Material Loss Review of First Republic Bank

Evaluate why large-bank examination teams may wait to issue CAMELS ratings downgrades until issuance of Reports of Examination (ROEs), rather than promptly when circumstances warrant it as required by the RMS Continuous Examination Process Procedures. Then, take corrective action as appropriate.

Identify additional communications or adjustments to training curriculum to reemphasize to examiners the importance of timely ratings changes in accordance with the FDIC’s approach to forward-looking supervision.

Evaluate and update as appropriate examination guidance to require specified supervisory actions when a bank’s business practices do not align with its policies and procedures (e.g., a balance sheet position that does not align with its interest rate policy).

In light of the unexpected uninsured deposit outflows experienced by First Republic, we recommend that the Director, Division of Risk Management Supervision comprehensively re-evaluate the Manual to determine whether updates to examination guidance are needed pertaining to the evaluation of banks’ deposit outflow assumptions for liquidity stress testing, including the magnitude and velocity of uninsured deposit outflows.

Proactive horizontal identification and monitoring of similarities across banks – including like business characteristics and risks, and like reputational characteristics – that may result in similar behaviors amongst their depositors, including shared risk characteristics that may result in increased contagion risk between institutions.

Incorporating shared risk characteristics that may result in increased contagion risk between institutions into the FDIC’s supervisory approach across large institutions.

Explore potential processes and information sources for real-time monitoring of large bank reputational risk. Potential information sources could include bank share price tracking websites, short seller activity, and social media discussions.

Engage with other federal regulators to evaluate the need for changes to rules under the safety and soundness standards, including the adoption of noncapital triggers that would require early and forceful regulatory actions tied to unsafe banking practices before they impair capital.