FDIC Acting Chair Outlines Policy Reforms

FDIC Acting Chair Travis Hill highlighted recent efforts to reform agency policy on De Novo bank formation, digital assets, resolution planning and asset thresholds.   

In a speech before the American Banker's Association, Mr. Hill focused on:

• De Novo Bank Formation. Mr. Hill noted the dramatic drop in new bank charters, pointing out that fewer than 6 new banks per year have formed since 2010. He expressed concern about the long-term "viability" of community banking and suggested reforms to encourage new entrants. These include adjusting capital standards for noncomplex community banks and reevaluating the "deposit insurance application" process for fintech's and industrial loan companies ("ILCs"). Mr. Hill reported that the FDIC is working on a request for information to gather public input on ILC applications.
• Digital Assets and Blockchain. Mr. Hill said the FDIC was taking a more "open-minded" approach to innovation, rescinding a prior approval requirement for crypto-related activities and treating them like other permissible bank activities. He said the FDIC plans to issue further guidance to clarify permissible activities, including the use of public blockchains, stablecoins and tokenized assets. He emphasized the need for clarity on issues such as deposit insurance eligibility for stablecoin reserves and guardrails for "smart contracts" to avoid increased resolution costs in bank failures.
• Resolution Planning. Mr. Hill criticized the FDIC's revised resolution planning rule for over-relying on the "bridge bank model" (or the Silicon Valley Bank approach), which he described as costly and destabilizing. He announced changes to upcoming resolution plan requirements that would emphasize practical preparedness. He said the FDIC will also increase outreach to potential acquirers, including nonbank bidders, to improve marketing and resolution readiness. 
• Asset Thresholds. Mr. Hill noted that many regulatory thresholds, including those used to define large and small banks, "have not been adjusted for many years" to reflect inflation or industry growth. He reported that the FDIC was "inventorying and analyzing" dozens of these thresholds and was considering indexing them to current economic conditions. 

Mr. Hill also said that the agency was considering reforms to the capital framework, including adjustments to the supplementary leverage ratio; and to putting an end to "debanking." He also said the agency will propose a rulemaking on reputational risk, "that would prohibit FDIC supervisors from (1) criticizing or taking adverse action against institutions on the basis of reputational risk and (2) requiring, instructing, or encouraging institutions to close, modify, or refrain from offering accounts on the basis of political, social, cultural, or religious views."