Federal Reserve and FDIC regulators failed to prevent the collapse of Silicon Valley Bank and Signature Bank. New legislation from Senator Vance would impose a more effective oversight structure for similar institutions.
WASHINGTON, D.C. – Senator JD Vance (R-OH) has introduced the Bank Failure Prevention Act, which would improve bank supervision and regulation for insured state banks with assets of $100 billion or more. Under this legislation, such institutions overseen by the Federal Reserve or Federal Deposit Insurance Corporation (FDIC) 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.
“In the run up to the collapse of Signature Bank and Silicon Valley Bank, federal regulators responsible for overseeing our financial system failed to do their jobs. It would be reckless and irresponsible for us to sit back and rely on a regulatory regime that has proven itself to be inadequate,” said Senator Vance. “With commonsense legislation such as this bill, we can protect consumers and our financial system by reducing the risk of additional bank failures.”
- 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.”
- 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.
- 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.