Consumer Financial Protection Bureau Director Rohit Chopra wants regulators to consider labeling certain payment systems as systemically important financial institutions, he said during a Washington Post Live event on Tuesday.
In a wide-ranging interview where he discussed the regulatory response to the recent bank failures, Chopra said he’s concerned about the way in which many consumers use digital wallets and money-transfer apps to store funds.
Instead of just moving money from place to place, many consumers maintain balances on apps like Cash App, PayPal and Venmo, he said.
“Many people think of this as a bank account, a place you can store funds. But the reality is, it’s not like a traditional bank account, and there are certain circumstances where those balances may not be fully insured,” he said.
Chopra said he is in favor of allowing the Financial Stability Oversight Council, through a provision of the Dodd-Frank Act, to designate certain payment firms as systemically important.
“[This] would allow us to make sure [payments firms] are safe and sound, and protecting consumers,” Chopra said.
Chopra said he advises consumers who use digital wallets to limit the amount of money they hold on their account balances, and to move funds to a bank account as quickly as possible.
“We as the regulators have to stay ahead of the game because we want families and businesses to know that their money is secure from attacks, from runs and from instability,” he said.
The director’s remarks come as the collapse of Silicon Valley Bank and Signature Bank last month have drawn attention to deposit insurance.
Regulators undertook extraordinary measures to guarantee all deposits beyond the Federal Deposit Insurance Corp.’s standard $250,000 cap in an effort to stem contagion.
Roughly 94% of SVB’s total domestic deposits were uninsured at the end of 2022, according to S&P Global — a factor that contributed to last month’s run on the bank which saw depositors withdraw more than $42 billion in a day.
The emergency response by regulators has resulted in a nearly $23 billion hit to the FDIC’s Deposit Insurance Fund, a deficit that will likely fall on the largest banks to make up, according to Bloomberg.
When pressed by House lawmakers last month to refrain from subjecting small banks to increased assessment fees, FDIC Chair Martin Gruenberg assured lawmakers the regulator is “keenly sensitive to the impact on community banks.”
Meanwhile, Chopra suggested regulators consider tailoring insurance premiums to non-interest-bearing accounts. Businesses with payroll accounts that exceed the current deposit insurance limits are seeking guidance on how to best manage these accounts, he added.
“I personally think that there may be a place where we can give higher limits — that banks would pay for — and insurance premiums for these types of payroll accounts, so that small businesses and other businesses can keep their money safe,” he said Tuesday.