Statement of Supervisory Operating Principles
Change Analysis Tool

Codifying the primary objectives at the document's outset creates a legal and supervisory anchor point. The explicit reference to "U.S. financial stability" as a co-equal objective alongside safety and soundness of individual firms signals that macro-prudential considerations are built into the framework—not merely implicated. This mirrors the dual mandate structure and will govern how examiners frame escalation decisions going forward.

This is the foundational mechanic behind several other changes. By reversing SR 13-13's elimination of supervisory observations, the Fed re-establishes a graduated finding category between "no issue" and a binding MRA/MRIA. That category is precisely what the self-identification safe harbor relies on — self-disclosed deficiencies are "presumptively treated as giving rise to a supervisory observation rather than an MRA or MRIA." It also gives examiners a lower-stakes channel for process or documentation concerns that don't meet the new material-harm threshold, supporting the broader shift away from elevating every shortcoming to a formal finding. Watch for the actual SR 13-13 amendment as the operative implementing action.

This is the most consequential change for state-federal coordination, and the direction matters. On its face, "impossible" → "not reasonably possible" lowers the bar for the Fed to run its own exam — i.e., it grants the Fed more latitude, not less. The genuinely state-protective element is the new sentence that the standard is "not met simply because we might do examinations differently," which forecloses the Fed's prior ability to manufacture a reliance exception out of mere methodological disagreement. Net effect for CSBS members: the threshold itself is slightly less deferential, but the methodological-disagreement guardrail and the explicit "timely access to all supervisory information" trigger are the real operative levers. States that share comprehensively and promptly are well protected; states with statutory confidentiality limits on certain materials face real exposure to triggering independent Fed examination.

The original provision was binary: satisfactory rating = rely on internal audit; unsatisfactory = duplicate. The update introduces a third trigger (internal audit hasn't yet completed a validation) and refines the verb from "rely on" to "assess and, if satisfactory, rely on"—inserting a formal review step. This is a meaningful procedural refinement that retains examiner judgment while preventing reflexive duplication. The "effectiveness" language also elevates the standard beyond a formal rating.

The original language was vague ("hold the firm accountable"). The update specifies the mechanism: a new MRA/MRIA or escalation to enforcement action. This creates a cleaner process that avoids open-ended supervisory limbo while preserving accountability. Banks now have clearer path to termination without fear of perpetual monitoring, but also clear consequence if issues resurface.

The replacement of "LISCC" (Large Institution Supervision Coordinating Committee) with "GSIB" retires the dedicated LISCC portfolio label in favor of the Basel designation. The public record supports a move away from the LISCC coordinating overlay — the Fed published the LISCC Operating Manual in December 2025 and signaled further administrative-manual releases — but stops short of confirming a formal abolition of the program structure, so this is best read as a relabeling consistent with that direction rather than a documented dissolution. Substantively, the horizontal-review restriction (and its "Deputy Director determines benefits outweigh costs" trigger) was already present in the October 2025 text; the significance here is structural, not operational.

Two related liquidity provisions. The FHLB carve-out ("unless required by law or regulation") is a modest legal clarification preserving examiner authority where statutory or regulatory requirements (LCR, NSFR) mandate different treatment of contingent funding sources. The companion discount-window provision is the more consequential of the two: barring examiners from requiring asset prepositioning as a condition of future discount-window access pushes back directly on post-2023 supervisory expectations around discount-window readiness, a live debate since the SVB and regional-bank stress episodes. It signals the Fed will not use supervisory leverage to compel prepositioning, even as it continues to encourage operational readiness.

"Person of ordinary intelligence" is a due process standard borrowed from constitutional vagueness doctrine. "Typical bank employee" is industry-specific and more contextually demanding—it assumes domain knowledge and sets the clarity bar in the context of regulated entities. The explicit addition of "plain language" as a standalone requirement signals this is not merely about technical sufficiency but about accessible, actionable communication. This may reduce litigation risk around vague MRAs while also raising the quality bar for examiners.

This is the most technically significant provision in the updated statement. The update delivers a two-tiered probability-severity framework: "significant harm" for MRAs/MRIAs vs. "abnormal harm" for enforcement actions, with "abnormal" defined as substantially higher than normal. The quantitative tests—less than well-capitalized, or significant cash outflow—provide bright-line anchors. Equally important is the procedural overlay: the "good faith / sufficient evidence that the estimate is plausible" standard imposes a quasi-evidentiary burden on examiners that is distinct from the substantive thresholds. That plausibility requirement, not just the harm tiers, is the operative hook for how findings will be challenged and defended on appeal. Together they mark a fundamental shift from qualitative examiner discretion toward a quasi-quantitative, burden-of-proof model.

This provision addresses a longstanding industry complaint: findings that appear or expand in written reports without having been raised in the exit meeting, leaving institutions unable to respond before the record is set. The requirement creates a procedural transparency obligation and reduces the risk of surprise post-examination findings. It also effectively limits the ability of senior reviewers to add findings after the fact without re-engaging the institution.

Under prior practice, the "M" (Management) component in CAMELS often served as a mechanism to downgrade composite ratings even when financial metrics were sound—a point of significant industry frustration, particularly for well-capitalized institutions subject to aggressive enforcement actions driven by governance criticism. This provision directly constrains that practice, requiring composite ratings to reflect the weighted materiality of all components. This has direct implications for enforcement action thresholds, dividend restrictions, and acquisition approvals that are triggered by composite ratings.

This is a significant incentive for proactive risk management and transparency. The provision creates a structural reward for banks that find and fix their own problems before examiners do. This is particularly consequential for the interaction between internal audit, compliance programs, and the examination cycle. Banks with robust self-assessment functions will now have a tangible regulatory benefit. The "presumptively" qualifier preserves examiner discretion to override in exceptional cases, maintaining flexibility without eliminating the incentive structure.

This is a novel accountability mechanism with no real precedent in Federal Reserve supervisory guidance. It effectively creates a feedback loop in which supervised institutions can escalate examiner conduct that deviates from stated principles—without having to resort to formal appeals or political channels. This has dual significance: it creates soft accountability pressure on examiners, and it signals that the Board views the operating principles as binding internal policy rather than mere aspirational guidance.

The Fed's text cites "12 U.S.C. 1823 note." That citation is reproduced faithfully here — but note the precision point: the statutory least-cost resolution requirement is codified at 12 U.S.C. 1823(c)(4), whereas a "note" to §1823 refers to uncodified material printed after the section. So the provision anchors supervisory behavior to the FDIC's resolution framework and the cost-minimization principle generally, rather than squarely to the least-cost test in (c)(4); read the citation as the Fed wrote it and don't equate it with (c)(4). Substantively, the provision signals concern about prolonged forbearance — requiring supervisors to move toward resolution rather than extend hope for recovery — and could affect how the Fed treats institutions in extended MOU or consent-order situations.

This provision is directional rather than immediately operational—a mandate to invest in supervisory analytics and early-warning systems. In context with the VCS Bowman focus on identifying risks "as early as possible," this foreshadows potential changes to off-site monitoring programs and supervisory stress testing methodologies. It may also relate to the quantitative tests for "significant harm" noted in the MRA/MRIA standard, which are explicitly described as still under development.

The resolution of the placeholder language is itself significant. The five-month gap between the original and updated statements gave industry, staff, and outside counsel time to anticipate and prepare for substantive changes. The resulting "abnormal harm" standard goes further than many expected—introducing a quasi-quantitative burden-of-proof framework that fundamentally changes how enforcement actions must be justified and documented.