Speaking at the American Bar Association Banking Law Committee Annual Meeting, “Principles of Supervision”; in Washington, D.C., FDIC Chair McWilliams described her vision and priorities for the Corporation.
Citing her experiences on both sides of financial industry regulation, she commented on the importance of effective regulation in terms of having safe and sound institutions but also emphasized the symbiotic relationship of institutions and regulators.
Her comments focused on (4) main themes. These are below along with excerpts from her presentation.
Certainty
Business of all types runs on certainty, but the financial regulatory environment often offers very little. It is difficult to comply with rules and regulations when they are always subject to change, interpretation, and cyclical.
The distinction was again pointed out as has been done previously between rules and guidance.
The importance of transparency was emphasized, as well:
A critical component of certainty is transparency. In October, the FDIC launched the “Trust Transparency” initiative to make publicly available previously unpublished FDIC information, including how case managers and examiners implement the risk-focused supervision program, turnaround times for examinations, and guidelines and decisions related to appeals of material supervisory determinations.
Consistency
As regulatory authority is shared among different agencies, both federal and state, interagency consistency was highlighted. This requires communication and cooperation between the agencies.
She also referenced new initiatives:
Additionally, the FDIC has partnered with the FFIEC agencies on an examination modernization project that, among other things, is exploring ways to use technology in the exam process, without compromising on quality. For example, the project team is considering how technology can reduce regulatory burden by shifting examination work from on-site to off-site.
Diligence
Despite the seemingly conciliatory tone toward the industry throughout most of her speech, the Chairwoman left no doubt about her commitment to enforcing the rules when necessary:
And rest assured, if you try to sweep dirt under the rug, we will find it.
Communication
To ensure that our examination process is fair, unbiased, and free of outside influence, we require our examiners to establish a dialogue with bankers and to keep the lines of communication open throughout the examination process. This helps supervised institutions understand what is expected so they can decide how best to comply given their unique circumstances.
The priority here was making it clear what regulatory expectations are, and recognizing that bankers have duties to their institution and customers in addition to their regulatory obligations.
Regulatory Burden
Echoing sentiment often expressed among community banks, the issue of the complexities imposed on smaller institutions was addressed stating we have made our regulatory system way too complicated for the banks that are not that complicated. The key area that was focused on is one that is paramount for many institutions both small and large, and that is capital requirements. The emphasis was not on necessarily lessening capital requirements but simplifying the rules, especially for less complex institutions.
She promised to revisit these in the future as well as carry forward other initiatives.
The speech was delivered on January 11, 2019, and the full text can be found here: https://www.fdic.gov/news/news/speeches/spjan1119.html?source=govdelivery&utm_medium=email&utm_source=govdelivery.
