Introduction
The Deposit Insurance Fund (DIF) is facing larger costs than expected, with the nation’s largest banks now required to pay approximately $16.3 billion to cover losses from uninsured deposits at Signature and Silicon Valley Bank. This amount has increased from the initial estimate of $15.8 billion. Alongside these growing costs, there is a continued push for the ouster of the Federal Deposit Insurance Corporation (FDIC) chief, Martin Gruenberg. This article will explore the implications of these developments and the potential consequences.
Growing Deposit Insurance Costs
The Federal Deposit Insurance Corp approved a final rule on Thursday, stating that the largest banks would need to contribute more to the Deposit Insurance Fund than initially anticipated. This increase in costs is primarily due to losses from uninsured deposits held by failed banks such as Signature and Silicon Valley Bank. The FDIC canceled a public meeting to address this rule just 15 minutes before it was set to begin, with board members submitting written votes in private. The reason for the change in schedule remains unknown.
Calls for FDIC Chief’s Ouster
Martin Gruenberg, the FDIC chairman, is currently facing allegations of turning a blind eye to sexual misconduct by agency staff. The Wall Street Journal report highlighted interviews with over 100 current and former FDIC employees, including around 20 women who left the agency due to a toxic and sexualized work environment. The allegations came to light just before Gruenberg’s testimony before the Senate Banking Committee, where he claimed not to be generally aware of the allegations but expressed deep concern.
The demand for Gruenberg’s resignation grew stronger as the chairman appeared before the House Financial Services Committee. Chairman Patrick McHenry questioned Gruenberg about any past investigations into misconduct, to which Gruenberg initially denied any investigations. However, he later acknowledged being investigated in 2008, although the complaint was dropped. Several lawmakers, such as Sen. Thom Tillis and Sen. Joni Ernst, called for Gruenberg’s resignation, citing his failure to address the workplace culture and alleged dishonesty.
Potential Consequences and Industry Response
Various lawmakers and industry professionals have voiced their concerns about Gruenberg’s leadership and its impact on the FDIC’s ability to function effectively. Sen. John Kennedy penned a letter urging Gruenberg’s resignation, emphasizing the necessity of a leader with an irreproachable character. However, not all Republicans were as explicit in their calls for dismissal. Sen. Tim Scott suggested that Gruenberg should seriously consider whether he possesses the necessary leadership qualities to restore confidence in the agency.
Democrats, on the other hand, have not called for a change in leadership at the FDIC. Sen. Sherrod Brown proposed an independent and thorough investigation into the agency’s workplace culture by the FDIC’s Office of the Inspector General. The White House also emphasized the need for oversight, urging the swift confirmation of an FDIC Inspector General nominee to fulfill critical oversight responsibilities.
The FDIC’s board members, including the two Republican members, Vice Chair Travis Hill and Jonathan McKernan, have called for an independent review of the agency’s workplace culture. However, they requested that Gruenberg and Harrel Pettway, an FDIC legal official involved in a prior settlement, recuse themselves during the review.
Effects on Deposit Insurance Final Rule and Future Rulemaking
Despite the controversy surrounding Gruenberg and the calls for his ouster, the FDIC has largely kept its May proposal intact regarding the deposit insurance final rule. This decision has drawn criticism from the industry, as some had hoped for a change in the methodology used to calculate payments.
Approximately 114 banks will now pay an annual rate of about 13.4 basis points over eight quarters, starting in June 2024. This is higher than the initially proposed 12.5 basis points. However, banks with less than $5 billion in assets will be exempt from these payments.
The American Bankers Association (ABA) expressed its disappointment with the increased cost of the assessments but acknowledged the positive aspect of smaller banks being exempted from DIF collection. ABA CEO Rob Nichols stated that smaller banks should not bear the burden of increased costs.
A potential leadership change within the FDIC could have significant implications for future rulemaking. The agency had recently proposed an increase in capital requirements for the country’s largest banks in collaboration with the Federal Reserve and the Office of the Comptroller of the Currency. If Gruenberg were to leave, the progression of these key initiatives may be hindered in the near term.
Conclusion
The growing deposit insurance costs and calls for Martin Gruenberg’s ouster as FDIC chief have created turbulence within the organization. The allegations of sexual misconduct and the chairman’s handling of the situation have ignited a push for his resignation. While Republicans are more vocal in their demands for new leadership, Democrats have advocated for a thorough investigation into the workplace culture. The FDIC’s deposit insurance final rule has been approved, with larger banks facing increased costs. However, industry critics have expressed disappointment over the final assessments. A leadership change within the FDIC could have ramifications for future rulemaking and initiatives aimed at financial regulation.
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