Bank regulators are busy evaluating a slew of issues facing the industry months after this spring’s regional banking crisis.
At least one regulator — Travis Hill, the Federal Deposit Insurance Corp.’s vice chair — is concerned that they’re trying to juggle too many things.
“There needs to be more prioritization, more appreciation of the aggregate costs of doing all this simultaneously, and more consideration of the uncertain economic environment,” Hill said at a Thursday event for the libertarian think tank Cato Institute.
Hill let event attendees in on the FDIC’s current agenda, which includes revising capital standards for large banks, imposing a long-term debt solution for big banks in case of failure, evaluating bank merger policy, and considering potential changes to liquidity rules.
The FDIC is looking to mediate supervisory issues, too, to mitigate the risk of another Silicon Valley Bank-esque collapse, all the while having its eye on what climate change means for the future of the banking sector.
“And what I described today is far from an exhaustive list of all items under consideration at the banking agencies, which is in addition to the robust agendas at other financial regulators, such as the Securities and Exchange Commission and Consumer Financial Protection Bureau.”
While a response to the banking crisis that saw some of the nation’s biggest bank failures ever – First Republic Bank, SVB and Signature Bank are three of the top four biggest of all time — is “warranted,” Hill said, “I worry that an overreaction is underway, and that we are moving too quickly to impose a long list of new rules and expectations at a time when conditions remain precarious.”
Federal banking regulators weren’t relaxing prior to the regional banking crisis. Their regulatory agenda was already full of other items, including revamping the far-reaching Community Reinvestment Act.
Regarding the regulatory agenda that’s come up since the dust settled from the banking crisis, Hill emphasized that a proposal approved by agencies in July to undo the tailoring rules for large banks would be a mistake.
“We benefit from having a financial system with banks of many different sizes and business models. As institutions shrink in size and complexity, the relative benefits of more burdensome rules diminish – as banks’ relative systemic importance declines and resolution options broaden – while the relative costs of complying with rules increase – as banks have less economies of scale,” he said. "Eliminating rules and standards that differentiate among types of firms will ultimately lead to a reduction in differentiation among firms themselves, incentivizing further consolidation and homogeneity in its place."