Report: Enforcement actions have fallen since 2015

Bank regulatory enforcement actions have fallen over the past decade, regardless of whether the president has been a Democrat or Republican, according to a July 8 report from the Brookings Institute. .The report focused on enforcement actions from the Office of the Comptroller of the Currency, Federal Reserve and FDIC. The time period covers the last three years of the Obama administration, President Donald Trump’s first term in office and the first year of his second term, and the four-year presidency of Joe Biden. Despite the perception that Biden was much harder on banks than Trump, Klein and Connell said enforcement actions still fell on an annual basis during his four years in office. “Enforcement of rules by bank regulators has declined, as measured by formal enforcement actions,” said the study’s authors, Brookings Institution Senior Fellow Aaron Klein and Economic Studies Intern Cameron Connell. “The decline in enforcement has occurred across administrations, in contrast to the narrative of a pendulum of enforcement that swings between Democratic and Republican administrations. Instead, the data show a stepwise decline in enforcement in which subsequent administrations either maintain lower enforcement rates or continue to decrease enforcement.” Klein and Connell attributed part of the drop to the decline in the number of federally-chartered banks. From 2015 to the end of last year, the number of banks fell 30 percent to 4,336 from 6,182. More than a third of OCC-chartered banks disappeared during that time, with a 31 percent reduction in FDIC-regulated banks and 16 percent drop in Federal Reserve-overseen banks. Despite the relatively little drop in FDIC-regulated banks, enforcement actions fell 58 percent since Gov. Daniel Tarullo’s time as the de facto vice chair of supervision ended in 2017. “Given banks’ ability to change federal regulators between the FDIC and the Fed, and the relative gain of the Fed in regulating a greater percentage of state-chartered banks, one wonders if the Fed is winning a battle of regulatory arbitrage through supervisory laxity,” wrote Klein and Connell. Klein and Connell said the decline in Fed enforcement came during the 2023 failure of Silicon Valley Bank. The Fed later found that the supervisory approach for the bank was excessively deliberative and too centered on continuing to gather supportive evidence. “The banking crisis of the spring in 2023, focused on SVB, a bank which was under-supervised by the Fed’s own admission, is evidence of the potential negative consequences from lax supervision by the Federal Reserve,” the authors wrote.