In a letter sent last week, US Senator Elizabeth Warren urged Michelle Bowman, Vice Chair for Supervision of the Federal Reserve Board, to withdraw proposed reforms to the supervisory ratings framework for large banks.
Warren argued that the proposal would allow banks with serious managerial, capital, liquidity, or governance deficiencies to still be deemed “well managed,” thereby inflating ratings instead of addressing risks. She noted that 23 of 36 large banks are currently not rated “well managed." Instead of correcting these deficiencies, Warren alleged, the Fed is relaxing standards. However, Bowman has argued that the current ratings system is not aligned with overall bank soundness, with large banks rated as not "well managed" despite strong capital and liquidity positions.
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