It’s time to cut the FDIC card down to size


Former Federal Deposit Insurance Corp. President Sheila Bair expressed concern this week about recent unrest at the FDIC that led President Jelena McWilliams to resign before the end of her statutory term. The FDIC Board of Directors, by law, must consist of five members, no more than three of whom may be from the same political party.

Today, the FDIC’s board of directors has only three members, all three Democrats and two ex officio members serving by virtue of their positions as head of the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.

The FDIC board currently has two vacancies due to the Biden administration’s failure to appoint two GOP members. Chair Bair is urging the Biden administration to move quickly to appoint two Republicans to the FDIC board, which she says will likely reduce partisan battles at the FDIC. President Bair also suggests that statutory terms be extended for board members of independent agencies, and that agency presidents be protected from expulsion before their term expires.

These suggestions are worth considering, of course, but I fear that some of them will make agencies less responsive to the mood and needs of the country.

For well over the FDIC’s first half-century, its board of directors consisted of three members, no more than two of whom could belong to the same party. There were two appointed members plus the Comptroller of the Currency. I was appointed in 1978 as a Republican member of the FDIC board of directors by President Carter. FDIC Chairman George LeMaistre, a Democrat, was replaced soon after by Irvine Sprague, a Democrat appointed by President Carter. The third board member was Comptroller of the Currency John Heimann, a Democrat.

This system was not perfect and we had our disagreements, but it was collegial and very efficient. We have rarely had negative votes on the board as we have tried to find compromises which are critically important to maintaining confidence in the banking system, especially in perilous economic times such as we have experienced. in the 1980s, when some 3,000 banks and savings banks failed and major banks all over the world faltered.

I disagreed with President Sprague on many issues. But I have rarely, if ever, cast a negative vote at a board meeting because I felt it was essential that we show unity in the face of serious and complex banking issues, such as when we voted to bail out Pennsylvania’s largest bank in 1979. Despite my reservations, I believed it would not have been in the national interest for me to vote against that bailout.

When President Reagan defeated President Carter in 1980, I was eager to take over as President because we anticipated huge problems for the FDIC. But I remained a minority director until the Secretary of the Treasury recommended that President Reagan appoint me president in 1981. Irv Sprague and I literally moved offices to opposite ends of the sixth floor of the FDIC, and we sat together on the FDIC Board of Directors until I left in late 1985, two years after the end of my six-year statutory term.

This leadership arrangement at the FDIC was not perfect, but it was pretty close. Unfortunately, the powers-that-be in Washington had the very bad idea of ​​adding two new members to the FDIC board, the head of a newly created consumer financial protection office, plus a fifth board member. administration to serve as vice-president (to avoid 2-2 deadlocks). These ill-considered moves did nothing to strengthen FDIC governance and instead turned the FDIC into a political battleground leading to the kind of partisan fights we have witnessed recently.

It is certainly time for Congress to reform the FDIC, but not by continuing or expanding the current failed governance structure. Let’s go back to a bipartisan, three-member FDIC board of directors consisting of two members appointed by the president (one of whom will be designated president by the president) plus the Comptroller of the Currency. The President will appoint the President until a new President takes office. A Past President may remain on the Board until the expiry of his six-year term.

Our nation desperately needs a thoughtful and independent FDIC to deal with rapidly changing financial markets and crises. It requires an appropriate governance structure to ensure that it fulfills its mission of protecting our nation’s banking system, so important to our economy and the public.


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