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On December 1, 2025, the Federal Reserve released its semiannual Supervision and Regulation Report describing a broad reduction in outstanding supervisory findings across institutions of all sizes. The report indicates declines among global systemically important banks, large foreign and domestic banking organizations, and small and midsize banks, reflecting a shift in the Fed's supervisory posture.
The Fed noted that it has been changing examination priorities and undergoing a strategic shift to focus on material financial risks rather than documentation-based issues. This shift, combined with ongoing remediation activity at institutions, contributed to the decreases reported through the first half of 2025.
The report identified several categories of supervisory focus and common issues across portfolios, including:
- Governance and controls remain the most frequent weakness at larger banks. The Fed reported continued concerns relating to operational resilience, information technology, and anti-money laundering programs.
- Risk management and internal controls remain the top issue among small and midsize institutions. Information technology and operational risk were also common areas of concern.
- Supervisory priorities include credit risk, liquidity, and cybersecurity. Examiners are emphasizing commercial real estate exposures, underwriting practices, non-core funding reliance, interest rate risk, and technology change management.
The Fed has also ordered its supervision division to begin downsizing in 2026, and it has aligned its ratings and prioritization frameworks with a more risk focused approach that concentrates on core safety and soundness considerations.
Putting It Into Practice: The reduction in open findings by the Fed aligns with the broader supervisory pullback the agency has undertaken throughout the year (previously discussed here, here, and here). Financial institutions should expect examinations that concentrate more heavily on core safety and soundness risks and should continue monitoring supervisory updates to ensure risk management programs remain aligned with evolving expectations.
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