WASHINGTON, D.C.— Dennis Kelleher, Co-Founder, President, and CEO of Better Markets, issued the following statement in response to the FDIC Board’s action today to remove reputation risk from its supervision of banks:
“The Federal Deposit Insurance Corporation (FDIC) Board—which includes the Office of the Comptroller of the Currency—voted to finalize a rule today that should be called ‘Provide More Banking Services to the Jeffrey Epsteins of the World’ because it prohibits bank examiners from considering ‘reputation risk’ when examining a bank. Epstein, a convicted sexual predator and registered sex offender, had a bad reputation and apparently engaged in money laundering and potentially other crimes through several brand-name banks including JPMorgan Chase, Bank of America, Deutsche Bank, and Bank of New York Mellon (several of which have settled legal claims amounting to hundreds of millions of dollars). The FDIC is now prohibiting its examiners from considering that and other types of reputational risk when examining banks for safety and soundness.
“This is a stunning act of regulatory self-sabotage. Considering reputation risk in exams has been a critical tool used for decades to identify misconduct, weak governance, and dangerous banking practices and relationships before they spiral into lawbreaking, bank failures, and systemic crises. When evaluating the safety and soundness of bank practices, it is critical to the protection of depositors, taxpayers, banks, and the banking system for bank examiners to consider all risks regardless of where they come from. The FDIC picking and choosing which risks to consider and blinding its own examiners doesn’t make risks go away—it just allows them to fester unseen and lead to much more costly problems later.
“That’s why a significant number of commenters warned that eliminating reputation risk would strip examiners of essential judgment, reduce supervision to a box-checking exercise, and increase the likelihood of missed risks. The FDIC Board ignoring those warnings was irresponsible, and depositors and the banking system will pay for that in the future.
“Finally, it’s important to remember what today’s action is really about: paying back the crypto industry for its support of the Trump administration. This is part of the administration’s baseless war on so-called ‘debanking,’ which is a cover story for giving favorable treatment to political and financial allies. Today’s rulemaking and the administration’s broader pro-crypto agenda will prevent the proper regulation of the many risks associated with the volatile and socially useless crypto industry, which continues to be the currency of choice for some of the most despicable global criminals.
“This is not just a policy mistake—it is yet another step to the next banking scandal if not crisis. The FDIC’s statutory mission—the very reason it exists—is to ensure the safety and soundness of the banking system and to protect depositors. Today’s decision undermines both.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
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