The Federal Reserve is signaling plans to rescind certain non-public corrective orders previously issued to banks to improve their operations, as Vice Chair for Supervision Michelle Bowman continues to ease the central bank's oversight of U.S. financial institutions. According to informed sources, earlier this month, Fed regulators notified multiple banks across the country that they would begin reviewing existing "matters requiring attention." These are non-public directives aimed at addressing deficiencies.

Sources indicated that if an order conflicts with the Fed's updated guidance—which instructs examiners to focus more on immediate risks to a bank's financial health rather than strictly on processes and procedures—it will be revoked. Bank executives will be given the opportunity to help shape solutions for any remaining corrective actions.

Fed supervisors guide banks to address risks by issuing "matters requiring attention" or the more urgent "matters requiring immediate attention." These warnings typically do not carry penalties but can escalate to enforcement actions if problems persist. Corrective requirements can be triggered by various aspects of bank operations, from financial conditions and cybersecurity to succession planning.

While the Fed will still issue corrective orders if problems are found during routine examinations, the threshold for doing so will be significantly higher, sources said. This regulatory relaxation is part of an effort to simplify compliance burdens. Financial regulators appointed during the Trump administration pledged to streamline the government's increasingly complex rulebook. The banking industry argues that regulations layered on since the financial crisis have become overly burdensome, complaining that compliance costs raise expenses and curb lending without necessarily enhancing the safety of the financial system.

Vice Chair Bowman has committed to a comprehensive reform of the Fed's risk supervision model to increase regulatory transparency. A Fed spokesperson declined to comment. An internal Fed memo states that the review is intended to help examiners "focus on material financial risks that threaten the safety and soundness of banks, thereby improving supervisory effectiveness." The memo does not require examiners to directly rescind orders but instead to first re-evaluate "clear and non-controversial cases," followed by a secondary assessment of warnings in "borderline situations."

The memo clarifies that the review will ensure supervisory conclusions are "based on deficiencies that, if not addressed, would pose more than a normal degree of risk to the financial condition of the supervised institution," rather than concerns about policies, processes, or internal controls. It also requires that warnings be "clearly stated and specific."

The effort to reduce pending corrective orders will be phased in through examiner reviews. Deficiencies related to consumer protection and significant risks are not included in this review. Some sources revealed that the review process has already begun, will continue through the end of March, and final determinations are expected by the end of July. The Fed will then require banks to work with examiners to specify which corrective actions have and have not been taken in areas such as risk management, compliance, and financial condition.

In some cases, the Fed may downgrade a compliance order to a "supervisory observation," removing the mandatory requirement for correction. Sources added that if an order involves a bank holding company, the Fed may consult with the federal or state regulator of its subsidiary.

Some Fed governors, including Michael Barr, have warned that easing supervision could weaken oversight of large Wall Street lenders. This review is not an isolated action but part of a series of coordinated adjustments by major bank regulators to refocus supervision on core financial risks. In December of last year, the Office of the Comptroller of the Currency rescinded some penalties imposed on Citigroup (C.US) a year earlier, a significant signal that the bank's long-term efforts to improve its risk management and compliance systems were nearing completion. In January of this year, the Federal Deposit Insurance Corporation also established a new office for supervisory appeals, serving as a "final review level for significant supervisory determinations."