Consumer Financial Protection Bureau Director Rohit Chopra said Friday he’s open to raising the limit on deposit insurance and suggested community banks could be exempt from having to pay for the failure of Silicon Valley Bank.
“I don’t have any firm conclusions on that, but I’m certainly very open to that,” Chopra, who also sits on the board of the FDIC, told Yahoo Finance when asked whether the level on deposit insurance should be raised.
“Ultimately this is gonna be a decision for Congress because that’s set in the law and will be working with them as they revisit it too.”
Chopra’s comments come as FDIC Chair Martin Gruenberg reviews potential changes to the deposit insurance system after the bank run on Silicon Valley Bank three weeks ago and prepares a report due out by May 1.
Chopra also signaled he agrees with Gruenberg on exempting community banks from new assessments to replenish the deposit insurance fund, which is projected to take a more than $20 billion hit from backstopping uninsured depositors at SVB and Signature Bank.
Gruenberg was asked about the matter by lawmakers during Congressional hearings this week. He said the FDIC does have discretion, but ultimately it’s up to the board to make that decision.
“I think it would be hard to say that community banks played a role in causing this,” Chopra said. “If anything, they are offering a safer way for the system to operate. I think we have to take a hard look about whether we limit or exempt, the smallest and and safely operating banks from having to pay for this.”
The White House also argued Thursday that smaller community banks should not have to pay for the failures of Silicon Valley Bank or New York’s Signature Bank.
2018 rollback to blame
Chopra said Friday a scale back in regulations is responsible for recent bank failures and regulators need to put in place basic protections.
“We’re obviously doing a review to see what went wrong, but there’s no question in my mind that several years ago there was deregulation that occurred, assuming that banks of a certain size would not create risks to the entire economy, and that fundamental assumption was wrong,” said Chopra.
The oversight of regional banks was first loosened in 2018 by the Trump administration. A bipartisan bill redefined which banks were deemed “systemically important” to only include those holding at least $250 billion in assets. At the time of its failure, Silicon Valley Bank has about $209 billion in assets.
On the topic of clawing back compensation from executives at failed banks, Chopra said there needs to be “real accountability on executive compensation so that they don’t take out of control risks.”
“They’ve got to have some skin in the game,” he said. “They’ve got to have the cash on hand to meet when depositors want to get their money out. These are common sense safeguards that we need to make sure are in place.”
Chopra’s comments come as Democratic Senator Elizabeth Warren and Republican Senator Josh Hawley, along with Senators Mike Braun and Catherine Cortez Masto, introduced a bill this week that would require federal regulators “claw back” compensation of executives from the five-year period before their bank fails.
Chopra also says regulators need to face a new reality that social media has sped up the time for how quickly a bank could fail, creating implications for liquidity and capital levels that need to be taken into consideration.
“We’re not [going to] turn back the clock on that, nor should we,” said Chopra. “But it does mean that bank runs can happen more rapidly, they can happen in ways that … are overnight. And we need to take that reality into consideration when setting up the right type of oversight and rules.”
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