Chief of State Bank Regulators Wants Equality With US Agencies

Putting state bank regulators on a more equal footing with their federal counterparts is high on the agenda for Brandon Milhorn, the new president and CEO of the Conference of State Bank Supervisors.

Milhorn put that plan into action in one of his first tasks as chief of the group, where he came after stints at the Federal Deposit Insurance Corp., by filing an amicus brief with the US Supreme Court asserting the power of state regulators to enforce tougher standards on federally regulated national banks.

That case, Cantero v. Bank of America, will determine whether the National Bank Act, a Civil War-era law, overrides a New York escrow interest law to protect borrowers that’s also on the books of several other states. A decision is expected in late 2024.

The Cantero case underscores how banks and some federal regulators are trying to homogenize banking rules and thwart stricter state policies, Milhorn said. Pushing back is one of his key goals leading the organization, which includes 54 regulators from all US states, three territories, and Washington, D.C..

“We have to increase the effectiveness of our partnership with the federal regulators. That has got to work,” Milhorn said in an interview last month with Bloomberg Law, his first since taking over as the CSBS head.

He joined the group after two stints spanning more than five years at the FDIC, where he was a deputy to current Vice Chairman Travis Hill, a Republican; and chief operating officer and chief of staff to former Chairman Jelena McWilliams, a Trump administration appointee.

“We can’t be a substantive afterthought in the system, because it just won’t function properly,” he said.

See also: Bank of America Escrow Interest Dispute Gets Supreme Court Look

Exam Changes

Another priority for Milhorn is finding ways to modernize the examination system, the bedrock of bank regulation, he said.

Federal regulators have also been looking at ways to update their examination procedures following the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in the first half of 2023. Regulators have faced questions about how their examiners failed to address problems at the banks before they failed.

Bank regulators have relied on a point-in-time examination system, where an examiner or team of examiners goes into a bank and gets a snapshot of its financial condition and its compliance with consumer, anti-money laundering, and other rules.

As the speed of banking picks up, examiners will need to measure risk over a longer time horizon, Milhorn said.

“If we want our financial services system to be innovative, to be putting out new products and services, you have to have a supervisory system that manages that risk over time,” he said.

State banking regulators are starting to update their examination processes to reflect the new reality, but the effort will take time, Milhorn said.

Banking Innovation

A third item on Milhorn’s to-do list is creating an environment where banks and regulators can work together to develop new products and services.

“It’s good not only for the financial institutions, whether it’s mortgage lending or money services or banks. But it’s also good for consumers, particularly the underserved,” he said.

Without cooperation between state and federal regulators and the banks, money service businesses, mortgage lenders, fintechs, and other companies they oversee, those goals will be harder to attain, Milhorn said.

“Our members want to create an effective ecosystem for these financial institutions, not just because they want to make it work for their states. They want to make it work for the US economy,” he said.

Federal regulators in the Biden administration have been cautious about innovation at financial institutions. The FDIC, Federal Reserve, and Office of the Comptroller of the Currency have been pushing banks to be careful about their partnerships with fintechs and warned them about getting heavily involved with cryptocurrencies.

The Consumer Financial Protection Bureau has also been cautious about many new products coming to market, such as buy now, pay later and earned wage access products.

Diverse Roles

Prior to his work at the FDIC, Milhorn’s focus was more on national security.

Milhorn served as an assistant general counsel at the Central Intelligence Agency; general counsel at the Senate Intelligence Committee; and staff director and chief counsel at the Senate Homeland Security Committee. He was also a top executive at defense contractor Raytheon Corp. before joining the FDIC in 2018.

Those varied experiences will inform Milhorn’s work at CSBS, he said.

“What I’ve loved about all those jobs is it’s where policy and law and operations come together to execute strategy,” Milhorn said.