Bank crisis preparedness of the FDIC deemed insufficiently developed in 2023, according to OIG report.
The Office of Inspector General (OIG) of the Federal Deposit Insurance Corporation (FDIC) has made 17 recommendations aimed at strengthening the FDIC's ability to execute its responsibilities under the Orderly Liquidation Authority (OLA), following the spring 2023 collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. These bank failures were among the worst in U.S. history.
The OIG's focus suggests enhancements in the agency's resolution planning, operational capabilities, and coordination to manage significant bank liquidations under the OLA framework. The key purpose of these recommendations is to improve the FDIC’s readiness and effectiveness in resolving large bank failures.
The OIG's recommendations come in response to the challenges faced by regulators during the multiple regional bank failures in 2023, which highlighted gaps in preparedness and procedures. The OIG aims to ensure the FDIC can better fulfill its statutory resolution responsibilities, especially when intervening to protect financial stability in large, complex bank failures.
The Government Accountability Office (GAO) also reviewed the FDIC's supervisory practices following the bank failures. The OIG's recommendations to the FDIC include ensuring routine training of key resolution staff, identifying, prioritizing, and tracking significant after-action review recommendations, and conducting routine internal reviews of resolution planning activities.
According to a report released on Wednesday, the FDIC was found to have a less than satisfactory readiness to handle large regional bank failures. The FDIC did not satisfy the readiness activities for planning, training, exercises, evaluation, and monitoring consistent with best practices. The agency, at the time of the spring 2023 failures, had not ensured that it fully met human and technology resource needs or that it sufficiently coordinated resources among its divisions and offices.
Several lawmakers have been critical of the FDIC's response to these large regional bank failures. Sen Elizabeth Warren called for an investigation into the FDIC's response in March 2023. The OIG made 11 recommendations to the FDIC, including improving coordination of human and IT resources, completing or revising resolution guidance, and increasing interdivisional coordination over planning and exercises.
The FDIC plans to complete all corrective actions by June 30, 2026, according to the OIG. The OIG also recommended the FDIC ensure a plan to periodically assess its resolution readiness, come up with a plan to periodically assess its resolution readiness, and increase interdivisional coordination over planning and exercises.
Sources: - FDIC OIG August 2023 Report - GAO Report on FDIC Supervisory Practices - Various news articles and reports from reputable sources.
The OIG's recommendations highlight the need for the FDIC to focus on financial management and business organization matters, particularly in enhancing its resolution planning, operational capabilities, and coordination, to effectively manage large bank liquidations. To this end, the OIG suggests routine training of key staff, prioritizing after-action review recommendations, and conducting regular internal reviews of resolution planning activities. Moreover, the FDIC's readiness to handle large regional bank failures was criticized, with Sen Elizabeth Warren calling for an investigation into the agency's response. In response, the FDIC has planned to complete all necessary corrective actions by June 30, 2026, focusing on improving coordination of human and IT resources, completing or revising resolution guidance, and increasing interdivisional coordination over planning and exercises.
