In the US banking watchdog space, new heads of agencies are making immediate changes, such as no longer disclosing the total assets on the so-called “Problem Bank List,” so the list only shows the total number of banks on the list and not the assets. The agencies also recently announced their withdrawal from the Network of Central Banks and Supervisors for Greening the Financial System.

And in enforcement news, a regional bank in Michigan recently settled with the Office of the Comptroller of the Currency (OCC). It secured a detailed agreement enumerating the remedial steps it must take to create a more effective compliance program and well-resourced department, insider business transacting program and executive compensation framework.

FDIC adjusts ‘problem bank’ tracking

In its latest quarterly report, the Federal Deposit Insurance Corporation (FDIC) said it is revising its “problem bank” list to say only how many banks have been downgraded by regulators. The FDIC will no longer disclose how many assets are held at those banks.

FDIC Acting Chairman Travis Hill said in a statement that the practice of disclosing how many assets are at problem banks, first established in 1990, has become problematic because the growth of large firms has made it “comparatively easier” to identify when a big bank is added to the list.

Hill said disclosing assets could spur a bank run if the public saw a large jump in total assets on the list and tried to determine which large firm was deemed problematic by watchdogs.

Bank supervisors may also be reluctant to downgrade a large bank, knowing the jump in total assets at problem banks could spark instability, Hill said. Or a large bank could be downgraded for reasons other than deteriorating financial condition (which occurs regularly, Hill observed), prompting customers to withdraw funds out of misplaced fear of insolvency.

Plus, the total assets chart provides limited useful information to the public, he noted, particularly given the subjective nature of ratings and the time lag of disclosure.

The FDIC reported 66 problem banks in the fourth quarter, down from 68 the prior quarter, and overall, the banking sector reported healthy numbers, posting a 5.6% increase in 2024 year-long profits to $268.2 billion. The FDIC said the fourth-quarter profit boost was mainly due to recent short-term interest rate cuts, which helped boost net interest income by $3.8 billion for banks, as interest expenses started to come down and not overpower interest income.

Banking regulators withdraw from NGFS

The FDIC, Office of the Comptroller of the Currency and the Federal Reserve each announced their agencies’ withdrawal of the Office of the Comptroller of the Currency (OCC) from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).

Acting Comptroller of the Currency Rodney Hood explained the OCC’s withdrawal this way: “The OCC’s primary mission is to ensure the safety, soundness and fairness of national banks and federal savings associations. Participation in the Network of Central Banks and Supervisors for Greening the Financial System extends well beyond the OCC’s statutory responsibilities and does not align with our regulatory mandate.”

“While severe weather events may be a broader societal concern, they do not fall within the OCC’s statutory mandate,” he added.

In a short statement, the Federal Reserve said it had “appreciated” working with the NGFS. But it added that the organization “has increasingly broadened in scope, covering a wider range of issues that are outside of the Board’s statutory mandate.”

Five of the Fed’s seven governors voted in favor of leaving the network, including current Chair Jerome Powell. Governors Michael Barr and Adriana Kugler abstained.

Over 140 central banks and financial regulatory agencies around the world are members of the NGFS.

Dearborn Federal Savings Bank & the OCC

The OCC has agreed to remediate its practices around compliance management, fair lending risk management, monitoring for insider activities, crafting new compensation practices, and upgrading its recordkeeping.

The fascinating agreement document details its prescriptive remediation plan for the business. Along with a strategic plan covering its capital expenditures and financial forecast, the bank is required to:

• conduct a board and management oversight study to eliminate the deficiencies in management leadership and board oversight and detailed in the OCC’s Report of Examination in this case;
• strengthen its consumer compliance program with more sufficient staffing and expertise, enhance and offer periodic training on the applicable federal and state consumer protection laws and regulations, craft more effective procedures for reviewing marketing advertisements, and create processes for reviewing customer complaints and identifying the root causes of them;
• hire an independent third party to perform a review and evaluation of the bank’s compensation program for all bank officers and directors;
• create specific guidelines for when the bank may enter into a business transaction with an insider in a business transaction, including a centralized recordkeeping process for all business transactions with insiders in a form that enables an easy and independent review;
• develop an independent and comprehensive internal audit program for adequately assessing the bank’s controls and operations to give a better line of sight to the bank’s board and management into its internal controls system.