In coming months, the FDIC will seek to clarify that payment stablecoins are not eligible for FDIC pass-through insurance, end restrictions preventing nonbanks from purchasing failed banks, and pursue several changes to its supervision programs, agency Chairman Travis Hill said today at the American Bankers Association’s Washington Summit.
In prepared remarks, Hill said the proposed changes are meant to promote “a pro-growth agenda that supports a dynamic banking system, while still upholding our core safety and soundness mission.”
Stablecoins and deposit insurance
As part of its implementation of the Genius Act, the FDIC is planning to propose that payment stablecoins subject to the law are not eligible for pass-through insurance. The Genius Act is silent on the issue, but treating stablecoin reserves as insured deposits of the stablecoin holder on a pass-through basis would seem to violate the law’s prohibition on deposit insurance for stablecoins, Hill said.
“In my view, we should answer this question definitively by regulation, rather than waiting until a bank that holds stablecoin reserves fails, when different parties may have different expectations on the availability of FDIC insurance,” he said.
Nonbanks and failed banks
The FDIC plans to lower barriers preventing nonbanks from purchasing failed banks to mitigate the hit to the Deposit Insurance Fund following a large bank failure, Hill said. The agency will soon rescind a 2009 policy statement that created several restrictions for the purchase of failed banks, such as conditions on capital standards. It is also working with other banking agencies to possibly create an emergency exception that would enable a nonbank to rapidly set up a shelf charter to bid on a failed institution following a sudden failure.
In addition, the FDIC is working to enhance its understanding of deposit behavior. It recently conducted a study of transaction-level data following the failure of Silicon Valley Bank and two other banks in 2023 and plans to make public some of its findings in coming weeks.
Anti-money laundering policy
The FDIC is working with other agencies to develop a new program rule to implement the requirements of the Anti-Money Laundering Act in a manner that enables banks “to devote more time, talent and technology to the areas that present the highest risk,” Hill said.
The FDIC also is rethinking its supervisory process to encourage banks to adopt new technologies that could be used to identify and report suspicious activity, he added.
“I have heard of some reluctance to adopt these technologies because of fear that examiners will require parallel technology runs, play ‘gotcha’ for past failures that new technologies reveal, or impose costly proofs of performance,” Hill said. “At the FDIC, we want banks to innovate in this space, and we will ensure our supervisory approach encourages it. We want resources laser-focused on risks and outcomes, not rote, mindless processes.”
Compliance and exams
The FDIC is exploring a “range of improvements” to its consumer compliance program. “Our goal is to reorient our focus more towards noncompliance with laws and regulations, and actual harm to consumers, as opposed to policies and procedures, training and other process-related considerations,” Hill said.
As part of a rethinking of FDIC compliance exams, the agency is exploring guardrails around the use of “visitations” outside specified examination cycles, so that they are only used in rare circumstances. It also plans to increase the dollar thresholds that dictate the severity of violations.
Hill also noted the FDIC is working with the other banking agencies to soon issue risk-based capital standards for the largest banks. In addition, they plan to issue a second proposal that would improve risk sensitivity for all banks – other than CBLR banks – particularly in critical lending categories such as residential mortgage lending, consumer lending, and corporate lending.
“The intended result is more lending and a more level regulatory playing field between the largest and smaller institutions,” Hill said.
