OAKLAND, Calif. — A coalition of 16 state attorneys general is criticizing a proposed Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) rule that would sharply curtail federal banking regulators’ ability to supervise banks and enforce consumer protections, potentially jeopardizing financial stability and harming Americans who rely on the banking system, according to the AGs.
In a comment letter submitted Dec. 29 to the agencies, the bipartisan group warned that the proposal would dismantle long-standing supervisory tools used to identify unsafe or risky banking practices before they inflict harm on depositors or ripple through the financial system. It would bar regulators from issuing supervisory warnings about practices that could lead to future harm and restrict oversight of emerging risks tied to new products and technologies.
‘Crucial for Nation’s Financial Health’
“Proactive and robust supervision of banks is crucial for our nation’s financial health and to protect the millions of Americans who rely on our financial system,” California Attorney General Rob Bonta said in a released statement.
Bonta further the proposal ignores lessons from the Great Recession and would weaken protections at a time of rapid financial innovation.
The OCC and FDIC jointly issued the proposed rulemaking late last year, seeking to codify changes to how regulators assess and act on risks — including redefining supervision standards and eliminating “reputation risk” from their supervisory framework. Under the plan, agencies could not take action against institutions solely on the basis of reputational concerns unrelated to core safety-and-soundness risks, according to the OCC.
‘Undermines’ Responsibility
But the attorneys general said the rule would undermine the federal government’s responsibility to police unsafe or risky conduct by banks, effectively curtailing enforcement tools and abandoning a proactive approach to supervision. They said it would also hamper oversight of emerging financial products and structures, such as cryptocurrency-related offerings and other innovations that could pose systemic risks, according to the California AG.
California joined attorneys general from New York, Arizona, Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and the District of Columbia in opposing the proposal.
The OCC and FDIC have not said when they will finalize the rule. Comments on the proposal are being reviewed as part of the administrative rule-making process.
