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January 27, 2021

Commenting on a Proposed Rule on Bank Supervision

On Jan. 4, Better Markets filed a comment letter on a proposed rule that threatens to weaken the role of supervisory guidance in bank supervision.
Why it matters. Supervisory guidance is a critical tool in bank regulation. It can inform the supervisory criticisms that regulators issue 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 regulators to downgrade their internal ratings which can limit banks’ plans for expansionary activities until the practices are fixed. Siding with the industry, Trump’s deregulators proposed a rule that would limit the use of supervisory guidance by bank examiners.
What we said. In our comment letter, we urged the five agencies (Federal Reserve System, the OCC, the FDIC, the CFPB and the NCUA) 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.  This will help supervisors ensure that the nation’s banks are engaged in safe and sound practices and do not engage in customer abuses.
Bottomline. The agencies 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.
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