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Financial Services Law Insights and Observations

FDIC Vice Chairman Discusses Forces of Change in Banking Industry, Proposes Regulatory Relief

Agency Rule-Making & Guidance FDIC ICBA Bank Regulatory

Agency Rule-Making & Guidance

On May 12, FDIC Vice Chairman Tom Hoenig spoke at the Systemic Risk and Organization of the Financial System Conference in California. He delivered prepared remarks on “Financial Markets and Accountability: A Better Way Forward.” Specifically, Hoenig discussed his views on the need for change in the banking industry and how his recently introduced reform proposal would strengthen the financial system and provide regulatory relief and long-term economic growth.

Hoenig argued that his proposal, “Regulatory Relief and Accountability for Financial Holding Companies Engaged in Nontraditional Banking Activities,” would help cure the ills and vulnerabilities of the current U.S. financial system, in which the largest banks have grown disproportionately big with activities that are too consolidated, resulting in a financial system that remains “heavily subsidized, increasingly concentrated, and less competitive.”

Hoenig’s proposal outlines ideas to address too-big-to-fail, enhance financial stability, and return the “safety net to its original purpose of depositor and payment system protection.” The proposal requires the largest banks to hold more capital, while partitioning nonbank activities away from the safety net. Hoenig stated that his proposal is intended to enhance competition by creating a more level playing field between insured and noninsured financial firms. The proposal also inhibits the intermingling of funding and operations between affiliates, which, while advantageous during good times, provides “far greater advantages” during bad times. Hoenig stated this would provide more stability and more consistent economic growth, and facilitate resolution using bankruptcy.

ICBA Support. Independent Community Bankers of America President and CEO Camden R. Fine issued a statement on Hoenig’s remarks, agreeing that “excessive regulatory burdens have exacerbated the dangerous consolidation of the banking industry into fewer and fewer hands,” and that “[t]o combat excessive consolidation and concentration of resources in the largest and most systemically risky financial firms, ICBA advocates comprehensive regulatory relief for community banks.” ICBA recently published a white paper entitled Community Bank Regulatory Relief: A Roadmap to Economic Growth and Prosperity outlining its views on regulatory reform.

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