The FDIC said it may need to adjust its current examination processes based on the outflow of skills - including examination of conditions that lead to the collapse of First Republic. Image: Peace-loving/Shutterstock.com
In what is one of the first, if not the first, auditors’ report on the impact of staffing cuts at federal agencies since the start of the Trump administration, the IG has raised cautions about the FDIC’s ability to detect the kinds of problems in the banking sector that have led to bank failures.
A report said that since January, the FDIC has cut staff by about 9 percent, largely due to acceptance of the “deferred resignation” offer, with most of the rest mostly due to layoffs of probationary employees. Normal turnover accounted for the rest.
In addition, 17 percent of the remaining staff are eligible for retirement this year, it said, and the impact on the FDIC of Trump’s directive to conduct “large-scale” RIFs in the months ahead is unknown.
“Staff departures can provide opportunities for the FDIC to reshape its business processes and provide opportunities for employee growth; however, there are also near-term risks for the FDIC. With fewer examiners but the same responsibility to conduct statutorily required exams in 2025, it may be difficult for the FDIC to complete these examinations by the end of the year. As a result, the FDIC may need to adjust its current examination processes based on the outflow of skills,” it said.
“Safety and soundness examinations are especially important given potential risks in the banking sector, including with respect to unrealized losses on investment securities,” which for example contributed to the failure of First Republic Bank, it added. “Further, the FDIC will need to assess the impact of staff attrition on its resolution and receivership readiness efforts, including how the attrition may impact the need for contractors.”
Reports from agency IGs, the GAO and other sources—most recently one on the Census Bureau—for many years have pointed out the risks of existing “skills gaps” in numerous occupations, even before the job cuts already imposed and those to come.
Said the latest report, “In the near-term, as a result of staff attrition, the FDIC will need to ensure that it has sufficient staff with the necessary skills and qualifications” to perform that work, noting that such positions require about three years of training for an employee to be considered fully qualified.
“The full, long-term effect of the restructuring and reshaping of the FDIC is unknown,” it added.
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