Why FDIC Should Withdraw Its Corporate Governance Proposal

What Happened

In October 2023, the Federal Deposit Insurance Corporation (FDIC) released a proposed rule on corporate governance and risk management standards that would apply to the corporate boards of nearly 60 state-chartered banks. The U.S. Chamber submitted a comment letter in December 2023 arguing the Proposal would undermine the corporate governance structure of the covered banks.

Our View

The Proposal would complicate boards’ ability to fulfill their essential oversight role which is critical to the long-term performance of the covered banks. The Proposal foists new responsibilities on to boards that are the purview of management, subjects boards to unnecessary legal liability, disrupts long-standing precedent of allowing overlapping board membership between the bank and its parent, and improperly introduces new federal requirements for corporate boards that conflict with state incorporation laws.

The Chamber appreciates Senator Thom Tillis leading a letter with his Senate Banking colleagues asking for the Proposal to be withdrawn: 

“While we agree that sound corporate governance is a necessity, the Proposal represents a significantly flawed approach to prudential regulation that seeks to micromanage Board affairs in a manner that will inject unnecessary uncertainty in key bank management activities. It will unduly burden banks that serve and operate in small and rural communities. And, perhaps most concerningly, the Proposal lacks consensus support among FDIC leadership, is out of step with other prudential regulators, and actively opposed by state supervisors.”

Why It Matters 

There is no reason to implement the Proposal. It will not improve the bank examination process or enable examiners to identify or resolve risks. Quite the contrary, examiners would spend their time reviewing banks’ board decisions to ensure that they are in compliance with this overly prescriptive regulation. This will detract from regulators’ important work of ensuring banks are financially stable. FDIC Vice Chairman Travis Hill, who voted against the Proposal, raised the concern: “I think our examiners should focus more on banks' core financial condition rather than micromanaging these types of processes.”

The Proposal also diverges from existing Federal Reserve and Office of the Comptroller of the Currency guidelines. The FDIC has not offered any explanation as to why a specific set of banks should be subjected to a different set of corporate governance requirements. 

Bottom Line

The Proposal will inhibit sound corporate governance for the affected banks and subvert governance standards that are the purview of state regulators.