ABA, state associations: No justification for proposed board governance rule

A proposed FDIC rule to establish new guidelines for governance and risk management at supervised banks with at least $10 billion in consolidated assets would undermine the safety and soundness of covered institutions and the industry as a whole, the American Bankers Association and 52 state bankers associations said on Friday. In a comment letter, the associations urged the agency to withdraw the proposal and instead explore releasing it as guidance rather than enforceable guidelines.

The FDIC last year proposed the new rule, citing the possibility of large insured institution failures as proof that heightened corporate governance standards were necessary. However, the associations noted that Silicon Valley Bank and Signature Bank were subject to FDIC’s continuous examination process, or CEP, for years before their failures, and the proposed guidelines do not identify how the existing regulatory framework was insufficient to identify and avoid the risks that led to those bank closures.

“Therefore, we strongly urge FDIC to fully withdraw the proposed guidelines and abstain from promulgating any additional heightened corporate governance standards—at least until FDIC can better articulate why its CEP and other components of its existing regulatory framework are insufficient to help it better avoid large insured institution failures,” the associations said. “FDIC should resist a knee-jerk impulse to attempt to avoid similar failures and protect the [Deposit Insurance Fund] by rushing to impose a wide array of highly prescriptive heightened corporate governance standards on dozens of prudently managed, already closely supervised institutions.”