[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF PRUDENTIAL REGULATORS
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 2, 2025
__________
Serial No. 119-45
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
63-434 PDF WASHINGTON : 2026
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HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
C O N T E N T S
----------
Tuesday, December 2, 2025
OPENING STATEMENTS
Page
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 2
STATEMENTS
Hon. Andy Barr, Chairman of the Subcommittee on Financial
Institutions, a U.S. Representative from Kentucky.............. 4
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
Institutions, a U.S. Representative from Illinois.............. 4
WITNESSES
Hon. Michelle Bowman, Vice Chair for Supervision, Board of
Governors of the Federal Reserve System........................ 5
Prepared Statement........................................... 8
Hon. Jonathan Gould, Comptroller, Office of the Comptroller of
the Currency................................................... 17
Prepared Statement........................................... 19
Hon. Kyle Hauptman, Chairman, National Credit Union
Administration................................................. 23
Prepared Statement........................................... 25
Hon. Travis Hill, Acting Chairman, Federal Deposit Insurance
Corporation.................................................... 34
Prepared Statement........................................... 36
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Brad Sherman:
Jack Newsham and Julia Hornstein: A Fundraising Memo for
Palmer Luckey's New Crypto Bank Says the Quiet Part Out
Loud....................................................... 110
Hon. Bill Huizenga:
Joint Trade Statement........................................ 114
Hon. Nikema Williams:
Letter to FDIC opposing staff layoffs........................ 118
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to question for the record from Hon. Jonathan
Gould.......................................................... 124
Written responses to question for the record from Hon. Kyle
Hauptman....................................................... 154
Written responses to question for the record from Hon. Hon.
Travis Hill.................................................... 172
LEGISLATION
H.R. ------, the Tailoring and Indexing Enhanced Regulations
(TIER) Act..................................................... 221
H.R. ------, the American Financial Institution Regulatory
Sovereignty and Transparency (American FIRST) Act.............. 230
H.R. ------, the Regulatory Efficiency, Verification,
Itemization, and Enhanced Workflow (REVIEW) Act................ 250
H.R. ------, the Rural Depositories Revitalization Study Act..... 255
H.R. ------, the New Bank Application Numbers Knowledge (New
BANK) Act...................................................... 258
H.R. ------, the Merger Agreement Approvals Clarity and
Predictability Act............................................. 263
H.R. ------, the Merger Process Review Act....................... 267
H.R. 4936, the Taskforce for Recognizing and Averting Payment
Scams (TRAPS) Act.............................................. 271
OVERSIGHT OF PRUDENTIAL REGULATORS
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Tuesday, December 2, 2025
U.S. House of Representatives,
Committee on Financial Services,
Washington, DC.
The committee met, pursuant to notice, at 10:11 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Huizenga, Wagner,
Barr, Williams of Texas, Loudermilk, Davidson, Rose, Steil,
Timmons, Stutzman, Meuser, Kim, Garbarino, Flood, Lawler, De La
Cruz, Downing, Moore, Waters, Sherman, Meeks, Scott, Lynch,
Green, Cleaver, Foster, Beatty, Vargas, Gottheimer, Gonzalez,
Casten, Tlaib, Torres, Garcia, Williams of Georgia, Fields,
Bynum, and Liccardo.
Chairman Hill of Arkansas. The Committee on Financial
Services will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
The hearing is entitled, ``Oversight of the Prudential
Regulators.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
I now recognize myself for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Good morning. I want to welcome our witnesses and thank
them for joining us today. Today's hearing is an opportunity
for the committee to discuss the recent work of our prudential
regulators and to highlight the strong alignment between their
current approach under the Trump Administration and our agenda
here in the committee to make community banks, all depository
institutions of all sizes, great again. Our shared objective is
to ensure that regulatory policy supports the needs of the
banks and credit unions that serve the hardworking Americans
across this country. The supervisory and regulatory
developments, rulemakings, and activities of the prudential
regulators that we will highlight in today's hearing underscore
that shared vision.
Together we can reduce the duplicative or untailored
burdens on financial institutions of all sizes to ensure that
they can continue to thrive in an increasingly competitive
market. This hearing is about enhancing clear, tailored rules
of the road, fostering competition, and ultimately serving the
best interests of consumers and businesses. Committee
Republicans have been working alongside the Trump
Administration from day one to ensure that community banks
remain viable, competitive, and able to serve the needs of our
local communities. To achieve our mutual goals, it is crucial
that prudential regulators remain focused on their core mission
to safeguard the fundamental stability, safety, and soundness
of our financial institutions rather than on trendy
distractions that prioritize progressive climate agendas or
diversity, equity, and inclusion (DEI) initiatives. That is why
our committee's legislative and oversight agenda and the Trump
Administration are collaborating in leading the charge to shift
our regulatory approach and return prudential supervision to
this core mission.
We saw what happened with the failure of Silicon Valley
Bank when supervisors failed to keep their focus on the
obvious, in-plain-sight material financial risks. This hearing
will also emphasize the important reversal of costly, ill-
conceived Biden-era regulations and guidance, which would drive
up costs and drive access for services down for American
homebuyers and small businesses, most notably the original
Basel III Endgame proposal. I am proud of the work that the
committee has done to advance legislation to provide clarity
for the digital assets marketplace, streamline supervision,
increase access to capital and deposit funding, ensure a fair
supervisory appeals process, and establish a timely merger
review process, among many others. It is critical that we
continue this momentum toward transparent regulatory certainty
and broader market competition. Clear, consistent rules reduce
compliance costs for banks and credit unions. When these
institutions can navigate regulations without ambiguity, they
can allocate their resources more effectively, making loans
cheaper and investing in customer service, technology, and
innovation that benefits our entire economy.
This committee has held numerous hearings throughout the
119th Congress to learn about how the actions of the regulators
are affecting community banks and credit unions and their
ability to serve our customers. We have heard time after time
about the positive developments occurring at your agencies, as
well as further ideas about rightsizing the supervisory and
regulatory environment. As in the past, this Congress must find
modern ways to enact effective and clear guidelines and
expectations to enable financial institutions to operate in an
increasingly diverse and dynamic financial system. I look
forward to your testimony today, and I yield back the balance
of my time.
I now with pleasure recognize the ranking member of the
committee, Ms. Waters, for a 4-minute opening statement.
OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much, Mr. Chairman. Thank you to
our witnesses for being here today.
During the Thanksgiving break, a lot of us heard the same
thing from our constituents: buying the groceries for
Thanksgiving dinner was much, much more expensive this year. On
top of that, Trump's weakening economy is squeezing families so
much that many are concerned that they will need to pull back
on holiday spending. After all, did Trump not say that the
children only need two dolls, and that the two dolls might cost
more? With economic policies like these, Donald Trump is ``The
Grinch Who Stole Christmas,'' but Democrats are not the only
ones raising alarms. Republican representative, Marjorie Taylor
Greene, who until recently was a die-hard Trump supporter,
acknowledged that under the Trump Administration the cost of
living has become unbearably high. Corporate interests are
prioritized over the needs of the working class. Small
businesses are hurting, and the American Dream is slipping out
of reach. We were all promised lower costs on day one of
Trump's term. Instead, his administration is dismantling the
very institutions that keep costs low and the economy stable,
including by undermining the independence of the Federal
Reserve and forcing independent agencies to serve his personal
interests. Americans were promised a reduction in credit card
interest payments. Instead, Trump and the Republicans are
unlawfully shutting down the Consumer Financial Protection
Bureau, the only Federal Agency focused on making sure that Big
Banks and other financial institutions treat Americans fairly.
As if that were not enough, Russell Vought, who has told
private audiences of his plan to illegally end the Consumer
Financial Protection Bureau (CFPB), announced last month that
CFPB examiners will be forced to recite a so-called humility
pledge, essentially forcing them to bow down to Big Banks
before daring to carry out their jobs to examine them. While I
am happy that our committee is following the law to finally
have what should be a semiannual hearing with the Federal
Reserve (Fed) vice chair of supervision, I remind Chairman Hill
that it has been 18 months since the CFPB director last
testified before this committee, a delay which is wholly
unacceptable.
I am concerned that our bank and regulators have been
anything but independent, prioritizing Trump's deregulatory
policies that will leave our banking system vulnerable to
another Silicon Valley Bank-type failure, if not worse, but it
is not just handouts to mega banks. The Trump family has spent
more time putting money into their own pockets than working for
the American people. In fact, Trump and his family have
received nearly $2 billion in cash, gifts, and crypto profits
while our regulators work on crypto rules that could legitimize
this corruption. We all know the adage that silence is
complicity, and I am deeply disappointed by the ways in which
my colleagues on the other side of the aisle have remained
silent and enabled this President's policy.
I hope each of our banking regulators were here today
assert your independence and help us navigate out of this mess
before it is too late. I yield back.
Chairman Hill of Arkansas. The gentlewoman yields back. I
recognize the chair of our Subcommittee on Financial
Institutions, Mr. Barr of Kentucky, for a 1-minute opening
statement.
STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE FROM KENTUCKY
Mr. Barr. Thank you to our witnesses today. It is
encouraging to see new leadership at prudential regulatory
agencies committed to reevaluating needless burdens on our
financial institutions. For years, Congress and our financial
regulators have set regulatory thresholds intended to align
oversight with actual risks to financial stability, but because
these thresholds are often static, they inevitably sweep in
more institutions as the economy grows, capturing firms that
were never intended to be treated like the largest, most
complex banks. That is why I have introduced legislation, the
Transition Improvement by Estimating Risk (TIER) Act of 2025,
to index these thresholds to nominal Gross Domestic Product
(GDP), preserving rigorous requirements where they belong,
while preventing regulatory bracket creep that divert resources
away from communities, small businesses, and farmers.
Additionally, as you finalize the Basel III Endgame, it is
critical to ensure U.S. capital standards are risk based,
evidence driven, and supportive of credit availability. Gold
plating international standards and massively hiking capital
requirements would restrict lending, reduce market liquidity,
and weaken, not strengthen, our financial system. I urge
prudential regulators to work with Congress toward a framework
that is transparent, analytically sound, and aligned with the
realities of a growing economy. I yield back.
Chairman Hill of Arkansas. The gentleman yields back. I
recognize the ranking member of our Subcommittee on Financial
Institutions, Dr. Foster of Illinois, for a 1-minute opening
statement.
STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM ILLINOIS
Mr. Foster. Thank you, Chair Hill and Ranking Member
Waters. The panel before us today has the important
responsibility of supervising our banking system, not only for
known risks, but also emerging risks that threaten the
stability of the American financial system. As the ranking
member of the Financial Institutions Subcommittee, but also as
a member who joined Congress in March 2008 on the eve of the
financial crisis, I understand the damage that not only old
risks, like excessive risk taking and hitting leverage, can
cause, but also modern, innovative, yet untested financial
products can have if they are allowed to operate unchecked.
Your agencies will have to adapt to a rapidly changing
financial system and ensure that stability and innovation go
hand in hand.
Innovative financial products and digital assets, private
credit, third-party technology firms, and developments like
generative AI will quickly change how financial institutions
and their customers behave and how they manage risk. We have
already seen that in the 2023 banking crisis, the collapse of
the financial technology (fintech), Synapse, and recently, the
failure of critical infrastructure in my district that
disrupted the commodities market. So, I look forward to this
important discussion of modern prudential regulation and look
forward to hearing how your agencies plan to adapt to these
changes in the financial system. Thank you. I yield back.
Chairman Hill of Arkansas. The gentleman yields back.
Today, we welcome the testimony of Hon. Michelle Bowman, vice
chairman for supervision for the Board of Governors of the
Federal Reserve System; Hon. Jonathan Gould, comptroller of the
currency; Hon. Kyle Hauptman, chairman of the National Credit
Union Administration; and Hon. Travis Hill, acting chairman of
the Federal Deposit Insurance Corporation. We thank each of you
for joining us today. Each of you will be recognized for 5
minutes to give an oral presentation of your testimony.
Without objection, your written statements will be made
part of the record.
Vice Chair Bowman, you are now recognized for 5 minutes.
STATEMENT OF HON. MICHELLE BOWMAN, VICE CHAIR FOR SUPERVISION,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Ms. Bowman. Chairman Hill, Ranking Member Waters, and other
members of the committee, thank you for the opportunity to
testify on the Federal Reserve's supervisory and regulatory
activities. I will focus on the current state of the banking
sector and progress on my priorities as the vice chair for
supervision.
The banking system remains sound and resilient. Banks
continue to report strong capital ratios and significant
liquidity buffers, which position them well to support economic
growth. We are seeing continued growth in bank lending, a
decline in non-performing loans across most categories, and
strong profitability. Notably, though, nonbank financial
institutions continue to increase their share of the total
lending market, providing strong competition to regulated banks
without facing the same prudential standards. To compete
effectively with nonbanks on both payments and lending, the Fed
is encouraging banks to innovate to improve their products and
services. We are working together with the other regulators to
develop regulations for stablecoin issuers, as required by the
GENIUS Act. We also need to provide clarity on digital assets
to ensure that the banking system is well placed to support
these activities.
The Fed is working to tailor our regulatory and supervisory
framework to accurately reflect the risk that different banks
pose to the financial system, particularly community banks. We
cannot continue to push policies designed for the largest banks
down to the smaller, less risky and less complex banks. I
support congressional efforts to reduce burden on community
banks, including increasing static and outdated statutory
thresholds that have not been updated for years. I also support
improvements to the anti-money laundering (AML) framework that
will assist law enforcement while minimizing unnecessary
regulatory burden.
The Fed is taking action to support community banks.
Together with the Federal Deposit Insurance Corporation (FDIC)
and the Office of the Comptroller of the Currency (OCC), we
recently proposed changes to the community bank leverage ratio
to provide greater flexibility while preserving strong capital
and safety and soundness. We also released new capital options
for mutual banks. We are exploring streamlining the merger and
acquisition and de novo chartering application processes for
smaller banks and updating the Board's merger analysis to
accurately reflect and analyze competition among small banks.
We are also in the process of modernizing and simplifying the
Fed's regulation of large banks. The Board recently released a
proposal to enhance public accountability and to ensure robust
outcomes of our stress tests. The proposal includes disclosing
stress test models, the design framework, and the 2026
scenarios. It ensures that future significant changes will
benefit from public input.
The Agency has recently finalized changes to the enhanced
supplementary leverage ratio (eSLR) proposal for U.S. Global
Systemically Important Banks (G-SIBs), which helps ensure that
leveraged capital requirements serve as a backstop to risk-
based capital requirements as it was originally intended. The
Board is working on a proposal with the OCC and the FDIC to
implement the 2017 Basel agreement. This will reduce
uncertainty and provide clarity on capital requirements. We are
considering each of the elements rather than reverse
engineering changes to achieve predetermined outcomes. As a
part of this proposal, we are considering approaches to
differentiate mortgage risks that will benefit the banking
system as a whole.
The Fed is also working to refine the G-SIBs' surcharge
framework. The surcharge must be calibrated to avoid impairing
the banking sector's ability to support the broader economy.
Effective supervision must focus on factors that affect the
bank's financial condition, including material risks to bank
operations and the stability of the broader financial system,
not immaterial issues that distract from core safety and
soundness. This requires a risk-focused, tailored approach to
supervision and regulation. The Fed is considering a regulation
to clarify standards for enforcement actions based on unsafe
and unsound practices, matters requiring attention, and other
supervisory findings. Focusing our resources on material issues
that historically have correlated to bank failures will create
a more effective oversight system.
The capital adequacy, asset quality, management, earnings,
liquidity, and sensitivity (CAMELS) framework is also under
review, as is the bank examiner training program. Establishing
clear metrics for CAMELS components ensures transparency and
objectivity in our examinations, and enhancing examiner
training will improve our supervision. In addition, the Board
recently finalized revisions to the large bank rating system
that addresses the mismatch between ratings and overall firm
conditions. Further, the Board removed reputational risk from
our supervision, and we are considering a regulation to prevent
supervisory influence from leading banks to debank a customer
due to their constitutionally protected political or religious
beliefs or a business engaged in legal activities. Banks must
remain free to make their own risk-based decisions to serve
individuals and lawful businesses without interference.
Thank you again for the opportunity to appear before you
today. The Fed is in the pre-Federal Open Market Committee
(FOMC) blackout period, so I will not be able to discuss
monetary policy during today's hearing. With that in mind, I
look forward to your questions. Thank you.
[The prepared statement of Ms. Bowman follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill of Arkansas. I thank the vice chairman.
Comptroller Gould, you are now recognized for 5 minutes for
your oral remarks.
STATEMENT OF HON. JONATHAN GOULD, COMPTROLLER, OFFICE OF THE
COMPTROLLER OF THE CURRENCY
Mr. Gould. Chairman Hill, Ranking Member Waters, and
members of the committee, thank you for the opportunity to
appear before you. It is an honor to discuss the Office of the
Comptroller of the Currency's work implementing the President's
economic agenda by ensuring that America's Federal banking
system is safe and sound and remains the world's most trusted,
dynamic, and resilient.
Over 160 years ago, President Lincoln had a vision for a
Federal banking system to serve this country and its economic
ideals, and he empowered the OCC to oversee that system. Today,
the OCC supervises more than 1,000 institutions that hold $6.7
trillion in assets, or roughly two-thirds of all U.S.
commercial banking assets, and the GENIUS Act now extends our
remit to certain payment stablecoin issuers.
In the years since the 2008 financial crisis, Washington
too often sought to eliminate rather than manage risks,
resulting in a less relevant and diverse banking system.
Unelected bureaucrats discouraged prudent risk taking, stifled
innovation, and drove credit out of reach for small businesses
and communities. Far from ending too big to fail, the Dodd-
Frank Act created the moat that supercharged the growth of the
very largest banks and introduced too small to succeed. I
intend to restore balance, reset our risk tolerance, focus
supervision on material financial risks, and free banks to
lend, invest, innovate, and grow responsibly. Community banks,
in particular, will benefit from a better tailored,
proportional framework that meets their specific needs.
We are ending the weaponization of finance. No American
should be denied access to banking products and services
because of political or religious beliefs or lawful business
activity. We are currently implementing the President's
executive order on guaranteeing fair banking for all Americans
by reviewing the activities of the largest national banks and
investigating complaints of alleged debanking. We have already
proposed the rule to eliminate reputation risk from
supervision, and we are intent on ensuring banks provide access
to products and services based on objective, risk-based
criteria, not politics or ideology.
The OCC support functions have degraded over the last 4
years, posing a risk to our ability to execute our statutory
mission. Outward signs of this decline include the hiring of a
fraudulent chief financial technology officer in 2022 and an
email data breach that took nearly 2 years to identify and
halt. Upon arriving at the Agency in mid-July, it became clear
that these two issues were symptomatic of others, and fixing
Agency operations became a top priority for me. To that end, we
are working to ensure accountability for these failures and to
recruit qualified and competent individuals. Supervision must
be clear, credible, and consequential. We are cutting away
procedural clutter and returning to risk-based supervision
rooted in law, with an emphasis on examiner judgment, not
arbitrary checklists. Examiners will focus on issues that
materially affect banks' safety and soundness. We are also
codifying reforms to the matters requiring attention process,
clarifying enforcement standards, and ensuring supervisory
tools are used proportionately and predictably.
The OCC is working with our interagency partners to re-
propose the Basel III capital rulemaking and improve capital
standards. We are evaluating opportunities to improve the
Community Reinvestment Act framework, including developing a
simplified strategic plan to ease compliance for community
banks. We are also advancing the Bank Secrecy Act (BSA)/AML
modernization and targeted burden relief for community
institutions. These actions will make our regulatory
architecture simpler, stronger, and more accountable.
Innovation has driven American finance from the telegraph
to the blockchain. The GENIUS Act represents Congress' effort
to integrate payment stablecoins safely into our regulated
banking and financial system. The OCC is drafting rules that
balance innovation with prudence. Beyond payment stablecoins,
we continue to clarify new ways for banks to conduct the very
old business of banking and adopt new technologies, like AI, to
ensure these opportunities are available to all OCC-supervised
banks, rather than a privileged few. We are modernizing OCC
operations through technology, data, and AI, delivering more
efficient supervision and lower assessment fees to create cost
savings that flow back to banks, their customers, communities,
and businesses.
The Federal banking system must remain dynamic,
competitive, and fair. By providing a path for banks to embrace
new technologies in a safe and sound manner, ending politicized
debanking, and modernizing supervision, we are ensuring the
long-term relevance of the Federal banking system. We are
restoring the OCC's historic balancing of prudence and
progress. This is what Lincoln envisioned: a Federal banking
system that serves every American, supports a thriving economy,
and stands ready to meet modern challenges. Thank you.
[The prepared statement of Mr. Gould follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill of Arkansas. Thank you, sir. Chairman
Hauptman, you are recognized for 5 minutes for your oral
remarks.
STATEMENT OF HON. KYLE HAUPTMAN, CHAIRMAN, NATIONAL CREDIT
UNION ADMINSTRATION
Mr. Hauptman. Thank you. Chairman Hill, Ranking Member
Waters, and members of the committee, thank you for the
invitation to discuss the operations, programs, and initiatives
of the National Credit Union Administration. I am grateful to
President Trump for selecting me as the 13th Chair of National
Credit Union Administration (NCUA). NCUA's mission is to enable
access to financial services by facilitating safe, sound, and
resilient credit unions.
The 4,300 credit unions in America serve over 143 million
Americans with over $2 trillion in deposits. Federal credit
unions serve in all 50 States, and 45 States have State-
chartered credit unions, not to mention Guam, Puerto Rico, and
U.S. Virgin Islands. The credit union movement was a grassroots
effort to expand financial services and provide low-cost credit
to groups and communities that were otherwise excluded from the
financial system. The origins of the movement are driving the
foundational difference between cooperative credit unions and
banks.
Credit unions are owned by their member owners, and like
all cooperatives in America, most of which are not credit
unions, they do not have shareholders. Credit unions can only
serve their members, other credit unions, and credit union
organizations. By law, the types of financial services they
offer face certain limits. The law caps the interest rate
credit unions can charge at 18 percent. It is quite a bit lower
than banks are allowed to charge. It limits the number of
business loans and restricts their investment authority. Just
as credit unions are unique among financial service providers
as cooperatives, NCUA is a little bit distinct from our fellow
regulators in that we are both the regulator and insurer for
most credit unions. When acting as a regulator, the NCUA is
charged with regulating, chartering, and supervising federally
chartered credit unions. When acting as an insurer, we are
charged with managing and protecting the Share Insurance Fund.
Both State and federally chartered credit unions are
eligible for insurance from NCUA. In other words, for credit
unions, NCUA is the OCC, FDIC, and the Fed all rolled into one,
because in addition to being a regulator and insurer, we are
also a source of emergency liquidity through the Central
Liquidity Facility. The Central Liquidity Facility (CLF)
provides member credit unions with a source of loans to meet
their liquidity needs. NCUA must meet its statutory obligations
with the awareness that over regulation can stifle innovation
and growth in a way that could threaten the viability of the
credit union system. Our regulatory activities must be fair and
transparent. For example, we must avoid the perception and the
reality of regulation through enforcement. I am proud that it
is NCUA policy against no regulation by enforcement. Defined in
very simple terms, in America, the sequence of events is write
rule, then enforce.
It is worth noting that as an insurer, NCUA's incentives
are aligned with the success of the credit unions we regulate.
While the Agency is not regulated by enforcement as a matter of
practice or policy, we are proud to have an official public
policy. It is on our website. It flows through the examiner
manual, and it merely extends the same protections that our
civil servants have under civil service law to the institutions
that we regulate.
To right-size our approach to safety and soundness, the
NCUA is doing several things to capitalize on the opportunities
created by the Trump Administration to foster innovation. As a
first priority, NCUA is reviewing its regulations to remove any
that are obsolete, overly prescriptive, or unduly burdensome.
We have a new strategic plan that guides our priorities through
2030, and a couple of months ago, we invited credit unions to
share their ideas on how to strengthen the system or highlight
future issues and tell us what they would change about our
strategic plan. We are using that feedback to ground our
planning for Main Street priorities. Our plan will focus on
safety and soundness, protecting the fund, and creating space
for credit unions to innovate responsibly, especially in
leveraging artificial intelligence and digital assets.
My written testimony discusses the current state of the
credit union system and provides an overview of the state of
the Agency. It also details the work we are doing to empower
credit unions and foster innovation. Thank you, Mr. Chairman. I
look forward to the committee's questions.
[The prepared statement of Mr. Hauptman follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill of Arkansas. The gentleman yields back.
Acting Chair Hill, you are recognized for your 5 minutes of
oral remarks.
STATEMENT OF HON. TRAVIS HILL, ACTING CHAIRMAN, FEDERAL DEPOSIT
INSURANCE CORPORATION
Mr. Hill. Chairman Hill, Ranking Member Waters, and members
of the committee, thank you for the opportunity to testify
today. I appreciate the opportunity to report on the FDIC's
recent work to improve our regulatory and supervisory approach
across a number of areas, while continuing to fulfill our core
mission of insuring deposits, promoting the safety and
soundness of banks, and resolving failed institutions.
Over the past 10 months, the FDIC has made significant
progress in several areas, including reforming supervision so
it is less process driven and more focused on core financial
risks, engaging in a thoughtful review of our regulations,
guidance, and manuals, reevaluating numerous aspects of our
resolution and receivership management functions, and promoting
the prudent adoption of innovative technologies in the
financial services sector. My written statement provides
greater detail in each of these areas, but I would like to
briefly touch on each of them.
Regarding supervision, the FDIC is actively implementing
changes to our supervisory process to reorient our focus more
toward material financial risks and to improve other aspects of
our supervisory framework. Among other things, we have issued a
proposed rule, along with the OCC, that would define certain
key terms related to supervisory criticisms, are working with
Federal and State regulators on reforms to the CAMELS rating
system, issued a proposal to establish an independent Office of
Supervisory Appeals to adjudicate appeals of material
supervisory determinations, and modified our continuous
examination program, including by raising the threshold from
$10 billion to $30 billion in assets, among other changes
detailed in my written statement.
The FDIC has also been engaging in a thoughtful review of
our regulations, guidance, and manuals, and we have already
taken several significant steps. With respect to capital rules,
we finalized a rule to modify the enhanced supplementary
leverage ratio to help ensure that it serves as a backstop to
risk-based capital requirements rather than as a frequently
binding constraint, proposed targeted amendments to the
community bank leverage ratio to expand eligibility and
encourage more community banks to opt in, and are working with
the Federal Reserve and OCC to modernize risk-based capital
requirements, which includes implementation of the 2017 Basel
agreement.
We have also finalized a rule to raise and index 37
regulatory asset thresholds, and we continue to evaluate other
thresholds within our regulations to be included in one or more
future proposals. We rescinded our 2024 statement of policy on
bank mergers and continue to work on additional improvements to
the merger review process and analytical framework, and we
issued a proposed rule to significantly enhance the speed and
clarity of the approval process for new branch openings, which
we expect to finalize later this month. With respect to bank
resolution, the FDIC has, among other things, modified our
approach to resolution planning for insured depository
institutions based on lessons learned from the 2023 bank
failures, conducted dozens of outreach meetings with banks in
their capacity as potential failed bank acquirers as we seek to
improve the bidding process and remove potential obstacles to
lower cost bids, and implemented a number of internal
operational improvements.
Throughout the course of the year, the FDIC has also taken
a more open-minded approach with respect to banks that offer
products and services related to digital assets, while
maintaining our expectation that such activities are conducted
in a safe and sound manner. Specifically, we rescinded the
Biden-era prior notification requirement for digital asset
activities, which served as a significant barrier to banks'
participation in these activities, withdrew from several
interagency joint statements, including one that suggested that
use of public-distributed ledger systems was likely
inconsistent with safe and sound banking practices, publicly
released hundreds of pages of supervisory correspondence to
provide transparency regarding the prior administration's
misguided approach to digital assets, and have begun work to
implement the GENIUS Act. In addition, we are also considering
the recommendations included in the report issued in July by
the President's Working Group on Digital Asset Markets, and we
are currently developing guidance to provide additional clarity
with respect to the regulatory status of tokenized deposits.
In closing, the FDIC will continue to work to drive
economic growth and access to capital, while fulfilling our
critical role in promoting a safe, sound, and resilient banking
system. Thank you again for the opportunity to testify today,
and I look forward to your questions.
[The prepared statement of Mr. Hill follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill of Arkansas. I thank each of the panelists
today. We will now turn to member questions, and I recognize
myself for 5 minutes for questioning.
When President Trump in his first term signed S. 2155 into
law, there was broad, at that time, bipartisan recognition from
Congress that the Federal banking supervisors needed to tailor
their rules based on an institution's size, complexity, and
risk profile. I want to applaud each of you and your work in
your agencies for your continuing effort to return to this
standard, which was regrettably rejected by many of the
supervisory leaders in the Biden Administration.
Vice Chairman Bowman, the committee recently sent a letter
to the regulators to support what you are doing, using your
existing statutory authorities to further tailor the
application of enhanced prudential standards for Category 2, 3,
and 4 banks, as well as to index regulatory thresholds for
those categories. Is this something that you expect and your
colleagues to undertake, and what are you thinking about as in
terms of sequencing that and the timing?
Ms. Bowman. Thank you, Chairman Hill of Arkansas. That is a
very important issue, and I think over the years, I have
strongly supported the concept of tailoring regulation to the
size, complexity, and risk of the institutions. I do plan to
review our tailoring framework and our approach to ensure that
it has the intended effect that Congress intended in S. 2155,
and we are evaluating indexing the thresholds as we are
considering broadly our work on the regulatory framework.
Chairman Hill of Arkansas. Well in the past, Reg YY, which
outlines the capital planning thresholds, I think the last time
President Trump was in office, the agencies agreed to do it
periodically, that they would review that indexing. Do you
think Congress should set that, that it be done automatically
with inflation? We seem to spend a lot of time here debating
that, and should it just not be regularly reviewed by statutory
agreement and indexed maybe in accordance with inflation? Would
that be better you think?
Ms. Bowman. I think that indexing is a critical part of the
regulatory framework. We have seen an incredible growth in the
money supply as well as the assets of the banks over the last
few years. In fact, during coronavirus disease (COVID), there
was an exponential growth in the size of financial depository
institutions. So, it would be helpful to have a regular cadence
for reviewing those thresholds, and I think it is appropriate
that we do so now.
Chairman Hill of Arkansas. Thank you. Acting Chairman Hill,
we talk a lot in here about exam appeals and the opportunity
for a management team and their board of directors to appeal an
exam finding if they thought it was done in an unfair manner in
some manner. It goes back to my ancient days at Treasury. By
the way, Hamilton was a great Secretary but in 1994, the Riegle
Act promised this as a part of regulatory reform. I mean,
really, an independent process just was inconsistently applied,
I would say. Mr. Scott, my friend from Georgia, and I have a
bill called the Fair Audits and Inspections for Regulators'
(FAIR) Exams Act that we believe would give teeth to that
Riegle promise back in 1994. I know you have taken steps to
revamp the supervisory process, but do you think this should be
clearly outlined in statute by the FAIR Exams Act?
Mr. Hill. I think additional clarity from a statutory
perspective would be very helpful, so would strongly encourage
Congress to continue to look at that.
Chairman Hill of Arkansas. Thank you. We had a hearing just
a few weeks ago on deposit insurance, and we appreciate you and
your staff's work with the committee extensively on the topic
of deposit insurance, which is of keen interest to the ranking
member and myself. I would like to ask a few questions about
your views on the FDIC's reserve ratio for the depositors
insurance fund (DIF). It is a pretty straightforward formula
that you have a statutory responsibility for. What is the
requirement, the minimum reserve ratio?
Mr. Hill. The reserve ratio is defined as the net worth of
the Deposit Insurance Fund divided by insured deposits, and the
minimum ratio set by statute is 1.35 percent.
Chairman Hill of Arkansas. So, let us say we raise the
deposit insurance coverage amounts 100 times to what it is now,
meaning the denominator goes way up. Normally, for the FDIC to
meet its statutory minimum, would it not need to raise
assessments as well?
Mr. Hill. If no other changes are made and the denominator
goes up, then that is correct. In order to achieve the same
reserve ratio, the revenue coming into the DIF would have to
increase.
Chairman Hill of Arkansas. Yes, and if they do not collect
the revenue to meet the reserve ratio minimum, that could put
the DIF at some risk. Do you agree or disagree with that?
Mr. Hill. I think that is a complicated question and happy
to go into some of the considerations. I know the time is short
here.
Chairman Hill of Arkansas. We will continue the discussion.
Thank you and thank the panel. I now call on the ranking
member, Ms. Waters of California, to be recognized for 5
minutes for questions.
Ms. Waters. Thank you very much, Mr. Chairman. Federal
banking regulators are prohibited from owning a bank as long as
they serve in a capacity where they are regulating banks. This
is to ensure that there is no conflict of interest, making sure
they are not in a position to make decisions as a regulator
where they favor their own business interests and profit making
instead of what makes good sense that is in the public's
interest. Is that a sensible prohibition, Acting Chair Hill?
Mr. Hill. Yes, Congresswoman.
Ms. Waters. Vice Chair Bowman, Section 10 of the Federal
Reserve Act states, ``No member of the Board of Governors of
the Federal Reserve system shall be an officer or director of
any bank, banking institution, trust company or Federal Reserve
bank, or hold stock in any bank, banking institution, or trust
company.'' Since the Federal regulates banks, does this
prohibition make sense to you to ensure there are no conflicts
of interest?
Ms. Bowman. Yes, it does, Congresswoman.
Ms. Waters. These commonsense conflict of interest laws are
good policy. Unfortunately, the President inserted himself in
what used to be an independent regulatory process. The White
House must now review and approve all rules put forward by your
agencies, and the White House reviews your budget. Given this
new dynamic, should the President be prohibited from owning any
business where he has a role in regulating them as long as he
is in office, whether it is a crypto business, a bank, or
anything else, Vice Chair Bowman?
Ms. Bowman. I do not have anything for you on that.
Ms. Waters. Acting Chair Hill, what do you think?
Mr. Hill. I will echo the comments of my colleague, Vice
Chair Bowman.
Ms. Waters. Well, now, everybody, we are talking about the
central bank of the United States of America, supposedly
independent. Well, I think this represents a massive conflict
of interest and that Congress should act to ensure we have
rules set and enforced by those who will not be personally
enriched by their public work. We should start by enacting my
bill, the Stop TRUMP in Crypto Act, to ensure that Trump and
his family as well as future Presidents cannot commit crypto
corruption.
Vice Chair Bowman, I appreciated your brief conversation
last week and learning you support diversity, equity, and
inclusion. In the past, you have remarked indicating that
support to minority depository institutions--that is MDIs--
women-owned depository institutions, and community development
financial institutions is ``an important part of the Federal
Reserve's mission to provide a safe, sound, and accessible
banking system that protects consumers.'' So accordingly, do
you support the Trump Administration's efforts to get rid of
the Community Development Financial Institution (CDFI) fund?
What would that mean for these CDFI banks that provide access
to credit in rural communities that the Feds oversees? By the
way, I understand you get a list of words you cannot use when
you are dealing with this direction of the President. What do
you think about this?
Ms. Bowman. We definitely recognize the important role that
CDFIs play in their unique role in expanding access to capital
and to financial services. The Federal Reserve continues to
have a program that supports CDFIs from a technical
perspective, which is called Partnership for Progress, and
these are important investments that the Federal Reserve
continues to make.
Ms. Waters. I want to thank all of you for being here
today, and I know that I am asking you some questions that puts
you in a very difficult situation at a time when the President
of the United States does not recognize you as an independent
agency. This is the central bank of the United States of
America under control somewhat now by the President of the
United States, who owns cryptocurrency and his family, and he
is trying to influence and is influencing the rules of the
game, and so I am just outraged by it. I am absolutely outraged
that a time in the history of the United States of America,
with other countries looking at us, that we are in a position
where we do not have an independent central bank, that the
President of the United States is in a direct conflict of
interest and is brazen about it, who is raising all of the
money that he can possibly raise at the time that he is the
President of the United States. Thank you for being here and my
question to you is almost unfair because there is nothing you
can do about it, but somebody has got to do something about it.
I yield back the balance of my time.
Chairman Hill of Arkansas. The chairman----
Mr. Green. Mr. Chairman?
Chairman Hill of Arkansas. Just a moment. The gentlewoman
yields back, and we now call on the gentleman from Oklahoma,
the chair of our Task Force on Monetary Policy and the Treasury
Market Structure, Mr. Lucas, for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman, and thank you to our
witnesses for being here today. I want to first applaud you all
for addressing the eSLR so that it serves as a backstop to
risk-based requirements rather than a binding constraint on
intermediaries. As chairman of the Task Force on Treasury
Market Resilience, I am keenly interested in making sure our
capital framework does not disincentivize participation in the
Treasury market.
I will start with Vice Chairman Bowman, then Comptroller
Gould, and Acting Chair Hill. You have adjusted the eSLR. Would
you consider adjusting other leverage ratios as well?
Ms. Bowman. Congressman, at this time, we are widely
reviewing all of our authorities and certainly are vested in
the success of the Treasury market, including the
intermediation by our largest banks, which is why we have
finalized the eSLR proposal. So, absolutely, we would be happy
to look at anything that you might like us to consider broadly.
Mr. Lucas. Comptroller?
Mr. Gould. Two points, Congressman. One, as you probably
know, we are in the process of adjusting, or at least proposing
to adjust, the community bank leverage ratio. More generally, I
share your concerns of the impact of overly complex capital
regulation that we have seen following 2010, in particular how
it has, in many cases, caused banks to pull back from their
historic role of market intermediation. I have also seen
firsthand, too, in March and April 2020, again, the cost of
complexity associated with, again, overwrought capital
regulation and the ability of that overwrought capital
regulation to actually impede crisis management when there is
an issue, again, as we saw in April and March 2020.
Mr. Lucas. Acting Chair Hill?
Mr. Hill. All I would add is just to say, as you note, the
final rule on the eSLR was intended to remove disincentives for
institutions to provide Treasury market intermediation and
other low-risk types of activities. We have a proposal out to
modify the community bank leverage ratio, and we will continue
to re-evaluate other pieces of the capital framework.
Mr. Lucas. On that same topic, the government shutdown,
quantitative tightening, and a reluctance to use the Fed's
standing repo facility have raised concerns about reduced
liquidity in the Treasury market. Vice Chair Bowman, as you
finalize the Basel Endgame proposal, how will you keep in mind
the implications of the capital requirements on Treasury market
liquidity and functioning, given the Fed's report that the
banking system is well capitalized? Do you expect to increase
capital levels?
Ms. Bowman. I think we are currently in the process of
reviewing the capital framework by looking at all four of the
pillars of capital, including SLR, which we have just finalized
and addressed. As my colleagues mentioned, we jointly proposed
the CBLR, which is designed to help community banks. The other
pillars that we are working on and reviewing is stress testing,
which we have introduced a few proposals on this year. The G-
SIB surcharge will be a part of that as well as the Basel III
proposal that we are currently engaged in working on. It is
critically important that all of the work that we are doing
does not result in impairing the ability of the banks and the
economy to support the Treasury market and its functioning. So,
we are certainly attuned to any risks that might be presented
by the calibration of those proposals.
Mr. Lucas. Acting Chair Hill, last quarter, the Deposit
Insurance Fund reserve ratio increased 4 basis points to 1.4
percent. Is that correct?
Mr. Hill. Yes, that is correct.
Mr. Lucas. I understand you cannot predict to an extreme
degree, but would you expect the reserve ratio to decline if
Congress were to increase deposit insurance for non-interest-
bearing transaction accounts over a 10-year framework?
Mr. Hill. The way the phase-in period works in the Hagerty-
Alsobrooks bill in the Senate, there is a lot of uncertainty
around any predictions that we would make but based on the
projections that our staff put together, which, again, are
subject to considerable uncertainty, the expectation would be
that the reserve ratio would grow more slowly over that 10-year
period rather than decline. Again, I want to emphasize that
there is a lot of uncertainty around those projections.
Mr. Lucas. One final thought, Chair Hill. I continue to
hear frustration from small banks in Oklahoma that during the
bank failures of March 2023, the FDIC stepped in to backstop
depositors, but the same action was not taken to a bank in
Lindsay, Oklahoma the very next year. The difference in the
FDIC's actions was because the banks that failed in 2023 were
too big to fail while the bank in Lindsay was too small to
succeed.
Chairman Hill of Arkansas. The gentleman's time has
expired.
Mr. Lucas. Thank you, Mr. Chairman.
Chairman Hill of Arkansas. The gentleman from California,
Mr. Sherman, the ranking member of our Capital Markets
Subcommittee, is recognized for 5 minutes.
Mr. Sherman. I want to start by associating myself with the
ranking member's comments. The actuality of corruption was well
explained.
I want to point out here that, so far, we have seen Silicon
Valley Bank go down because it was not forced to mark to market
its securities which had declined in value, and bank regulators
had to have this attitude that those bonds were worth what you
paid for them, which was more than you could sell them for.
Bank regulators have not solved this problem. We will wait for
another Silicon Valley Bank and another disaster and see how we
react to that one.
Operation Chokepoint is something that I think has been
rejected by some of us on both sides of the aisle. It is one
thing for a private individual to decide if they want to
boycott this or that entity, and the Supreme Court seems to
think that even corporations have First Amendment Rights but
when the government presses a bank not to provide transactions
accounts to a legal business because that business is in coal
or payday lending or is Planned Parenthood, that is when
government is going way too far. Can I hear from each of the
regulators that you are not telling the banks you regulate or
the credit unions you regulate that they will be disfavored
because they provide transactions accounts to businesses that
are unpopular on the left, the right, or somewhere else? Let me
just go down the list. Ms. Bowman, can you assure us there is
no chokepoint going on here?
Ms. Bowman. It is very important that all Americans have
access to financial services, especially if they are engaged in
legal activities, and if they are engaged in disfavored
activities, that should not disqualify them from banking
services. So, we are very cautious and reviewing our actions
over the past few years to ensure that we were not engaged in
those activities.
Mr. Sherman. If any of the other regulators disagree with
that, let me know. Let me go on to the next question, which is
for the credit unions, and that is, we have these credit union
board members serving as volunteers. I raised the issue with
your predecessor and got on the issue of why not allow them to
get reimbursed for the childcare costs that they incur to
attend board meetings. In July 2024, I was told, in light of my
question, you are going to consider the issue. How long is it
going to take you to decide that board members can get
reimbursed for childcare?
Mr. Hauptman. Congressman, I want to credit you for
pressing that issue. You are correct, it is relatively
uncontroversial. It is not an issue at banks or most for-
profits because you can just pay the board members. As you
said, they are volunteers, and it is a relatively small dollar
thing, reimbursement----
Mr. Sherman. I hope that you move forward in weeks----
Mr. Hauptman. Yes.
Mr. Sherman [continuing]. instead of years on that, but I
have to go on to the next question.
I will ask unanimous consent to put into the record an
article from the Business Insider, August 8, 2025.
Chairman Hill of Arkansas. Without objection.
[The information referred to can be found in the appendix
on page 110.]
Mr. Sherman. This article states that Mr. Palmer Luckey, in
a fundraising memo to investors, claimed that his bank charter
would be approved on a speedy timeline because of his political
network and the bank's close ties to regulators. Now, this is
an interesting situation, because if the memo was lying, that
is securities fraud. You cannot go to prospective investors and
say we are going to be successful if you are making it up. On
the other hand, if he was telling the truth, that is much worse
because it means that because he is part of what is described
in the article as a million-dollar program to give money to
Republicans, he was going to get his bank charter approved much
more quickly by the OCC.
So, I will ask Mr. Gould. Since I assume he did not use
political connections to get his bank charter approved more
quickly, have you begun a securities fraud or have you talked
to the SEC about securities fraud when a man raises money for
his bank by claiming that you are a corrupt organization?
Mr. Gould. Well, I am not familiar with all the allegations
made in that article, but I can assure you that the OCC treats
any applicant or a potential applicant----
Mr. Sherman. So, if somebody said they were going to get
favorable treatment and put it in their offering memorandum,
would that be securities fraud that you would care about?
Mr. Gould. Again, Congressman, I am not responsible for the
securities laws, and I am not familiar with that----
Mr. Sherman. I would hope that you mail a letter to the
SEC, and I will get you the article, which will be part of the
record.
Chairman Hill of Arkansas. The gentleman yields back. The
chair recognizes the gentlewoman from Missouri, the chair of
our Capital Market Subcommittee. Mrs. Wagner, you are
recognized for 5 minutes.
Mrs. Wagner. Thank you, Mr. Chairman. Throughout my time in
Congress, one of my top priorities has been to protect our most
vulnerable from financial exploitation and fraud. As part of my
work as chairman of the Capital Markets Subcommittee, I have
been very proud to champion the Financial Exploitation
Prevention Act, which would provide a powerful tool to protect
senior investors and ensure that their retirement accounts are
safe when they need them the most.
Vice Chair Bowman, you have spoken often on the issue of
fraud and, in particular, check fraud, which has grown
substantially over the past several years. In 2022, financial
institutions filed 680,000 suspicious activity reports, or
SARs, related to check fraud, an increase of over 700 percent
from just a decade earlier. While check use has decreased in
recent years, around three-quarters of retirement-age
individuals still use them regularly. You highlighted that
while check fraud has been a well-known problem for several
years, regulators have been slow--slow--to address the harm
that it does to banks, especially community banks, as well as
consumers and businesses that are oftentimes its victims. What
actions do you think regulators themselves can take to address
check fraud, and what areas, if any, would require
congressional action?
Ms. Bowman. Well, thank you for addressing that very
important issue. As a former community banker, I recognize that
every time I speak with community bankers, this is one of the
top issues that they continue to bring up year after year. So,
one of the first actions that I took as the vice chair for
supervision was to move forward with my colleagues in an
interagency request for information to the public about check
fraud and payments fraud more generally. So, we are in the
process of reviewing those comments. We have formed a working
group, and our intention is to expand that to other areas of
the administration so that all of those that may have some sort
of authority over the activities that are a part of reviewing
check fraud or fraudulent activity can come together to
understand how we can take better action and to mitigate the
circumstances.
Mrs. Wagner. Well, I thank you for that, and I hope that
you will keep my office and myself in the loop when it comes to
regulatory actions----
Ms. Bowman. Mm-hmm.
Mrs. Wagner [continuing]. and then also any kind of
congressional action that we can take. It is a big, big
problem, and one that I am very focused on.
Ms. Bowman. I look forward to working with you on that.
Mrs. Wagner. Thank you. Earlier in this Congress, in
response to the previous administration's burdensome proposal
on the Basel III Endgame, I sent a bipartisan letter
highlighting concerns with the proposal's treatment of
securitized assets. Specifically, the Biden Administration went
much too far in its changes to what is known as the p-factor,
which would have led U.S. banks to require double or even
triple the capital set asides that were required of banks in
Europe and other jurisdictions, even when U.S. banks would have
dealt with the exact same assets. Thankfully, the Trump
Administration is reworking its Basel III Endgame proposal to
shore up the international competitiveness of American banks
and free up capital to provide credit to homebuyers, small
businesses, farmers that would otherwise have been locked up
under President Biden's proposal.
Vice Chair Bowman, what is the Fed doing to ensure that
this and other changes that add unnecessary red tape do not
make it into any new Basel III Endgame proposal?
Ms. Bowman. Well, I would love to address that question.
Obviously, I have provided a lot of public statements about the
previous efforts on the Basel rule.
Mrs. Wagner. Yes, you have.
Ms. Bowman. We currently are working together with my
interagency colleagues to move forward with a Basel proposal
that works from a risk-focused perspective, from the bottom up,
to create a rule that would be more consistent with the Basel
2017 agreement so that we are not going beyond the scope of
that agreement, unless it is to the benefit of the U.S.
institutions.
Mrs. Wagner. Well, I hope you pay particular attention to
this p-factor. I am very, very concerned at what the Biden
Administration did in going way too far in that regard.
Acting Chair Hill, the FDIC under your leadership has done
great work to ensure its regulations, including the asset
thresholds that are used to determine supervision requirements.
They are tailored to fit the many different financial
institutions under its purview. I have several questions in
this regard, but I am over my time, so I am going to submit
them to you, and I look forward to your response. Mr. Chair, I
yield back.
Chairman Hill of Arkansas. I thank the gentlewoman. Please
answer those questions as you have time and instruction.
Chairman Hill of Arkansas. I now call on the gentleman from
New York, the ranking member of our House Foreign Affairs
Committee. Mr. Meeks, you are recognized for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman. I actually just want to
state that I think that the ranking member's questions were
fair, not unfair. They were very fair and important because
anytime a person is the President United of the States of
America, he is not a king, and an independent agency should be
able to look at it and then make sure that things are fair. So,
I think it was very important, those questions, not unfair,
Madam Ranking Member, very fair and very important.
Let me turn my attention to Vice Chair Bowman because I
appreciate your outlining your plan to help community banks
succeed and grow, and you described community banks in the past
as ``the foundation of our financial system.'' You have
explained the unique value that community banks bring to the
financial system, their proximity to their customers and their
understanding of local credit needs, and why they fill gaps
that our larger institutions often overlook. These institutions
support rural areas, urban neighborhoods, and small towns that
keep families and small business connected to loans and basic
financial services. That kind of access in underserved
communities is critical for economic stability, you know, to
try to create jobs and other things in local communities. Is
that not correct?
Ms. Bowman. That is absolutely correct, and as a former
community banker, I can attest that they do that on a daily
basis, every minute of every day.
Mr. Meeks. Now, we also have institutions that are designed
specifically for undeserved communities, our CDFIs and MDIs,
and they often step in when traditional lenders do not, so,
again, I want to follow up on one of the questions that Ranking
Member Waters asked. Would you agree that these institutions
play a critical role in the banking ecosystem?
Ms. Bowman. Yes, we recognize the value of CDFIs and the
unique role that they play in providing financial services to
underserved areas.
Mr. Meeks. So, with CDFIs and MDIs, you have spoken about
improving the de novo chartering application process for
community banks. Is there any reason to think that MDIs would
be excluded from the improvements you are considering?
Ms. Bowman. Of course, they would be included because they
are depository institutions, and they are eligible for all of
the programs that the Federal Reserve provides.
Mr. Meeks. Thank you for that. Mr. Gould, you said in your
testimony that the OCC has taken steps to curb what you
describe as debanking on the basis of politics or ideology, and
you have suggested that prior administrations targeted
politically disfavored industries. Now, hopefully we are going
to avoid any double standards here. Can you identify any
industries that the current administration has taken actions
against that might raise the same concerns?
Mr. Gould. Congressman, thank you for the question. The
current administration, or at least the OCC, is focused on
making sure that discrimination on the basis of politics or
religion, of any politics or any religion, has no place in the
Federal banking system. So, no, I cannot identify any current
examples.
Mr. Meeks. You cannot identify. Well, that is very
interesting to me. That has not been my impression when I look
at some of the activities of the current administration going
against some of its political individuals. That seems that
would be the opposite direction of this current administration.
Does the OCC have any safeguards in place to ensure that the
current administration does not apply regulatory pressure to
industries it disfavors because we have seen this
administration being very out with those that it disfavors. It
never shies away from saying exactly that. So, do you have
anything in place?
Mr. Gould. As we have seen under both President Obama and
President Biden's Administrations, examiners use reputation
risk at times.
Mr. Meeks. I am talking about this administration. What is
in place for this administration?
Mr. Gould. Congressman, both the OCC and the FDIC proposed
a rule eliminating reputation risk.
Mr. Meeks. Have you conducted any internal review to ensure
consistency?
Mr. Gould. Well, Congressman, we have looked at the past
actions of the OCC, particularly around Operation Chokepoint
2.0, and we disclosed correspondence between the OCC and banks
around crypto activities in redacted form. So, yes, we have
conducted an investigation into our own activities
historically.
Chairman Hill of Arkansas. The gentleman's time has
expired. The gentleman from Kentucky, Mr. Barr, the chair of
our Financial Institutions Subcommittee, you are recognized for
5 minutes.
Mr. Barr. Thank you, Mr. Chairman. The Dodd-Frank Act
established a number of regulatory requirements for community
banks with $10 billion or more in assets. In the 15 years since
its passage, the economy has grown, meaning that banks must
also grow to compete and stay competitive against their largest
peers, but the thresholds on community banks have remained the
same. That is why I am drafting legislation that indexes
certain regulatory thresholds for community banks to nominal
GDP.
I often hear from community banks that the costs of
complying with these regulatory requirements impede them from
growing past the $10 billion threshold, leaving them unable to
compete and grow, which threatens the survival of the community
bank ecosystem altogether. Specifically, the Durbin Amendment
is the most costly and burdensome requirement that these
smaller banks face.
Vice Chair Bowman, does the current $10 billion threshold
disincentivize community banks from growing, and what does this
mean for the competitiveness of the community banking sector?
Ms. Bowman. In my experience of working with community
banks that are approaching the $10 billion threshold, it
certainly does disincentivize their growth. It gives them few
options to be able to address the additional supervisory
requirements that are imposed at that threshold level.
Mr. Barr. That is my experience as well talking to kind of
larger community banks in Kentucky who are approaching that $10
billion threshold, growing organically and in a healthy and
safe and sound manner, but then are, because of the Durbin
Amendment and some of these other regulatory triggers at $10
billion, they want to grow, but they have to rapidly expand
their balance sheet and increase their presence in new markets
and activities and new business lines to account for the
additional interchange costs that they would face over $10
billion. I would think that this would raise financial and
reputational risk. Vice Chair Bowman, is this counter to
regulator safety and soundness mandate, and would indexing the
Durbin Amendment and some of these other requirements and these
other thresholds allow banks to grow in a more organic and safe
way?
Ms. Bowman. Indexing, as a general concept, is an important
improvement that could be applied to especially the community
banking space, but I think it also could be helpful for other
sizes of smaller institutions as well.
Mr. Barr. Well, thank you for that. Last Congress, many of
my colleagues and I worked tirelessly to bring to light
concerns with the Basel III Endgame proposal, including
traveling to Switzerland to speak to the Basel Committee, where
they agreed with Members of Congress, a bipartisan delegation,
that the U.S. proposal from your predecessor, Vice Chair
Bowman, proposed gold-plating requirements on American
financial institutions compared to their global peers.
Fortunately, that proposal was never finalized, and the Fed,
OCC, and FDIC plan to reintroduce a rulemaking in 2026. To all
of the bank regulators here--Vice Chair Bowman, Comptroller
Gould, and Acting Chair Hill--will you commit to undertaking a
holistic review of the capital stack to account for double
counting and other duplicative capital regulations on U.S.
firms? We can just go down the line.
Ms. Bowman. Absolutely. We are doing that now.
Mr. Barr. Mr. Gould?
Mr. Gould. Yes.
Mr. Hill. Yes.
Mr. Barr. Thank you. To all of you again, are the agencies
planning to issue a proposal that predetermines a ``capital-
neutral outcome,'' even if some risks continue to be over
capitalized?
Ms. Bowman. We are not, and we do not have a preconceived
notion about where we will land with our capital requirements
based on this review, with this comprehensive review of capital
that we are undertaking now. We are looking at it from a risk-
based approach by each factor and category of risk.
Mr. Barr. Well, let me just reclaim my time because I am
running out. My view to all of the regulators here on this
issue of capital neutrality is that an America First banking
regulatory agenda should not seek to just achieve international
regulatory harmonization for harmonization sake. Instead, it
should seek to advantage American economic competitiveness. Of
course, safety and soundness, of course, making sure our banks
are well capitalized, but we should not just simply be looking
for international harmonization in the implementation of Basel
III. We should be focused on economic growth as we balance
economic and financial stability as well.
Final question to Comptroller Gould. We are seeing a
massive increase in energy demand because of AI data centers
and the race for AI. This scenario implies significant stress
on the U.S. power grid that will require major investments in
generation, transmission, and grid infrastructure. I want to
talk to you about removing reputational risk from your
regulatory oversight agenda. Does that mean you are going to be
able to greenlight bank lending to the sources of the most
reliable and affordable energy, including coal, coal mining
operators, and utilities interested in investing in coal?
Chairman Hill of Arkansas. The gentleman's time has
expired, and we ask the comptroller to respond to the gentleman
in writing, please.
Mr. Barr. Thank you.
Chairman Hill of Arkansas. The gentleman from Georgia is
now recognized. Mr. Scott, you are recognized for 5 minutes.
Mr. Scott. Thank you very much, Chairman, and Vice Chair
Bowman, welcome, but I am concerned about the versatility of
our financial system here, and what we are dealing with is not
just one pattern. I want to give you an opportunity to explain,
for example, how the Fed is approaching tailoring these reforms
and its impact on the different business models? You have
lenders, you have banks, you have credit unions, and we have to
be very exact and very careful when you come and legicate the
leader of the world's financial system, and that is what we are
doing here. Specifically, I am interested in whether the task
of updating or indexing thresholds for financial institutions
who currently fall just below the Category 1 status is still on
the table.
So, my first question to you is this. Do you not see a risk
in the 2019 thresholds pulling additional financial
institutions into categories that do not necessarily reflect
their actual risks of those profiles?
Ms. Bowman. Yes, I think it is important that we are
reflecting the actual risk of an institution, including its
size and its complexity, the complexity of its business model,
when we are thinking about how we should apply regulatory and
supervisory requirements to each of those unique institutions.
Mr. Scott. In addition to some of your supervisory
predecessors, a broad section of members on this very committee
believes that indexing various asset-based thresholds, for
example, for Category 2, 3, and 4 banks, to minimal GDP does
present some risk. Tell us about what you feel about these
risks.
Ms. Bowman. I think we are currently in the process of
reviewing our entire regulatory framework and trying to
determine whether or not the categories that we have
established continue to be fit for purpose and that they are
appropriate for the banks that are currently supervised within
those categories.
Mr. Scott. Yes.
Ms. Bowman. It is important that we understand the
challenges that they face, but also the business services and
risks that they present to the economy and the support that
they provide to economic growth. So, these are all things that
are important for our review, especially of the capital
program.
Mr. Scott. Well, I follow some of your comments and let me
ask you this. When you say, as you have said, you used the word
``modernization,'' are you proposing a more risk sensitivity,
or are you simply weakening oversight for some banks and not
others? Would not a period of high inflation with real
stagnant, real growth not push these thresholds up faster?
Explain the complexity.
Ms. Bowman. Well, thank you for the opportunity to clarify
the work that I am doing at the Federal Reserve Board.
Mr. Scott. Yes.
Ms. Bowman. As we discuss the opportunity to modernize our
supervisory and regulatory framework, it allows us to look
backward at the last 15 years as we have created regulations in
response to our responsibilities under Dodd-Frank. It is
important that we are looking at whether or not all of them are
successful and whether they are fit for purpose. As a part of
that, what we understand and the experience that we have in
implementation is that there is a lot of overlap, there is a
lot of duplication, and there are a lot of conflicting
regulatory requirements. Those are things that we are trying to
address in our modernization.
Mr. Scott. Well, let me ask you this final, while I have a
few seconds. Have you modeled how quickly, like, for example,
Category 2 and 3 thresholds, would rise in high-inflation
scenarios, and could a bank in today's Category 2 or 3 jump out
of enhanced prudential requirements within just a few years,
without reducing a profile at all?
Ms. Bowman. These are exactly the kinds of scenarios that
we are considering as we are thinking more broadly and
comprehensively about whether or not our current capital
framework and our delineation of those categories continue to
be appropriate.
Mr. Scott. Well, I look forward to working with you. I am
very interested in this.
Ms. Bowman. I look forward to working with you, too. Thank
you.
Chairman Hill of Arkansas. Thank you very much, Mr. Scott.
The gentleman from Georgia yields back in order for me to call
on another gentleman from Georgia. Mr. Loudermilk, you are
recognized for 5 minutes.
Mr. Loudermilk. Well, thank you, Mr. Chairman, and thank
you for this hearing and everybody here. This is incredibly
important, especially since a lot of the discussion these days
is about affordability. I asked a large gathering of businesses
of all sizes and different types of businesses in the Atlanta
area recently, what is the largest impact or the largest cost
that generally is passed on to your customer, and without
exception, they all said government regulation. That is the
number one cost, especially regulations that are not applicable
to their business or their business model, but yet still
mandated, and compliance and reporting is required by
government. Another area, though, is outdated regulations, and
that is one area that I have been working on.
Acting Chair Hill, I know that you devoted a portion of
your testimony to reform proposals related to the Bank Secrecy
Act and, specifically, to allow institutions to reallocate
resources away from lower-value reporting to higher reporting.
I have been working on this, especially with the Bank Secrecy
Act, and adjusting the financial reporting threshold. In fact,
my bill is entitled The Financial Reporting Threshold
Modernization Act, which would increase the currency
transaction report from the grossly outdated $10,000 number to
a $30,000 threshold, but index that to inflation going forward.
Is an idea like this one that aligns with your goal to
alleviate the reporting burden on financial institutions of all
sizes?
Mr. Hill. Sure. Thank you for the question, Congressman.
So, as those thresholds have not been changed for many years,
and the number of reports that are filed by financial
institutions are extremely large, so I think taking a taking a
close look at this makes a lot of sense. Those regulations are
under the purview of the Treasury Department, so would defer to
them on the specifics, but I think this makes a lot of sense,
is something to look at.
Mr. Loudermilk. My bill in its current form would increase
the currency transaction report (CTR) from $10,000 to $30,000,
then index to inflation. However, would you think it would be
feasible to immediately index the CTR to inflation now, which,
if it had been adjusted periodically, would be at $87,000 or
around there. Do you think that is feasible instead of
gradually increasing it?
Mr. Hill. Again, on the specifics, I would defer to the
Treasury Department, but I think as a general matter, indexing
thresholds is something that makes a lot of sense.
Mr. Loudermilk. I will just throw this out to anybody on
the panel, the same question, but also, I think there is
concern among law enforcement that this could hinder their
enforcement activity. However, at the same time, we keep
hearing that looking for someone doing something wrong is like
looking for a needle in a haystack, but yet we keep increasing
the size of the haystack. My suggestion is to decrease it. Do
you feel that raising the threshold would actually help or
interfere with law enforcement? Anybody have a thought on that?
[No response.]
Mr. Loudermilk. Okay. I will move on then. Chairman
Hauptman, it is good to see you again, had a great conversation
last week. I know that this is something that we talked about,
the modernization of the Bank Secrecy Act. What are you hearing
from credit unions around the country when it comes to
compliance costs to prepare CTRs and SARs? Do you think that
there is a case to be made for increasing thresholds and
indexing them to inflation?
Mr. Hauptman. I can definitely tell you that the least
enjoyed part of running a small institution is complying with
BSA and AML in general. When you ask why a small institution
merged with another or sold out to another, it is frequently
the very first thing that you hear, and these are patriotic
Americans who want to fight crime just as much as anybody else,
but that burden is significant.
Mr. Loudermilk. Okay. Thank you, and in light of the amount
of time I have remaining, I do not think it is adequate time to
go into the next set of questions, so I will submit those for
the record and yield back.
Chairman Hill of Arkansas. The gentleman from Georgia
yields back. The gentleman from Massachusetts, Mr. Lynch, who
is our ranking member on the Subcommittee for Digital Assets,
Financial Technology, and Artificial Intelligence, you are
recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman, and to the ranking
member. I want to thank all the witnesses for your willingness
to work with the committee and help us with our work.
Supervisor Bowman, I read a transcript of your remarks in
Madrid at the International Banking Conference that was hosted
by Santander, and a couple things just jumped right out at me.
I got to admit they sounded a little bit crazy, so I want to
make sure you actually said these. You told at the conference
that it is critically important that traditional banks can
engage fully in competing with nonbank financial institutions
when it comes to cryptocurrencies. Is that correct?
Ms. Bowman. I do not believe I specifically said
cryptocurrencies.
Mr. Lynch. Oh no, this said cryptocurrencies, yes. Multiple
times on crypto. That is not in question.
Ms. Bowman. Then I misspoke because the work before us is
on digital assets, that the Congress has directed us to provide
a pathway and a framework for banks to be able to engage or for
engagement in digital assets.
Mr. Lynch. Yes, but here you said, and I have the
transcript here, you said, ``You thought it was critically
important that banks, traditional banks, compete with nonbank
financial institutions when it comes to cryptocurrencies.''
That is what you told the people in Europe and in Madrid, and
it sounds crazy because you are a prudential regulator. You are
supposed to be protecting depositors. You are supposed to be
making sure there is safety and soundness, that there are
sufficient capital reserves. You just mentioned Dodd-Frank. I
am dumbfounded to hear that, and I just want to clarify, is
that the Trump Administration policy now that traditional banks
should be into crypto?
Ms. Bowman. I want to just go back to what I said earlier.
It was not my intention to say crypto. It was that we are
engaged in working with banks to ensure that if they choose to
engage with digital assets, that is something that----
[Cross talking.]
Mr. Lynch. Well, is crypto not a form of digital asset,
though? I mean, it is on this committee.
Ms. Bowman. Not as you defined it under the GENIUS Act. So,
when we are talking about things like stablecoins, that is what
I meant to refer to, if I misspoke.
Mr. Lynch. These are speculative assets, though. They are
speculative assets.
Ms. Bowman. That we have been directed to engage----
Mr. Lynch. Right. Right.
Ms. Bowman [continuing]. in regulatory promulgation by
Congress.
Mr. Lynch. They are speculative assets, and you, again, are
a prudential regulator that is supposed to try to take the risk
out of the system, not inject it into the system. See, there
are a couple of times in our history where we have had
regulators encourage banks to engage in speculative activity.
One was when we had 9,000 banks fail back in the early 1930s.
The second time, and I think you might have been up here on the
Hill, in 2008, when we allowed banks to speculate in the
subprime mortgage market and some very exotic derivatives.
Ms. Bowman. Actually, I was living in London at that time.
I was not on the Hill, not engaged in----
Mr. Lynch. Okay. Well, I was here. I was here. So, but
anyway, those are two examples of when we allowed banks to
speculate, and it was a total disaster. You know, I got to be
fair with you, I think that is a crazy idea. Remember, we are
bailing them out. We are bailing them out. We do not want banks
to take unreasonable risks. We want to have customers and
depositors have confidence in our banking system. So, I am just
hoping that you are not embracing that policy.
Ms. Bowman. My view is that community banks, other banks,
should be able to engage in stablecoins and other digital
assets as Congress provides authority to do so, and that as we
are required to, we are able to provide guardrails or
regulations that allow for appropriate safety and soundness
activities to be engaged in oversight.
Mr. Lynch. Just square the circle with me, though. You
know, we have an asset that has extreme price volatility, and
you are inviting banks to engage in that. How does that make
the bank safer by injecting digital assets into their mix? How
do you even quantify what the reserve level should be when you
have an asset that is inside that bank, multiple banks, right,
and this stuff could blow up. Like I say, it dumbfounds me that
we have a prudential regulator that is suggesting such a thing.
Ms. Bowman. Well, the GENIUS Act requires us to promulgate
regulations to allow for these types of activities.
Chairman Hill of Arkansas. The gentleman's time has
expired. The vice chairwoman will respond more fully to the
gentleman's question in writing.
Chairman Hill of Arkansas. The chair now recognizes the
gentlewoman from South Texas. Ms. De La Cruz, you are
recognized for 5 minutes.
Ms. De La Cruz. Thank you, Chairman Hill, for holding this
important hearing today, and thank you to the witnesses for
being with us.
I represent a rural community and largely Hispanic
community in deep South Texas, so our community and our
regional banks are very important to understanding the needs of
South Texans. That being said, Acting Chairman Hill and
Comptroller Gould, you both have an important but difficult
task of trying to right the ship at the FDIC and OCC,
respectively, after the Biden Administration spent years
directing our prudential regulators to focus on things outside
your core mission.
As you know, the culture of the FDIC and OCC impact the
work your examiners do and, in turn, impacts the ability of our
community bankers to serve their clients and constituents.
There is often a discussion solely around the number of
examiners you employ, but as I am sure you would agree,
ensuring that we have experienced examiners is very important.
In your new roles, can you share how you plan to address the
young and often inexperienced bank examiners that you may have
and I will start with Acting Chairman Hill. Is this an issue
that you have seen since arriving to the FDIC?
Mr. Hill. Sure. Thank you for the question. That is
absolutely something that we are very focused on. The retention
of experienced examiners is something that the Agency has been
focused on for a number of years. We are considering and
putting in place a number of options to ensure that we are
doing everything we can to retain experienced examiners.
Ms. De La Cruz. Give me an example of some of those
options.
Mr. Hill. Sure. So, we have one item that we are going to
include in our budget for next year that is going to create a
new grade level for examiners that reach a certain level of
experience, and so----
Ms. De La Cruz. For those watching television right now,
what does a grade level mean?
Mr. Hill. So, essentially, it would mean they would
graduate to a higher level of pay, and it would accrue to their
sort of retirement, et cetera. So, we have other things
similarly when it comes to retention payments and things like
that, essentially, to ensure that examiners, as they achieve a
level of experience, we want those individuals to stay with the
Agency because they are people that know the institutions they
supervise, know the local conditions, et cetera.
Ms. De La Cruz. Sounds like we have some work to do right
there, right? Comptroller Gould, would you agree that this is
an issue at the OCC as well?
Mr. Gould. Well, thank you very much for that,
Congresswoman. I generally think we have very talented
examiners across the board. We created, just in the 4 months I
have been there, created a community bank supervision
portfolio, again dedicated to the needs of community banks. I
have already been on two community bank exams, including one
down in Texas. I have not been as far south as your district
but look forward to getting there, but twice down to the Fort
Worth-Dallas area. I do think examiner training is very
important, and we want to make sure we have the resources and
are training kind of the next generation of examiners,
particularly around kind of new and innovative technologies
that some of the banks may be choosing to engage in going
forward.
Ms. De La Cruz. Wonderful. It sounds like we need some work
there in the FDIC and possibly even the OCC but making sure
that we have experienced examiners is very important,
especially when it comes to our community and our regional
banks. I have a minute of time here, so, I am going to go on to
the next question.
Vice Chairwoman Bowman, last year you called on the Federal
Reserve Board to tackle and identify issues that were exposed
during the bank stress test in the spring of 2023, including
updating the discount window, and you have spoken a little bit
about that. I have a piece of legislation bringing the discount
window into the 21st Century Act. Could you share a quick
update on the reforms the Board is still considering to
updating when it comes to the discount window's operation and
technology?
Ms. Bowman. Thank you for the opportunity to discuss the
important tool of the discount window. It is certainly
something we learned a lot about, its functionality, during the
Silicon Valley Bank experience and failure. One thing that we
have recognized, and we are engaging with our Federal Home Loan
Bank (FHLB) System colleagues is to recognize the importance of
being able to quickly move collateral from the FHLB system into
the discount window system. So, we are doing a lot of work to
modernize our capabilities and our operations in that space,
among many other issues and areas, but I think that is probably
the most critical.
Ms. De La Cruz. Thank you so much. I yield back.
Mr. Huizenga [presiding]. The gentlelady's time has
expired. With that, the gentleman from Texas, Mr. Green, who is
the ranking member on the Subcommittee on Oversight and
Investigations, you are recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the ranking
member as well. I thank the witnesses for appearing today.
I must say that I associate myself with the comments of the
ranking member. What she said took more than intellect. There
are many people with the intellect to say what she said, but
only a few with the courage, the courage to say what she said.
It was one of, I think, the finest moments that I have seen
since I have been on this committee, and I would like to salute
her and associate myself with her comments.
As you know, there is a war for currency supremacy, and
this war exists because the U.S. dollar is the reserve currency
of choice for the world. It is the global reserve currency. As
such, its importance cannot be underestimated. Permit me, Madam
Vice Chair Bowman, to ask you, could you kindly explain as
tersely as possible the importance of the role of the dollar as
a global currency of reserve to our economy?
Ms. Bowman. I agree with you, and I am sure all of us in
this room agree with you about the importance of the supremacy
of the dollar as a global world currency. Dollar policy is
within the remit of the Treasury Department, so other than the
work that we do with U.S. Treasuries and those auctions, that
is the remit of Treasury.
Mr. Green. Why is it so important? We often say that it is
important, but we do not get to the nuances associated with the
statement. Why is it so important?
Ms. Bowman. When the dollar is the reserve currency, that
means other countries need and use and want the dollar as a
part of their economic activities and that is critical to the
future of the United States of America and our ability to
continue to maintain our current role and status in the world.
Mr. Green. How important is it as it relates to imposing
sanctions on countries that are doing things that are harmful
to our economy?
Ms. Bowman. I would love to talk to you about sanctions,
but that is way outside my remit, so I would refer you to the
Department of the Treasury on sanctions and sanctions
enforcement.
Mr. Green. Well, permit me to ask you this. First, a
predicate: experts have warned that the combination of Trump's
chaotic tariffs and attacks on the Federal Reserve monetary
policy independence undermine the U.S. dollar's role as a
global reserve currency. If you agreed with this statement, I
am not saying you do, but if you did, would you have the
courage to tell the President that he is harming our dollar as
a reserve currency? Would you have the courage to do that?
Ms. Bowman. I agree with you. It is critically important
for the Central Bank to remain independent, but I do not have
anything for you on the other topics.
Mr. Green. The reason I ask is because this issue of
courage became prominent in my mind when I saw the responses
that you were giving to the questions that the ranking member
posed and I have seen the members of the Cabinet as they sit
around the room with the President, and how they all take great
pride and pleasure in telling him how great he is. I think
there will have to be someone or few among you who will have
the courage to say to this President, you are making a mistake.
If he does not hear persons who have that kind of courage, our
economy is going to suffer as it is suffering. Someone has to
have that kind of courage. Let me ask you, Mr. Gould, do you
have that kind of courage?
Mr. Gould. Thank you for the question, Congressman. I
believe the President selected me and the Senate confirmed me
for this role because I was the best person for the job. I
believe I would be doing disservice to him and to the American
public if I, at any opportunity, fail to give my best advice,
and I will always do so. Thank you.
Mr. Green. I am honored that you would say so. Thank you,
and I would hope that others of you would adopt that language.
The President cannot harm you. Stand up. I yield back.
Mr. Huizenga. The gentleman's time has expired. With that,
the gentleman from Tennessee, Mr. Rose, is now recognized for 5
minutes.
Mr. Rose. Thank you, Chairman, and I appreciate Chairman
Hill and Ranking Member Waters for holding this important
hearing and thank you to our witnesses for being with us today.
Chairman Hill, have you had an opportunity to read Treasury
Secretary Bessent and Senator Bill Hagerty's Wall Street
Journal op-ed from October 30 titled, ``How to Make Mainstreet
Banks Great Again?''
Mr. Hill. I did read it.
Mr. Rose. The authors, as you know, argue that the current
regulatory framework and the perceived government guarantee for
the largest banks have created a ``too small to succeed''
environment for community and regional institutions, and they
call for raising the FDIC insurance limit to level the playing
field. Do you agree with their assessment of this competitive
imbalance, and do you agree with their proposed solution?
Mr. Hill. I think there are many challenges that the
smallest banks face today. Among those challenges include
things like the cost of compliance and the cost of technology.
So, we are taking a number of steps through our existing
authorities to try to ensure that we have a regulatory
framework in which the smallest banks can succeed. When it
comes to deposit insurance reform, I think it is a worthwhile
conversation to be having. We have avoided taking any formal
positions on any specific piece of legislation, but I would
note that the number of insured deposits in the system as a
proportion of overall deposits has come down pretty
significantly. So, I think it makes sense for Congress to be
evaluating the potential for deposit insurance expansion.
Mr. Rose. Thank you. Comptroller Gould, I often hear from
community banks in Tennessee and across the country that their
treatment varies depending on which OCC program or office
supervises them. In recent months, the OCC has issued several
bulletins aimed at community banks, such as Bulletin 2025-24
and 2025-29, which seek to reduce unnecessary supervisory
burdens and refocus exams on material financial risks. Both
bulletins explicitly define a community bank as a financial
institution with less than $30 billion in assets, and state
that banks meeting that definition are covered by the
aforementioned bulletins. For bulletins labeled as applying to
community banks, can you confirm that those bulletins apply
consistently to all community banks under OCC supervision that
meet your definition, regardless of whether they are overseen
through the community, mid-size, large, or specialty
supervision programs?
Mr. Gould. Our goal would be to apply those bulletins
consistently to all banks engaged in a community bank business
model. Now, there are some banks, they may be small in asset
size, but, nevertheless, are engaged in activities that are not
consistent with a traditional community bank business model.
For example, significant payments activities where we would
treat them a little differently. Again, we would revert back to
our historic risk-based supervisory approach.
Mr. Rose. Thank you. I appreciate that insight, and I would
just, I guess, reaffirm that it is so important that these
banks get consistent guidance and that it does not appear that
the examiner or the program or the region of the country that
they are in is in some way affecting the supervision that they
are getting in the way that their examinations proceed.
Chairman Hill, looking back on the bank failures from 2023,
it is clear that once a deposit run begins, supervisors have
very few tools to stop it. What tools does the FDIC believe it
would need, either operationally or through expanded authority,
to allow an individual bank to fail while still shoring up
confidence in the broader system?
Mr. Hill. Sure. So, I fully agree that our tools are fairly
limited. The primary tool that was used in 2023 was invoking
the systemic risk exception, which under the current statute
limits us to, essentially, protecting creditors and depositors
of the institution that failed. I think there could be some
merit in allowing regulators to have the authority to provide a
time-limited deposit or other debt guarantee across the system.
I think if Congress were to do that, we would want it to be
time-limited with guardrails in place. Currently there is a
process where the Congress can do that through fast-track
procedures, and I think what 2023 demonstrated was those fast-
track procedures are still way too slow for the speed at which
bank runs can spread.
Mr. Rose. Thank you. My time has expired. I yield back, Mr.
Chairman.
Mr. Huizenga. The gentleman's time has expired. The
gentleman from Missouri, the ranking member for the
Subcommittee on Housing and Insurance, Mr. Cleaver, is
recognized for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman. I want to associate
myself with the comments issued earlier by the ranking member,
Ms. Waters.
Mr. Gould, your memo to us had me to read it several times
because one part of it just leaped from the pages into my mind,
and it is recorded on page 1 and 2, first two paragraphs on
page 2, when you said that no American should be denied access
to banking products and services because of political or
religious beliefs. I am curious about whether or not we have
any evidence that there has been political discrimination in
banking, and if there is, if you could help me understand it.
Mr. Gould. Well, thank you for the question, Congressman. I
think it should be an uncontroversial statement saying that we
should not condone any discrimination in any form.
Mr. Cleaver. I apologize. I apologize. I will ask it
another way.
Mr. Gould. Okay.
Mr. Cleaver. Does political discrimination exist in the
American banking system, and if so, if you would give me an
example, it would be helpful.
Mr. Gould. Congressman, thank you again for the question.
As I noted also in my opening statement, we are in the process
of looking at the activities over the last few years of the
largest national banks. It is premature for me to comment on
the results yet of that review, but I will, of course, upon its
completion, inform this committee and the public of what we
find.
Mr. Cleaver. So, do you believe that there has been
political discrimination, discrimination on a potential
customer/applicant? I just want to know. This is not a hostile
question.
Mr. Gould. Again, Congressman, as I just stated, we are in
the process of reviewing the activities of the largest national
banks where there have been allegations of political debanking,
and I look forward to sharing the results of that review, when
it is complete, with you all.
Mr. Cleaver. Mm-hmm. So, I mean, debanking is actually
preventing someone from receiving banking privileges. Okay, I
will move to another one because it is really something I am
concerned about, and that is religious banking. In your
statement, you mentioned that, and I agree with you, that
religious beliefs should not be included in or practiced by
banks. I have done a little on this issue already. I have
actually written several papers on religious discrimination.
So, I do not know how religion can enter into the banking
system and there is discrimination. Can you help me?
Mr. Gould. Yes, sir. So, again, I am aware of allegations
of a number of religious organizations, charitable
organizations that have alleged debanking over the course of
the last years, and we have been sifting through our own OCC
complaints as well as working with third parties and other
government agencies to sift through complaints of religious
discrimination. That is, again, also something that we will be
reviewing and sharing our results with this committee when we
complete that review.
Mr. Cleaver. So, we have no evidence that has occurred.
Mr. Gould. Sir, I would not go so far as to say that. I
would just say that there are a number of allegations of
religious debanking that have occurred and been made to the OCC
as well as to other government agencies. It would be premature,
while the review is still ongoing, for me to conclude as to
whether or not they actually happened until, again, I have
completed the review.
Mr. Cleaver. Well, I applaud you for the investigation
because, I mean, one of the things that the President did early
on was to eliminate departments in various agencies who had the
responsibility for looking for exclusion and discrimination.
Thank you, Mr. Chairman. I yield back.
Mr. Huizenga. The gentleman's time has expired, and I will
be recognizing myself now, and, Acting Chairman Hill, let me
start with you.
In 2024, after substantiated allegations against former
FDIC Chairman Marty Gruenberg, an independent report concluded
that there was a lack of accountability, fear of retaliation,
insufficient prioritization of workplace culture, and an abuse
of power dynamics at the FDIC. We did hearings on that. In
addition, a staff report released by this committee last
Congress noted that the next FDIC chairman will need to ``undo
years of damage to morale and culture at the Agency.'' You have
been on the job in an acting capacity for the past year. What
steps have you taken, even in that acting capacity, to ensure
that the FDIC makes good on the recommendations made both by
this committee, but, just as importantly, maybe even more
importantly, the Cleary report?
Mr. Hill. Sure. Well, thank you for the question, and let
me start by saying that harassment, other forms of misconduct
have no place at the FDIC or any other workplace, and fixing
the culture at the FDIC has been a key priority throughout this
year and appreciate all the work and oversight that you and
your team has done.
Mr. Huizenga. Are the employees receptive to it? I mean, it
was bad.
Mr. Hill. Yes.
Mr. Huizenga. Both sides recognized that it was bad.
Mr. Hill. Fully agree. I think there is widespread
commitment at the Agency to turn the page on the problems of
the past. There has been significant turnover in leadership at
the Agency. We have an entirely new board. About half of direct
reports to the chair have turned over this year. We have
replaced a large number of managers across the Agency. We have
prioritized accountability, which I think was really the key
root cause of the problems----
Mr. Huizenga. Yes.
Mr. Hill [continuing]. which is that there were many cases
where either people did not report things because they did not
have confidence in the process, or they did report things and
people were paid off with settlements and the wrongdoers did
not have accountability. So, we have taken a number of steps to
set up new offices, new processes in place to ensure that when
there are allegations, that there is a process, that there are
independent investigations, and that there is discipline
appropriate for the misconduct.
Mr. Huizenga. Glad to hear that, and you do not strike me
as the type of person who is going to scream at their employees
as they are coming in about trivial things. So, I have a few
head nods behind on that, so I appreciate that.
Switching topics but staying with you. I know a little
earlier you had talked about the failed bank resolution
framework as a worthwhile conversation to have. Two weeks ago,
the committee held a hearing on proposals that would make
changes to the deposit insurance framework. While the issue is
far from settled, I think it is important that we do not
dismiss how interconnected the debate between deposit
insurances with bank resolution and bank failure scenarios. It
makes sense to have a wide range of institutions lined up to
bid on the failed banks, increasing the proceeds received by
the FDIC for its sale, and then lowering the potential costs of
the Deposit Insurance Fund. This is something you and I
discussed in 2023 during the banking turmoil, and I know this
is something FDIC has been looking at. You are not commenting
on any particular legislation. I happen to have particular
legislation on that. I saw Mr. Gould's head pop up on that
because you are going to be a part of that as well, but you had
noted that the FDIC has developed a seller financing program
for nonbank bidders to increase competition by including
private equity firms and other nonbank entities. Do you believe
this would ultimately reduce the cost to the DIF, to the
Deposit Insurance Fund?
Mr. Hill. Absolutely. That is the goal. We are taking a
number of steps to try to improve the bidding process to
facilitate more and better and lower cost bids and try to bring
more capital into the bidding process. The ultimate objective
of all of it is to, A, reduce the cost to the DIF, and B,
increase the likelihood of stabilizing transaction options in
the event of large failures.
Mr. Huizenga. Right. So, my bill, The Enhancing Bank
Resolution Participation Act directs the FDIC and OCC to
jointly study the feasibility and utility of shelf charters,
meaning pre-approved, ready-to-go entities that are a capital-
raising vehicle to bid on failed banks and on modifications
that could be pursued to modify the bidder qualification. In
the last 30 seconds here, do we need to address the bank
resolution framework at the same time as the FDIC network, Mr.
Gould?
Mr. Gould. Thank you for the question. You know, I do
share, I think, many of the concerns that the acting chairman
has stated publicly around the resolution execution
capabilities that were on display, or their lack thereof, in
the March 2023 timeframe. So, certainly, I support both, A,
more robust public disclosure around what occurred during that
timeframe so that, B, Congress can then inform itself----
Mr. Huizenga. Yes.
Mr. Gould [continuing]. as to whether it needs to act from
a statutory standpoint.
Mr. Huizenga. Right. My time has expired. I do, without
objection, would like to submit this letter from a joint trade
statement for the record regarding our hearing today.
Hearing none, so moved.
[The information referred to can be found in the appendix
on page 114.]
Mr. Huizenga. With that, my time has expired, but we are
going to take a brief pause here as a committee. The minority
is aware of this as well and we are going to pause briefly
while we adjust the witness' microphones and we will return
shortly. So, with that we take this pause.
[Pause.]
Mr. Davidson [presiding]. I am prepared to resume. The
gentleman from Illinois, Mr. Foster, who is the ranking member
of the Subcommittee on Financial Institutions, is now
recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair. Let us see. I will start
with Chair Bowman. I just want to thank you and your fellow
Board members for the series of conferences that you have held
in recent months. I was pleased to be able to attend two of
them, one on the future of community banking and another on the
future of payments, and it was really great to be able to sit
there and actually talk to the boots on the ground in these
very important and emerging and traditional industries. I urge
my colleagues, actually, if they get a chance to attend those
and to try to do everything you can to encourage member
attendance of those, and, frankly, I learned a lot.
Now, one issue that actually came up repeatedly in both of
the conferences was the issues of fraud costs and the costs of
preventing fraud. Comptroller Gould, the OCC, FDIC, and Board
of Governors recently issued a request for information on
potential actions to address payments fraud. You know, I
regularly hear about this from community bankers in my district
all around Illinois about the challenges that they face with
payments, largely identity theft, and then check fraud, in
large part, check washing. The comment period closed in mid-
September for this, and I know that bankers are anxiously
looking forward to the next steps.
So, Comptroller Gould, do you have any initial takeaways
from the RFI that you can share, and what can we expect in
terms of next steps from your Agency, and when might we see
them taken?
Mr. Gould. Thank you very much for that question,
Congressman. In the 4 months I have been on the job, that is
certainly an issue, fraud, that has risen to the top of my kind
of to do list. It was not something that I was hearing nonstop
5 years ago when I last worked at the Agency. Back then, it was
cannabis banking when we met with the community bankers, but
now it is fraud, and I appreciate the seriousness of the issue.
I think a lot of the things that we can do are probably steps
that we have to take across the Federal banking agencies and
even beyond.
Speaking just for the OCC, one thing that I have heard
repeatedly from smaller banks is concerns around check fraud
where the very largest banks, which happen to be national
banks, are seemingly or allegedly very slow in refunding money
owed to small banks. So, we have been, to date, facilitating
those complaints and making sure that the very largest national
banks are responding in a timely fashion. That is something I
would like to look into further.
In terms, more generally of the request for information
(RFI), again, I think that is something we need to work with
across our three Federal banking agencies and possibly beyond
but I think it is something that, certainly from the OCC's
perspective, we understand is extremely important, given the
volume and how it is impacting particularly smaller banks in a
disproportionate manner.
Mr. Foster. Do any other witnesses have comments on the
whole issue of and you know, a huge part of this is online
payments fraud, but a big part of that is identity theft, and
the tool at hand is your cellphone and the digital driver's
licenses. If you are able to present online a Real ID-compliant
digital driver's license which is in the technologies in
everyone's cellphone, you can pretty reliably prove that you
are who you say you are, even in an online transaction. You
know, that stops the hackers in their tracks, at least for
fraud that scales and so, I urge you to keep pushing on both of
those. The check washing is a huge problem and the responses of
banks, and also, I would just raise our game in electronic
online identity verification. That could be a huge cost
savings. One thing I heard about at that conference was just
the huge amount of costs that banks incur for trying to make
sure that online transactions are valid.
Another thing that came out was a lot of discussion in the
payments conference of the implementation of the GENIUS Act.
One thing that came up, actually, with the small community
banks a lot was the worry that interest-paying stablecoins
would have the potential of pulling deposits out of
particularly small community banks; that there are some
estimates that say that interest-bearing stablecoins could
cause more than $6 trillion of deposits to leave the banking
system, and particularly the small banks that are often the
only source of business investment in small towns.
I was just wondering even though we had a nominal
prohibition of paying interest on what got voted out of this
committee, it took the crypto industry about 2 days to figure
out how to effectively pay interest on this. Is this something
that you think you are going to need congressional action on to
prevent this from happening? Anyone wants to take a bite of
that? Do we need legislation?
[No response.]
Mr. Foster. If you could answer for the record, yes, how
serious do you see this problem because I just heard about,
uniformly, that the small community bankers that were present
at that conference were terrified and angry about the threat.
This is, essentially, the reemergence of narrow banking that
the Federal Reserve has traditionally objected to for----
Mr. Davidson. The gentleman's time has expired.
Mr. Foster. Thank you.
Mr. Davidson. I now recognize myself for 5 minutes. I want
to say thanks for you all being here today. Thanks for your
preparation and for your testimony today, but in this
committee, we have been hammering home a simple truth:
America's financial institution and our system thrives when
regulators stick to safety and soundness, not targeting
political rivals or picking winners or losers in the
marketplace, weaponizing the laws and, frankly, the lack of
laws in our government.
Under the Biden Administration, we saw Operation Chokepoint
2.0 resurrected from the Obama Administration where Chokepoint
1.0 was. We saw it in full swing. Regulators were weaponizing
``reputational risks'' to bully banks and to debanking
political rivals, crypto innovators, stablecoin pioneers, and
everyday folks just trying to build a future. It was not about
risk. It was about control but here is the good news. The Trump
Administration is slamming the door shut on that nonsense, and
many of you are in place to do that, to just follow the law and
apply even-handed regulations, so thank you. We have withdrawn
poison pill guidance and banned reputational risk from exams,
and we are ready to unleash American leadership in our
financial sector, including our digital asset sector. So today,
I want to lock in the progress and make sure there is no
Chokepoint 3.0 or anything like that underway.
Vice Chairwoman Bowman, how is the Federal Reserve turning
the page on Chokepoint and approaching bank participation in
all markets, particularly digital assets?
Ms. Bowman. Well, as you mentioned, all of us are engaged
in implementing the President's executive order on debanking
and taking actions as a result of the directives that were
contained within that executive order. What we have done
specifically at the Federal Reserve is that we have eliminated
reputational risk within our examination context and within our
supervisory function, whether that is in guidance or in
regulation. We have rescinded and edited out the word
``reputational risk,'' so it no longer is a part of the
vernacular at the Federal Reserve and within our supervisory
context.
We are also conducting an audit of supervisory and banking
activity so that we understand whether we have met those
expectations and that we can do so going forward. We are also
reviewing the past activities at both the Board and at the
Reserve Banks to identify actions that would be inconsistent
with the executive order. We are also contemplating moving
forward with a proposal that is similar to what the OCC and the
FDIC have put forward to ensure that this is a durable change,
and a proposal, an notice of proposed rulemaking (NPR), on
eliminating reputational risk from the banking----
Mr. Davidson. Yes, thank you. The Federal Reserve recently
talked about a change to master accounts, potentially making
them more accessible and more concrete set of rules. How would
that work?
Ms. Bowman. We are currently exploring the options that we
have within our regular framework for master account
consideration, and it is something that could be potentially
available as we are currently reviewing how that could be
effective in a limited construct.
Mr. Davidson. All right and then last, you mentioned that
you are following the President's executive order, but one of
the other executive orders that you put out with respect to
digital assets is no development of a central bank digital
currency. Obviously, at some point, portions of the Federal
Reserve have been engaged in that. Is the Federal Reserve still
engaged in developing central bank digital currency?
Ms. Bowman. There are parts of the Federal Reserve that
continue to be engaged in activities related to global
activities on central bank digital currency within the
construct of the Bank for International Settlements and our
participation in some of their work on innovation.
Mr. Davidson. Does the Fed consider themselves subject to
the President's executive order banning central bank digital
currency?
Ms. Bowman. We believe that there is no authority that
Congress would have to provide the authority for the Federal
Reserve, specifically, to engage in creation of a central bank
digital currency.
Mr. Davidson. Thank you. Comptroller Gould, under President
Trump's fair access rule, banks cannot deny services to an
entire lawful industry. Has the OCC seen any evidence since
January 2025 of national banks continuing to debank crypto
firms?
Mr. Gould. We are still in the process of going through the
complaint data that we have received in accordance with the
President's EO. I mean, I am aware of some anecdotal examples--
--
Mr. Davidson. Right. We will look for the report, and you
have kind of answered an adjacent question there, but I will
just also add that, and you have alluded to cannabis banking,
marijuana banking but I would love to submit a question for the
record there to see where the state of play is. Are banks still
blocking customers who are engaged in lawful marijuana
activities because nearly every State, whether you like it or
not, has made some form of marijuana lawful in those States,
and we have not synced up at the Federal level, so I would love
to catch up on how we are doing that.
My time has expired, and I now recognize the gentlewoman
from Ohio, Mrs. Beatty, who is also the ranking member on the
Subcommittee for National Security.
Mrs. Beatty. Thank you, Mr. Chairman and to our ranking
member, and, more importantly, thank you for being here today.
A lot of tough questions that you have had today because we are
in tough times. Let me start with following up on something
that my colleague on the other side, Ann Wagner, alluded to in
talking about some 682,000 cases of check fraud.
As we know, fraud and scams are robbing American families
of their hardworking savings. It is the number one concern that
I am hearing from banks and credit unions in my 3rd
Congressional District and this summer, I was really pleased to
see that the FDIC, the Fed, and OCC issued a request for
comments to address the payment and check fraud. So, we also
know that Congresswoman Maxine Waters last Congress introduced
House Bill 9303, Protecting Consumers from Scams Act. So, my
question to you, and I will start with you, Ms. Bowman, and
quickly work down to you, Mr. Hill, what are your top-line
takeaways from the comments submitted, and what target areas
are you looking to prioritize? So, are there any target areas,
yes or no, and if so, give me at least one, and then we can----
Ms. Bowman. Yes, this is a critically important issue, and
I think some of the most important areas that we should be
focusing on are account openings.
Mrs. Beatty. Thank you.
Mr. Gould. Excuse me. One area for us to focus on, again,
is the relationship between the largest national banks and
payment processing and check refund returns and the community
banks.
Mr. Hauptman. I will say that Congress passed the GENIUS
Act, and one positive of blockchains, especially public
blockchains, is they eliminate some of these issues that can
happen with other forms of payment. If you are asking about
check fraud, obviously it has been around since we have had
checks, and I am aware that the harm is not just those who are
defrauded. It is the regular credit union member who is saying,
``Why cannot you cash my check? Can you just give me the money?
It is a certified check. Why do you not give it to me?'' It is
not their fault nor their credit union's fault, why that is the
case, why there is a delay. So, we try to circulate on our
website every new fraud that there is, from romance scams to
check fraud.
Mrs. Beatty. Mr. Hill.
Mr. Hill. Thank you, Congresswoman. I fully agree this is a
big and growing problem. We are working very closely with our
peer agencies as part of a working group. I fully agree with
the comments from Vice Chair Bowman and Comptroller Gould. We
are continuing to work through the comments and happy to follow
up with more takeaways.
Mrs. Beatty. I am glad you said, ``follow up,'' because I
would like you to stay in contact. This is very important, I am
sure, to all of us, but in my district I am being held
accountable for what am I doing, and you are right, it is an
age-old thing, but it appears to be more prevalent now that we
are seeing this. So, I would like to have some contact. I have
my legal counsel and financial person, Sierra, here, and so
this is something you are going to hear over and over from me.
Let me quickly go to the next question, and for you, Acting
Chairman Hill and Chairman Bowman and Comptroller Gould, I
would like to start with some questions on cybersecurity--we
have addressed that a lot today--and the risk posed by third-
party service providers and other technology solutions. As we
know, cyber adversaries not only target financial institutions,
but also Federal regulatory agencies. What are the steps you
are taking to enhance the cybersecurity of your Agency and
effectively notify financial institutions when there is a
breach of confidence and sensitive information that regulators
collect from financial institutions?
[No response.]
Mrs. Beatty. Okay. Do you want me to pick somebody. Mr.
Hill. Okay.
Mr. Gould. I will be happy to start----
Mrs. Beatty. Please.
Mr. Gould [continuing]. since I certainly raised the issue,
and, unfortunately, the OCC was the victim----
Mrs. Beatty. Right.
Mr. Gould [continuing]. of a data breach that went on for
almost 2 years. When we learned of the breach back in February,
we engaged extensively with the banks that we supervised to let
them know what we were doing, how we were addressing it, what
information was exposed. I will say that, in addition to
bringing on board multiple kind of forensic technical experts
to analyze the issue and to make recommendations to ensure that
the risk of this happening again is dramatically decreased, I
actually turned our own examiners on our Agency to examine us
as they would a bank to ensure that we had actually made the
changes that the third party had recommended, the forensic
consultants had recommended.
Mrs. Beatty. Unfortunately, my time is up, so you all
agree? Can he be the spokesperson for you all, and if it is a
``no,'' you can then get back to me. Okay. It looks like you
have some friends. They nodded. I yield back.
Mr. Davidson. I thank the gentlewoman. I now recognize the
gentleman from South Carolina, Mr. Timmons, for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman, and thank you to our
distinguished witnesses for being here today. I want to begin
by commending each of you for your efforts to maintain
stability in our financial system in a way that protects
consumers, reverses harmful one-size-fits-all policies, and
provides much-needed clarity to our community banks and credit
unions. This hearing is critically important as we work to
ensure that our regulatory framework remains effective,
transparent, and responsive to the needs of the institutions
and communities it is intended to serve.
Vice Chair Bowman, I would like to begin with you. The
Federal Reserve's recent finalization of revisions to the large
financial institution's ratings framework is viewed by many as
a commonsense and long-overdue improvement. Ensuring that banks
are not judged solely on their single lowest component score
will create a more accurate and balanced assessment of
institutional health. Could you speak to the Federal Reserve's
plans to implement this reform and how we should expect it to
be faithfully and consistently implemented by examiners?
Ms. Bowman. Thank you for allowing me to provide some
additional information and context to our large bank financial
rating system. So, when the system was initially introduced in
2019, it allowed for a single deficiency. There are three
categories that it consists of--governance and controls,
capital, and liquidity--and the initial framework allowed for a
deficiency in one of those categories, not requiring it to be
as a financial matter, but any of those categories could
determine a bank to be not well managed. As we know and as we
saw in Silicon Valley Bank's failure, banks fail for a number
of reasons that are highly predictable and always related to
their financial condition. So, it is important that we are not
artificially judging an institution to not be well managed if
we are not reviewing their financial health as a part of that
determination.
Mr. Timmons. Thank you for that. Turning now to the need
for greater regulatory tailoring, I want to thank you both,
Vice Chair Bowman, and you, Chair Hill, for supporting efforts
to refine our regulatory regime and for advancing the policies
that this committee and our colleagues in the Senate have
worked on throughout the year. I consistently hear from banks
and credit unions in my district that an overly burdensome
regulatory framework forces them to divert time and resources
away from serving their communities. At the same time, I
recognize that limited resources pose challenges, not only for
financial institutions, but also for the agencies charged with
supervising them. Reforming standing policies, such as the
community bank leverage ratio, along with implementing
initiatives like my SMART Act will strengthen our financial
system and allow institutions of all sizes to better support
their customers.
Chair Hill, as we consider these efforts, how does your
Agency plan to improve the consistency and clarity of the
supervisory process, and would legislation such as the
Supervisory Modifications for Appropriate Risk-based Testing
(SMART) Act and the Tailored Regulatory Updates for Supervisory
Testing (TRUST) Act help conserve Agency resources in a way
that ultimately enhances the quality of supervision?
Mr. Hill. Thank you, Congressman, for the question. So, we
are engaged in taking a close look at many aspects of our
supervisory process. Trying to promote more consistency and
clarity across the board are key goals that are informing many
of the activities that we have underway. The proposed rule we
issued with the OCC that would define unsafe or unsound
practice and matters requiring attention is partly intended to
achieve more consistency across exam teams. Our supervisory
appeals process that we have proposed is also intended to
promote more consistency, among other things. With respect to
the legislation, I am certainly happy to work with you and your
office on providing feedback to anything that would be helpful.
Mr. Timmons. Sure. Thank you for that. Finally, I want to
turn to digital assets, your Agency's plans for implementing
GENIUS, and the broader conversation around future market
structure legislation. In August, I hosted roundtables in my
district with stakeholders from across the financial sector. A
consistent theme was the future of crypto legislation and how
traditional financial institutions are preparing to participate
in this evolving market. These legislative efforts have the
potential to reshape our financial system and reduce
unnecessary intermediaries. As this work moves forward, it is
essential that our financial institutions remain informed and
fully equipped to adapt so that they are not left behind. Chair
Hauptman, you and I discussed GENIUS implementation a few
months ago, and I would appreciate an update on the NCUA's
preparedness. I would also welcome your thoughts on how we can
more effectively educate credit unions in South Carolina about
the work underway in Washington.
Mr. Hauptman. Well, Congress has given us a deadline, I
believe, of July 18 next year, and it is my intention to work
with my fellow regulators to meet that deadline. Obviously,
that is going to be proposed rules and then final rules. We are
sitting here on December 2 and do not have either one of those
yet, so, obviously, between now and July, it is supposed to
happen. My guess is the first thing you will see is, I believe,
the first rulemaking you mentioned, which is how to apply to be
an issuer, which for credit unions would be credit union
service organizations because they do not have subsidiaries.
Mr. Timmons. Thank you for that. I am out of time. With
that, I yield back. Thanks.
Mr. Davidson. I thank the gentleman. The gentleman from
California, Mr. Vargas, who is also the ranking member of the
Task Force on Monetary Policy, is now recognized for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. I want to
thank the chairman and also the ranking member, and in
particular, the ranking member. I think what she said today was
not only true, but courageous. It is sad, but I do think we are
living through a pretty shameful moment in our history, and I
think that is how history is going to see it. I think a lot of
the people that are here today, 10 years from now, are going to
see themselves as Liz Cheneys and Adam Kinzingers, but they
were not. They were not. They allowed all this corruption to go
on, and it is sad.
I have been in politics for a long time. I got elected back
in 1993, and it is interesting. In a hearing like this normally
what happens is, as politicians, we make a statement, and our
statement is pretty political, as mine just was. Then normally,
we go to the professionals, and the professionals give us
information that is very important for us to make decisions but
it is seldom the case that the professionals use the jargon of
politicians, and that is been the case most of the time that I
have been here, with the exception of today. I was very
interested because some of the jargon that was used today,
``unelected bureaucrats''--by the way, that is called
professionals--``unelected bureaucrats,'' ``the weaponization
of finance.'' All of this jargon is jargon that is used by
politicians that should not be used by professionals, and we
saw that today, and I think that is disappointing.
Anyway, I wanted to say that because I do see a sliding
right now of professionalism in the government, and I think it
is sad, and also intellectualism, frankly. I mean, I see today
we are trying to figure out if what we are doing at sea right
now is legal or not. You know, it is the equivalent of
bayoneting the wounded when you have survivors on a ship and
you hit them again. I mean, clearly war crimes, and this is
what happens when we de-professionalize the government and
those that are supposed to carry out the laws. So, anyway, I
was disappointed in some of the jargon here today, and I will
leave it at that.
Now, I do want to turn to climate change. Now, I think
climate change is something that is interesting because I have
been around, again, a long time and it used to be that no one
believes in it. Now, a lot of people do. So, I would ask you
guys, how many of you believe in climate change? I will start
with you, Mr. Hill, because you are closest to me.
Mr. Hill. Yes, sir, I do.
Mr. Vargas. You do. Why do we not go down the line?
Mr. Hauptman. The climate is changing. That is correct,
sir.
Mr. Vargas. Okay. It is changing. Okay. I will not go into
the human aspect, but you do think the climate is changing,
yes?
Mr. Hauptman. Our view on climate change and natural
disasters, which are a risk to financial institutions, is that
the local communities are best served to do it. Nobody in
Florida or Puerto Rico needs me to tell them they have
hurricanes.
Mr. Vargas. That is right. Sir?
Mr. Gould. Whether you call it global warming or climate
changing, yes, I understand the climate is changing.
Mr. Vargas. Okay. Vice Chair?
Ms. Bowman. I think climate change is an important policy
question, and natural disasters and events happen all the time.
I am from Kansas, so I am particularly familiar with things
like tornadoes and floods.
Mr. Vargas. Yet, you guys are pulling back from that
information. It seems like you are not participating like
before. Are there no financial risks then? You are the
prudential regulators. You do not see risks here in climate
change? Well, I am from California, two fires. It is
interesting people never talk about Kansas or places where they
get hail because some of the largest damage that you see in
insurance is actually hail, and you are going to see more and
more of that because of climate change, and I think it is going
to affect the mid-part of the country significantly. I think it
is a real risk. I think most of humanity thinks it is a real
risk, except for us today. Would anyone like to comment on
that? Mr. Gould, go ahead, sir.
Ms. Bowman. May I?
Mr. Vargas. Yes.
Ms. Bowman. May I?
Mr. Vargas. Yes, yes, please do.
Ms. Bowman. So, I think it is not that these events are not
risks. It is that they are not more important risks than other
risks that banks face, and we believe that banks have been
facing these risks. Obviously, I am a community banker from a
mostly rural and agricultural bank, where farmers are the most
optimistic people on the planet who have to mitigate and manage
to what the weather gives them every year. So, they have been
managing for these risks for the entirety of the banking
system, and it is not that they are not important risks. It is
that they are not more important than other material risks.
Mr. Vargas. Okay. Okay. We could disagree on how important
it is, but just, last, I would like to say I hope you do not
slide into this unprofessional jargon. Keep it tight, as they
say when I used to play football. Do not slide off and start to
speak like politicians. Thanks again. With that, I yield back.
Mr. Davidson. I thank the gentleman. The gentleman from
Pennsylvania, Mr. Meuser, who is also the chairman of the
Oversight and Investigations Subcommittee, is now recognized
for 5 minutes.
Mr. Meuser. Thank you, Mr. Chairman, and certainly thank
you to all of you. This is very important and worthwhile, so it
is appreciated. Comptroller Gould, Vice Chair Bowman, Chair
Hill, and Chair Hauptman, thank you.
First on Basel III Endgame, we need capital rules that
strengthen safety and soundness without limiting access to
capital for large and small businesses. Second, this
committee's debanking report validates our concerns. Last
Congress, Biden regulators pressured, many banks were coerced
to comply, and lawful Americans lost access to banking
services.
Mr. Chairman, I ask unanimous consent to enter into the
record the majority staff debanking report entitled,
``Operation Chokepoint 2.0: Biden's Debanking of Digital
Assets.''
Mr. Davidson. Without objection.
[The information referred to was not submitted prior to
printing.]
Mr. Meuser. So, I appreciate Comptroller Gould, Vice Chair
Bowman, and Acting Chair Hill's early action regarding
debanking by eliminating reputational risk, which our
colleague, Representative Barr's bill, the Financial Integrity
and Regulation Management (FIRM) Act, has codified. In order to
achieve fair access to banking, the private sector has a role
to play as well, of course. Third, financial fraud and scams
are rampant, and this committee is committed to a government,
private sector, and a whole-of-society effort to protect
consumers, seniors, veterans, young people, small businesses,
everyone out there, and that is a top priority for my
Subcommittee on Oversight and Investigations.
So, Vice Chair Bowman, I would like to start with you,
please. You have been very clear on Basel III Endgame, very
refreshing, as a matter of fact, that it can have real benefits
if calibrated properly for bank lending, especially for
community and regional banks. In your view, how can rightsizing
and capital requirements that primarily affect larger banks
help support small business and agricultural lending?
Ms. Bowman. If we are speaking specifically about Basel
III, it is important to understand that the approach that we
are taking limits the application of Basel III and the required
participants to the largest banks. So, those requirements would
not apply to the smallest banks unless they chose to opt in to
that framework.
Mr. Meuser. Okay. Let me ask you this then. Do you plan to
examine the Tier 1 leverage requirements, the G-SIB surcharge,
the Comprehensive Capital Analysis And Review (CCAR)
requirements as part of your effort to rightsize capital?
Ms. Bowman. So, we are looking at all the capital
frameworks and the capital pillars in a comprehensive way. We
have already worked to address the community bank leverage
ratio by setting it at the statutory floor that Congress
provided us. I think there are a number of different categories
that we are looking at. We will have a G-SIB surcharge
proposal. We already introduced the SLR, and the other is the
stress testing in addition to Basel III. We are making progress
on all of these different capital pillars, and I would
definitely tell you that we are not reverse engineering an
outcome.
Mr. Meuser. Right.
Ms. Bowman. We are looking to do risk assessments that
would allow for us to set these calibrations according to risk.
Mr. Meuser. Okay. Thank you and to be clear the Basel III
would have greatly destabilized, if you will, our banking
community and not helped community banks nor helped larger
banks.
Ms. Bowman. In its previous proposal's iteration, yes, I
agree.
Mr. Meuser. All right. Comptroller Gould, the banking
report this committee issued yesterday detailed how Biden
regulators pressured banks to debank crypto, energy, firearm
companies, as well as politically disfavored groups,
resurrecting Operation Choke Point that started under Obama.
What recommendations do you have for private entities to ensure
they have eliminated any internal systems or policies
implemented to comply with the Biden-era regulatory pressure?
Mr. Gould. Thank you for the question, Congressman. As I
noted before, we are still in the process of reviewing
complaints and conducting our review. I would say, in general,
though, that overreliance on negative news searches, which is,
I think, sometimes a feature of reputation risk, could, again,
in an over-reliance situation, be problematic, as well as
categorical prohibitions on performing or providing financial
services and products to lawful business activities.
Mr. Meuser. Okay. Thank you. Chair Hill, the FDIC under
previous Chair Gruenberg issued pause letters, asking banks to
cease all activity with crypto companies. What changes have you
initiated and have planned for the FDIC to prevent regulatory
abuse in the future?
Mr. Hill. Well, thank you, Congressman. So, first and
foremost, we undid the policies of the past few years. So, we
rescinded the guidance that required prior approval. We now
treat digital asset activities just like any other novel
activity where banks are expected to manage the safety and
soundness risk but, otherwise, have no prohibitions to serving
those industries. I think promoting durability of our policies
is something that is always a consideration, and so we are
considering a number of steps to try to ensure that these types
of things will not happen in the future.
Mr. Meuser. Thank you. My time has expired. I yield back,
Mr. Chairman.
Chairman Hill of Arkansas [presiding]. The gentleman's time
has expired. It is now my pleasure to recognize the gentleman
from Illinois. Mr. Casten, you are recognized for 5 minutes.
Mr. Casten. Thank you, Mr. Chair, and thank you for the
quick bit of exercise from the ranking member. Thank you all
for coming.
In 2023, former Vice Chair Barr said that the 2023 bank
failures caused a reassessment of the viability of uninsured
deposits as a funding source across the banking system. In
2024, the Financial Stability Oversight Council (FSOC) raised
further concerns about some banks' reliance on uninsured
deposits, and it could make them more vulnerable to runs.
Acting Chair Hill, I think you had raised this concern in your
Senate confirmation hearings, and if I am getting this right,
you had specifically said that the FDIC does not even have the
data necessary on the number of uninsured deposits above and
below the various thresholds other than the $250,000 limit.
Without getting into details, I am curious, in your time in
this role, have you directed the FDIC to start trying to get
that data?
Mr. Hill. So, I have long believed that more granular
deposit data would be useful for a number of purposes----
Mr. Casten. I would love to get into the what you are
doing.
Mr. Hill. Sure.
Mr. Casten. I am just curious if you have initiated any
process there or not.
Mr. Hill. So, I would say there have been conversations. I
have raised this at the Federal Financial Institutions
Examination Council (FFIEC). That is where most reporting is
done through.
Mr. Casten. Okay.
Mr. Hill. I would say, at this stage, I know there are
institutions that are collecting data, but we have not taken
any steps----
Mr. Casten. Okay. So, still important, but have not done it
yet. So, the New York Fed recently issued a paper saying that
they are noticing deposits are flightier right now, and
specifically in response to interest rate changes, finding that
there are run risks, particularly when rates go up. The Wall
Street Journal reported recently that wealth management clients
are more likely to pull deposits out and chase higher yield
when interest rates are rising. So, Vice Chair Bowman, I guess
what I am wondering is the Fed doing anything to monitor what
happens if those risks run out of the traditionally regulated
financial system, to private banks, to other alternative
investment vehicles? Are you doing any enhanced reviews of
where that deposit flight might go?
Ms. Bowman. To the extent that we are aware of that, as a
part of our work on financial stability, we monitor as much as
we can according to the data that we have, and we are able to
see the transit of funding throughout the system. I am not sure
that we have specific data about whether it is going from the
financial institutions into any particular entities. We do not
collect data that would tell us that. We would be able to
determine if funds have left the financial system, though,
through call report data.
Mr. Casten. Yes and I guess I do not mean leaving the
financial system, but we have the surge of private banking----
Ms. Bowman. Right.
Mr. Casten [continuing]. all sorts of different types of
things that are deposit-ey----
Ms. Bowman. Mm-hmm.
Mr. Casten [continuing]. but not within where the FDIC or
others would have oversight and my concern is that if we got a
lot of dollars that are in some other part of the system and we
are not monitoring it, that is a risk at some point.
I am particularly concerned about how this all affects
stablecoins. As Mr. Foster noted, there was a Treasury
Department report in April: stablecoin adoption could result in
over $6 trillion in deposit outflows. There are a number of
other reports that have said that. I guess, Acting Chair Hill,
do you all have good data on how stablecoins may affect deposit
outflows? Have you started looking at that question?
Mr. Hill. That is certainly something that we are paying a
lot of attention to. I do not think anybody knows what type of
impact deposit flows into stablecoins could have on the system.
I know there are estimates out there. I think those are
basically just guesses.
Mr. Casten. Well, let me ask a more specific question then
because I think this may answer whether or not there is likely
to be deposit flows. There was language that the Senate added
to the GENIUS Act that I think creates a huge problem for your
Agency. It says that ``The claims of a customer with respect to
payment stablecoins shall have priority over the claims of any
other person, other than the claims of another customer with
respect to payment stablecoins.'' So, if there is a bank run
and you have customers of stablecoins with deposits in a bank
that are not insured, that language would suggest that they
have a senior claim. Have you made any effort to interpret that
language? How are you going to deal with the conflict if we get
in a situation like we got to in 2023 when Circle's deposits
were sitting there in uninsured accounts and there was a run?
Should a stablecoin depositor assume that you are going to
place that customer in a senior position to insured depositors?
Mr. Hill. I would have to go back and look at the statute
to make sure I am correctly understanding it, but my
understanding is that language is applicable if the stablecoin
issuer fails, not if a bank fails. From our perspective, we
would still have our normal authorities, our normal priority in
the case of a bank failure. That is just the provisions that
would apply to a bankruptcy proceeding if a stablecoin issuer
fails.
Mr. Casten. Okay. We could use some clarity, particularly,
as the chair, ranking member had noted, there is some shadiness
as far as who is making these deposits----
Chairman Hill of Arkansas. I thank the gentleman.
Mr. Casten. I yield back.
Chairman Hill of Arkansas. Your time has expired. The
gentleman from Texas, the chairman of the House Small Business
Committee, Mr. Williams, you are recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman, and good to
see all of you today. Thank you for being here.
The previous Basel III Endgame proposal would have
substantially raised capital requirements for an already well-
capitalized banking industry. One of my main concerns with the
previous proposal was the negative effects these requirements
would have on small business lending. Under the provisions in
the proposal, credit would have become more expensive and
harder for Main Street businesses to secure. As you continue
your work on the Basel III Endgame proposal, I urge you to
ensure the revised framework avoids imposing unnecessary
burdens to restrict Main Street America. So, Vice Chairman
Bowman, could you elaborate on how the Fed will ensure any
changes to the capital levels will not disrupt the flow of
capital to Main Street businesses?
Ms. Bowman. Thank you for that question and the opportunity
to clarify the work that we are doing around Basel III. I think
it is very important as we are working toward reviewing the
capital framework that we are not disincentivizing providing
lending or other types of activities to those businesses that
make our economy run. The purpose of the work that we are doing
is to ensure that the banking system can support the economy in
a way that allows the United States to continue to be the
economic powerhouse that we are.
Mr. Williams of Texas. Okay. Thank you. Chairman Hill and
members of the committee, myself included, sent a letter to the
Fed, OCC, and FDIC, urging you to take a closer look at how
enhanced prudential standards are being applied across Category
2, 3, and 4 banks, and to update static thresholds so that
supervision reflects the actual risk rather than outdated asset
lines and these enhanced prudential standards (EPS) thresholds
were set in 2019 and have not been increased since then, even
though the Agency said they would evaluate them regularly
through notice and comment. Not indexing these thresholds has
created an artificial constraint on banking activity that hurts
the economy across the country and in districts like mine back
in Texas. So, will each of you, the Fed, the OCC, and the FDIC,
commit to working on an interagency basis to index these EPS
thresholds? When could that happen, do you think?
Ms. Bowman. Yes, we will commit to reviewing our thresholds
and indexing them.
Mr. Gould. Enhanced prudential standards are the purview of
the Fed as they apply at the bank holding company level, but we
are doing similar things at the national bank subsidiary level
as well.
Mr. Hill. Likewise, happy to commit to reevaluating and
indexing thresholds where appropriate.
Mr. Williams of Texas. Okay. All right. Thank you. This
committee has held several hearings examining the concerning
trend of consolidation in the banking sector. The Federal
regulators' response to March 2023 failures muddied the waters
on statutory functions such as the least-cost resolution
mandate. Acting Chair Hill, how can Congress enhance the FDIC's
resolution process, such as by providing greater flexibility,
to the least-cost mandate in order to promote greater
transparency and competition?
Mr. Hill. Thank you for the question, Congressman. I think
allowing additional flexibility under the least cost would be
useful in certain circumstances. There are a variety of
possible situations where the FDIC may have two resolution
options that are very similar in cost, but there are
significant benefits to one or the other. Today, there is
essentially no discretion, and so it needs to be a mechanical
choice to choose the least-cost resolution option. I think
Congress would still want to ensure that there was discipline
around any flexibility to ensure that costs still remained a
primary consideration, but I do think there are situations
where having at least a little bit of additional flexibility
would be useful.
Mr. Williams of Texas. I have limited time, but one more
question, Chairman. How might a stricter set of conditions to
weigh the national deposit cap for the acquisition of a failing
or failed bank help reverse the trend of consolidation in the
banking sector?
Mr. Hill. Certainly, a lot of considerations there, but as
I am sure you are aware, today, there is an exception to the
caps in the event of a failed bank acquisition. I know there is
legislation in place that would potentially allow some more
flexibility in those types of situations. Again, I think from
my perspective, at a broader, more holistic level, I think
having a little bit of additional flexibility around the least
cost would be useful.
Mr. Williams of Texas. Well, again, thank you all for being
here. I appreciate the testimony, and I yield back my time.
Chairman Hill of Arkansas. The gentleman yields back. The
gentleman from New York, Mr. Torres, you are recognized for 5
minutes.
Mr. Torres. Thank you, Mr. Chair. I have a question about
the intersection of the financial system and AI. Private
credit, banking, insurance, and AI CapEx are becoming
increasingly interconnected. The AI sector is experiencing the
largest capital boom since the railroads of the late 19th
century, and AI CapEx has become a disproportionate driver of
both economic growth and equity market performance. To what
extent do you view the entanglement of private credit, banking,
insurance, and multi-trillion-dollar AI CapEx as a potential
source of systemic risk? I will start with the Fed.
Ms. Bowman. Well, thank you. As the entity responsible for
financial stability in the financial sector, it is a very
important question that you have just raised, and it is
something that we have been watching very closely to seeing how
the AI industry and its investment have been evolving. We have
seen an increase in asset levels and their valuations over
time, and it is something that we continue to watch, and we are
definitely paying close attention.
Mr. Torres. So, is that a yes? Do you view it as a
potential source of systemic risk, or----
Ms. Bowman. Well, it is certainly one of the risks that we
are looking at.
Mr. Torres. I have a question about the independence of
regulatory agencies, and I will start with the Fed. Do you see
your regulatory Agency as independent of the President or as a
creature of the President?
Ms. Bowman. The Federal Reserve is an independent,
apolitical Agency, and as long as we continue to be transparent
in the work that we do and we are accountable to Congress and
the public, I think that should continue.
Mr. Torres. What about the FDIC?
Mr. Hill. The FDIC is defined by statute as an independent
regulatory Agency, but we have also always tried to coordinate
our activities with other agencies throughout the government.
So, that is something we continue----
Mr. Torres. But independent. Okay. NCUA?
Mr. Hauptman. The statute says that NCUA is an independent
Agency within the executive branch. One way you could describe
our independence is that we are obviously not on budget. The
shutdown did not affect us. We are not funded via
appropriations. That is one degree right there of independence,
but, again, I concur with my colleagues, we have always
coordinated with the White House, and they have been a big help
this time.
Mr. Torres. Comptroller, during your testimony, you spoke
of your opposition to ``the weaponization of finance,'' which
is a sentiment I share. You know, we have seen President Trump
publicly order the Attorney General to prosecute political
adversaries. If the President were to order you to weaponize
finance against those same political adversaries, what would
you tell him? Would you tell him, no, Mr. President, the OCC
has an absolute policy against the weaponization of finance?
Mr. Gould. Congressman, thanks for the question. I am not
going to engage in hypotheticals. What the President has told
me through an executive order----
Mr. Torres. Do you have an absolute policy against the
weaponization of finance?
Mr. Gould. Excuse me?
Mr. Torres. Do you have an absolute policy against the
weaponization of finance?
Mr. Gould. There is a Presidential executive order that
says that banks should not discriminate on the basis of
politics, religion, or being engaged in a lawful business
activity.
Mr. Torres. Capital requirements. If capital requirements
were at zero percent, there would be no safety and soundness.
If capital requirements were at 100 percent, there would be no
capital formation and so, the object of public policy is to
find the best balance between the two, to find the Goldilocks
level of capital requirements. Like, what is that Goldilocks
level, and how do you determine that level empirically, and I
feel I have not heard a satisfactory answer to that question
from either side of the debate. You know, your predecessor
insists that the system is undercapitalized. You seem to
believe it is sufficiently capitalized. Like, what is the
objective empirical standard against which those competing
pronouncements are being made?
Ms. Bowman. The statutes direct a definition for different
sizes of banks as well capitalized, so that is one measure that
we can use. We can also look back at the capitalization of the
banking system prior to the great financial crisis and the odds
and determine that clearly was not the right level of capital
in the system. So, the work that was done as a result of Dodd-
Frank clearly improved the levels of capital and liquidity
within the banking system. It more than doubled the levels of
capital, and liquidity is very strong.
Mr. Torres. Is there a specific number?
Ms. Bowman. I do not know that we know a specific number,
but we are working to achieve a review of our capital
requirements in a way that allows us to assess the risk that
certain activities present to the financial system or the
banking system.
Mr. Torres. I want to quickly ask about there has been
public reporting that the Federal Reserve is planning to cut
supervision and regulation division by 30 percent. As you know,
the story of Silicon Valley Bank (SVB) was partly a story of
supervisory failure. If my constituents were to ask me,
Congressman, why on earth is the Federal Reserve cutting
supervision by 30 percent following the supervisory failures
surrounding SVB, what should I tell them?
Ms. Bowman. Well, Congressman, that is an excellent
question, and I really appreciate the opportunity to clarify
that. So, when we are talking about reorganizing, we are
talking about the staff at the Board. Before the financial
crisis, we had about 200-ish employees at the Board. None of
them are actual supervisors. They coordinate the activities of
those supervisors that are resident within our 12 Reserve
banks. We are not talking about what we are doing with those
supervisors, so they are completely separate.
Chairman Hill of Arkansas. The gentleman's time has
expired.
Mr. Torres. Thank you, Mr. Chair.
Ms. Bowman. I would love to provide you with more detailed
information on our reorganization. Thank you.
Chairman Hill of Arkansas. The gentlewoman from California,
the chair of our Subcommittee on Asia Pacific in the House
Foreign Affairs Committee, Mrs. Kim, you are recognized for 5
minutes.
Mrs. Kim. Thank you, Chairman and ranking member, Maxine
Waters. Thank you so much for hosting today's hearing, and I
want to thank all of our witnesses for joining us today. Good
to see you.
Community banks across California have relied upon the
community bank leverage ratio to lower their regulatory burden
and invest more capital in the communities around them. As you
know, I recently introduced the Community Bank Leverage
Improvement and Flexibility for Transparency (LIFT) Act that
would review and reform the components of the leverage ratio
and lower the bands of the ratio and it is for that reason I
was really pleased to see the recent announcement from the
Federal Reserve regarding a proposal to lower the community
bank leverage ratio (CBLR) from 9 percent down to 8 percent.
So, I want to ask you, Vice Chairwoman Bowman, at the current
threshold of 9 percent, how does the CBLR framework's
regulatory burden compare to the generally applicable risk-
based framework?
Ms. Bowman. So, at 9 percent, it is about the same, double
the regular or the well-capitalized requirement within the
statutory requirements. By using the 8 percent that was allowed
in the 2155 and the creation of the CBLR, we continue to be
around the level of double the well-capitalized level.
Mrs. Kim. Thank you. I look forward to continuing to work
together on the Community Bank LIFT Act and create the
regulatory flexibility that community banks need to better
serve our communities, but I want to shift away from the
community banks and focus on the U.S. operations on foreign
banks. So, continuing on our conversation with you, Vice Chair
Bowman, as you work on amending the regulatory and supervisory
process for U.S. banks, I want to ensure that you are also
applying those changes to the U.S. operations of foreign banks
as well. So, can I get your commitment to the principles of
national treatment and level playing field as you contemplate
the changes to the regulatory process and supervision of
foreign banks in the United States?
Ms. Bowman. It is absolutely appropriate for us to ensure
that there is a playing field for foreign banks in their
participation in the U.S. economy, and in economic activity and
serving customers in the United States. This is certainly
something that we will continue to keep in mind as we are
reviewing our capital framework and the regulatory framework
more broadly.
Mrs. Kim. Thank you. As you know, while those banks are
headquartered internationally, they employ tens of thousands of
Americans and have been essential to financing the U.S.
economy. So, thank you for keeping that in mind as you
contemplate those changes.
In Southern California where I represent, we are blessed
not only to have strong community banking organizations, but
also great credit unions as well. Having said that, I am
concerned about the tools that are available to smaller credit
unions in the event of a liquidity crisis. So I want to ask the
next question to Chairman Hauptman. Right now, some associate
credit unions lack access to the Central Liquidity Facility,
CLF. What are some of the barriers that credit unions face in
accessing that CLF, and how can we ensure that more credit
unions have access to CLF?
Mr. Hauptman. Yes. I appreciate you bringing that up,
Congresswoman. Liquidity is obviously crucial for every
financial institution. We examine for it. It is the ``L'' in
CAMELS, and a liquidity crisis, if you could see it coming, it
would not be called a crisis. The vast majority of credit
unions, over 3,000, are below $250 million in assets, all
right? For the small ones, the median number of employees is
one. How do you get there? Because there are a lot that have
zero, like church credit unions, where their employees are
employees at a church.
For a period of time there, Congress allowed the corporate
credit unions to serve as an agent when there is liquidity
crisis. That authorization has lapsed. We have done everything
we can to make applying for a central liquidity facility,
making it easier to find on our website. It is only 12 pages.
We promote how easy it is to do it. That said, the reality is
most of the small credit unions do not have access to it. They
have not gotten around to it for a variety of reasons, and for
a period of time, they were allowed to use their corporate
credit union as an agent in a liquidity crisis.
Mrs. Kim. Thank you. I would like to put in the last
question. In the communities I represent, there are digital
banks along with community banks and credit unions and the ones
providing fair and affordable financial services to small
businesses and working families. So, I want to ask you,
Comptroller Gould, as you evaluate changes in supervisory and
capital expectations, will the changes also apply to banks with
the same asset threshold that focuses on novel, tech-driven
businesses?
Chairman Hill of Arkansas. If I could ask the comptroller
to respond in writing to the gentlewoman from California.
Mrs. Kim. I have time. Thank you very much.
Chairman Hill of Arkansas. You are overtime, I am sorry to
say.
The gentlewoman yields back. The gentlewoman from Texas,
Ms. Garcia, you are recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you for all
the witnesses for joining us today. I am glad we got to sneak
this hearing in before the end of the year. For a second there,
I was worried we would go through the whole year without
hearing from our regulators, so welcome.
In summary, this committee has not yet had the opportunity
to hear from the acting director of the Consumer Financial
Protection Bureau--CFPB--despite the statutory mandated
semiannual report to Congress. So, since I cannot ask Director
Vought, I will ask Vice Chair Bowman, in the absence of the
CFPB, do you know if anyone, anyone at all, is supervising and
examining the largest banks in the Nation for compliance with
Federal consumer protection laws?
Ms. Bowman. Well, thank you for that question. I, too,
value the importance of consumer compliance regulation and
enforcement and supervision. I oversaw that capability at the
Federal Reserve for the first 6 years that I was on the Board.
We do have a responsibility at the Federal Reserve for----
Ms. Garcia. Okay. The question is, do you know of anyone
that is actually doing it.
Ms. Bowman. We are. At the Federal Reserve, we have
responsibilities for a narrow set of consumer compliance
regulations for all sizes of institutions that are State member
banks.
Ms. Garcia. Are you aware of anyone else that has taken on
the role of doing this?
Ms. Bowman. I believe that the other regulators have the
responsibility in that narrow context as well.
Ms. Garcia. So, Mr. Gould, is that true?
Mr. Gould. Thank you for the question, Congresswoman. The
OCC's approach to consumer protection has not changed, but as
you know, under the Dodd-Frank Act and specifically Title X,
the Consumer Financial Protection Act, the CFPB has certain
exclusive authorities, such as supervision authority, for banks
with more than $10 billion in assets.
Ms. Garcia. So, but the question was, do you know if anyone
that is actually doing the work of supervising and examining
the largest banks.
Mr. Gould. Again, Congresswoman, the OCC's approach to
consumer protection has not changed, so we continue to have
enforcement authority, but we do not have supervision authority
because Congress stripped us of having----
[Cross talking.]
Mr. Gould [continuing]. supervision authority in Dodd-
Frank.
Ms. Garcia. Mr. Hauptman?
Mr. Hauptman. Just to make sure I get this right, do you
mind repeating what you are asking?
Ms. Garcia. I will repeat the question.
Me. Hauptman. Yes.
Ms. Garcia. Since I cannot ask Director Vought, in the
absence of the CFPB, do you know if anyone is supervising and
examining the largest banks in the Nation for compliance with
Federal consumer protection laws? In response, Ms. Bowman said
that they had some supervisory review, and that all the others
do, which is why I am asking each one of you now.
Mr. Hauptman. I got you. Yes, I would have it right the
first time, but I am glad you repeated that. Less than half of
1 percent of credit unions are over the $10 billion threshold.
Out of 4,300, I believe there are about 20 that the CFPB was
onsite. So, all things considered, what the CFPB does or does
not do is less of an issue for credit unions just given their
size, but we are continuing to enforce the law----
Ms. Garcia. So then your answer is no.
Mr. Hauptman. You mean, are we examining that----
Ms. Garcia. So, you are not looking at it because it is way
above the threshold that credit unions----
Mr. Hauptman. My point is that less than half of 1 percent
of credit unions were examined by the CFPB in the first place.
I am just trying to get my hands around the scale of the issue
here, but we are certainly enforcing----
Ms. Garcia. It is all right. Then I will now move on. Mr.
Hill?
Mr. Hauptman [continuing]. every consumer law.
Mr. Hill. Similar to my colleagues, we do have authority
over certain consumer protection laws for the largest
institutions that we supervise, and so we continue to fulfill
those statutory obligations.
Ms. Garcia. But you are not aware if anyone else has taken
the role that CFPB specifically had.
Mr. Hill. That is correct.
Ms. Garcia. All right. So, then I will move on. Earlier
this year, the Agencies' and the President jointly issued a
proposal to rescind the Community Reinvestment Act, the CRA.
Because of ongoing legal challenges, the agencies are applying
the 1995 regulations to the banks today. It is now 2025. Thirty
years have passed, and with it came innovations and changes to
the banking industry. Acting Chair Hill, do you think that the
1995 regulations are well suited to take into account modern
online and mobile banking?
Mr. Hill. I think there are a number of reasons why the
1995 rule has challenges with it. We currently have issued a
proposal to----
Ms. Garcia. So, your answer is no?
Mr. Hill. I think modernizing CRA is something that is
worth considering doing. I voted against the 2023 rule and
thought it had a lot of flaws, and so I think----
Ms. Garcia. So, do you have any plans now to do that among
your cohorts here?
Mr. Hill. We have a proposal that is currently pending. We
are reviewing the comments to that proposal, and so I think it
is premature to say what our next step is, but I think
reverting back to the 1995 rule is a better option than the
2023 rule that had been put in place that has never actually
gone into effect.
Ms. Garcia. Okay. I see my time is up. Mr. Chairman, I may
submit my last question for the record and ask all the
witnesses to respond.
Chairman Hill of Arkansas. Sure. I am sure they will. I
thank the gentlewoman.
Chairman Hill from Arkansas. Now it is my pleasure to
recognize the gentleman from Wisconsin, Mr. Steil, who serves
as the chairman of the Digital Assets, Financial Technology,
and Artificial Intelligence Subcommittee, for 5 minutes.
Mr. Steil. Thank you very much, Mr. Chairman, and for
holding today's very important oversight hearing.
I want to start with you, if I can, Ms. Bowman. You were
asked by my colleague from New York about your supervisory
reform plans. You ran out of time to be able to comment on
that. Could you just briefly provide a little insight into what
your reform plans are?
Ms. Bowman. Absolutely. Thank you for the opportunity to
clarify that. So, at the time of the financial crisis, we had
around 200-ish employees at the Board. That grew by 76 percent
up until the current state today, where we had 500 authorized
positions. Obviously, the addition of all of those supervisors
did not help us with our focus on ensuring that banks' safety
and soundness has been secured, as we saw by the failure of
Silicon Valley Bank and some of the other banks that failed
around that time. The way that we ensure that we are providing
safety and soundness is to focus on financial risks. So, the
work that we are doing now to reorganize our division will
allow us to better align our work with those risks that lead to
banks' failures.
Mr. Steil. I appreciate it. So, it is better alignment and
resourcing people on to the risks that we face. Let me shift
gears completely but stay with you, if I can, Ms. Bowman. As
you likely know, the Basel Committee applies a punitively high-
risk weight for digital assets. Out of this committee, we
passed the GENIUS Act, passing it, though I want to come over
to how we are doing on the regulatory side in a minute but the
chair of the Basel Committee recently said that a ``different
approach would be needed to address the mismatch between
current Basel capital treatment and the reality we see in the
crypto industry.'' Bank of England declined to use this. Can
you comment on how you are going to work within this Basel
framework or whether or not you view it as unnecessarily
punitive as well?
Ms. Bowman. Well, I can confirm that I believe that the
risk weights that were initially assigned prior to my joining
the Basel Committee and the Governors and Heads of Supervision
(GHOS) rule is that, that was an over-calibration of the risk.
So, my hope is that there will be a recalibration of it at some
point, or we will not join in on adopting that framework.
Mr. Steil. I appreciate your comments. I am going to come
to you, if I can, Mr. Hauptman. We passed the GENIUS Act, the
first regulatory bill of substance in the crypto space. We had
a huge opportunity with CLARITY in front of us. You have a big
role on the regulatory side. Can you give us an update as to
where we are at on the regulations moving forward in the GENIUS
Act, briefly?
Mr. Hauptman. Yes. I think stablecoins are an absolute game
changer. This country, as advanced as we are with the biggest
internet companies in the world, our payment system is very
creaky. There are countries we give foreign aid to that you can
settle 24 hours a day, 7 days a week.
Mr. Steil. So, the faster we get this done, the better we
are going to be. Where are we on the regulatory?
Mr. Hauptman. Yes. You gave us a deadline of July 18. I and
my fellow regulators are committed to doing that. My guess is
the first rulemaking you will see will be the one on how to
apply to be an issuer, but your constituents to benefit by
having 7-day-a-week payment, which as you know, is difficult in
this country.
Mr. Steil. But are you committed----
Mr. Hauptman. Yes.
Mr. Steil. I am just coming to the time.
Mr. Hauptman. Yes.
Mr. Steil. I am fully with you on GENIUS----
Mr. Hauptman. Yes.
Mr. Steil [continuing]. why we did it here.
Mr. Hauptman. Yes, sir.
Mr. Steil. I just want to make sure that we get these
regs----
Mr. Hauptman. Fully committed, yes.
Mr. Steil [continuing]. done on time. You are fully
committed, and you believe you are in a position to deliver on
that commitment?
Mr. Hauptman. Yes. I think myself and fellow regulators,
and I want to give credit to Secretary Bessent for making sure
that Treasury is helping to convene that. I think we are on
track.
Mr. Steil. Thank you. I think that is just really
important. We have seen instances across years in this
committee where sometimes rules and bills are passed. We do not
see the regulations come out on time. I appreciate your
commitment to delivering on that.
I want to stay with you for a second. We have done a lot of
work here, looking back at Chokepoint 2.0, and, in particular,
how the broader crypto digital asset space was being governed
by enforcement actions, incredibly unproductive mechanism to do
that. I think we have a huge opportunity here to move forward
CLARITY to prevent the type of abuse we saw with Chairman
Gensler and with other regulators in the broader Biden
Administration. How important is CLARITY being done to help
guide you and those on your staff to be able to follow
congressional intent, rather than engage in enforcement actions
to drive forward policy?
Mr. Hauptman. Regulation by enforcement, in my opinion, is
unethical. There is not one person in this room that would
tolerate it in any other part of our life. There has to be a
speed limit first and then a speeding ticket after that. I am
proud that it is actual NCUA policy. A future board can change
it if they want to, but they would have to explain why they
pulled down our regulation by enforcement policy, simply
defined as no enforcement ever sets policy and the same
protections that are----
Mr. Steil. Will the Clarity Act help you on that?
Mr. Hauptman. I do not want to comment on that, but you
should not have any enforcement that ever sets policy.
Mr. Steil. Very good. I appreciate all of you being here.
Mr. Chairman, I yield back.
Chairman Hill of Arkansas. The gentleman yields back. The
gentleman from California, Mr. Liccardo, you are recognized for
5 minutes.
Mr. Liccardo. Thank you, Chairman. Vice Chair Bowman, I
understand that Governor Waller recently previewed that Federal
Reserve is exploring the creation through rulemaking of a new,
what he called a skinny master account for eligible fintech
institutions to be able to access the Fed's payment rails, and
the target was to do so by the end of 2026. We have heard
similar suggestions from Undersecretary Liang of Treasury. I
think we have seen from Acting Comptroller Hsu suggesting that
it should be up to Congress, at least it is not going to be in
his regulatory role. My question for you, do you support
expanded access to payment rails for nonbank institutions?
Ms. Bowman. We have currently a construct for the approval
of different varieties of institutions with different risk
categories. The third category does apply to non-depository
institutions, and there are certain parameters around that
decision framework. So, whether I agree with it or not, it is
policy of the Federal Reserve that is part of our master
account application review framework.
Mr. Liccardo. Okay. As you know, there is a concern for
many fintech companies about access to the FedNow rail, and
their ability to do so without having to essentially contract
with or partner or with a bank. At this point, you are saying
the Federal Reserve is moving forward, and you are supportive
of regulations to make that happen?
Ms. Bowman. What I am saying is I support exploring that
opportunity, but we do have a framework that is currently in
place that does allow for access for institutions that are not
depository institutions to be considered for an application
now.
Mr. Liccardo. Okay. Given what you have said, do you
believe it is important for Congress to offer any clarification
through statute to ensure there is a clear path or do you
believe this is something that can be handled entirely within
the Fed's regulatory ambit?
Ms. Bowman. I am not familiar enough with the authorities
to understand whether or not we would need specific additional
authorities to do that. So, I am sorry, I cannot comment on
that.
Mr. Liccardo. Okay. If I can shift a little bit to
stablecoin. I think both for you and for Chair Hill, I
supported the GENIUS Act. I was proud to be an original co-
sponsor of the House version that both Chair Hill and Chair
Steil had authored, and I think it is important to set clear
regulatory guardrails for stablecoin. I understand you all have
roles to write and enforce regulations that will integrate
stablecoin into banking in a way that is consistent with a
sensible regulatory framework that prioritizes safety and
soundness of depository institutions that you regulate.
Under the current GENIUS Act, it ensures the stablecoin
issuers will have reserves in safe assets. It lists what those
assets are, their deposits, their treasuries, the demand
currency, et cetera, and the notion is that the valuations will
not fluctuate much, and I assume you support having relatively
safe assets serving that role and reserves. Is that fair, I
guess, starting with Vice Chair Bowman?
Ms. Bowman. I think it would be helpful for me to
understand what you mean by reserves. Are you meaning
stablecoin reserves or could you clarify that for me, please?
Mr. Liccardo. That is right, stablecoin reserves, yes.
Ms. Bowman. So, I think Congress has given a range of
options for stablecoin issuers to use as potential reserves.
So, yes, it would be important that they are stable, auditable,
and immediately accessible for whatever regulatory framework
that we would create.
Mr. Liccardo. Okay. Given the time, I will just move
quickly here. Given our shared goals of safety and soundness
for financial institutions, would it make any sense to allow
stablecoin to be backed by commodities--either Vice Chair
Bowman or Chair Hill--that is for reserve to be commodities?
Mr. Hill. I mean, my recollection is the GENIUS Act is
fairly prescriptive in what qualifies as eligible reserves, and
to my recollection, I do not believe there are commodities that
would qualify.
Mr. Liccardo. I agree with you. I guess the question is,
would it be sensible to expand it in that way.
Ms. Bowman. I think that is a decision for Congress to
decide.
Mr. Liccardo. Does it seem consistent with safety and
soundness concerns that you obviously have in your everyday
regulation?
Mr. Hill. Yes. I mean, I think it would be a different
model. I mean, Congress set up a model where stablecoins are
backed by super safe reserves. One could imagine different
models where potentially there were different types of
reserves, but then you might have other mitigating factors as
part of the regulatory framework.
Mr. Liccardo. Would you not be concerned about runs? I
understand I am out of time.
Mr. Downing [presiding]. The gentleman's time has expired.
I now yield myself 5 minutes.
First of all, I want to thank you all for being here. It is
refreshing to have regulators in place that once again care
about legitimate safety and soundness issues rather than
advancing political agendas. So, I appreciate that.
I represent one of the most rural congressional districts.
I have some very large counties that have less than 500 people
in them. Actually, we have more cows than people in my
district, and it is our community financial institutions that
make sure that my constituents, particularly in cow country,
have access to banking services. So, I am going to just go down
the line on this one. This question is for each of you. What is
the biggest regulatory barrier you see facing rural financial
institutions, and what is your Agency doing to address it? I
will start with Vice Chair Bowman.
Ms. Bowman. Thank you. Being from a rural community very
similar to yours where we have more cattle and likely deer than
people, I think it is very important in having been a community
banker in that community. The importance of rightsizing the
regulatory burden is absolutely critical for smaller
institutions to be able to continue to serve their communities.
Mr. Downing. Thank you. Mr. Gould?
Mr. Gould. I agree with that. I think it is the
overregulation and oversupervision. One of the things that was
occurring at the OCC too frequently when I took over in mid-
July and what had occurred over the last 4 years was a
situation in which we were not actually engaged in risk-based
supervision. So, we were subjecting smaller banks to
prescriptive requirements coming out of DC, which made no sense
based on their business model.
Mr. Downing. Thank you. Mr. Hauptman?
Mr. Hauptman. I am from a remote area as well. It was 26
miles to get to a McDonald's, so I hear you on that, and our
local community institutions served an invaluable role that
none of the big banks would. I would say BSA and AML are the
things I hear over and over again. Every retiring executive who
leaves it says, what are you not going to miss? They are going
to miss a lot of things about running credit union. The thing
they are not going to miss, you hear it over and over, BSA and
AML. They say it is not the time I spend on it; it is the time
I waste on it. That is one area where I think we could work
together.
Mr. Downing. Thank you. Mr. Hill?
Mr. Hill. Yes, I would echo all the comments from my
colleagues. I would say the two things that I hear most
frequently from the smallest institutions are the cost of
compliance and the cost of technology adoption, and we are
taking a number of steps to try to make progress in those
areas. On the compliance side, that includes things like
reforms we are making to supervision. We recently just
finalized a rule that would raise and index several dozen
thresholds, almost all of which apply to community banks. I
fully agree with the comments on BSA and AML, and we are
heavily engaged with conversation with the Treasury Department
and others on reforms to that process.
Mr. Downing. Thank you. Thank you all. Shifting gears here,
the Financial Services Committee released a staff report
yesterday on the Biden Administration's efforts to debank
digital assets. This question is for anyone who wants to
answer, but what lessons is your Agency taking from this
report, and how are those lessons shaping the Agencies' broader
approach to digital asset policy, including implementation of
the GENIUS Act? Any takers? Mr. Gould?
Mr. Gould. I think one takeaway for me, at least, is that
if the activity is legally permissible, which the GENIUS Act
just made payment stablecoins legally permissible, as well as,
for example, the custody of digital assets, that is legally
permissible. I think it is really incumbent upon the
supervisors--so us, OCC--to work with the banks that want to
engage in these legally permissible activities and ensure that
they can do so in a safe and sound manner; that is, not put all
the burden on the banks to come up with how to do it in a safe
and sound manner.
That is what we saw over the last 4 years, and that was,
essentially, the death knell for those activities that, again,
were legally permissible and some banks wanted to engage in but
if the regulators will not work with them to find a path to do
it in a safe and sound manner, there is no way they can do it.
Mr. Downing. Right. Thank you. Anyone else? Mr. Hauptman?
Mr. Hauptman. I will just add that under the prior
administration, I have been at NCUA for 5 years. I was
confirmed 5 years ago today. I am proud that working with my
Democratic chair at the time, under Biden Administration, NCUA
was the only regulator that I am aware of that not only was not
hostile to digital assets that caused some of the debanking,
but we put out positive guidance, two pieces, which is two more
than anybody else put out during that time, and credit unions
saw the other result of the debanking. They got an enormous
amount of attention and deposit flow from digital assets firms.
Why? Because they were afraid of being debanked by the banks,
which is where they had their money. I just want to add that.
Mr. Downing. Thank you. Any follow up?
[No response.]
Mr. Downing. Well, my time has expired. I want to thank you
all for your comments there. So, now the gentlewoman from
Michigan, Ms. Tlaib, is now recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Chairman. As you probably,
all of you--I do not know--in October, the FDIC and OCC and Fed
withdrew their interagency principles for managing climate-
related financial risk. Are you all aware of that?
Ms. Bowman. Yes.
Mr. Hill. Yes.
Mr. Gould. Yes.
Ms. Tlaib. Okay. Nodding. The associated framework required
banks with over $100 billion in assets to consider climate-
related financial risks and business strategy, risk management,
and strategic planning. The Agencies claim that the principles
are unnecessary because the Agencies' existing safety and
soundness standards are adequate, but climate-related financial
risk is unique. We all know that. The scale of potential
impacts, I have seen it all alone in my own district, the
complexity of the climate system, the existence of multiple
positive feedback loops, the long-time horizons on which
climate change operates are all singular.
Vice Chair Bowman, can you explain how existing safety and
soundness standards will adequately capture the unique features
of climate risk? Take the potential impact of climate systems,
multiple tipping points, for example, whose precise thresholds
are uncertain. You know, you just cannot really predict this,
and which may lead to runaway changes that cannot be reversed.
Ms. Bowman. Well, it is important to note that banks are
not climate scientists and they do not make predictions about
what the climate will hold, but they do and have for since the
dawn of time, or as long as banks have existed, understood how
to manage risks from the environment and from natural
disasters. I am from Kansas, a neighbor to your State. We
frequently experience natural disasters and also agriculture is
a common business service that is provided for lending from
banks.
Ms. Tlaib. I mean, some of them----
Ms. Bowman. They know how to manage these risks, and in the
aggregate, climate does not present a more material risk across
the board than any other risk that banks face and they know how
to manage these risks, so it does not make sense.
Ms. Tlaib. What do you take with the Federal memo? In the
memo it actually says that the principles may be ``distracting
firms from the management and material financial risks.'' This
implies that climate-related financial risks are not material.
I mean, Vice Chair, do you believe climate-related risks are
not material?
Ms. Bowman. I would not say that they are not material.
What I would say is that they are not more important than other
risks that banks face, and banks regularly manage their risks.
Ms. Tlaib. But dozens of billion-dollar climate disasters
each year, correct?
Ms. Bowman. I do not know.
Ms. Tlaib. No. It is dozens of billion-dollar climate
disasters happening each year, which destroy property and wipe
out assets are no interest to investors?
Ms. Bowman. Well, it certainly is not that there is no
interest. It is just that the risk that is posed by these
events is not more material than other risks that banks face.
Ms. Tlaib. So, 10 years ago, former Bank of England
Governor, Mark Carney, gave a speech titled--it is a very good
speech, I recommend you all--``Breaking the Tragedy of the
Horizon.'' In that speech, Carney noted a unique challenge for
regulators. He said that the impacts of climate change will be
most devastating in the future. Action to minimize those
impacts is required right now, and Carney said, ``One climate
change becomes a defining issue for financial stability, and it
may already be too late.'' Vice Chair Bowman, do you agree with
that quote above?
Ms. Bowman. I do not agree with that quote, no. I think it
overestimates the risk of climate.
Ms. Tlaib. Then would you determine if climate change poses
a threat to financial stability or to the banking system? So,
climate risk is no risk to the financial system.
Ms. Bowman. That is clearly not what I have said in this
conversation, clearly.
Ms. Tlaib. So, you do not believe in what Carney is saying.
Ms. Bowman. I do not agree with what Carney says, no.
Ms. Tlaib. But you believe that climate risk is a
financial----
Ms. Bowman. He is currently a politician in Canada, so it
is hard to get by some of----
Ms. Tlaib. I know, Vice Chair. I think for me, it is the
threat to financial stability and the fact that we do nothing
about it right now.
Ms. Bowman. I would not say we do nothing about it.
Ms. Tlaib. But we have dozens of billion-dollar climate
disasters right now.
Ms. Bowman. But banks do manage the risks that are posed by
climate events.
Ms. Tlaib. No, I think they are just waiting for us to bail
them out each time. Earlier this year, Chair Powell testified
at the Senate Banking Committee hearing that due to climate
change, ``If you fast forward to 10, 15 years, there will be
regions of the country where you cannot get a mortgage, okay?
There will not be ATMs, or banks will not have branches or
anything like that.'' Vice Chair, do you believe the Fed need
to wait for such impacts before taking action, because I think
in some places, some people cannot even get insurance right
now.
Ms. Bowman. The Federal Reserve is not an insurance
regulator. The States are the regulators for the insurance
industry.
Ms. Tlaib. So, the Fed will bail out the States.
Ms. Bowman. So, those risks and that policy are the
determination of the State commissioners, and they are
overseeing them.
Ms. Tlaib. So, we are going to wait until all this happens.
We do not really want to consider it.
Ms. Bowman. It is not the Fed's remit.
Ms. Tlaib. I know. Okay. All right. Thank you.
Mr. Downing. The gentlewoman's time has expired. The
gentleman from Indiana, Mr. Stutzman, is now recognized for 5
minutes.
Mr. Stutzman. Thank you, Mr. Chairman, and I appreciate you
all for being here. I am going to limit my time just because I
want Mr. Garbarino to have time here knowing that we have a
stop here. So, I want to jump right in it to Chairman Hill.
Does the FDIC currently have the data necessary to accurately
target and effectively implement any of the current deposit
insurance reform proposals?
Mr. Hill. I would quickly make a couple of points, and I
would first say, we do not have granular deposit data that
would inform us on how many deposits are above or below certain
thresholds above the $250,000 limit. That being said, I think
under any circumstance, even if we had perfect data, any
projections we would make would still have uncertainty because
what we would not know is to what extent deposits would
potentially move either from interest bearing accounts to non-
interest bearing from banks that potentially have access to the
expanded coverage from those that do not. So, I think there is
going to be uncertainty no matter what.
Mr. Stutzman. Let me jump in here real quick, and you can
maybe even finish that thought but when you appeared before the
Senate Banking Committee, you shared your views with Senator
Alsobrooks that raising deposit insurance coverage would not
significantly increase assessment costs for banks, despite also
saying that necessary data was not there and unnecessary
depositor behavior could shift things. Can you share how you
came to the conclusion that banks' assessments would not rise?
Mr. Hill. Sure. The position that I have taken is it is
possible that we might not need to raise assessments based on
the way that the Hagerty-Alsobrooks bill is structured. The way
that they do it is they would have the increase in deposits
phased into the reserve ratio over a 10-year period, and so I
think when we think about the costs, there are a couple of
elements to it. One is the mechanical piece, which is what is
the technical impact on the reserve ratio? Based on the
projections that we have, which, again, are subject to
significant uncertainty due to data limitations and also just
potential behavioral changes that could occur, but the
projections we have suggest that it might be the case that the
reserve ratio would grow more slowly rather than decline.
Then there is the other piece of it, which is the more
fundamental piece, which is to what extent does this increase
the exposure of the deposit insurance fund over the long-term,
and I think that is also something where there are
considerations on both sides of it. The FDIC is not a typical
insurance company in the sense that when banks fail, we rarely
pay insured deposits. Usually, we resolve failed banks by
essentially selling the failed institution to the highest
bidder and insured deposits, in particular, non-interest-
bearing insured deposits tend to have a lot of value to
potential acquirers. So, increasing the amount of insured non-
interest-bearing transaction accounts could increase the value
of those failed institutions, which potentially could bring
cost down.
The flip side to that is, effectively, you are increasing
the cost of liquidation. So, if you do not have an acquirer,
the sort of tail risk of the maximum amount the FDIC might pay
will go up, so those are a couple of the main considerations,
but, again, I think it is going to be a complicated thing to
project out but I think there is at least some justification to
not raising assessments if the reserve ratio did not decline.
Mr. Stutzman. Okay. Thank you. I am going to yield back the
balance of my time.
Mr. Downing. The gentleman yields. Just for situational
awareness, we are going to recognize the gentlewoman from
Georgia and then Mr. Garbarino from New York, and then we are
going to adjourn. So, now the gentlewoman from Georgia, Ms.
Williams, is recognized for 5 minutes.
Ms. Williams of Georgia. Thank you and thank you Chairman
Hill and Ranking Member Waters for holding this hearing.
You all, I represent Atlanta, which has one of the largest
racial wealth gaps in the country, and I was proud of our
regulators' commitment to fostering inclusive economic growth
and resilience, not only in Atlanta, but in communities across
our Nation during the previous administration. Regrettably, the
strides that we have made are now in jeopardy. Last year when
we met with our prudential regulators, many of my Democratic
colleagues reiterated one thing: implementing a Project 2025
agenda in the financial service space means risking our
economy, favoring billionaires, and advancing priorities that
will systemically hurt millions of Americans in the middle
class or worse. Basically, it is exactly what you guys said, we
should not be weaponizing our financial systems.
Fast forward, and our current President has so far acted in
line with those same exact Project 2025 recommendations:
eliminating key agencies or virtually eliminating key agencies
or drastically reducing things like the CFPB and the Minority
Business Development Agency. So far, most of the President's
actions have been devastating to marginalized communities
across the country, particularly impacting economic mobility.
Even worse is the President's attempt to undermine and
influence our prudential regulators who are meant to be
independent.
Earlier this year, I joined with my colleagues, Congressman
Emanuel Cleaver and Congressman David Scott, and sent a letter
to the FDIC, to you, Mr. Hill, and voiced our concerns over
DOGE's attempt to fire employees and merge the FDIC with other
banking regulators. We never heard a response, but since we did
not hear a response and we have you here before us today, I am
going to ask you a few of those questions that were in that
letter.
Mr. Chairman, I would like to ask for unanimous consent to
insert the letter that we sent on March 28 for the record.
Mr. Downing. Without objection.
[The information referred to can be found in the appendix
on page 118.]
Ms. Williams of Georgia. Chair Hill, my district is home to
FDIC's Atlanta Regional Office. Earlier this Congress, there
were reports that over 700 workers were fired or forced to
accept buyouts, while 170 probationary employees were
terminated without recourse. Can you provide an update on the
status of those employees that were shuttered from work, and
can you share how many employees were impacted in the Atlanta
Regional Office?
Mr. Hill. Congresswoman, I would have to get back to you on
specific numbers. It is certainly not true that 700 employees
were fired. That definitely did not happen. We certainly try to
respond to all letters that we receive questions, and so if you
did not get a response, then I want to apologize for that, and
we will make sure to respond to any questions that you have
sent us.
Ms. Williams of Georgia. So, we have submitted all of the
questions for the record, and I do hope that I get a response,
and I figured you would not have an answer today, but since you
have had since March 28, it is unfortunate that I still cannot
get answers to those questions.
Mr. Hill, I understand that you are serving as the acting
chair, serving on the Board with prior FDIC experience, so I
would imagine that you know a little bit about how important
the work of FDIC staff and their examiners are. Speaking from
your experience, what would be the consequences of the FDIC not
having enough experienced examiners and managers? What would be
the consequences of not having enough staff to conduct
oversight, which is a key role in this position?
Mr. Hill. I certainly agree with that. Having qualified and
experienced safety and soundness examiners is core to one of
our primary missions, which is promoting the safety and
soundness of financial institutions that we supervise, and so
we very much value the experienced workforce that we have. As I
mentioned to one of the Congresswomen earlier, we are taking a
number of steps to try to ensure that we are able to retain our
experienced examiners.
Ms. Williams of Georgia. FDIC independence, as you know,
ensures that banks remain financially strong and continue
serving the communities that many constituents and minority-
owned businesses rely on. Some of my colleagues on the other
side may make it about politics but ensuring that the FDIC has
the staff capacity to supervise 4,000 community banks seems
like good policy to me, not just politics. Another issue my
colleagues and I have concerns with are the reports alleging
that the administration has looked into ways to influence the
FDIC behind the scenes, including through unprecedented
involvement by the White House. With the CFPB being gutted,
attempts to fire Democratic board members at NCUA and the Fed,
it is clear that the Trump Administration wants to influence
our banking regulators with this policy. Mr. Hill, have you
heard discussions recently with the White House being involved
with the rulemaking process?
Mr. Hill. We have a process for issuing our rules. We have
a board. It goes through our board process. We do coordinate
with other agencies as appropriate, and that is something we
continue to do.
Ms. Williams of Georgia. Mr. Hill, I have many more
questions in the letter and that have evolved since March 28.
Mr. Downing. The gentlewoman's time has expired.
Ms. Williams of Georgia. I will submit them all and I
really would appreciate a response. Thank you, Mr. Chairman. I
yield back.
Mr. Downing. The gentlewoman yields back. The gentleman
from New York, Mr. Garbarino, is now recognized for 5 minutes.
Mr. Garbarino. Thank you, Mr. Chairman, and thank you all
the witnesses for being here today. It is almost over for you
all. I am going to go quickly.
Ms. Bowman, your predecessor had a lot of bad ideas and
proposals that, thankfully, for our economy, those changes were
not finalized. One of them I want to talk about is the
mathematical function that determines capital requirements for
securitization exposures, known as p-factor or penalty factor.
Your predecessor proposed doubling this surcharge from 50
percent to 100 percent even though he had no data or analysis
to support it, and some would say the existing p-factor is
intentionally highly punitive toward securitization.
I asked Chairman Powell when he was here about this and
whether or not they would consider changing it. He was unable
to give me an answer when he was here back in February. So,
rather than rubber stamping the Biden-era p-factor rate, will
you commit to revisiting the p-factor for securitization by
examining the data, quantitative analysis, and impacts on
consumers through the cost and availability of credit for U.S.
households and businesses?
Ms. Bowman. I can assure you that we are taking a
completely fresh look at our responsibilities to implement the
Basel III framework and that we are reviewing all of the
comments that were received. There were hundreds of comments
and that we will be reflecting on many of those in that
proposal, and I would be happy to review the issue that you
have raised. We want to make sure that there is empirical
evidence that supports the issues or the calibrations and the
factors that are included within the capital framework.
Mr. Garbarino. I appreciate that answer, and I really do
thank you for your continued work on the Basel re-proposal, and
I want to switch gears just a little bit, talking about the
Basel re-proposal. I want to encourage you to look at,
carefully consider the impact of foreign banking organizations
and the role they play in the U.S. financial services industry,
specifically in New York, which I represent, has over, I
believe, 200,000 employees of foreign banking organizations
(FBOs). I just want a commitment also that your re-proposal
will take into account the business models of foreign banks and
also appropriately align the actual risks, operational and
otherwise, posed by FBOs.
Ms. Bowman. I appreciate you raising that issue, and, yes,
it is definitely something that we are reviewing and
considering.
Mr. Garbarino. I appreciate that, and I am going to yield
really quick, so he can ask a question to my colleague from
Nebraska, Mr. Flood.
Mr. Flood. I thank the gentleman from New York for the
opportunity. I will be brief. On October 7, the OCC and the
FDIC published a notice of proposed rulemaking where you were
defining ``unsafe or unsound practice'' under Section 8 of the
FDIC Act, and, Comptroller Gould, let us start with you. If the
definition you have jointly proposed were in place in 2022, do
you feel it would have changed the way examiners would have
been looking at the Silicon Valley Bank before its demise?
Mr. Gould. I do. That level of embedded interest rate risk
on that bank's balance sheet sure seems to me like a material
financial risk.
Mr. Flood. Acting Chairman Hill?
Mr. Hill. I would agree. I think the SVB experience is one
of the key inputs into the motivation to reorient our focus and
so the full intent would have been for the focus to have been
different.
Mr. Flood. Additionally, as part of the OCC-FDIC proposal,
matters requiring attention, or MRAs, must be tied to
circumstances posing material harm to the financial condition
of the institution or a material risk of loss to the deposit
insurance fund. Quickly, for both of you. I know you both feel
strongly that this change will ensure the MRAs remain closely
tethered to the types of material risks that are the core of
safety and soundness. How do you ensure this change does not go
too far in tying the hands of examiners when they see genuine
material problems within an institution?
Mr. Gould. Well, again, I think it ties into material
financial risks, which are the risks that we really cannot
afford to miss, but, of course, supervisors have other tools
available, including the ability to still cite banks for actual
violations of law.
Mr. Flood. Chairman Hill?
Mr. Hill. We put a lot of thought into how the definitions
were worded and how they were described in the preamble of the
proposal. It is a proposal now. We are receiving comments. We
look forward to getting the comments back, but we will
certainly want to make sure we are striking the right balance
in whatever the final rule is.
Mr. Flood. Striking the right balance, I think, is
important here, and with that, I thank the gentleman from New
York. I yield back to him.
Mr. Garbarino. I also yield back to the chairman. Thank you
all.
Mr. Downing. The gentleman yields. I would like to thank
all the witnesses for your testimony today.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their response. Witnesses, please respond no later than January
7, 2026.
[The information referred to can be found in the appendix.]
Mr. Downing. We have another hearing in this room at 2
p.m., so we ask everyone to exit promptly after adjournment, so
we can prepare the room.
With that, this hearing is adjourned.
[Whereupon, at 1:36 p.m., the committee was adjourned.]
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