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Anna Rose Layden/Bloomberg
WASHINGTON — One takeaway from the Federal Deposit Insurance Corp.’s post-mortem on Signature Bank’s failure this spring was that more than one of the agency’s satellite offices — including the New York regional office that supervised Signature — had persistent staffing shortages up until the bank collapsed.
However, these challenges were not new.
The New York office had repeatedly raised staffing concerns to the regulator’s Risk Management Supervision division as early as 2020, and these concerns persisted for years, according to the FDIC’s post-failure report, which was issued in April.
A number of factors hindered the New York office’s ability to staff-up, the agency said. Those include the high cost of living in the New York metro area, the COVID-19 pandemic as well as competition from other regulators and private firms that can offer more competitive wages and benefits.
The agency increased employee pay and bonus incentives in 2022. Yet, experts and officials agree, this year’s turmoil may necessitate further changes to fill vacancies on teams that supervise large financial institutions.
In order for the agency to attract talent, the FDIC will have to raise wages, which banks would be required to pay for in the form of higher assessment fees, said Mayra Rodríguez Valladares, Managing Principal at MRV Associates.
“I think that there has to be more pay, and with the FDIC, that means you’ve got to raise the [deposit insurance] premium from the banks so that you can pay more, so you can attract caliber,” she said.
Valladares said while most prospective examiners consider far more factors than just pay when accepting a position, the different rates each agency pays affect turnover. Younger employees with less experience are more prone to leave for a higher wage, she said, especially since the pandemic. After all, junior analysts and examiners at the FDIC can earn less than $100,000 annually, short of what is paid in the private sector, or even at other regulatory agencies.
“Typically, the Fed is known to pay more than the OCC and then the FDIC, but there’s other things than pay,” she said. “People who are younger — let’s say they’ve only been there two, three years — and now [in] a situation post COVID, where there’s such demand [for labor], those are the people that tend to be more likely to jump, and go where there’s higher pay.”
An FDIC spokesperson declined to comment at this time on its staffing efforts underway to address the many issues raised by the report.
Agency-generated reports following the historic March bank failures concluded there’s more to effective supervision than staffing, however. The Federal Reserve’s autopsy of Silicon Valley Bank’s demise — another of the major failures of the recent banking crisis — also underscored the need for the agencies to empower examiners when they do identify risks.
The policies of previous administrations may have made some examiners more reluctant to forcefully raise concerns, says Arthur E. Wilmarth, a law professor at George Washington University Law Professor who specializes in banking issues.
He noted that the heads of the FDIC, OCC and Fed during the Trump administration issued a joint statement in September 2018 stipulating that bank examiners could not criticize a bank for violating supervisory guidance, but rather only after institutions behavior met a higher bar: actual violations of laws and regulations.
“That joint statement created considerable uncertainty whether examiner criticisms — such as those contained in matters requiring board attention — would be treated as nonbinding ‘supervisory guidance,’ and the statement could have encouraged bank managements to give short shrift to criticisms contained in bank examinations,” Wilmarth wrote in an email.
According to The Wall Street Journal, during visits with employees, then-FDIC Chair Jelena McWilliams and then-Fed Vice Chair for Supervision Randal Quarles asked bank examiners to be less aggressive when flagging risky practices and pressing firms to change course.
“Both [the FDIC and Fed] reports indicate that [in each case, the agency] did not back up its examiners’ warnings with timely and effective enforcement actions. One can certainly understand why FDIC examiners might become demoralized and more likely to leave the agency. …The Fed’s review of the failure of SVB and the [Government Accountability Office]’s interim review of that failure paint a very similar picture with regard to the actions of the Fed’s examiners and supervisory staff and SVB’s management.”
Valladares says empowering examiners requires more workplace protections so examiners can act without the fear of retaliation.
“They really need a kind of whistleblower protection,” she said. “[At] SVB, those examiners were doing their job. …Someone — either middle management or senior management — stepped in and said ‘it’s OK, let’s give them a higher score, or let’s not push for enforcement.'”
Source: nationalmortgagenews.com