Better Markets filed a Comment Letter to the Federal Deposit Insurance Corporation (FDIC), urging them to adopt improved and enforceable guidelines for corporate governance and risk management structures for the largest banks.

Why It Matters. Unlike most other corporations, the consequences of large banks being poorly run can be catastrophic to innocent hardworking Americans. To avoid that, bank boards of directors are charged with ensuring that banks have robust risk management and internal control frameworks, and effectively overseeing senior management. Unfortunately, those bank boards all failed miserably in 2008, as did the bank boards involved in the 2023 banking crisis, and that contributed significantly to the banking crises, which both times lead to contagion and bailouts.  These crises once again demonstrated how inadequate corporate governance is and how much it needs to be strengthened.

What We Said. The FDIC’s proposal represents a crucial step towards better protecting the financial system from banking collapses and their fallout by raising the standards and expectations for board and management structures at large banks to align with the dangers they pose to the American people. Mismanagement, recklessness, negligence, and ignorance can no longer be tolerated. The proposal has several strengths, including greater detail on expectations for both the board and management, as well as the enforceability of these requirements. We also applaud the FDIC’s support of the need for board diversity but encourage more focus on the need for greater banking expertise. Board members must have sufficient knowledge and skills to effectively fulfill their fiduciary duties at large and complex banks.

Bottom Line. Importantly, this proposal is tailored and targeted at the greatest risks that can cause the greatest damage, which is why it applies to only 57 of the 3,012 banks that the FDIC supervises. The FDIC should promptly approve and implement these long overdue and much needed requirements.

You can find the full letter here.