Tomorrow, February 4th, will mark my last day as the 21st Chairman of the Federal Deposit Insurance Corporation (FDIC). I would like to thank the Bipartisan Policy Center and Jason Grumet for giving me an opportunity to share my closing remarks.
As I reflect upon my tenure, I was taken aback by a stark fact: more than one-half of my tenure – 100 of the 192 weeks that I served as FDIC Chairman – has been under the declaration of the National Emergency due to the COVID-19 pandemic.1
Now, the FDIC is no stranger to crises. It is an institution born of crises that has successfully managed many crises since its founding in 1933. I knew that, going into this job, we could, hypothetically speaking, have a crisis of some kind. What I could not possibly have anticipated was that the crisis we would have on our hands would be unlike any other the FDIC has endured.
While no life experience can fully prepare a person for one of these jobs – let alone a job of running an agency tasked with maintaining financial stability in the middle of unprecedented instability caused by a global pandemic – some life experiences are indeed very useful.
Last summer, as I commemorated my 30th anniversary of having immigrated to the United States, I could not help but reflect on the moment when I first landed at San Francisco Airport on my 18th birthday, with $500 in my pocket. My story is not different from that of many of the tired, poor, huddled masses yearning to breathe free2 who see the United States as a land of opportunity. And like millions before me and millions after me, when you arrive in the United States with very little, and struggle to survive, you quickly learn three things:
- Take nothing for granted: our freedoms, opportunities, hopes, and dreams are unique and achievable;
- Learn as much as you can about everything: knowledge is power and, once acquired, an obligation; and
- Be flexible: the only constant is change and change necessitates agility.
That is how I approached my role at the FDIC in 2018, long before the onset of the pandemic. I wanted to learn how did we get to the set of issues before us? What could a banking regulator do to foster a resilient and competitive financial system that enables people from all walks of life to achieve their American Dream?
I. Financial Stability
Let me start with financial stability. The FDIC was established to maintain stability and public confidence in the nation’s financial system.
While March and April of 2020 may seem like a distant memory, back then the crisis was shocking in its severity and speed. The economy entered into the deepest recession in the post-World War II era, contracting 31.2 percent in the second quarter on an annualized basis. We lost 22.4 million jobs in March and April. The S&P 500 index plummeted 33.6 percent by March 20th from its recent high, liquidity in U.S. Treasury markets deteriorated rapidly, and many other markets came under significant stress.
The story of how financial regulators, central banks, and the global financial system responded to the pandemic is one of great success. Only three banks failed since the start of the pandemic, and none due to the pandemic itself. 3 At the FDIC, we took a broad array of actions to maintain stability in financial markets and provide flexibility to allow banks to work with their customers and support the economic recovery.4 We worked hand-in-hand with our regulatory counterparts in a coordinated fashion and with remarkable speed to prevent the shock of the pandemic from irreparably damaging our economy and banking system.
Technology was an incredible asset – the FDIC and the institutions we regulate were able to transition to a remote working environment literally overnight, yet financial markets continued to function, and FDIC exams proceeded as scheduled. We closed a failed bank in the early weeks of the pandemic using an entirely new playbook and we sent only ten employees onsite rather than the usual 70.
Even throughout the pandemic, we have continued to prioritize improving supervision and resolution planning for large banks. In 2019, I announced the creation of a new division – the Division of Complex Institution Supervision and Resolution (CISR) – to centralize, for the first time, our supervision and resolution activities for the largest banks.5 Combining resolution and supervision allows information, resources, and expertise to be shared in advance and to be readily available in the event of a crisis.
We have also continued to improve resolution readiness. The U.S. global systemically important banking organizations – the GSIBs – have implemented significant structural and operational improvements that have enhanced their resolvability in bankruptcy. We have remained focused on ensuring that firms continue to enhance, test, and operationalize their capabilities and systems to implement an orderly resolution if needed. We have also further built out our own resolution capabilities at the FDIC, including by conducting a series of operational exercises to practice carrying out key resolution functions.
The FDIC has also modified its approach to resolution planning for regional banks. The modified approach places greater focus on direct engagement with firms and capabilities testing, while streamlining content requirements for resolution plans.
Recordkeeping at Banks
We implemented a recordkeeping rule6 which requires large banks to configure their IT systems to calculate the insured and uninsured amount in each deposit account to help ensure that the FDIC can delivery timely payments to depositors if a large bank were to fail. In April of 2021, the 25 largest banks came into compliance with this rule and, while more work remains to be done, they have been able to demonstrate the ability to deliver an insurance determination for the vast majority of their deposit accounts.
Deposit Insurance Simplification
The FDIC recently simplified the deposit insurance rules for trust accounts to facilitate a quicker and less burdensome resolution if a bank with a large number of trust accounts were to fail.7 In 2008, when IndyMac Bank failed, FDIC claims personnel needed to contact more than 10,500 depositors to obtain the necessary trust documentation. This process took several months to complete, during which a large number of insured depositors could not access insured funds.
We also devoted substantial time to addressing the significant challenges the FDIC might face if a bank holding deposit accounts from numerous large prepaid card programs were to fail. Although FDIC Board members were unable to reach agreement on a path forward, given the increasing popularity of prepaid card products, particularly among lower-income households, this is an issue that continues to warrant attention.
Central Counterparties (CCPs)
Important preparations also continue to enhance the FDIC’s readiness if it is ever called upon to resolve non-bank firms, such as CCPs. CCPs play a critical role in the financial system – their clearing services are central to U.S. financial markets – and accordingly, we have been keenly focused on resolution outcomes that avoid or mitigate serious adverse effects on U.S. financial stability and ensure that CCPs' critical services remain available.8 The FDIC has continued to engage with domestic and international counterparts to further develop policies and resolution strategies for CCP resolution. This work also remains a priority at the Financial Stability Board’s Resolution Steering Group, where I recently served as Chair.9
We have continued to prioritize the importance of strong capital levels, particularly at our nation’s largest banks. The lead depository institutions of the eight U.S. GSIBs grew their capital levels over the last several years despite stressful economic conditions, owing to rigorous capital requirements that were in place entering this period. The weighted average CET1 capital ratio at these institutions increased from 12.9% in 3Q2018 to 14.5% as of 3Q2021. Capital adequacy remains robust across the broader industry as well, including in the community banking sector. This strong capital position allowed the banking industry to serve as a source of strength to help individuals and small businesses navigate through the economic stress generated by the pandemic.
Looking forward, as the banking agencies consider modifications to the regulatory capital rules pursuant to the so-called “Basel III endgame,” careful consideration should be given to the strong capital levels currently in place across the banking system, including at the largest banks. I am hopeful that revisions to the capital framework will reduce complexity and rationalize the many calculations necessary to determine capital adequacy. Similarly, these modifications should be thoughtfully incorporated to minimize advantages or disadvantages to banks of different sizes or different business models, and the agencies should be mindful of any additional burdens imposed on small banks. The banking system is healthy, and this reality should be a key consideration as the agencies weigh revisions to the capital framework.
II. Promoting competition, innovation, and inclusion
I will turn now to competition, innovation, and inclusion – the guiding principles of my chairmanship that helped forge the most vibrant financial market in the world. From day one of my tenure, we set out an aggressive agenda to ensure the FDIC’s policies, supervisory approach, and engagement strategy supported these goals.
Enhancing competition in the financial services marketplace is more than just looking at the number of banks in the United States. It requires looking deeply at the pressure on banks to scale, the costs of IT modernization, regulatory compliance costs, the rise of non-bank competitors, and the changing expectations of customers. We embarked on a number of initiatives to address these deeper issues.
We took a number of steps to encourage de novo activity,10 such as revising our process for reviewing deposit insurance proposals to provide initial feedback to organizers on draft applications prior to submission.11 During my tenure, the FDIC has approved deposit insurance applications for 49 de novo banks, compared to just ten approvals between January 1, 2011 and June 5, 2018.12
Innovation is the critical ingredient that fosters both a competitive banking sector and one that supports financial inclusion by democratizing finance. More competition spurs new products and services, and cuts costs for those products, increasing consumer access to the financial system.
We created FDITECH, an innovation lab13 and a collaborative forum for regulators and the private sector to better understand new technologies, identify regulatory impediments to innovation, and create solutions to specific challenges through tech sprints.14 Our first rapid phased prototying competition focused on providing regulators with more timely and granular access to bank data, and these creative solutions will soon be tested in a pilot program.
Supporting Third-Party Partnerships
Innovation requires a significant investment of resources, from procurement and deployment of technologies to hiring and training a skilled workforce. Independently developing and deploying new technology can be difficult for community banks because of economies of scale. That is why partnering with a fintech that has already developed, tested, and rolled out new technology can be critical for a small bank.
Yet the on-boarding and due diligence process can be costly and time consuming. In July 2020, we proposed a public/private organization to establish standards for due diligence of vendors and their technologies.15 The FDIC would participate with industry and other stakeholders to develop these standards. Fintechs could then voluntarily submit their technologies to this certifying organization to verify conformance to the applicable standards. In turn, banks could rely on such certification to efficiently on-board the vendor. Although my time at the FDIC is ending, I continue to encourage the agency and our regulatory partners to pursue this initiative.
Another key aspect of our pro-competition agenda has been modernizing a broad range of our rules while maintaining our core safety and soundness focus. Implementation of S. 2155,16 modernizing our brokered deposits rules,17 simplifying the Volcker Rule,18 and tailoring application of enhanced prudential standards19 were among the FDIC’s many achievements in recalibrating our rules to strike the proper balance between safety and soundness and promoting economic growth and innovation.
We also took other steps to promote good government. For example, we established a new Office of Supervisory Appeals to hear appeals by banks of supervisory determinations made by examiners.20
Over the past few months, the banking agencies have focused intently on crypto assets. While activity in crypto markets has exploded in recent years, banks' engagement in such activity remains limited, despite substantial demand. A key reason for this lack of engagement by banks is legal and regulatory uncertainty and the need for supervisory clarity.
In November, the banking agencies issued a joint statement laying out a roadmap for work the agencies plan to complete in 2022.21 I urge the agencies to continue pushing forward with this work and to focus on articulating policies that give banks and the public a clear understanding of supervisory expectations.
One workstream has focused on bank-issued stablecoins – which could provide for faster, cheaper, and more efficient way to move money from place to place.22 A key question that the FDIC has been carefully exploring is whether a stablecoin, or the funds represented by a stablecoin, meets the definition of “deposit” under the Federal Deposit Insurance Act, and relatedly, whether stablecoins could be eligible for deposit insurance. These are critical questions with major ramifications for the evolution of stablecoins.
My personal view is that generally bank-issued stablecoins closely resemble digital representations of deposits. I urge the FDIC to build off the work we have done and provide clarity to the public as soon as practicable, which could include promulgating amendments to the deposit insurance rules.
With respect to the broader interagency stablecoin work, I encourage the agencies to be mindful of the many possible iterations of stablecoins we may see, and to avoid a one-size-fits-all approach. For example, the regulatory framework for a GSIB issuing stablecoins may need to be very different from that of a $1 billion bank. Likewise, a bank experimenting with stablecoins as a small percentage of its business likely warrants a different regulatory approach from a bank whose sole business is stablecoin issuance.
I have placed great emphasis during my tenure on inclusion both in our financial system and at the FDIC. Two weeks ago, in collaboration with the National Bankers Association, I delivered a speech on why regulators must think outside the box in order to advance diversity and inclusion across financial services and inside the agencies.23 In the interest of time, I will not repeat those remarks here, but will mention two things I am especially proud of: the creation of The Mission-Driven Bank Fund24 to drive capital investment and other funding to support low- and moderate-income, minority, and rural communities, and the cultural shift at the FDIC to make sure that our workforce feels heard, valued, and appreciated. I encourage those interested in more details on how we were able to achieve what many have described as “impossible” to read that speech.
Three and a half years ago, I assumed the chairmanship of the FDIC determined to support the American dynamism that allows someone like me to reach my highest potential. Not a day passed by when I did not think about how rare – perhaps unthinkable – it would be in many countries for a foreign-born girl with a hard-to-pronounce name, no money, and no connections to someday become chairman of an important federal government agency. But 30 years ago, this foreign-born girl made a journey to the best – likely the only – country in the world where that would be possible.
Guided by a firm belief that the role of government in our society is to promote, not inhibit, growth and innovation, I challenged myself and the FDIC staff to think outside the box to support a thriving, competitive, and innovative banking system that will continue to propel this nation forward.
In closing, as our American values, culture, and influence face increasing competition from abroad, the FDIC has demonstrated that with ingenuity and agility, we can support an innovative banking system that allows our banks to continue to be the “nurseries of national wealth”25 while enabling more people to benefit from it.
None of these achievements would have been possible without the committed staff of the FDIC who have my profound gratitude. I am humbled by their dedication to the FDIC’s mission and honored to have served with them.
1 See White House, Notice on the Continuation of the National Emergency Concerning the Coronavirus Disease 2019 (COVID-19) Pandemic (Feb. 24, 2021), available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/notice-on-the-continuation-of-the-national-emergency-concerning-the-coronavirus-disease-2019-covid-19-pandemic/.
2 Emma Lazarus, The New Colossus (1883).
3 See FDIC, Failed Bank List, available at: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/.
4 See Statement of Chairman Jelena McWilliams on Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions (May 19, 2021), available at https://www.fdic.gov/news/speeches/2021/spmay1921.html.
5 See FDIC, FDIC to Centralize Key Aspects of Its Large, Complex Financial Institution Activities (June 27, 2019), available at https://www.fdic.gov/news/press-releases/2019/pr19056.html.
6 12 C.F.R. Part 370; see also Statement of Chairman Jelena McWilliams, Issuance of a Final Rule on Recordkeeping for Timely Deposit Insurance Determination (July 16, 2019), available at https://www.fdic.gov/news/speeches/2019/spjul1619.html.
7 See Statement from Chairman Jelena McWilliams on the Notice of Proposed Rulemaking for Deposit Insurance Simplification (July 20, 2021), available at https://www.fdic.gov/news/speeches/2021/spjul2021.html.
8 See, e.g., Chairman Jelena McWilliams remarks to the IIF-BPI Cross Border Resolution & Regulation Colloquium, July 1, 2019, available at https://www.fdic.gov/news/speeches/2019/spjul0119.html.
9 See FSB Appoints New Chairs to Key Committees (Oct. 19, 2021), available at https://www.fsb.org/2021/10/fsb-appoints-new-chairs-to-key-committees/.
10 See Jelena McWilliams, We can do better on de novos, American Banker (Dec. 6, 2018), available at https://www.americanbanker.com/opinion/fdic-chairman-jelena-mcwilliams-we-can-do-better-on-de-novos.
11 See FDIC, Review Process for Draft Deposit Insurance Proposals, FIL-82-2018 (Dec. 6, 2018), available at https://www.fdic.gov/news/financial-institution-letters/2018/fil18082.html.
12 See FDIC, Decisions on Deposit Insurance (excluding shelf charters and spin offs), available at https://www.fdic.gov/regulations/laws/bankdecisions/depins/index.html.
13 See FDIC, FDITECH Webpage, available at https://www.fdic.gov/fditech/index.html; Keynote Remarks by Chairman Jelena McWilliams on the “The Future of Banking” at The Federal Reserve Bank of St. Louis (Oct. 1, 2019), available at https://www.fdic.gov/news/speeches/2019/spoct0119.html.
14 See, e.g., FDIC, FDITECH Launches Tech Sprint to Reach More Unbanked People, FIL-43-2021 (June 16, 2021), available at https://www.fdic.gov/news/financial-institution-letters/2021/fil21043.html.
15 See Request for Information on Standard Setting and Voluntary Certification for Models and Third-Party Providers of Technology and Other Services, 85 Fed. Reg. 44890 (July 24, 2020), available at https://www.govinfo.gov/content/pkg/FR-2020-07-24/pdf/2020-16058.pdf; Chairman Jelena McWilliams on “Creating a Financial System of Inclusion and Belonging,” Keynote Speech before The University of Chicago Law School and American Financial Exchange Webinar on "The Role of Minority Depository Institutions and Innovation in the Age of COVID-19" (Aug. 26, 2020), available at https://www.fdic.gov/news/speeches/2020/spaug2620.html.
16 See FDIC, Transparency & Accountability - EGRRCPA (S. 2155) Rulemakings, available at https://www.fdic.gov/transparency/egrrcpa.html; Remarks by Chairman Jelena McWilliams at the Federal Reserve Bank of Chicago Thirteenth Annual Community Bankers Symposium “Back to Basics” (Nov. 16, 2018), available at https://www.fdic.gov/news/speeches/2018/spnov1618.html.
17 See Statement by Chairman Jelena McWilliams on the Combined Final Rule on Brokered Deposits and Interest Rate Restrictions at the FDIC Board Meeting (Dec. 15, 2020), available at https://www.fdic.gov/news/speeches/2020/spdec1520b.html.
18 See Statement by Chairman Jelena McWilliams, Final Rule: Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (Aug. 20, 2019), https://www.fdic.gov/news/speeches/2019/spaug2019.pdf; (June 24, 2020) https://www.fdic.gov/news/speeches/2020/spjun2520a.html.
19 See, e.g., Changes to Applicability Thresholders for Regulatory Capital and Liquidity Requirements, 84 Fed. Reg. 59230 (Nov. 1, 2019), available at https://www.fdic.gov/news/board-matters/2019/2019-10-15-notice-dis-a-fr.pdf.
20 See FDIC, FIL 04-2021, Revised Guidelines for Appeals of Material Supervisory Determinations (Jan. 19, 2021), available at https://www.fdic.gov/news/financial-institution-letters/2021/fil21004.html; Statement by FDIC Chairman Jelena McWilliams on Changes to Supervisory Appeals Process (Jan. 19, 2021), available at https://www.fdic.gov/news/speeches/2021/spjan1921.html.
21 See FDIC, Press Release: Agencies Issue Joint Statement on Crypto-Asset Policy Initiative and Next Steps (Nov. 23, 2021), available at www.fdic.gov/news/press-releases/2021/pr21096.html.
22 See Remarks by Chairman Jelena McWilliams at Money 20/20 (Oct. 27, 2021), available at https://www.fdic.gov/news/speeches/2021/spoct2521.html,
23 See Remarks by Chairman Jelena McWilliams “Think Outside the Box: Advancing Diversity and Inclusion Across Financial Services” at the FDIC and National Bankers Association Event (Jan. 21, 2023), available at https://www.fdic.gov/news/speeches/2022/spjan2122.html.
24 FDIC Launches Mission-Driven Bank Fund (Sept. 16, 2021), available at https://www.fdic.gov/news/press-releases/2021/pr21086.html.
25 Alexander Hamilton, Report on National Bank (1790).