OCC and FDIC Finalize Definition of Unsafe or Unsound Practice

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have adopted a final rule that, for the first time, defines the term “unsafe or unsound practice” for purposes of section 8 of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1818) and revises the supervisory framework for the issuance of matters requiring attention (MRAs). The rule, published in the Federal Register of September 1, 2026 (Vol. 91, No. 168), takes effect on November 2, 2026.

The final rule follows a notice of proposed rulemaking published on October 30, 2025 (90 FR 48835), on which the agencies received 36 comments. It applies prospectively to the institutions the two agencies supervise, including national banks, Federal savings associations, Federal branches and agencies of foreign banks, insured State nonmember banks, insured State savings associations, and insured State-licensed branches of foreign banks.

A New Regulatory Definition

Under the final rule, an “unsafe or unsound practice” is a practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that is contrary to generally accepted standards of prudent operation and that, if continued, is likely to materially harm the financial condition of an institution or present a material risk of loss to the Deposit Insurance Fund (DIF), or that has already materially harmed the institution’s financial condition.

The rule codifies the “Horne Standard,” articulated by John Horne, then Chairman of the Federal Home Loan Bank Board, during hearings on the Financial Institutions Supervisory Act of 1966. The agencies declined to adopt a quantitative threshold for “likely” or “material,” relying instead on examiner judgment based on objective facts and sound reasoning.

Matters Requiring Attention and Supervisory Observations

The final rule establishes a uniform standard for issuing MRAs, which requires a lower probability of harm than the unsafe-or-unsound-practice definition: an MRA may be issued where material harm “could reasonably be expected” under current or reasonably foreseeable conditions. MRAs may also be issued for substantive violations of banking or banking-related law, including violations that:

• demonstrate a pattern or are systemic;
• have, or could reasonably be expected to have, a more than minimal adverse impact on an institution’s financial condition, books and records, or customers;
• require more than minimal restitution; or
• involve insider misconduct or self-dealing.

The rule also formalizes “supervisory observations” as informal findings that do not rise to the level of an MRA and do not require corrective action, and creates a category of “other violations” that institutions may be directed to remediate.

Tailoring and Impact

The agencies will tailor their supervisory and enforcement actions based on an institution’s capital structure, complexity, activities, asset size, and other financial risk-related factors. As risk increases, the materiality threshold for harm decreases and the assessment of harm becomes more granular. The final rule does not apply to institution-affiliated parties, which remain subject to prior standards.

The OCC currently supervises 986 institutions, and the FDIC supervises 2,700 insured depository institutions (as of March 31, 2026). The agencies expect the rule to reduce the number of MRAs issued, with OCC cost savings to institutions likely to exceed $100 million annually. The rule was signed by Jonathan V. Gould, Comptroller of the Currency, and Jennifer M. Jones, Deputy Executive Secretary of the FDIC, and has been determined to be a major rule under the Congressional Review Act and a deregulatory action under Executive Order 14192.

For the nation’s banks, the rule provides a clear, nationwide standard that focuses examiner and board attention on material financial risks rather than process and documentation concerns, while giving institutions greater flexibility to exercise business judgment and risk tolerance.

Source: Federal Register, Vol. 91, No. 168, September 1, 2026, Rules and Regulations, p. 56004 (official reference: FR Doc. 2026-17823; Docket ID OCC-2026-0174; RIN 1557-AF35 / RIN 3064-AG16).