I spoke with James Palmer at ALM’s Corporate Counsel on reports that the incoming Trump administration will look into cutting the FDIC, among other changes to banking regulation.
From the article:
While the financial sector has bemoaned what they perceive as overregulation under the Biden administration, few bankers, if any, would welcome the elimination of the FDIC.
“It would make bankers very nervous,” said Bill Isaac, who became an FDIC board member in 1978 and was chairman from 1981 and 1985 under President Ronald Reagan. “The FDIC is the glue that holds the whole banking industry together. Getting rid of it is a very bad idea.”
As evidence, Isaac pointed to his seven years with the FDIC, during which the agency handled some 3,000 bank failures, including nine of the 10 largest banks in Texas, the most banking insolvencies since the Great Depression.
[…]
In a report titled “It’s Broken, So Let’s Fix It: A New Path for U.S. Bank Regulation,” Isaac proposed creating a Federal Financial Regulatory Board to update and streamline oversight.
“Our current bank regulatory system is the result of over two centuries of ad hoc ‘band-aid’ fixes to solve specific historical problems and crises, rather than overhauling the system with a design that will work long-term,” the report said. “The result is today’s system, which is complicated, inefficient, and badly broken. While unnecessarily doubling up regulatory attention in some areas, many other areas are allowed to slip through the cracks.”
Under Isaac’s proposal, the FDIC’s bank and regulatory responsibilities would move to the FFRB, but the FDIC would retain responsibility for the deposit insurance fund and troubled bank resolution, while the CFPB would continue to be the primary consumer financial protection agency but would operate with congressional funding independent from the federal government and the FDIC.
But in the end, it’s far easier and traditionally more common to talk about bank reforms than enact them.
Isaac, who serves as chair at the Secura/Isaac Group, an advisory firm headquartered in New York, expects no changes in the near future based on his years of experience seeing ideas and recommendations to improve banking regulations shot down.
“The time for reform is now,” Isaac says. “But if I were a betting person, I would bet nothing will happen.”
Read the full article here.