Aligning the Proposed Rule with Safety and Soundness Standards: Clarity, Coordination, and Boundaries

This article was developed using publicly available responses submitted to Requests for Information issued by banking regulators. It summarizes and synthesizes themes, perspectives, and information reflected in those public submissions for informational purposes only. The article does not represent the views of any regulator, respondent, institution, or the Firm, and should not be interpreted as legal, regulatory, or compliance advice.

Executive Summary

Question 25 asks how the proposed regulation should interact with the Interagency Guidelines Establishing Safety and Soundness Standards, whether the agencies should revise those Standards accordingly, and whether violations of the Standards should count as violations of banking law for purposes of the proposal. Most respondents did not directly address these specifics, but those that did emphasized interagency coordination, transparent rulemaking, and the distinction between guidance and enforceable law. The record supports using the Safety and Soundness Standards as nonbinding reference points, revising them only via joint, notice-and-comment processes if needed, and not automatically treating Standards breaches as legal violations.

Key takeaways:

• Several comments urged interagency coordination and parity; one warned against revising Interagency Guidelines without Board participation.
• Respondents noted that agencies cannot cite violations of guidance in enforcement actions, signaling that Standards function as nonbinding unless codified.
• Calls for a clear, administrable definition of “unsafe or unsound” tied to material financial harm appeared in the record.
• Some supported additional examiner guidance to apply standards to emerging risks, alongside regulatory clarity.
• Concerns were raised that the proposed definition could limit agencies’ powers; commenters asked agencies to explain choices and solicit comment.
• Many submissions did not engage the specific interaction or violation questions, contributing to the No share.

Bottom line:

Use the Safety and Soundness Standards as nonbinding interpretive references aligned with the proposed rule, pursue any revisions jointly via notice-and-comment, and do not treat a Standards breach alone as a violation of banking law or regulation.

The Question (Ref #25)

How should the proposed regulation interact with the Interagency Guidelines Establishing Safety and Soundness Standards promulgated under 12 U.S.C. 1831p–1 (e.g., 12 CFR part 30) (Safety and Soundness Standards)? Should the agencies similarly revise the Safety and Soundness Standards in a manner consistent with the proposed regulation? Should a violation of the Safety and Soundness standards be considered a violation of banking or banking-related law or regulation for purposes of the proposed regulation?

Direct Response to the Catalog Question

Introduction

Question 25 asks: How should the proposed regulation interact with the Interagency Guidelines Establishing Safety and Soundness Standards promulgated under 12 U.S.C. 1831p–1 (e.g., 12 CFR part 30)? Should the agencies similarly revise the Safety and Soundness Standards in a manner consistent with the proposed regulation? Should a violation of the Safety and Soundness standards be considered a violation of banking or banking-related law or regulation for purposes of the proposed regulation?

Historic Lessons in the Evidence

Respondents’ reasoning emphasizes that durable supervisory frameworks flow from coordinated, transparent rulemaking and clear separation between guidance and enforceable law. Attempts to equate nonbinding guidance with legal obligations draw pushback, while definitions tied to material financial harm are seen as more administrable. Interagency participation helps preserve parity and legitimacy, whereas overly narrow definitions risk constraining necessary supervisory powers.

The Challenge

The record highlights practical tensions: aligning a new rule to longstanding Safety and Soundness Standards without converting guidance into binding law; preserving supervisory flexibility while providing clarity; ensuring parity across institutions, especially community banks, through interagency cooperation; and giving examiners usable direction for emerging risks. Many respondents did not directly address the interaction and violation questions, leaving gaps the agencies must bridge.

Evolving Metrics

Respondents assessed the issue through procedural legitimacy (notice-and-comment and interagency participation), legal enforceability (guidance versus regulation), materiality thresholds (material financial harm), and supervisory practicality (examiner guidance for emerging risks). Some noted that actions like MRAs are explicitly grounded in violations of law and regulation, reinforcing the distinction between guidance and enforceable obligations.

A Framework Inspired by the Inputs

An implicit approach emerges: keep the Safety and Soundness Standards as nonbinding reference points, codify enforceable expectations through rulemaking with clear definitions and thresholds, and separate supervisory guidance from legal requirements. Use interagency processes to maintain parity and legitimacy, and supplement with examiner guidance for new risk domains.

Case Study

A representative pattern across comments combines four elements: calls for a clear, administrable definition of unsafe or unsound tied to material harm; requests for additional examiner guidance on emerging risks; cautions against unilateral revisions to the Interagency Guidelines without broader participation; and reminders that guidance cannot serve as the basis for enforcement. Together, these inputs point toward careful calibration rather than wholesale conflation of guidance with law.

Recommendations

1. State explicitly that the Interagency Guidelines inform supervisory assessments but are not independently enforceable absent rulemaking.
2. If revisions are needed, undertake joint interagency revisions (including the Board) via notice-and-comment with a clear statement of basis and purpose.
3. Clarify that violations of the Safety and Soundness Standards alone do not constitute violations of banking law or regulation for purposes of the proposed rule.
4. Anchor the rule’s unsafe-or-unsound definition to administrable thresholds, including material financial harm, to reduce ambiguity.
5. Publish supplemental examiner guidance for emerging risks to promote consistent application across institutions.
6. Document how parity among community banks will be maintained under any aligned framework, reflecting interagency cooperation.
7. Tie MRAs and similar actions to identified violations of law/regulation or to clearly articulated, material risk conditions rather than to guidance non-compliance.
8. Provide a crosswalk explaining how the proposed regulation and the Safety and Soundness Standards will be used together in supervision, emphasizing their distinct legal effects.

Conclusion

The record supports a careful, coordinated alignment: treat the Safety and Soundness Standards as nonbinding references, revise them only through joint, transparent processes if needed, and do not automatically convert Standards breaches into legal violations. This approach balances clarity with supervisory flexibility and respects procedural legitimacy. While many comments did not address the question directly, the consistent themes that did emerge offer a workable path for answering Question 25.

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