McWilliams opines on insurance reform, ILCs, crypto and more

Jelena McWilliams, who served as Chair of the FDIC from June 5, 2018 to Feb. 4, 2022, is managing partner at the law firm of Cravath, Swaine & Moore. She heads the firm’s Financial Institutions Group Practice, working from its Washington, D.C. office.Speaking via Zoom with some 200 community bankers attending the Fall Seminar of the Bank Holding Company Association on Oct. 6 in Edina, Minn., McWilliams took questions from the audience. She spoke for 30 minutes on topics ranging from the current political environment, to deposit insurance reform, to industrial loan company charters and more. Here are some of the highlights:.On the political environment for bankers:“You should have noticed a shift in the examination cycle and the tone of examination interactions since the change in administration,” she said. The regulatory and supervisory policy in Washington, D.C., she affirmed, is changing. “I would call this the golden opportunity of being able to right-size supervision and the examination process.” She also said the environment for mergers and acquisitions is much better than it was during the previous administration, when there was an “impetus of not moving forward” with M&A applications, especially between larger banks.McWilliams is a fan of the staffing changes that are underway at the bank regulatory agencies. “The biggest gift these agencies have so far has been the government initiative regarding early buyouts and retirement severances,” she said, noting she found it very difficult to change the culture at the FDIC when she was chair and that a reduction-in-force might have been a benefit in terms bringing in some new ideas and fresh thought.On deposit insurance reform:McWilliams said it may make sense to expand deposit insurance to cover certain accounts that handle, for example, payroll, but she said her concern is the cost. “Who is going to pay for it?” she asked, noting that no banker ever came to her saying they thought their premiums were too low.On competition from credit unions:“Credit unions and banks are not playing on the same playing field,” she said, citing restrictions on member business lending, in addition to a tax advantage. She noted, however, that Congress set up the rules for credit unions to be different from banks:“Congress envisioned it to be an uneven playing field.”Do you believe that regulators will approve more Industrial Loan Company charters?A moratorium was placed on new ILC charters after Walmart applied for one, and for many years no new ILC charters were granted, until charters were granted to Square and Nelnet in 2020 when McWilliams was FDIC chair. No ILC charters since then have been granted.“When I came to the FDIC, I basically said it doesn’t matter if you love them or not,” McWilliams said. “We follow the law of the land, and that’s how we came to approve the two charters ... I do believe there are going to be other applicants coming through ... and I am pretty sure they will get approved. You want regulatory agencies to follow the law, not to make their own law.”McWilliams said more of the recent applicants for ILC charters have higher requirements than banks. “ILCs are in the 12 to 15 percent range, and some are above 15 percent, so their capital is higher than banks,” she said. She noted that they look for a source of strength in addition to the capital requirements for a new ILC. “We asked for a personal commitment from Jack Dorsey to be the source of strength” in the Square application, she said.Do you believe community banks should become involved with cryptocurrency?“I think if you had asked me this two or three years ago, I would have said don’t touch it! But now with the legislation (the GENIUS Act) there is going to be impetus for banks to get more involved,” she said. “I think the best thing to do would be something in custody of crypto digital assets. I would wait for regulatory volume or for the OCC to provide some clarity ... you never want to be the first, especially in a novel space like this. So I would follow what the larger banks are doing, then I would watch for federal guidance from the federal regulatory agencies.”