Efforts to Strengthen the Regulation and Supervision of Banks
Blog article
On May 15, 2024, Martin J. Gruenberg, Chairman of Federal Deposit Insurance Corporation (“FDIC”) appeared before the Committee on Financial Services, United States House of Representatives and gave a statement on « Oversight of Prudential Regulators« .
The following is a summary from remarks on the Improving the Management of Liquidity and Funding Risks by Banks as part of FDIC’s efforts to strength the regulation and supervision of banks.
Gruenberg indicated that prompted by the regional bank failures in the spring of 2023, the FDIC has focused on several initiatives to improve liquidity and funding risk management at insured financial institutions and listed out the emphases on:
- The importance of sound liquidity risk management practices and robust contingency funding planning for institutions to manage through liquidity stress.
- A broad range of funding sources that can be accessed during adverse conditions.
- Contingency funding plans should consider a range of stress scenarios: e.g., Federal Reserve’s discount window as part of their contingency funding arrangements.
- Effective contingency funding planning that encompasses the development of operational capability to use secondary sources, including the discount window.
- Testing these arrangements regularly and ensuring that collateral is available.
- Finally, periodic revision of contingency plans and more frequently as conditions and strategic initiatives change.
Gruenberg stated that FDIC continues efforts to improve the supervision of interest rate and liquidity risk management, asset growth, and reliance on uninsured and less stable deposits. He said that while the FDIC regularly monitored uninsured deposit trends across the banking industry, the 2023 bank failures highlighted the potential vulnerabilities posed by elevated reliance on uninsured deposits. To tackle the issue, across the large regional banks, the FDIC relies on a combination of off-site monitoring and on-site supervisory activities to monitor uninsured deposit concentrations.
In addition, Gruenberg described that FDIC examiner guidance has been updated to be more explicit about analyses of uninsured deposit concentrations and reemphasize to examiners the importance of forward-looking indicators of risk, such as high growth rates and breaches of internal risk limits. The agency, he said, also provided examiner training and guidance on interest rate risk and liquidity risk management, including information on discount window operations.
VERMEG REG Desk