Dive Brief:

• A group of Democratic senators led by Elizabeth Warren of Massachusetts have asked the Federal Deposit Insurance Corp.’s Office of Inspector General to probe the threat posed by the agency’s reported move to rescind some 200 bank examiner job offers.
• In a Monday letter, Warren, the ranking member of the Senate Banking Committee, along with Sens. Raphael Warnock, D-GA, Chris Van Hollen, D-MD, and Lisa Blunt Rochester, D-DE, urged FDIC Inspector General Jennifer Fain to assess whether FDIC Acting Chairman Travis Hill’s reported decision to withdraw employment offers “threatens the stability of the banking system by undermining the agency’s efforts to address the severe understaffing that has plagued its bank examiner workforce.”
• “Given the implications this decision may have on the safety and soundness of the U.S. banking system and the risk it may pose to the Deposit Insurance Fund, an evaluation by your office would be consistent with your mission to ‘promote economy, efficiency and effectiveness at the Agency,’” the senators wrote to Fain.

Dive Insight:

Concerns have mounted in recent weeks that an already understaffed FDIC may experience brain drain during the second Trump administration; add in the federal hiring freeze President Donald Trump implemented last month and those staffing challenges may hamper bank examinations and resolutions of failed lenders, FDIC veterans and lawyers have said.  

In their letter, the senators noted the FDIC OIG has previously identified staff shortages in the FDIC’s New York regional office as one of two “primary causes for delays in supervisory activities” tied to the March 2023 failure of Signature Bank, and staffing woes broadly were labeled the FDIC’s top management and performance challenge last year.

“The lesson learned in this case was that a shortage of cops on the beat can threaten the safety and soundness of the banking system and pose risks to the Deposit Insurance Fund,” the senators reminded Fain. 

Signature’s failure, the fourth largest bank failure in U.S. history, caused an estimated $2.4 billion loss to the DIF. Large bank examiner positions at the FDIC had remained vacant or were filled by temporary staff, leading to supervisory delays, canceled or postponed bank exams, and quality control issues in Signature Bank’s supervision, the letter noted.   

In light of that, the FDIC OIG recommended the agency “reevaluate its strategy to attract, retain, and allocate staff,” particularly given that the FDIC has higher employee retirement-eligibility rates than government-wide averages. 

In response, the FDIC’s board approved a new budget in December 2023 that featured a material increase in examiner positions and had issued hundreds of job offers.

Pointing to Trump’s federal hiring freeze, the senators said “it is unclear whether the FDIC believes it is legally subjected to the Executive Order or if the Acting Chairman is voluntarily complying.” 

The Washington Post reported that the FDIC had pulled some 200 bank examiner job offers as part of the hiring freeze, despite the FDIC being an independent agency that typically has operated independently of the executive branch. 

In evaluating the decision, senators urged Fain to “determine whether it undermines progress on the FDIC OIG’s previous recommendations to the agency.”