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FDIC director pushes discussion draft to curb buybacks/dividends in crises and to clarify enforcement for criminal convictions
Summary
Director Chopra presented two discussion drafts: one to limit bank dividends and buybacks while emergency lending facilities are active, and another to clarify FDIC initiation of deposit-insurance termination proceedings when insured banks are criminally convicted; another director warned such a blanket prohibition could disadvantage FDIC-supervised banks.
Director Chopra used the open meeting to ask the board to consider two forward-looking policy drafts rather than to vote today: a draft policy that would limit capital distributions (dividends and share buybacks) by FDIC-supervised institutions when emergency authorities are in effect, and a draft enforcement-position paper on whether and how the FDIC should initiate deposit-insurance termination proceedings when an insured depository institution is criminally convicted.
On distributions, Chopra argued that allowing dividends and buybacks during episodes when the Federal Reserve and Treasury have activated emergency authorities can deplete capital that would otherwise be available to absorb losses and to support lending during recoveries. He presented historical figures to make the point: "They paid out roughly $12,000,000,000 in dividends in the 2008...the banking industry did still pay out more than $50,000,000,000 in dividends in 2020...banks paid out $54,000,000,000 in dividends...in 2023," he said. Chopra described dividends and buybacks "during a period of stress...as an unsafe and unsound practice" and said the FDIC could use temporary cease-and-desist authority in some cases to limit transfers from bank subsidiaries to holding companies during stress.
An unnamed director responded that a prohibition tied to invocation of section 13(3) of the Federal Reserve Act could leave FDIC-supervised institutions at a competitive disadvantage compared with institutions supervised by the OCC or the Federal Reserve, and that an industry-wide ban might make banks less attractive investments and reduce the likelihood that private capital would rescue struggling banks. That director said: "This is an overly broad proposal that would put FDIC supervised institutions at a significant disadvantage relative to their bank and nonbank peers." The director also argued the Federal Reserve's stress-test framework assumes banks may continue paying distributions and that a blanket prohibition could raise the probability of FDIC receiverships.
On enforcement for criminal convictions, Chopra cited the 1992 Annunzio-Wylie anti-money-laundering provisions that, for certain convictions, require the FDIC to initiate termination proceedings against state-chartered institutions and noted the statute does not mechanically resolve every conviction scenario. He said the discussion draft would seek to clarify the FDIC's posture and that deposits- insurance proceedings can result in a range of outcomes from no action to termination. He emphasized the need to be "thoughtful" and to have policies and playbooks in place before crises occur.
The board did not vote on either discussion draft at the open meeting. The chair thanked Chopra for raising both items for further consideration; the items were left for future action and study.
