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The Shredder
The last presidential administration proposed a flurry of new banking regulations. This administration seems intent on shredding them.
This week, in a surprise to absolutely no one, the Federal Deposit Insurance Corp. rescinded several proposals and a policy statement created under the Biden administration. One would have established corporate governance standards for state-chartered nonmember banks above $10 billion in assets, including an expectation that boards “should consider the interests of all its stakeholders, including shareholders, depositors, creditors, customers, regulators, and the public.”
Another proposal would have defined a deposit broker in a way that could have led to a dramatic increase in deposits classified as brokered on some banks’ balance sheets. Regulators consider brokered deposits as riskier than deposits from customers, and banks that aren’t well capitalized are restricted in their use of them.
The FDIC this week also announced it would not publish a proposed rule on incentive compensation that the agency had drafted to comply with the Dodd-Frank Act, effectively killing the proposal. It also rescinded a Statement of Policy on Bank Merger Transactions from 2024 that, among other provisions, would have added public hearings for bank deals that resulted in an institution larger than $50 billion in assets.
What’s next in the shredder? Congress could overturn a bank merger rule finalized last year by the Office of the Comptroller of the Currency using an expedited process known as the Congressional Review Act. Others that could be axed include a rule from the Consumer Financial Protection Bureau capping overdraft fees for banks above $10 billion in assets, as well as one prohibiting lenders from using medical debt to make credit decisions. The medical debt collection rule, which was scheduled to go into effect this month, was delayed by the U.S. District Court for the Eastern District of Texas.
But as much as the industry may be cheering the regulatory rollback, it’s also disruptive. Banks waste a lot of time trying to be compliant amid constant change when a new presidential administration takes power, says David Sewell, a partner at the law firm Freshfields.
“That old adage, ‘It’s hard to build a house on quicksand,’ kind of applies here,” he says. “What is not helpful for a regulated industry like banking is living in a constant state of uncertainty.”
• Naomi Snyder, editor-in-chief for Bank Director
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