On February 5, a coalition of Democratic senators published a letter sent to the FDIC and OCC, requesting that the agencies withdraw a proposed rule redefining “unsafe or unsound practice” for banks (covered by InfoBytes here). According to the senators, the proposed redefinition would limit the agencies’ ability to take enforcement actions against banks that engage in risky conduct and could restrict supervisors from identifying and communicating risks early. The senators stated that weakening enforcement and supervisory tools would shield banks from accountability and increase exposure to economic harm resulting from bank failures.
The senators outlined four concerns with the proposed rule: (i) it would require examiners to act only if harm is “likely,” rather than possible; (ii) it would mandate that harm be “material” in order for examiners to act, without clear standards for materiality; (iii) it would conflict with the FDI Act, which the senators assert does not require such qualifiers for “unsafe or unsound” practices; and (iv) it would limit examiners’ ability to issue formal supervisory communications about risks. The senators cited recent bank failures in 2023 and the belief that the failure was due to examiners’ “failure to remediate [liquidity risk] through forceful supervisory and enforcement action fast enough.” The Senators called for the proposal’s withdrawal, warning that further restricting examiners could lead to more bank failures and economic harm.
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