WASHINGTON, D.C.— Shayna Olesiuk, Director of Banking Policy, issued the following statement in response to today’s Federal Deposit Insurance Corporation (“FDIC”) Board Meeting on several issues including Brokered Deposits, Industrial Loan Companies, Resolution Plans, and Uninsured Deposits.

“We applaud the FDIC’s actions today to better protect Main Street Americans and businesses from destabilizing ‘hot money’ brokered deposits, the inappropriate mixing of commerce and banking, the failure to have effective resolution plans, the questionable outside control of banks, and the well-known risks from uninsured deposits.

Brokered Deposits

“The 2020 brokered deposits rule created a giant loophole that has been exploited by fintech and crypto firms at the expense of the safety and soundness of the banking system. The loophole was unjustified, dangerous, and increased the likelihood of liquidity crises, bank failures, and taxpayer bailouts including what we saw in spring 2023. Today, the FDIC Board decided that it would reconsider the definition of brokered deposits, which skyrocketed after the 2023 banking crisis and reached an all-time record high of $1.3 trillion in fourth quarter 2023. We support making the definition of brokered deposits more inclusive of all types of risky ‘hot money’ that could amplify or aggravate a crisis, and impose supervisory penalties on banks that overly rely on brokered deposits.

Industrial Loan Companies

“Keeping banking and commerce separate is critically important to financial stability. Moreover, allowing a bank to rely on a commercial company such as a big-box retailer or automobile company for funding or support is not in the best interest of financial stability or convenience and needs of a community. Today, the FDIC Board approved a proposal that would revise the 2020 rule that allowed commercial parent companies to have too much control over banks and enhance supervision of industrial loan companies. The proposal would also enhance transparency for the public with clear explanation from the FDIC on bank applications that are clearly deficient and not in the public interest.

Resolution Plans

“At its core, the Dodd-Frank Act’s objective was to eliminate too-big-to-fail and the need for taxpayer-funded bailouts. The large bank failures that occurred in the spring of 2023 demonstrated that resolution planning by the banks themselves and the Agencies’ process for assessing these plans both need serious improvement. To be successful, the resolution of a large bank requires significant, careful, and comprehensive preparation before problems arise if a bank has any chance of being successfully resolved without sparking widespread financial instability.

“While today’s guidance does provide much-needed clarity and transparency on regulatory expectations for resolution plans, it falls short. As Better Markets detailed in its comment on the proposal last year, the guidance is not legally binding or enforceable.

Outside Control and Ownership of Banks

“The FDIC Board continued discussion on ways to strengthen regulators’ approach and coordination to investigate large asset managers, such as Blackrock and Vanguard, that own more than $17 trillion dollars in shares at banks. Some of these companies also hold seats on banks’ boards which clearly exceeds passive involvement of these companies at banks and presents a conflict of interest and endangers financial stability. We support stronger supervisory oversight of these agreements.”

Uninsured Deposits

“Deposit runs at Silicon Valley Bank and other banks in spring 2023 revealed the extreme risks that come from certain types of deposits, namely uninsured deposits. In 2023, the FDIC published a study of the risks associated with certain deposit types, specifically those that are uninsured, because of their large size or other complicating factors. One thing is clear though, uninsured deposits bring several risks, including bank liquidity and interest rate risk. Uninsured deposits also increase the cost of bank failures. Today, the FDIC Board approved a request for information that will gather helpful input from the public to inform future decisions on protecting Main Street Americans and the public from dangers associated with concentrations in risky deposit structures.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.