Treasury Secretary Scott Bessent emphasized the urgent need for comprehensive reform of financial regulation, advocating for a strategic, forward-looking approach that prioritizes community banks, innovation, and economic growth, while criticizing reactionary policies and outdated capital requirements, and calling for modernization and simplification of the regulatory framework.
Governor Michelle W. Bowman addressed the ABA's Conference for Community Bankers, emphasizing the importance of defining and treating community banks fairly within the regulatory framework. She highlighted the need for effective prioritization of risks, improved transparency, and predictability in the bank regulatory framework, and emphasized the importance of tailoring regulations to the activities and risks of community banks. Governor Bowman also encouraged stakeholders to provide input during the interagency effort to reduce regulatory burden, stressing the significance of preserving the role of community banks in the banking system.
Federal bank regulatory agencies have issued final joint guidance to help banking organizations manage risks associated with third-party relationships, including relationships with financial technology companies. The guidance covers risk management practices for the stages in the life cycle of third-party relationships and includes illustrative examples to help community banks align their risk management practices with the nature and risk profile of their third-party relationships. The final guidance replaces each agency's existing general third-party guidance and promotes consistency in the agencies' supervisory approaches toward third-party risk management.
The Federal Reserve's fight against inflation can only be won if community banks and small businesses are healthy. Community banks primarily serve small businesses, which are the backbone of the economy. The Fed's aggressive interest rate hikes have put pressure on banks, including community banks, which carry more short-maturity, local loans than their bigger counterparts. Rising interest rates have made deposits and loans more expensive for local businesses, entrepreneurs, and real estate developers. The success of small businesses and community banks is integral to the nation's economy, and their success is America's success.
JPMorgan's acquisition of First Republic Bank has forced the Biden administration to defend its stance on mergers, with officials scrambling to explain how their opposition to mergers squares with allowing the largest US bank to get even bigger. While Senator Elizabeth Warren criticized the decision, White House press secretary Karine Jean-Pierre said the acquisition was necessary to ensure the continued resilience of the banking system and came at no cost to taxpayers. The deal comes amid increased discussion among US regulators about tightening rules on bank mergers, with officials growing worried that consolidation could undermine financial stability and leave communities wanting for services.
JPMorgan Chase's acquisition of First Republic Bank has forced the Biden administration to defend its stance on mergers, with officials scrambling to explain how their opposition to consolidation squares with allowing the largest US bank to get even bigger. White House press secretary Karine Jean-Pierre said the deal was necessary to ensure the continued resilience of the banking system and came at no cost to taxpayers. The acquisition comes amid increased discussion among US regulators about tightening rules on bank mergers, with officials growing worried that consolidation could undermine financial stability and leave communities wanting for services.
Community banks, such as Freedom Bank and Three Rivers Bank, are concerned they will have to pay for the $22 billion rescue of Silicon Valley Bank and Signature Bank, despite having nothing to do with their failure. The Federal Deposit Insurance Corp (FDIC) plans to impose a "special assessment" on banks, but has yet to decide which lenders will need to pay that fee. Lawmakers and the White House are considering exempting small, community banks from paying the fee, but smaller lenders could still be impacted by increased regulations and customers moving to larger banks.
The collapse of Silicon Valley Bank (SVB) has raised concerns among depositors of minority-owned banks, who are turning to community banks for financial support. Small banks lost at least $108 billion in the week following the collapse of SVB, which could have ripple effects on minority-owned banks that often work with people of color who are unable to get funding from America's largest banks. Leaders of these smaller institutions are urging the government to step in and provide solutions, including reinstating full deposit insurance coverage for depositors and restarting the program to remove treasury deposits from large banks and into minority depository institutions.
Lawmakers are considering ways to increase the deposit insurance cap, at least temporarily, to prevent depositors from pulling their money out of smaller institutions that have been at the center of recent bank runs. Some lawmakers are in talks about introducing bipartisan legislation that would temporarily increase the deposit cap on transaction accounts, which are used for activities like payroll, with an eye on smaller banks. The midsize Bank Coalition of America has urged federal regulators to extend F.D.I.C. insurance to all deposits for the next two years, saying in a letter late last week that it would halt an “exodus” of deposits from smaller banks. However, some experts warn that enacting broad-based deposit insurance could set out a dangerous precedent, signaling to bank managers that they can take risks unchecked, and leading to calls for more regulation to protect taxpayers from potential costs.
Mid-sized regional and community banks are urging the Federal Deposit Insurance Corporation (FDIC) to insure all bank deposits to prevent bank runs like those that toppled Silicon Valley Bank and Signature Bank. The FDIC ordinarily insures deposits up to a cap of $250,000 per depositor, which leaves balances in excess of that being vulnerable in the event of a bank failure. The uncertainty created by the bank failures along with federal regulators’ response has prompted some customers of mid-sized and community banks to withdraw funds from smaller banks and move them to larger, systemically important banks considered "too big to fail" – a dynamic that could worsen if additional banks fail.
Treasury Secretary Janet Yellen supported President Biden's proposed budget that would accelerate inflation and raise the deficit by $17 trillion over ten years. Yellen claimed that inflation is the nation's number one economic priority while also calling it "temporary." She also ignored how Biden's budget would hurt the economy through $4.7 trillion in tax increases, including painful new levies on small businesses and families. Additionally, Yellen showed no concern for the fate of community banks, whose depositors are currently fleeing in mass to the nation's big banks.
Big banks are investing around $30 billion in First Republic after the collapse of Silicon Valley Bank and Signature Bank. However, lobbyists for small banks argue that community banks should not have to pay for the mistakes of SVB. Any losses incurred by the FDIC will be paid back by a "special assessment on banks" to replenish the fund, which community bank leaders say is unfair. Some lawmakers are introducing legislation to protect consumers and small banks from footing the bill.
Senior GOP lawmaker and former banker, Rep. Blaine Luetkemeyer, has called for the temporary guarantee of all bank deposits in the US to shore up confidence in the financial system and prevent a run on smaller banks. Luetkemeyer's concerns come as community banks try to distance themselves from the risk-taking that brought down larger regional competitors. The Independent Community Bankers of America is calling for stricter oversight on larger financial institutions and to spare community banks from having to pay for the deposit bailout of Silicon Valley Bank and Signature Bank.
