CFPB Head Says FDIC Should Review More Changes in Bank Control

The Federal Deposit Insurance Corp. (FDIC) should change its rules to ensure that it reviews any “suspicious changes” in bank control, FDIC board member Rohit Chopra said Thursday (April 25).

Chopra, who is also director of the Consumer Financial Protection Bureau (CFPB), said during an FDIC board meeting that changes to the Bank Control Act are needed because bank takeovers can currently evade FDIC oversight.

“Given the critical role banks play in the functioning of our society and economy, Congress has put into place a number of guardrails to ensure that commercial firms and investors cannot unfairly exploit the public benefits that come with being an insured bank,” Chopra said in a statement released Thursday.

“I am concerned that the FDIC’s rules rely solely on the Federal Reserve for certain transactions and therefore violate our statutory responsibility to ensure that banks we supervise are operated in a safe and sound way,” Chopra added.

Chopra proposed that the FDIC restore its role in reviewing certain changes in control in order to ensure it can spot potential issues.

Currently, there is an exemption from the notice requirement for acquisitions of voting securities of a holding company with an FDIC-supervised subsidiary for which the Federal Reserve Board reviews a notice under the Change in Bank Control Act. Chopra proposed that the exemption be deleted.

“In many respects, it makes more sense for the FDIC to be the lead reviewer when an FDIC-supervised bank is the sole or primary asset of the bank holding company,” Chopra said in the statement.

Chopra also proposed that the FDIC seek public feedback on issues under the Change in Bank Control Act and use the feedback to refine its approach to these applications.

As an example of how bank takeovers can evade FDIC oversight, Chopra pointed to Farmington State Bank, which was found in the bankruptcy filing of cryptocurrency exchange FTX to have a deposit account held by FTX worth nearly $50 million.

The bank’s parent company, Farmington Bancorp, which was organized as a bank holding company and regulated by the Federal Reserve, was taken over by a Maryland shell corporation established by the owner of a Bahamas-based financial firm.

Later, FTX founder Sam Bankman-Fried’s Alameda Research took a stake in the bank holding company.

“Behind the scenes, investors were reshaping Farmington’s business model away from its rural banking roots and towards speculative crypto asset activities,” Chopra said. “Law enforcement would later seize tens of millions of dollars at the bank held by entities tied to Bankman-Fried.”