Overhauling Bank ‘Matters Requiring Attention’ Is the Wrong Move

Eleven members of the Senate Banking Committee signed a letter last month to federal banking agencies requesting they establish a new framework for issuing and reviewing Matters Requiring Attention.

This is the wrong remedy, resulting from the senators’ misdiagnosis of MRAs’ problems. Regulators instead should clarify the differences between MRAs and enforcement actions—and bring the latter more proactively.

Led by Sen. Katie Britt (R-Ala.), the senators explain that “MRAs are supervisory findings identified during bank examinations that highlight deficiencies or violations of law and require remediation,” which must be fixed if banks wish to avoid enforcement actions.

However, they note that the “lack of structure, uniformity, and legal basis” governing MRAs leads examiners to subjectively issue ones that can’t be appealed, while regulators face few consequences for failing to ensure that MRAs are effectively resolved.

The senators misunderstand MRAs’ role in the supervisory process. They are one form of supervisory criticisms that highlight institutional issues or deficiencies that examiners believe warrant addressing.

MRAs are issued as part of reports that describe examiners’ observations, assign supervisory ratings, discuss compliance with ongoing enforcement actions, and identify new legal and regulatory violations.

Exam reports have separate sections for MRAs and legal violations. MRAs constitute individualized guidance from examiners to bank management and identify areas that deserve increased attention, rather than highlighting legal violations.

In this way, examiners can offer banks a second pair of eyes on their operations, identifying concerns that bankers themselves may miss.

Failure to implement MRA recommendations can’t serve as the basis for enforcement actions, contrary to the senators’ assertion, as no legal requirement exists to implement examiners’ recommendations. Rather, enforcement actions are brought when banks engage in “unsafe or unsound” practices or otherwise violate the law.

Although issues underlying MRAs may metastasize over time and warrant enforcement actions if left unaddressed, this doesn’t mean that failing to address MRAs directly results in enforcement actions.

MRAs lack a structured framework limiting examiner discretion precisely because they’re meant to be discretionary, while enforcement actions are subject to constitutional and statutory safeguards because they can compel banks to take affirmative corrective action.

This nuance has understandably been lost on bankers, who observe that failing to rectify MRAs can lead to enforcement actions. Also, the Federal Reserve Board and Office of the Comptroller of the Currency use language that makes MRAs appear binding.

The board’s examination manual requires MRAs to be communicated as “The board of directors (or executive-level committee of the board), or banking organization is required to ...,” and the comptroller’s supervision handbook describes how “concerns” in MRAs “may serve as the basis for an enforcement action.”

But the distinction between MRAs and legal violations remains important, and their implicit merging represents the actual problems with MRAs, which are twofold.

First, the word “requiring” in Matters Requiring Attention misleads by implying that addressing the concern is legally mandated when it isn’t.

The Administrative Conference of the United States, an executive-branch agency charged with promoting efficient and fair regulatory procedures, recommends that guidance “should not include mandatory language unless the agency is using that language to describe an existing statutory or regulatory requirement.”

Doing otherwise creates confusion about what is legally required versus merely suggested. For this reason, the Federal Deposit Insurance Corporation uses the term supervisory recommendations instead of MRAs.

Second, and perhaps more importantly, examiners expect banks to comply with MRAs. The senators correctly noted that Silicon Valley Bank had unresolved MRAs dating back years when it collapsed. But the problem wasn’t the bank’s outstanding MRAs; it was that examiners expected MRAs’ existence to produce changes.

Regulators should make two changes to address these problems. First, the Fed and OCC should adopt the FDIC’s nomenclature, replacing Matters Requiring Attention with “Supervisory Recommendations.”

Second, the three federal banking agencies should more quickly bring enforcement actions (or indicate their intention to do so) rather than relying on MRAs to get banks to address unsafe or unsound practices. Indeed, the Government Accountability Office and FDIC’s Inspector General made this recommendation following the March 2023 banking panic.

The senators are correct that MRAs have problems, but their diagnosis is fundamentally flawed, leading to improper recommendations. Rather than restructuring MRAs to be more like enforcement actions, everyone—banks and examiners alike—must recognize the difference between the two.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Todd Phillips is an assistant professor of law at Georgia State University’s Robinson College of Business and is a former FDIC attorney.

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