For the last three years, Hannah Johnson worked on a New York team of 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 F.D.I.C. 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,” Ms. Johnson, 24, said. Junior analysts and examiners at the F.D.I.C. can earn less than $100,000 per year.
Ms. Johnson’s decision to leave the F.D.I.C. for a higher-paying position in the private sector has become a common problem for the bank regulator, which is scrambling to contain the most volatile episode of turmoil in the banking sector since the 2008 financial crisis. With a tight labor market and hot inflation, the regulator has been struggling to keep staff from being lured away by more lucrative jobs, leaving its ranks depleted as it faces the threat of a banking crisis.
After years of relative calm, F.D.I.C. officials have been working at a frenzied pace this year. The March failures of Signature Bank, which was overseen by the F.D.I.C., and Silicon Valley Bank, which was regulated by the Federal Reserve, threatened to set off runs at regional banks across the country. The collapse of First Republic Bank late last month and the sinking stock prices of similarly situated financial institutions have renewed the focus on the nation’s financial regulators and spurred calls for more aggressive oversight and for a bigger backstop on bank deposits. Right now, the F.D.I.C. insures bank deposits up to just $250,000.
Biden administration officials and federal regulators have described the recent bank failures as largely the result of poor management. But the F.D.I.C. acknowledged a shortcoming of its own: a lack of staffing.
In a report released in late April reviewing the failure of Signature Bank, the F.D.I.C. pointed to its own “persistent” staffing shortages as a problem that has hampered its ability to supervise lenders. It said that it had difficulty attracting examiners and other regulatory staff to New York, where the cost of living is high and the quality of city life has deteriorated since the coronavirus pandemic. On average, 40 percent of the positions that scrutinize large financial institutions in the New York City area have been vacant or filled by temporary staff since 2020.
“It’s disheartening that staffing and resource shortages are again a problem with the F.D.I.C.’s supervisory functions,” said Sheila Bair, who was chair of the regulator from 2006 to 2011 and recalled confronting a similar problem when she assumed the job after a period of bank health and profitability. “Complacency sets in. It’s always a risk at any regulatory agency.”
The F.D.I.C. is not the only regulator that has been diminished in the last few months by thin resources.
The Fed said in a separate report in April that the number of scheduled hours dedicated to the supervision of Silicon Valley Bank fell by more than 40 percent from 2017 to 2020. That came as resources dedicated to bank oversight across the Fed system were also limited. From 2016 to 2022, the head count of the Fed system’s supervisory staff fell by 3 percent even as banking sector assets grew by nearly 40 percent, the report said.
The Internal Revenue Service, which recently received $80 billion from last year’s Inflation Reduction Act, has also seen its staff size fall sharply in the last decade, making it difficult to conduct complex audits and enforce the tax code. Although the tax collection agency is trying to ramp up hiring, Biden administration officials have acknowledged that attracting skilled tax specialists, who can earn more working for accounting firms, can be difficult.
The F.D.I.C. was created in 1933 to stabilize the United States financial system after a wave of thousands of bank failures. Its 8,000 employees supervise and examine over 3,000 banks across the country. It insures nearly $10 trillion in deposits.
But with salaries that top out at just over $200,000, turnover among top talent can be high when the banks that the F.D.I.C. supervises decide to lure their examiners away.
An aging work force also poses problems. In February, weeks before the spring banking turmoil, the F.D.I.C.’s inspector general published a report projecting that nearly 40 percent of the regulator’s work force would be eligible to retire in the next five years. It warned that this attrition could leave the F.D.I.C. scrambling if a banking crisis were to happen.
“Absent seasoned professionals from key divisions with institutional knowledge of lessons learned from past crises, the F.D.I.C. may not be able to execute its responsibilities with respect to resolution and receivership activities,” the report said.
The inspector general also highlighted an exodus of its examiners in training. Resignation rates among those entry-level employees, know as financial institution specialists, doubled since 2020. More than half of the departures occurred between the first and second year of the four-year program that is designed to groom future examiners.
The F.D.I.C., in its review of the Signature Bank failure, noted that the high cost of living in New York City was one reason for its staffing troubles and suggested that higher pay and more flexible work-from-home options could be a solution. The pay scales at the F.D.I.C. are negotiated between its management and the National Treasury Employees Union.
Settling on a remote work policy has been a struggle at the F.D.I.C. The National Treasury Employees Union filed a grievance against the regulator last year, accusing it of backing out of an agreement that would have allowed most of its staff to have broad flexibility to work from home.
“Telework is a really important recruiting tool,” said Vivian Hwa, a senior research economist at the F.D.I.C. and president of the N.T.E.U. chapter that represents its employees in Washington. “Long term, if we want to build up our rosters again and retain talent, we have to continue with telework flexibilities.”
Ms. Hwa added that many banks have flexible work from home policies and that the F.D.I.C. was able to successfully conduct examinations during the pandemic.
An F.D.I.C. spokesman, David Barr, said that the F.D.I.C. was taking steps to address the staffing shortages.
“The F.D.I.C. has been executing a multipronged approach to increase examiner staff,” Mr. Barr said. “The approach includes increased entry-level hiring, targeted recruitment of experienced professionals, rehiring of retired annuitants, temporary reassignment of commissioned examiners and specialists who hold positions elsewhere in the F.D.I.C., and reduced examiner travel.”
Ms. Johnson, who joined the F.D.I.C. after graduating from college and initially lived with her parents, said that she found the rules about where she worked to be sufficiently flexible but that ultimately the wages were not high enough for an expensive city like New York.
“It really came down to pay for me,” Ms. Johnson said. “When an opportunity presented itself to be making a lot more, and learning the same or more, I jumped on it.”
