International banks press Fed to reform ROCA and CUSO ratings that affect 'well‑managed' status
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Summary
Representatives of internationally headquartered banks told a Federal Reserve outreach panel that ROCA and CUSO ratings overemphasize policy and governance and can mechanically downgrade foreign bank operations, and they urged the Fed to articulate well‑managed standards and increase transparency.
Stephanie Webster, general counsel of the Institute of International Bankers, told the panel that ROCA and CUSO rating systems applied to foreign banking organizations can have severe consequences when those ratings emphasize nonfinancial issues and lack transparent weighting.
"ROCA and CUSO ratings do not appropriately balance risk management issues against financial condition and those material financial risks," Webster said, arguing that a single compliance deficiency (for example in AML) can propagate across multiple ROCA components and lead to a composite downgrade that affects an FBO's ability to pursue acquisitions or engage in nonbank activities.
Webster asked the Federal Reserve to revise supervisory guidance and the statement of supervisory operating principles to remove any practice that allows a single deficiency in risk management, operational controls or compliance to automatically render an FBO not well managed. She also urged the Fed to increase transparency about how composite CUSO scores are derived and to incorporate liquidity explicitly in FBO ratings given its importance since March 2023.
Webster noted the legal and procedural context: since the enactment of section 606 of the Dodd‑Frank Act, standards for well‑managed status have been opaque. "Given the significant consequences of losing well managed status, the Federal Reserve should formally articulate its standard either through regulation or supervisory guidance," she said.
Panelists did not record any formal Fed decision at the event; the comments were offered as part of public outreach for the broader supervisory-review process.
