Overview of Comments on and Revisions to Proposed Guidance on

Supervisory Expectationsfor Boards of Directors

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On August 9, 2017, the Board invited public comment on proposed supervisory guidance 

describing the key attributes of effective boards of directors of large depository institution

holding companies. The Board also invited comment on conforming changes to related existing

supervisory guidance. [Footnote 1

- 82 FR 37219 (August 9, 2017). Staff continuesto consider ways to improve the clarity and consistency of

supervisory communications, including public feedback, related to SR letter 13-13/CA letter 13-10, “Supervisory

Considerations for the Communication of Supervisory Findings.” End of Footnote 1.]

The final guidance retains the five key attributes of effective boards from

the proposal, and includes the following changes in response to comments and statutory revisions

since the proposal:

• Increases the applicability of the guidance from $50 billion to $100 billion. The final

guidance applies to large firms with $100 billion or more in total assets. This change aligns

with an identical increase to the asset thresholds in section 165 of the Dodd-Frank Wall

Street Reform and Consumer Protection Act [Footnote 2

- Public Law 115-174, section 401, 132 Stat. 1296 (2018). End of Footnote 2.]

and the large financial institution rating

system. [Footnote 3

- 83 FR 58724 (November 21, 2018) and 84 FR 4309 (February 15, 2019). See also SR Letter 19-3/CA Letter 19-2,

“Large Financial Institution (LFI) Rating System” (February 26, 2019). End of Footnote 3.]

• Further distinguishes the roles and responsibilities of boards from those of senior

management, provides illustrative examples of effective board practices, and uses certain

terms with greater precision and consistency. Commenters noted several places in the

proposed guidance that could benefit from clarification and consistency.

• Removes the suggestion that boards conduct regular self-assessments and provide the results

to Federal Reserve examiners. Commenters asserted that sharing the results of selfassessments would have a chilling effect on director honesty and candor, which would

undermine the value of conducting self-assessments. Because examiners draw on a variety

of information when assessing the effectiveness of board oversight, the Board agreed with

commenters that providing the results of self-assessments was not needed.

Comments generally. The Board received 45 comment letters on the proposed guidance.

Staff met with several commenters and firms that would have been covered by the proposal.

Commenters generally supported the proposal, but as noted above, some expressed concerns

regarding specific aspects of the proposal and provided suggestions on potential changes.

Attribute 1: Set clear, aligned, and consistent direction. Several commentersrequested

the guidance clarify which policies and procedures a board should review and approve. The

guidance clarifies that in addition to those required by regulation, clarifies significant policies,

procedures, and plans, effective boards reviews and includes examples of potential significant

policies and procedures.

Attribute 2: Boards' information needs. Some commenters argued that management

should control the flow of information to the board and asked for guidance on specific practices

or policies a board should adopt relating to the flow of information. Boards are in the best

position to determine their information needs, and the guidance does not include specific
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practices that boards should adopt. However, the guidance clarifies that board effectiveness

improves with active involvement by directors in setting board and committee meeting agendas.

Attribute 3: Hold senior management accountable. Some commenters asked whether

boards should maintain detailed records of individual questions and answers provided by 

directors, and other commenters requested that the guidance clarify the role of effective boards in

setting performance objectives for management. The guidance states that boards maintain

records that provide a general description of the matters discussed with senior management. The

guidance also clarifies that effective boards approve clear financial and nonfinancial

performance objectives for the Chief Executive Officer (CEO) and business line executives, and

nonfinancial performance objectives for the chief risk officer and chief audit executive.

Attribute 4: Independence of risk management and internal audit. Several commenters

asserted that board risk committees should not direct who serves on particular management

committees, and other commenters requested the guidance clarify that boards have flexibility to

determine whether particular elements of risk oversight are determined by the full board or

committee. The guidance eliminates reference to a risk committee's involvement in

management-level committee membership and clarifies the risk committee'srole in advising 

management on changes to the firm's practices in order to align with the firm's strategy and risk

appetite. The guidance also provides that effective boards have flexibility to determine whether

the risk committee should escalate review of certain matters to the full board.

Attribute 5: Maintain capable board composition and governance structure. Some

commenters asked whether director diversity includes consideration of race, ethnicity, and 

gender, in addition to diversity of skills, knowledge, and experience. The guidance notes that

effective boards consider a diverse pool of director candidates, including women and minorities,

consistent with the 2015 interagency policy statement related to diversity policies and practices.

Other commenters said that directors should take training to improve their firm oversight. The

guidance states that training is a way for directors to learn about topics relevant to their duties,

and training needs depend on directors' experience and the firm's activities and risk profile.

Application to insurance SLHCs. Some commenters asserted the guidance should not

apply to insurance savings and loan holding companies (SLHCs) because it would potentially

conflict with state insurance laws and they criticized the proposal for failing to acknowledge that

regulation of insurance is left to the states. Although the McCarran-Ferguson Act places certain

limitations on the federal regulation of the business of insurance, the Federal Reserve has express

authority under the Home Owners' Loan Act to issue prudential standards for SLHCs, including

insurance SLHCs. The guidance does not relate to or conflict with the regulation of the business

of insurance.

Supervisory approach. Several commenters requested more clarity on the use of the

guidance in the supervisory process. SR letter 21-3 / CA letter 21-1, “Supervisory Guidance on 

Board of Directors' Effectiveness” includes information regarding how the guidance will be used

to inform the governance and controls component of the large financial institution rating system.

Supervisory letter review. Commenters generally supported the supervisory letter

review, and some asserted other supervisory documents should be included in the review. SR

letter 21-4 / CA letter 21-2, “Inactive or Revised SR Letters Related to the Federal Reserve's

Supervisory Expectations for a Firm's Boards of Directors” provides additional details on the
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treatment of each supervisory letter included in the review. [Footnote 4

- See SR 21-4 / CA 21-2, “Inactive or Revised SR Letters Related to the Federal Reserve's Supervisory Expectations

for a Firm's Boards ofDirectors” at https://www.federalreserve.gov/supervisionreg/srletters/SR2104.htm. End of Footnote 4.]

Staff will continue to periodically

review and update supervisory guidance.