FDIC “Missed Opportunities” in First Republic Bank Supervision

The Federal Deposit Insurance Corporation (FDIC) “missed opportunities” to act ahead of First Republic Bank’s collapse, according to a report by the agency’s Office of the Inspector General.

The Material Loss Review of First Republic Bank determined that the agency missed opportunities to take earlier supervisory actions and downgrade First Republic Bank component ratings consistent with the FDIC’s forward-looking supervisory approach.

The review also found that the agency should have re-evaluated the bank’s uninsured deposits following its initial assessment due to the magnitude and velocity of uninsured deposits.

It also stated the bank’s failure may warrant changes to the FDIC guidelines establishing standards for safety and soundness, as the bank was well-capitalized at each examination based on FDIC’s defined capital measures.

The report outlined 11 recommendations for the division of risk management supervision to improve FDIC’s supervision processes, including changes to the training curriculum to reemphasize the importance of timely ratingchanges.

It also recommends the division evaluate and update the guidance on supervisory actions when a bank’s business practices do not align with its policies and procedures, and when a bank does not take timely and appropriate action following violations to its risk-appetite statement (RAS) metrics.

The report also recommends the FDIC engage with other federal regulators to assess the need for changes to rules under the safety and soundness standards. These include the adoption of noncapital triggers that would require early, and forceful regulatory actions tied to unsafe banking practices before they impair capital.

The FDIC has concurred with all the recommendations and plans to complete corrective actions by July 31, 2024.