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Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB) and a member of the Federal Deposit Insurance Corp. (FDIC) board of directors, has expressed reservations regarding two aspects of FDIC’s proposed rule aimed at reducing the risk associated with large bank failures.
Chopra made his statements ahead of the FDIC board’s approval of a notice of proposed rulemaking, which will remain open for public comment until November 30 before being finalized.
One aspect of concern to Chopra is the FDIC’s proposed debt requirement for banks with assets exceeding $100 billion. He termed the $100 billion threshold as “somewhat weird,” highlighting instances where banks below this threshold posed significant threats to the banking system due to factors like high levels of uninsured deposits or rapid growth. He suggested that institutions below this threshold should be evaluated for similar requirements.
Chopra also addressed the FDIC’s proposal that banks crossing the $100 billion threshold in the future be granted a three-year transition period instead of an immediate effective date. He acknowledged the need for banks to adapt to new requirements but emphasized the need to reassess such transition periods for banks that cross regulatory thresholds after the rule has been in place for a while.
The FDIC’s proposed rules are designed to ensure that banks’ long-term debt absorbs losses before uninsured depositors and the FDIC face losses, thus disincentivizing uninsured depositors from running.
Chopra’s remarks came ahead of the FDIC’s joint meeting with the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency to discuss the proposed rule.
This regulatory move aims to secure banks against failures and is prompted by macroeconomic developments, such as President Bola Tinubu’s formation of the economic cabinet. Additionally, factors within the fixed-income market played a role in shaping the market’s performance.
However, despite these advancements, the challenges of maintaining a robust economy and sound financial institutions remain crucial considerations.
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