The Federal Deposit Insurance Corp. may finally have a full board of directors in coming months. However, whether the slate of nominees will fully represent the financial supervisors of the entities that the FDIC oversees remains to be seen.
There are currently three open board seats. Last month, the Biden administration announced its intention to nominate Travis Hill and Jonathan McKernan. I certainly hope the third nominee is someone with state supervisory experience.
I say that not just because Congress added the requirement that at least one FDIC board member have state supervisory experience to the Federal Deposit Insurance Act, but because of its reason for doing so. Much like the requirement that no more than three members of the board can be from the same party, the state supervisory experience amendment ensures perspective that represents the diversity and balance inherent in the nation's dual banking system.
As someone who has spent my entire career as either a state bank regulator or working for state bank regulators at the Conference of State Bank Supervisors, I have seen the value of this perspective. State regulators spend countless hours visiting banks across their states, from institutions in bustling cities to those in small towns with one flashing red light. They charter banks that might serve historically underserved populations or ones with unique needs, such as farmers and local entrepreneurs. These institutions are the building blocks of their local economies, and state regulators are on the ground every day ensuring that these banks are providing safe and effective products to their customers.
Simply put, no amount of public policy expertise can replace this state supervisory experience.
State bank supervisors charter and are the primary regulator of 79% of all U.S. banks, with the FDIC having cooperative oversight at the federal level for most of them. That makes the FDIC arguably one of the most important federal standard-setters for state-chartered banks. The director of the Consumer Financial Protection Bureau sits on the board to represent consumer protection, and the comptroller of the currency's seat on the board represents the national banking system.
In 1996, Congress amended the Federal Deposit Insurance Act to require that at least one of the FDIC's three remaining independent directors have state bank supervisory experience, which clearly means someone who has served in state government as a supervisor of state-chartered banks. Why? Congress wanted to ensure the FDIC board included the state banking system's perspective, bringing together both sides of the dual banking system.
That insight is important. State-chartered banks are essential to local economies, like a business owner who wants to expand or the farmer who needs to finance new equipment. In fact, when looking at the banking industry as a whole, state-chartered banks provide more than half of all small loans to businesses and two-thirds of agricultural loans.
Some might think that a person who has worked in a state-chartered bank or at a federal banking regulator would meet the requirement. That is not what the law calls for. The law is clear that this requirement for "state bank supervisory experience" is only met by a person who has worked in state government as a supervisor of state-chartered banks, and as the legislative history notes, someone with "state bank regulatory expertise and sensitivity to the issues confronting the dual banking system."
A few years ago, the FDIC created the Advisory Committee of State Regulators, which meets with the FDIC board and leaders once or twice a year. I am a member of that advisory committee, and we just held one of those meetings last week to share the state regulator perspective.
I think we can do more. State bank regulators have the valuable perspective of sitting closer to the citizens and the needs of the local economies in their states. Congress decided in 1996 that this insight was necessary on the FDIC board. I hope that in 2022, we see it realized.
