▶ 0:22:18Committee on Financial Services will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. The hearing is entitled oversight of the credential regulators. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. Good morning. I want to welcome our witnesses and thank them for joining us today.
▶ 0:22:45Today's hearing is an opportunity for the committee to discuss the recent work of our credential regulators and to highlight the strong alignment between their current approach under the Trump administration and our agenda here in the committee to make community banks, all depository institutions of all sizes great again. Our shared objective is to ensure that regulatory policy supports the needs of the banks and credit unions that serve the hardworking Americans across this country.
▶ 0:23:13The supervisory and regulatory developments, rulemakings, and activities of the credential regulators that we will highlight in today's hearings underscore that shared vision. Together, we can reduce the duplicative or untailored burdens on financial institutions of all sizes to ensure that they can continue to thrive in an increasingly competitive market.
▶ 0:23:36This hearing is about enhancing clear, tailored rules of the road, fostering competition, and ultimately serving the best interests of consumers and businesses. Committee Republicans have been working alongside the Trump administration from day one to ensure that community banks remain viable, competitive, and able to serve the needs of our local communities.
▶ 0:23:59To achieve our mutual goals, it's crucial that credential regulators remain focused on their core mission to safeguard the fundamental fundamental stability, safety, and soundness of our financial institutions rather than on trendy distractions that prioritize progressive climate agendas or DEI initiatives.
▶ 0:24:20That's why our committee's legislative and oversight agenda and the Trump administration are collaborating in leading the charge to shift our regulatory approach and return credential supervision to this core We saw what happens with the failure of Silicon Valley Bank when supervisors fail to keep their focus on the obvious in plain sight material financial risks.
▶ 0:24:46This hearing will also emphasize the important reversal of costly, ill-conceived Biden error regulations and guidance which would drive up costs and drive access for services down for American home buyers and small businesses. Most notably, the original Basil 3 in-game proposal.
▶ 0:25:06I'm proud of the work of the committee has done to advance legislation to provide clarity for the digital assets marketplace, streamline supervision, increase access to capital and deposit funding, ensure a fair supervisory appeals process, and establish a timer timely merger review process among many others. It's critical that we continue this momentum towards transparent regulatory certainty and broader market competition.
▶ 0:25:34Clear, consistent rules reduce compliance costs for banks and credit unions. When these institutions can navigate regulations without ambiguity, they can allocate their resources more effectively, making loans cheaper, and investing in customer service, technology, and innovation that benefits our entire economy. This committee has held numerous hearings throughout the 119th Congress to learn about how the actions of the regulators are affecting community banks and credit unions and their ability to serve our customers.
▶ 0:26:04We have heard time after time about the positive developments occurring at your agencies as well as further ideas about rightsizing the supervisory and regulatory environment. As in the past, this Congress must find modern ways to enact effective and clear guidelines and expectations to enable financial institutions to operate in an increasingly diverse and dynamic financial system. I look forward to your testimony today and I yield back the balance of my time.
▶ 0:26:33I now with pleasure recognize the ranking member of the committee, Mrs. Waters, for a four-minute opening statement.
▶ 0:26:40Thank you very much, Mr. Chairman. Uh thank you to our witnesses for being here today. Uh during the Thanksgiving break, a lot of us heard the same thing from our constituents. Buying the groceries for Thanksgiving dinner was much, much more expensive this year. On top of that, Trump's weakening economy is squeezing families so much that many are concerned that they will need to pull back on holiday spending.
▶ 0:27:07After all, didn't Trump say that the children only need $2 and that the two dolls might cost more uh with economic policies like these? Donald Trump is the Grinch who stole Christmas. But Democrats aren't the only ones raising alarms.
▶ 0:27:25Republican representative Marjgerie Taylor Green, who until recently was a diehard Trump supporter, acknowledged that under the Trump administration, the cost of living has become unbearably high. Corporate interests are prioritized over the needs of the working class. Small businesses are hurting, and the American dream is slipping out of reach. We were all promised lower costs on day one of Trump's turn.
▶ 0:27:53Instead, his administration is dismantling the very institutions that keep costs low and the economy staple stable, including by undermining the independence of the Federal Reserve and forcing independent agencies to serve his personal interests. Americans were promised a reduction in credit card interest payments.
▶ 0:28:18Instead, Trump and the Republicans are unlawfully shutting down the Consumer Financial Protection Bureau, the only federal agency focused on making sure that big banks and other financial institutions treat Americans fairly.
▶ 0:28:35As if that weren't enough, Russell Vote, who has told private audiences of his plan to illegally end the CFPB, announced last month that CFPB examiners will be forced to recite a so-called humility pledge, essentially forcing them to bow down to big banks before daring to carry out their jobs to examine them.
▶ 0:29:02While I'm happy that our committee is following the law to finally have what should be a semianual hearing with the Fed vice chair of supervision, I remind Chairman Hill that it has been 18 months since the CFPB director last testified before this committee, a delay which is wholly unacceptable.
▶ 0:29:24I'm concerned that our banking regulators have been anything but independent, prioritizing Trump's deregulatory policies that will leave our banking system vulnerable to another Silicon Valley bank type failure, if not worse. But it's not just handouts to mega banks. The Trump family has spent more time putting money into their own pockets than working for the American people.
▶ 0:29:52In fact, Trump and his family have received nearly $2 billion dollar in cash gifts and crypto profits while our regulators work on crypto rules that could legitimize this corruption. We all know the adage that silence is complicity. And I'm deeply disappointed by the ways in which my colleagues on the other side of the aisle have remained silent and enable this president's policy.
▶ 0:30:22I hope each of our banking regulators were here here today assert your independence and help us navigate out of this mess before it's too late. I yield back. Gentlemen, gentlewoman yields back. Recognize the chair of our subcommittee on financial institutions, Mr. Bar of Kentucky, for a one minute opening statement. Thank you to our witnesses today. Uh, it's encouraging to see new leadership at credential regulatory agencies committed to re-evaluating needless burdens on our financial institutions.
▶ 0:30:53For years, Congress and our financial regulators have set regulatory thresholds intended to align oversight with actual risks to financial stability. But because these thresholds are often static, they inevitably sweep in more institutions as the economy grows, capturing firms that were never intended to be treated like the largest, most complex banks.
▶ 0:31:12That's why I've introduced legislation, the Tier Act of 2025 to index these thresholds to nominal GDP, preserving rigorous requirements where they belong while preventing regulatory bracket creep that diverts resources away from communities, small businesses, and farmers.
▶ 0:31:27Additionally, as you finalize the Basel 3 endgame, it is critical to ensure US capital standards are riskbased, evidence-driven, and supportive of credit availability, goldplating, international standards, and massively hiking capital requirements would restrict lending, reduce market liquidity, and weaken, not strengthen our financial system. I urge credential regulators to work with Congress toward a framework that is transparent, analytically sound, and aligned with the realities of a growing economy. I yield back.
▶ 0:31:54Gentleman yields back. I recognize the ranking member of our subcommittee on financial institutions, Dr. Foster of Illinois for a one minute opening
▶ 0:32:01Uh, thank you, Chair Hill, and ranking member Waters. The panel before us today has the important responsibility of supervising our banking system, not only for known risks, but also emerging risks that threaten the stability of the American financial system.
▶ 0:32:14As the ranking member of the financial institution subcommittee, but also as a member who joined Congress in March of 2008 on the eve of the financial crisis, I understand the damage that not only old risks like excessive risk-taking and hitting leverage can cause, but also modern innovative yet untested financial products can have if they're allowed to operate unchecked. Your agencies will have to adapt to a rapidly changing financial system and ensure the stability that in stability and innovation go hand in hand.
▶ 0:32:42Innovative financial products and digital assets, private credit, thirdparty technology firms and and developments like Agenda AI will quickly change how financial institutions and their customers behave and how they manage risk. We've already seen that in the 2023 banking crisis, the collapse of fintech, the fintech syntax, and recently the failure of critical infrastructure in my district that disrupted the commodities market.
▶ 0:33:07So, I look forward to this important discussion of modern credential regulation and look forward to hearing how your agencies plan to adapt to these changes in the financial system. Thank you. I yield back.
▶ 0:33:18Gentleman yields back. Today, we welcome the testimony of the honorable Michelle Bowman, vice chairman of the supervision for the board of governors of the Federal Reserve System. The Honorable Jonathan Gould, controller of the currency. The Honorable Kyle Hman, chairman of the National Credit Union Administration, and the Honorable Travis Hill, acting chairman of the Federal Deposit Insurance Corporation. We thank each of you for joining us today. Each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record.
▶ 0:33:48Vice Chair Bowman, you're now recognized for five minutes. Chairman Hill, Ranking Member Waters, and other members of the committee. Thank you for the opportunity to testify on the Federal Reserve supervisory and regulatory activities. I'll focus on the current state of banking, the banking sector, and progress on my priorities as the vice chair for supervision. The banking system remains sound and resilient. Banks continue to report strong capital ratios and significant liquidity buffers, which position them well to support economic growth.
▶ 0:34:18We are seeing continued growth in bank lending, a decline in non-performing loans across most categories, and strong profitability. Notably though, non-bank financial institutions continue to increase their share of the total lending market, providing strong competition to regulated banks without facing the same credential standards. To compete effectively with non-banks on both payments and lending, the Fed is encouraging banks to innovate to improve their products and services.
▶ 0:34:44We're working together with the other regulators to develop regulations for stable coin issuers as reg required by the Genius Act. We also need to provide clarity on digital assets to ensure that the banking system is well placed to support these activities. The Fed is working to tailor our regulatory and supervisory framework to accurately reflect the risk that different banks posed to the financial system, particularly community banks.
▶ 0:35:09We cannot continue to push policies designed for the largest banks down to the smaller, less risky, and less complex banks. I support congressional efforts to reduce burden on community banks, including increasing static and outdated statutory thresholds that have not been updated for years. I also support improvements to the AML framework that will assist law enforcement while minimizing unnecessary regulatory burden. The Fed is taking action to support community banks.
▶ 0:35:37Together with the FDIC and the OC, we recently proposed changes to the community bank leverage ratio to provide greater flexibility while preserving strong capital and safety and soundness. We also released new capital options for mutual banks. We are exploring streamlining the merger and acquisition and denovo chartering application processes for smaller banks and updating the board's merger analysis to accurately reflect and analyze competition among small banks.
▶ 0:36:04We're also in the process of modernizing and simplifying the Fed's regulation of large banks. The board recently released a proposal to enhance public accountability and to ensure robust outcomes of our stress tests. The proposal includes disclosing stress test models, the design framework, and the 2026 scenarios. It ensures that future significant changes will benefit from public input.
▶ 0:36:27The agency's recently finalized changes to the enhanced SLR uh proposal for USGS which helps ensure that leverage capital requirements serve as a backs stop to risk based capital requirements as it was originally intended. The board is working on a proposal with the OC and the FDIC to implement the 2017 Basel agreement. This will reduce uncertainty and provide clarity on capital requirements. We're considering each of the elements rather than reverse engineering changes to achieve predetermined outcomes.
▶ 0:36:55As a part of this proposal, we're considering approaches to differentiate mortgage risks that will benefit the banking system as a whole. The Fed is also working to refine the GIB searchcharge framework. The searchcharge must be calibrated to avoid impairing the banking sector's ability to support the broader economy. Effective supervision must focus on factors that affect a bank's financial condition, including material risks to bank operations and the stability of the broader financial system, not immaterial issues that distract from core safety and soundness.
▶ 0:37:25This requires a risk focused, tailored approach to supervision and regulation. The Fed is considering a regulation to clarify standards for enforcement actions based on unsafe and unsound practices, matters requiring attention, and other supervisory findings. Focusing our resources on material issues that historically have correlated to bank failures will create a more effective oversight system. The camel's framework is also under review, as is the bank examiner training program.
▶ 0:37:53Establishing clear metrics for camel's components ensures transparency and objectivity in our examinations and enhancing examiner training will improve our supervision. In addition, the board recently finalized revisions to the large bank rating system that addresses the mismatch between ratings and overall firm conditions.
▶ 0:38:12Further, the board removed reputational risk from our supervision and we are considering a regulation to prevent supervisory influence from leading banks to debank a customer due to their constitutionally protected political or religious beliefs or a business engaged in legal activities. Banks must remain free to make their own risk-based decisions to serve individuals and lawful businesses without interference. Thank you again for the opportunity to appear before you today.
▶ 0:38:38The Fed is in the pre FOMC blackout period, so I will not be able to discuss monetary policy during today's hearing. With that in mind, I look forward to your questions. Thank
▶ 0:38:48Thank you, Vice Chairman. Controller Gould, you're now recognized for five minutes for your oral remarks.
▶ 0:38:54Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to appear before you. It is an honor to discuss the office of the controller of the currency's work implementing the president's economic agenda by ensuring that America's federal banking system is safe and sound and remains the world's most trusted, dynamic, and resilient. Over 160 years ago, President Lincoln had a vision for a federal banking system to serve this country and its economic ideals. And he empowered the OC to oversee that system.
▶ 0:39:22Today, the OC supervises more than 1,000 institutions that hold $6.7 trillion in assets, or roughly twothirds of all US commercial banking assets. And the Genius Act now extends our remit to certain payment stable coin issuers. In the years since the 2008 financial crisis, Washington too often sought to eliminate rather than manage risks, resulting in a less relevant and diverse banking system.
▶ 0:39:47Unelected bureaucrats discouraged prudent risk-taking, stifled innovation, and drove credit out of reach for small businesses and communities. Far from ending too big to fail, the DoddFrank Act created the moat that supercharged the growth of the very largest banks and introduced too small to succeed. I intend to restore balance, reset our risk tolerance, focus supervision on material financial risks, and free banks to lend, invest, innovate, and grow responsibly.
▶ 0:40:16Community banks in particular will benefit from a better tailored proportional framework that meets their specific needs. We are ending the weaponization of finance. No American should be denied access to banking products and services because of political or religious beliefs or lawful business activity. We are currently implementing the president's executive order on guaranteeing fair banking for all Americans by reviewing the activities of the largest national banks and investigating complaints of alleged debanking.
▶ 0:40:43We have already proposed a rule to eliminate reputation risk from supervision and we are intent on ensuring banks provide access to products and services based on objective riskbased criteria not politics or ideology. The OC support functions have degraded over the last four years, posing a risk to our ability to execute our statutory mission.
▶ 0:41:04Outward signs of this decline include the hiring of a fraudulent chief financial tech technology officer in 2022 and an email data breach that took nearly two years to identify and halt. Upon arriving at the agency in mid July, it became clear that these two issues were symptomatic of others and fixing agency operations became a top priority for me. To that end, we are working to ensure accountability for these failures and to recruit qualified and competent Supervision must be clear, credible, and consequential.
▶ 0:41:35We are cutting away procedural clutter and returning to riskbased supervision rooted in law with an emphasis on examiner judgment, not arbitrary checklists. Examiners will focus on issues that materially affect banks safety and soundness. We are also codifying reforms to the matters requiring attention process, clarifying enforcement standards, and ensuring supervisory tools are used proportionately and predictably.
▶ 0:42:00The OC is working with our inter agency partners to repropose the Basel 3 capital rulemaking and improve capital standards. We are evaluating opportunities to improve the community reinvestment act framework, including developing a simplified strategic plan to ease compliance for community banks. We're also advancing BSA AML modernization and targeted burden relief for community institutions. These actions will make our regulatory architecture simpler, stronger, and more accountable.
▶ 0:42:28Innovation has driven American finance from the telegraph to the blockchain. The Genius Act represents Congress's effort to integrate payment stable coins safely into our regulated banking and financial system. The OC is drafting rules that balance innovation with prudence. Beyond payment stable coins, we continue to clarify new ways for banks to conduct to conduct the very old business of banking and adopt new technologies like AI to ensure these opportunities are available to all OC supervised banks rather than a privileged few.
▶ 0:42:59We are modernizing OC operations through technology, data, and AI, delivering more efficient supervision and lower assessment fees to create cost savings that flow back to banks, their customers, communities, and businesses. The federal banking system must remain dynamic, competitive, and fair. By providing a path for banks to embrace new technologies in a safe, and sound manner, ending politicized debanking, debanking, and modernizing supervision, we are ensuring the long-term relevance of the federal banking system.
▶ 0:43:29We are restoring the OC's historic balancing of prudence and progress. This is what Lincoln envisioned. A federal banking system that serves every American, supports a thriving economy, and stands ready to meet modern challenges. Thank you. Thank you, sir. Chairman Hoffman, you're recognized for five minutes for your oral remarks.
▶ 0:43:49Thank you, Chairman Hill, Ranking Member Waters, members of the committee. Thank you for the invitation to discuss the operations, programs, and initiatives of the [clears throat] National Credit Union Administration. I'm grateful to President Trump for selecting me as the 13th chair of NCUA. NCA's mission is to enable access to financial services by facilitating safe, sound, and resilient credit unions. The 4,300 credit unions in America serve over 143 million Americans with over two trillion in deposits.
▶ 0:44:14Federal credit unions serve in all 50 states and 45 states have state chartered credit unions, not to mention Guam, Puerto Rico, and US Virgin Islands. The credit union movement was a grassroots effort to expand financial services and provide lowcost credit to groups and communities that were otherwise excluded from the financial system. The origins of the movement drive the foundational difference between cooperative credit unions and banks. Credit unions are owned by their member owners. And like all cooperatives in America, most of which are not credit unions, they do not have shareholders.
▶ 0:44:45Credit unions can only serve their members, other credit unions and credit union organizations. By law, the types of financial services they are offered face certain limits. The law caps the interest rate credits can charge at 18%. That's quite a bit lower than banks are allowed to charge. It limits the number of business loans and restricts their investment authority. Just as credit unions are unique among financial service providers as cooperatives, NCA is a little bit distinct from our fellow regulators that we are both the regulator and insurer for most credit unions.
▶ 0:45:15When acting as a regulator, the NCA is charged with regulating, chartering, and supervising federally chartered credit unions. When acting as an insurer, we're charged with managing and protecting the share insurance fund. Both state and federally chartered credit unions are eligible for insurance from NCUA. In other words, for credit unions, NCUA is the OC, FDIC, and the Fed all rolled into one because in addition to being a regular insurer, we're also a source of emergency liquidity through the central liquidity facility.
▶ 0:45:41The CLF provides member credit unions with a source of loans to meet their liquidity needs. NCA must meet its statutory obligations with awareness that overregulation can stifle innovation and growth in a way that could threaten the viability of the credit union system. Our regulatory activities must be fair and transparent. For example, we must avoid the perception and the reality of regulation through enforcement.
▶ 0:46:06I am proud that it is NCA policy against no regulation by enforcement defined in very simple terms. In America, the sequence of events is right rule. then It's worth noting that as an insurer, NCAA's incentives are aligned with the success of the credit unions we regulate. While the agency is not regulated by enforcement as a matter of practice or policy, we're proud to have an official public policy. It is on our website.
▶ 0:46:33It flows through the examiner manual and it merely extends the same productions that our civil servants have under civil service law to the institutions that we regulate. To rightsize our approach to safety and soundness, the NC nca is doing several things to capitalize on the opportunities created by the Trump administration to foster innovation. As a first priority, NCA is reviewing its regulations to remove any that are obsolete, overly prescriptive, or unduly burdensome. We have a new strategic plan that guides our priorities through 2030.
▶ 0:47:03And a couple months ago, we invited credit unions to share their ideas on how to strengthen the system to highlight future issues and tell us what they would change about our strategic plan. We're using that feedback to ground our planning for main street priorities. Our our plan will focus on safety and soundness, protecting the fund, and creating space for credit unions to innovate responsibly, especially in leveraging artificial intelligence and digital assets. My written testimony discusses the current state of the credit union system and provides an overview of the state of the agency.
▶ 0:47:32It also details the work we're doing to empower credit unions and foster innovation. Thank you, Mr. Chairman. I look forward to committee's Gentleman yields back. [clears throat] Acting chair Hill, you're recognized for your five minutes of oral remarks.
▶ 0:47:47Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to testify today. I appreciate the opportunity to report on the FDIC's recent work to improve our regulatory and supervisory approach across a number of areas while continuing to fulfill our core mission of ensuring deposits, promoting the safety and soundness of banks, and resolving failed institutions.
▶ 0:48:10Over the past 10 months, the FDIC has made significant progress in sever several areas, including reforming supervision so it is less processdriven and more focused on core financial risks, engaging in a thoughtful review of our regulations, guidance, and manuals, re-evaluating numerous aspects of our resolution and receiverhip management functions, and promoting the prudent adoption of innovative technologies in the financial services sector.
▶ 0:48:37My written statement provides greater detail in each of these areas, but but I would like to briefly touch on each of them. Regarding supervision, the FDIC is actively implementing changes to our supervisory process to reorient our focus more towards material financial risks and to improve other aspects of our supervisory framework. Among other things, we have issued a proposed rule along with the OC that would define certain key terms related to supervisory criticisms.
▶ 0:49:04Are working with federal and state regulators on reforms to the camel's rating system. issued a proposal to establish an independent office of supervisory appeals to adjudicate appeals of material supervisory determinations and modified or continuous exam examination program including by raising the threshold from 10 billion to30 billion in assets among other changes detailed in my written statement.
▶ 0:49:29The FDSC has also been engaging in a thoughtful review of our regulations, guidance, and manuals, and we have already taken several significant steps with respect to capital rules. We finalized a we finalized a rule to modify the enhanced supplementary leverage ratio to help ensure that it serves as a backs stop to riskbased capital requirements rather than as a frequently binding constraint.
▶ 0:49:52proposed targeted amendments to the community bank leverage ratio to expand eligibility and encourage more community banks to opt in and are working with the Federal Reserve and OC to modernize riskbased capital requirements which includes implementation of the 2017 Basil Agreement. We have also finalized a rule to raise and index 37 regulatory asset thresholds and we continue to evaluate other thresholds within our regulations to be included in one or more future proposals.
▶ 0:50:20We rescended our 2024 statement of policy on bank mergers and continue to work on additional improvements to the merger review process and analytical framework. And we issued a proposed rule to significantly enhance the speed and clarity of the approval process for new branch openings which we expect to finalize later this month.
▶ 0:50:40With respect to bank resolution, the FDIC has, among other things, modified our approach to resolution planning for insured depository institutions based on lessons learned from the 2023 bank failures, conducted dozens of outreach meetings with banks in their capacity as potential failed bank acquirers as we seek to improve the bidding process and remove potential obstacles to lowerc cost bids and implemented a number of internal operational improvements throughout the course of the year.
▶ 0:51:08The FDIC has also taken a more open-minded approach with respect to banks that offer products and services related to digital assets while maintaining our expectation that such activities are conducted in a safe and sound manner. Specifically, we rescended the Biden era prior notification requirement for digital asset activities which served as a significant barrier to banks participation in these activities.
▶ 0:51:32withdrew from several inter agency joint statements, including one that suggested that use of public distributed ledger systems was likely inconsistent with safe and sound banking practices, publicly released hundreds of pages of supervisory correspondence to provide transparency regarded the pri regarding the prior administration's misguided approach to digital assets and have begun work to implement the Genius Act.
▶ 0:51:56In addition, we are also considering the recommendations included in the report issued in July by the president's working group on digital asset markets and we are currently developing guidance to prov to provide additional clarity with respect to the regulatory status of tokenized deposits. In closing, the FDIC will continue to work to drive economic growth and access to capital while fulfilling our critical role in promoting a safe, sound, and resilient banking system. Thank you again for the opportunity to testify today and I look forward to your questions.
▶ 0:52:27I thank each of the panelists today. We'll now turn to member questions and I recognize myself for five minutes for questioning. When President Trump in his first term signed S2155 into law, there was broad at that time bipartisan recognition from Congress that the federal banking supervisors needed to tailor their rules based on an institution's size, complexity, and risk profile.
▶ 0:52:54I want to applaud each of you and your work in your agencies for your continuing effort to return to this standard which was regrettably rejected by many of the supervisory leaders in the Biden administration.
▶ 0:53:10Vice Chairman Bowman, the committee recently sent a letter to the regulators to support what you're doing using your existing statutory authorities to further tailor the application of enhanced credential standards for category 2, three, and four banks as well as to index regulatory thresholds for those categories. Is this something that you expect uh and your colleagues to undertake and what are you thinking about as terms of sequencing that and the timing?
▶ 0:53:39Thank you Sherman Hill. That's a very important issue and I think over the years I have strongly supported the concept of tailoring regulation to the size, complexity and risk of institutions. I do plan to review our tailoring framework and our approach to ensure that it has the intended effect that Congress uh intended in in S2155 and we are evaluating indexing uh the thresholds um as we're considering broadly our work on the regulatory framework.
▶ 0:54:09Well, in the past, reggg y, which outlines the capital planning thresholds, um, uh, I think the last time President Trump was in office, they agreed, the agencies agreed to do it periodically that they would review that indexing. Do you think Congress should set that uh, that it be done automatically with inflation or some other we seem to spend a lot of time here debating that and shouldn't it just be regularly reviewed by statutory agreement and index maybe in accordance with inflation? Would that be better, you think?
▶ 0:54:38I think that indexing is a critical part of the regulatory framework. We've seen incredible growth in the the money supply as well as the assets of the banks over the last few years. Um in fact uh during co there was an exponential growth in the size of financial uh financial um depository institutions. So it would be helpful to have a regular uh cadence for reviewing those thresholds and I think it's appropriate that we do so now.
▶ 0:55:05Thank you. Uh, acting chairman Hill, um, we talk a lot in here about exam appeals and the opportunity to for a management team and their board of directors to appeal um, an exam finding if they thought it was done in an unfair manner in some manner. Goes back to my day, my ancient days at at Treasury. By the way, Hamilton was a great secretary.
▶ 0:55:29Um but in 1994 the Regal Act promised this as a part of regulatory reform then and it really an independent process just was inconsistently applied. I would say Mr. Scott my friend from Georgia and I have a bill called the Fair Exams Act that we believe would give teeth to that regal promise back in 1994.
▶ 0:55:52I know you've taken steps to revamp the supervisory process, but do you think this should be clearly outlined in in statute by the Fair Exams Act?
▶ 0:56:02Um, I I think uh I think additional clarity from a statutory perspective would be very helpful. Um, so would would strongly encourage Congress to to continue to look at that.
▶ 0:56:13Thank you. Um, we had a a hearing just a few weeks ago on deposit insurance and we appreciate you and your staff's com work with the committee extensively on the topic of deposit insurance which is of keen interest to the ranking member and myself. I'd like to ask a few questions about your views on the FDIC's reserve ratio for the diff. Um, it's a pretty straightforward formula that you have a statuto responsibility for. What is what is the requirement?
▶ 0:56:43The minimum reserve
▶ 0:56:45The the reserve ratio is defined as the net worth of the deposit insurance fund divided by insured deposits and the the minimum ratio set by statute is 1.35%.
▶ 0:56:56So, uh let's say we raise the deposit insurance coverage amounts 100 times to what it is now making meaning the denominator goes way up. Normally for the FDIC to meet its statutory minimum, wouldn't it need to raise assessments as
▶ 0:57:12Um, if I if if no other changes are made and the denominator goes up, then that's correct in order to achieve the same reserve ratio, the revenue coming into the the diff would would have to
▶ 0:57:25Yeah. So if um it seems like and if they don't collect the revenue to meet the the reserve ratio minimum that that could be put the diff at some risk. Do you agree or disagree with that?
▶ 0:57:38I think that's a that's a complicated question and and happy to go into some of the considerations. I know time is is short here.
▶ 0:57:46We'll continue the discussion. Thank you and thank the panel. I now call on the ranking member, Mrs. Waters of California to be recognized for five minutes for questions. Thank you very much, Mr. Chairman. Federal bank and regulators are prohibited from owning a bank as long as they serve in a capacity where they are regulating banks.
▶ 0:58:05This is to ensure that there is no conflict of interest, making sure they're not in a position to make decisions as a regulator where they favor their own business interest and profit making instead of what make good sense that's in the public's interest. Is that a sensible prohibition? Acting Chair Hill.
▶ 0:58:26Yes, Congresswoman.
▶ 0:58:30Vice Chair Bowman. Section 10 of the Federal Reserve Act states, and I quote, "No member of the board of governors of the Federal Reserve system shall be an officer or director of any bank, banking institution, trust company, or Federal Reserve Bank, or hold stock in any bank, banking institution, or trust company.
▶ 0:58:53Since the Federal regulates banks, does this prohibition make sense to you to ensure there are no conflicts of Yes, it does, Congresswoman.
▶ 0:59:06These common sense conflict of interest laws are good policy. Unfortunately, the president inserted himself in what used to be an independent regulatory process given the White House now must now review and approve all rules put forward by your agencies and the White House reviews your budget.
▶ 0:59:31Given this new dynamic, should the president be prohibited from owning any business where he has a role in regulating them as long as he's in office, whether it's a crypto business, a bank, or anything else. Vice Chair B.
▶ 0:59:49I don't have anything for you on that.
▶ 0:59:54Acting Chair Hill, what do you think?
▶ 0:59:57Uh, I I'll echo the comments of my colleague, Vice Chair Bowman. Well, now everybody, we're talking about the central bank of the United States of America, supposedly independent. Well, I think this represents a massive conflict of interest and that Congress should act to ensure we have rules set and enforced by those who will not be personally enriched by their public work.
▶ 1:00:21We should start by enacting my bill, the Stop Trump in Crypto Act, to ensure that Trump and his family as well as future presidents cannot commit crypto Vice Chair Bowman, I appreciated your brief conversation last week and learning you support diversity, equity, and inclusion.
▶ 1:00:44In the past, you have remarks indicating that support to minority depository institutions, that is MDI's, womenowned depository institutions and community develop uh development financial institution is quote an important part of the Federal Reserve's mission to provide a safe, sound, and accessible banking system that protects consumers.
▶ 1:01:06So accordingly, do you support the Trump administration's efforts to get rid of the CDF CDFI fund? What would that mean for these CDFI banks that provides access to credit in rural communities that the Feds oversees? And by the way, I understand you get a list of words you can't use uh when you're dealing with this um direction of the president. What do you think about this?
▶ 1:01:34We definitely recognize the important role that CDFIS and uh play in their unique role in expanding access to capital into financial services. The Federal Reserve continues to have a program that supports CDFIs from a technical perspective which is called Partnership for Progress and these are um important investments that the Federal Reserve continues to make.
▶ 1:01:54I want to thank all of you for being here today and I know that I'm asking you some questions uh that puts you in a very difficult situation at a time when the president of the United States does not recognize you as an independent agency.
▶ 1:02:09This is a central bank of the United States of America under control somewhat now by the president of the United States who owns cryptocurrency and his family and he's trying to influence and is influencing the rules of the game. And so I'm just outraged by it.
▶ 1:02:28I am absolutely outraged that a time in the history of the United States of America with other countries looking at us that we are in a position where we don't have an independent central bank that the president of the United States is in a direct conflict of interest and is brazen about it who's raising all of the money that he can possibly raise at the time that he's the president of the United States.
▶ 1:02:55Thank you for being here and my questions to you are almost unfair because there's nothing you can do about it but
▶ 1:03:02somebody's got to do something about it. I yield back the balance of my time.
▶ 1:03:08The chairman.
▶ 1:03:09Mr. Chairman, just a moment. The gentleoman yields back and we now call on the gentleman from Oklahoma, the chair of our task force on monetary policy and the Treasury Market Structure, Mr. Lucas, for five minutes.
▶ 1:03:23Thank you, Mr. chairman and thank you to our witnesses for being here today. I want to first applaud you all for addressing the ESLR so that it serves as a backs stop to riskbased requirements rather than a binding constraint on intermediaries. As chairman of the task force on treasury market resilience, I am keenly interested in making sure our capital framework doesn't disincentivize participation in the treasury market.
▶ 1:03:49I'll start with Vice Chairman Bowman, then controller or controller Gould and acting chair Hill. You've adjusted the ESLR. Would you consider adjusting other leverage ratios as well?
▶ 1:04:05Congressman, at this time we're widely reviewing all of our authorities and certainly are vested in the the success of the Treasury market, including the intermediation by by our largest banks, which is why we we have finalized the the ESLR proposal. So, absolutely, we would be happy to look at at anything that you might like us to to consider.
▶ 1:04:29uh two two points, Congressman. uh one as you as you as you probably know we are uh in the process of adjusting or at least proposing to adjust the community bank leverage ratio more generally I I I I share your concerns of the impact of overly complex capital regulation that we've seen uh following 2010 um in particular how it has in many cases caused banks to pull back from their historic role of market intermediation uh I've also seen firsthand too in March and April of 2020 again the
▶ 1:04:59cost of complexity associated with again overrought capital regulation and the ability of that overroought capital capital regulation to actually impede crisis management uh when there's an issue again as we saw in April and Mar uh April and March uh 2020. Acting Chair
▶ 1:05:18Um all I would add is is just to say um as you note the the um the final rule on the ESLR was in intended to remove disincentives for um institutions to provide um treasury market intermediation and other low-risk types of activities.
▶ 1:05:34Um we have a proposal out to modify the community bank leverage ratio and and we'll continue to reevaluate other pieces of the capital On that same topic, the government shutdown, quantitative tightening, and a reluctance to use the Fed standing repo facility have raised concerns about reduced liquidity in the Treasury market.
▶ 1:05:54Vice Chair Bowman, as you finalize the Bosel in-game proposal, how will you keep in mind the implications of the capital requirements on Treasury market liquidity and functioning given the Fed's report that the banking system is well capitalized? you expect to increase capital levels?
▶ 1:06:12I think we're currently in the process of reviewing the capital framework by looking at all four of the pillars of capital including SLR which we've just finalized and addressed. Um as my colleagues mentioned, we jointly proposed the CBLR which is um designed to help uh community banks. It's critically important that whatever the frameworks are that we create and the other pillars that we're we're working on and reviewing is stress testing which we've introduced a few proposals on this year.
▶ 1:06:41Um the GIB searchcharge will be a part of that as well as the Basel 3 proposal that we we are currently engaged in working on. It's critically important that all of the work that we're doing does not result in impairing the ability of the banks and the economy to support the the Treasury market and its functioning. So, we're certainly attuned to any risks that might be presented by the the calibration of those proposals.
▶ 1:07:04Acting Chair Hill, last quarter the deposit insurance fund reserve ratio increased four basis points to 1.4%. Is that correct?
▶ 1:07:14Yes, that's correct. I understand you can't predict to an extreme degree, but would you expect the reserve ratio to decline if Congress were to increase deposit insurance for transaction accounts over a 10-year Um the the the the way the phasein period works in the in the Hagerty also Brooks bill in the Senate, um there is a lot of uncertainty around any predictions that we would make.
▶ 1:07:44Um but based on the projections that our staff put together, which again are subject to considerable uncertainty, um the expectation would be that the reserve ratio would grow more slowly over that 10-year period rather than decline. Um but again, want to emphasize that there's a lot of uncertainty around those projections. One final thought, uh, Chair Hill.
▶ 1:08:06I continue to hear frustration from small banks in Oklahoma that during the bank failures of March 2023, the FDIC stepped in to back stop depositors, but the same action wasn't taken to a bank in Lindsay, Oklahoma, the very next year. The difference in the FDIC's actions was because the banks that failed in 2023 were too big to fail while the bank in Lindsay was gentleman's time has
▶ 1:08:30Thank you, Mr. Chairman. Gentleman from California, Mr. Sherman, the ranking member of our capital market subcommittee, recognized for five
▶ 1:08:37I want to start by associating myself with the ranking members comments. U the potential for corruption is well, the actuality of corruption was well explained. I want to point out here that so far we've seen Silicon Valley Bank go down because it didn't wasn't forced to mark tomarket uh its securities which had declined in value and bank regulators had to have this attitude that those bonds
▶ 1:09:07were worth what you paid for them which was more than you could sell them for. Um bank regulators haven't solved this problem. We'll wait for another Silicon Valley bank and another disaster and see how we react to that one. Um, Operation Chokepoint is something that I think has been rejected by some of us on both sides of the aisle.
▶ 1:09:30It's one thing for a private individual to decide they want to boycott this or that entity or and the Supreme Court seems to think that even corporations have first amendment rights. But when the government presses uh a bank not to provide transactions accounts to a legal business because that business is in coal or payday lending or is Planned Parenthood.
▶ 1:09:57Uh that's when government is going way too far. Uh can I hear from each of the regulators that uh you are not telling the banks you regulate or the credit unions you regulate that they will be um disfavored because [clears throat] they provide transactions accounts to uh businesses that are unpopular on the left, the right or somewhere else. Let me just go down the risk.
▶ 1:10:23Miss Bone, can you sure assure us there's no there there there's no choke point going on here? It's very important that all Americans have access to financial services, especially if they're engaged in legal activities and if they are engaged in disfavored activities that should not disqualify them from from banking services. So, we are very cautious and and reviewing our actions over the past few years to ensure that we were not engaged in those activities.
▶ 1:10:51I believe uh if any of the other regulators disagree with that, let me know. Let me go on to the uh next question which is uh for our uh for the credit unions and that is uh we've got these credit union board members serving as volunteers in uh I raised the issue with your predecessor and got a uh on the issue of why not allow them to get reimbured for the child care costs that they incur
▶ 1:11:21to attend board meetings. And in July of 2024, I was told in light of uh my my question, uh you're going to consider the issue. How long is it going to take you to decide that the board members can get reimbursed for childare?
▶ 1:11:37Congressman, I want to credit you for pressing that issue. Uh you are correct. It's relatively uncontroversial. It's not an issue at banks or most for-profit because you can just pay the board members. As you said, they're volunteers and it's a relatively small dollar thing. rein.
▶ 1:11:51I I hope that you move forward in weeks instead of years on that, but I've got to go on to the next question. I ask unanimous consent to put into the record an article from the Business Insider August 8th, 2025.
▶ 1:12:02Without objection.
▶ 1:12:04Uh what we this article states that Mr. Palmer Lucky in a fundraising memo to claimed that his bank charter would be drafted on a would be approved on a speedy timeline because of his political network and the bank's close ties to regulators.
▶ 1:12:25Now, this is an interesting situation because if the memo was lying, that is securities fraud. you can't go to prospective investors and say we're going to be successful. Um uh if you're making it up.
▶ 1:12:43Uh on the other hand, if he was telling the truth, that is um much worse because it means that because he's part of what is described in the article as a milliondoll uh program to give money to Republicans, he was going to get his bank charter approved uh much more quickly uh by the uh OC. So, I'll ask uh Mr.
▶ 1:13:08Gould uh since I assume um he didn't use political connections to get his bank charter approved more quickly. Have you begun a securities fraud or have you talked to the SEC about securities fraud when a man raises money for his bank by claiming that you're a corrupt organization? Well, I'm not familiar with all the allegations made in that article, but I can assure you that the OC treats any applicant or potential applicant in
▶ 1:13:35So, if somebody said they were going to get favorable treatment and put it in their offering memorandum, would that be securities fraud that you want to care
▶ 1:13:43Again, Congressman, I I'm not responsible for the securities laws and I'm not familiar with that.
▶ 1:13:48I would hope that you'd mail a letter to the SEC and I will get you the article which would be part of the record.
▶ 1:13:52Gentleman yields back. The chair recognizes the gentleoman from Missouri, the chair of our capital market subcommittee. Miss Wagner, you're recognized for five minutes.
▶ 1:14:00I uh thank you, Mr. Chairman. Uh throughout my time in Congress, one of my top priorities has been to protect our most vulnerable from financial exploitation and fraud.
▶ 1:14:13As part of my work as chairman of the capital markets subcommittee, I have been very proud to champion the financial exploitation prevention act, which would provide a powerful tool to protect seniors investors and ensure that their retirement accounts are safe when they need them the most. Vice Chair Bowman, you have spoken often on the issue of fraud and in particular check fraud, which has grown substantially over the past several years.
▶ 1:14:43In 2022, financial institutions filed 680,000 suspicious activity reports or SARS related to check fraud, an increase of over 700% um from just a decade earlier. While checks use has decreased in recent years, around three quarters of retirement age individuals still use them regularly.
▶ 1:15:10You highlighted that while check fraud has been a well-known problem for several years, regulators have been slow to address the harm that it does to banks, especially community banks, as well as consumers and businesses um that are oftentimes its victims. What actions do you think regulators themselves can take to address check fraud? And what areas, if any, would require congressional action?
▶ 1:15:37Well, thank you for addressing that very important issue. As a former community banker, I recognize that every time I speak with community bankers, this is one of the top issues that they continue to bring up year after year. So, one of the first actions that I took as the vice chair for supervision was to move forward with an um with my colleagues in an inter agency request for information to the public about check fraud and payments fraud more generally. So, we're in the process of reviewing those comments.
▶ 1:16:06We've formed a working group and hope uh our intention is to expand that to other areas of the uh administration so that all of the those that may have some sort of authority over the act activities that are um a part of reviewing a check fraud or fraudulent activity can come together to understand how we can take better action and to mitigate.
▶ 1:16:28Well, I I I thank you for that and I hope that you'll keep um my office and myself in the loop when it comes to regulatory actions and then also um any kind of congressional action that um that we can take. It's a big big problem and one that I'm very focused
▶ 1:16:43I look forward to working with you on.
▶ 1:16:45Thank you. Earlier this Congress, in response to the previous administration's burdensome proposal on the Basel 3 endgame, I sent a bipartisan letter uh highlighting concerns with uh the proposal's uh treatment of uh securitized assets.
▶ 1:17:01Specifically, the Biden administration went much too far in its changes to what is known as the P factor, which would uh have led US banks to require double or even triple the capital set uh uh aides that were required of banks in Europe and other jurisdictions even when US banks would have dealt with the exact same assets.
▶ 1:17:25Thankfully, the Trump administration is reworking its Basel 3 endgame proposal to shore up the international competitiveness of American banks and free up capital to provide credit to home buyers, small businesses, farmers that would otherwise have been locked up under President Biden's proposal.
▶ 1:17:46Vice Chair Bowman, what is the Fed doing to ensure that this and other changes that add unnecessary red tape do not make it into any new Basel 3 endgame proposal?
▶ 1:18:02Well, I'd love to address that question. Obviously, I've had provided a lot of public statements about the previous efforts on on the Basel rule.
▶ 1:18:10Yes, you have. We currently are working together with our inner my inter agency colleagues uh to uh move forward with a Basil proposal that works from a risk focused perspective from the bottom up to create a a a rule that would be more consistent with the Basil 2020 sorry the 2017 agreement so that we're not going beyond the scope of that agreement uh unless it's in of to the benefit of the U institutions. Well, I hope you pay particular attention to this P factor.
▶ 1:18:40I'm very very um concerned uh that at what the B administration did and going way too far in that regard. Acting Chair Hill, the FDIC under your leadership has done great work to ensure regulations uh its regulations, including the asset thresholds that are used to determine supervision requirements. They're tailored to fit the main the many different financial institutions under its purview. I have uh several questions in this regard, but I'm over my time, so I'm going to submit them to you and I look forward to your response. Mr.
▶ 1:19:10Chair, I yield back.
▶ 1:19:12I thank the gentleoman. Please answer those questions as you have uh time and instruction. Now call on the gentleman from New York, the ranking member of our House Foreign [clears throat] Affairs Committee, Mr. Meeks, you're recognized for five minutes.
▶ 1:19:23Thank you, Mr. Chairman. I actually just want to state that I think that the ranking members uh questions were fair, not unfair. uh they were very fair uh and important because uh anytime you know person is a president of the United States of America he's not a king and in an independent agency should be able to look at and to make sure that things are fair so I could I think it was very important those questions not unfair madam ranking member very fairy important let me turn my attention
▶ 1:19:53to vice chair Bowman because I appreciate your outlining your plan to help community banks uh succeed and grow. And you described community banks in the past as, and I quote, the foundation of our financial system. And you've explained the unique value that community banks bring to the financial system, their proximity to their customers and their understanding of local credit needs, and why they fill gaps that our larger institutions often overlook.
▶ 1:20:24And uh these institutions support rural areas, urban neighborhoods, and small towns that keep families and small business connected to loans and fabric uh uh and basic financial services. Um that's the kind of access in in underserved communities is critical for economic stability, you know, and you know, to try to create uh jobs and other things in local communities. Is that not correct?
▶ 1:20:51That is absolutely correct. And as a former community banker, I can attest that that they do that on a daily basis, every minute of every day.
▶ 1:20:59Now, we also have institutions that are designed specifically for undeserved communities. Our CDFIs and MDIs, and they often step in when traditional lenders don't. So, again, I want to follow up on one of the questions that ranking member Waters asked. Would you agree that these institutions play a critical role in the banko banking
▶ 1:21:27Yes, we recognize the value of CDFIs and the unique role that they play in providing financial services to uh underserved areas.
▶ 1:21:36So with CDFIs and MDIS uh you have spoken about improving the denovo chartering application process for community banks. Is there any reason to think that MDIs would be excluded from the improvements you are considering?
▶ 1:21:56Of course, they would be included because they're depository institutions and they're they're eligible for all of the programs that the Federal Reserve
▶ 1:22:04Thank you for that. And Mr. Ghoul, you said in your testimony that the OC has taken steps to curb what you describe as debanking on the basis of politics or and you have suggested that prior administrations targeted politically uh targeted politically disfavored industries. Now hopefully we're going to avoid any double standards here.
▶ 1:22:33Can you identify any industries that the current administration has taken actions against that might raise the same concerns? Uh, Congressman, thank you for the question. The current administration or at least the OC is focused on making sure that uh discrimination on the basis of politics or religion of any politics or any religion is has no place in the federal banking system. So no, I cannot identify uh any current uh examples.
▶ 1:23:01You cannot indiv That's very interesting to me. That's not been my imp impression. Uh when I look at some of the activities of the current administration going against some of its uh political uh individuals, that seems to be the opposite direction of which this current administration.
▶ 1:23:19Uh, does the OC have any safeguards in place to ensure that the current administration does not apply regulatory pressure to industries it disfavors because we've seen this administration being very outward those that it disfavors. It never shies away from saying exactly that. So, you have anything in place?
▶ 1:23:45As we've seen under both uh uh President Obama and President Biden's administrations uh examiners use reputation risk at times.
▶ 1:23:54I'm talking about this administration. What's in place for this administration?
▶ 1:23:57Congressman, uh both the OC and the FDI proposed a rule eliminating reputation
▶ 1:24:04Have you conducted any internal review to ensure consistency? Well, Congressman, we've looked at the past actions of the OC uh particularly around Operation Chokepoint 2.0 and we disclosed correspondence between uh the OC and banks around crypto activities in redacted form. So yes, we have conducted an investigation into our own activities historically.
▶ 1:24:34Gentleman's time has expired. Gentleman from Kentucky, Mr. Bar, the chair of our financial institutions subcommittee. You're recognized for 5 minutes.
▶ 1:24:42Thank you, Mr. Chairman. The DoddFrank Act established a number of regulatory requirements for community banks with 10 billion or more in assets. In the 15 years since its passage, the economy has grown, meaning that banks must also grow to compete and stay competitive against their largest peers. But the thresholds on community banks have remained the same. That's why I'm drafting legislation that indexes certain regulatory thresholds for community banks to nominal GDP.
▶ 1:25:10I often hear from community banks that the costs of complying with these regulatory requirements impede them from growing past the 10 billion threshold leaving them unable to compete and grow which threatens the survival of community bank the community bank ecosystem altogether. Specifically, the Durban amendment is the most costly and burdensome requirement that these smaller banks face.
▶ 1:25:34Vice Chair Bowman, does the current $10 billion threshold community banks from growing? And what does this mean for the competitiveness of the community banking sector?
▶ 1:25:45In my experience, in working with community banks that are approaching the 10 billion threshold, it certainly does disincentivize their growth. It gives them few options to be able to address the additional supervisory requirements that are imposed at that threshold
▶ 1:26:00Yeah, that's my experience as well talking to kind of larger community banks in in Kentucky who are approaching that 10 billion threshold growing organically and in a healthy and safe and sound manner, but then are because of the Durban amendment and some of these other regulatory triggers at 10 billion.
▶ 1:26:19uh they uh they want to grow, but they have to rapidly expand their balance sheet and increase their presence in new markets and activities and new business lines to account for the additional interchange costs that they would face over 10 billion. I would think that this would raise financial and reputational risk. Uh, Vice Chair Bowman, is this counter to regulator safety and soundness mandate?
▶ 1:26:41And would indexing the Durban amendment and some of these other requirements uh uh and these other thresholds allow banks to grow in a more organic and safe way? indexing as a general concept is an important uh improvement that could be applied to especially the community banking space but I think it also could be helpful um for other sizes other sizes of smaller institutions as well.
▶ 1:27:06Well, thank you for that. Last Congress, many of my colleagues and I worked tirelessly to bring to light concerns with the Basel 3 endgame proposal, including traveling to Switzerland to speak to the Basel Committee where they agreed with members of Congress uh a bipartisan delegation that the US proposal from the from your predecessor, Vice Chair Bowman, proposed gold plating requirements on American financial institutions compared to their global peers.
▶ 1:27:31Fortunately, that proposal was never finalized and the Fed, OCC, and FDIC plan to reintroduce uh a a rulemaking in 2026. To to all of the bank regulators here, um Vice Chair Bowman, Controller Gould, and acting chair Hill, will you commit to undertaking a holistic review of the capital stack to account for double counting and other duplicative capital regulations on US firms?
▶ 1:27:57We can just go down the line.
▶ 1:27:58Absolutely. We're doing that now,
▶ 1:28:00Mr. Gold.
▶ 1:28:02Thank you. And are the agencies uh to all of you again, are the agencies planning to issue a proposal that predetermines a quote capitaleneutral outcome even if some risks continue to be over capitalized?
▶ 1:28:17We're not we don't have a preconceived notion about where uh where we'll land with our capital requirements based on this review this holistic this comprehensive review of capital that we're undertaking. Now, we're looking at it from a risk based approach by each factor and and category of risk.
▶ 1:28:35Well, let me just reclaim my time because I'm running out. My my view to to all of the regulators here on this this issue of capital neutrality is that an America first banking regulatory agenda should not seek to to to just achieve international regulatory harmonization for harmonization's sake. Instead, it should seek to advantage American economic competitiveness.
▶ 1:28:57Of course, safety and soundness, of course, making sure our banks are well capitalized, but we should not just simply be looking for international harmonization in the implementation of Basel 3. We should be focused on economic growth as we balance uh uh economic and financial stability as well. Final question um uh final question to um uh Mr. Gold, Comproller Gould.
▶ 1:29:24Um we're seeing a massive increase in energy demand because of AI data centers and the race for AI. Um this scenario implies significant stress on the US power grid that will require major investments in generation transmission and grid infrastructure. I want to talk to you about um removing reputational risk uh from your regulatory oversight agenda.
▶ 1:29:46Does that mean you're going to be able to greenlight bank lending to the sources of the most reliable and affordable energy including including coal uh coal mining operators and utilities interested in investing in coal?
▶ 1:29:57The gentleman's time is expired and we ask the controller to respond to the gentleman in writing please.
▶ 1:30:02Thank you.
▶ 1:30:03The gentleman from Georgia is now recognized. Mr. Scott, you're recognized for five minutes.
▶ 1:30:07Thank you very much, Chairman and Vice Chair Bowman. Welcome. But I'm concerned about the versatility of our financial system here and what we're dealing with is not just one pattern.
▶ 1:30:24I want to give you an opportunity to explain for example the f how the Fed is approaching tailoring these reforms and its impact on the different business models. You have lenders, you have banks, you have credit unions.
▶ 1:30:44And we uh have got to be very exact and very careful when you come and legucate uh the leader of the world's financial system. And that's what we're doing here.
▶ 1:30:59Specifically, I'm interested in whether the task of updating or indexing thresholds for financial institutions who currently fall just below the category one status is still on the table. So my first question to you is this.
▶ 1:31:25Don't you see a risk in the 2019 pulling additional financial into categories that don't necessarily reflect their actual risks of those
▶ 1:31:47Yes, I think it's important that we are reflecting the actual risk of an institution including its size and its complexity. uh the complexity of its business model when we're thinking about how we should apply regulatory and supervisory requirements to each of those unique institutions.
▶ 1:32:03And and in addition to some of your supervisory a broad section of members on this very committee believe that indexing various assetbased thresholds for example for category 2, three and four banks to minimal GDP does present some risk.
▶ 1:32:32tell us about what you feel about these risks.
▶ 1:32:37I think we're currently in the process of reviewing our entire regulatory framework and and trying to determine whether or not the categories that we've established continue to be fit for purpose and that they're appropriate for the banks that are are currently supervised within those categories. uh it's important that we understand their the the challenges that they face but also the businesses and the risk business services and risks that they present to the economy and the support that they provide to economic growth.
▶ 1:33:08So these are all things that are important for our review especially of the capital uh program.
▶ 1:33:15Well, I follow some of your comments and let me ask you this. When you say, as you've said, you use the word are you proposing more risk sensitivity? Are you simply weakening oversight for some banks and not the others?
▶ 1:33:39Wouldn't a period of high inflation with real stagnant real growth push these uh up faster? Explain
▶ 1:33:54the complexity.
▶ 1:33:55Thank you for the opportunity to clarify the work that I'm doing at the Federal Reserve Board. Yeah. Um as we discuss uh the opportunity to modernize our supervisory and regulatory framework, it allows us to look backward at the last 15 years. uh as we've created uh regulations in response to our responsibilities under DoddFrank, it's important that we're looking at whether or not some of them were all of them are successful and whether they're fit for purpose.
▶ 1:34:23As a part of that, what we understand and the experience that we have in implementation is that there's a lot of overlap. There's a lot of duplication and there's a lot of conflicting regulatory requirements. Those are things that we're trying to address in our modernization. Well, let me ask you this finally while I have a few seconds. Have you modeled how quickly like for example category two and three thresholds would rise in high inflation scenarios?
▶ 1:34:53And could a bank in today's category two or three jump out of enhanced credential requirements within just a few years without reducing uh profile at all?
▶ 1:35:08These are the exactly the kinds of scenarios that we're considering as we're thinking more broadly and comprehensively about whether or not our our current capital framework and our delineation of those categories continues to be appropriate. Well, I look forward to working with you. I'm very interested in
▶ 1:35:25I look forward to working with you, too. Thank you.
▶ 1:35:27Thank you very much, Mr. Scott. The gentleman from Georgia yields back in order for me to call on another gentleman from Georgia, Mr. Loudermilk. You're recognized for five minutes.
▶ 1:35:35Well, thank you, Mr. Chairman, and thank you for this hearing and everybody here. This is incredibly important. Um especially since uh a lot of the discussion these days is about affordability and uh I asked a large gathering of businesses of all sizes and different types of businesses in the Atlanta area recently, what is the largest impact or the largest cost that generally is passed on to your customer? And without exception, they all said government regulation.
▶ 1:36:05That is the number one cost especially regulations that are not applicable to their their business or their business model but yet still mandated and compliance and reporting is required by government.
▶ 1:36:20Another area though is outdated regulations and that's one area that I've been working on and so acting director uh chair Hill um I know that you devoted a portion of your testimony to reform proposals related to the bank secrecy act and [snorts] specifically to allow institutions to reallocate resources away from lower value reporting to higher reporting. I have been working on this especially with the uh bank secrecy act and uh adjusting the financial reporting threshold.
▶ 1:36:51Um, and in fact, my bill is is entitled the Financial Reporting Threshold Modernization Act, which would increase the currency transaction report from the grossly outdated $10,000 uh number to a a $30,000 threshold, but index that to inflation going forward.
▶ 1:37:12Um, is an idea like this one that aligns with your goal to alleviate the reporting burden on financial institutions of all sizes?
▶ 1:37:23Um, sure. Thanks for the question, Congressman. Um, so as as as you know, those thresholds um have not been changed for many years. Um, and the amount of reports that are filed by financial institution is extremely large. Um so I think taking a taking a close look at this makes a lot of sense. Um those regulations are under the purview of the Treasury Department so would defer to them on the specifics but I think this makes a lot of sense as something to look at.
▶ 1:37:54My bill in its current form would increase the the CTR from 10,000 to 30,000 then index to inflation. However, would you think it would be feasible uh to immediately index the CTR to inflation now, which if it had been adjusted periodically would be at 87,000 or around there? Do you think that's feasible instead of gradually increasing
▶ 1:38:22Um again, on the on the specifics, I would defer to the Treasury Department, but I think as a general matter, indexing thresholds um is something that makes a lot of sense. And I I'll just throw this out to anybody on on the uh the panel. Um the same question, but also I think there's concern among law enforcement that this could hinder their enforcement activity.
▶ 1:38:44However, at the same time, we keep hearing that looking for uh someone doing something wrong is like looking for a needle in a hay stack, but yet we keep increasing the size of the hay stack. My suggestion is to decrease it. you feel that um lowering the or raising the threshold would would actually help or interfere with law enforcement? Anybody have a thought on that? Okay. Um I'll move on then.
▶ 1:39:14Um Chairman uh Hoffman, it's good to see you again. Had a great conversation last last week. I know that this is something that we talked about, the modernization of the Bank Secrecy Act. Um, what are you hearing from credit unions around the country when it comes to compliance costs to prepare CTRs and SARS? Do you think that there's a case to be made for increasing thresholds and indexing it to
▶ 1:39:42I can definitely tell you that the least enjoyed part of running a small institution is complying with BSA AML in general. uh when you ask why a small institution merged with another or sold out to another uh it is frequently the very first thing that you hear and these are patriotic Americans who want to fight crime just as much as anybody else but that burden uh is significant.
▶ 1:40:04Okay. Thank you. And uh in in light of the amount of time I have remaining, I don't think it's adequate uh time to go into the next set of questions. So I'll submit those to the uh for the record and yield back.
▶ 1:40:18Gentleman from Georgia yields back. Gentleman from Massachusetts, Mr. Lynch, who's our ranking member on the subcommittee for digital assets, financial technology, and artificial intelligence. You're recognized for five
▶ 1:40:29Thank you, Mr. Chairman, and and to the ranking member. Uh, I want to thank all the witnesses for your willingness to work with the committee and help us with our work. Uh, Supervisor Bowman, I read a uh I read a transcript of your remarks in Madrid at the international banking conference that was held by S hosted by Santanderea. And uh, a couple things just jumped right out at me. Uh, I got to admit they sounded a little bit crazy. So I want to make sure you actually said these.
▶ 1:41:00uh you told a conference that that it is critically important that traditional banks can engage fully in competing with non-bank financial institutions when it comes to Is that correct?
▶ 1:41:17I don't believe I specifically said cryptocurrencies. My
▶ 1:41:20No, no, this said cryptocurrencies. Yes. Muscle times in cryp on crypto. That's not in question. I think I mis then I misspoke because the the work before us is on digital assets that the Congress has directed us to provide a pathway and a framework for banks to be able to engage or for engagement in um digital
▶ 1:41:40Yeah. But here you said you said and I have the transcript here. Um, you said you you thought it was critically important that they compete that banks, traditional banks compete with non-bank financial institutions when it comes to cryptocurrencies. That's what you told the people in in in Europe in in Madrid. And I'm I'm just uh it sounds crazy because you're a credential regulator. You're supposed to be protecting depositors.
▶ 1:42:09you're supposed to be making sure there's the there's soundness, safety and soundness, that there's there's sufficient, you know, capital reserves, things you you just mentioned, DoddFrank. Uh, and it's just I'm I'm dumbfounded to hear that. And I just want to I want to clarify is is that the Trump administration policy now that traditional banks should be into crypto?
▶ 1:42:32I want to just uh go back to what I said earlier. It was not my intention to say crypto. It was that we're engaged in working with banks to ensure that if they choose to engage with digital assets that that's something that
▶ 1:42:44Isn't Isn't crypto a form of digital asset though? I mean, it is on this
▶ 1:42:48Not as you've defined it under the Genius Act. So, when we're talking about things like stable coins, that's what what uh what I meant to refer to if I
▶ 1:42:57These are speculative assets though. They're speculative assets
▶ 1:43:01that we've been directed to engage in regulatory uh promulgation by Congress.
▶ 1:43:07They're speculative assets and you again are are a credential regulator that's supposed to try to take the risk out of the system, not not inject it into the system. That's that's see there's a couple of times in our history where we've had regulators encourage banks to engage in speculative act speculative activity. One was when we had 9,000 banks fail uh back in the early 1930s.
▶ 1:43:35The second time, and I think you might have been up here on the hill, when uh in 2008 when we allowed banks to speculate in the subprime mortgage market and and some very exotic
▶ 1:43:49Actually, I was living in London at that time. I was not not engaged in
▶ 1:43:52I was here. I was here. So, but anyway, those are two examples of when we allowed banks to speculate and it was a total disaster. And and I think, you know, I got to be fair with you. Uh I think that that's a crazy idea to allow traditional banks. Remember, we're bailing them out. We're bailing them out. We don't want we don't want banks to be taking to to take uh unreasonable risks.
▶ 1:44:18We we want to have customers and depositors have confidence in our our banking system. And so uh I'm just hoping that that you're not embracing that that that policy. My view is that community banks, other banks should be able to engage in stable coins and other digital assets as Congress provides authority to do so.
▶ 1:44:42And that as we're required to, we're able to provide guard rails or uh or regulations that allow for appropriate safety and soundness activities to be engaged.
▶ 1:44:53And just square this circle with me though. you know, we've got an asset that has extreme price volatility and and you've got you're inviting banks to engage in that. Um h how does that make the bank safer by injecting digital assets into their their mix? How do you even quantify what what the uh the reserve level should be when you've got when you've got an asset that's inside that bank, multiple banks, right?
▶ 1:45:24and and this stuff could blow up and it just it it just like I say it dumbfounds me that uh we have a credential regulator that's suggesting such a thing.
▶ 1:45:33Well, the Genius Act requires us to promulgate regulations to allow for gentleman's time is expired for these types of activities.
▶ 1:45:40The vice chairman respond more fully to the gentleman's question in writing. Chair now recognizes the gentleoman from South Texas, Miss Dela Cruz, you're recognized for five minutes.
▶ 1:45:52Thank you. uh Chairman Hill for holding this important hearing today and thank you to the witnesses for being with us. I represent a rural community and largely Hispanic community in deep South Texas. So our community and our regional banks are very important to understanding the needs of South Texans.
▶ 1:46:15That being said, acting chairman Hill and Controller uh Gold, you both have an important but difficult task of trying to write the ship at the FDIC and OC respectively after the Biden administration spent years directing our credential regulators to focus on things outside your core mission.
▶ 1:46:41As you know, the culture of the FDIC and OC impact the work your examiners do and in turn impacts ability of our community bankers to serve their clients and constituents. There's often a discussion solely around the number of examiners you employ. But as I am sure you would agree, ensuring that we have experienced examiners is very important.
▶ 1:47:08In your new roles, can you share how you plan to address the young and often inexperienced bank examiners that you may have? And I'll start with uh acting chairman Hill. Is this an issue that you've seen since arriving to the FDIC?
▶ 1:47:27Sure. Thank you for the question. Um that's that's absolutely something that we are very focused on. Um the uh retention of experienced examiners is something that the agency has been focused on for a number of years. Um we are considering uh and putting in place a number of options um to to ensure that we are doing everything we can to retain experienced exam.
▶ 1:47:51Give me an example of some of those
▶ 1:47:54Sure. So, um, we have one, uh, we have one item that we're going to include in our in our budget for for next year that's going to create a new grade level for examiners that reach a certain level of experience. Um, and so,
▶ 1:48:09and for those watching television right now, what does a grade level mean?
▶ 1:48:13Uh, so essentially it would mean uh a higher level, they would graduate to a higher level of pay and it would uh acrue to their sort of retirement, etc. Um and so we have other things similarly when it comes to retention payments and things like that.
▶ 1:48:29Um essentially to ensure that examiners as they achieve a a level of experience, we we want those individuals to stay with the agency um because they're people that know the the the institutions they supervise, know the local conditions, etc.
▶ 1:48:44Sounds like we have some work to do right there. Right. Um, and Comproller Gold, would you agree that this is an issue at the OC as well?
▶ 1:48:54Uh, well, thank you very much for the Congresswoman. Um, I I I generally think we have very talented examiners across the board. Um, we created uh just in the four months I've been there, I created a community bank supervision portfolio, again dedicated to the needs of community banks. I've already been on two community bank exams, including one down in Texas. haven't been as far south as your district, but look forward to getting there. But twice down to Fort Worth, Dallas area, um I do think uh examiner training is very important.
▶ 1:49:22We want to make sure we have the resources and training kind of the next uh generation of examiners particularly around kind of new and innovative uh technologies that some of the banks may be choosing to engage in going forward.
▶ 1:49:34Wonderful. It sounds like uh we need some some work there in the FDIC and and possibly even the OC, but making sure that we have experienced um examiners is very important, especially when it comes to our community and our regional banks. I have a minute of time here, so I'm going to go on to the next question.
▶ 1:49:56Vice Chairman Bowman, last year you called on the Federal Reserve Board to tackle and identify issues that were exposed during the bank stress test in the spring of 2023, including updating the discount window. And you've spoken a little bit about that. I have a piece of legislation bringing the discount window into the 20 first century act. Could you share a quick update on the reforms the board is still considering to update um when it comes to the discount windows operation and technology?
▶ 1:50:27thank you for the opportunity to discuss u the important tool of the discount window. It is certainly something we learned a lot about its functionality during the Silicon Valley bank um experience and failure. One thing that we have recognized and we're engaging with our FHLB colleagues is to recognize the importance of being able to quickly move collateral from the FHLB system into the discount window system.
▶ 1:50:51So, we're doing a lot of work to modernize our uh capabilities and our operations in that space among many other issues and areas, but I think that's probably the most critical.
▶ 1:51:02Thank you so much. I yield back.
▶ 1:51:04Gentle lady's time has expired. [clears throat] Uh with that, the uh gentleman from Texas, Mr. Green, who is the ranking member on the subcommittee on oversight and investigations. You are recognized for five minutes. Thank you, Mr. Chairman. I thank the ranking member as well. I thank the witnesses for appearing today. I must say that I associate myself with the comments of the ranking member.
▶ 1:51:31What she said took more than intellect. There are many people with the intellect to say what she said, but only a few with the courage the courage to say what she said. Uh it was one of I think the finest moments that I've seen since I've been on this committee and I'd like to salute her and associate myself with her comments.
▶ 1:52:00as you know, there's a war for currency And this war exists because the US dollar is the reserve currency of choice for the world. It's the global reserve currency.
▶ 1:52:18Uh, as such, its importance cannot be Permit me, Madame Vice Chair Bowman, to ask you, could you kindly explain as tursly as possible the importance of the role of the dollar as a global currency of reserve uh to our economy.
▶ 1:52:43I agree with you and uh I'm sure all of us in this room agree with you with the importance of the supremacy of the dollar as a as a global world currency. dollar policy is within the remitt of the treasury department. So um other than the work that we do um in with US treasuries and and those auctions that's uh the remmit of treasury but what why is it so important? I we often say that it's important but we don't get to the nuances associated with the statement.
▶ 1:53:13Why is it so important? When the dollar is the reserve currency, that means other countries need and use and want the dollar as a part of their economic uh activities and that's critical to the future of the United States of America and our ability to continue to maintain uh our current role and status in the world.
▶ 1:53:33How important is it as it relates to imposing sanctions on uh countries that are doing things that are harmful to our I'd love to talk to you about sanctions, but that is way outside my remit. So, I would I would refer you to the Department of the Treasury uh on on sanctions and sanctions enforcement.
▶ 1:53:53Well, permit me to ask you this. Uh first, a predicate. Experts have warned that the combination of Trump's chaotic tariffs and attacks on the Federal Reserve monetary policy independence undermine the US dollar's role as a global reserve currency.
▶ 1:54:15if you agreed with this statement, I'm not saying you do, but if you did, would you have the courage to tell the he is harming our reserve currency, uh, our dollar as a reserve currency? Would you have the courage to do that?
▶ 1:54:38I agree with you this this it's critically important for the central bank to remain independent but I don't have anything for you on the other other
▶ 1:54:47The reason I ask is because the this issue of courage became prominent in my mind when I saw the responses that you were giving to the questions that the ranking member posed. And I've seen the members of the cabinet as they sit around the room with the president and how they all take great pride and pleasure in telling him how great he is.
▶ 1:55:17I um I think that there will have to be some one of you among you who will have the courage to say to this president, you're making a mistake. If if he doesn't hear persons who have that kind of courage, our economy is going to suffer as it is suffering.
▶ 1:55:41Someone has to have that kind of Let me ask uh you uh Mr. Ghouls, do you have that kind of courage? Uh thank you for the question, Congressman. Um, I believe the president selected me and the Senate confirmed me for this role because I was the best person for the job.
▶ 1:56:03I believe I would be doing a disservice to him uh and to the American public if I did on any uh at any opportunity failed to give my best advice and I will always do so. Thank you. I'm
▶ 1:56:14I'm honored that you would say so. Thank you. And I would hope that others of you would adopt that language. The president can't harm you. Stand up. I yield back. Gentleman's time has expired. With that, gentleman from Tennessee, Mr. Rose is now recognized for five minutes.
▶ 1:56:32Thank you, chairman, and uh appreciate uh Chairman Hill and Ranking Member Waters for holding this important hearing, and thank you to our witnesses for being with us today. Um, Chairman Hill, uh, have you had an opportunity to read Treasury Secretary Bessant and Senator Bill Hagert's Wall Street Journal op-ed from October 30th titled How to Make Main Street Banks Great
▶ 1:56:56I did read it. The authors uh as you know argue that the current regulatory framework and the perceived uh government guarantee for the largest banks have created a quote too small to succeed unquote environment for community and regional institutions. Uh and they call for raising the FDIC insurance limit to level the playing field.
▶ 1:57:19Do you agree with their assessment of this competitive imbalance and do you agree with their proposed Um I I think there are many challenges that the smallest banks face today. Um among those challenges include things like the cost of compliance and the cost of technology. And so we are um taking a number of steps through our existing authorities to try to ensure that we have a a regulatory framework in which the smallest banks can can succeed.
▶ 1:57:49Um, when it comes to deposit insurance reform, um, I think it is a worthwhile conversation to be having. Um, we have avoided taking any formal positions on any specific piece of legislation. Um, but I would note that the amount of insured deposits in the system as a proportion of overall deposits has come down pretty significantly.
▶ 1:58:11Um, and so I think it is uh I think it makes sense for Congress to be evaluating the potential for deposit insurance Thank you, Contra Gold. I often hear from community banks in Tennessee and across the country that their treatment varies depending on which OC program or office supervises them.
▶ 1:58:33In recent months, the OC has issued several bulletins aimed at community banks, such as bulletin 202524 and 202529, which seek to reduce unnecessary supervisory burdens and refocus exams on material financial risks.
▶ 1:58:50Both bulletins explicitly define a community bank as a financial institution with less than 30 billion in assets and state that banks meeting that definition are covered by the aforementioned bulletins for bulletins labeled as applying to community banks.
▶ 1:59:07Can you confirm that those bulletins apply consistently to all community banks under OC supervision that meet your definition regardless of whether they are overseen through the community midsize large or specialty supervision programs?
▶ 1:59:24Our goal would be to apply those bullet bulletins consistently uh to all banks engage in a community bank business model. Now there are some banks that have uh that may be small in asset size but nevertheless are engaged in activities that are not consistent with a traditional community bank business model. For example uh you know significant payments activities uh where we would uh treat them a little differently. Again we would revert back to our historic riskbased supervisory
▶ 1:59:53Thank you. Thank you. I appreciate that insight and I would just uh I guess reaffirm that it's so important that these banks get consistent guidance and that uh it doesn't appear that the examiner or the program or the region of the country that they're in is in some way affecting the supervision that they're getting and the way that their examinations proceed.
▶ 2:00:17Uh, Chairman Hill, looking back on the bank failures from 2023, it's clear that once a deposit run begins, supervisors have very few tools to stop it. What tools does the FDIC believe it would need either operationally or through expanded authority to allow an individual bank to fail while still shoring up confidence in the broader system?
▶ 2:00:43Sure. Um so I I I fully agree that our our tools are fairly limited. Um the tool that was or the primary tool that was used in 2023 was um invoking the systemic risk exception which under the under the current statute limits us to essentially protecting creditors and and depositors of the institution that failed.
▶ 2:01:07Um, I think there could be some merit in um allowing uh regulators to have the authority to provide a a timelimited deposit or or other debt guarantee across the system. Um, I think if if Congress were to do that, we'd want it to be time limited with guard rails in place. Um, currently there is a process where the Congress can do that through FRA fasttrack procedures.
▶ 2:01:32And I think what 2023 demonstrated was those fasttrack procedures are still way too slow for the speed at which bank runs can can spread.
▶ 2:01:43Thank you. My time is expired. I yield back, Mr. Chairman.
▶ 2:01:45Gentleman's time has expired. Uh the gentleman from Missouri, the ranking member for the subcommittee on housing and insurance, Mr. Clever, is recognized for five minutes.
▶ 2:01:53Thank you, Mr. Chairman. I want to associate myself with the comments uh issued earlier by the ranking member, Miss Waters. Uh, Mr. Ghoul, your paper, your memo to us um had me to read it several times uh because it's one part of it just leaped from the pages uh into my mind.
▶ 2:02:22Um and and it's uh recorded on page one and two um first two p paragraphs on base two uh when you said that uh no American should be denied access to banking products and services because of political or religious beliefs.
▶ 2:02:45Um, I'm I'm curious about whether or not we have um any evidence that there's been uh discrimination uh in banking and and if there is, if you could help understand it.
▶ 2:03:11Well, uh thank you for the question, Congressman. I I I think it should be an uncontroversial uh statement uh saying that we should uh not condone any
▶ 2:03:20I apologize. I apologize. I'll ask it another way.
▶ 2:03:24Um does political discrimination exist in the American banking system? And if so, if you would give me an example, it would be helpful.
▶ 2:03:33Uh co congressman, thank you again for the question. Um, as I noted also in my uh opening statement, we're in the process of looking at the activities over the last few years of the largest national banks. Um, it's premature for me to comment on the results yet of that review. Uh, but I will of course upon its completion inform this committee and the public of what we find.
▶ 2:03:57So, so you believe that there has been political discrimination discrimination on on a potential um customer Um [snorts] I'm I'm I just want to know I'm not this is not a hostile question.
▶ 2:04:17Again, Congressman, as I as I just stated, we are in the process of reviewing the activities of the largest national banks where there have been allegations of political debanking and I look forward to sharing uh the results of that review when it's complete with you all.
▶ 2:04:31So, debanking not I mean the debanking is is actually preventing someone from uh receiving uh banking privileges. Um I I want to know if there's Okay, I I'll move to another one. Uh because it's it's really something I'm concerned about and that's religious banking.
▶ 2:04:58in your um statement you you mentioned that um and I agree with you that religious uh uh should not be included in or uh practiced by uh banks and I would uh I'm not I've done a little on this issue already.
▶ 2:05:24I've written actually written several papers on on uh religious Um and so I just I I I don't know how religion can enter into the banking system. Um and there's discrimination. Can you can you help me?
▶ 2:05:44Yes sir. So again, I'm aware of uh allegations of a number of religious uh organizations uh charitable organizations that have alleged uh debanking um over the course of the last years. Um and we have been sifting through our own OC complaints as well as working with third parties and other government agencies to sift through complaints of religious discrimination.
▶ 2:06:10And that is again also something that we will be reviewing and uh sharing our results with this committee when we're
▶ 2:06:17we have no evidence that that has
▶ 2:06:21Uh sir, I wouldn't go so far as to say that. I would just say that there are a number of allegations of religious uh debanking that have occurred and been made to the OC as well as to other uh government agencies. and it would be premature while the review is still ongoing for me to conclude as to whether or not they actually happened um until again I've completed the
▶ 2:06:46Well, I applaud you for for the investigation because I I I mean one of the things that the president did early on was to eliminate departments uh in various agencies that uh who had the responsibility for looking for exclusion and and discrimination. Thank you, Mr. Y [snorts]
▶ 2:07:06gentleman's time has expired and I will be recognizing myself uh now and acting chairman Hill. Uh let me start with you. In in 2024 after uh substantiated allegations against former FDIC chairman Marty Groomberg and an independent report concluded that there was a lack of accountability, fear of retaliation, insufficient prioritization of workplace culture, and an abuse of power dynamics at the FDIC. Uh we did hearings on that.
▶ 2:07:35And in addition, a staff report released by this committee last Congress noted that the next FDIC chairman will need to quote undo years of damage to morale and culture at the agency close quote. Uh you've been on the job for as in an acting capacity for the past year.
▶ 2:07:53What steps have you taken uh even in that uh even in that acting capacity to ensure that the FDIC makes good on the recommendations made both by this committee but uh just as importantly maybe even more importantly the Clearary
▶ 2:08:09Sure. Well, thank you for the question. Um and let me start by saying that um harassment, other forms of misconduct have have no place at the FDIC or any other um workplace. Um and fixing the culture at the FDIC has been a key priority throughout this year. Um and appreciate all the the work and oversight that you and your team has
▶ 2:08:28Are the employees receptive to it? I mean this this it was it was bad and this was a both sides recognized that it was bad.
▶ 2:08:36Fully agree. Um I think there is widespread commitment at the agency to to turn the page on the problems of the past. Um there's been significant turnover in leadership at the agency. Um we have an entirely new board. Um about half of direct reports to the chair have have turned over this year. Um we've replaced a a large number of managers across the agency.
▶ 2:09:00um we have prioritized accountability which I think was really the the key root cause of the problems which is that there were many cases where either people didn't report things because they didn't have confidence in the in the process or they did report things and people were paid off with settlements and the wrongdoers didn't have accountability.
▶ 2:09:19And so we've taken a number of steps to set up new offices, new processes in place to ensure that when there are there are allegations that there's a process that there's an there are independent investigations and that there is discipline appropriate for the for the
▶ 2:09:34Glad to hear that. And you don't strike me as the type of person who's going to scream at their employees as they're coming in about trivial things. So uh got a few head knots behind on that. So I appreciate that. Switching top topics, but staying with you. I know a little earlier you had talked about uh uh the failed bank resolution framework as a uh worthy um worthwhile conversation to have. Uh two weeks ago the committee held a hearing on proposals that would make changes to the deposit insurance framework.
▶ 2:10:04And while the issue is far from settled, I think it's important that we don't dismiss how interconnected the debate between deposit insurance is with bank resolution. uh in bank failure scenarios, it makes sense to have a wide range of institutions lined up uh to bid on the failed banks in increasing the proceeds received by the FDIC for its sale and then lowering the potential costs of the deposit insurance fund.
▶ 2:10:27Uh is this something that you this is something you and I discussed in 2023 uh during the banking turmoil and um and I know this is something FDI has been looking at. You're not commenting on any particular legislation. I happen to have particular legislation on that. Uh, I saw Mr. Gold's head pop up on that because you're going to be a part of that as well. Um, but you you had noted that the FDI has developed a seller financing program for non-bank bidders to increase competition by including private equity firms and other non-bank entities.
▶ 2:10:57Uh, do you believe this would ultimately reduce the cost to the FDI to the diff to to the deposit insurance
▶ 2:11:03Absolutely. Um, that's the goal. We're taking a number of steps to try to improve the bidding process um to facilitate more and better and lower cost bids and trying to bring more capital into the bidding process. And the the ultimate objective of all of it is to a reduce the cost of the diff and b increase the likelihood of stabilizing transaction uh options in the event of of large failures.
▶ 2:11:28Right. So my my bill, the enhancing bank resolution participation act directs the FDI and OC to jointly study the feasibility and utility of shelf charters meaning pre-approved ready to go uh entities that are a capital raising vehicle to bid unfailed banks and on modifications that could pursue could be pursued and modified the bidder qualification. In the last 30 seconds here, do you uh do we need to address the bank resolution framework at the same time as the FDIC network? Mr.
▶ 2:11:58Uh thank you for the question. I I you know I do share I think many of the concerns that the acting chairman has stated publicly around the the resolution execution capabilities that were on display or or the lack thereof in the March uh 2023 time frame. Um so certainly I support um uh both a you know more robust public disclosure around what occurred during that time frame so that b you know congress can then inform itself as to whether it needs to act from a statutory
▶ 2:12:25Right. My time has expired. I I do without objection would like to submit uh this letter uh from a joint trade statement for the record uh regarding our hearing today. Hearing none uh so moved. And uh with that, my time has expired, but we are going to take a a brief pause uh here as a committee. Uh the minority is aware of this as well. We're going to pause briefly while we adjust the witness's microphones. And uh we'll uh we will return shortly. So with that, we take this pause.
▶ 2:14:15right prepared to resume. Um the gentleman from Illinois, Mr. Foster, who is uh the ranking member of the subcommittee on financial institutions, now recognized for five minutes.
▶ 2:14:25Thank you, Mr. Chair. Um, and uh, I I'd also um, let's say I'll start with Chair Bowman. I just want to thank you and your fellow board members for the series of conferences that you've held in recent months. I was pleased to be able to attend two of them. One on the future of community banking and another on the future of payments. And it was really great to be able to to sit there and actually talk to the boots on the ground in these very important and and emerging and traditional industries.
▶ 2:14:51And I I think that I urge my colleagues actually if they get a chance to attend those and to try to do everything you can to encourage member attendance at those. You know, I I frankly I learned a lot. Now, one issue that actually came up uh repeatedly in both of the conferences was it was issues of fraud costs and the the cost of preventing fraud and uh the controller um the OC, FDC, FDIC and board of governors recently issued a request for information on potential actions to address payments fraud.
▶ 2:15:22You know, I regularly hear about this uh from community bankers in my district all around Illinois about the challenges that they face with identity with payments largely identity theft and then check fraud in large part checking. Uh the comment period closed in midepptember for this and I know that bankers are anxiously looking forward to the next steps.
▶ 2:15:42So, um, controller Google, do you have any initial takeaways from the RFI that you can share and what can we expect in terms of next steps from your agency and when might we see them taken?
▶ 2:15:53Well, thank you very much for that question, Congress. Uh, Congressman, um, uh, in the in the four months I've been on the job, that is certainly an issue, fraud that has risen to the top of of of my kind of to-do list. It was not something that I was hearing non-stop five years ago when I last worked at the agency. Back then it was uh cannabis banking when we met met with the community bankers, but now it's fraud and I appreciate the seriousness of the issue.
▶ 2:16:17Um I think a lot of the the things that we can do are probably steps that we have to take across the the federal banking agencies and even beyond. Speaking just for the OC, one thing that I have heard repeatedly uh from smaller banks is concerns around check fraud where the very largest banks which happen to be uh national banks are seemingly uh or allegedly very slow in refunding money owed to small banks.
▶ 2:16:46So we have been to date facilitating those complaints and making sure that the very largest national banks are responding in timely fashion. Uh that's something I would look would like to look into further in terms more generally of the RFI. Um again I think that's something we need to work with um across our three federal banking agencies and possibly beyond. But I think it's something that certainly from the OC's perspective we understand is extremely important given the volume and how it's impacting particularly smaller banks in a disproportionate manner.
▶ 2:17:15Yeah. Do any other witnesses have comments on the whole issue of and you know a huge part of this is you know online payments fraud. A big part of that's identity theft and you know the tool at hand is your cell phone and the the digital driver's licenses when if you're allowed if you're able to present online a real ID compliant digital driver's license you know which is in the technologies in everyone's cell phone you can pretty reliably prove that you are who you say you are even in an online transaction you know that stops
▶ 2:17:45the hackers in their tracks um at least for for fraud that scales and so I I urge you to keep pushing ing on both of those that checking is a huge problem and the responses of banks and also just raise our you know raise our game in um electronic online identity verification that could be a huge cost savings.
▶ 2:18:06One thing I heard about at that conference for a lot of was just the huge amount of of costs that banks incur for trying to make sure that um you know online transactions are are valid. Um, another thing that came out was a lot of discussion on the payments conference of the implementation of the Genius Act.
▶ 2:18:24And one thing that came up um was actually with the small community banks a lot was the worry that that interestpaying stable coins um are would have the potential of pulling deposits out of particularly small community banks. uh that there are some estimates that say that interestbearing stable coins could cause more than about more than $6 trillion dollars of deposits to leave the banking system and particularly the small banks that are often the only source of business investment in in small towns.
▶ 2:18:54And so I was just wondering, you know, it took even though we had a nominal prohibition of paying interest on on, you know, what got voted out of this committee, it's actually not um it took the crypto industry about two days to figure out how to effectively pay interest on this. And is there is this something that that you think you're going to need congressional action on to prevent this from happening? And anyone wants to take a bite of that? Do we need legislation?
▶ 2:19:21If you could answer for the record, you how serious you see this problem because I just heard about it uniformly that the the small community bankers that were present at that conference were were terrified and angry about the threat. This is essentially the reemergence of narrow banking that the Federal Reserve has traditionally objected to for
▶ 2:19:39Gentleman's time is expired.
▶ 2:19:40Thank you. I now recognize myself uh for five minutes. Um, so look, in this committee, uh, I want to say thanks for you all being here today. Thanks for your preparation and for your testimony today. But in this committee, we've been hammering home a simple truth.
▶ 2:19:56America's financial institution and our system thrives when regulators stick to safety and soundness, not targeting political rivals or picking winners or losers in the marketplace, weaponizing the laws and frankly the lack of laws in our government. Under the Biden administration, we saw oper operation choke point 2.0. 0 resurrected from the Obama administration where choke point 1.0 was. We saw it in full swing.
▶ 2:20:21Regulators were weaponizing uh quote reputational risks to bully banks into debanking political rivals, crypto innovators, stable coin pioneers, and everyday folks just trying to build a future. It wasn't about risk. It was about control. But here's the good news. The Trump administration is slamming the door shut on that nonsense. And many of you are in place to do that. to just follow the law and apply even-handed regulations. So, thank you.
▶ 2:20:46We've withdrawn poison pill guidance that ban and banned reputational risk from exams and we're ready to unleash American leadership uh in our financial sector including our digital asset sector. So, today I want to um lock in the progress and make sure there's no chokeoint 3.0 or anything like that underway. Vice Chairman, Vice Chairwoman uh Bowman, how's the Federal Reserve turning the page on chokepoint and approaching bank participation uh in in all markets um particularly digital assets?
▶ 2:21:17Well, as you mentioned, all of us are engaged in implementing the the president's executive order on debanking and taking actions as a result of the directives that were contained within that executive order. Um what we have done specifically at the Federal Reserve is that we have eliminated reputational risk within our examination context and within our supervisory function whether that's in guidance or in regulation. We've rescended anything that and and edited out the word um reputational risk.
▶ 2:21:47So it no longer is a part of the vernacular uh at the Federal Reserve and within our supervisory context. We're also conducting an audit of supervisory and banking activity uh so that we understand that uh whether we've met those expectations and that we can do so going forward. And we're also reviewing the past activities at both the board and at the reserve banks to identify actions that would be inconsistent with the executive order.
▶ 2:22:13We're also contemplating um moving forward with a proposal that's similar to what the OC and the FDIC have put forward to um ensure that this is a durable change and that on a a proposal an NPR on um eliminating reputational risk from from the banking.
▶ 2:22:32Yeah. Thank you. You also uh the Federal Reserve recently talked about a change to master accounts potentially making them more accessible and more concrete uh set of rules. How would that work? Uh we're um currently exploring the options that we have within our regular um framework for master account consideration. Uh and it's something that um could be uh potentially available as we're as we're currently reviewing um how that could uh be effective in a limited construct.
▶ 2:23:02All right. And then lastly, um you know, you mentioned that you're following the president's executive order, but one of the other executive orders that um you put out with respect to digital assets is no development of a central bank digital currency. Obviously, at some point, portions of the Federal Reserve been engaged in that. Uh is the Federal Reserve still engaged in developing central bank digital currency?
▶ 2:23:22There are parts of the Federal Reserve that are continue to be engaged in activities related to global activities on central bank digital currency within the construct of the bank for international settlements and our participation in some of their um some of their work on
▶ 2:23:38Does the Fed consider themselves subject to the president's executive order banning central bank digital currency? We believe that there is no uh authority that Congress would have to provide the authority for the central bank to engage for the the Federal Reserve specifically to engage in creation of a central bank digital currency.
▶ 2:23:55Thank you. Uh controller uh Gould, uh under President Trump's fair access rule, banks cannot deny services to an entire lawful industry. Has the OC seen any evidence since January 2025 of national banks continuing to debank crypto firms? Uh so we're still in the process of going through um the complaint data that we've received uh in accordance with the president's EO. I I I um I mean I'm aware of some anecdotal
▶ 2:24:26Well, I look forward to the report and you've kind of answered an adjacent question there, but I'll just also add that you know and you've alluded to cannabis banking, marijuana banking, but I'd love uh to submit a question for the record there to see you know where the state of play is. Are banks still being blocking customers who are engaged in lawful uh marijuana activities? Because nearly every state, whether you like it or not, uh has made some form of marijuana uh lawful in those states and we haven't synced up at the federal level.
▶ 2:24:55So, I'd love to catch up on how we're doing that. Uh my time has expired and I now recognize uh the gentleoman from Ohio, uh Miss Batty, who is also the ranking member on the subcommittee for national security.
▶ 2:25:07Thank you, Mr. chairman and to our ranking uh member and more importantly thank you for being here today. A lot of tough questions that you've had today because we're in tough times but let me start with following up something that my colleague on the other side uh Ann Wagner alluded to in talking about the some 682,000 uh cases of check fraud.
▶ 2:25:33Uh, as we know, fraud and scams are robbing American families of their hardworking savings. It's the number one concern that I'm hearing from banks and credit unions in my third congressional district. And this summer, I was really pleased to see that the FDIC, the Fed, and OCC issued a request for comments to uh address the payment and in check fraud.
▶ 2:25:59So, we also know that Congresswoman Maxine Waters, last Congress, introduced House Bill Protecting Consumers uh from uh scams act. So, my question to you, and I'll start with you, Miss Bowman, and quickly work down to you, Mr. Heel. What are your topline takeaways from the comments submitted? And what target areas are you looking to prioritize? So, are there any target areas? Yes or no?
▶ 2:26:27And if so, give me at least one and then we can get.
▶ 2:26:30So, yes, this is a critically important issue and I think some of the most important areas that we should be focusing on is account openings.
▶ 2:26:38Thank you.
▶ 2:26:40Excuse me. One area for us to focus on again is the relationship between the largest national banks and payment processing and check uh check refund returns and and the community banks.
▶ 2:26:53I will say that uh Congress passed the Genius Act and one positive of blockchains, especially public blockchains, is they eliminate some of these issues uh that can happen with other forms of payment. If you're asking about check fraud, obviously it's been around since we've had checks.
▶ 2:27:07And I'm aware that the harm isn't just those who are defrauded. It's the regular credit union member who's saying, "Why can't you cash my check? Can you just give me the money? It's a certified check. Why don't you give it to me?" And it is not their fault nor their credit union's fault why that uh is the case why there is a delay. So uh we try to circulate on our website uh every new fraud that there is u from romance scams to check fraud.
▶ 2:27:32Mr. Heel.
▶ 2:27:33Um thank you uh Congresswoman. Uh fully agree this is a big and growing problem. Um we are working very closely with our with our peer agencies as part of a working group. I fully agree with the comments from Vice Chair Bowman and uh acting or comproller Gould. Um, we are continuing to work through the comments and and happy to follow up with more
▶ 2:27:51And I'm glad you said followup because I would like you to stay in contact. This is very important, I'm sure, to all of us, but in my district, I'm I'm being held accountable for what am I doing? And you're right, it's an age-old thing, but it appears to be more prevalent now uh that we're seeing this. So, I would like to have some contact.
▶ 2:28:15I have my legal counsel and financial person Sierra here and so this is something you're going to hear over and over from me. Let me quickly go to the next uh question and for uh you acting chairman heel and chairman Bowman and comproller gold. Uh [snorts] I'd like to start with some questions on cyber security. We've addressed that a lot today and the risk posed by third-party service providers and other technology solutions.
▶ 2:28:41is we know cyber um adverse adversaries not only target financial institutions but also federal regulator a regulatory agencies. What are the steps you're taking to enhance the cyber security of your agencies and effectively notify financial institutions when there's a breach of confidence and sensitive information that regulators collect from financial institutions?
▶ 2:29:12Okay. You want me to pick somebody?
▶ 2:29:14Okay. And
▶ 2:29:15I'll I'll be happy to start since I certainly raised the issue and and uh unfortunately the OC was the was the victim, right,
▶ 2:29:22of a data breach that went on for almost two years. Um, when we learned of the breach back in February, uh, we engaged extensively with the banks that we supervised to let them know what we were doing, how we were addressing it, what information was exposed. I I will say that in addition to bringing on board multiple kind of forensic technical experts to analyze the issue and to make recommendations to ensure that the risk of this happening again is dramatically decreased.
▶ 2:29:53I actually turned our own examiners on our agency to examine us as they would a bank to ensure that we had actually uh made the changes that the third party had recommended, the forensic consultants had recommended.
▶ 2:30:07Unfortunately, my time is up. So, do you all agree? Can he be the spokesperson for you all? And if it's a no, you can then get back to me.
▶ 2:30:15Okay. Look like you have some friends. They nodded. I yield back.
▶ 2:30:19Thank the gentleoman. Uh, I now recognize the gentleman from South Carolina, Mr. Timmans, for 5 minutes.
▶ 2:30:25Thank you, Mr. Chairman, and thank you to our distinguished witnesses for being here today. I want to begin begin by commending [clears throat] each of you for your efforts to maintain stability in our financial system in a way that protects consumers, reverses harmful one-sizefits-all policies, and provides much needed clarity to our community banks and credit unions. This hearing is critically important as we work to ensure that our regulatory framework remains effective, transparent, and responsive to the needs of the institutions and communities. it is intended to serve. Vice Chair Bowman, I would like to begin with you.
▶ 2:30:54The Federal Reserve's recent finalization of revisions to the large financial institutions ratings framework is viewed by many as a common sense and long overdue improvement. Ensuring that banks are not judged solely on their single lowest component score will create a more accurate and balanced assessment of institutional health. Could you speak to the Federal Reserve's plans to implement this reform and how we should expect it to be faithfully and consistently implemented by examiners?
▶ 2:31:21Thank you for allowing me to to provide some additional information and context to our large bank financial uh rating system. So when the system was initially introduced in 2019, it allowed for a single deficiency. There are three categories that that it consists of governance and controls, capital and liquidity.
▶ 2:31:40And it the initial framework allowed for a deficiency in one of those categories not requiring it to be as a financial matter but any of those categories could determine a bank to be not well-managed as we know and as a we saw in Silicon Valley banks failure banks fail for a number of reasons that are highly predictable and always related to their financial condition.
▶ 2:32:04So, it's important that we're not artificially uh judging an institution to not be well-managed if we're not reviewing their financial health as a part of that determination.
▶ 2:32:19Thank you for that. Turning now to the need for greater regulatory tailoring. I want to thank you both uh Vice Chair Bowman and you, Chair Hill, for supporting efforts to refine our regulatory regime and for advancing the policies that this committee and our colleagues in the Senate have worked on throughout the year. I consistently hear from banks and credit unions in my district that an overly burdensome regulatory framework forces them to divert time and resources away from serving their communities.
▶ 2:32:42At the same time, I recognize that limited resources pose challenges not only for financial institutions but also for the agencies charged with supervising them. Reforming standing policies such as the community bank leverage ratio along with implementing initiatives like my smart act will strengthen our financial system and allow institutions of all sizes to better support their customers. Uh, Chair Hill, as we consider these efforts, how does your agency plan to improve the consistency and clarity of the supervisory process?
▶ 2:33:09And would legislation such as the Smart Act and the Trust Act help conserve agency resources in a way that ultimately enhances the quality of supervision?
▶ 2:33:18Um, thank thank you, Congress, Congressman, for the question. Um, so we are engaged in um taking a a close look at many aspects of our supervisory process. um trying to promote more consistency and clarity across the board are key goals that are informing many of the activities that we have underway.
▶ 2:33:37Um the proposed rule we issued with the OC that would define unsafe or unound practice and matters requiring attention is is partly intended to achieve more consistency across exam teams. Um, our supervisory appeals process is also that we've proposed is also intended to to um promote more consistency among other things. Um, and with respect to the legislation, certainly happy to to work with with you and your your office on um on providing feedback to anything that would be helpful.
▶ 2:34:07Sure. Thank you for that. Finally, I want to turn to digital assets. Your agency's plans for implementing Genius and the broader conversation around future market structure legislation. In August, I hosted roundts in my district with stakeholders from across the financial sector. A consistent theme was the future of crypto legislation and how traditional financial institutions are preparing to participate in this evolving market. These legislative efforts have the potential to reshape our financial system and reduce unnecessary intermediaries.
▶ 2:34:33As this work moves forward, it is essential that our finance financial institutions remain informed and fully equipped to adapt so that they are not left behind. Uh, Chair Hoffman, you and I discussed Genius implementation a few months ago, and I would appreciate an update on the NCUA's preparedness. I would also welcome your thoughts on how we can more effectively educate credit unions in South Carolina about the work underway in Washington.
▶ 2:34:55Well, Congress has given us a deadline, I believe, of July 18 next year, and it is my intention to work with my fellow regulators to meet that deadline. Obviously, that's going to be proposed rules and then final rules. We're sitting here on December 2nd and don't have either one of those yet. So, obviously, between now and July, it's supposed to happen. My guess is the first thing you'll see is uh I believe the first rule making mentioned which is how to apply to be an issuer which for credit unions would be credit union service organizations because they don't have subsidiaries.
▶ 2:35:21Thank [snorts] you for that. I'm out of time with that. I yield back. Thanks.
▶ 2:35:24Thank the gentleman. The gentleman from California, Mr. Vargas, who's also the ranking member of the task force on monetary policy is now recognized for five minutes.
▶ 2:35:32Thank you very much, Mr. Chairman. I want to thank the chairman and also the ranking member and in particular the ranking member. I think what she said today was not only true but courageous. Um it's sad but I do think we're living through a pretty shameful moment in our history. And I think that is how history is going to see it. And I think a lot of the people that are here today 10 years from now are going to see themselves as Liz Chenis and Adam Kinzingers. But they weren't. They weren't.
▶ 2:36:02We allowed all this corruption to go on and it's sad. I've been in politics for a long time. I got elected back in 1993 and it's interesting in a hearing like this. Normally what happens the politicians we make a statement and our statement is pretty political as mine just was and then normally we go to the professionals and then the professionals give us information that's very important for us to make decisions.
▶ 2:36:25But it's seldom the case that the professionals use the jargon of politicians and that's been the case most of the time that I've been here with the exception of today. I I was very interested because some of the jargon that was used today, unelected by the way, that's called professionals. Unelected bureaucrats, the weaponization of finance, all of this jargon is jargon that is used by politicians.
▶ 2:36:57It shouldn't be used by professionals. And we saw that today and I think that that's disappointing. Um anyway, I wanted to say that because I do see a sliding right now of professionalism in the government and I think it's it's sad and also intellectualism, frankly. I mean, I I see today, you know, we're trying to figure out if what we're doing in at sea right now is legal or not.
▶ 2:37:24You know, it's it's the the equivalent of bayonetting the wounded when you have survivors on a ship and you hit them again. I mean, clearly war crimes and this is what happens when we the government and those that are supposed to carry out the laws. So anyway, I was disappointed in some of the jargon here today and I'll leave it at that. Now, I do want to turn to climate change.
▶ 2:37:52You know, I think climate change is something that's interesting because I been around again a long time and used to be that no one believes in it. Now, a lot of people do. So, I'd ask you guys, how many of you believe in climate change? I'll start with you, Mr. Hill, because you're closest to me.
▶ 2:38:06Yes, sir, I do.
▶ 2:38:07You do?
▶ 2:38:08Want to go down the line?
▶ 2:38:11Climate is changing. That's correct,
▶ 2:38:13Okay. Is it But it is changing. Okay. I won't go into the human aspect, but you do think the climate is changing. Yes.
▶ 2:38:19Our view on climate change and natural disasters, which are risk of financial institutions, is that the local communities are best served to it. Nobody in Florida or Puerto Rico needs me to tell them they have hurricanes.
▶ 2:38:29That's right, sir. uh whether you call it global warming or climate changing. Yes, I understand the the climate is
▶ 2:38:36Okay, vice chair.
▶ 2:38:38I think climate change is excuse me, climate change is an important policy question and u natural disasters and events happen all the time. I'm from Kansas, so I'm particularly familiar with things like tornadoes and and
▶ 2:38:52And yet you guys are pulling back from that information. It seems like now you're not participating like before. is there are there no financial risks then? You are the credential regulators. You don't see risks here in climate change. I mean, you know, you you mentioned it. Well, I'm from California, too. Fires. It's interesting. People never talk about Kansas or places where they get hail because actually hail is some of the largest damage that you see in insurance. It's actually hail.
▶ 2:39:20And you're going to see more and more of that because of climate change. And I think it's going to affect the mid part of the country significantly. But I I think it's a real risk. I think most of humanity thinks it's a real risk except for us today. Would anyone like to comment on it? Mr. Gold, go ahead, sir.
▶ 2:39:38Oh, may I may I
▶ 2:39:40Yeah. Yeah, please do.
▶ 2:39:41So, I think it's not that the these these events are not risks. It's that they're not more important risks than other risks that banks face. And we believe that um banks have been facing these risks. Obviously, I'm a community banker from a mostly rural and agricultural bank where farmers are the most optimistic people on the planet who have to mi mitigate and manage to what the weather gives them every year. So, they've been managing for these risks for the entirety of the banking system.
▶ 2:40:09And it it's not that they're not important risks, it's that they're not more important than other material risks. Okay, we could disagree on the the the how important it is. But just lastly, I would like to say I hope you don't slide into this unprofessional Keep it tight as they say when you used to play football. He's you don't don't slide off and start to speak like politicians. Thanks again. With that, I yield back.
▶ 2:40:36Thank the gentleman. Uh the gentleman from Pennsylvania, Mr. Muer, who's also the chairman of the Oversight and Investigations Subcommittee, is now recognized for five minutes. Thank you, Mr. Chairman, and certainly thank you to all of you. Uh, this is very important and worthwhile, so it's appreciated. Comproll, Vice Chair Bowman, Chair Hill, and Chair Hopton. Thank you.
▶ 2:40:59Uh, first on Basel 3 endgame, uh, we need capital rules that strengthen safety and soundness without limiting access to capital for large and small businesses. Second, this committee's debanking report validates our concerns. Uh, last Congress, U. Biden regulators pressured many banks were co coerced to comply and lawful Americans lost access to banking services. Uh Mr.
▶ 2:41:21Chairman, I ask unanimous consent to enter into the record the majority staff debanking report entitled operation chokepoint 2.0 Biden's debanking of digital assets.
▶ 2:41:32Without objection. Uh so I appreciate um controller of Ghoul, Vice Chair Bowman and acting chairs Hill's early action regarding debanking uh by eliminating reputational risk which our colleague representative bars bill the firm act has codified in order to achieve fair access to banking the private sector has a role to play as well of course. Third uh third financial fraud and scams are rampant.
▶ 2:41:56And this committee is committed uh to to a government, private sector, and a whole of society effort to protect consumers, seniors, veterans, young people, small businesses, every everyone out there. And that's a top priority for my subcommittee on oversight and investigations. So, um Vice Chair Bowman, I'd like to start with you, please. You've been very clear on Basel 3 endgame.
▶ 2:42:18uh very refreshing as a matter of fact that um it can have real benefits if calibrated properly for bank lending especially for community and regional banks. Uh in your view how can right siz and capital requirements that primarily affect larger banks help support small business and agricultural If we're speaking specifically about Basel 3, it's important to understand that the approach that we're taking limits the application of Basel 3, the required participants to
▶ 2:42:48the largest banks. So those requirements would not apply to the smallest banks unless they chose to opt in to that framework.
▶ 2:42:56Okay. [clears throat] Um let me ask you this then. Do you do you plan to examine the tier one leverage requirements uh the the GIB search charge the CCAR requirements as part of your effort to rightsize CBO?
▶ 2:43:07So we're looking at all the capital framework and the capital pillars in in a comprehensive way. We've already worked to address the community bank leverage ratio by setting it at the statutory floor that Congress provided us. Uh I think there are a number of different categories that we're looking at. We'll have a GIB searchcharge proposal. we already introduced the SLR and uh the the other is the stress testing in addition to to Basel 3.
▶ 2:43:32We're making progress on all of these uh different capital pillars and u and I definitely tell you that we're not reverse engineering an outcome. We're looking to do risk assessments that would allow for us to to set these calibrations according to risk.
▶ 2:43:50Okay. Thank you. To be clear, the Basel 3 would have greatly destabilized, if you will, our our banking community and not helped community banks nor helped uh larger banks
▶ 2:44:03in its previous proposals iteration. Yes, I agree.
▶ 2:44:06All right. Controller Gould, uh the debanking report this committee issued yesterday detailed how Biden regulators pressured banks to debank crypto, energy, firearm companies, as well as politically disfavored groups uh resurrecting Operation Chokepoint that started under Obama. What recommendation do you have for private entities to ensure they have eliminated any internal systems or policies implemented to comply with the Biden era regulatory
▶ 2:44:29Well, uh, thank you for the question, uh, Congressman. I, as I noted before, we're still in the process of reviewing complaints and and conducting our review. I I would say in general though um that over reliance on negative news searches which is I think sometimes a feature of reputation risk uh could um again in an overreiance situation be problematic as well as uh categorical prohibitions on uh performing or providing legal service or excuse me financial services
▶ 2:45:00and products to lawful business activities.
▶ 2:45:03Okay. Thank you. Chair Hill, the FDIC under previous Chair Groomberg issued pause letters asking banks to cease all activity with crypto companies. What changes have you initiated and have planned for the FDI to prevent regulatory abuse in the future?
▶ 2:45:18Um well, thank you, Congressman. Um so, first and foremost, we um undid the the um the policies of the past few years. So, we rescended the guidance that required prior approval. Um and we now treat digital asset activities just like any other novel activity where banks are expected to manage the the safety and soundness risk but otherwise have no prohibitions to serving those those industries.
▶ 2:45:44Um I think uh promoting durability of our policies is something that is always a consideration. Um and so we are considering a number of steps to try to ensure that these types of things won't happen in the future.
▶ 2:45:55Thank you. My time has expired. I yield back. Mr. Chairman
▶ 2:45:57gentleman's time has expired. Now, my pleasure to recognize the gentleman from Illinois, Mr. Castton, you're recognized five minutes. [laughter]
▶ 2:46:07Thank you, Mr. Chair, and uh thank you for the quick bit of exercise from the ranking member. Um the uh thank you all for coming. I in 2023, former vice chair Bar said that the uh the 2023 bank failures caused a reassessment of the viability of uninsured deposits as a funding source across the banking system. 2024, FSOC raised further concerns about some banks reliance on uninsured deposits and it could make them more vulnerable to runs.
▶ 2:46:37Um, acting chair Hill, I think you you had raised this concern in your Senate confirmation hearings and I if if I'm getting this right, you had specifically said that the FDI doesn't doesn't even have the data necessary on the the amount of uninsured deposits above and below the various thresholds other than the $250,000 limit. Without getting into details, I'm curious, you know, in your time in this role, have you directed the FDSC to start trying to get that data?
▶ 2:47:07Um, so, um, I have long believed that more granular deposit data would be useful for a number of purposes.
▶ 2:47:19And and just because I'd love to get into the what you're doing. I'm just curious if you've if you've if you've initiated any process there or not. So I I would say there have been conversations. Um I've raised this at the FFIC that's where most reporting is done through. Okay. Um but uh I would say at this stage I know there's institutions that are collecting data. Um but we have not taken.
▶ 2:47:39So still important but haven't done it yet. So the
▶ 2:47:43New York Fed recently issued a paper saying that that they're noticing deposits are flightier right now. Um, and specifically in response to interest rate changes, finding that they're run risks particularly when rates go up, uh, Wall Street Journal reported recently that wealth management clients are more likely to pull deposits out and chase higher yield when when interest rates are rising.
▶ 2:48:06Um, so Vice Chair Bowman, I guess what I'm wondering is, is the Fed doing anything to monitor what happens if those risks run out of the traditionally regulated financial system to private banks, to other alternative investment vehicles? Um, are are you doing any enhanced review of where those where that deposit flight might go?
▶ 2:48:30To the extent that we're aware of that, as a part of our work on financial stability, we monitor as much as we can according to the data that we have and we're able to see the the the um transit of funding throughout the system. I'm not sure that we have specific data about whether it's going from the financial institutions into any particular entities. It's we don't collect data that would would tell us that.
▶ 2:48:55We would be able to determine if if funds have left the financial system though through call report data.
▶ 2:49:01Yeah. Again, I guess I don't mean leaving the financial system, but you know, we've, you know, we've got this surge of private banking, all sorts of, you know, different types of things that are deposity,
▶ 2:49:10but not within where the FDI or others would have oversight. And and my my concern is that if we got a lot of dollars that are in some other part of the system and we're not monitoring it, that that is a risk at some point. Um, I'm I'm particularly concerned about how this all affects stable coins. Um, as as Mr. Foster noted um there was a Treasury Department report in April stable coin adoption could result in over $6 trillion in deposit outflows.
▶ 2:49:39Um there's a number of other reports that have said I guess acting chair Hill, do you do you all have good data on how stable coins may affect deposit outflows? Have you started looking at that question?
▶ 2:49:52That is that is certainly certainly something that we are paying a lot of attention to. Um, I don't think anybody knows what type of impact uh deposit flows into stable coins could have on the on the system. I know there are estimates out there. I think those are basically just guesses.
▶ 2:50:09Well, let me ask a more specific question then because I think this may answer whether or not there's likely to be deposit flows. There was language that the Senate added to the Genius Act that I think is creates a huge problem for your agency. It says that the claims of a customer with respect to payment stable coins shall have priority over the claims of any other person other than the claims of another customer with respect to payment stable coins.
▶ 2:50:31So if there's a bank run and you have customers of stable coins with deposits in a bank that are not insured, that language would suggest that they have a senior claim. Have you made any effort to interpret that language? How are you going to deal with the conflict if we get in a situation like we got to in 2023 when circles deposits were sitting there in uninsured accounts and there was a run?
▶ 2:50:56Should a stable coin depositor assume that you are going to place that customer in a senior position to insured depositors? I would have to go back and look at the statute to make sure I'm correctly understanding it, but my understanding is that language is applicable if the stable coin issuer fails, not if a bank fails. And so from our perspective, we would still have our normal authorities, our nor our normal priority in the case of a bank failure.
▶ 2:51:23That's just the provisions that would apply to a bankruptcy proceeding if a stable coin issue.
▶ 2:51:27We we could use some clarity particularly as there's as the chair ranking member had noted there's some shadiness as far as who is making these
▶ 2:51:35I thank the I thank the gentleman. Your time is expired.
▶ 2:51:38Uh the gentleman from Texas, the chairman of the House Small Business Committee, Mr. Williams, you're recognized for five minutes.
▶ 2:51:44Thank you, Mr. chairman and good to see all of you today. Thank you for being here. Uh the previous Basel 3 endgame proposal would have substantially raised capital requirements for an already well- capitalized banking industry. One of my main main concerns with the uh previous proposal was the negative effects these requirements would have uh on small business lending. Under the provision proposal, credit would have become more expensive and harder for main street businesses to secure.
▶ 2:52:10And as you continue your work on the Bosel 3 endgame proposal, I urge you to ensure the revised framework avoids imposing unnecessary burdens to restrict Main Street America. So, Vice Chairman Bowman, could you elaborate on how the Fed will ensure any changes to the capital levels will not disrupt the flow of capital to Main Street businesses?
▶ 2:52:28Thank you for that question and the opportunity to clarify the work that we're doing around Basel 3. I think it's very important as we're working toward uh reviewing the capital framework that we're not disincentivizing providing lending or other types of activities to those businesses that make our economy run.
▶ 2:52:47The the purpose of the work that we're doing is to ensure that the banking system can support the economy in a way that allows it the United States to to continue to be the the p economic powerhouse that we are.
▶ 2:53:01Okay. Thank you. Uh, Chairman Hill and members of the committee, myself included, sent a letter to the Fed, OC, and FDIC urging you to take a closer look at how enhanced credential standards are being applied across category 2, three, and four banks and to update static thresholds so that supervision reflects actual risk rather than outdated asset lines.
▶ 2:53:23And these EPS thresholds were set in 2019 and have not been increased since then, even though the agency said they would evaluate them regularly through notice and comment. Uh, not in indexing these thresholds has created an artificial constraint on banking activity that hurts the economy across the country and in districts like mine back in Texas. So, will each of you uh the Fed, the OC, and the FDIC commit to working on an inter agency basis to index these EPS thresholds? When could that happen do you think?
▶ 2:53:56Yes, we we will commit to reviewing our thresholds and indexing them.
▶ 2:54:02Enhanced credential standards are the purview of the the Fed as they apply at the bank holding company level, but we are doing similar things at the uh at the national bank subsidiary level as
▶ 2:54:13And and likewise uh uh happy to commit to to re-evaluating and and indexing thresholds were appropriate.
▶ 2:54:20Okay. All right. Thank you. Uh, this committee has held several hearings examining the concerning trend of consolidation in the banking sector. The federal regulators response to March 2023 failures muddied the waters on statutory functions such as the least cost resolution mandate. Acting Chair Hill, how can Congress enhance the FDIC's resolution process such as by by providing greater flexibility to the lease cost mandate in order to promote uh promote a greater transparency and
▶ 2:54:52Um, thank you for the question, Congressman. Um, I think uh I think allowing additional flexibility under the lease cost um would be useful in certain circumstances. Um there are um a variety of possible um situations where the FDIC may have two resolution options that are very similar in cost. Um but there are significant benefits to one or the other.
▶ 2:55:22Um today there is essentially no discretion. Um and so it needs to be a mechanical choice to choose the the least cost resolution option. Um I think Congress would still want to ensure that there was discipline around any flexibility um to ensure that cost still remained a primary consideration. Um but I do think there are situations where having at least a little bit of additional flexibility would be useful.
▶ 2:55:51I've got limited time but one more uh question chairman. How how might uh or how a more strict set of conditions to wave the national deposit cap for the acquisition of a failing or failed bank? How perverse the trend of consolidation in the banking sector? certainly a lot of considerations there.
▶ 2:56:13Um, but as as as I'm sure you're aware, today there is uh an exception to the to the caps in the event of a of a failed bank uh a failed bank acquisition. Um, I know there's legislation in place that would potentially allow some more flexibility in those types of situations. Um, again, I think from my perspective at a at a more at a broader, more holistic level, I think having a little bit of additional flexibility around lease costs would be would be useful.
▶ 2:56:41Well, again, thank you all for being here. Appreciate the testimony and I yield back my time.
▶ 2:56:46Gentleman yields back. Gentleman from New York, Mr. Torres, you're recognized for five minutes.
▶ 2:56:51Thank you, Mr. Chair. I have a question about the intersection of the financial system and AI. Private credit, banking, insurance, and AI capex are becoming increasingly interconnected. The AI sector is experiencing the largest capital boom since the railroads of the late 19th century. and AI capex has become a disproportionate driver of both economic growth and equity market performance.
▶ 2:57:13To what extent do you view the entanglement of private credit, banking, insurance, and multi- trillion dollar AI capex as a potential source of systemic risk? I'll start with the Fed.
▶ 2:57:24Well, thank you. as the as the entity responsible for financial stability in the financial sector. It's a very important question that you've just raised and it's something that we've been watching very closely to see how the AI industry and its investment has been evolving. We've seen an an increase in um asset levels and their valuations over time and it's something that we continue to watch and and we're definitely um paying close attention.
▶ 2:57:51Is that a yes? Do you view it as a potential source of systemic risk or
▶ 2:57:54Well, it's certainly one of the risks that we're looking at.
▶ 2:57:58I have a question about the independence of regulatory agencies and I'll start with the Fed. Do do you see your regulatory agency as independent of the president or as a creature of the
▶ 2:58:08The Federal Reserve is an independent a-olitical agency and as long as we continue to be transparent in the work that we do and we're accountable to Congress and the public, I think that uh that that should continue.
▶ 2:58:19What about the FDI? Um the FDIC is defined by statute as an independent regulatory agency. Um but we have also always tried to coordinate our activities with other agencies throughout the government. And so that's something we continue
▶ 2:58:33but independent. Okay. And Cua
▶ 2:58:36the statute says that NCUA is an independent agency within the executive branch. One way you could describe our independence is we're obviously not on budget. The shutdown did not affect us. We are not funded via appropriations. That is one degree right there of independence. But again, I I concur with my uh colleagues. We've always coordinated with the White House, and they've been a big help this time.
▶ 2:58:55The controller, during your testimony, you spoke of your opposition to quote the weaponization of finance, which is a sentiment I share. You know, we've seen President Trump publicly order the attorney general to prosecute political adversaries. If the president were to order you to weaponize finance against those same political adversaries, what would you tell him? Would you tell him, "No, Mr. President, the OC has an absolute policy against the weaponization of finance.
▶ 2:59:23Uh, Congressman, thanks for the question. I'm not going to engage in hypotheticals. Uh, what the president has told me through through an executive
▶ 2:59:30Do do you have an absolute policy against the weaponization of finance?
▶ 2:59:33Excuse me.
▶ 2:59:34Do you have an absolute policy against the weaponization of finance?
▶ 2:59:36There's a presidential executive order that says that uh banks should not discriminate on the basis of politics, religion, or uh or being engaged in a lawful business activity. capital requirements. Um if capital requirements were at 0% there would be no safety and soundness. If capital requirements were at 100% there would be no capital formation.
▶ 2:59:58And so the object of public policy is to find the best balance between the two to find the goldilocks level of capital requirements like what is that goldilocks level and how do you determine that level empirically? And I I have I feel I have not heard a satisfactory answer to that question from either side of the debate. You know, your predecessor insists that the system is under capitalized. You seem to believe it's sufficiently capitalized.
▶ 3:00:23Like what's the objective empirical standard against which those competing pronouncements are being made?
▶ 3:00:30The statute's direct uh definition for different sizes of banks is well capitalized. So that's one measure that we can use. We can also look back at at the capitalization of the banking system prior to the great financial crisis and the the in the as determine that that clearly was not the right level of capital in the system. So the work that was done as a result of DoddFrank clearly improved the levels of capital and liquidity within the the banking system.
▶ 3:00:56It more than doubled the levels of capital and liquidity is is very
▶ 3:01:01Is there a specific number? I don't know that we know a specific number, but we are uh working to achieve a review of our capital requirements in a way that allows us to assess the risk that certain activities present to the financial system or the banking system.
▶ 3:01:16And I want to quickly ask about there's been public reporting that the Federal Reserve is planning to cut supervision and regulation division by 30%. As you know, the story of SBB was partly a story of supervisory failure. If my constituents were to ask me, Congressman, why on earth is the Federal Reserve cutting supervision by 30% following the supervisory failures surrounding SVB? What should I tell them?
▶ 3:01:41Well, Congressman, that is an excellent question and I really appreciate the opportunity to clarify that. So, when we're talking about reorganizing, we're talking about the staff at the board. Before the financial crisis, we had uh about 200ish employees at the board. None of them are actual supervisors. They coordinate the activities of those supervisors that are resident within our 12 reserve banks. We're not talking about what we're doing with the with those supervisors. So, they're completely separate.
▶ 3:02:11Gentleman's time has expired.
▶ 3:02:13Thank you, Mr. Chair.
▶ 3:02:14I'd love to provide you with a more detailed information on our reorganization. Thank you. The gentleman from California, the chair of our subcommittee on Asia-Pacific and the House Foreign Affairs Committee, Miss Kim, you're recognized for five
▶ 3:02:28Thank you, chairman and ranking member members uh mixing Waters. Thank you so much for hosting uh today's hearing and I want to thank all of our witnesses for joining us today. Good to see you. Uh, community banks across California have relied upon the community bank leverage ratio to lower their regulatory burden and invest more capital in the communities around them.
▶ 3:02:54As you know, I recently introduced the community bank lift act that would review and reform the components of the leverage ratio and lower the bands of the ratio. And it is for that reason I was really pleased to see the recent announcement from the Federal Reserve regarding a proposal to lower the CBLR from 9% down to 8%.
▶ 3:03:16So I want to ask you um vice chairwoman Bowman at the current threshold of 9% how does the CBLR framework's regulatory burden compare to the generally applicable riskbased framework? So at at 9% it's um about the same u double the the the regular or the well capitalized um requirement within the statutory requirements.
▶ 3:03:44So u we're also by using the 8% that was allowed in the uh 2155 and the creation of the CBLR we continue to be around the level of double the well capitalized.
▶ 3:03:58Thank you. I look forward to continuing to work together and uh you know on the community bank lift act and create the regulatory flexibility that community banks need to better serve our communities. But I want to uh shift away from the community banks and uh focus on the US operations on foreign banks.
▶ 3:04:17Um so continuing on our conversation with you vice chair Bowman as you work on amending the regulatory and supervisory process for US banks I want to ensure that you are also applying those changes to the US operations of foreign banks as well. So can I get your commitment to the principles of national treatment and level playing field as you contemplate the changes to the regulatory process and supervision of foreign banks in the United States?
▶ 3:04:47It's absolutely appropriate for us to ensure that there's a a playing field for foreign banks and their participation in the US e economy and in economic activity and serving customers in the United States. This is certainly something that we will continue to keep in mind as we're reviewing our capital framework and the regulatory framework more broadly.
▶ 3:05:06Thank you. As you know, uh while those banks are headquartered internationally, they employ tens of thousands of Americans and have been essential to financing the uh US economy. So, thank you for keeping that in mind as you contemplate those changes. um in Southern California where I represent, we're blessed not only to have a strong community banking organizations but also great credit unions as well.
▶ 3:05:30Uh so having said that I am concerned about the tools that are available to smaller credit unions in the event of a liquidity uh crisis. Uh so I want to ask the next question to chairman Hnan. Uh right now some associate credit unions lack access to the central liquidity facility CLF.
▶ 3:05:54What are some of the barriers that credit unions face in accessing that CLF and how can we ensure that more credit unions have access to
▶ 3:06:04I appreciate you bringing that up, Congresswoman. Uh liquidity is obviously crucial for every financial institution we examine for it. It's the L and camels. And if a liquidity crisis, if you could see it coming, it wouldn't be called a crisis. vast majority of credit units over 3,000 are below 250 million in assets. All right, for the small ones, the median number of employees is one. How do you get there? Because there's a lot that have zero, like church credit unions where their employees are employees at a church.
▶ 3:06:31Um, for a period of time there, Congress allowed the corporate credit unions to serve as an agent when there's liquidity crisis. That authorization has We have done everything we can to make that applying for our central liquidity facility, made it easier to find on our website. It's only 12 pages. We promote it uh how easy it is to do. That said, the reality is most of the small credit unions do not have access to it.
▶ 3:06:55They haven't gotten around to it for a variety of reasons and for a period of time they were allowed to use their corporate credit union as an agent in a liquidity crisis.
▶ 3:07:04Thank you. I'd like to put in the last question and uh in the communities I represent there are new digital banks along with community banks and credit unions and the ones providing fair and affordable financial services to small businesses and working families. So I want to ask you controller gold uh as you evaluate changes in supervisor and capital expectations will the changes also apply to banks uh with the same asset threshold that focus on uh novel techdriven businesses.
▶ 3:07:34If I could ask the controller to respond in writing to the gentleoman from
▶ 3:07:38I have time.
▶ 3:07:40I'm you're overtime. I'm sorry to say
▶ 3:07:44a gentleman yields back. the gentleoman from Texas, Miss Garcia. You're recognized for five minutes.
▶ 3:07:49Thank you, Mr. Chairman, and thank you for all the witnesses uh for joining us today. I'm glad we got to sneak this hearing in before the end of the year. For a second there, I was worried we would go through the whole year without hearing from our regulator. So, welcome. Similarly, this committee has not yet had the opportunity to hear from the acting director of the consumer financial protection bureau CFPB despite the statutoily mandated semianual report to Congress.
▶ 3:08:18So since I can't ask director vo vote um I will ask vice chair Bowman uh in the absence of the CFPB do you know if anyone anyone at all is supervising and examining the largest banks in the nation for compliance with federal consumer protection laws.
▶ 3:08:39Well thank you for that question. I do value the importance of consumer compliance regulation and enforcement and and supervision. I oversaw that that capability at the Federal Reserve for the first six years that I was on the board. Um it it's a we do have a responsibility at the Federal Reserve
▶ 3:08:56The question is do you know of anyone that's actually doing it?
▶ 3:09:00We are at the Federal Reserve. We have responsibilities for a narrow set of consumer compliance regulations for all sizes of institutions that are state member banks.
▶ 3:09:09Are you aware of anyone else that has taken on the role of of doing this? I believe that the other regulators have the responsibility in in that narrow context as well.
▶ 3:09:19So, Mr. Gul, is that true?
▶ 3:09:22Uh, thank you for the question, Congresswoman. The OC's approach to consumer protection has not changed, but as you, as you know, under the DoddFrank Act and specifically Title 10, the Consumer Financial Protection Act, the CFPB has certain exclusive authorities such as supervision authority for banks with more than 10 billion in assets. So, but the question was, do you know if any if anyone that is actually doing the work of supervising and examining the largest banks?
▶ 3:09:48Again, uh, Congresswoman, the OCC's approach to consumer protection has not changed. So, we continue to have enforcement authority. Uh, but we do not have supervision authority because Congress uh, stripped us from having supervision authority in DoddFrank.
▶ 3:10:02And Mr. Hutman,
▶ 3:10:05just to make sure I get this right, do you mind repeating what you're asking?
▶ 3:10:09I'll repeat the question. Since I can ask director vote,
▶ 3:10:12in the absence of the CFPB, do you know if anyone is supervised and examining the largest banks
▶ 3:10:18in the nation for compliance with federal consumer protection laws? And in response, Miss Bowman said that they had some some supervisory uh uh uh u review and that all the others do, which is why I'm asking each one of you now.
▶ 3:10:32I got you. All right. Yeah, I would have got it right the first time, but I'm glad you repeated that. Uh less than half of 1% of credit unions are over the 10 billion threshold. Out of 4,300, I believe there are about 20 that the CFPB was on site. So, uh, all things considered, what the CFBB does or does not do is less of an issue for credit unions just given their size, but we are continuing to enforce law.
▶ 3:10:53Your answer is no.
▶ 3:10:56I mean, are we examining that?
▶ 3:10:58So, you're not looking at it because it's way above the the threshold that that credit unions.
▶ 3:11:04My point is that less than half of 1% of credit unions were examined by the CFB in the first place. I'm just trying to get my hands around the scale of the issue here, but we are certainly enforcing uh
▶ 3:11:13It's all right. and I'll move on. Mr.
▶ 3:11:15Consumer law,
▶ 3:11:16uh, similar to my colleagues, we do have authority over certain consumer protection laws for the largest institutions that we supervise and so we continue to fulfill those statutory
▶ 3:11:25But you're not aware of anyone else has taken the role that CFPB specifically
▶ 3:11:30That's correct.
▶ 3:11:31All right. So then I'll move on. Earlier this year, the agency's president state jointly issued a proposal to resend the community reinvestment act, the CRA. Because of ongoing legal challenges, the agencies are applying the 1995 regulations to the banks. Today, it is now 2025. 30 years have passed and with it came innovations and changes to the banking industry.
▶ 3:11:54Acting Chair Hill, do you think that the 1995 regulations are well suited to take into account modern online and mobile banking? I think there are a number of reasons why the 1995 rule um has challenges with it. Um we currently have issued a proposal. So your answer is no.
▶ 3:12:16Uh I I think modernizing CRA is something that um is worth considering doing. I voted against the 2023 rule and thought it had a lot of flaws and so I
▶ 3:12:27so do you have any plans now to do that or among your your cohorts here? We we have a proposal that is currently uh currently pending. We are reviewing the comments to that proposal. Um and so I think it's premature to say what our what our next step is. Um but I think reverting back to the 1995 rule is a better option than the 2023 uh rule that had been put in place that has never actually gone into effect.
▶ 3:12:54I see my time is up. Mr. Chairman, I may submit my last question for the record and ask the all the witnesses to respond. Sure. I'm sure they will. I thank the gentlewoman. Now, it's my pleasure to recognize the gentleman from Wisconsin, Mr. Style, who serves as the chairman of the digital assets, financial technology, and artificial intelligence subcommittee for 5 minutes.
▶ 3:13:14Thank you very much, Mr. Chairman, and for holding today's very important oversight hearing. I want to start with you if I can, Miss Bowman. Uh, you were asked by my colleague from New York about your supervisory reform plans. You ran out of time uh to be able to comment on that. Could you just briefly provide a little insight as to what your reform plans are? Absolutely. Thank you for the opportunity to clarify that. Um so at the time of the financial crisis uh we had uh around 200ish uh employees at the board.
▶ 3:13:42Um that grew by 76% up up until the current state today where we had 500 authorized positions. um our work to obviously the addition of all of those supervisors didn't help us with our focus on ensuring that banks safety and soundness has been secured as we saw by the failure of of Silicon Valley Bank and some of the other banks that failed around that time.
▶ 3:14:08The way that we ensure that we're providing safety and soundness is to focus on financial risks. So the work that we're doing now to reorganize our division will allow us to better align our work with those risks that lead to banks
▶ 3:14:22Appreciate that. So it's it's better alignment in resourcing people onto the risks that we face. Let me let me shift gears completely uh but stay with you if I can miss Bowman. Uh as you may as you likely know the Basel committee uh applies a punitively high-risk weight uh for digital assets.
▶ 3:14:40uh out of this committee we passed the genius act act uh passing a law I want to come over to how we're doing on the regulatory side in a minute uh but the chair of the Basel committee recently said that a quote different approach uh would be needed to address the mismatch uh between current Baso capital treatment and the reality we see in the crypto industry bank of England uh declined uh to use this um can you comment you with how you're going to work within this Basel framework or whether or not you view it as unnecessarily punitive as Well,
▶ 3:15:10I can confirm that I believe that the risk weights that were initially assigned prior to my um my joining the the Basel committee and the jihas um role uh is is that that that was an overc calibration of the risk. So, uh my hope is that there will be a a reccalibration of it at some point or we won't uh join in on adopting that
▶ 3:15:31Appreciate your comments. I'm going to come to you if I can, Mr. Hopman. Um, we passed the Genius Act, first regulatory uh, bill of substance uh, in the crypto space. We got a huge opportunity with clarity in front of us. Um, you have a big role on the regulatory side. Can you give us an update as to where we're at on the regulations moving forward in the Genius Act briefly?
▶ 3:15:52Yeah, I think stable coins are an absolute game changer. This country, uh, as advanced as we are with the biggest internet companies in the world, our payment system is very creaky. There are countries we give foreign aid to that you can settle 24 hours a day, seven days a week.
▶ 3:16:04So the faster we get this done, the better we're going to be. What where are we at on the on the
▶ 3:16:09reg? You gave us the deadline of July 18. I believe I and my fellow regulators are committed to doing that. My guess is the first rule making you'll see will be the one on how to apply to be an issuer, but your constituents should benefit by having 7-day a week payment, which as you know is difficult in this country.
▶ 3:16:24but are you committed? I'm just coming to the time. I'm fully with you on on geniuses why why we did it here. I just want to make sure that we get these committed done on time. You're fully committed and you believe you are in position to deliver on that commitment.
▶ 3:16:37Yes, I think myself and fellow regulars and I want to give credit to the Secretary Besson for making sure that Treasury is helping to convene that. I think we're on track.
▶ 3:16:43Thank you. I I think that's just really important. We've seen uh instances across years in this committee uh where sometimes rules bills are passed and we don't see the regulations come out on time. I appreciate your commitment to delivering uh on that. Um, I want to stay with you for a second. Um, in we've done a lot of work here looking back at ShowPoint 2.0.
▶ 3:17:05Uh, and in particular how the broader crypto and digital asset space was being governed by enforcement actions, incredibly unproductive mechanism to do that. I think we have a huge opportunity here uh to move forward clarity uh to prevent the type of abuse we saw with with Chairman Gensler uh and with other regulators uh in the broader Biden administration.
▶ 3:17:27Um, how important is clarity uh being done to help guide you and those on your staff uh to be able to follow congressional intent uh rather than engage in enforcement actions to drive forward policy?
▶ 3:17:40Well, regulation by enforcement, in my opinion, is unethical. There's not one person in this room that would tolerate it in any other part of our life. There has to be a speed limit first and then a speeding ticket after that. I'm proud that we have it's actual NCUA policy. A future board can change it if they want to, but they'd have to explain why they pulled down our regulation by enforcement policy simply defined as no enforcement ever sets policy and the same protections.
▶ 3:18:03Will the Clarity Act help you on that?
▶ 3:18:05I don't want to comment on certain uh that, but you shouldn't have any enforcement that ever sets policy.
▶ 3:18:11Very good. Appreciate all of you being here, Mr. Chairman. I yield back. The
▶ 3:18:15gentleman yields back. Gentleman from California, Mr. Licardo, you're recognized for five minutes. Thank you, Chairman. Uh, Vice Chair Bowman, I I understand that Governor Waller uh recently previewed that Federal Reserve is exploring the creation through rulemaking of a new what he called a skinny master account for eligible fintech institutions to be able to access the the Fed's payment rails. Uh, and the target was to do so by the end of 2026.
▶ 3:18:45We've heard similar um suggestions from under secretary uh Lang of Treasury. Uh I've heard I think we've seen from acting controller Sue suggestion that it should be up to Congress at least it's not going to be in her regulatory or his ra regulatory uh role. Um my question for you do you support expanded access to payment rails for non-bank institutions?
▶ 3:19:11We have currently a construct for the approval of different varieties of institutions with different [clears throat] risk categories. The third category does apply to nondepository institutions and there are certain parameters around those decision that decision framework. So it's whether I agree with it or not it's policy of the federal reserve that that's part of our our master account uh application review framework.
▶ 3:19:37Okay. As as you know, there is a concern from many fintech companies about access to the Fed rail, the Fed Now rail, um, and their ability to do so without uh, having to essentially contract with or partner with a bank. At this point, you are saying the Federal Reserve is moving forward and you are supportive of regulations to make that happen.
▶ 3:20:04What I'm saying is I support exploring that opportunity, but we do have a framework that's currently in place that does allow for access for for institutions that are not depository institutions um to to be considered for an application
▶ 3:20:20Okay. Uh given what you have said, do you believe uh it is important for Congress to offer any clarification through statute uh to ensure there is a clear path or do you believe this is something can be handled entirely within the Fed's regulatory ambit?
▶ 3:20:39I'm not familiar enough with the authorities to understand whether or not we would need specific additional authorities to do that. So I'm sorry I can't I can't comment on that. If I can shift a little bit to stable coin. Um I think both for you and for chair Hill u I supported the genius act. I uh was proud to be an original co-sponsor of the house version that um both chair Hill and chair style um had uh had authored.
▶ 3:21:07U and I think it's important to set clear regulatory guard rails for stable coin. I understand you all have roles uh to write enforce regulations that will integrate stable coin uh into banking in a way that's consistent with a sensible regulatory framework that prioritizes safety uh and soundness of depository institutions that you regulate. Um under the current Genius Act, it ensures that stable coin issuers will have reserves in safe assets.
▶ 3:21:33It lists what those assets are, their deposits, their treasuries, uh the demand currency, etc. And the notion is that the flu valuations won't fluctuate much. Um, and I assume you support uh having relatively safe assets uh s serving that role in reserves. Is is that fair? Uh I guess starting with vice chair Bowman.
▶ 3:21:58I think it would be helpful for me to understand what you mean by reserves. Are you meaning stable coin reserves or could you clarify that for me?
▶ 3:22:05Stable coin reserves. Yes. So I think Congress has given a range of options for stable coin issuers to uh use as potential reserves. Um so yes it would be important that they are stable, auditable and immediately accessible for whatever regulatory framework that we would create.
▶ 3:22:23Okay. Given the time I I'll just move quickly here. Given our shared goals of safety and soundness for financial institutions, uh would it make any sense to allow a stable coin to be backed by either uh vice chair Bowman or chair That is for reserve to be commodities.
▶ 3:22:42I mean my my recollection is the Genius Act is fairly prescriptive in what qualifies as uh eligible reserves and to my recollection I don't believe there are commodities that would qualify.
▶ 3:22:54I I agree with you. I guess the question is would it be sensible to expand in that way?
▶ 3:23:00I think that's a decision for Congress to to decide.
▶ 3:23:03Does it seem consistent with safety and soundness concerns that you obviously have in your everyday regulation?
▶ 3:23:09Yeah, I mean I I think it would be a different model. I mean, Congress set up a model where stable coins are backed by super safe reserves. One could imagine different models where potentially there were different types of reserves but then you might have other uh mitigating factors as part of its the the regulatory framework
▶ 3:23:28and you wouldn't you be concerned about
▶ 3:23:31I understand I'm out of time.
▶ 3:23:32The gentleman's time has expired. I now yield myself uh five minutes. So uh first of all I want to thank uh thank you all for being here. It's refreshing to have regulators in place that once again care about legitimate safety and sound soundness issues rather than advancing political agendas. So I I appreciate that. I represent one of the most rural congressional districts have some very large counties that have less than 500 people in them.
▶ 3:24:01Actually, we have more cows than people in my district. And it's our community financial institutions that make sure that my constituents, you know, particularly in cow country, uh, have access to banking services. So, I'm going to just go down the line on this one. This question is for each of you. So, what is the biggest regulatory barrier you see facing rural financial institutions and what is your agency doing to address it? And I'll start with Vice Chair Bowman.
▶ 3:24:30Thank you. Being from a rural community very similar to yours where we have more cattle and likely deer than people, I think it's a it's very important and having been a community banker in that community, the importance of rightsizing the regulatory burden is absolutely critical for smaller institutions to be able to continue to serve their
▶ 3:24:48Thank you, Mr. Gold.
▶ 3:24:50I I I agree with that. I think it's the overregulation and overs supervision. Um, you know, one of the things that was occurring at the the OC too frequently uh when I uh took over in mid July and what that had occurred over the last four years was a situation which we were not actually engaged in riskbased supervision. So we were subjecting smaller banks to uh you know prescriptive requirements coming out of DC which made no sense based on their business model.
▶ 3:25:14Thank you Mr. Hopman.
▶ 3:25:16I'm from remote area as well. It was 26 miles to get to a McDonald's. Um, so I hear you on that and our local uh community institutions served an invaluable role that none of the big banks would. I would say BSA AML is the thing I hear over and over again. Every retiring executive who leaves it and says, "What are you not going to miss?" They're going to miss a lot of things about running. The thing they're not going to miss, you hear it over and over. BSA AML, they say, "It's not the time I spend on it, it's the time I waste on it." That's one area I think we could work together.
▶ 3:25:46Thank you. Uh, Mr. Hill,
▶ 3:25:47um, yeah, I would I would echo all the comments from my colleagues. Um, I'd say the two things that I hear most frequently from the smallest institutions are the cost of compliance and the cost of technology adoption. Um, and we are taking a number of steps to try to make progress in those areas. Um, on the compliance side that includes things like reforms we're making to supervision. Um, we recently just finalized a rule that would raise and index um, several dozen thresholds almost all of which apply to community banks.
▶ 3:26:15fully agree with the comments on on BSA, AML, um and we're heavily engaged with conversation with the Treasury Department and others on um reforms to to that process.
▶ 3:26:25Thank you. Thank you all. Uh shifting gears here, uh the Financial Services Committee released a staff report yesterday on the Biden administration's efforts to debank digital assets. This question is for, you know, anyone who wants to answer. Uh but what lessons is your agency taking from this report and how are those lessons shaping the agency's broader approach to digital asset policy including imple implementation of the Genius Act? Any takers? Mr. Gold?
▶ 3:26:53I I think one takeaway for me at least is that if the activity is legally permissible, which the Genius Act just made payment stable coins legally permissible as well as for example custody of digital assets, that's legally permissible. I think it's really incumbent upon the supervisors, so us OC uh to work with the banks that want to engage in these legally permissible activities and ensure they can do so in a safe and sound manner.
▶ 3:27:22that that is not put all the burden on the banks to come up with how to do it in a safe and sound manner. That's what we saw over the last four years and that was essentially the deathnell for those activities that again were legally permissible and some banks wanted to engage in. But if the regulators won't work with them to find a path to do it in a safe and sound manner, there's no way they can do it.
▶ 3:27:43Right. Thank you. Any anyone else? Mr.
▶ 3:27:47I'll just add that uh under the prior administration, I've been at NCA for five years. I was confirmed five years ago today. I'm proud that working with my Democratic chair at the time under the Biden administration, NCA was the only regulator that I'm aware of that not only was not hostile to digital assets that caused some of the debanking, but we put out positive guidance, two pieces, which is two more than anybody else put out during that time. And credit un saw the other result of the debanking. They got an enormous amount of attention and deposit flow from digital assets firms. Why?
▶ 3:28:15Because they were afraid of being debanked by the banks, which is where they had had their money. I just want to add that. Thank you. Any followup? Well, my time has expired. I want to thank you all for uh for your comments there. So, now um uh the gentleoman from Michigan, uh Miss Kleb is now recognized for five minutes.
▶ 3:28:34Uh thank you so much, chairman. As you probably all of you, I don't know if in October the FDA, DIC and OC and Fed withdrew their inter agency principles for managing climate related financial risk. Are you all aware of that?
▶ 3:28:52Yes. Yes.
▶ 3:28:54Okay. Nadina. The associated framework required banks with with over hundred billion dollars in assets to consider climate related financial risks and business strategy, risk management, and strategic planning. The agency's claim that the principles are unnecessary because the agency's existing safety and soundness standards are adequate. But climate related financial risk is unique. We all know that the scale of potential impacts. I've seen it all alone in my own district.
▶ 3:29:21The complexity of the climate system, the existence of multiple positive feedback loops, uh the long-term long time um uh the longtime horizons on which uh climate change operates are all singular. So, Vice Chair Bowman, can you explain how existing safety um existing safety and sound and standards uh will adequately capture the unique features of climate risk?
▶ 3:29:45um take the potential impact of climate systems u multiple tipping points for example whose precise um whose precise thresholds are uncertain you know it's just can't really predict this and which may lead to runaway changes that cannot be reserved reversed.
▶ 3:30:00Well, it's important to note that banks are not climate scientists and they don't make predictions about what the climate will hold, but they do and have for, you know, since the dawn of time under or as long as banks have existed, understood how to manage risks from the environment and from natural disasters. I'm from Kansas, a neighbor to your state.
▶ 3:30:21We frequently experience natural disasters and also agriculture is a common uh business service that's provided for lending from from banks. They know how to manage but they know how to manage these risks and in the aggregate climate doesn't present a more material risk across the board than any other risk that banks face and they know how to manage these risks. So it doesn't
▶ 3:30:44what do you take with the federal memo? In the memo, it actually says uh that the principles may be quote distracting firms from the management of material financial risks. Uh this implies that climate related financial risks are not material. I mean, vice chair, do do you believe climate related risks are not
▶ 3:31:01I wouldn't say that they're not material. What I would say is that they're not more important than other risks that banks face and banks regularly manage their
▶ 3:31:08billion dollar climate disasters each year. Correct.
▶ 3:31:12I'm I don't know. It's dozens of billion dollar climate disasters happen each year which destroy property and wipe out assets uh are no interest no interest to
▶ 3:31:24Well, it certainly isn't that that there's no interest. It's just that the risk that's posed by these events isn't more material than other risks that banks face.
▶ 3:31:33So 10 years ago, former Bank of England Governor Mark uh Carney gave a speech titled, it's a rare get speech. I recommend you all breaking the tragedy of the horizon. Um in that speech, Carney noted a unique challenge for regulators. Uh he said that when through the impacts of climate change will be most devastating in the future, action to minimize those impacts is required right now.
▶ 3:31:56And Carney said, quote, "One climate change becomes a defining issue for financial stability and it may already be too late." Vice Chairwoman, do you agree with that quote above and
▶ 3:32:07I don't agree with that quote? No. I think it overestimates.
▶ 3:32:10And would you determine if climate change poses a threat to financial stability or to the banking system? So climate risk is no risk to the financial
▶ 3:32:18That's clearly not what I've said in this conversation. Clearly.
▶ 3:32:22So you don't believe in what Carney is
▶ 3:32:24I do not agree with what Carney says. Now he's
▶ 3:32:26But you believe that climate is a politician in Canada. So it's a it's hard to
▶ 3:32:31I know, Vice Chair. I I think for me it's the threat to financial stability and the fact that we do nothing about it right now. I I would not say we do nothing about it.
▶ 3:32:39We have dozens of billion dollar climate disasters right now.
▶ 3:32:43But banks do manage the risks that are posed by climate events.
▶ 3:32:47I think they're just waiting for us to bail them out each time. Earlier this year, Chair Powell testified at the Senate Banking Committee hearing that due to climate change, quote, if you fast forward to 1015 years, there will be a there will be regions of the country where you can't get a mortgage. Okay? There won't be ATMs or banks won't have branches or anything like that. Vice Chair Dman, do you believe the Fed need to wait for such impacts before taking action? Because I think in some places some people can't even get insurance right now.
▶ 3:33:17The Federal Reserve is not an insurance regulator. The states are the regulators for the feds will bail out the states insurance industry. So those risks in that policy is the determination of state commissioners.
▶ 3:33:30So we're going to wait till this happens. We don't really want to consider it.
▶ 3:33:33It's not the Fed's remitt.
▶ 3:33:34I know. Okay. All right. Thank you.
▶ 3:33:38The gentleoman's time has expired. The gentleman from Indiana, Mr. Stzman, is now recognized for five minutes.
▶ 3:33:43Thank you, Mr. Chairman, and appreciate you all for being here. Um, I'm going to limit my time just because I want Mr. Gabino to have uh time here knowing that we've got a a stop here. So, I want to jump right in it to Chairman Hill. Does the FDIC currently have the data necessary to accurately target and effectively implement any of the current deposit insurance reform proposals?
▶ 3:34:05Um, I'd I' I'd quickly make a couple of points um on the I'd first say um we we do not have granular deposit data on um that would that would um inform us on how many deposits are below above or below certain thresholds above the $250,000 limit.
▶ 3:34:26Um that being said, um I think under any circumstance, even if we had perfect data, any projections we would make would still have uncertainty because um what we would not know is to what extent deposits would potentially move either from uh interestbearing accounts to non-interest bearing, from banks that potentially have access to the expanded coverage from those that don't. Um so I think there's going to be uncertainty no matter what. Um,
▶ 3:34:55let me jump in here real quick and you can maybe even finish that thought. But when you appeared before the Senate Banking Committee, you shared your views with Senator Also Brooks that raising deposit insurance coverage would not significantly increase assessment costs for banks despite also saying that necessary data wasn't there and unnecessary depositor behavior could shift things. Can you share how you came to the conclusion that banks assessments wouldn't rise?
▶ 3:35:19Sure. Um so uh the the the position that I've taken is it is possible that we might not need to raise assessments based on the way that the Hagerty also Brooks bill is structured. Um the way that they do it is they would have the increase in deposits phased into the reserve ratio over a 10-year period. And so I think when we think about the costs, there's a couple of elements to it.
▶ 3:35:44One is the mechanical piece which is what is the technical impact on the reserve ratio and based on the projections that we have which again are subject to significant uncertainty due to data limitations and also just potential behavioral changes that could occur. Um but the projections we have suggest that it might be the case that the reserve ratio would grow more slowly rather than decline.
▶ 3:36:07Then there's the other piece of it which is the more fundamental piece which is to what extent does this increase the exposure of the deposit insurance fund over the long term. And I think that is also something where there are considerations on both sides of it. The FDIC is not a typical insurance company in the sense that when banks fail we rarely pay insured deposits.
▶ 3:36:30Usually we resolve failed banks by essentially selling the failed institution to the highest bidder and insured deposits in particular non-interest bearing insured deposits tend to have a lot of value to potential acquirers. So increasing the amount of insured non-interest bearing transaction accounts could increase the value of those failed institutions which potentially could bring cost down. The flip side to that is effectively you're increasing the cost of liquidation.
▶ 3:36:59So if you don't have an acquirer, the sort of tail risk of the maximum amount the FDIC might pay will go up. So those are a couple of the of the main considerations, but again, I think it's going to be a a complicated thing to project out. Um, but I think there's at least some justification to not raising assessments if the reserve ratio did not
▶ 3:37:19Okay. Thank you. I'm going to yield back the balance of my time.
▶ 3:37:21The gentleman yields. And just for uh situational awareness, we're going to recognize the um gentleoman from uh Georgia and then Mr. Mr. Garbrino from New York and then we're going to adjourn. So now the gentleoman from Georgia, Miss Williams, is recognized for 5 minutes.
▶ 3:37:35Thank you and thank you um Chairman Hill and Ranking Member Waters for holding this hearing. Y'all, I represent Atlanta, which has one of the largest racial wealth gaps in the country. And I was proud of our regulators commitment to fostering inclusive economic growth and resilience, not only in Atlanta, but in communities across our nation during the previous administration. Regrettably, the strides that we've made are now in jeopardy. Last year when we met with our credential regulators, many of my Democratic colleagues reiterated one thing.
▶ 3:38:03Implementing a Project 2025 agenda in the financial service space means risking our economy, favoring billionaires, and advancing priorities that will systemically hurt millions of Americans in the middle class or worse. Basically, it's exactly what you guys said. We shouldn't be weaponizing our financial systems.
▶ 3:38:20Fast forward and our current president has so far acted in line with those same exact project 2025 recommendations, eliminating key agencies or virtually eliminating key agencies or drastically reducing things like the CFPB and the minority business development agency. So far, most of the president's actions have been devastating to marginalized communities across the country, particularly in impacting economic mobility.
▶ 3:38:47Even worse is the president's attempt to undermine and influence our credential regulators who are meant to be independent. Earlier this year, I joined with my colleagues, Congressman Emanuel Clever and Congressman David Scott, and sent a letter to the FDIC to you, Mr. Hill, and voicing our concerns over DOA's attempt to fire employees and merging the FDIC with other banking regulators.
▶ 3:39:12We never heard a response, but since we didn't hear hear a response and we have you here before us today, I am going to ask you a few of those questions that were in that letter. And Mr. Chairman, I'd like to ask for unanimous consent to insert the letter that we sent on Feb on March 28th for the record.
▶ 3:39:30Without objection.
▶ 3:39:32Chair Hill, my district is home to FDIC's Atlanta Regional Office. Earlier this Congress, there were reports that over 700 workers were fired or forced to accept buyouts while 170 probationary employees were terminated without recourse. Can you provide an update on the status of those employees that were shuttered from work and can you share how many employees were impacted in the Atlanta regional office?
▶ 3:39:56Um, Congresswoman, I' I'd have to get back to you on specific numbers. It is certainly not true that 700 employees were fired. Um, that definitely did not happen. Um, I also want to we certainly try to respond to all letters that we receive questions and so if you did not get a response, then I want to apologize for that and we will make sure to respond to to any questions that you've sent us.
▶ 3:40:18So, we've submitted the all of the questions for the record and I do hope that I get a response and I figured you would not have an answer today, but since you've had since March 28th, it's unfortunate that I still can't get answers to those questions. Mr. Hill, I understand that you're serving as the acting chair, serving on the board with prior FDISC experience. So, I imagine that you know a little bit about how important the work of FDSC staff and their examiners are.
▶ 3:40:42Speaking from your experience, what would be the consequences of the FDIC not having enough experienced examiners and managers? What would be the consequences of not having enough staff to conduct oversight, which is a key role in this
▶ 3:40:57Certainly agree with that. Um, having qualified and experienced safety and soundness examiners is core to one of our primary missions, which is promoting the safety and soundness of financial institutions that we supervise. Um, and so we very much value the experienced workforce that we have. And um, as I mentioned to to one of the congress women earlier, um, we are taking a number of steps to try to ensure that we are able to retain our um, experienced examiners.
▶ 3:41:26FDIC independence, as you know, ensures that banks remain financially strong and continues serving the communities that many constituents and minority owned businesses rely on. Some of my colleagues on the other side may make it about politics, but ensuring that the FDIC has the staff capacity to supervise 4,000 community banks seems like good policy to me, not just politics.
▶ 3:41:48Another issue my colleagues and I have concerns with are the reports alleging that the administration has looked into ways to influence the FDI behind the scenes, including through unprecedented involvement by the White House. And with the CFBPB being gutted attempts to fire Democratic board members at NCUA and the Fed, it's clear that the Trump administration wants to influence our banking regulators with his policy. Mr. Hill, have you heard discussions recently on the White House being involved with the rule making
▶ 3:42:20Um, we uh we have a process for um for issuing our rules. We have a board. It goes through our board process. Um we we do coordinate with other agencies as appropriate and that's something we continue to do.
▶ 3:42:35Mr. Mr. Hill, I have many more questions in the letter and that I have evolved since March 2 and I will submit them all and I really would appreciate a response. Thank you, Mr. Chairman. I yield back.
▶ 3:42:46Uh, the gentleoman yields back. The gentleman from New York, Mr. Garbino, is now recognized for five minutes.
▶ 3:42:50Thank you, Mr. Chairman, and thank you all the witnesses for being here today. It's almost over for you all. Um, I'm going to go quick. Uh, Miss Bowman, your predecessor had a lot of bad ideas uh and proposals that I'm thankfully for our economy. uh those pro those changes were not finalized. Um one of them I want to talk about is uh the mathematical function that determines capital requirements for securization exposures uh known as P factor or penalty factor.
▶ 3:43:18Your predecessor proposed doubling this search charge from 50% to 100% even though he had no data or analysis to support it. Uh and some would say the existing P factor is intentionally high highly punitive towards securization. I asked uh uh Chairman Powell uh when he was here uh about this and whether or not um you know they would consider changing it. He was unable to give me an answer when he was here back in February.
▶ 3:43:45Um so rather than rubber stamping the Biden era P factor rate, will you commit to revisiting the P factor for securization by examining the data, quantitative analysis and impacts on consumers through the cost and availability of credit for US households and businesses? I can assure you that we are taking a completely fresh look at our um our responsibilities to implement the Basel 3 uh framework and that we are reviewing all of the comments that were received.
▶ 3:44:13There were hundreds of comments and that we will be reflecting uh many of those in that proposal and I'd be happy to review uh the issue that you've raised. Um, we want to make sure that there is empirical evidence that supports um the the issues that or the the me the calibrations and the uh factors that are included within the capital framework.
▶ 3:44:34I appreciate that answer and I I really do thank you for your your continued work on on the Basel reproposal. Um, and I want to switch gears just a little bit uh talking about the Basel reproposal. Um I want to encourage you to look at um carefully consider the impact of foreign banking organizations um and the way they and what the role they play in the US financial services uh industry specifically in New York which I represent has over I believe 200,000 employees of FBOS's um and I just want a commitment also that
▶ 3:45:05your re proposal will take into account the business models of foreign banks and also appropriately align the actual risks operational and otherwise uh posed by I appreciate you raising that issue and yes, it's definitely something that we are reviewing and considering.
▶ 3:45:20I appreciate that and uh I'm I'm going to yield real quick so we can ask a question to my colleague from Nebraska, uh Mr. Flet. I thank the gentleman from New York for the opportunity. Uh I'll be brief. On October 7th, the OC and the FDIC published a notice of proposed rulemaking where you were defining quote unquote unsafe or unound practice under um section eight of the FDIC act. And uh contro, let's start with you.
▶ 3:45:47If the definition you have jointly proposed were in place in 2022, do you feel it would have changed the way examiners would have been looking at the Silicon Valley Bank before its demise?
▶ 3:45:58I I I do. That level of embedded interest rate risk on that bank's balance sheet sure seems to me like a material financial risk.
▶ 3:46:06Acting Chairman Hill,
▶ 3:46:08I I would agree. I think the SVB experience is um is one of the key uh inputs into the um motivation to reorient our focus and so uh the full intent would have been for the the focus to have been uh to have been different.
▶ 3:46:24Additionally, as part of the OCC FDIC proposal, matters requiring attention or MAS must be tied to circumstances posing material harm to the financial condition of the institution or a material risk of loss to the deposit insurance fund. Quickly for both of you, I know you both feel strongly this change uh will ensure the MAS remain closely tethered to the types of material risks that are the core of safety and soundness.
▶ 3:46:49How do you ensure this change doesn't go too far and tie in the hands of examiners when they see genuine material problems within an institution?
▶ 3:46:59Well, again, I think it ties them to material financial risks, which are the risks that we really can't afford to miss. Uh, but of course, supervisors have other tools available, including the ability to still uh site banks for actual violations of law. Chairman Hill,
▶ 3:47:13we put a lot of thought into how the definitions were worded and how they were described in the preamble of the proposal. Uh, it's a proposal now. We are receiving comments. Look forward to getting the comments back. Um, but we'll certainly want to make sure we are striking the right balance in whatever the final rule is.
▶ 3:47:28Striking the right balance, I think, is important here. And with that, I thank the gentleman from New York. I yield back to him.
▶ 3:47:33Uh, I also yield back to the chairman. Thank you all. The gentleman yields. I'd like to thank all the witnesses for your testimony today. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses, please respond no later than January 7th, 2026. Uh we have another hearing in this room at 2 p.m. So we ask everyone to exit promptly after adjournment so we can prepare the room. And with that, this hearing is adjourned.