The FDIC Needs to Look Inward Before Pointing Fingers Out

Changes are needed at the FDIC.

Last week the Government Accountability Office (GAO) released a study regarding how the Federal Reserve and the FDIC ”Should Address Weaknesses in Their Process for Escalating Supervisory Concerns.” In it, the GAO states that the FDIC in particular is lacking in three key areas: centralized tracking; vetting meetings, and rotation requirements. 

Taking these three areas in turn, this means that the FDIC lacks a centralized system for tracking supervisory recommendations, which limits the FDIC’s ability to identify emerging risks across the banks it supervises; a core function of the FDIC. Next, “vetting” means unlike other regulators, the FDIC does not have a formalized process to ensure that large bank examination teams and other relevant stakeholders are consulted before making changes or decisions, such as escalation decisions. Lastly, and again unlike other regulators, the FDIC does not require large bank case managers to rotate after a few years at one institution, introducing risk needlessly by failure to diversify the perspectives on one institution. 

This failure means that one employee’s error could have an outsized impact. The GAO report highlights several concerns shared by many in the payments industry, including, but not limited to, the fact that the FDIC does not seem to be tracking emerging threats to the banking system. The industry also is concerned that the FDIC appears to be ignoring the advice of the their own examiners in the field by “altering conclusions” and staff recommendations and being unreceptive to their insights. This suggests to me the FDIC is out of touch with the current marketplace.

I have written several times regarding my concerns about the FDIC’s proposed rule on brokered feposits. If you read the FDIC’s proposed rule it is clear that the agency did not conduct any due diligence with respect to research, analysis, or impact to banks or consumers. The FDIC claims they need to amend the brokered deposit rules due to Synapse. But Synapse was not a bank and the agency’s proposal would not have prevented wrongdoings at Synapse from occurring in the first place. This kind of random federal action, which does not generally receive attractive headlines, nevertheless will have a big impact on how all Americans bank today and into the future. We should all be concerned when government at all levels takes a specific course of action but cannot explain why or share facts that support their case. 

Recently, republican members of the House Financial Services Committee echoed some of the concerns expressed by the IPA in our comment letter to the FDIC, saying:

“The July 30 proposal cited the bankruptcy of Synapse Financial Technologies and the banking instability of last March as justifications for the undoing of the 2020 rule on brokered deposits (2020 Rulemaking). These justifications are disingenuous as neither of these situations were caused by brokered deposits. In fact, Synapse is not an insured depository institution. In the proposal, the FDIC asserts that deposits excluded from the definition of brokered deposits in the 2020 Rulemaking, “present similar risks as brokered deposits and could pose serious consequences.” Instead of performing analysis to substantiate this assertion, the FDIC relies on unsupported conjecture and anecdotal evidence.”

Brian Tate, Esq., is the President and CEO of the Innovative Payments Association, the premier trade association for the payments industry. With a distinguished career spanning legal, regulatory, and advocacy roles, Brian leads the IPA in advancing the payments ecosystem. His dedication to fostering innovation and promoting sound policy ensures that members can deliver cutting-edge solutions to benefit consumers, businesses, and government entities.