Tag:FDIC
FIRM Act Sent to Senate to Vote on Eliminating the Use of Reputational Risk in Banking
On March 6, 2025, the Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, Senator Tim Scott, introduced a bill designed to eliminate reputational risk as a component of regulatory supervision in banking. The Financial Integrity and Regulation Management Act, or FIRM Act, is the latest edition in the Senate’s efforts to reduce the potential influence of banking regulators in perpetuating debanking schemes of various industries. The bill has received praise and support from many leaders and industry groups in the banking industry including a letter of support from a coalition of 26 state financial officers and comments in favor of the bill submitted by the American Bankers Association (ABA). On March 13, 2025, the Senate Banking Committee voted in favor of sending the bill to the Senate to begin congressional voting. While it remains debatable if reputational risk is being misused to politically influence the types of clients that banks service, it is clear that reputational risk in regulatory exams is an unnecessary extension of strategic risk that should be removed from examinations to close the door to any possibilities of political misuse.
Banking Regulators Accused of Debanking Scheme Targeted at Cryptocurrency
On January 23, 2025, President Trump signed an executive order aimed at supporting the growth of digital assets and blockchain technologies across the American economy, mitigating risks associated with Central Bank Digital Currencies (CBDCs), and protecting fair and open access to banking services for all private-sector entities. This executive order was created following accusations from industry leaders in digital assets who claim that banking regulators at the Federal Deposit Insurance Corporation (FDIC) were encouraged by the Biden administration to instruct banks to deny banking services to digital asset companies, also known as debanking. To investigate these claims further, the United States Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing on February 5, 2025 to hear directly from industry leaders about the depth and impact of the allegations.
Locked Out: How the FDIC is ‘Banking’ on Transparency
As a result of Synapse, a banking as a service (BaaS) provider, declaring bankruptcy back in May 2024, millions of users were unable to access accounts for at least two weeks. Synapse was a startup that had contracts with 20 banks and 100 financial technology (fintech) companies. When the company filed for bankruptcy, it shut down its services to comply with banking laws to ensure that all customer deposits were accurate. Despite the word “banking” in BaaS and customers having credit or debit cards, Synapse is not like other banks. It is distinguishable, because it is not backed by the Federal Deposit Insurance Corporation (FDIC), like other traditional banks are. In the aftermath of the lock out, the FDIC has proposed a new rule to force banks partnered with fintech apps to strengthen record-keeping.
Senate Enjoys Rare Bipartisan Moment, Seeks to Punish Silicon Valley Bank Executives
n March 17, 2023, following the second-largest bank collapse in U.S. history, President Biden released a statement urging Congress to allow financial regulators to impose tougher penalties on the executives of failed banks. Encouragingly, on March 29–just twelve days later–the Senate proposed bipartisan legislation, dubbed the Failed Bank Executives Clawback Act (FBECA), which would grant the Federal Deposit Insurance Corporation (FDIC) clawback authority to confiscate all or part of the compensation received by bank executives in the five years leading up a bank’s failure.
Growing Banking Crisis: Silicon Valley Bank Failure
Founded in 1983, Silicon Valley Bank (SVB) is a midsize California-based lender that shook the foundation of the entire global financial system. Regulators closed SVB on March 10, making it the largest bank failure since the 2008 financial crisis and the second largest in U.S. history. While SVB offered various services from standard checking accounts to loans, it was primarily home to venture capitalists in the tech industry. Therefore, the majority of the corporate deposits were larger than the Federal Deposit Insurance Corporation’s (FDIC) $250,000 insurance limit, leaving over $150 billion in uninsured deposits at the end of 2022. The sudden collapse caused a frenzy leaving companies and investors vulnerable having already experienced mass layoffs in the tech industry.
The Role of Regulators During the Collapse of Silicon Valley Bank
On March 10th, 2023, Silicon Valley Bank (SVB) collapsed practically overnight, followed only two days later by the collapse of Signature Bank. Prior to its collapse, SVB uniquely served a single category of customers – start-ups. As the largest bank failure since the 2008 financial crisis, SVB’s bankruptcy resulted in significant consequences for the tech industry. While SVB has since been acquired by First Citizens BancShares, the House Financial Services Committee is currently seeking answers from both regulators and SVB executives about how such a failure could have occurred and how to prevent it from happening again.
Federal Response to the Collapse of Silicon Valley
The collapse of Silicon Valley Bank (SVB), the 16th-largest bank in the United States, in early March of this year is considered the biggest bank failure since the fall of Washington Mutual during the 2008 global financial crisis. After 40 years of success, the bank collapsed swiftly and unexpectedly. The collapse has ricocheted through the industry, provoking bank closures, rattling the global markets, and threatening the livelihood of startups. The Federal government has not only intervened and taken over the bank, but prosecutors and regulators from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have initiated preliminary investigations. Inevitably the collapse will cause regulators to revise the current banking rules and pursue stricter regulation in order to prevent the demise of other banks and a financial crisis.
Agencies Approve Notice of Proposed Changes to Volcker Rule
At the end of January, the Federal Reserve Board, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission (the “Agencies”) approved a notice of proposed rulemaking (“Proposed Rule”) to amend the “covered fund” provisions of section 13 of the Bank Holding Company Act, also known as the “Volcker Rule” (the “Rule”). The Volcker Rule is a regulation that generally prohibits banks from certain investment activities with their own accounts and limits their dealings with private equity and hedge funds, also known as “covered funds.”
New Senate Dealings Prepare to Ease Banking Regulations Under the Dodd-Frank Act
New discussions in the U.S. Senate indicate a likely repeal of 2010’s controversial Dodd-Frank Act. Designed in response to the 2008 economic crisis, the Dodd-Frank Act implemented regulations on banks and lending agencies to provide greater financial stability and consumer protection. The fundamental purpose of Dodd-Frank was to increase oversight and transparency among financial institutions. However, the Dodd-Frank Act has been the target of much criticism, most notably that its imposed regulations stifle the growth of smaller institutions. As of March 2018, Senate discussions indicate an intent to lay the foundations to remove this regulation.
Cannabusiness – Banking in California
In November of 2016 voters in California passed the Adult Use of Marijuana Act which legalized the sale and use of marijuana throughout the state, similarly to states such as Colorado and Washington. Starting January 1, 2018, it will be legal to go to a licensed dispensary and purchase marijuana for personal use, without needing a medical marijuana card. However, marijuana possession or use is still a federal offense; navigating the new law can be hazy.