WASHINGTON — The American Bankers Association is urging federal bank regulators to sharply narrow when banks can be cited for “unsafe or unsound practices,” warning that vague standards risk inconsistent enforcement and unnecessary supervisory pressure on institutions.
In a Dec. 29 comment letter to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, the ABA said it supports regulators’ effort to formally define unsafe or unsound practices and clarify the standards for issuing Matters Requiring Attention (MRAs), but argued the final rule must be anchored to demonstrable, material financial harm, not technical or isolated issues..
The trade group recommended that regulators explicitly state that isolated, technical, or immaterial incidents do not qualify as unsafe or unsound practices, and that examiners be required to provide quantifiable evidence showing that material harm is “likely” or “reasonably foreseeable.” The ABA also said the final rule should tie materiality standards directly to existing case law, limiting enforcement actions to conduct that threatens an institution’s financial stability.
On MRAs, the ABA backed the proposed framework but urged regulators to require that violations of law be substantive rather than technical, and to prevent MRAs from being used to impose examiner preferences in the absence of material risk. The group also called for clearer limits on informal supervisory communications, including prohibitions on escalating such observations solely because a bank chooses not to act on them.
The ABA further asked regulators to address longstanding industry concerns by setting clearer standards for closing MRAs, conducting a one-time review of legacy MRAs that may not meet the new threshold, and providing examiner training to ensure consistent application of the rule across agencies. The letter said without those steps, the proposal’s stated goal of clarity and certainty could fall short in practice.