Remarks by FDIC Chairman Martin J. Gruenberg on "Oversight of Financial Regulators: Protecting Main Street Not Wall Street" before the Committee on Banking, Housing and Urban Affairs United States Senate
Chairman Brown, Ranking Member Scott, and Members of the Committee, I am pleased to appear at today’s hearing on “Oversight of Financial Regulators: Protecting Main Street Not Wall Street.” I appreciate the opportunity to report on the Federal Deposit Insurance Corporation’s (FDIC) recent work in protecting insured deposits, supervising state chartered banks that are not members of the Federal Reserve system for safety and soundness and consumer protection, and in resolving failed insured depository institutions.
My statement discusses the lessons learned from the regional bank failures this spring and proposed improvements in regulation and bank supervision that could help prevent similar bank failures or mitigate their impact in the future. In addition to proposals focused on large regional banks, my testimony discusses other important regulatory activities at the FDIC, including the publication of the Basel III Notice of Proposed Rulemaking (NPR) and the adoption of the final rule modernizing and strengthening the Community Reinvestment Act (CRA). Finally, I will discuss the FDIC’s efforts to support Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs).
State of the Banking Industry
The banking industry has proven to be quite resilient despite the period of stress earlier this year. In the second quarter, key banking industry measures of performance remained favorable. Net income remained high by historical measures, asset quality measures were stable, and the industry remained well capitalized. However, banks reported lower net interest margins and higher funding pressures for a second consecutive quarter. Higher market interest rates and mortgage rates caused market values for debt to generally fall during the second quarter, resulting in higher unrealized losses on securities. While the FDIC Quarterly Banking Profile data will not be available until later this month, early reports from third quarter 2023 indicate that the banking industry remains profitable and well-capitalized, that asset quality metrics continue to normalize from the historic lows reached during the pandemic, and that funding cost challenges have persisted, especially for small and mid-sized banks.
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