“If the FDIC can’t get its own house in order, why should the American people have confidence it can oversee large financial institutions?”
WASHINGTON, D.C. – Following troubling reports of widespread wrongdoing and employee misconduct at the Federal Deposit Insurance Corporation (FDIC), Senator JD Vance (R-OH) renewed calls for passage of his Bank Failure Prevention Act, which would improve bank supervision and regulation for banks with assets of $100 billion or more. Under Senator Vance’s legislation, state chartered financial institutions overseen by the FDIC and Federal Reserve as their primary federal regulator would instead fall under the jurisdiction of the Office of the Comptroller of the Currency (OCC). The OCC, unlike the Federal Reserve and FDIC, is focused solely on the supervision and regulation of banks and has a strong track record in preventing bank failures.
“I have serious concerns over the FDIC’s ability to effectively supervise and regulate the banking sector,” said Senator Vance. “This year, they failed to prevent the collapse of Signature Bank and First Republic Bank, events which imperiled the entire American economy. The FDIC’s regulatory failures are well documented and may be due, in part, to widespread personnel issues throughout the organization. If the FDIC can’t get its own house in order, why should the American people have confidence it can oversee large financial institutions?”
- Signature Bank, which failed in March of this year, was overseen by the FDIC.
- An internal review of the FDIC’s oversight of Signature Bank found missteps in the timing of the FDIC’s “supervisory actions” and “examination work products.” It also identified failures of the FDIC to effectively communicate with Signature Bank’s board and management.
- Silicon Valley Bank, which failed in March of this year, was overseen by the Federal Reserve Bank of San Francisco.
- A postmortem conducted by Michael Barr, Federal Reserve Vice Chair for Supervision, found: “regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework.”
- The overlapping regulatory structure currently in place lacks clarity and leads to ineffective oversight. Under the current structure:
- Nationally chartered banks are supervised and regulated by the OCC.
- The primary federal regulator of state chartered banks which are members of the Federal Reserve is the bank’s geographically corresponding Federal Reserve Bank.
- The primary federal regulator of state-chartered banks which are not members of the Federal Reserve is the FDIC.
- Under the Bank Failure Prevention Act, all state-chartered banks holding $100 billion or more in assets would automatically be reclassified as nationally chartered banks, and therefore would fall under OCC supervision.
- The same reclassification would apply to state-chartered banks which reach or exceed the $100 billion asset threshold in the future.
- In June of this year, Senator Vance questioned Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), on the regulatory environment for banks in the U.S. During their exchange, Mr. Chopra signaled his openness to a reorientation of the current regulatory structure.
- Mr. Chopra noted that an OCC-regulated bank has not failed “in some time.”
- Mr. Chopra also explained: “If we were starting from scratch, we probably would not create this balkanized system of who’s accountable for oversight. From my viewpoint as having backup supervision on consumer for all types of banks, including large banks and others, as well as from the FDIC board, I do think inconsistency in supervisory approach does have costs.”
- Mr. Chopra, who was appointed to lead the CFPB by President Biden, is a member of the FDIC Board of Directors.