The Federal Deposit Insurance Corporation (FDIC) has put forward a pair of proposals that could lead to a change in the way banks are supervised in the US.
The proposals are aimed at restricting its examiners to focus only on core financial risks and limit their authority to address nonfinancial issues.
The first proposal narrows the definition of “safety and soundness” for banks to issues that present a material financial risk to the institution.
Under this proposal, regulators could use matters requiring attention and other enforcement actions only for problems that have caused, or could cause, substantial financial harm to the bank or materially increase its risk of failure.
The second proposed rule would formalise a practice already implemented by the Trump administration, which eliminated the use of socalled “reputation risk.”
Earlier this year, all three major US regulators said they would stop using that standard—one applied when a firm’s activities might generate negative publicity that could harm a bank’s business or trigger costly litigation, reported Reuters.
In a statement, FDIC acting chairman Travis Hill called this standard “ripe for abuse” and said it “adds no value” to bank supervision.
Furthermore, the proposal would also prohibit examiners from pressuring banks to deny services based on political, social, cultural, or religious viewpoints.
Industry groups had long blamed that standard for “debanking,” arguing it led banks to deny services to customers on political or similar grounds, reported the media outlet.
In August, Trump signed an executive order to ensure fair access to banking services for all US citizens. The order instructs federal regulators to ensure that banks do not discriminate against individuals based on their political or religious beliefs, or on the legality of their business activities.
“US regulator to restrict bank examiners’ oversight to strictly financial risks ” was originally created and published by Retail Banker International, a GlobalData owned brand.
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