Arezou

A divided FDIC board has approved a proposal retracting key sections of the agency’s 2020 rule meant to open the way to new ILC charters.  Strongly opposed at the time by now-Chair Gruenberg, the proposal subjects parent companies applying to establish what the NPR calls “captive” or “shell” ILCs to more stringent review when applying for a charter that are likely to lead to denial in most cases.  The NPR also expands the scope of FDIC review when it comes to Change-in-Bank-Control Act (CBCA) notices to charter conversions and certain other actions.  The analysis presented in the proposal along with questions on which it seeks comment suggest the agency could go considerably farther to rein in ILCs, although most additional actions would require new rulemakings.

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After promising almost since the 2023 crisis to do so, Sen. Mark Warner (D-VA) has introduced legislation designed to force the Federal Reserve’s hand to quickly implement discount-window improvements discussed since it became clear in post-failure analyses that operational challenges accelerated bank failures.  The bill also requires the banking agencies to reflect discount-window capacity in their liquidity standards, a change that would make them less onerous even now and perhaps prove necessary under pending requirements for discount-window preparedness that might involve pre-positioned collateral….

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Noting it is committed to developing an inter-agency approach to the issues it addresses in this NPR, the FDIC is seeking to take greater control over holdings in the state non-member banks under its jurisdiction when these come under the Change-in-Bank Control Act (CIBCA), especially when this involves an entity with a passivity exemption from “control” under applicable FRB rules.  The FDIC would not ban large, passive holdings in state non-member banks, but it would likely look askance at at least some, especially when these are in large IDIs that pose the concentration and safety-and-soundness risks identified in this NPR and accompanying questions about still broader …

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Reversing much in its 2020 brokered-deposit standards, the FDIC is proposing a new regime dictating how banks that are less than well-capitalized facing deposit shortfalls may raise funds from third parties, including even their own affiliates. Even well-capitalized IDIs would face significant strategic challenges because many funds now not considered brokered deposits would need to be recategorized as such, triggering costly requirements in current liquidity and FDIC premium-assessment regulation.  Switching to alternative funding sources is likely to prove more costly and, where IDIs rely on swept funds from affiliates, a challenge to business models premised at least in part on broker-dealer and/or investment-adviser synergies.

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In the wake of recent high-profile cases (e.g., Synapse) in which consumers have been put at acute risk, the banking agencies have both reiterated current policy and sought comment on how best to govern relationships that might have an adverse impact on both consumers and affected banks.  Relationships involving deposit products are in the agencies’ immediate sights because they have had the clearest adverse impact when it comes to both fintech and cryptoasset counterparties.  However, the agencies are considering a new framework for bank/fintech relationships that would also affect bigtech and tech-platform companies that have partnered with some of the largest banks to provide payment, credit-card, and other financial services.

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