Democratic senators probe FDIC job-offer rescissions

Samuel Corum/Bloomberg

Democratic senators asked the inspector general for the Federal Deposit Insurance Corp. to probe whether the agency's decision to revoke hundreds of job offers for bank examiners contradicted the IG's prior advice to bolster staff to prevent bank failures.

The lawmakers — led by Banking Committee Ranking Member Elizabeth Warren, D-Mass. —  warned Monday that the move to rescind job offers exacerbates existing staffing shortages. They noted the Office of the Inspector General's own past findings that staffing shortfalls in the FDIC's New York branch hurt its ability to promptly respond to Signature Bank's collapse in March 2023, which cost the Deposit Insurance Fund nearly $2.4 billion.

"The lesson learned in this case was that a shortage of cops on the beat can threaten the safety and soundness of the banking system and pose risks to the Deposit Insurance Fund," the senators wrote. "An evaluation by your office would be consistent with your mission to 'promote economy, efficiency and effectiveness at the agency.'"

Following President Donald Trump's executive order freezing federal civilian hiring, the FDIC rescinded more than 200 job offers to bank examiners according to a report in the Washington Post, which cited unnamed sources. The cohort of lawmakers — which includes Raphael Warnock, D-Ga.; Chris Van Hollen, D-Md.; and Lisa Blunt Rochester, D-Del. — said this administration's move undermines the agency's ability to oversee troubled banks like Signature. 

In March 2023, fearing Signature's failure could trigger broader systemic contagion, the treasury secretary, the Federal Reserve and the FDIC board — in consultation with President Joe Biden — decided to cover all deposits at the firm through what's known as a systemic risk exception. The extraordinary measure waived the legal requirement that the FDIC resolve failures in the manner least costly to the DIF.

The bank regulator's watchdog found the agency, Signature Bank's primary federal regulator, struggled to adequately supervise risks at the firm, partly due to a lack of personnel, the lawmakers said in their letter. 

"Between 2020 and 2023, an average of 40 percent of the large bank examiner positions had been vacant or filled by temporary staff [which] led to a series of supervisory delays, canceled or postponed exams, and quality control issues in the supervision of Signature Bank," they wrote. "The FDIC's Chief Risk Officer found that there were 14 canceled or postponed targeted reviews during the 2017-2021 exam cycles and half of the target review supervisory letters were not transmitted to Signature on a timely basis."

An FDIC spokeperson said it was looking into ways it can continue to onboard additional staff.

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In the FDIC OIG's Material Loss Review, which by law it is required to conduct, the OIG recommended the agency "reevaluate the FDIC's strategy to attract, retain, and allocate staffing, including how to enhance the supervision of large, complex financial institutions"

Under the leadership of former Chairman Martin Gruenberg, the FDIC Board of Directors followed suit, approving a 2024 budget that significantly increased examiner positions. However, following Trump's election — and his appointment of Travis Hill as acting chairman — such measures were reversed, and Hill expressed opposition to the idea of increasing staff. 

"The initial budget that was authorized by the Chairman and distributed to the Board would have increased staffing by a net 105 positions, among other significant spending increases," said Hill — then vice chairman — in December. "I pushed back strongly and expressed my view that major decisions on changes in staffing or other spending should generally be left to the next Board and leadership team…the final budget will decrease staff by a net seven positions compared to the status quo."

The Democratic senators believe a review of the agency's staffing levels is crucial, given the FDIC has a relatively senior workforce who could soon retire.

"It is even more critical that the agency swiftly improve its staffing situation given its employee retirement-eligibility rates, which are higher than government-wide average," they wrote. "We ask that you conduct an evaluation of this [administration's] decision and determine whether it undermines progress on the FDIC OIG's previous recommendations to the agency."