Amid the litany of recent proposals issued by the Federal Deposit Insurance Corp. (FDIC), a cohort of Senate Republicans is calling on the agency to withdraw a proposed rule published in October seeking to enhance corporate governance standards for financial institutions with more than $10 billion in total assets.
The comment period for the proposal was extended from December to February in response to calls from the financial industry asserting the need for more time to review the measure. If adopted, it would update guidelines implementing the FDIC’s standards for safety and soundness regulations in Part 364 and make conforming amendments to parts 308 and 364 of its regulations.
Republican members of the Senate Committee on Banking, Housing and Urban Affairs consensus submitted a letter to FDIC Chair Martin Gruenberg claiming the amended guidelines, as proposed, have many flaws and would harm the safety and soundness of the U.S. financial system.
“Safety and soundness is the cornerstone regulatory principle of the U.S. banking system. To maintain this principle, financial institutions and financial regulators alike must operate under clear and well-defined regulatory frameworks,” the senators wrote. “As the banking failures of 2023 showed, ineffective risk management by financial institutions paired with ineffective risk supervision by financial regulators are key areas from which potential hazards may arise. The failure of Silicon Valley Bank in particular, where bank management’s perilous concentration and interest-rate strategies were met with sluggish and lackluster responses by financial regulators, underscores the necessity for regulatory constructs to emphasize clear and direct accountability standards for both bank management and regulators. Unfortunately, the proposal, as drafted, indicates the FDIC is preparing to move in the opposite direction.”
The senators noted they believe sound corporate governance is necessary, but view the proposal as a “significantly flawed approach to prudential regulation that seeks to micromanage board affairs in a manner that will inject unnecessary uncertainty in key bank management activities.” Additionally, the lawmakers argued it would unduly burden banks in small and rural communities.
The letter was signed by Senate Banking Committee Ranking Member Tim Scott (R-S.C.) and Sens. Thom Tillis (R-N.C.) Mike Crapo (R-Idaho), Mike Rounds (R-S.D.), John Kennedy (R-La.), Bill Hagerty (R-Tenn.), Cynthia Lummis (R-Wyo.), J.D. Vance (R-Ohio), Katie Britt (R-Ala.), Kevin Cramer (R-N.D.), and Steve Daines (R-Mont.).
Financial trade advocates also expressed strong opposition to the proposed updates earlier this year.