Warren, Reed, Van Hollen, Whitehouse, Blumenthal Call On OCC and FDIC to Rescind Safety and Soundness Proposal That Would Loosen Bank Oversight and Threaten American Families

Warren, Reed, Van Hollen, Whitehouse, Blumenthal Call On OCC and FDIC to Rescind Safety and Soundness Proposal That Would Loosen Bank Oversight and Threaten American Families

"Weakening enforcement and supervisory tools will shield banks from accountability, fuel hazardous risk-taking on Wall Street, and leave consumers and businesses more exposed to the economic pain inflicted by bank failures and financial crises."

Text of Letter (PDF)

Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, with U.S. Senators Jack Reed (D-RI), Chris Van Hollen (D-Md.), Sheldon Whitehouse (D-RI), and Richard Blumenthal (D-CT), sent a letter to the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC), urging them to rescind a proposed rule on "safety and soundness" that would weaken enforcement and supervisory tools, paving the way for more bank failures.

"We write to request that the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) withdraw the recently proposed rule to define "unsafe or unsound practice," which would limit the agencies' ability to initiate enforcement actions against banks that take excessive risks or otherwise operate in a dangerous manner," wrote the Senators.

"Banks play a critical role in our economy, extending credit to businesses and households, operating the payments system, and issuing deposits," wrote the Senators. "Bank failures can harm more than just the bank's private shareholders. They can harm depositors, taxpayers, and economic growth. Weak bank oversight contributed to the 2008 financial crisis, which caused the most severe economic recession since the Great Depression."

The Lawmakers detailed four critical flaws with the proposed rule:

1. The proposed definition would allow examiners to take action only if it is "likely," not merely possible or plausible, that the bank's imprudent conduct will cause harm.
2. The proposed definition would allow examiners to act only if they determine that the likely harm or risk of loss is "material," and the proposed rule fails to even set clear expectations for assessing materiality.
3. In addition to these severe policy flaws, the proposed rule is inconsistent with the plain meaning of the law. Congress placed explicit qualifiers on regulators' ability to exercise certain authorities regarding the likelihood and materiality of financial loss or damage in the same section of the Federal Deposit Insurance Act.
4. The proposed rule goes so far as to limit examiners' ability to issue formal supervisory communications to banks regarding risks, referred to as "matters requiring attention." These formal supervisory communications are not enforcement actions.

The Senators stressed that in the wake of the three largest U.S. bank failures in 2023, it's important we meet this issue with caution, clarity, and intention, to instill a strong supervisory framework for banks. The Trump Administration has actively deregulated Wall Street, leaving businesses, communities, and households more exposed to the harms of another financial crash, especially during the current affordability crisis.

The Senators requested the proposal be withdrawn and OCC and FDIC agencies reverse course swiftly.

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