For the past three years, Hannah Johnson has worked on a team of New York bank examiners at the Federal Deposit Insurance Corporation, assessing the health of banks in the region and looking for potential red flags.
In March, Ms. Johnson left the FDIC and took a job at a bank that offered her a 20 percent raise. She appreciated her experience at the agency, but living paycheck to paycheck in New York was not easy.
“I wasn’t spending more than I had, but I definitely wasn’t saving money,” said Ms Johnson, 24. FDIC Junior Analysts and Examiners Can Earn less than $100,000 per year.
Johnson’s decision to leave the FDIC for a higher-paying position in the private sector has become a common issue for the banking regulator, which is scrambling to contain the most volatile episode of banking turmoil since the 2008 financial crisis. With a tight job market and high inflation, the regulator has been struggling to prevent staff from being lured into more lucrative jobs, leaving its ranks dwindling as it faces the threat of a banking crisis.
After years of relative calm, FDIC officials have been working at a furious pace this year. The March bankruptcies of Signature Bank, which was supervised by the FDIC, and Silicon Valley Bank, which was regulated by the Federal Reserve, threatened to trigger runs on regional banks across the country. The collapse of First Republic Bank late last month and falling share prices of financial institutions in similar situations have renewed focus on the nation’s financial regulators and spurred calls for more aggressive supervision and greater support for bank deposits. At this time, the FDIC insures bank deposits as low as $250,000.
Biden administration officials and federal regulators have portrayed recent bank failures as largely the result of mismanagement. But the FDIC recognized a shortcoming of its own: understaffing.
In a report released in late April reviewing the Signature Bank failure, the FDIC pointed to its own “persistent” staff shortages as a problem that has hampered its ability to supervise lenders. He said he had a hard time attracting examiners and other regulatory staff to New York, where the cost of living is high and the city’s quality of life has deteriorated since the coronavirus pandemic. On average, 40 percent of the positions they examine at large financial institutions in the New York City area have been vacant or filled by temporary staff since 2020.
“It is disheartening that staffing and resource shortages are once again an issue with the FDIC’s supervisory functions,” said Sheila Bair, who served as the regulator’s chair from 2006 to 2011 and recalled facing a similar problem when she took office later. of a period of banking health. and profitability. “Complacency sets in. It is always a risk in any regulatory agency.”
The FDIC isn’t the only regulator that has been dwarfed in recent months by tight resources.
The Fed said in a separate report in April that the number of scheduled hours spent supervising Silicon Valley Bank dropped by more than 40 percent from 2017 to 2020. That came as resources dedicated to banking supervision in the entire Fed system were also constrained. From 2016 to 2022, the Federal Reserve system’s supervisory staff fell 3%, even as banking sector assets grew nearly 40%. the report said.
In a report released Monday, the California Department of Financial Protection and Innovation said that from the end of 2021 through 2022, Silicon Valley Bank’s examiner-in-charge had requested more resources to properly review its books, but was unable to obtain them.
“Inspectors with the necessary experience and skills have already been assigned to key roles in other bank inspections, delaying the assignment of additional staff,” the report says.
The Internal Revenue Service, which recently received $80 billion from last year’s Cut Inflation Act, has also seen its staff size drop dramatically over the past decade, making it difficult to perform complex audits and application of the tax code. Although the tax collection agency is trying to increase hiring, Biden administration officials have acknowledged that it can be difficult to attract qualified tax specialists, who can earn more by working for accounting firms.
The FDIC was created in 1933 to stabilize the financial system of the United States after a wave of thousands of bank failures. Its 8,000 employees oversee and examine more than 3,000 banks across the country. Insures nearly $10 trillion in deposits.
But with salaries exceeding $200,000, turnover among top talent can be high when FDIC-supervised banks decide to woo their examiners.
An aging workforce also poses problems. In February, weeks before the spring banking turmoil, the FDIC’s inspector general released a report that projected nearly 40 percent of the regulator’s workforce would be eligible to retire in the next five years. He warned that this attrition could leave the FDIC struggling if a banking crisis were to occur.
“In the absence of experienced professionals from key divisions with institutional knowledge of lessons learned from past crises, the FDIC may not be able to execute its responsibilities with respect to receivership and resolution activities.” the report said.
The inspector general also noted an exodus of his trainee examiners. Quit rates among those entry-level employees, known as financial institution specialists, have doubled since 2020. More than half of the departures occurred between the first and second years of the four-year program designed to prepare future examiners.
The FDIC, in its review of Signature Bank’s bankruptcy, pointed to the high cost of living in New York City as one reason for its personnel problems and suggested that higher pay and more flexible work options from home could be a solution. Salary scales at the FDIC are negotiated between its management and the National Union of Treasury Employees.
Establishing a remote work policy has been a struggle at the FDIC. The National Union of Treasury Employees filed a complaint against the regulator last year, accusing it of backing out of an agreement that would have allowed most of its staff broad flexibility to work from home.
“Telecommuting is a really important recruiting tool,” said Vivian Hwa, a senior FDIC research economist and president of the NTEU chapter that represents its employees in Washington. “Long term, if we want to rebuild our rosters and retain talent, we need to continue the flexibilities of remote work.”
Ms. Hwa added that many banks have flexible work-from-home policies and that the FDIC was able to successfully conduct examinations during the pandemic.
An FDIC spokesman, David Barr, said the FDIC was taking steps to address the staffing shortage.
“The FDIC has been taking a multi-pronged approach to increasing the examiner staff,” Mr. Barr said. “The approach includes increased entry-level hiring, targeted hiring of experienced professionals, rehiring of retirees, temporary reassignment of commissioned examiners and specialists holding positions elsewhere at the FDIC, and reduced examiner travel.”
Ms Johnson, who joined the FDIC after graduating from college and initially lived with her parents, said she found the rules about where she worked flexible enough but ultimately the wages weren’t sufficiently high for an expensive city like New York.
“It really came down to paying for me,” Ms Johnson said. “When the opportunity to earn much more and learn the same or more presented itself, I took advantage of it.”