WASHINGTON, D.C.— Dennis Kelleher, President, CEO, and Co-founder of Better Markets, issued the following statement in response to the FDIC Board’s actions today related to reputation risk and supervisors’ identification of unsafe and unsound practices in banks.

“In a blatantly political move that will increase lawbreaking, victimize investors and depositors, and result in more bank failures and bailouts, the FDIC Board took action today that will open banks’ doors to sex-traffickers like Jeffrey Epstein, crypto criminals like Changpeng Zhao (‘CZ’) and Sam Bankman-Fried (‘SBF’), and egregiously poor management at Silicon Valley Bank (‘SVB’). The FDIC’s decisions put blindfolds on bank supervisors, forcing them to ignore risks and wrongdoing unless the activities affect a bank’s financial condition. The sad truth is that Jeffrey Epstein was very good for business at JPMorgan Chase and other banks; SBF and CZ were also lucrative clients of many financial institutions; and SVB benefited from not having a chief risk officer, until it didn’t, went bankrupt, and had to be bailed out.

“These aren’t isolated or rare occurrences. Banks have a long history of dangerously poor management, not operating safely or in compliance with rules and laws, as well as outrageous unethical behavior, as Better Markets has detailed in multiple Rap Sheet reports over the years. That’s why banks have been required to look beyond strictly financial matters to determine if there are unacceptable risks arising from reputation and other non-financial facts and circumstances. Unethical and risky activities that do not directly affect a bank’s bottom line can and do lead to significant losses, bank failures, taxpayer-funded bailouts, and economic instability. But now the FDIC is effectively prohibiting banks and bank supervisors from looking at such material factors.

“Today, the FDIC Board issued two rule proposals:

• First, FDIC bank supervisors will no longer identify reputation risk at banks, bending to the demands of the Trump Administration just like the Federal Reserve and Office of the Comptroller of the Currency did earlier this year. However, this is pure deception based on fake trumped up claims of “debanking.” The Trump Administration and the regulatory agencies claim that the change in supervisory focus will enable fair access for all to the banking industry. But their real goal is to blindfold and handcuff banking supervisors, which will inevitably result in unethical and dangerous actors gaining access to banks for funding.
• Second, FDIC bank supervisors will now be constrained and limited in using Matters Requiring Attention (‘MRAs’) to identify, document, and stop dangerous activity at banks. MRAs are used by supervisors as an early-warning system to stop banks’ behavior that could lead to more serious problems later. This system was developed to encourage banks and their supervisors to look for, find, analyze, and mitigate risk, rather than waiting until it grows into a bigger, more serious, more costly, and more dangerous problem.

“The American people rely on bank supervision experts at the FDIC and other federal banking regulatory agencies to recognize and take action to stop dangerous activities that threaten the stability of banks and the financial system. Doing that job well requires them to be on heightened alert for new, novel, untested, unknown, and potentially dangerous risks whether they affect a bank’s financial condition today or not. The FDIC’s record of doing that has made it the gold standard in protecting Americans’ savings. Today’s action threatens that gold standard and will directly undermine FDIC supervisors from doing their jobs, and all Americans will pay the price.”

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Better Markets is a non-profit, non-partisan, and independent organization founded 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.