FDIC’s Hill Defends Narrower Standard For Supervisory Criticism
By CU Today Staff —
ST. LOUIS—Federal Deposit Insurance Corp. Chairman Travis Hill defended recently adopted changes to bank supervision Tuesday, arguing that a narrower standard for supervisory criticism will focus examiners on material financial risks rather than prevent them from identifying problems. Hill made the comments at the Federal Reserve Bank of St. Louis’ annual community banking conference, according to Law360.
The FDIC and Office of the Comptroller of the Currency adopted a joint final rule in August defining when a practice can be considered “unsafe or unsound” and establishing a higher threshold for issuing matters requiring attention, or MRAs. Under the rule, an unsafe or unsound practice generally must have materially harmed a bank’s financial condition, be likely to do so if continued, or present a material risk of loss to the Deposit Insurance Fund. MRAs can also be issued for actual violations of banking or banking-related laws or regulations.
The agencies said the change is intended to move examiners away from an emphasis on policies, processes, documentation and other nonfinancial issues and toward risks that could materially affect an institution. Examiners can still communicate lesser concerns through “supervisory observations,” and weaknesses in policies or procedures can still result in an MRA or enforcement action when they meet the rule’s materiality standard. The rule takes effect Nov. 2.
Hill has argued since the rule was proposed that the collapse of Silicon Valley Bank demonstrated the shortcomings of the previous approach. He noted that most outstanding supervisory criticisms at SVB when it failed did not concern core financial risks and said the goal is to direct examiner attention to “the practices and issues that matter most to banks’ safety and soundness.”
Critics of the rule have warned that requiring material financial risk could make it more difficult for supervisors to intervene before weaknesses become serious, an argument the FDIC and OCC rejected in adopting the final rule.
Originally reported by CU Today.