Financial Reform: Bank Supervision
link to page 1 
January 17, 2018
Financial Reform: Bank Supervision
Reforms to the bank supervision framework have been
Figure 1. The Bank Examination Cycle
proposed as part of the broader financial reform debate,
including in H.R. 10, which passed the House on June 8,
2017, and S. 2155, which was reported by committee on
December 18, 2017.
Background
Bank regulation has three distinct components: rulemaking
(the authority to implement rules with which banks must
comply); enforcement (the authority to take certain legal
actions, such as imposing fines, against an institution that
fails to comply with rules and laws); and supervision.
Source: Consumer Financial Protection Bureau.
Supervision refers to the authority of certain regulators—
the Federal Reserve (the Fed), the Office of the Comptroller
Policy Issues
of the Currency (OCC), the Federal Deposit Insurance
The 115th Congress is considering legislation to provide
Corporation (FDIC), the National Credit Union
“regulatory relief” for banks. Regulatory relief proposals,
Administration (NCUA), and the Consumer Financial
may involve a trade-off between reducing costs associated
Protection Bureau (CFPB)—to monitor and examine banks,
with regulatory burden and reducing benefits of regulation.
impose reporting requirements, and instruct banks to
modify behavior. Supervision enables regulators to ensure
Proponents of regulatory relief argue that certain
banks are in compliance with applicable laws and
regulations (including ones introduced in response to the
regulation and to evaluate and promote the safety and
2007-2009 financial crisis) are unduly burdensome,
soundness of individual banks (known as micro-prudential
meaning their costs do not justify the benefits. In the case of
supervision) and the banking or financial system as a whole
supervision, they contend the time and resources banks
(macro-prudential supervision). In addition, regulators
dedicate to complying with various examinations and
evaluate bank compliance with consumer protection and
reporting requirements hinder banks’ ability to provide
fair lending laws (consumer compliance supervision).
credit, restraining economic growth.
Subjecting banks to a supervisory program may also
promote public and market confidence in the banking
Opponents of relief generally believe the current regulatory
system.
structure strengthens financial stability and consumer
protections, which encourages economic growth. They
Regulators have complementary tools to achieve their
generally view supervisory actions as striking the
supervisory goals, as shown in Figure 1. They continuously
appropriate balances ensuring banks are well managed and
monitor banks, often using data banks are required to report
consumers are protected on one hand, while minimizing
and information gathered during previous examinations.
regulatory burden on the other hand.
Examiners can use information gathered through
monitoring to determine the scope and areas of focus for
Legislation in the 115th Congress
upcoming exams. Periodic examinations (often on-site at
CFPB Supervision. H.R. 10 would eliminate the CFPB’s
bank offices) involve an evaluation of bank practices and
consumer compliance supervisory authority over large
performance. Examiners may either objectively confirm
banks, shifting that authority back to the Fed, OCC, FDIC,
whether banks meet quantitative requirements set by
and NCUA. H.R. 3072 would raise the asset threshold at
regulation, or they may have discretion to qualitatively
which the CFPB becomes a bank’s supervisor from $10
interpret whether a bank satisfies the goals of a regulation.
billion to $50 billion.
In addition, regulators are permanently placed on-site at
offices of certain large banks.
Before 2010, the federal bank regulators were charged with
regulating for both safety and soundness and consumer
Bank examiners rate a bank based on the Uniform Financial
compliance. Pursuant to the Dodd-Frank Act, the CFPB
Institutions Ratings System, wherein the banks receive a
acquired certain consumer compliance powers over banks
rating from 1 (best) to 5 (worst) across six “CAMELS”
and credit unions that vary based on their asset size. For
components—capital adequacy, asset quality, management,
institutions with more than $10 billion in assets, the CFPB
earnings, liquidity, and sensitivity to market risk—and a
is generally the primary supervisor for consumer
composite rating based on all those components. Examiners
compliance. For institutions with $10 billion or less in
communicate findings and ratings to bank management, and
assets, the prudential regulator generally remains the
(if necessary) prescribe required corrective actions.
primary supervisory authority for consumer protection.
https://crsreports.congress.gov
Financial Reform: Bank Supervision
Critics of the CFPB argue that certain banks subject to
that “is no longer necessary or appropriate.” Recent burden-
CFPB supervision face overly burdensome examinations.
reducing revisions are set to take effect in the second
They assert that raising the threshold at which the CFPB
quarter 2018 call report.
becomes the primary supervisor or eliminating CFPB bank
supervisory authority would still provide appropriate
Proponents of the legislation contend the current tailoring
consumer protection, because banks would still be
does not go far enough and that call reports are currently
examined by their primary regulators.
unduly complex and burdensome for community banks.
Opponents argue that call reports can provide an early
Proponents of the CFPB argue that certain banks subject to
indication that a bank’s risks or industry risks are changing
CFPB supervision are similar in size to certain institutions
and removing too many items could mute the early warning
that were arguably among some of the worst violators of
signal the call report provides.
consumer protections during the housing bubble. They
contend that raising the threshold or eliminating CFPB bank
Appeals Process. H.R. 10 and H.R. 4545 would establish
supervision could lead to those entities being subject to
an ombudsman (called the Office of Independent
inappropriately lax consumer compliance supervision.
Examination Review) within the Federal Financial
Institutions Examination Council (FFIEC), an interagency
Examination Cycle. S. 2155 would raise the size
forum for bank regulators, to investigate complaints from
thresholds for banks eligible for an 18-month exam cycle
banks about supervisory exams; give banks the right to
from $1 billion in assets to $3 billion in assets, provided the
appeal exam results to the ombudsman or an administrative
banks met certain other criteria.
law judge; and prohibit specific supervisory actions in
retaliation for appealing. The bills would also make other
Regulators generally conduct a full-scope, on-site
changes empowering banks in the exam appeal process.
examination of banks at least once every 12 months.
However, banks that (1) have less than $1 billion in total
Bank regulators have established a number of processes for
assets, (2) meet the capital requirements necessary to be
a bank to appeal its examination results. Although
considered well-capitalized, and (3) were found to be well
regulators often resolve disputes informally through
managed and given an exam rating of “outstanding” (banks
discussion between the bank and the examiner, they are
under $200 million in assets must receive only a “good
required to maintain a formal independent appeals process
rating”) on the most recent examination are examined once
for supervisory findings, appoint an independent
every 18 months. (These statutory thresholds were raised in
ombudsman, and create safeguards to prevent retaliation
2015.) Thus, the supervisory burden is lower for banks that
against a bank that disputes the examination findings. Each
meet those conditions.
agency ombudsman’s exact role varies, but they generally
serve as a facilitator for the resolution of complaints. Only
Small bank proponents argue that there are economies of
the OCC currently allows banks to appeal an examination
scale to compliance—in other words, compliance costs rise
directly to the agency’s ombudsman.
less than proportionately with size. If true, this would mean
compliance costs on small banks are disproportionately
Proponents of altering the appeals process argue that the
high compared with larger banks. By contrast, the existence
supervisor currently plays the role of prosecutor, judge, and
of supervisory costs does not necessarily mean the
jury, and is unlikely to admit a mistake had been made in
supervision is unduly burdensome; benefits such as greater
the original exam. Thus, they assert that the proposed
safety and soundness among banks or stronger consumer
ombudsman—being more independent—would be better
protection could justify those supervisory costs.
positioned to appropriately adjudicate disputes.
Call Reports. Banks submit a Report of Condition and
Opponents view the creation of an additional ombudsman
Income—referred to as the call report—to their regulator
for all banking agencies as redundant, because each agency
quarterly. H.R. 4725 and S. 2155 would require the
already has its own. In addition, they argue the new
regulators to develop a shorter call report to be filed in the
ombudsman would not have “inside knowledge” of the
first and third quarters for banks that have less than $5
supervisory process (which inherently involves examiner
billion in assets and satisfy other criteria. H.R. 10 would
discretion on a bank-by-bank basis), and so may not be
require regulators to do the same, but for institutions of any
better positioned to make accurate assessments regarding
size that qualify as well capitalized and satisfy other
the condition of and appropriate corrective actions for
criteria.
individual banks. If true, and if shifting the appeals process
to an ombudsman results in more overturned supervisory
The call report is made up of various “schedules,” each
decisions, the new ombudsman could potentially undermine
containing multiple line items related to bank operations
supervisors’ ability to promote the safety and soundness of
that must be given a value. These data are reported using
banks and systemic stability, putting taxpayer funds at risk.
standard definitions so that banks can be compared by
regulators and the public. To lower the burden on small
Marc Labonte, Specialist in Macroeconomic Policy
banks relative to big banks, the number of items that a bank
David W. Perkins, Analyst in Macroeconomic Policy
must report depends on its size and activities. In addition,
current statute requires the regulators to review call reports
IF10807
every five years to eliminate any information or schedule
https://crsreports.congress.gov
Financial Reform: Bank Supervision
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10807 · VERSION 3 · NEW
January 17, 2018
Financial Reform: Bank Supervision
Reforms to the bank supervision framework have been
Figure 1. The Bank Examination Cycle
proposed as part of the broader financial reform debate,
including in H.R. 10, which passed the House on June 8,
2017, and S. 2155, which was reported by committee on
December 18, 2017.
Background
Bank regulation has three distinct components: rulemaking
(the authority to implement rules with which banks must
comply); enforcement (the authority to take certain legal
actions, such as imposing fines, against an institution that
fails to comply with rules and laws); and supervision.
Source: Consumer Financial Protection Bureau.
Supervision refers to the authority of certain regulators—
the Federal Reserve (the Fed), the Office of the Comptroller
Policy Issues
of the Currency (OCC), the Federal Deposit Insurance
The 115th Congress is considering legislation to provide
Corporation (FDIC), the National Credit Union
“regulatory relief” for banks. Regulatory relief proposals,
Administration (NCUA), and the Consumer Financial
may involve a trade-off between reducing costs associated
Protection Bureau (CFPB)—to monitor and examine banks,
with regulatory burden and reducing benefits of regulation.
impose reporting requirements, and instruct banks to
modify behavior. Supervision enables regulators to ensure
Proponents of regulatory relief argue that certain
banks are in compliance with applicable laws and
regulations (including ones introduced in response to the
regulation and to evaluate and promote the safety and
2007-2009 financial crisis) are unduly burdensome,
soundness of individual banks (known as micro-prudential
meaning their costs do not justify the benefits. In the case of
supervision) and the banking or financial system as a whole
supervision, they contend the time and resources banks
(macro-prudential supervision). In addition, regulators
dedicate to complying with various examinations and
evaluate bank compliance with consumer protection and
reporting requirements hinder banks’ ability to provide
fair lending laws (consumer compliance supervision).
credit, restraining economic growth.
Subjecting banks to a supervisory program may also
promote public and market confidence in the banking
Opponents of relief generally believe the current regulatory
system.
structure strengthens financial stability and consumer
protections, which encourages economic growth. They
Regulators have complementary tools to achieve their
generally view supervisory actions as striking the
supervisory goals, as shown in Figure 1. They continuously
appropriate balances ensuring banks are well managed and
monitor banks, often using data banks are required to report
consumers are protected on one hand, while minimizing
and information gathered during previous examinations.
regulatory burden on the other hand.
Examiners can use information gathered through
monitoring to determine the scope and areas of focus for
Legislation in the 115th Congress
upcoming exams. Periodic examinations (often on-site at
CFPB Supervision. H.R. 10 would eliminate the CFPB’s
bank offices) involve an evaluation of bank practices and
consumer compliance supervisory authority over large
performance. Examiners may either objectively confirm
banks, shifting that authority back to the Fed, OCC, FDIC,
whether banks meet quantitative requirements set by
and NCUA. H.R. 3072 would raise the asset threshold at
regulation, or they may have discretion to qualitatively
which the CFPB becomes a bank’s supervisor from $10
interpret whether a bank satisfies the goals of a regulation.
billion to $50 billion.
In addition, regulators are permanently placed on-site at
offices of certain large banks.
Before 2010, the federal bank regulators were charged with
regulating for both safety and soundness and consumer
Bank examiners rate a bank based on the Uniform Financial
compliance. Pursuant to the Dodd-Frank Act, the CFPB
Institutions Ratings System, wherein the banks receive a
acquired certain consumer compliance powers over banks
rating from 1 (best) to 5 (worst) across six “CAMELS”
and credit unions that vary based on their asset size. For
components—capital adequacy, asset quality, management,
institutions with more than $10 billion in assets, the CFPB
earnings, liquidity, and sensitivity to market risk—and a
is generally the primary supervisor for consumer
composite rating based on all those components. Examiners
compliance. For institutions with $10 billion or less in
communicate findings and ratings to bank management, and
assets, the prudential regulator generally remains the
(if necessary) prescribe required corrective actions.
primary supervisory authority for consumer protection.
https://crsreports.congress.gov
Financial Reform: Bank Supervision
Critics of the CFPB argue that certain banks subject to
that “is no longer necessary or appropriate.” Recent burden-
CFPB supervision face overly burdensome examinations.
reducing revisions are set to take effect in the second
They assert that raising the threshold at which the CFPB
quarter 2018 call report.
becomes the primary supervisor or eliminating CFPB bank
supervisory authority would still provide appropriate
Proponents of the legislation contend the current tailoring
consumer protection, because banks would still be
does not go far enough and that call reports are currently
examined by their primary regulators.
unduly complex and burdensome for community banks.
Opponents argue that call reports can provide an early
Proponents of the CFPB argue that certain banks subject to
indication that a bank’s risks or industry risks are changing
CFPB supervision are similar in size to certain institutions
and removing too many items could mute the early warning
that were arguably among some of the worst violators of
signal the call report provides.
consumer protections during the housing bubble. They
contend that raising the threshold or eliminating CFPB bank
Appeals Process. H.R. 10 and H.R. 4545 would establish
supervision could lead to those entities being subject to
an ombudsman (called the Office of Independent
inappropriately lax consumer compliance supervision.
Examination Review) within the Federal Financial
Institutions Examination Council (FFIEC), an interagency
Examination Cycle. S. 2155 would raise the size
forum for bank regulators, to investigate complaints from
thresholds for banks eligible for an 18-month exam cycle
banks about supervisory exams; give banks the right to
from $1 billion in assets to $3 billion in assets, provided the
appeal exam results to the ombudsman or an administrative
banks met certain other criteria.
law judge; and prohibit specific supervisory actions in
retaliation for appealing. The bills would also make other
Regulators generally conduct a full-scope, on-site
changes empowering banks in the exam appeal process.
examination of banks at least once every 12 months.
However, banks that (1) have less than $1 billion in total
Bank regulators have established a number of processes for
assets, (2) meet the capital requirements necessary to be
a bank to appeal its examination results. Although
considered well-capitalized, and (3) were found to be well
regulators often resolve disputes informally through
managed and given an exam rating of “outstanding” (banks
discussion between the bank and the examiner, they are
under $200 million in assets must receive only a “good
required to maintain a formal independent appeals process
rating”) on the most recent examination are examined once
for supervisory findings, appoint an independent
every 18 months. (These statutory thresholds were raised in
ombudsman, and create safeguards to prevent retaliation
2015.) Thus, the supervisory burden is lower for banks that
against a bank that disputes the examination findings. Each
meet those conditions.
agency ombudsman’s exact role varies, but they generally
serve as a facilitator for the resolution of complaints. Only
Small bank proponents argue that there are economies of
the OCC currently allows banks to appeal an examination
scale to compliance—in other words, compliance costs rise
directly to the agency’s ombudsman.
less than proportionately with size. If true, this would mean
compliance costs on small banks are disproportionately
Proponents of altering the appeals process argue that the
high compared with larger banks. By contrast, the existence
supervisor currently plays the role of prosecutor, judge, and
of supervisory costs does not necessarily mean the
jury, and is unlikely to admit a mistake had been made in
supervision is unduly burdensome; benefits such as greater
the original exam. Thus, they assert that the proposed
safety and soundness among banks or stronger consumer
ombudsman—being more independent—would be better
protection could justify those supervisory costs.
positioned to appropriately adjudicate disputes.
Call Reports. Banks submit a Report of Condition and
Opponents view the creation of an additional ombudsman
Income—referred to as the call report—to their regulator
for all banking agencies as redundant, because each agency
quarterly. H.R. 4725 and S. 2155 would require the
already has its own. In addition, they argue the new
regulators to develop a shorter call report to be filed in the
ombudsman would not have “inside knowledge” of the
first and third quarters for banks that have less than $5
supervisory process (which inherently involves examiner
billion in assets and satisfy other criteria. H.R. 10 would
discretion on a bank-by-bank basis), and so may not be
require regulators to do the same, but for institutions of any
better positioned to make accurate assessments regarding
size that qualify as well capitalized and satisfy other
the condition of and appropriate corrective actions for
criteria.
individual banks. If true, and if shifting the appeals process
to an ombudsman results in more overturned supervisory
The call report is made up of various “schedules,” each
decisions, the new ombudsman could potentially undermine
containing multiple line items related to bank operations
supervisors’ ability to promote the safety and soundness of
that must be given a value. These data are reported using
banks and systemic stability, putting taxpayer funds at risk.
standard definitions so that banks can be compared by
regulators and the public. To lower the burden on small
Marc Labonte, Specialist in Macroeconomic Policy
banks relative to big banks, the number of items that a bank
David W. Perkins, Analyst in Macroeconomic Policy
must report depends on its size and activities. In addition,
current statute requires the regulators to review call reports
IF10807
every five years to eliminate any information or schedule
https://crsreports.congress.gov
Financial Reform: Bank Supervision
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10807 · VERSION 3 · NEW