Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion

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SR 19-4 / CA 19-3: Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION AND REGULATION

DIVISION OF CONSUMER AND COMMUNITY AFFAIRS

SR 19-4 / CA 19-3

February 26, 2019

On June 23, 2025, the Board announced that reputational risk will no longer be a component of examination programs in its supervision of banks.

Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion

SUBJECT:

Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion

Applicability: This guidance applies to bank holding companies (BHCs) and savings and loan holding companies (SLHCs).

The purpose of this letter is to clarify which rating system applies to holding companies with total consolidated assets less than $100 billion, given the adoption of a rating system for large financial institutions (LFIs). Since 2004, the Federal Reserve has used the "RFI/C(D)" rating system (referred to as the "RFI rating system") to communicate its supervisory assessment of BHCs regardless of their asset size, complexity, or systemic importance. 1 In 2018, the Board adopted the RFI rating system for non-insurance and non-commercial SLHCs 2 with total consolidated assets less than $100 billion. At the same time, the Board also adopted a rating system for BHCs and non-insurance and non-commercial SLHCs with total consolidated assets of $100 billion or more (referred to as the "LFI rating system"). 3 As a result, the Federal Reserve has two frameworks for rating holding companies. Attachment One entitled, "Summary of the Rating Systems and General Inspection Frequency by Holding Company Type and Asset Size," provides an overview of the Federal Reserve's two rating systems for holding companies, as well as inspection frequency.

Overview of the RFI Rating System

The main components of the RFI rating system are risk management practices (R component) and financial condition (F component) of the consolidated organization, and an assessment of the potential impact (I component) of a holding company's nondepository entities on its subsidiary depository institution(s). A holding company under the RFI rating system is assigned a composite rating (C) based on an evaluation and rating of its managerial and financial condition and an assessment of future potential risk to its subsidiary depository institution(s). A holding company under the RFI rating system is also assigned a depository institution (D) component rating that generally mirrors the primary regulator's assessment of the subsidiary depository institution(s). A description of the complete RFI rating system is provided in Attachment Two entitled, "RFI Rating System." 4

Rating Holding Companies with Total Consolidated Assets Between $10 Billion and $100 Billion

The RFI rating system generally applies to BHCs and non-insurance and non-commercial SLHCs with total consolidated assets less than $100 billion. Examination staff assign and communicate ratings to BHCs and non-insurance and non-commercial SLHCs with total consolidated assets between $10 billion and $100 billion on at least an annual basis, and more frequently as warranted. However, U.S. intermediate holding companies (IHCs) of foreign banking organizations (FBOs) established under the Board's Regulation YY that have total consolidated assets of $50 billion or more would be subject to the LFI rating system. 5

Holding Companies with Total Consolidated Assets of $10 Billion or Less

BHCs and SLHCs with total consolidated assets of $10 billion or less are subject to the RFI rating system. However, for noncomplex holding companies with total consolidated assets less than $3 billion, the Reserve Bank assigns only a composite rating and risk management rating to the holding company based on the ratings of the lead depository institution. The scope and frequency of inspections of a holding company with total consolidated assets of $10 billion or less is dependent on a number of factors such as the asset size, rating and examination cycle of the holding company's subsidiary depository institution, and the complexity of the holding company. For more information, see SR letter 13-21, "Inspection Frequency and Scope Requirements for Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of $10 Billion or Less."

Rating Savings and Loan Holding Companies

The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred to the Federal Reserve the supervisory functions of the Office of Thrift Supervision related to SLHCs and their nondepository subsidiaries beginning on July 21, 2011. 6 At that time, the Federal Reserve decided to issue "indicative RFI ratings" to SLHCs until such time that a rating system was formally adopted for these companies. 7

In November 2018, the Federal Reserve adopted a final rule to apply the RFI rating system on a fully implemented basis to SLHCs with total consolidated assets less than $100 billion, excluding SLHCs engaged in significant insurance or commercial activities. 8 Starting on February 1, 2019, the Federal Reserve will assign an RFI rating to non-insurance and non-commercial SLHCs with total consolidated assets less than $100 billion. Non-insurance and non-commercial SLHCs face similar risks and engage largely in the same activities as BHCs. The Federal Reserve is fully applying RFI rating system to non-insurance and non-commercial SLHCs to ensure that they are subject to standards and supervisory programs that are consistent with those that apply to BHCs. Non-insurance and non-commercial SLHCs with total consolidated assets of $10 billion or less should also refer to SR letter 13-21 for the inspection frequency and the assignment of the RFI rating. Further, in November 2018, the Federal Reserve adopted the LFI rating system for non-insurance or non-commercial SLHCs with total consolidated assets of $100 billion or more.

The Federal Reserve will continue to assign an indicative RFI rating to SLHCs engaged in significant insurance or commercial activities, regardless of asset size. The Federal Reserve is in the process of reviewing whether a modified version of the RFI rating system, LFI rating system, or some other supervisory rating system is appropriate for these firms on a permanent basis.

Rating Holding Companies with Total Consolidated Assets of $100 billion or More

The LFI rating system assigns component ratings for (1) capital planning and positions, (2) liquidity risk management and positions, and (3) governance and controls. The Federal Reserve will not assign a standalone composite rating under the LFI rating system because the three component ratings are designed to clearly communicate supervisory assessments and associated consequences for each of the core areas (capital, liquidity, and governance and controls). A description of the complete LFI rating system is also provided in SR letter 18-11 /

CA letter 18-10, "Large Financial Institution Ratings."

The LFI rating system applies to BHCs, non-insurance and non-commercial SLHCs with total consolidated assets of $100 billion or more, and to U.S. IHCs of foreign banking organizations established under Regulation YY with total consolidated assets of $50 billion or more. 9 Consistent with the Federal Reserve's longstanding practice for these firms, examiners will assign these institutions component ratings and communicate the ratings to a firm on at least an annual basis, and more frequently as warranted. After the initial LFI rating supervisory cycle, examiners may assign and communicate individual component ratings to a firm on a rolling basis, but at least annually.

Contact Information

Reserve Banks are asked to distribute this letter to supervised institutions in their districts, as well as to appropriate supervisory and examination staff. Questions regarding this letter should be directed to the following Board staff:

Division of Supervision and Regulation: Kevin Bertsch, Associate Director, (202) 452-5265, Anthony Cain, Manager-Regional Bank Supervision, (202) 912-4377, Angela Knight-Davis, Manager-Specialty SLHCs, (202) 475-6679 or Jonathan Rono, Manager Community Bank Supervision (202) 721-4568.

Division of Consumer and Community Affairs: Phyllis Harwell, Associate Director, (202) 452-3658 or Mayank Patel, Manager, (202) 452-2316.

In addition, questions may be sent via the Board's public website. 10

signed by Arthur W. Lindo Deputy Director Division of Supervision and Regulation

signed by Eric S. Belsky Director Division of Consumer and Community Affairs

Supersedes:

SR letter 13-8 / CA letter 13-5, “Extension of the Use of Indicative Ratings for Savings and Loan Holding Companies”

SR letter 11-11 / CA letter 11-5, “Supervision of Savings and Loan Holding Companies (SLHCs)”

SR letter 04-18, “Bank Holding Company Rating System”

SR letter 85-28, “Examination Frequency and Communicating with Directors”

Attachments:

Attachment One: Summary of the Rating Systems and General Inspection Frequency by Holding Company Type and Asset Size

Attachment Two: RFI Rating System

Cross References:

SR letter 19-3 / CA letter 19-2, “Large Financial Institution Ratings”

SR letter 13-21, “Inspection Frequency and Scope Requirements for Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of $10 Billion or Less”

Notes:

69 Fed. Reg. 70444 (December 6, 2004). Return to text

SLHCs that are excluded from the definition of “covered holding company” in section 217.2 of the Board’s Regulation Q receive indicative supervisory ratings. Section 271.2 excludes the following SLHCs: (1) SLHCs that derive 50 percent or more of their total consolidated assets or total revenues from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1843(k)) (commercial SLHCs), and (2) SLHCs that are insurance companies or hold 25 percent or more of their total consolidated assets in subsidiaries that are insurance companies (insurance SLHCs). Return to text

See 83 Fed. Reg. 58724 (November 21, 2018); 84 Fed. Reg. 4309 (February 15, 2019); and SR letter 19-3 /

CA letter 19-2, “Large Financial Institution Rating System.” Return to text

The 2004 “RFI Rating System” document has been revised to clarify the applicability of the rating system and to provide current references to regulations and guidance. The elements of the RFI rating system and the ratings’ definitions are unchanged. With the issuance of this letter, SR letter 04-18, “Bank Holding Company Rating System,” is superseded. Return to text

12 CFR 252.153. Consistent with the Board’s proposal on tailoring its supervisory expectations for domestic institutions (See 83 Fed. Reg. 61408 (November 29, 2018)), the Board continues to consider tailoring for FBOs. As such, the Board may adjust the asset threshold for application of the LFI rating system to IHCs in the future. Return to text

12 U.S.C. 5412(b)(1) Return to text

“Indicative ratings” were issued to SLHCs as a way of providing feedback to SLHCs regarding supervisory expectations. “Indicative ratings” described how the SLHC would be rated under the RFI rating system if applied to the company. Return to text

See 83 Fed. Reg. 56081 (November 7, 2018). With the issuance of this final guidance in the Federal Register , SR letter 13-8 /

CA letter 13-5, “Extension of the Use of Indicative Ratings for Savings and Loan Holding Companies” and SR letter 11-11, “Supervision of Savings and Loan Holding Companies (SLHCs),” are superseded. Return to text

See footnote 5 above. Return to text

See http://www.federalreserve.gov/apps/contactus/feedback.aspx . Return to text

Attachment One:

Summary of the Rating Systems and General Inspection Frequency by Holding Company Type and Asset Size

February 2019

Rating Systems for Holding Companies

Total Consolidated Asset Size

Type of Holding Company

$100 Billion or More

Between $100 Billion and $10 Billion

Between $10 Billion and $3 Billion

Less than $3 Billion (complex)

Less than $3 Billion (noncomplex)

Footnotes:

The Modified RFI Rating includes a composite rating and risk management rating to the holding company. See SR letter 13-21 , "Inspection Frequency and Scope Requirements for Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of $10 Billion or Less." Return to text

Savings and loan holding companies (SLHCs) are considered to be "insurance savings and loan holding companies" if they are either insurance companies or hold 25% or more of their total consolidated assets in subsidiaries that are insurance companies. Return to text

SLHCs are considered to be "commercial savings and loan holding companies" if they derive 50% or more of their total consolidated assets or total revenues from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1843(k)).

Return to text

U.S. intermediate holding companies of foreign banking organizations (FBOs) established under the Board's Regulation YY that have $50 billion or more in total consolidated assets would be subject to the LFI rating system. Return to text

Bank holding company

LFI Rating

RFI Rating

Modified RFI Rating 1

Non-insurance and non-commercial savings and loan holding company

LFI Rating

RFI Rating

Modified RFI Rating

Insurance savings and loan holding company 2

Indicative RFI Rating

Commercial savings and loan holding company 3

Indicative RFI Rating

Intermediate holding company 4

LFI Rating

Not applicable

General Inspection Frequency for a Holding Company

Total Consolidated Asset Size

Type of Holding Company

$100 Billion or More

Between $100 Billion and $10 Billion

Between $10 Billion and $3 Billion

Less than $3 Billion (complex)

Less than $3 Billion (noncomplex)

Footnotes:

Bank holding companies exempt from the prohibitions of section 4 of the Bank Holding Company Act of 1956, as amended, are not subject to any required periodic inspection. See the Bank Holding Company Supervision Manual for more information. Return to text

Savings and loan holding companies (SLHCs) are considered to be "insurance savings and loan holding companies" if they are either insurance companies or hold 25% or more of their total consolidated assets in subsidiaries that are insurance companies. Return to text

SLHCs are considered to be "commercial savings and loan holding companies" if they derive 50% or more of their total consolidated assets or total revenues from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1843(k)). Return to text

U.S. intermediate holding companies of foreign banking organizations (FBOs) established under the Board's Regulation YY that have $50 billion or more in total consolidated assets would be subject to the LFI rating system. Return to text

Bank holding company 1

Ratings (or indicative ratings) assigned and communicated to firms on at least an annual basis, and more frequently as warranted.

See SR letter 13-21 , "Inspection Frequency and Scope Requirements for Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of $10 Billion or Less," and its attachment for more information in inspection frequency and scope.

Non-insurance and non-commercial savings and loan holding company

Insurance savings and loan holding company 2

Commercial savings and loan holding company 3

Intermediate holding company 4

Ratings (or indicative ratings) assigned and communicated to firms on at least an annual basis, and more frequently as warranted.

Not applicable

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Last Update: February 28, 2019