Anonymous 7

While I agree with focusing supervision on material risks, and I like the changes to the SMR consideration factors, I have several comments about this proposal: 1) This NPR proposes removing responsiveness to examiner recommendations as a Management consideration factor while at the same time the Safety and Soundness/Material Financial Risks NPR proposes limiting supervisory recommendations to circumstances where there are material financial risks. If both are passed, the FFIEC would be saying even though there are material risks with recommendations for management to address them, examiners can't consider whether management actually addresses the recommendations in rating the bank. That does not seem appropriate. Furthermore, in the FDIC's own review of the financial crisis and response from 2008 to 2013, the FDIC found that "reviews also highlighted the importance of on-site examination in evaluating a bank’s internal risk management practices and requiring corrective action when needed. The OIG has also reported that surviving banks were more likely to have been responsive to such recommendations for corrective action." This would suggest that responsiveness to examiner recommendations is important to ensuring the safety and soundness of our banking system. 2) The NPR proposes reduced emphasis on specialty examination ratings in rating the bank. While I think the agencies should review the materiality of the findings in these examinations, the specialty examinations and their ratings do provide a leading indicator of risk that could have financial consequences. For example: poor IT management could result in a hack that causes a bank's earnings and capital to be hit, and poor AML oversight could result in significant money laundering or sanctions noncompliance fines. Furthermore, should we be positively recognizing banks for their financial performance if it comes at the risk of underinvestment in IT controls, consumer compliance violations, or because the bank may be turning a blind eye to money laundering and terrorist financing? I think a better approach would be to train examiners on what types of weaknesses would be material in those areas and when to escalate issues in these areas to supervisory actions and management/composite ratings downgrades. 3) Lastly, the NPR proposes to remove consideration of succession planning from the Management evaluation factors. While I can appreciate that succession planning is difficult, especially at small banks, and there is limited guidance on what banks should be doing - I have seen numerous instances where changes in key executives have resulted in internal control failures and process breakdowns that expose the bank to material risks. Retaining management succession as an evaluation factor will ensure banks and regulators consider this risk in their operations and planning. As an alternative, I would propose issuing additional guidance to banks on sound succession planning techniques and training examiners on how to review and provide support for banks in ensuring this risk is addressed. Thank you for the consideration.