Garnet Capital Advisors Blog

The Office of the Comptroller of the Currency recently published final risk management and governance guidelines for major financial institutions, giving them different expected timelines for compliance based on their size.

OCC formalizes guidelines
These guidelines, which provide processes banks can follow to create risk management programs and give responsibility for supervising risk governance to corporate boards of directors, have been used in the government agency's examinations since the financial crisis, American Banker reported.

However, after making some revisions to previous proposals, the OCC formalized these guidelines, according to the news source. The government agency had previously requested comment, and industry participants had asserted the recommendations should take some operational pressure off corporate boards.

In response to this request, the government agency revised its January proposal to provide additional information on what responsibility senior management has to bolster banks' risk management, the media outlet reported.

Risk management recommendations
The OCC has since released the new guidelines, which recommend that affected institutions create and document a risk governance framework, and then follow it to effectively manage risk. In addition, the guidelines suggest giving boards minimum standards for managing the risk governance framework of their respective institution.

Implementation timelines
The government agency provided the guidelines for insured federal savings associations, insured national banks and insured federal branches of foreign-based banks that have at least $50 billion in average total consolidated assets. Banks that do not meet this minimum threshold will also be affected if their parent company owns another bank that does. 

The OCC indicated it expected banks with between $50 billion and $100 billion in consolidated assets to comply within 18 months of the effective date, which was published in the Federal Register.

Financial institutions with between $100 billion and $750 billion in assets have a little less time, as they should meet the guidelines no more than six months from the effective date. The government agency indicated that organizations with at least $750 billion were expected to comply immediately upon the effective date.

If financial institutions meet the $50 billion threshold after the effective date, they are expected to meet the guidelines within 18 months of the date of the call report indicating the organization exceeded this level.

Alternatively, the government agency hopes financial institutions that have less than $50 billion in relevant assets - but qualify for the guidance because their parent company owns another bank - will adopt the standards within 18 months of the effective date.

Comptroller of the Currency Thomas Curry weighed in on the situation in a statement, speaking to the creation of the guidelines.

"The 2008 financial crisis demonstrated that much stronger supervisory standards would be necessary to manage the risks associated with large, complex financial institutions," he said. "As a result, the OCC raised its standards for risk management, corporate governance, and control to help ensure these institutions effectively anticipate, evaluate, and mitigate the risks they face. The guidelines finalized today are an important step in making our federal system of banks and thrifts stronger and more resilient."