Fed lays out 'significant shift' in bank oversight

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Fed memo directs focus on significant financial risks

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Restrictions placed on monitoring non-core matters

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Changes formalize Bowman's supervision refocus

By Pete Schroeder

WASHINGTON, Nov 18 (Reuters) - The U.S. Federal Reserve has detailed a "significant shift" in how it expects its examiners to police banks, the latest step in a major effort by Fed Vice Chair for Supervision Michelle Bowman to ease and refine bank supervision. The Fed published a three-page memo Tuesday detailing new expectations for its bank examiners, which broadly directs staff to focus primarily on significant financial risks to banks, and places restrictions on monitoring other matters.The changes outlined in the memo, which was sent to staff in October, formalize Bowman's call for bank supervision to be refocused on core financial risks. The memo details multiple changes that could drastically reduce the footprint of Fed examiners charged with ensuring bank safety and soundness, and comes as Bowman has already launched plans to cut the Fed's supervision staff by 30% in the coming year. The changes are expected to impact how the Fed polices banks for overall stability, but not alter its limited footprint policing consumer and fair lending laws for smaller banks. For example, the memo says Fed staff should only examine banks within their jurisdiction if it is impossible to rely on the work of other federal or state regulators. The memo says the Fed should not simply examine banks already probed elsewhere "because we might do examinations differently." Fed examiners have also been directed to rely on a bank's own internal audits to determine if they have addressed an identified shortcoming, and should not wait to remove such so-called "Matters Requiring Attention" to see if the bank fixes are durable. Those supervisory warnings, which can escalate to formal enforcement actions and fines if unaddressed, should also be limited to issues that could have a "material impact" on a bank's financial condition, according to the memo. (Reporting by Pete Schroeder; Editing by Chizu Nomiyama )