FDIC Chair McWilliams Addresses “Regulatory Tone” In Examinations

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In a speech earlier this year, FDIC Chair Jelena McWilliams provided some insights concerning her vision with regard to bank regulation.  The priorities emphasized included certainty for institutions regarding regulatory expectation, consistency in the examination process, communication, and a reduction in the regulatory burden – all of which, of course, are welcomed news for bankers. 

She also highlighted the distinction in rules and guidance as described in a recent statement regarding Corporation policy. (In essence the Agency has stated their position as they will not enforce guidance issued in conjunction with performing their regulatory duties but rather only official rules.) 

The content of both speeches and the official statement referenced above focus on the Agency-Institution relationship and the management thereof. 

In a more recent address “Principles of Supervision and Your Value to our Nation’s Banking System” at the Banking Institute sponsored by the University of North Carolina School of Law, Charlotte, North Carolina, on March 21, 2019, the Chairman added another element.  This was described as “Regulatory Tone.”

Quoting directly from the content of remarks, she stated as follows: 

One final area I want to address this evening is the overall tone and approach of our examinations. Sometimes we, as regulators, can become so focused on finding shortcomings that we lose sight of the big picture.

This is not to say that our examiners are doing a poor job. To the contrary, they are doing exactly what they are trained to do and, in the vast majority of cases, doing it exceptionally well.

But I compare our examination process to cleaning my house. I live with my daughter, two elderly parents, and two dogs. I am quite skilled at getting rid of dirt and, with two dogs, I have to clean frequently. I promise you that I have a clean house. However, no matter how much cleaning I do, I can always find dog hair. And as I spot little balls of white hair out of the corner of my eye, I have to remind myself the house is clean … because I just cleaned it.

Our examination approach should not be such that we focus more on seeking out dirt than on whether the home is clean (emphasis added).

These statements will obviously be welcomed by the banking community, as many often feel that their efforts to comply with and navigate the complexity of regulatory space are not recognized. Instead, the examination process is often a platform to criticize, highlight flaws, and impose more requirements, thus, indirectly expanding the regulatory burden.

The Chairman again left no doubt that the rules would be enforced when necessary, stating again as she had previously that “if you try to just sweep the dirt under the rug, we will find it.”

However, overall the summation of her remarks conveys intent to improve the agency relationship with the institutions they supervise. 


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