversity and inclusion, the people said.
Supervisors are also limiting the scope of exams — including some related to critical banking issues — by using more specific language at the outset to explain what they will assess and sticking more closely to examination rulebooks, three of the people said.
They are also taking a softer approach when instructing banks to fix problems, four sources said. Officials have long issued formal disciplinary letters known as “matters requiring attention” or “matters requiring immediate attention” warning banks to urgently address issues. Banks have complained the notices are frequently overly aggressive, both in number and tone.
Supervisors have begun leaning less on those official notices in favor of less formal communications aimed at steering banks to correct problems, the people said.
The changes are part of a broader effort by Trump’s regulators to focus supervision on key financial metrics that measure lenders’ safety and soundness, the seven sources said, although in some cases staff crunches caused by layoffs and a government hiring freeze have also forced regulators to pull back on exams, they said.
The people, who declined to be identified because supervision is confidential, said they mostly had knowledge of supervisory changes at big and mid-sized banks.
Democrats and many regulatory experts argue robust supervision should take a holistic view of bank risks. They also point out that supervisory failures were partly responsible for the collapse of three lenders in 2023. As a result, regulators began ratcheting up supervision later that year, Reuters reported at the time.
While Trump-appointed officials have pledged to overhaul supervision, which they say has drifted too far from core financial risk management, the process is confidential and officials have not released many details. The changes, which Reuters is reporting for the first time, shed more light on how that shake-up is quickly unfolding and lightening the load for lenders.
“The OCC is reexamining its supervisory approach to ensure it conforms to its statutory mission and reflects a risk tolerance enabling banks to support economic growth,” the OCC said in a statement to Reuters. The agency tailors oversight to a bank’s size, complexity, business model, and risk profile and “focuses on material financial risks,” the statement added.
A spokesperson for the Fed declined to comment. A CFPB spokesperson did not respond to requests for comment.
The Fed’s vice chair for supervision Michelle Bowman, a Trump appointee, said in June that she planned to take a “more sensible” approach to supervisory ratings, among other changes.
The central bank and other regulators announced earlier this year they would stop policing “reputational risk,” the potential for negative publicity to hurt a bank’s business.
The Trump administration has also made dramatic cuts to the CFPB’s staff and oversight footprint.
OPAQUE AND HOSTILE
Bank exams are the cornerstone of regulatory oversight. Examiners monitor lenders, perform onsite supervision and can instruct management to correct problems.
For decades, Fed and OCC exams focused on key metrics, including capital, liquidity and management competence. The CFPB, meanwhile, supervises financial firms to ensure compliance with federal consumer financial protections law.
In recent years, however, exams have expanded to include scrutiny of areas relating to environmental, social, and governance issues, as well as diversity, equity, and inclusion — factors banks had also begun considering when making lending and other business decisions. Banking regulators around the world have also increased scrutiny of lenders’ risk exposure to climate change.
Bank groups have for years complained that exams, which can be lengthy and labor-intensive, are overly subjective and opaque, too focused on process rather than risks, and that supervisors can be unduly hostile toward bank executives.
Big banks have argued official post-mortems show supervisors were distracted by non-core issues, which led them to miss fatal liquidity problems.
“It’s time to fight back,” JPMorgan Chase CEO Jamie Dimon said in October 2024 as he blasted several major regulatory initiatives.
Many banks are afraid to “fight with their regulators, because they would just come and punish you more,” Dimon said at the time. “We are suing our regulators over and over and over, because things are becoming unfair and unjust.”
(Reporting by Nupur Anand and Lananh Nguyen in New York and Pete Schroeder in Washington DC; additional reporting by Saeed Azhar. Editing by Michelle Price and Nick Zieminski)
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