The FDIC earlier this week withdrew four planned rules on bank mergers, brokered deposits, corporate governance and the Change in Bank Control Act.
The rules were eliminated as the Trump administration continues to enact major staffing cuts to banking regulatory agencies. The FDIC has already shed 10 percent of its workforce, with more cuts seen as likely. Staffing cuts are also underway at the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency.
Brokered deposits
The FDIC board passed its brokered deposits proposal last summer on a 3-2 vote under former Director Martin Gruenberg. The rule was intended to simplify the definition of a deposit broker, make every entity that partners with an insured depository institution a deposit broker, and change the interpretation of the exception to include the third party’s reason in placing customer funds at a particular institution.
The FDIC, now under Acting Director Travis Hill, now says the plan “would have significantly disrupted many aspects of the deposit landscape.” The proposal was broadly opposed by Republicans, with Reps. Andy Barr of Kentucky, French Hill of Arkansas and 20 other members of the GOP expressing their disapproval in late November.
Gruenberg said the rule was intended to reduce the brokered deposit funding risks worsened by the FDIC’s existing regulations issued in 2020. Gruenberg said the rule opened the banking system to more risk by allowing banks to rely on a third party for all of its deposits without the deposits being defined as brokered. He was also concerned that undercapitalized banks could take advantage of exclusive deposit placement arrangements without being subjected to the same limitations as other banks.
Bank M&A
Announced last year, the FDIC’s proposed bank merger review changes would have included evaluating how a merger would impact the financial strength of the combined bank. The process would have also required the Office of the Comptroller of the Currency to consider the current economic and operating environment when evaluating the financial and managerial resources of the combined bank.
The OCC would have had to consider all consumer compliance enforcement actions, not just those surrounding fair lending or anti-money laundering. The FDIC and OCC would have had to hold public hearings on applications that meet size or public interest thresholds.
“While the FDIC considers broader revisions to its merger policy, the FDIC is proposing a return to its historical approach, which is well-understood by market participants,” according to the agency.
Executive compensation
The executive compensation rule would have established new limits on incentive compensation for executives at some financial institutions. The Dodd-Frank Act required a half-dozen banking agencies, including the FDIC, to issue guidelines or regulations banning incentive-based pay arrangements “that encourage excessive risk-taking at financial institutions with at least $1 billion in assets,” according to the American Bankers Association.
The FDIC board approved the proposal last May, but it hasn’t been published in the Federal Register.
Change in Bank Control Act
The Change in Bank Control Act proposal would have eliminated an exemption to requiring the issuance of a notice to the FDIC to acquire voting securities of a depository institution holding company for which the Federal Reserve analyzes a CBCA notice.
The agency said the corporate governance plan, published in the fall of 2023, “would have created a number of overly prescriptive and process-oriented expectations for management and boards of directors of FDIC-supervised institutions with $10 billion or more in total consolidated assets.”
“If the FDIC pursues regulatory action on these matters in the future, it will do so by publishing new proposals or other issuances consistent with the Administrative Procedure Act,” according to the agency.