Maryland Legal Alert for Financial Services
Federal Banking Regulators Issue Final Rule to Narrow Supervisory Focus to Material Financial Risk
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are adopting a final rule to issue new standards under section 8 of the Federal Deposit Insurance (FDI) Act. The rule introduces the agencies' first regulatory definition of “unsafe or unsound practice” and establishes stricter thresholds for issuing matters requiring attention (MRAs) and supervisory communications. The final rule, effective November 2, 2026, will fundamentally reshape how federal examiners identify and address problems at supervised institutions by requiring examiners to prioritize material financial risks over concerns related to policies, process, documentation, and other nonfinancial risks.
Section 8 already included the term “unsafe or unsound practice” for purposes of enforcement authority but the statute failed to define the term. Defining the term will provide clear uniform regulatory standards nationwide. The OCC and the FDIC define an unsafe or unsound practice as an act, practice, or failure to act that is (1) contrary to generally accepted standards of prudent operation; and (2) likely to materially harm the institution's financial condition if continued or present a material risk of loss to the Deposit Insurance Fund.
The MRA standard differs from the unsafe or unsound practice definition in two ways. The MRA standard requires that material harm be “reasonably expected” under current or reasonably foreseeable conditions, which provides a slightly lower standard. Additionally, agencies may issue an MRA for an actual violation of a banking law or regulation. MRAs will be issued only for substantive violations, including for patterns or systemic violations, violations with more than minimal adverse impact, requiring more than minimal restitution, or involving insider misconduct or self-dealing.
The final rule clarifies that material harm to an institution’s financial condition refers to financial losses, bank failures, and instability in the banking system. This definition excludes risks to an institution's reputation unrelated to financial conditions. The agencies also expanded their explanations of what constitutes "financial condition" and how they will apply materiality standards differently across institution types. For example, the OCC may escalate formal enforcement against large or complex institutions based on practices that would not trigger similar action against community banks.
Agencies expect fewer MRAs overall as a result of the final rule. The FDIC reviewed existing supervisory criticisms and determined that a "large majority" of outstanding MRAs do not meet the new materiality standards. Those matters are being closed, while certain unresolved findings that satisfy the threshold are being elevated to MRA status. The final rule also removed institution-affiliated parties from its scope.
This rule will bring certainty to bank examination and supervision while ensuring that attention is focused on material financial risks. Banks should also expect fewer MRAs overall, with those issued focusing on practices that pose material financial risk.
The Federal Reserve has thus far chosen not to adopt the uniform standards established by the FDIC and OCC.
Practice Pointer: Institutions should audit their risk management protocols against the updated enforcement and supervisory manuals to ensure internal thresholds align with the regulators' new, objective criteria.
For more information about this topic, please contact Christopher R. Rahl, and Peri L. Schuster.