McWilliams fields questions on bank failures, consolidation, eSLR proposal

The absence of any bank failures in 2018 coupled with the lowest number of troubled institutions since 2007, while good news, hasn’t lulled bank regulators into complacency, according to remarks Thursday by the chairman of the federal bank deposit insurance agency.

During a Q&A session with press following the release of fourth-quarter banking industry data, Federal Deposit Insurance Corp. (FDIC) Chairman Jelena MeWilliams, answering a question posed by a reporter, noted “we have come to more or less the bottom of the barrel” in terms of clearing out the troubled banks list. The agency is aware that “things can only go worse from here.” Knowing that, she said the agency is constantly monitoring for signs of trouble.

Regarding the ongoing consolidation in the industry (70 banks were eliminated through merger last year), McWilliams was asked whether the agency is looking to mitigate that trend. She said a key focus of the FDIC is what impact mergers are having on the communities the banks serve. Often, she said, the agency sees “a consolidating bank as a better bank,” though it’s also cognizant that this can also lead to a community losing a bank presence, particularly in rural areas. “Mergers are going to take place no matter what,” she said, but they’re roughly in line with the long-term trend.

Asked later whether (and when) the FDIC will be joining other bank regulators in the current proposal to revise the enhanced supplementary leverage ratio (eSLR), McWilliams said she’s still considering options. In short, she indicated she wasn’t sure the agency will indeed join in that specific rulemaking.

“My general approach is that agencies should move together,” she said, noting that doing otherwise risks promoting regulatory arbitrage. She said she would prefer to be involved at the proposed rule stage, but she wasn’t at the FDIC when the proposal was issued.

The proposal itself was issued last April by the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC), with then-FDIC Chairman Martin Gruenberg (who is still on the board) opting not to join in over his concerns the proposal would allow too much of a drop in capital requirements for some insured banks. Fed Board Gov. Lael Brainard also voted against issuing it.

As proposed, the measure would modify eSLR standards for U.S. top-tier bank holding companies identified as global systemically important bank holding companies (GSIBs) and certain insured depository institution subsidiaries. It was originally issued for a 30-day comment period, ending May 21, but the Fed and OCC later pushed that to June 25.

McWilliams said she wasn’t sure the FDIC would be joining in this rulemaking since it’s “already out there.” Getting FDIC involved could require a re-proposal or some other action. In any final rule, she said, “I would want to have my mark on the rule itself. I’m not sure exactly what that would entail.”