Senate Republicans press FDIC to withdraw proposed corporate governance rulemaking

Eleven Republicans on the U.S. Senate Banking Committee are concerned that a proposed rulemaking by the Federal Deposit Insurance Corporation (FDIC) regarding standards for corporate governance contains several issues and flaws that collectively will hinder safety and soundness within the nation’s financial system.

The senators noted that while there’s a necessity for regulatory constructs to emphasize clear and direct accountability standards for both bank management and regulators, the proposed rulemaking, as drafted, indicates the FDIC is preparing to move in the opposite direction.

“While we agree that sound corporate governance is a necessity, the proposal represents a significantly flawed approach to prudential regulation that seeks to micromanage board affairs in a manner that will inject unnecessary uncertainty in key bank management activities,” the lawmakers wrote in a July 31 letter sent to FDIC Chairman Martin Gruenberg.

“It will unduly burden banks that serve and operate in small and rural communities,” the senators wrote. “And, perhaps most concerningly, the proposal lacks consensus support among FDIC leadership, is out of step with other prudential regulators, and actively opposed by state supervisors.”

In their letter, the lawmakers called for withdrawing the FDIC’s notice of proposed rulemaking and issuance of guidelines entitled “Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions with Total Consolidated Assets of $10 Billion or More.”

The lawmakers who signed the letter were U.S. Sens. Thom Tillis (R-NC), Tim Scott (R-SC), Mike Crapo (R-ID), Mike Rounds (R-SD), John Kennedy (R-LA), Bill Hagerty (R-TN), Cynthia Lummis (R-WY), J.D. Vance (R-OH), Katie Boyd Britt (R-AL), Kevin Cramer (R-ND), and Steve Daines (R-MT).

Specifically, they wrote that the FDIC’s proposal seeks to impose a litany of requirements on bank Board of Directors that functionally remove the distinction between senior management and bank Boards. It also would require that bank Boards “ensure” and “confirm” bank safety and soundness, effective risk governance, and legal compliance; and that banks abide by Board composition standards that are out-of-touch and unrealistic, especially for smaller institutions.

The FDIC’s proposed rulemaking also contradicts numerous state corporate governance laws, creating regulatory imbalance or even regulatory arbitrage, according to their letter.

The senators also pointed out that the proposed rule is opposed by numerous stakeholders and other financial regulators, such as the Conference of State Bank Supervisors and several state banking commissioners.

They asked Gruenberg to answer several questions by Aug. 16, such as whether the FDIC should pursue broad material changes if it ultimately does not withdraw the proposal.

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