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Friday, January 17, 2014

OCC Formalizes ‘Heightened Expectations’ for Large Banks

The OCC moved to formalize its program of “heightened expectations” for banks it supervises with assets over $50 billion. In a notice of proposed rulemaking, the agency outlined a set of enforceable “minimum standards” for a large bank’s risk governance framework and board oversight.

This formal, written framework would be required to cover all applicable risk categories, including credit, interest rate, liquidity, price, operational compliance, strategic and reputational risks. The framework should clearly delineate roles and responsibilities of frontline units, independent risk management and internal audit in design and implementation. It should also include a written statement of the bank’s risk appetite, the OCC said.

The OCC’s proposal also includes requirements for boards in overseeing compliance with the risk management framework, in which the OCC expects boards to take an “active” role involving “questioning, challenging, and, when necessary, opposing” management actions that would lead to risk beyond the bank’s written risk appetite. The OCC called for banks subject to the rule to have at least two outside directors.

Comments will be due 60 days after publication in the Federal Register.

Read the proposed rule.

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