Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, at the FDIC Systemic Resolution Advisory Committee

Good morning. It’s a pleasure to be here in person for the Systemic Resolution Advisory Committee.

Our markets are far different than they were the last time this committee met in person. We look forward to hearing your advice on how the FDIC can be best prepared to resolve institutions whose failure may pose risk to the stability of the financial system.

In particular, I want to share the three categories of systemically important financial institutions that will continue to pose challenges for us.

The first is domestic systemically important banks (DSIBs). I am sure it is not surprising that a CFPB Director is concerned about a DSIB failure. DSIBs are heavily involved in retail banking with large consumer businesses. Many DSIBs expanded their footprints by taking advantage of the lax merger review regime that regulators are now sunsetting. These DSIBs have relatively high levels of uninsured deposits, and their failure could be highly disruptive to consumers and small businesses in the regions they serve. DSIB resolutions could pose serious technical challenges for the FDIC that we must carefully think through, especially if we appropriately retire the old playbook of simply selling them to Wall Street firms.

The second is undesignated nonbank systemically important financial institutions. The shadow banking sector continues to be large and interconnected with the global financial system. Many experts rightfully believe that there are a number of these institutions that have not been formally designated by the Financial Stability Oversight Council, yet nevertheless pose systemic risk to the financial system. Absent a designation, these institutions are not required to file a resolution plan. Resolving these institutions without a plan would be an enormous challenge.

Of course, the third is the global systemically important banks (GSIBs). While the GSIBs submit resolution plans, U.S. law requires that these plans are credible to facilitate a rapid and orderly resolution under Chapter 11 of the U.S. Bankruptcy Code, without any government assistance. Experts believe that this is a fairy tale. We must continue to work on ways to eliminate bailout risk for these firms.

I want to thank all of you for your service to this committee and we look forward to your advice and counsel on these questions.