OCC and FDIC Narrow Unsafe-or-Unsound Bank Rule

The OCC and the FDIC finalized a rule that will let their examiners write up fewer problems, and the agencies say it saves the banks they oversee real money. In FIL-53-2026, the two regulators issued a joint final rule that, for the first time, defines an "unsafe or unsound practice" in regulation and rewrites the standard for the supervisory findings banks know as Matters Requiring Attention (MRAs). The text is not in the Federal Register yet: it is scheduled to publish as document 2026-17823 and takes effect 60 days after that, so the effective date is a formula, not a calendar day. The Federal Reserve did not join, so this binds only OCC- and FDIC-supervised banks.

The money case is the agencies' own. In the rule's regulatory impact analysis, the OCC says the cost savings from issuing fewer MRAs "will likely exceed $100 million" a year in aggregate direct costs across the 986 institutions it supervises. That is the argument for the rule stated in dollars, and it is why the industry pushed for it.

What the rule actually does

The rule writes a definition into the code (the FDIC's new 12 CFR Part 305, the OCC's Part 4) for section 8 of the Federal Deposit Insurance Act. An unsafe or unsound practice now means conduct that is both contrary to generally accepted standards of prudent operation and, if continued, likely to materially harm the bank's financial condition (its capital, asset quality, earnings, liquidity, or sensitivity to market risk) or to present a material risk of loss to the Deposit Insurance Fund, or that has already caused such harm. Commenters on the 2025 proposal, which drew 36 comments, asked the agencies to attach a number to "likely" (10 percent, 51 percent, "more likely than not"). The agencies declined to quantify it, saying only that it has to be more than speculative or merely possible.

The MRA bar, and what examiners lose

MRAs get a separate, lower, forward-looking test: an examiner can issue one where the same imprudent conduct could reasonably be expected, under current or foreseeable conditions, to cause that financial harm or DIF risk, or where there is an actual violation of law. What examiners lose is the ability to raise MRAs over policy, process, documentation, or other nonfinancial issues that meet neither test. Those become informal "supervisory observations," which do not have to go to the board, and a bank's refusal to adopt one is not by itself grounds to escalate. The FDIC is also ending its Matters Requiring Board Attention and Supervisory Recommendations; outstanding items are redesignated as MRAs or closed out.

Not the April reputation-risk rule

One clarification, because the two keep getting glued together: this is not the reputation-risk rule. The rule that bars the agencies from using reputational risk in supervision was finalized in April (91 FR 18279, effective 9 June). The August rule only carves reputation risk unrelated to a bank's financial condition out of the new unsafe-or-unsound definition. Same theme, different instrument.

The dispute

The industry welcomed it. ABA chief executive Rob Nichols praised the added certainty and the focus on material financial risk, and the agencies cast the rule as the first regulatory definition of a term that has driven enforcement for decades. FDIC Chairman Travis Hill said a "large majority" of outstanding supervisory criticisms fail the new MRA standard and "will be (or in some cases already have been) closed out," though he put no number on it.

The critics are pointed. Senator Elizabeth Warren and four other Democratic senators warned in a February letter on the proposal that it would "disarm examiners" and "silence supervisors." Michigan law professor Jeremy Kress argued, the day it landed, that the rule exceeds the agencies' statutory authority, conflicts with judicial precedent, and undermines supervision, and "should be rescinded expeditiously by the next administration."

The Fed gap

The sharpest hedge is jurisdictional. Because the Federal Reserve did not sign on, Fed-supervised state member banks and bank holding companies stay on the old, undefined unsafe-or-unsound standard unless the Board writes its own version, leaving two supervisory regimes running side by side. It belongs with a run of pre-publication and cross-agency actions worth reading the same way, from Treasury's GENIUS Act stablecoin proposal to the SEC custody rules sitting under OIRA review, and the "Fed staff research is not Fed policy" line that runs through the New York Fed's stablecoin paper.

The takeaway

Banks chartered under the OCC and FDIC now supervise to a codified, material-financial-risk test for both unsafe-or-unsound findings and MRAs, and can expect fewer process-only criticisms; their Fed-supervised peers cannot, until the Board acts. For a compliance team, the near-term question is which regulator holds your charter, not what the wire headline calls the rule.