Acting Comptroller of the Currency Testifies on Bank Supervision

In view of the recent bank failures in the U.S. (and globally), the Acting Comptroller of the Currency (OCC), Mr. Michael J. Hsu, recently „testified on bank supervision before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate“. In its corresponding written statement, the Comptroller highlights the following key points:
(1) Despite the fact that none of the failing banks were supervised by the OCC, the Comptroller is taking these failures as an opportunity to review current rules and regulations for OCC-supervised institutions, particularly with respect to risk management and capital adequacy requirements.
(2) So far and from what the OCC has observed, OCC-supervised institutions are well capitalized and resilient. In fact, their liquidity positions are well established and funded and the large majority of institutions has not experienced any stress at all with customers or customer runs based on the recent incidents.
(3) Key issues, however, remain in the banking sector that need to be addressed in the future. These include the following:
– banking regulators need to be empowered to act more swiftly and effectively upon any signs of financial distress. The problem with the Silicon Valley Bank (SVB) and the Signature Bank (SB) was not that troubles weren’t recognized ahead of time. However, regulators didn’t act rigorously enough to enforce current regulation, as they do not „feel“ empowered to do so.
– the current rules and regulations regarding capital and liquidity requirements and resolvability need to be revisited to strengthen the resilience of U.S. financial institutions. In fact, so the Comptroller, would more stringent capital and resolvability requirements facilitated the resilience of affected institutions and / or permitted an orderly wind-down without government involvement.
– the current depositor insurance scheme needs to be reviewed in view of its coverage and possible extension as far as „uncovered“ deposits are concerned.
– in order to ensure diversity in the market and to prevent the establishment of too many institutions considered too big to fail, the rules regarding bank mergers and acquisitions should be closely reviewed.
(4) All bank supervisors must continue their work to guard against complacency in the banking system, remove bias in the sector to ensure access to banking services by ALL citizens, ensure that banks are well equipped for digitalization and implement safeguards resulting from this trend, and ensure that institutions internalize the risks of climate change and take adequate measures to adjust their risk management principles to take account of this fact.