Wall Street receives a big gift: the Federal Reserve plans to "lighten the load" for banks, requiring batches of reforms to be invalidated.

With Federal Reserve Vice Chairman Michelle Bowman continuing to relax the central bank's supervision of U.S. Financial Institutions, Inc., the Fed has signaled to various banks its plans to rescind some of the previously issued non-public corrective orders aimed at prompting improvements in their operations. According to sources familiar with the matter, earlier this month, Fed regulators informed multiple banks across the U.S. that they would begin a review of existing "deficiency improvement orders." These types of orders are non-public corrective directives. The sources said that if a particular order does not align with the Fed's latest guidance, which requires examiners to focus more on immediate risks to bank financial health rather than fixating on processes and procedures, the order will be rescinded. Bank executives will have the opportunity to participate in developing solutions for the remaining corrective orders. The Fed's regulatory changes involve issuing "items to be addressed" or more urgent "items requiring immediate attention" to guide banks in mitigating risks. These types of alerts typically do not come with penalties, but if issues remain unresolved, they could escalate to punitive measures. From financial conditions to network security to succession plans, various aspects of bank operations could trigger corrective requirements. Sources indicated that if issues are identified during routine checks, the Fed will still issue corrective orders, but the threshold will be significantly higher. Regulatory Relaxation: Simplifying Compliance Burdens Financial regulators under President Trump's administration promised to streamline the increasingly complex regulatory framework, which the banking industry believes has become overly burdensome since the financial crisis. They complain that compliance burdens raise costs, hinder lending, and may not necessarily enhance the safety of the financial system. Bowman has pledged to comprehensively reform the Fed's risk oversight model and enhance regulatory transparency. A Fed spokesperson declined to comment. According to an internal Fed memo, the review is intended to help examiners "focus on substantive financial risks that threaten the safety and soundness of banks, and enhance regulatory effectiveness." The memo does not mandate examiners to immediately rescind corrective orders but rather to first review "clear-cut cases" before reassessing warnings in "critical situations." The memo specifies that the review will ensure regulatory conclusions are based on "deficiencies that have not been timely corrected and are likely to cause extraordinary harm to the financial condition of the regulated institution," rather than concerns related to policy, processes, or internal controls. It also requires warnings to be "direct and specific." Sources stated that the process of reducing outstanding corrective orders will be carried out in stages through examiner reviews. Deficiencies related to consumer rights and significant risks are not within the scope of this review. Some sources revealed that the review has already begun and will continue until the end of March, with the final determinations expected to be completed by the end of July. At that time, the Fed will require banks to cooperate with examiners in specifying corrective measures taken or not taken in areas such as risk management, compliance operations, and financial conditions. In some cases, the Fed may downgrade compliance corrective orders to "regulatory observation items," no longer mandating corrective actions. Sources added that if a corrective order involves a bank holding company, the Fed may consult with federal or state regulatory agencies overseeing its subsidiary banks. Some Fed governors, including Michael Barr, have issued warnings that loosening regulatory oversight could weaken supervision of large Wall Street lending institutions. The review is not an isolated action but one of a series of coordinated adjustments by large bank regulatory agencies 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 Citigroup's long-standing efforts to improve risk management and compliance systems were nearing completion. In January of this year, the Federal Deposit Insurance Corporation also established a new regulatory appeals unit as the "final review level for major regulatory determinations."