The Supreme Court’s announcement that it will hear the Consumer Financial Protection Bureau’s challenge to a Fifth Circuit ruling that could strip the agency of its funding has at least one other regulator also paying close attention.
The Federal Deposit Insurance Corp. — a New Deal-era banking regulator whose jurisdiction extends from bank capital requirements to the advertising specs on deposit insurance signage — raised a flag earlier this month in a report warning that the lower court’s decision could hinder its own rulemaking authority.
“The Court explained that [the CFPB’s] funding structure is not subject to the Congressional appropriations process and therefore violated the Appropriations Clause,” according to the agency’s Office of Inspector General. “There is a risk that the Fifth Circuit’s ruling could also be applied to the FDIC.”
[My first-blush reaction is that if this makes other government agencies nervous, so much the better. However, the FDIC occupies a slightly different space, I believe. It is also an independent agency and it does have regulatory power, but that is in relation to a (quasi-)voluntary association decision made by the banks. The FDIC gets its funding from premiums paid by member institutions for insurance on deposits, which then allows the FDIC to supervise the banks for stability and proper capitalization. Theoretically, banks could choose not to join the FDIC, but then few people would do business with them. The rare instances where this occurs is when the banks get insurance from states, as with the Bank of North Dakota, and in those cases the state regulates them rather than the FDIC. The CFPB is more of a direct regulator operating on statutory authority rather than membership, which the Supreme Court will likely distinguish in the eventual decision. — Ed]
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