On Jan. 4, 2021, Better Markets filed a comment letter on a joint notice of proposed rulemaking that threatens to weaken the role of supervisory guidance in bank supervisions. Supervisory guidance is a critical tool in bank regulation. It can inform the supervisory criticisms that regulators issue to get banks to identify and correct unsafe or potentially abusive practices in their early stages and before widespread harm is done. The banks don’t like this because those criticisms can sometimes lead to ratings downgrades and possible limitations on their plans for expansionary activities until the practices are fixed. That’s why two prominent groups that advocate for the banking industry petitioned regulators for this rule scaling back the role of supervisory guidance.
Fortunately, the agencies rejected the most extreme elements in the industry’s petition, but they granted much of it, including a provision that may significantly restrict the role of guidance. And the agencies offered nothing to show how the rule would actually serve the broader public interest by protecting the safety and soundness of banks or preventing customer abuse.
Our comment letter urges the agencies to withdraw the proposal, or at least limit its scope and state plainly that guidance can and will continue to inform supervisory criticisms of banks. We argued that they should turn their attention instead to the more important task of implementing strong, enforceable rules that are still necessary to better protect consumers, increase large banks’ resilience, and facilitate the orderly resolution of failing institutions.
Better Markets filed the comment letter to the following regulatory agencies: Federal Reserve System, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and the National Credit Union Administration.
Read our full comments here, or by clicking the button below.