[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
INNOVATION AT THE SPEED OF MARKETS: HOW
REGULATORS KEEP PACE WITH TECHNOLOGY
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HEARING
BEFORE THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL
MTECHNOLOGY, AND ARTIFICIAL INTELLIGENCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
SECOND SESSION
__________
MARCH 26, 2026
__________
Serial No. 119-67
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
64-152 PDF WASHINGTON : 2026
=======================================================================
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
------
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND ARTIFICIAL
INTELLIGENCE
BRYAN STEIL, Wisconsin, Chairman
TOM EMMER, Minnesota, Vice Chairman STEPHEN F. LYNCH, Massachusetts,
BILL HUIZENGA, Michigan Ranking Member
WARREN DAVIDSON, Ohio BRAD SHERMAN, California
JOHN W. ROSE, Tennessee BILL FOSTER, Illinois
WILLIAM R. TIMMONS, IV, South JOSH GOTTHEIMER, New Jersey
Carolina AYANNA PRESSLEY, Massachusetts
MARLIN STUTZMAN, Indiana RITCHIE TORRES, New York
BYRON DONALDS, Florida SYLVIA R. GARCIA, Texas
ZACHARY NUNN, Iowa BRITTANY PETTERSEN, Colorado
TROY DOWNING, Montana SAM LICCARDO, California
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
C O N T E N T S
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Thursday, March 26, 2026
OPENING STATEMENTS
Page
Hon. Bryan Steil, Chairman of the Subcommittee on Digital Assets,
Financial Technology, and Artificial Intelligence, a U.S.
Representative from Wisconsin.................................. 1
Hon. Stephen Lynch, Ranking Member of the Subcommittee on Digital
Assets, Financial Technology, and Artificial Intelligence, a
U.S. Representative from Massachusetts......................... 2
STATEMENTS
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 3
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 3
WITNESSES
Mr. Randall Guynn, Director, Division of Supervision and
Regulation, Federal Reserve Board.............................. 4
Prepared Statement........................................... 6
Mr. Jay Gallagher, Senior Deputy Comptroller and Chief of
National Bank Examiner, Office of the Comptroller of the
Currency....................................................... 14
Prepared Statement........................................... 16
Mr. Ryan Billingsley, Director, Division of Risk Management
Supervision, Federal Deposit Insurance Corporation............. 20
Prepared Statement........................................... 22
Ms. Amanda Parkhill, Acting Director, Office of Examinations and
Insurance, National Credit Union Administration................ 30
Prepared Statement........................................... 32
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Sylvia R. Garcia:
Workshop reviews risks to the economy, financial system from
third parties.............................................. 64
Hon. Maxine Waters:
Center for AI and Digital Policy (CAIDP)..................... 68
America's Credit Union....................................... 78
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Bryan Steil
Mr. Ryan Billingsley......................................... 80
Written responses to questions for the record from Representative
Frank D. Lucas
Mr. Randall Guynn............................................ 82
Mr. Jay Gallagher............................................ 84
LEGISLATION
H.R. ----, the Financial Services Innovation Act of 2026......... 86
INNOVATION AT THE SPEED OF MARKETS: HOW REGULATORS KEEP PACE WITH
TECHNOLOGY
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Thursday, March 26, 2026
U.S. House of Representatives,
Subcommittee on Digital Assets, Financial
Technology,
and Artificial Intelligence,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., 2128
Rayburn House Office Building, Hon. Bryan Steil, [chairman of
the subcommittee] presiding.
Present: Representatives Steil, Hill, Davidson, Rose,
Timmons, Stutzman, Nunn, Downing, Lynch, Waters, Sherman,
Foster, Garcia, Pettersen, and Liccardo.
Chairman Steil. The Subcommittee on Digital Assets,
Financial Technology, and Artificial Intelligence will come to
order.
Without objection, the chair is authorized to declare a
recess at any time.
Today's hearing is titled ``Innovation at the Speed of
Markets: How Regulators Keep Pace with Technology.''
Without objection, all members will have 5 legislative days
within which to submit additional material to the chair for
inclusion in the record.
I now recognize myself for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. BRYAN STEIL, CHAIRMAN OF THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND
ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM WISCONSIN
We meet at a moment when the pace of technological change
is not just accelerating, it is redefining the very foundations
of our financial systems. Innovation in areas like artificial
intelligence, digital assets, and real-time payments is
reshaping how Americans save, how they invest, and how they
transact.
The question before us is not whether this transformation
will occur: It will. The real question is whether our
regulatory framework is prepared to meet the moment. Regulators
must evolve as quickly as the technologies that they oversee. A
static approach to supervision in a dynamic environment is a
recipe for failure.
Agencies need the tools, expertise, and flexibility to
understand the emerging risks without stifling innovation and
the innovation that drives our economic growth. That means
embracing new supervisory technologies, investing in talent,
and engaging directly with innovators, not as adversaries, but
as partners in building a safer and more resilient system.
At the same time, we must be clear that fostering
innovation is not optional. It is essential to maintaining the
United States' global leadership. If we fail to create an
environment where financial institutions and entrepreneurs can
reasonably innovate, that innovation will simply move
elsewhere. With it will go jobs, investment, and influence over
the standards that will govern the future of financial markets.
We should want the next generation of financial technologies to
be developed here in the United States, grounded in
transparency, accountability, and the rule of law.
Regulators cannot and should not navigate this moment
alone. Congress has an absolutely important role to play. We
must provide clear direction to ensure that agencies approach
innovation in a consistent, accountable, and transparent
manner. Fragmentation and uncertainty serves absolutely no one.
Through thoughtful oversight and, where necessary, legislative
action, we can establish guardrails that both encourage
innovation and protect consumers. Our responsibility is to
strike that balance. If we get this right, we will not only
keep pace with change, but we will also secure America's
leadership in the financial system.
I want to thank our witnesses for being here today, and I
look forward to today's discussion.
Chairman Steil. I will now recognize the ranking member of
the subcommittee, Mr. Lynch, for 4 minutes for his opening
statement.
OPENING STATEMENT OF HON. STEPHEN LYNCH, RANKING MEMBER OF THE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, AND
ARTIFICIAL INTELLIGENCE, A U.S. REPRESENTATIVE FROM
MASSACHUSETTS
Mr. Lynch. Thank you very much, Mr. Chairman. Thank you for
holding this hearing. I want to thank our witnesses for your
willingness to testify. We are grateful for your expertise and
your perspective.
Mr. Chairman, also as ranking member of the subcommittee, I
have had the opportunity to participate in multiple hearings on
financial technology (fintech) innovation and new products and
new technologies. I want to be clear that I wholly embrace the
idea that innovation in financial services can be a tremendous
good. New tools and new products can actually expand access to
credit and capital, lower cost to consumers, and help families
build financial security but that promise, I believe, depends
on whether new products serve those goals and whether adequate
consumer protections are in place to ensure that they do.
I am concerned that recent regulatory developments suggest
where we might be moving in the opposite direction, at the
direction of this White House. Under the Trump Administration,
agencies are doing the opposite. The Securities and Exchange
Commission (SEC) has dismantled several of the teams that are
responsible for managing the incidents of scams and frauds. The
White House has dismantled the Strategic Hub for Innovation and
Financial Technology (FinHub), which is the dedicated office
that built the agency's technical expertise on digital assets
and fintech and related to crypto, there is no cop on the beat.
The SEC has dropped most of the cases that they have had
against firms that had been charged with misconduct.
At the Consumer Financial Protection Bureau, whose very
mission is to ensure industry compliance with Federal consumer
protections, the Trump Administration has gutted the agency by
sending layoff notices to over 1,500 employees.
Even at this hearing--and I appreciate you can only have a
panel of a certain size because of the length of the hearing.
We do not have the Consumer Financial Protection Bureau (CFPB)
here. We do not have the SEC here, which are the two agencies
that would bring enforcement actions to protect those consumers
and investors.
Mr. Lynch. With that, Mr. Chairman, I appreciate your
willingness to bring--this is an important issue. I am grateful
that we are bringing this up.
I will yield my remaining time to the full committee
ranking member, Ms. Waters of California.
STATMENT 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. Chair, I am deeply disappointed in the Committee
Republicans' decision to exclude the Consumer Financial
Protection Bureau's testimony at today's hearing and how the
Federal financial regulators are approaching innovative
technologies. While the chairman has said he would invite
Acting Director Vought to testify, we are still waiting for his
long overdue testimony and the chance to hold them accountable.
Last Congress, we heard from agencies on how they are
engaging with newer technologies. Yet, today, Republicans did
not even bother inviting the one agency dedicated to consumer
protection.
Now, while I am disappointed, I am not surprised. The Trump
Administration and House Republicans have done everything they
can to silence the Consumer Financial Protection Bureau, our
consumers' biggest advocate. While these are dark days for the
CFPB and the American consumer, I am hopeful change is coming
this November and if you like, you have the chair. Why do you
not tell us why you did not invite them?
I yield back.
Chairman Steil. The gentlewoman yields back. The gentleman
yields back. I now recognize the chairman of the full
committee, Mr. Hill, for 1 minute for an opening statement.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Chairman Hill. Thank you, Chairman Steil.
Today's hearing focuses on a critical challenge for our
financial system. Financial innovation is accelerating rapidly.
Federal agencies have to keep pace with these new technologies,
and that is a challenge inside a big Federal compliance and
supervisory bureaucracy.
This raises important questions about whether the agencies
have the structure and the expertise to respond effectively,
and we must ensure that our regulators evolve alongside the
markets, the very markets that they oversee. That means
examining how agencies organize their innovation efforts and
ensure strong coordination with industry and technical leaders,
whether through dedicated offices, embedded capabilities, or
designated leadership.
It also requires that agencies have the technical capacity
to fulfill their mandates while enabling emerging technologies
to flourish here in the U.S. I look forward to today's
discussion on how we can make that regulatory approach stronger
and more agile and promote innovation to ensure that America
leads the world in financial technology.
Thank you, Mr. Chairman. I yield back.
Chairman Steil. The gentleman yields back.
Today, we welcome the testimony of four witnesses. First,
we have Mr. Randall Guynn, the director of the Division of
Supervision and Regulation at the Federal Reserve Board. We
have Mr. Jay Gallagher, the senior deputy comptroller and chief
national bank examiner at the Office of the Comptroller of the
Currency. We have Mr. Ryan Billingsley, the director of the
Division of Risk Management Supervision at the Federal Deposit
Insurance Corporation. We have Ms. Amanda Parkhill, the acting
director of the Office of Examinations and Insurance at the
National Credit Union Administration.
We thank each of you for taking your time to be here. 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.
I will now start with you, Mr. Guynn. You are recognized
for 5 minutes for your opening remarks.
STATEMENT OF RANDALL GUYNN, DIRECTOR, DIVISION OF SUPERVISION
AND REGULATION, FEDERAL RESERVE BOARD
Mr. Guynn. Thank you very much.
Chairman Steil, Ranking Member Lynch, and other members of
the subcommittee, thank you for allowing me to testify today on
behalf of the Federal Reserve Board.
The Board recently announced that it intends to facilitate
innovation in a manner consistent with safety and soundness and
preserving U.S. financial stability. Innovation can improve the
customer experience; expand product offerings; lower costs;
increase credit availability; enhance efficiencies for banks,
businesses, and customers; and support economic growth.
Innovation is not without risk, however, and the Federal
Reserve is committed to its mission of identifying and
encouraging firms to mitigate any risks that threaten their
safety and soundness or that threaten U.S. financial stability.
Banks are generally free to choose their own business
models and risk profiles, but when their activities threaten
safety and soundness or financial stability, examiners act like
referees in a soccer match who raise yellow or red cards in the
form of supervisory observations, matters requiring attention,
enforcement actions, or other supervisory measures.
One way to strike the right balance between facilitating
innovation and protecting the safety and soundness of the
banking system is to be more transparent and encourage feedback
from the public. We do this when we propose new rules because
the Administrative Procedure Act requires us to provide public
notice and comment, but most of our supervision is hidden from
public view. To receive public feedback on our supervision, we
need to voluntarily lift the curtain so that more of our
supervision is visible to the public.
The vice chair for supervision and I are deeply committed
to making our supervision more transparent and publicly
accountable. We demonstrated that commitment by releasing to
the public in November our Statement of Supervisory Operating
Principles. We demonstrated it again in January when we
published the operating manuals for supervising the largest and
most complex banking organizations. We will continue to
demonstrate this commitment by releasing to the public many
other procedure manuals and instructions to staff that have
previously been kept confidential.
My written testimony focuses on three areas, artificial
intelligence, digital assets, and bank fintech partnerships.
Artificial intelligence (AI) can improve operational
efficiencies and enhance risk management capabilities. To
facilitate the deployment of AI tools, Federal Reserve staff
are working to better understand the available and emerging
technologies. We are also exploring potential use cases to
improve our own assessment and supervision of banking risk.
Digital assets can offer many benefits to both banks and
their customers. For example, payment stablecoins and tokenized
deposits hold the potential to enable faster and cheaper
payments. The Federal Reserve has taken a number of steps to
better enable banks to engage with digital asset technologies.
Looking ahead, we are considering how to provide additional
clarity for banks that want to engage in digital asset
activities.
Bank fintech partnerships can provide a channel for banks
of all sizes to access new technologies. They can promote a
level playing field by allowing community banks to compete with
larger banks that have more resources to invest in their own
technologies.
Thank you again. I look forward to any questions you may
have.
[The prepared statement of Mr. Guynn follows:]
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Chairman Steil. Thank you very much.
Mr. Gallagher, you are now recognized for 5 minutes for
your opening remarks.
STATEMENT OF JAY GALLAGHER, SENIOR DEPUTY COMPTROLLER AND CHIEF
OF NATIONAL BANK EXAMINER, OFFICE OF THE COMPTROLLER OF THE
CURRENCY
Mr. Gallagher. Chairman Steil, Ranking Member Lynch, and
members of the subcommittee, 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 one of
Comptroller Gould's strategic priorities, which is supporting
and keeping pace with responsible innovation within the Federal
banking system.
The Office of the Comptroller of the Currency (OCC) was
founded more than 160 years ago to ensure a safe, sound, and
fair national banking system. Today, the OCC supervises more
than 1,000 institutions that hold $17.9 trillion in assets, 2/3
of all U.S. commercial banking assets, and have more than $90
trillion in assets under administration.
Since joining the OCC in 1992, I have had the opportunity
to supervise banks of all sizes and complexities. Today, I
serve as the senior deputy comptroller and chief national bank
examiner. In this role, I lead the chief's office in efforts to
develop risk analysis, policy, and data and systems management
that support bank supervision. I also oversee the Office of
Financial Technology, which supports innovation by facilitating
industry engagement on bank fintech partnerships, artificial
intelligence, digital assets, tokenization, and other emerging
technologies.
The OCC plays a central role in facilitating and defining
responsible innovation across the Federal banking system.
Accordingly, the OCC is improving how it evaluates new products
and services, identifies potential risks, and serves as a
resource to banks as they support a healthy U.S. economy.
Specifically, the OCC champions safe and sound innovation
through its chartering process, through its approach to digital
assets and artificial intelligence, and by facilitating bank
and technology firm relationships and partnerships.
The OCC is uniquely responsible for chartering national
banks. Renewed interest in chartering is a welcome return to
the norm and a sign of a healthy banking system. As a
technology-neutral regulator, the OCC evaluates all applicants
in an even-handed fashion based on their proposed activities
and consistent with applicable law and regulations.
The technology that an applicant employs to deliver
financial services and products should not determine whether an
application for a charter is approved or denied. A decision
should be made based on whether an applicant meets the
applicable standards and can comply with the OCC's high
supervisory expectations.
With respect to digital assets, the OCC fosters safe and
responsible innovation by first providing a supervisory
environment for digital asset-focused businesses to grow
safely; next, clarifying banks' ability to engage in permitted
digital asset activities, including through a first-of-its-kind
payment stablecoin regime under the Guiding and Establishing
National Innovation for U.S. Stablecoins (GENIUS) Act. Digital
assets and distributed ledger technology offer banks new
opportunities to remain dynamic and competitive.
As adoption rates increase at OCC-supervised banks, our
goal is to ensure banks understand, manage, and mitigate their
risks appropriately. Consistent with that goal, the OCC aims to
foster an environment that provides new and existing banks of
all sizes and opportunities to engage with payment stablecoins
in a safe, sound manner.
Last month, the OCC issued a notice of proposed rulemaking
to implement the GENIUS Act. We look forward to stakeholders'
comments as we implement the law's requirements.
In addition to implementing a Federal framework for
permitted payment stablecoin issuers, the OCC is facilitating
the adoption of artificial intelligence by interested banks to
improve business functions. The use of AI among banks is not
new. However, recent developments, particularly generative and
agentic AI, offer banks opportunities to automate and improve
core operational, customer service, and other activities in
novel ways. As these technologies evolve, the OCC aims to
ensure adoption proceeds in a manner consistent with safety,
soundness, and applicable law.
Many banks utilize third-party technology providers to gain
a competitive edge in a rapidly evolving marketplace. As the
market continues to evolve, the OCC is actively developing
regulatory approaches that right-size supervisory expectations,
emphasize institution-specific risk management, and position
the OCC to support community banks that utilize these
relationships.
The Federal banking system must remain dynamic,
competitive, and fair. By providing banks with a path to safely
embrace new technologies and modernizing supervision, the OCC
is ensuring the long-term relevance of the Federal banking
system. The OCC remains committed to engaging with Congress,
the public, and other stakeholders on the policies and
priorities outlined in my testimony.
I look forward to answering your questions.
[The prepared statement of Mr. Gallagher follows:]
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Chairman Steil. Thank you very much, Mr. Gallagher.
Mr. Billingsley, you are now recognized for 5 minutes.
STATEMENT OF RYAN BILLINGSLEY, DIRECTOR, DIVISION OF RISK
MANAGEMENT SUPERVISION, FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Billingsley. Chairman Steil, Ranking Member Lynch,
members of the subcommittee, I am pleased to appear before you
at today's hearing to examine how Federal bank regulators are
keeping pace with technology and innovation.
Fostering innovation in the banking system and embracing
technology in our internal operations are critical to
fulfilling the Federal Deposit Insurance Corporation's (FDIC's)
mission. As technologies like artificial intelligence and
distributed ledger technology are being developed and deployed
across the economy, it is essential that we enable banks to
adopt these and other technologies while maintaining our
expectations that they conduct their activities in a safe and
sound manner and in compliance with consumer protection laws.
The FDIC takes a technology-neutral, open-minded approach
to innovation that strikes the right balance between prudent
risk management and evolving with the times. Supervision reform
has been a significant area of focus for the FDIC over the past
year, and as part of that effort, we are taking steps to
support bank adoption of new technologies that remove
unnecessary involvement from supervisory staff.
We are seeing banks adopt a range of technologies to
improve operational efficiencies, expand product offerings to
meet customer needs, and enhance customer interactions. Banks
are increasingly using AI and machine learning in several
areas, including fraud detection, anti-money laundering (AML)
processes, and credit underwriting. Banks are testing and
implementing new technologies to help bank staff respond to
customer questions, summarize customer service calls, and
summarize loan applicant financial information. Banks are
providing banking services to cryptoasset entities, and we
expect additional use cases to continue to emerge in all of
these areas.
A critical component of banks' adoption of technology
pertains to their ability to engage and partner with third
parties. We are evaluating a number of options to reduce
regulatory barriers to banks' relationships with third parties,
including working to update examination guidelines and refocus
our priorities on material financial risks.
Under Chairman Hill's leadership, the FDIC has taken a more
open-minded approach to banks seeking to engage in digital
asset activities while maintaining our supervisory expectation
that these activities, just like any other activity, be
conducted in a safe and sound manner.
Last year, the FDIC rescinded a prior notification
requirement for banks removing a barrier to responsibly
participating in permissible cryptoasset activity. The FDIC
recently issued a proposed rule to implement elements of the
GENIUS Act that would establish a framework for FDIC-supervised
banks to issue payment stablecoins. Consistent with the act, we
expect to propose prudential requirements for FDIC-supervised
payment stablecoin issuers soon, and we look forward to
receiving comments on that proposal.
Just as the FDIC must allow banks to adopt new technologies
that enhance the efficiency of their operations, it is critical
that the FDIC's own technology adoption keeps pace. The FDIC
continues to advance a multiyear information technology (IT)
modernization initiative designed to enhance the agency's
technology environment. We are also piloting AI for internal
staff use and expect to roll tools out to the workforce later
this year. We are investing in workforce training to support
the adoption of AI and other technologies.
In closing, I would like to thank and acknowledge the team
at the FDIC for their dedication, professionalism, and ongoing
ability to deliver on the FDIC's mission. It is an honor to be
associated with them and serve alongside them.
Again, I appreciate the opportunity to appear before you
today and am happy to answer any questions.
[The prepared statement of Mr. Billingsley follows:]
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Chairman Steil. Thank you very much, Mr. Billingsley.
Ms. Parkhill, you are now recognized for 5 minutes.
STATEMENT OF AMANDA PARKHILL, ACTING DIRECTOR, OFFICE OF
EXAMINATIONS AND INSURANCE, NATIONAL CREDIT UNION
ADMINISTRATION
Ms. Parkhill. Chairman Steil, Ranking Member Lynch, and
members of the subcommittee, thank you for inviting me to
discuss the efforts of the National Credit Union Administration
(NCUA) to encourage innovation in financial technology.
NCUA's mission is to enable access to financial services by
facilitating safe, sound, and resilient credit unions. In
meeting this mission, NCUA is aware that overregulation can
stifle innovation and growth.
Last December, NCUA launched the NCUA Deregulation Project,
a long-term initiative aimed at methodically reviewing all
regulations and revising them as needed, with the initial focus
on any that are obsolete, duplicative of statute, intended to
serve as guidance, or unduly burdensome. Currently, there are
15 notices of proposed rulemaking available for public comment
in the Federal Register.
NCUA is unique among regulators, serving as both a
regulator and insurer. There are approximately 4,300 federally
insured credit unions that serve 145 million members. This
includes over 2,600 federally chartered credit unions and
nearly 1,600 state-chartered credit unions.
As cooperatives, credit unions are well positioned to
embrace the spirit of innovation, finding new ways to maximize
efficiencies, pool resources, and meet member needs. Credit
unions understand the connection between financial technology
and inclusion. They have a long history of embracing
technologies that enhance member service, including AI-powered
tools for loan underwriting, virtual assistance, and fraud
detection.
The financial services industry is rapidly evolving with
advances in AI, blockchain, and digital assets. NCUA is
committed to supporting credit unions as they evaluate and
implement these technologies. To that end, the agency added an
AI resources page to our website in August 2025, and it
includes use cases, AI implementation, risk management, data
security, and cybersecurity risks.
NCUA actively seeks stakeholder feedback on challenges
related to technology adoption, which include regulatory
interpretation, due diligence burdens on smaller firms,
restrictive long-term contracts with service providers, and
limited application programming interface (API) access that can
make integration difficult for smaller institutions. These
insights inform NCUA's ongoing work to ensure our regulatory
framework supports responsible innovation.
In December 2024, the NCUA Board voted to integrate
financial technology expertise into the agency's Examination
and Supervision Program, a key component of safeguarding the
Share Insurance Fund. This realignment ensures our supervisory
staff can effectively assess new technologies and their
associated risks and opportunities.
Beyond supervising how credit unions adopt technology, NCUA
is also exploring how technology can enhance our own
operations. NCUA is using AI for content generation to flag
anomalies in call report data submissions, forecast loan
performance to support risk analysis, identify credit unions
with elevated risk, and enhance cybersecurity operations. NCUA
is also evaluating opportunities through the General Services
Administration's USAi Shared Services, which provides Federal
agencies with access to multiple AI models in a federally
secure environment. An internal working group is assessing the
various tools, including estimated costs, use cases, and
security and privacy considerations. These collaborative
efforts will inform our strategy and decisions about deploying
additional AI capabilities.
The GENIUS Act establishes a comprehensive framework for
payment stablecoins. Under the framework, federally insured
credit unions may issue payment stablecoins through a
subsidiary subject to NCUA licensing, governance standards,
reserve requirements, and anti-money laundering controls. NCUA
has moved promptly alongside our fellow regulators to implement
this law. On February 11, we published a notice of proposed
rulemaking establishing the application requirements for credit
unions and their subsidiaries seeking approval to become
permitted payment stablecoin issuers. The public comment period
closes on April 13, and stakeholder input is welcome as we
develop this framework.
A forthcoming rulemaking will address issuer standards,
including reserves, capital, liquidity, and risk management
requirements, and we are working toward meeting Congress'
deadline, ensuring that credit unions are not disadvantaged
compared to other financial institutions.
Thank you, Mr. Chairman. I look forward to the committee's
questions.
[The prepared statement of Ms. Parkhill follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Steil. Thank you very much, Ms. Parkhill. I will
now turn to member questions. I will recognize myself for 5
minutes.
This subcommittee has been exploring new developments,
technology in our financial system from digital assets and
tokenization to AI. New capabilities bring great opportunities
for our markets but also present new risk profiles which the
regulatory frameworks must contend.
I want to go right down the line, two questions, 30 seconds
or less, from each of you, just to stage set if I can. We will
start with you, Mr. Guynn, and work our way down. Can you give
one concrete example of an action your agency has taken to keep
pace with the technological change?
Mr. Guynn. Yes. Late last year, the Federal Reserve Board
issued a new policy statement on innovation where it stated
that it would facilitate innovation as opposed to inhibiting
it, provided that it is consistent with safety and soundness,
and that animates what we are doing.
Mr. Gallagher. Thank you, Chair. At the OCC, we created an
Office of Innovation in 2016 that is now the Office of
Financial Technology, and that is a unit that continues to
serve in that role on advancing in modern technologies and
ensuring that information flows to our field staff as timely
and readily as they can.
Chairman Steil. Thank you.
Mr. Billingsley. I will just add to what my colleague said.
We recently, together with them early this month issued FAQs on
tokenized securities, which I think is informative to capital
requirements for those types of instruments. Basically, they
amount to saying that the capital rules are generally
technology neutral, which I think is useful in this context.
Ms. Parkhill. In addition to guidance, we have issued over
the last several years, earlier this month, our chairman held
multiple roundtables on AI and digital assets to get
information both from credit unions and industry about
challenges and information and resources that would be helpful,
and we are taking that information back and including it in any
future guidance.
Chairman Steil. Thank you very much. I think it is all
about making sure that we are leveraging this technology and
staying a step ahead of it. The human capital is absolutely
essential.
The second question that I want to bring to the table, I
want to dive in a little bit more on AI. Obviously, we know AI
can be used by bad actors, but AI can also be used to prevent
bad actors from being successful in their endeavors to, in
particular, scam consumers across the country.
Same pattern here, we will start with you, Mr. Guynn. What
is the most effective way your respective agency is using
technology like AI to fight fraud?
Mr. Guynn. It is interesting. We have actually put together
a group that focuses on AI. We have actually started using it.
For instance, one of the things we want to do is to look at the
500 or Supervision and Regulation (SR) letters that have been
issued, and AI has been incredibly helpful to identify those
that might need to be repealed that go back to the 1990s, to
summarize them, to provide something that really it would have
taken staff a couple of months to put together, and AI put it
together in a few hours.
Mr. Gallagher. Thank you, Mr. Chair. The OCC has a similar
project internally where we are testing and utilizing new
technologies, including AI, as it relates to evaluating where
we can improve our guidance to the industry. We are not
currently using artificial intelligence directly in
supervision, but we are exploring use cases as a way to enhance
and inform us as we go forward.
Mr. Billingsley. The FDIC is piloting AI right now. I think
the issue you raised, Mr. Chairman, around fraud is a good one.
I think there is some promise there with things like alert
monitoring, transaction testing, those types of things, so
there is some promise there for sure.
Ms. Parkhill. We are using it internally in our cyber
operations, finding it particularly useful in helping to block
threats related to phishing and malicious attachments.
Chairman Steil. Thank you very much. I think, like any new
technology, there is risk and opportunity, and it is about
leveraging the opportunity and working to downsize risk.
I think we have seen a real change from where we are today
from where we were in the Biden Administration where it was
hindering innovation, development, and growth in the private
sector through punitive regulations for emerging technologies.
I think now, under the Trump Administration, the area of
stifling innovation is over. I think we have a real opportunity
to embrace technology to the benefit of consumers and maintain
the United States as the dominant financial markets.
I want to come to you, Mr. Gallagher. You are nonpolitical,
but have you seen a shift in tone at the OCC as it relates to
embracing technology for the benefits that it can bring?
Mr. Gallagher. Thank you, Mr. Chair. As Comptroller Gould
has stated before and continues to reiterate, a failure to
innovate is in itself a significant risk to the banking system.
Consistent with that view, the comptroller has publicly noted
the last administration focused heavily on preventing downside
risk, particularly in areas like digital assets, often at the
expense of innovation. Under the comptroller's leadership, our
agency is focused on partnering with banks to ensure legally
permissible banking activities, including digital asset-related
activities, have a place in the financial system if they are
conducted in a safe and sound manner.
Chairman Steil. Suffice it to say, you have seen a shift in
tone?
Mr. Gallagher. We are clearly embracing the opportunity to
see that the industry can do what they can.
Chairman Steil. Thank you very much. I yield back.
I now recognize the ranking member of the subcommittee, the
gentleman from Massachusetts, Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
Mr. Guynn and Mr. Billingsley, you are both responsible for
supervision. Let me ask you, prediction markets here in the
U.S. have grown from a niche financial product into a major
player in our financial system. Just back in August, there was
a market of about $2 billion. Now it is $18 billion in the
prediction markets and that is just Kalshi and Polymarket.
The Commodity Futures Trading Commission (CFTC) currently
treats prediction markets contracts as financial derivatives
and not gambling, which I believe it should be, but recent
reversals by the agency now allow prediction market services to
offer contracts on items like congressional elections and
different geopolitical events, leading to tens of millions of
dollars being placed on events such as whether there will be a
cease-fire in Iran by June 30. Just that specific question has
about $48 million in total bets right now as we sit here.
This, to me, allows for these platforms to open the door to
insider trading at a scale where key individuals can make a
lifetime of earnings on a single bet using material, nonpublic,
classified, or top-secret information. As the United States and
Israel prepared for and later launched strikes against Iran,
there were traders in these prediction markets online, and they
wagered over $1 billion on every single aspect of that
conflict.
There was a single trader who made nearly $1 million from
dozens of well-timed bets correctly predicting U.S. and Israeli
military operations against Iran, winning about 93 percent of
their five-figure wages on unannounced, classified military
operations. Many of these bets were placed just hours before
the strikes occurred.
Six newly created accounts made approximately $1 million by
correctly betting that the U.S. would strike Iran before
February 28. They bought up cheap contracts just days before
the attack, and investigators in Israel have already indicted
two individuals, including a military reservist, for allegedly
using classified materials to place bets on these platforms.
The danger here is it is not just insider trading. If
insider traders can front-run our military decisions, so can
our adversaries using AI, eventually putting our sons and
daughters in uniform at grave risk. This is not simply a
consumer protection problem, it is a national security problem.
When financial incentives can be created around the timing of
classified military operations, the existence of these markets
may itself create a pressure to leak or, worse, to shape the
decisions of war and peace around trading positions.
Mr. Guynn, the Federal Reserve has a mandate to identify
and address risks to financial stability. In your view, does
this rapid escalation of scaling of prediction markets and the
documented pattern of what appears to be insider trading rise
to the level of systemic risk that is a concern for the Federal
Reserve?
Mr. Guynn. Thank you very much. I am not sure that it does
now. Certainly, we monitor anything that could be a serious
risk to financial stability. As far as I am aware, banks, at
least the institutions that we regulate, are not allowed to
trade in these contracts. I think perhaps they lend to
institutions that are involved in this business so----
Mr. Lynch. Do you think it should be perhaps regulated as
gambling if this is the way it is going to be used?
Mr. Guynn. I do not know if the Federal Reserve would have
a view on that, but----
Mr. Lynch. Okay.
Mr. Guynn [continuing]. that is----
Mr. Lynch. Mr. Billingsley?
Mr. Billingsley. I think I would agree with my colleague. I
do not know if the FDIC has a role to play here, but I would
agree with my colleague as well that I am not aware of any
FDIC----
Mr. Lynch. Mr. Gallagher or Ms. Parkhill, any thoughts on
this?
Mr. Gallagher. Nothing additional.
Mr. Lynch. Okay.
Ms. Parkhill. Nothing.
Mr. Lynch. Mr. Guynn, are the existing legal and regulatory
frameworks sufficient to address the risk? Would you suggest
what Congress might do next to just address this risk of
insider trading?
Mr. Guynn. Well, certainly, I think looking at the SEC, the
SEC I think is the organization that generally regulates
insider trading, so I think----
Mr. Lynch. Yes.
Mr. Guynn [continuing]. you know that is probably the place
for Congress to look----
Mr. Lynch. Yes.
Mr. Guynn [continuing]. or maybe the CFTC.
Mr. Lynch. Ideally, that would be a great question for the
SEC off of CFPB. Maybe we will do that at a future hearing.
Thank you, Mr. Chairman. I yield back.
Chairman Steil. The gentleman yields back.
The chairman of the full committee, the gentleman from
Arkansas who has got a big basketball game to watch tonight,
Mr. Hill, is recognized for 5 minutes.
Chairman Hill. I thank the sensitivity of the chair. I
appreciate that. Go Hogs.
This is a great panel. Thank you for being here. Thanks for
bringing your expertise. Thanks for your decades of service to
a safe and sound banking and credit union system, big deal. You
have devoted your careers to it, so thank you.
When I think back about my service at the Treasury, I spent
a lot of hours in the Federal Financial Institutions
Examination Council (FFIEC) persuading them to do things in a
harmonious way and to try to streamline the compliance process.
As a bank CEO, certainly watch technology flow through both try
to bank expertise and in-the-field examiner expertise, and I
want to thank all your agencies for the dollars you spend on
training and collaboration in that space because it is rapidly
changing, and you do have to teach your examiner force new
tricks and bring them along.
Over the decades, I have seen that transition from the
people who survived the 1980s in Texas and the 1990s in the S&L
crisis and resolution to today's modern post-global financial
crisis examining force, so thank you for the work you have
done.
When it comes to this technology arena, I am interested
particularly in the FDIC and the Federal Reserve (Fed), your
point of view of working with State bank supervisors since you
have got Fed member banks and Fed non-member banks.
If I could start with you, Mr. Guynn, tell me a little bit
about how you work with State bank commissioners on this
technology adaptation issue.
Mr. Guynn. Sure, yes. We just had a conference with the
Conference of State Bank Supervisors (CSBS) where we talked
about a variety of things, including regulating banks. I think
that we have a good relationship. I think we are trying to work
together constructively with them in terms of promoting
innovation in a safe and sound manner and making sure that we
address the financial stability issues that they may raise as
well.
Chairman Hill. Do you sense that when you meet with your
examiner force that they are in a capacity where they really--I
do not want to say they are on the leading edge of it, but I
remember when we went to the cloud and we tried to do internal
and external penetration testing, in some instances the State
examiners were better trained than some of the Federal ones and
vice versa. That is a long time ago now, obviously. Do you
sense that we really have a parallel training level of
expertise in both forces, State and Federal?
Mr. Guynn. I know that we sort of share resources on
training.
Chairman Hill. Yes.
Mr. Guynn. At the Federal Reserve, we do training through
the Federal Reserve Bank of St. Louis. I know that in the
meetings in the last couple of days this week, there was
discussion about sharing training resources to help train
people on all the emerging technologies.
Chairman Hill. Good. Thank you for that.
Mr. Billingsley, do you want to comment on that?
Mr. Billingsley. Certainly. I do have very regular,
recurring conversations with both CSBS and a number of the
commissioners. Their partnership is not only on innovation but
just more broadly about supervision is incredibly important, so
I value that very much.
On the topic of skill sets across the State regulatory
environment, it is my sense that we do work together, we do
train together, we learn from one another, so that partnership
is very, very important.
Chairman Hill. Good. Well, I hope that also takes it
through the FFIEC process to coordinate it, leading with the
OCC as well and NCUA on the exam standards in this process. I
hope you guys and ladies all can stay on the same page. We do
not have a lot of differences there.
In the last minute, I want to talk about one of the most
interesting emerging technologies, which is converting certain
financial services functions to the use of a blockchain, as
opposed to a traditional computer system. I view something like
a dollar-backed stablecoin as a transitional product that is--I
say transitional on purpose because I think the future is going
to be financial institutions actually tokenizing their
deposits.
Could I ask each of you to say, are you working on the
oversight necessary to allow a bank to actually debit cash and
tokenize a deposit on a blockchain? I will start with you, Mr.
Guynn.
Mr. Guynn. In my prior life, I wrote various opinions on
whether it was permissible to tokenize deposits, and mostly
they were positive. What is interesting is that the--and maybe
Mr. Billingsley can talk about this more, but the FDIC chair
gave a speech a week or two ago suggesting that the FDIC is
going to clarify that tokenized deposits can be FDIC insured
just like any non-tokenized deposit.
Chairman Hill. I will stop there. If each of you would
respond to that question in writing, it would be helpful to me.
Thank you, and I yield back, Mr. Chairman.
Chairman Steil. The gentleman yields back.
The gentlewoman from California, the ranking member of the
full committee, Ms. Waters, is recognized for 5 minutes.
Ms. Waters. Thank you very much.
Mr. Gallagher, following the Trump Administration's
military strike in Venezuela this year, Trump disclosed that he
had held conversations with all the oil companies before and
after the raid. This raises an extremely serious and familiar
pattern of insiders appearing to profit ahead of market-moving
Trump Administration decisions. We already saw this before when
public officials with close ties to the administration made
trades prior to major tariff announcements.
I am also worried that by weakening enforcement, there is
no true oversight of potential wrongdoings and regulators
potentially profiting from the use of material, nonpublic
information. Mr. Gallagher, what agency policies are violated
if OCC employees engage in any prediction markets?
Mr. Gallagher. Thank you, Congressman. As a Federal agency,
all of our staff are subject to the Office of Government Ethics
rules as well as our internal policies, so we will follow them
accordingly. Anybody that needs assistance with them, we have
legal support to go through that.
Ms. Waters. I think Mr. Lynch asked you a question that you
had no answer to. Do you recall what he asked you?
Mr. Gallagher. Which question was that?
Ms. Waters. I will yield to you, Mr. Lynch, for that
question. Yes, you asked Mr. Gallagher a question that he had
no answer to.
Mr. Lynch. Sorry for the crossfire. It was a question
regarding the prediction markets, and probably a better
question for the SEC or CFPB, who are not here today.
Ms. Waters. Mr. Gallagher, are you at all concerned that
agency policies are being violated? Are you really concerned?
What are you going to do about it?
Mr. Gallagher. Congresswoman, I assume you are talking
about Congressman Lynch's questions on prediction markets.
Again, the OCC does not have rules on those, and it is not our
place to make rules. To the extent exposures or risks would
come into the banking system, we certainly would, as we would
with any safety and soundness issue, take appropriate efforts
to ensure we understand it and make sure the banks are
complying with applicable law.
Ms. Waters. Continuing, since the explosion of prediction
markets in the fall of 2024, especially betting on political
events, how is the agency responding?
Mr. Gallagher. Thank you, Congresswoman. The agency is not
responding. That is not our--unless it is in the banking system
or within the context of your question, our staff, again, would
come under the rules and expectations of our ethics officials
and our legal department.
Ms. Waters. Are you telling us your agency is not
increasing its oversight of agency employees, profiting from
the use of material, nonpublic information?
Mr. Gallagher. Thank you, Congressman. I am not
particularly aware, but I believe that is probably best
directed at our chief counsel's office, and I would be happy to
get you a response.
Ms. Waters. Mr. Guynn, yes or no answer, please. Is your
agency increasing its oversight of agency employees, profiting
from the use of material, nonpublic information?
Mr. Guynn. I think we have always and continue to oversee
and have rules so that they do not engage in insider trading
and trade on material, nonpublic information.
Ms. Waters. Mr. Billingsy, what about you?
Mr. Billingsley. Likewise, I agree with my colleague from
the Fed.
Ms. Waters. Ms. Parkhill, what about you?
Ms. Parkhill. I think this would be a question for our
ethics office of any training that would be provided on top of
current expectations.
Ms. Waters. Mr. Guynn, on October 21, 2025, Fed Governor
Christopher Waller announced that the Fed is looking at
providing so-called ``skinny'' Fed master account to
potentially allow eligible firms to have direct access to Fed
payment rails, though without the full suite of services that
banks typically get. This has resulted in opposition from bank
and trade groups, including the Bank Policy Institute, American
Bankers Association, and Independent Community Bankers of
America, who argue that standards should be consistently
applied across reserve banks. Additionally, the Federal Reserve
Bank of Kansas City recently approved Kraken, a crypto company,
for access to a Fed master account.
Mr. Guynn, how are you responding to these concerns?
Mr. Guynn. Well, we have a request for information out on
the proposed skinny master account, so everyone will have an
opportunity and be very visible to see what the public comments
are on that. And----
Chairman Steil. The gentlewoman's time has expired. The
gentleman can----
Ms. Waters. Thank you. I yield back. I wish we had more
time. You guys are not----
Chairman Steil. The gentlewoman yields back.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Chairman Steil and Ranking Member
Lynch, for holding this important hearing, and thanks to our
witnesses for your time today.
Mr. Billingsley, you noted that small banks in particular
rely on third-party relationships to access innovative
technologies, and that the FDIC is reevaluating guidance and
updating examination practices around those relationships. How
do you see reducing unnecessary regulatory friction in bank
third-party partnerships helping small banks adopt new tools
and what is the FDIC doing to ensure that this kind of
innovation can flourish in the U.S.?
Mr. Billingsley. Thank you. Two things come to mind. First,
we are considering updating outstanding guidance on third-party
risk management standards more generally to see if we can
better tailor that, particularly for our community banks. I
think, second, we have taken a more open-minded approach over
the last 12 to 18 months with respect to banks' engagement with
third parties, which I believe has helped to remove any barrier
that might have been there for banks that wanted to adopt that
sort of partnership or that sort of engagement with a third
party.
Mr. Rose. When you say considering updating guidance, do
you mean you are in the process of updating guidance, or are
you evaluating whether or not you should update guidance?
Mr. Billingsley. We are in the process.
Mr. Rose. Okay. Very good. Ms. Parkhill, I recently read a
McKinsey article about how emerging agentic AI tools could help
financial institutions better detect and prevent financial
crimes. I believe these kinds of technologies have tremendous
potential to strengthen the safety and soundness of our banking
and credit union system. What is NCUA doing to ensure that the
adoption of promising anti-fraud and financial crime-fighting
AI tools is not slowed down by unnecessary regulatory red tape?
Ms. Parkhill. The first thing is we have a consistent
message that we encourage credit unions to use innovative
technologies in a safe and sound manner to be more efficient
and effective in their operations and we are looking at all of
our regulations right now through our Deregulation Project to
ensure that there are not any prohibitions or requirements that
would prohibit credit unions from using technology in that way.
Mr. Rose. Thank you. Is it your sense that in reviews or
audits that your examiners, are they encouraged to kind of have
an open mindset about what the institutions are doing?
Ms. Parkhill. That is the message that we are giving to
both credit unions and our examiners and specific to anti-money
laundering and fraud, that has been a use case that has been in
place for quite some time, and I think it is pretty mature. So,
we have seen it and examiners are aware of it.
Mr. Rose. Good.
Mr. Gallagher, I would like to ask you a similar question.
How is the OCC supporting the adoption of promising artificial
intelligence tools that can help banks detect and prevent
financial crime while still maintaining strong supervisory
standards?
Mr. Gallagher. Thank you, Congressman. The OCC regularly
meets with banks, firms, and other stakeholders to understand
how the industry is approaching these. We have for years
expressed a willingness and an appetite to encourage the banks
to look for ways to improve their systems using technologies
that can help them do so. We also went out last year with a
request for information for feedback on banks' challenges with
significant third parties. We are evaluating that. We are also
evaluating and in the process of determining if we need to
update our guidance on third-party risk management as well.
Mr. Rose. Again, as a follow up, do you feel like your
examiners in the field have the proper leeway or encouragement
to have an open mindset when they see things that are new?
Mr. Gallagher. I certainly do. We have seen--I mean, the
current pace of innovation is obviously much faster, but this
is nothing new. We have seen banks innovate throughout our
history as an organization and certainly throughout my career.
Mr. Rose. Thank you. Mr. Guynn, your testimony highlights
how AI can enhance examiner training and help process the vast
amount of data regulators rely on. Can you speak more about how
these kinds of tools could modernize supervision and help
regulators keep pace with rapid technological change?
Mr. Guynn. Yes, so just yesterday I saw some new technology
to get a lot of data gathered from reports otherwise hard to
get. The team actually used artificial intelligence to enhance
it in a way where they said it would have taken months to
actually have the team do it, and the AI was able to do it in a
matter of days. The difference between the old table of
information and the new was quite extraordinary. I was asking
them, can you add this, can you add that? They were quite
positive that we would be able to get more and more useful data
to supervise with.
Mr. Rose. Thank you.
Mr. Chairman, I yield back.
Mr. Stutzman [presiding]. Thank you. The gentleman yields
back.
The gentleman from California, Mr. Sherman, the ranking
member of the Subcommittee on Capital Markets, is now
recognized for 5 minutes.
Mr. Sherman. We see often that people, particularly in the
tech world, want to do something that we are already doing, but
they put a high-tech name on it, and then they say, therefore,
there should not be any regulation. I know that there is a bill
before us to create a special technology unit in the bank
regulators. I sure hope that is not a system for saying, well,
you just claim to be technological, you go to the special unit,
and they liberate you from all the consumer protection and
prudential protection laws that we need so much.
I heard the chairman of the full committee talk about
tokenization of bank deposits. We kind of have that now. There
is money in my account. I can automated clearinghouse payments
(ACH) it to your account, calling that tokenization rather than
the 20th century term of a wire transfer. I am sure we can do
it better, but we should not be liberating it from all of the
oversight just because we are doing it in a slightly different
manner.
I am particularly concerned about non-banks getting into
this area and escaping all the regulations that are necessary.
Banks are highly regulated. They are supervised for compliance
with consumer protection as well as safety and soundness
requirements. However, many non-banks and technology companies
offer financial products and services, and they say they are
innovative, and therefore are not subject to the same degree of
oversight.
Mr. Guynn, should financial activities that are basically
the same be subject to the same regulation, whether they are
done by a bank or a non-bank?
Mr. Guynn. That is certainly a principle that the board
adheres to, which is same risk, same activity, same regulation.
Part of the problem, though, is we do not have jurisdiction
over some of the non-bank institutions that are engaged in this
activity, so our ability to look at that or oversee it is
limited.
Mr. Sherman. Thank you. We have seen a study by Meta saying
that 10 percent of its annual revenue, approximately $16
billion, is derived from advertisements for scams and banned
goods. Internal documents suggest that there may be as many as
15 billion high-risk scam ads every day. Many of our telecom
carriers continue to facilitate pig butchering and spoofing
schemes. Ms. Parkhill, have you been in contact with your
counterparts at other agencies as the best way to tackle this
kind of fraud, particularly as it relates to our financial
institutions?
Ms. Parkhill. We are also concerned about fraud and
financial crimes, and we work closely through either FFIEC or
other avenues. In the last few years, we have issued joint
releases, statements on elder abuse fraud. It is definitely
something that we will work together on when appropriate.
Mr. Sherman. AI is pattern recognition and predicting the
future by looking at the patterns of the past but often, the
past and the patterns you recognize there are just reflections
of the racism of our country. You might do pattern recognition
and say people born in certain ZIP codes, people who went to
high schools with certain percentages of non-White students are
more likely to be unsuccessful financially, and I am sure last
century that was true. I hope this century it is not. I know a
study that was done as to success in financing, you are more
likely to be successful if your name is Jared rather than
Jesus.
What are we doing--and I will ask this of Mr. Gallagher.
What are we doing to regulate banks so that they are not just
using AI to look at the patterns of financial success of the
past that are in effect tokens for racism and applying those to
particularly the lending decisions of the future?
Mr. Gallagher. Thank you, Congressman. I will start with my
observation that the financial institutions we regulate are
also very sensitive to making sure the tools they implement are
also compliant with the law, but in their business model, they
are in an effort to book compliance.
Mr. Sherman. Is there a system to say, okay, you found a
pattern, you want to use it in decisions, is that just a
reflection of racism?
Mr. Gallagher. Yes, there are systems, and we evaluate not
only the safety and soundness but the compliance with law as
they go through that and expect they have that embedded in
their risk management program----
Mr. Stutzman. The gentleman's time has expired.
Mr. Gallagher [continuing]. before they release those.
Mr. Stutzman. All right. The gentlemen's time has expired.
I now recognize myself for 5 minutes.
As the subcommittee has explored new technologies such as
artificial intelligence, we have heard about the benefits that
the private sector and consumers will see from adoption. We
must ensure that the same technology revolutionizing our
financial sector can also bring benefits to regulation and
supervision itself.
So I would like to ask all of you, if you could in about 30
seconds to 45 seconds, how are your agencies thinking about the
adoption of AI and what benefits can AI bring to supervising
the entities under your jurisdiction? I will start with you,
ma'am.
Ms. Parkhill. We see the benefit AI has in reviewing large
sets of data, both structured and unstructured, and also
quickly analyzing that data. So, there are a lot of use cases
we are looking at for efficiencies in risk oversight,
examination scoping, and building models for identifying risk.
Mr. Stutzman. Thank you.
Mr. Billingsley. I would agree with everything my colleague
just said. I would only add to that there is some promise
there, too, with respect to ongoing offsite analytics. Large
sets of data that we could analyze more quickly offsite would
be super helpful.
Mr. Stutzman. Okay. Thank you.
Mr. Gallagher. Similarly, I would characterize AI as it has
been around a long time, so we are very focused on not only how
we leverage machine learning, et cetera, data scientists to
study the risks in the system but now looking at use cases with
respect to generative AI or agentic AI and how we can improve
our risk management or oversight of the system.
Mr. Stutzman. Very good. Sir?
Mr. Guynn. All the same, except an additional thing is that
we are trying to take the technology we have developed in
stress testing, combine it with AI, to try to identify material
risks to financial institutions in the system much earlier than
we can now and to try to have AI help us decide what sort of
action to take as early as possible so it can be more
proportionate and less reactive.
Mr. Stutzman. Great. Thank you. During the Biden
Administration, the Fed established the Novel Activities
Supervision Program through Supervision and Regulation Letter
23-7. This program was a part of the Biden Administration's
Operation Choke Point 2.0 and stifled digital asset innovation
through burdensome requirements imposed on financial
institutions. This committee has helped President Trump reverse
the Biden Administration's anti-innovation agenda, including
Operation Choke Point 2.0, through stablecoin and digital asset
market structure legislation. In addition, in August, the Fed
rescinded SR 23-7, stating that the board had integrated these
activities into its standard supervisory process.
Mr. Guynn, how has the Federal Reserve integrated
supervision of fintech and crypto activities by member banks
into the supervisory process? What has gone into making sure
supervisors and examiners understand these innovations and how
has the process improved?
Mr. Guynn. Okay. First of all, I think our experience with
the novel banking program was that it was not consistent with
the policy that we announced a few months ago of facilitating
innovation consistent with safety and soundness. So, we decided
after watching it in practice for a while, that we would change
that practice.
Now, innovation is encouraged or facilitated like any other
activity. In many ways, we let the banks drive what it is they
want to innovate to do, and our job is to, as I said in my
opening testimony, if we see something that is unsafe or
unsound, then we will raise a yellow card or a red card, but
otherwise, we let the banks choose what they think is in their
interest and the interest of their customers.
Mr. Stutzman. Following up on that, how will the
integration of digital asset and fintech activities into the
supervisory process improve U.S. competitiveness and enhance
innovation?
Mr. Guynn. Well, I think the more we integrate into our
supervisory process, the more we will understand it, and we
will be able to facilitate it safely. I think if we can do
that, then the U.S. will be a leader in innovation in a way
that the public feels comfortable with and will actually be
viewed as beneficial, and so it does make us more competitive
relative to other countries.
Mr. Stutzman. Right. Just really quick, I want to talk
about credit unions. Ms. Parkhill, could you speak about what
you have done since its establishment and what your office
hopes to accomplish going forward?
Ms. Parkhill. We have instituted a number of outreach
efforts, including office hours and structured meetings with
both credit unions and vendors over the last several years. We
have also issued guidance and resources around AI, digital
assets, and fintech. Going forward, our large focus will be on
stablecoins, and digital assets and the new authorities granted
to credit unions under the GENIUS Act.
Mr. Stutzman. Great. Thank you. Great timing, too.
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, and to our witnesses.
This committee has had multiple hearings on ways to counter
financial scams and fraud. I hear from community bankers in my
district regularly about the increase in everything from online
identity fraud to check fraud to more complicated AI, deepfake
scams. Almost all of these involve, at their heart, identity
fraud.
In the GENIUS Act, Treasury was mandated to provide
recommendations to Congress on ways to reduce illicit
transactions in digital finance. In the report that they issued
this month, Treasury stated that it would issue new guidance to
firms on how they can utilize mobile driver's license, digital
ID that lives on your cell phone, and other verifiable digital
credentials in the know your customer (KYC) process for
customer identification.
As you all know, setting up KYC is one of the biggest
barriers to entry for fintechs and de novo banks, as well as an
ongoing cost for small community banks and large banks as well.
Being able to use a real ID-compliant digital driver's license,
so you smile at your cell phone, do your biometric login,
present your government-issued real ID credential, and then
being able to use that in conjunction with some API check to
FinCEN to satisfy KYC requirements would really be a
gamechanger, especially for online enrollment of new customers.
Are any of your agencies working with Treasury now to issue
that guidance or otherwise taking steps to make it clear to
financial institutions that they can and should be looking into
making use of mobile driver's licenses for that purpose? I
guess we will just go down the line.
Mr. Guynn. I do not know the answer to that question, but I
am going to find out, and I will get back to you, Congressman.
Mr. Foster. Thank you.
Mr. Gallagher. Thank you, Congressman. We are not yet, but
we will certainly engage as the Treasury Department moves
forward on that initiative.
Mr. Billingsley. I am not aware of an engagement, but I
would be happy to follow up.
Mr. Foster. Okay.
Ms. Parkhill. I am also not aware but know that we do
coordinate closely with Treasury and FinCEN and we will do so
if asked.
Mr. Foster. Yes, that is an area where the United States
may be falling behind because I think by the end of this year,
every EU citizen is going to have the ability to present a
citizenship app and validate their existence as a legally
traceable EU citizen, the U.K. as well also on a similar
timescale. So that will be a huge competitive advantage for
those countries that adopt these, and so I urge you to take
that Treasury recommendation seriously and move as fast as you
can.
Now, I am also very concerned that in the emerging world of
24/7 payments and hygienic finance that bank runs are going to
become faster and more frequent. The Silicon Valley Bank saw
more than $40 billion flee the institution in about 2 days,
driven pretty much at the speed of internet gossip. Soon, we
are going to be facing bank runs at the speed of agentic AI
where everyone is going to tell their personal AI advisor and
agent to keep an eye on the bank, and if you even hear a rumor
that the bank is in trouble, just get my money out. In a
situation like that, situations like Silicon Valley Bank could
then take place in a matter of minutes and I am not sure we are
ready for that.
To manage it, it seems that, first of all, that the
regulators are going to need real-time insight into the
financial conditions of institutes of all sizes so that they
are ready to step in on a moment's notice on Sunday in the
middle of the night. This is a big change in the way you
operate right now.
I think you may also need to have the equivalent of pre-
pledged collateral and so on understood. If the regulator has
to step in to save a bank that is under threat from either a
real financial disclosure or simply a rumor, that it has got to
know in real time what the solvency situation of that
institution is.
I was wondering first off, are we ready for it today? Are
we preparing for it? I guess we will go down the line starting
on the right.
Ms. Parkhill. We are definitely aware of that concern and
have several liquidity options to provide credit unions if
needed, either through our Share Insurance Fund, borrowing
through Treasury, or the Central Liquidity Facility (CLF). We
have options and playbooks ready in case of liquidity stress in
the system or runs either in the credit union industry or with
banks. So, we are looking at this closely and prepared.
Mr. Foster. You think you are prepared so that if this
Sunday night at 2 in the morning, everyone's AI personal agent
says, oh, I have just learned on a Moltbook of a rumor that
this bank is in trouble, that you think you are ready for it?
Ms. Parkhill. I think as soon as the credit union
recognizes that they are in need, we have the resources to help
them.
Mr. Foster. Are they monitoring this so that they will know
in 20 minutes in the middle of the night? I mean, the thing I
am getting to is to do that properly, you are going to need
very involved software.
Ms. Parkhill. Right.
Mr. Foster. I think that one of the things that this
committee can do is make it more affordable for small
institutions to have access to that high quality software.
Ms. Parkhill. Absolutely.
Mr. Foster. Thank you. My time is up and yield back.
Mr. Timmons [presiding]. Thank you. I now recognize myself
for 5 minutes.
I want to begin by thanking the witnesses for joining us
today.
I often emphasize the need to bring stability and
consistency to the agencies under this committee's
jurisdiction. Sharp swings in policy between administrations
can create uncertainty, discourage investment, and make it
harder for American firms to plan and grow. Providing clear
direction oversight is one of Congress' most important
responsibilities, especially in fast-moving sectors. Nowhere is
that more important than in digital assets and emerging
technologies.
Rather than offering clear rules, the Biden Administration
often relied on regulation by enforcement, leaving firms to
navigate policy through enforcement actions instead of
guidance, coupled with concerns about so-called Operation Choke
Point 2.0. This approach has made it harder for fintech and
blockchain innovators to operate in the U.S., risking that
innovation and investment more overseas.
I want to start with how your agencies are approaching
innovation more broadly. Mr. Guynn, unlike some of the other
regulators here today, the Federal Reserve has not established
a formal Office of Innovation. Could you walk us through how
the Division of Supervision and Regulation is working to foster
an environment where banks can responsibly pursue financial
innovation, including digital assets?
Mr. Guynn. I think the way we do that is we let the banks
drive that. So, in some ways, we wait for the banks to say,
this is the direction we would like to go. We try to be
responsive. For instance, if banks said, we have limits in our
power, we would like to have more authority to be able to
engage, for instance, as agent or principal with respect to
digital assets, we would consider that and try to facilitate
that consistent with safety and soundness.
Mr. Timmons. Thank you for that.
Along those same lines, as these activities are integrated
into the supervisory process, how have examinations evolved,
and what steps has the Fed taken to ensure examiners have the
expertise needed to evaluate these emerging risks without
discouraging innovation?
Mr. Guynn. Yes, we are enhancing our training of
technology. We also are trying to change the cultural sort of
view of this to be facilitating. The job of an examiner is not
to sort of micromanage the bank but rather to let the bank
choose its business model and its risk profile and then only
raise yellow or red cards when there is a safety and soundness
issue and not just artificially discourage innovation because
of a fear of the new.
Mr. Timmons. Thank you for that.
When I am back in my district, I regularly hear from small
community banks and credit unions about the real-world
challenges of integrating new and rapidly advancing
technologies into their operations, particularly as they work
to serve very small, often rural communities. These
institutions are not only managing the cost and complexity of
adopting new systems, but they are also on the frontlines of
helping their customers understand and trust these tools. In
many cases, that education and onboarding burden falls directly
on them, which can slow adoption and create additional strain
on already limited resources.
Now, Ms. Parkhill, credit unions in particular face unique
hurdles in this space. Could you speak to how the NCUA,
especially through the Office of Financial Technology and
Access, is working to support responsible innovation while also
ensuring that examiners are properly equipped to oversee these
developments?
Ms. Parkhill. Sure. Part of that is through guidance we
provide both to credit unions and to our examiners. While our
examiners are well-experienced in identifying and assessing
risk, as we are training examiners, as new technologies are
being used by credit unions, we are incorporating that into the
training. We are providing specific information on those
technologies as they become used in the industry more and more.
Mr. Timmons. Thank you for that. As you work with credit
unions, can you give an example of how smaller institutions are
thinking about partnerships with fintech firms and what
barriers, either regulatory or operational, that they are
encountering today?
Ms. Parkhill. Yes. We are seeing a lot of interest in
lending use cases, either underwriting or appraisals. The
biggest challenge we hear are legacy systems that may not be
compatible with fintechs or long-term inflexible contracts with
core service providers that prevent working with certain
vendors.
Mr. Timmons. Thank you for that. Thank you to all our
witnesses.
Clear, consistent, and transparent supervision will be
critical to ensuring that innovation happens here in the United
States within the regulated system rather than being pushed
overseas. I look forward to continuing this conversation.
With that, I yield back.
The gentlewoman from Texas, Ms. Garcia, is now recognized
for 5 minutes.
Ms. Garcia. I am sorry, did you say the gentleman?
Mr. Timmons. Gentlewoman.
Ms. Garcia. Oh, thank you. Just wanted to be clear.
Thank you, Mr. Chair, and thanks to all the witnesses for
being here.
There is no debating that, as an industry, the financial
system should continue to innovate and leverage new technology.
However, we need to always keep strong consumer protections in
mind.
I see that we have four regulators, and while I am happy to
hear from you all, I want to take a moment to say how
unfortunate it is that there is no witness here from the
Consumer Financial Protection Bureau, CFPB, with us today. The
very agency that is tasked with protecting consumers has been
defunded and forced to terminate its employees and contractors
with more than $100 million in contracts canceled. They need to
be a part of this conversation, and we need to reinvest in the
CFPB immediately to protect consumers in this constantly
changing environment. Whether it is seniors or young people or
a small business owner, consumers must be protected.
Rapid and constant technology innovation leading to new
risks and threats are leaving regulators and Congress
scrambling to write rules to better protect investors and
consumers.
Mr. Billingsley, what is the FDIC doing right now to ensure
that the agency is using the most up-to-date technology for
internal operations, especially for supervision and
enforcement?
Mr. Billingsley. Thank you. As I mentioned in my testimony,
we are in the middle of a multiyear IT modernization project to
convert legacy systems to more cloud-based systems to help us
be more effective, be more efficient, ensure that our
institutions are doing things in the safest way.
Ms. Garcia. What have you accomplished so far? You are
saying it is multiyear. What have you gotten done this year?
Mr. Billingsley. What we are implementing is an agile
system, so we have accomplished a lot of things with respect to
how banks can apply to the FDIC. We have accomplished a lot of
things with respect to audit filings, things of that nature but
we are bolting on additional use cases by the month, so it is
an ongoing project.
Ms. Garcia. When you say multiyear, when will you complete
this review?
Mr. Billingsley. I believe we will have most of it
completed in a couple of years. Some of it will linger past
that, but a lot of the bulk will be completed.
Ms. Garcia. Because things are moving rather rapidly, so I
would urge you to expedite and fast-track what you can.
Mr. Guynn, similarly, how is the Federal Reserve keeping up
with new risks as technology continues to innovate? More
specifically, what is the Fed doing to address model risks as
banks expand their use of AI?
Mr. Guynn. We are actually reviewing all of our guidance,
including model risk management guidance, and are trying to
make sure that it is updated. I think the last time we did
model risk guidance it was about 15 or 18 years ago, so we are
looking at it actively, and we are working with the other
agencies so that we do it on a coordinated basis.
Ms. Garcia. How are you coordinating that with all the
system, with all the different Federal Reserve banks around the
country?
Mr. Guynn. You mean the Federal Reserve banks or--I am not
sure I understand.
Ms. Garcia. Well, you are the main player here, but you
have got Federal Reserve systems. Like are you working together
with the Dallas Reserve, with the Denver Reserve, with the New
York Reserve?
Mr. Guynn. Yes, absolutely. The guidance that we have will
actually apply system-wide. When I say we are working with the
other agencies, we are also working with the OCC and the FDIC
so that it works across all the different banks and bank
holding companies and other banking organizations.
Ms. Garcia. Beyond AI, we also have seen a growing adoption
of banking as a service and third-party providers. In February,
the Federal Reserve Bank of Dallas published a research paper
titled ``Workshop Reviews Risks to the Economy, Financial
Systems from Third Parties.'' In it, the authors argue that the
involvement of outside providers who many follow differing
standards and regulations can lead to unique risk management
challenges.
Ms. Parkhill, when it comes to third-party service
providers, do the credit unions have a regulatory gap that
prevents the agency from overseeing third-party vendors?
Ms. Parkhill. We think we are best able to minimize risk to
the industry and the shared insurance fund by focusing on our
core function, which is examining credit unions.
Ms. Garcia. So, you are not looking at reviewing what the
third-party vendors are doing as it relates to your credit
unions?
Ms. Parkhill. We work through the credit unions to review
the due diligence that they are doing on the providers that
they are using.
Ms. Garcia. You are not providing guidance or best
practices?
Ms. Parkhill. We do have third-party risk management best
practices guidance, and we do have resources specific to the
use of AI that link to authoritative sources from the National
Institute of Standards and Technology (NIST) and Cybersecurity
and Infrastructure Security Agency (CISA) to make sure that
they are going to the most current information and we do not
have a middleman----
Mr. Timmons. The gentlewoman's----
Ms. Parkhill. We are not the middleman----
Mr. Timmons [continuing]. time has expired.
Ms. Parkhill [continuing]. updating guidance.
Mr. Timmons. The gentlewoman's time has expired.
Ms. Garcia. Thank you. Mr. Chairman, I ask for unanimous
consent to introduce for the record the article I quoted,
``Workshop Reviews Risks to the Economy, Financial Systems from
Third Parties.''
Mr. Timmons. Without objection.
[The information referred to can be found in the appendix
on page 64.]
Ms. Garcia. Thank you.
Mr. Timmons. The gentleman from Ohio, Mr. Davidson, who is
the chair of the National Security Illicit Finance and
International Financial Institutions Subcommittee, is now
recognized for 5 minutes.
Mr. Davidson. Thank you, Chairman.
Witnesses, thank you for your preparation for this hearing
and for your presence here today and frankly for the work you
do to make sure the safety and soundness of our financial
system stays strong and frankly gets stronger.
Mr. Guynn, the Federal Reserve is now exploring so-called
skinny master accounts to provide payment innovators more
direct access to the Fed's infrastructure. That raises a
question that has been broached for a while. You had guidance
on when master accounts would be issued. Custodia Bank in
particular complied with the ``shall issue'' definitions, but
they were not issued a master account. Things have evolved
since then. So how do we make sure that there is a clear
``shall''? If you do this, then it shall happen versus somebody
selectively picking winners and losers?
Mr. Guynn. So, right now, the process for deciding whether
to grant someone a master account is made by the Federal
Reserve Bank, so it is discretionary. There are guidelines that
are subject to system-wide, but there is a fair amount of
discretion. As you know, the Kansas City Fed recently decided
that they would grant a master account, although it looks a lot
like a skinny master account, to Kraken, but have not yet
granted it to Custodia.
Mr. Davidson. Yes, so how do we make sure that is
repeatable and reproducible and not just at the whims of
whoever happens to be making the decision or whoever happens to
be asking? I mean, even if you say somebody who does not yet
comply with what the Federal Reserve would like to see, if I do
X, Y, Z, then the answer is yes, how do we get to that so that
you have an objective rule of law versus the friends and family
network?
Mr. Guynn. Yes, so we have not yet started, but we will be
reviewing later this year the guidance for granting master
accounts. It may well be that Congress may want to think about
something, they want it to be more mandatory as opposed to
discretionary, but for right now, it is mostly discretionary.
Mr. Davidson. Well, thank you for that. One of the things
that we think is not discretionary is whether the components of
the executive branch comply with executive orders. Of course,
those change from time to time but anything about digital
assets--back home in Ohio, there is a select of people that are
very passionate about that. For a lot of people, the number one
thing they think about is central bank digital currency.
President Trump issued an executive order saying that there
should be no central bank digital currency, no work on a
central bank digital currency. Prior to President Trump taking
office this term, there was a lot of work at the Federal
Reserve on developing a central bank digital currency. Has that
work ceased, or is it ongoing?
Mr. Guynn. Yes, I think Chair Powell has spoken to that,
and he said that it is not ongoing and that the chair does not
believe that we have the legal authority to issue central bank
digital currency without some action by Congress.
Mr. Davidson. Well, unfortunately, he always has this
qualifier, a retail central bank digital currency. For a lot of
people, what they see being built is like Hydra. There will be
many heads, sometimes in the form of stablecoins, sometimes in
the form of other payment instruments, but they will all come
together on the back end with the body of the beast, and it
will be a ``wholesale central bank digital currency (CBDC).''
So is the work on the wholesale CBDC ongoing, or did that, too,
cease?
Mr. Guynn. To my knowledge, it is not ongoing.
Mr. Davidson. All right. Thank you. Mr. Gallagher one of
the--well, maybe I will go to--Gallagher, Billingsley, you guys
both oversee banks, and one of the things with bank fintech
partnerships that we try to get right was the open banking 1033
provision. CFTC has an active process to try to define a strike
zone there and what is and is not the bank customer's property.
You may have, of course, access to your own data, but that does
not mean that you have access to the bank's payment rails. To
what point is compensation there? How do you guys see that
playing out? What is the role of existing bank regulators in
helping provide clarity to that market?
Mr. Gallagher. Thank you, Congressman. We are well aware of
the privacy issues and challenges, the operational issues and
challenges, and we will support the law as it is implemented
and continue to go through that.
Mr. Billingsley. Likewise, I do not think I have anything
to add to what my colleague said.
Mr. Davidson. So you guys are just waiting for CFTC to
finish their final rulemaking, and then they will just apply
it?
Mr. Billingsley. I think it is CFPB. I am not----
Mr. Davidson. Oh, CFPB, sorry, not CFTC. Consumer Financial
Protection Bureau, my apologies. I knew what I meant.
Mr. Billingsley. No, I am not super familiar with how the
process is going, but we would certainly follow our
responsibility, absolutely.
Mr. Gallagher. Same, Congressman.
Mr. Davidson. Yes, so the idea there is clarity around
1033. I hope we get there.
I yield back.
Mr. Timmons. Thank you.
The gentleman from California, Mr. Liccardo, is now
recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair.
Mr. Guynn, I appreciate that the Fed has been evaluating
whether and under what circumstances a skinny charter might
enable a fintech to get access to the Federal rails for
payments. I know Governor Waller and others have been quite
public about their interest. As you can imagine, there is a lot
of interest in Silicon Valley, which I represent in Congress,
along with other parts of the region. We are hearing some
concerns about initial drafts of the proposal, and particularly
the exclusion of automated clearinghouse payments, ACH.
As you can imagine my concern is that excluding the very
payment modality that consumers and small businesses use most
frequently would sort of defeat the purpose. Last year, 35
billion ACH payments amounting to $93 trillion, 94 percent of
W-2 employees are getting their paychecks via ACH, including
me. Thank you. We know that FedNow is very promising, but many
of the 1,400 banks that have access to FedNow in fact only
provide receive-only capabilities. It is limited, obviously,
and it is a fraction of what the transaction volume is
currently through ACH.
I am concerned that providing fintechs with payments access
via skinny charter that excludes ACH is a little bit like
having a global naval strategy that excludes the Pacific Ocean.
I want to understand where the Fed might be about including ACH
and whether there is some consideration for doing so.
Mr. Guynn. I do not know for sure whether that is actually
one of the questions in the Request for Information (RFI) that
is outstanding now, but I think it is a legitimate question to
raise, and I have heard it many times from other people at the
Fed who are more involved in this, Governor Waller, who is
directing it. I think there are some technological limitations
with ACH compared to, say, Fedwire that might need to be
addressed. I do not think there is any sort of desire to
exclude otherwise eligible institutions from ACH. It is just a
question of whether it would work subject to the conditions
that are in the skinny master account proposal.
Mr. Liccardo. I appreciate that. What we have seen, at
least publicly in print, is that their concern is focused on
the fact that ACH does not currently have an automated solution
that can reject transactions that would cause daylight
overdrafts. We certainly appreciate the importance of
mitigating risk. That is a big role, obviously, for the Fed but
many very established, respected financial companies in the
technology space, ranging from Intuit to Visa, have both
expressed objections to this exclusion as well as offered some,
I think, very promising alternatives, for example, requiring
pre-funding of ACH transactions.
We heard that from Intuit and from Ripple, the idea of
imposing daily or per-transaction limits on ACH activity or
requiring collateralization or performance bonds or
implementing enhanced monitoring or early warning systems. Visa
suggested that the Fed consider allowing payment account
holders to solely access the Fed ACH credit because that would
naturally control and mitigate overdraft risk but would at
least facilitate the objectives of payment.
Do you believe the Fed will be open to, I think, these very
promising ideas that the industry has offered for mitigating
risk but enabling this critical access?
Mr. Guynn. I have not read the pool of comment letters that
have been submitted, but I am taking it from your comment that
they have submitted these ideas in comment letters.
Mr. Liccardo. Eagerly.
Mr. Guynn. I know that my colleagues at the board--this is
handled by a different division, but they will be looking at
those comment letters. I think if there are ideas that will
actually solve the problem, I am sure they will be open to
considering it.
Mr. Liccardo. Thank you. I look forward to working with
your team to make that happen.
Mr. Timmons. The gentleman from Montana, Mr. Downing, is
now recognized for 5 minutes.
Mr. Downing. Thank you, Mr. Chairman, and thank you all to
the witnesses for being here.
One of the primary reasons that I wanted to serve on this
committee was to help champion the need for the United States
to lead in innovation. This hearing today is a great
opportunity to hear directly from regulators on how the
administration is going about fostering innovation.
My questions--I am going to be going down the line, so if
you could please respond briefly, it would be very helpful so
we can get through some of these. I am going to start with the
first one on whether you believe that your agency has the
necessary expertise in its staffing to adapt to rapidly
evolving technologies. If not, what is your agency doing to
address that?
I will start with Mr. Guynn.
Mr. Guynn. I think we have the resources and personnel now
that we need, but we are always reviewing that and we will
implement--we have been thinking about what else do we need to
know as these things evolve and make sure that we stay fresh
and that we increase the knowledge that we have, that our
workforce has.
Mr. Downing. Mr. Gallagher.
Mr. Gallagher. Yes, I believe we have the expertise, and we
will complement that with additional expertise or training as
warranted and as we have done throughout our history.
Mr. Downing. Thank you.
Mr. Billingsley.
Mr. Billingsley. I do think we have the resources we need.
I do think it is important that we continue to grow and learn
in this area. It is going to be very important that we continue
to do that.
Mr. Downing. Thank you.
Ms. Parkhill.
Ms. Parkhill. We do have the expertise. We have been
training examiners on innovations for decades. It is just
moving at a faster pace now, but we have processes in place to
incorporate it into our development.
Mr. Downing. Thank you. Something that we explored when I
was the commissioner--I was the commissioner of securities and
insurance for the State of Montana, but one of the things that
we explored were regulatory sandboxes and had some success
there trying to find a way to try innovative projects that did
not quite fit within the regulatory framework and give them
some runway to figure that out. I would just love to hear your
thoughts on whether regulatory sandboxes allow time for
incremental adaptation necessary to enabling long-term
frameworks for innovation.
On that one, I will start with Mr. Gallagher.
Mr. Gallagher. Thank you, Congressman. Like any other
legally permissible banking activity, activities that promote
innovation have a place in the Federal banking system if
conducted in a safe and sound manner. We are committed to
supporting responsible innovation and long-term successes
within the banking system, working collaboratively with the
banks, fintech firms, and other stakeholders to understand
their goal and identify a path forward----
Mr. Downing. Thank you.
Mr. Gallagher [continuing]. regardless of whether that is a
sandbox.
Mr. Downing. Appreciate it.
Mr. Billingsley.
Mr. Billingsley. I certainly agree with the spirit of your
question. We see our institutions very frequently and very
successfully pilot or test new technology before they roll it
out more broadly, and that does work quite well.
Mr. Downing. Thank you.
Ms. Parkhill.
Ms. Parkhill. We have definitely seen successful programs.
As with any program, success depends on the details and
implementation, but that is a tool that we have heard from the
industry that there is interest in.
Mr. Downing. Thank you.
Finally, Mr. Guynn.
Mr. Guynn. I think the most important thing you can do in
legislation of that sort is to make it clear that things that
are a bit uncertain in terms of powers can be done on a limited
basis, like engaging with digital assets, developing AI,
developing general-purpose technology that could be used for
delivering financial services.
Mr. Downing. Thank you. Another way Congress has bolstered
the United States' standing as a leader in innovation is by
passing comprehensive payment stablecoin legislation, the
GENIUS Act, which was signed into law July of last year. Going
down the line, I would love to hear where your agency stands on
the implementation of the GENIUS Act. We will start with Mr.
Billingsley.
Mr. Billingsley. Thank you. We published a notice of
proposed rulemaking on part of our responsibilities under
GENIUS last year. We have another one forthcoming very soon,
and we are working very hard to meet the deadline.
Mr. Downing. Thank you.
Ms. Parkhill.
Ms. Parkhill. We are in the same. We have an application
aspect of the rulemaking that is up for comment now. Comments
close April 13, and we are working toward the issuer standards
piece of it.
Mr. Downing. Thank you.
Mr. Guynn.
Mr. Guynn. We are still working out. We are working close.
We think we will have something out very soon, and we think it
will be very good.
Mr. Downing. Thank you.
Finally, Mr. Gallagher.
Mr. Gallagher. Thank you, Congressman. Our rule was
published for comment, and we are eagerly awaiting the
feedback, and we will take that into consideration as we work
to finalize the rules consistent with Congress' intention.
Mr. Downing. Outstanding. Well, I appreciate all of your
participation here. Obviously I have been very vocal on the
need for innovation to be happening here in the United States
and the tools that we have to continue innovating, and the work
that you are doing in your agencies is much appreciated.
On that, Mr. Chair, I yield.
Mr. Nunn [presiding]. The gentleman yields.
The gentlewoman from Massachusetts, Ms. Pressley, is
recognized for 5 minutes.
Ms. Pressley. Thank you, Mr. Chair.
I am going to date myself a little bit here. When I was
growing up, may she rest in peace, my mother used to sing a
song that went like this, ``Ain't nothing going on but the
rent.'' Bills do not stop. People work hard on their jobs, they
earn a paycheck, and they deserve to be able to access it
quickly.
We know that workers are struggling to make ends meet,
especially now, and especially until a payday, those checks
hit. Consequently, many end up using fintech apps like Klarna
or Affirm to pay for their gas, their groceries, and utility
bills. It is no doubt that everyday workers and families want
services that work for them, technology that helps them get
paid faster instead of waiting until payday. Businesses want it
too. It is how you can retain your workforce.
There is an affordability crisis, and there is also a
payroll timing issue that can actually be fixed right now and
that is exactly why the FedNow payment service is so important.
FedNow is an instant payment service offered by the Federal
Reserve, and I have really enjoyed working closely with
Chairman Hill and Senator Van Hollen in the Senate to get that
service created years ago. FedNow can help households get their
money in real time. FedNow can also help small community banks
that have fewer resources and technological infrastructure
compete with these fintech platforms to offer households their
money when they need it while still complying with regulations.
Ms. Parkhill, how does something like FedNow help smaller
community banks and credit unions compete while still serving
their customers safely?
Ms. Parkhill. It allows them to offer more products and
services to their members that meet the needs of exactly what
you had mentioned, the payments and moving money quickly.
Ms. Pressley. Okay, and making customers aware of the fraud
risk compliance services that FedNow provides, that is one way
that we can be helpful but what else can Congress and
regulators be doing to support small community banks and credit
unions as they access the benefits from FedNow?
Ms. Parkhill. I think providing opportunities for them to--
I guess resources so that they know what tools are available
and really listening to their members to be able to provide the
services that they are asking for.
Ms. Pressley. All right. Thank you.
Mr. Guynn, as a director at the Federal Reserve and someone
who does have experience in the private sector before coming to
the Fed, what steps is the Federal Reserve taking to increase
the number of financial institutions that are signing up for
the FedNow service?
Mr. Guynn. I think there is a process to sign up for it
that I do not think that is the roadblock at all. I am not sure
there is anything to improve it other than to continue inviting
institutions to sign up for it.
Ms. Pressley. Okay. Well, I think the bottom line is that
we need to be able to meet the urgent needs of families while
also supporting our smaller community banks and credit unions,
customers that deserve and need those financial systems that
work for them. We should be leveraging the tools that are
available to us like FedNow to responsibly leverage technology,
meet customers where they are, and again, it can help these
smaller banks and credit unions comply with regulations and
still compete with those new financial platforms in order to
retain their customers.
So I look forward to continuing to work together with you,
my colleagues across the aisle, to do this essential work and
to make sure folks are aware of this tool that is available and
leverage it accordingly.
I yield back.
Mr. Nunn. The gentlelady yields back.
The chair will now recognize himself for 5 minutes.
I want to thank the panel for being here and the ranking
member for your leadership on this.
Look, artificial intelligence is already driving real
benefits by expanding our financial sector, lowering costs, and
helping institutions serve our customers better. We all agree
this is a good thing. As adoption accelerates, so do the risks,
including fraud, misinformation, and adversaries using these
very tools against us. We have seen clearly a direction from
Congress that is working.
The administration's artificial intelligence framework
points in the same direction, and this is why I have introduced
the Artificial Intelligence Practices, Logistics, Actions, and
Necessities (AI PLAN) Act. It takes a balanced approach to
directing key agencies to build on coordinated national
strategies against malicious AI use and not creating
duplicative government regulations or, worse, guidance that
conflicts with each other. We all have to make sure that we are
keeping America first in this technology space and not creating
artificial government-enforced barriers.
Right now, I believe that agencies are not fully aligned,
and that creates gaps. We need to stay ahead of the threat
while keeping innovation right here in the United States.
To all witnesses, I will start with a simple yes or no
question for each of you. My AI plan would establish a whole-
of-government strategy on AI threats to our financial systems.
I would like you to let me know, do you think this is something
the U.S. Government is capable of doing? Mr. Guynn?
Mr. Guynn. I think it clearly is capable, and it seems like
your act, your bill, is focused on defending against economic
and national security risks, and it is hard to say that would
not be helpful.
Mr. Nunn. Mr. Gallagher.
Mr. Gallagher. Yes, I do think we are capable.
Mr. Nunn. Thank you.
Mr. Billingsley.
Mr. Billingsley. I agree, I think we are capable.
Ms. Parkhill. I agree----
Mr. Nunn. Ms. Parkhill.
Mr. Gallagher [continuing]. yes.
Mr. Nunn. Very good. Mr. Gallagher, I would like to speak
to you directly here. Look, my home State of Iowa alone has
more than 270 community banks. What is one concrete tool that
the OCC is deploying today to help banks under that $500
million threshold detect AI-generated fraud, the banks that
would be the most vulnerable in this case?
Mr. Gallagher. Thank you, Congressman. As far as what we
are doing is we are seeking feedback from the industry on what
the greatest challenges are to help provide information and
guidance on how to combat it, and we will continue to support
through reduction of regulation that is not statutorily
required--not regulations, policies that are not statutorily
required to enable them the room to explore and test.
Mr. Nunn. I know that our banks appreciate that and your
leadership in this space.
I am going to get a little bit more technical here with
you. The AI model risk guidance has not been updated for nearly
a decade, specifically SR 11-7, and that circular was written
years before most large language models existed, including what
we have seen just in the last 12 months alone. Is the OCC
actively updating AI-specific model risk guidance and would
direction from Congress help you in your effort?
Mr. Gallagher. Thank you, Congressman. So yes, SR is the
Feds. We have a corresponding version as well, and we are
reviewing that in coordination with the Federal Reserve and the
FDIC. I do not know if additional direction is necessary. We
are well aware of the risks and concerns from the industry.
Mr. Nunn. With a great panel up here, I think this is all
the more reason for Congress to make sure that we are doing our
job of providing congressional intent here, making sure that
not only are you working together but that we are not
inadvertently creating gaps or, again, conflicting guidance to
places like my hometown banks. I hope the AI plan can help you
start with that, and I appreciate your feedback on this.
Mr. Billingsley, I would like to approach you next here. We
have seen risks from foreign AI models. Think of China's
DeepSeek on this. If a bank deployed a compromised model today,
would we be able to detect it? If so, how long would something
like that take if it was compromised?
Mr. Billingsley. As a general matter, we approach all bank
activities sort of the same. We would hope to detect that in
real time. Sometimes it takes a little time. We do conduct
exams very frequently. We do offsite monitoring and such.
Sometimes it can take a little bit of time.
Mr. Nunn. What do you think the most important step is that
Congress could take in the short term to help you with your
timeline for real-time detection of foreign adversary advanced
AI large-language model learning?
Mr. Billingsley. It is a fantastic question. The first
thing that comes to mind, and I think you alluded to this in
your opening remarks, is the more whole-of-government approach.
The more we can coordinate, I think, the better, and share
information. I think that would be useful.
Mr. Nunn. I would agree. I think this is an opportunity for
us all to be able to work hand-in-glove on this, as well as
with our private sector partners as we move forward.
Very quickly, Mr. Guynn, would clear direction from
Congress, such as an AI PLAN Act, help close some of the gaps
that we have highlighted here today?
Mr. Guynn. I think what it would do is it would just
further encourage interagency coordination to identify the
problems and solve them.
Mr. Nunn. I think we have seen risks from foreign AI models
like DeepSeek already start to have an impact, and if a bank
deployed its ability to protect itself, we would be moving
forward.
With that, I thank the panel for their time today. I would
like to also highlight that we appreciate all of your witness'
testimony.
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 will please respond no later than
April 30, 2026.
The information referred to can be found in the appendix.]
With that, Mr. Lynch, this hearing is adjourned.
[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]
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