Earlier this month, the US Federal Reserve Board proposed changes to how it assigns ratings to large banks, potentially reducing the weight of governance and control deficiencies in determining whether a firm is "well managed."
The ratings system is based upon three components: governance, capital, and liquidity. Each of these components can be rated as: broadly meets expectations, conditionally meets expectations, deficient-1, or deficient-2. Today, being rated deficient-1 in any of the three components precludes a firm from being deemed "well managed." The proposal would allow a firm to maintain a "well-managed" designation if it is rated deficient-1 in just one of the three categories.
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