CFPB Calls for Tiered Deposit Insurance as NAFCU Criticizes Bureau

Proposal comes as credit union trade group blames agency for destabilizing financial marketplace.

Policymakers should consider adopting a tiered system of financial institution deposit insurance, with large institutions paying more to have accounts above $250,000 insured, CFPB Director Rohit Chopra said Tuesday.

“There is a need to look at the deposit insurance framework,” Chopra asserted at a Washington Post event that examined the recent failures of Silicon Valley Bank and Signature Bank.

CFPB Concerns Over Deregulation

Chopra said legislation enacted during the Trump Administration to loosen some of the requirements of Dodd-Frank played a role in the bank failures. “There is no question that some of the deregulation in recent history helped to contribute to it,” he stated. “And there are clearly some major changes that will [be needed] not just on the regulations but also on how the regulators supervise some of these firms.”

He added that bank executives who put profit above effective management should be held responsible for losses at their institutions, saying, “We can’t have a system where executives can take huge risks...and they can fly the coop.”

Chopra noted further that digital payment systems and other digital banking features pose new risks to the stability of the financial system.

“We need to make sure we have relationship banking even as digitization accelerates,” he said.

Sharp Criticism from Credit Union Group

But in a related development, NAFCU President/CEO B. Dan Berger is blaming the bureau for creating an unstable financial marketplace.

“For the past two years, we’ve seen a continuous stream of regulations that hurt Main Street small businesses and underserved communities—the exact constituencies the CFPB was created to protect,” Berger wrote in an op-ed in Real Clear Markets.

He added that the agency’s final rule requiring credit unions to report lending to women-owned and minority-owned businesses will be so costly for many credit unions that the institutions may stop small-business lending altogether.

Additionally, he said that the agency’s proposal to limit overdraft fees to $8.00, which he noted is the cost of a Footlong at Subway, will encourage consumers to overdraw their accounts.

The agency has described both of those rules as pro-consumer, but that is not the case, according to Berger.

“The bureau has worked a strategy to gaslight consumers, the media and many Members of Congress with deceptive messaging,” he wrote.

Berger concluded by calling on congressional committees to “take legislative action to protect consumers from these disastrous policies and hold the bureau accountable to its intended mission created by Congress.”