Brandon Milhorn took little time in making his opinion heard as the new president and CEO of the Conference of State Bank Supervisors on at least one hot-button issue.
He recently added his voice to the growing chorus of criticism surrounding the Basel III capital framework proposed by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. —
Milhorn served as a senior aide to Vice Chairman Travis Hill, and as chief operating officer and chief of staff for former Chairman Jelena McWilliams. He is familiar with the thinking inside federal bank regulatory agencies. Still, in a speech last month before the American Bar Association's Banking Law Committee — his first since taking the reins at CSBS — Milhorn claimed their Basel proposal would "apply uniform capital requirements across an overly broad range of banks," contravening federal law, which mandates that regulation be tailored to institutions' complexity, size and risk profile.
Basel III, which is aimed at institutions with $100 billion of assets or more, would increase capital requirements by 16% per some estimates. That could push banks at the Basel spectrum's smaller end toward consolidation, resulting in a more top heavy, less competitive sector, Milhorn said.
The so-called Basel III endgame proposal "is an unfortunate example of the bias federal regulators have toward standardization, and one that will have real-world consequences for credit availability and economic activity," Milhorn said during the speech.
Milhorn's critique of federal banking agencies extends beyond Basel III. He also cited the
An FDIC spokesman declined to comment on Milhorn's American Bar Association speech.
The address added heft to the
As he settles in for what will likely be a long stay at CSBS, the 51-year-old Milhorn said in a recent interview that he aims to be a "value-add" to the state agencies he represents. "I want to be their voice in Washington."
Deep roots in Washington
Founded in 1902, CSBS is an umbrella organization representing banking and financial regulators in all 50 states, the District of Columbia, Puerto Rico, Guam, American Samoa and the U.S. Virgin Islands. Milhorn
In the press release announcing his hire, CSBS highlighted Milhorn's time at the FDIC. Milhorn's Washington roots run far deeper, beginning with a four-year tour as assistant general counsel at the Central Intelligence Agency, from 1999 to 2003. "I wanted to be James Bond's lawyer [but] my first assignment was in the administrative law and ethics division," Milhorn said in a recent interview.
"That's not why you go to the CIA to be a lawyer," Milhorn added.
Once he got over his disappointment, the job taught Milhorn valuable lessons, helping shape the two decades that followed. "I worked on appropriations, ethics, human resources, the operational components of running an agency," Milhorn said. "I found that I really loved that [space] where policy and law and operations combined to create execution. I've bounced around from industry to industry, but that's the current that runs through it."
Milhorn, who holds a bachelor's degree in economics from East Tennessee State University, as well as a law degree from Cornell, remained in the national security realm after leaving the CIA. He worked as counsel and general counsel for the Senate's Select Committee on Intelligence, and as staff director and chief counsel for the Homeland Security and Governmental Affairs Committee.
Milhorn joined the FDIC as chief of staff in 2018. The focus at the start was operational. "When Chairman McWilliams asked me to come over, it was really to keep the trains running on time for her," Milhorn said. Over time, Milhorn's brief expanded, and he was named the agency's chief operating officer, while continuing to hold down the chief of staff job. The experience delivered a fresh set of lessons, as well as insights into some of the difficulties confronting banks and regulators.
"The challenges we faced there: legacy technology, information sharing, stovepiped organizations, recruiting and retention challenges. These are challenges federal agencies are facing, but they're also issues community banks are facing. They're the same issues our supervisors are facing," Milhorn said.
Milhorn left the FDIC when
"I've always worked behind a great leader but I just couldn't pass up this opportunity to lead an organization," Milhorn said. "I feel like it's sort of a natural evolution of my career to be here. I think it's the right moment for me personally.
"I hope it's the right moment for CSBS," Milhorn added.
Going to bat for the dual banking system
According to Milhorn, state agencies view their relationships with federal banking regulators as crucial. The way Milhorn sees it, states charter the majority of banks, so their regulatory agencies deserve a say in how the industry is supervised. Problem is, Washington doesn't always see things in the same light, Milhorn said.
"I hear that from the members loud and clear. We need to make that partnership work so that the dual banking system can thrive," Milhorn said. "Not just that they're aware we state regulators exist, but that they are committed to serious engagement around substantive topics with us. Engagement where we're helping craft policy, thinking about the impact of proposed regulations, understanding the consequences of changes in supervisory and examination policies. To me, that partnership is so critical for the effective functioning of the system."
State regulators and examiners, Milhorn argued, are at the "heart" of the dual system. They bring a critical perspective to oversight that can't be replicated from Washington. "They are local. They are in their communities. They are engaged with their local institutions," Milhorn said. "That local engagement, that local access, that local knowledge, those are all important perspectives state regulators bring to the table."
Now though, Milhorn and CSBS are concerned Washington's response to the spring 2023 banking crisis has given rise to a series of policies that tend to favor standardization and a one-size-fits-all mentality, threatening to overshadow the idea of a dual regulatory system.
"The thing I'm concerned about, particularly given the March failures, is that we may go too far. We may overcorrect," Milhorn said. "The uniqueness of institutions is what allows for a thriving economy. I'm concerned that federal overreach may contribute to [more] homogenous institutions, which isn't in anyone's best interest. This is an area where our members are very concerned."
It's an important point, according to Anne Balcer, chief of government relations and public policy for the Independent Community Bankers of America. "What I think is particularly helpful is [Milhorn's] pointing out what has been the obvious concern for many of us, supervision and decisions coming from Washington and concentrated in Washington, not through the traditional supervisory process."
Balcer, who served as Maryland's deputy commissioner for financial regulation, doesn't minimize the prominent bank failures and serious liquidity concerns that roiled the industry, but like Milhorn she fears the response may be too severe, and that some rethinking could be in order. "There were supervisory failures with Silicon Valley Bank, that is clear," Balcer said. "But to now say that somehow paves the way to take away any sort of independence and expected processes around supervision that have been in place for a number of years — it doesn't quite match. It doesn't quite justify the means here."
Settling in as CEO
Despite his focus on advocacy, Milhorn has no intention of spending all his time in Washington. "I'm going to burn a lot of shoe leather over the next year talking to our members," Milhorn said.
Milhorn is especially interested in leveraging CSBS to support state agencies' use of technology, which he believes can be a game-changing tool to modernize examinations and to aid in workforce development. "When your primary recruiting and training model is to bring someone in, train them for four years, get them certified, there is a problem. The workforce isn't staying in a job for that long."
Because of the more rapidly evolving nature of the workforce, "you have to think how you use technology to augment a less-experienced staff. To me, that's completely part of the CSBS mission, working with our members to understand those dynamics," Milhorn added. "We want to help where we can."
Similarly, Milhorn views technology as a means of moving from point-in-time examinations toward a continuous engagement model. "I love that issue, how technology can augment the resources of our supervisors," he said.
According to Milhorn, the bank examination model remains basically unchanged since the National Banking Acts, which were passed in the mid-1860s. "You get quarterly call reports, then you have an exam at the end of 12 months or 18 months," Milhorn said. "But the pace of the industry has changed."
"Relying on point-in-time exams to supervise a financial system moving at the speed of technology is not a sustainable model," Milhorn said in his Jan. 19 speech. "Supervisors need to work with financial institutions to visualize changes over time, at each intuition and across the entire ecosystem. This continuous engagement model — supported by advances in supervisory technology — can help identify risks before they threaten institutions, consumers, or broader financial stability."
