A budget of just more than $3 billion– 2.2% higher than the previous year – was approved for 2025 Tuesday by the board of the federal insurer of bank deposits, meeting in open session in Washington.
The board also discussed, in closed session, a request for authority to sue six former officers and 11 former directors of the failed Silicon Valley Bank (SVB) of Santa Clara, Calif. The bank failed in spring 2023.
In a release, the Federal Deposit Insurance Corp. (FDIC) Board said the 2025 budget increased the agency’s “Ongoing Operations” budget by 6.3% ($161.4 million) from 2024, for a total of $2.7 billion. The board said the increase was attributable “largely to higher salary and other costs.”
The receivership funding component of the budget, on the other hand, dropped by 28.6% ($100 million) for a total of $250 million, the board said. The agency said that the reduction reflects “the completion of much of the post-failure workload associated with the three large regional bank failures that occurred in early 2023.”
“The approved budget ensures that the FDIC maintains its capacity to address bank supervisory concerns, resolve failing banks regardless of size, protect and educate depositors, and continue its multiyear Information Technology Modernization program,” the FDIC said. “It also adds substantial new resources to support the planned transformation of the FDIC’s workplace culture.”
Outgoing FDIC Board Chairman Martin Gruenberg – who announced his retirement from the board in the wake of a sexual harassment scandal at the agency which surfaced about a year ago – in a statement said the budget provides the resources to implement the agency’s “Action Plan” for transforming its workplace culture. He said that is to “ensure that all employees feel safe, valued, and respected and that complaints about employee misconduct are addressed quickly and effectively.”
Gruenberg said the budget includes 53 new positions and almost $48 million to fund the work of the new Offices of Professional Conduct and Equal Employment and initiatives being carried out under the plan.
Regarding the closed meeting, the board only issued the subject of the session and a statement by Gruenberg. “I support this request because it seeks to hold these former officers and directors accountable for their breaches of duty in mismanaging the Bank’s investment portfolios that exposed SVB to significant risks, caused SVB to incur billions of dollars in losses, and resulted in a loss to the Deposit Insurance Fund currently estimated at $23 billion.”
Gruenberg charged that the former directors and officers of the bank:
- Mismanaged the bank’s held-to-maturity (HTM) securities portfolio by purchasing long-dated securities in a rising interest rate environment, breaching key internal risk metrics, and allowing an over-concentration of such assets, far exceeding the holdings of its peer banks. “This investment strategy exposed SVB to significant interest rate risk as the value of these securities declined sharply as interest rates increased,” he said.
- Mismanaged the bank’s available-for-sale (AFS) securities portfolio by removing interest rate hedges in the AFS portfolio at a time of increasing interest rates. If this portfolio had continued to have been hedged properly, Gruenberg contended, “the bank would have been protected against losses from rising interest rates.”
- SVB’s former directors and officers, who simultaneously served in equivalent positions for the holding company, SVBFG, permitted an imprudent payment of a bank-to-parent dividend from SVB to the holding company while the bank was experiencing financial distress.
“As a result of the mismanagement of the held-to-maturity securities portfolio, the termination of interest-rate hedges on the available for sale securities portfolio, and the issuance of the bank-to-parent dividend, SVB suffered billions of dollars in losses for which the FDIC as Receiver has both the authority and the responsibility to recover,” Gruenberg said.
In other action, the board reviewed two discussion drafts to the agency’s enforcement manual from Board Member Rohit Chopra (director of the Consumer Financial Protection Bureau, CFPB):
- The first regarded penalties for banks involved in money laundering activities. Chopra recommended the manual state that the agency will uphold the 1992 Annunzio-Wylie Anti-Money Laundering Act. More specifically, if a bank institution is criminally convicted of offenses related to money laundering activity, but not technically the act’s enumerated charges, the FDIC intends to initiate deposit insurance termination proceedings against the bank under a separate statutory authority.
- The second focused on bank stock buybacks and dividends “during unusual and exigent circumstances.” Chopra charged that current restrictions on buybacks is insufficient and warrants a “systemic approach,” including by generally prohibiting all FDIC-supervised institutions from paying capital distributions when the Federal Reserve invokes emergency authority. However, board Vice Chairman Travis Hill, in a statement, called Chopra’s approach overly broad and counterproductive. He said it would put FDIC-supervised institutions at a significant disadvantage relative to their bank and nonbank peers.
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