Banking supervisors need to focus on the “big issues” of safety and soundness and get away from trying to manage banks, former Comptroller of the Currency Eugene Ludwig said today. Ludwig, who led the OCC from 1993 to 1998, was one of four panelists who took part in a discussion on the market outlook for the banking sector during The Clearing House’s annual conference in New York City. Much of that discussion was shaped by the failure of Silicon Valley Bank in March and subsequent economic fallout for banks.
“What’s happened over the last 20 years is an intrusive supervisory environment that goes well beyond focusing on the core safety and soundness of consumer issues and to basically all kinds of management issues that are important, but really banks should have the flexibility to do it their own way,” Ludwig said. He added that core safety and soundness issues would be things like liquidity and capital, although more the former than the latter: “Frankly I think we have gone capital mad,” he said.
Ludwig later pointed to SVB, although he said that regulators unfairly criticized themselves in that example as it was “a very peculiar case” involving multiple factors, including the speed at which deposits fled and “the misuse of the internet” by short-sellers. Still, “if you look at their exam reports [of SVB], there were all kinds of bits and pieces that were criticized that, yeah, were issues, but there was a lack of focus on what the real issue was,” he said. “And I think that weakened the bank and actually made it less well-prepared. When regulators are doing their job, they should be helping the institution. The regulators should have been beating the drum on the basic liquidity problem and mismatch—that is what they should have been doing.”
