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Home Compliance and Risk

OCC’s Hsu discusses deposit insurance reform, domestic bank regulation

January 2, 2025
Reading Time: 2 mins read
Hsu: Divestiture best solution for banks ‘too large to manage’

Acting Comptroller of the Currency Michael Hsu speaks during a 2023 event at the Brookings Intuition in Washington, D.C.

Federal agencies have changed their supervisory practices regarding liquidity risk management since the failure of Silicon Valley Bank, but only regulation can provide the public confidence needed to guard against future bank runs, outgoing Acting Comptroller of the Currency Michael Hsu said.

During an interview on IntraFi’s Banking with Interest podcast, Hsu spoke on a wide range of issues, including managing liquidity risk and his proposal to create a new category of large domestic banks with heightened regulatory expectations. He said that after SVB, banking regulators used their supervisory authority to ensure the liquidity risk profiles of their supervised banks were safe and sound. The problem is that supervision isn’t transparent in the way regulation is, he added.

“Rulemaking would really help, basically taking what we’ve done on a supervisory basis and put that into regulatory language that’s transparent, clear to everyone, ensures there’s a level playing field [and] has all the benefits of a transparent rulemaking,” Hsu said.

When it comes to regulatory reform, solving the public stigma for using the discount window is crucial, as there is no other way for banks to get same-day liquidity, Hsu said. The acting comptroller also cited a need for deposit insurance reform, saying he favored expanding the program to provide additional coverage for business transactions and business payment accounts. The problem is the banking industry can’t agree on the type of deposit insurance reform it wants, he said. “If you can get agreement on a single option, that will provide the impetus for Congress to coalesce around that we can get this done.”

DSIBS

Hsu has previously suggested that banking agencies should consider creating a heightened regulatory and supervisory framework for “systemically important” domestic banks like that in place for global systemically important banks. Asked about his proposal for “DSIBs,” Hsu again pointed to SVB, saying it showed there are some non-GSIB domestic banks that pose a systemic risk to the financial system if they were to fail in a disorderly way.

“What are we going to do about that?” Hsu said. “And it shouldn’t be the full Monty that applies to GSIBs because they’re not GSIBs. It’s something less than GSIB but it’s something more than just a regular bank.”

Hsu cited the interagency proposal for a long-term debt requirement for banks with more than $100 billion in assets as one example of regulators holding larger domestic banks to higher standards than smaller banks.

“At the end of the day, we’re not doing this to propose strangling the banking system,” Hsu said. “We want to let the banking system run. That’s what’s best for both the banking system and for the communities they serve. But like I say all the time, the better a car’s brakes, the faster you can drive it safely.”

Tags: Bank closuresDeposit insuranceLiquidityOCCRegulatory burden
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