▶ 0:22:04The committee on financial services will come to order. Without objection, chair is authorized to declare recess the committee at any time. Today's hearing is entitled oversight of our credential regulators. Without objection, all members will have five legislative days within which to submit extraneous material to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement.
▶ 0:22:33The Trump administration is returning credential regulators to their core regulatory and supervisory mission of promoting safety and soundness in the financial system. Today's hearing will provide an opportunity to discuss how their recent actions, priorities, and policies align with their statutory mission entrusted to each of them by Congress.
▶ 0:22:54We will also highlight the work of this committee to rightsize credential regulations for institutions of all sizes, focus on the supervisory framework on material financial risks, and facilitate the formation of new depository institutions. Credential regulation should foster economic opportunity, support responsible lending, and encourage long-term growth while maintaining confidence across our banking system.
▶ 0:23:22A sound credential framework must be transparent, appropriately tailored, and rules that are clear, efficient, and proportionate to the size, complexity, and risk profile of the institution. In my view, a one-sizefits-all approach, by contrast, disproportionately harms community banks, credit unions, and our regional institutions.
▶ 0:23:46That's why this committee has held numerous hearings throughout the 119th Congress on our mission to make community banking great again, which has culminated in our proposed Main Street Capital Access Act. Many of the reforms contained in this legislation directly track the actions being taken before us today by our supervisory agencies.
▶ 0:24:07We also will highlight the progress being made to reverse some damaging Biden era regulations and guidance that increased compliance cost, constrained lending, and threatened access to credit for American families and small businesses without providing clear benefits to overall safety and soundness.
▶ 0:24:27Among them was the original proposed Basel 3 ingame which would have significantly raised costs for home buyers, consumers, and financial institutions without meaningfully improving financial stability.
▶ 0:24:40The revised Basel 3 proposal and the corresponding changes to the standardized approach and the GIB sirch charge will better align capital with risk, address concerns about goldplating, and increase lending capacity while maintaining a very safe and sound banking system. I'm also proud of the work of this committee has done to advance legislation to provide a functional regulation uh framework regulatory framework for our emerging innovative digital asset ecosystem.
▶ 0:25:10The Trump administration has taken important steps to turn the page on the Biden approach to digital assets. These steps including withdrawing burdensome supervisory non-objection regimes, providing greater clarity for banks using blockchain technology, and implementing the Genius Act to establish a clear framework for payment stable coins. The administration is demonstrating a commitment to supporting innovation while preserving consumer protection and orderly markets.
▶ 0:25:42Clear, predictable rules allow financial institutions to manage compliance, reduce unnecessary costs, and expand access to credit, and invest in innovation as our financial system consistently evolves day after day, week after week. Policymakers must foster an environment that supports innovation while ensuring confidence in the strength and stability of our financial system.
▶ 0:26:06I look forward to our panel today, our discussion among members on both sides of the aisle, and I yield back the balance of my time. I now recognize the ranking member of our full committee, Mrs. Waters, for four minutes for an opening statement.
▶ 0:26:19Good morning. Trump's reckless and unlawful war in Iran has cost every American $450 more at the gas tank. In parts of my district, gas is nearly $7 a gallon. Yet, when asked about this, Trump's reply is quote, "Couldn't care less." Well, Mr. Chairman, Democrats do care, and we urge this committee and the president to focus on affordability. It's not just gas.
▶ 0:26:50Families are also being crushed by rising rents, higher utility bills, and skyrocketing grocery prices fueled by Trump's failed economic policies. But Trump doesn't care. And it shows.
▶ 0:27:05When he's not running the economy, he's busy tearing down the White House to build a billion-dollar ballroom, promoting fight night on the south lawn, and trying to slap his name and picture on everything as if he were an idol to be worshiped. At the same time, this administration is busy dismantling the agencies and safeguards that protect consumers, workers, and small businesses.
▶ 0:27:34In fact, since returning to office, Trump has launched the most aggressive, the most deregulatory campaign we've ever seen. His administration has gutted the consumer financial protection bureau, undermined the independence of our central bank, and handed Wall Street, big banks, fintech firms, AI companies, and crypto bros pardons, and the freedom to take risk with Americans money.
▶ 0:28:03The consequences are already hitting working families. A recent report found that Trump's attacks on the CFPB alone have cost Americans nearly $19 billion dollar in just one year. And while he has largely shut down the CFPB, Americans have filed more consumer complaints about predatory lending and other financial abuses in the past 14 months than the previous 14 years combined.
▶ 0:28:34And it does not stop there. The credential regulators here today have weakened mega bank capital stress testing and other requirements designed to prevent another financial crisis. They are rubber stamping bank mergers, rolling back the civil rights laws like the community reinvestment act and loosening guard rails for crypto and fintech businesses who act like banks but don't want to be regulated as such.
▶ 0:29:04They have downplayed climate related financial risk just in time for hurricane and wildfire season and gone easy on bank executives and their pay skyrockets. Sadly, Republicans have stood by stood by and enable all of it.
▶ 0:29:23Instead of standing up for families, Republicans idolize Trump, doing little to push back when he weakens consumer protections and strips away the safeguards that prevent another financial crisis. Instead of addressing the affordability crisis, they side with Wall Street mega banks and crypto bros.
▶ 0:29:44Committee Democrats are focused on lowering costs for working families and ensuring Americans can assess affordable mortgages, small business loans, and financial products. We're fighting to support our community banks and credit unions, and making sure consumers, not mega banks or other powerful corporations, come first.
▶ 0:30:08This is the difference between protecting the wealthy and the well-connected and fighting for the American people and an economy that works for everyone. Mr. Chairman and members, you all know what I just said is the truth and I want to tell you
▶ 0:30:23gentleoman's time is expired.
▶ 0:30:24We are fighting against all of this
▶ 0:30:27Gentleoman's time is expired.
▶ 0:30:28Well, I recognize the chair of the subcommittee on financial institutions, Mr. Bar, for one minute.
▶ 0:30:34Thank you, Mr. Chairman. Thank you to our witnesses also for joining us today. It's encouraging to see credential regulators in this committee aligned in our work to re to return regulation and supervision back to their core mission of safety and soundness. To realize this goal, banks and credit unions must be evaluated on objective clear standards.
▶ 0:30:53That's why I introduced the firm act which prohibits consideration of reputational risk in the supervisory process ensuring regulators focus on material financial risks rather than subjective or processoriented concerns. The same commitment to transparency and objective decision-making should extend to the merger approval process as well. The bank failure prevention act increases clarity in the merger process by setting clear expectations and timelines for merger reviews to prevent prolonged reviews and un uh that unnecessarily consume time and resources.
▶ 0:31:23Ensuring a risk focused regulatory system also requires tailoring requirements appropriately to the financial institution size and risk profile. I'm glad to see that the regulators listen to bipartisan calls from this committee and apply these principles in their agencies including in recently Basel 3 reproposal.
▶ 0:31:40Gentlemen's time is expired.
▶ 0:31:42Thank you. I yield back. I now recognize the ranking member for the subcommonial financial institutions, Dr. Foster of Illinois. You're recognized one minute for an opening statement.
▶ 0:31:49Thank you, Chairman Hill. America's banks and credit unions are operating during a time of unprecedented change in the financial system. Consumers and markets are moving faster than ever with improved access to information. 24-hour banking and the reduced friction of modern payment systems and soon personal agentic AI financial agents. The fintech partnerships promote innovation and competition, but come with unique risks. Banks and credit unions are also facing a wave of fraud driven by artificial intelligence and deep fakes.
▶ 0:32:18While bad actors continue to exploit older banking tools such as paper checks for illicit purposes, our credential regulatory agencies must be agile and wellresourced to respond to these risks. Preparing for liquidity risks of internet-driven bank runs and cyber threats from emerging AI tools should be a top priority, and our regulatory bodies need to maintain the necessary technology and human resources to do so effectively.
▶ 0:32:42This administration's move to cut supervision and staff across the Federal Reserve, FDIC, and OC is a step in the wrong direction. Thank you again, Chairman Hill, and I yield back.
▶ 0:32:53Gentleman yields back. We're delighted today to welcome the testimony of our bank supervisory leaders. The Honorable Michelle Bowman, vice chairman of supervision at the board of governors for the Federal Reserve System. The Honorable Jonathan Gould, our compro of the currency. The Honorable Kyle Hman, the chair of the National Credit Union Administration, and the Honorable Travis Hill, chairman of the Federal Deposit Insurance Corporation. We thank all of you for participating with us today. Thanks for taking your time to be here.
▶ 0:33:20Each 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. Vice Chairman Bowman, you're now recognized for five minutes. Thank you, Chairman Hill, Ranking Member Waters, and members of the committee. I want to thank you for the opportunity to provide an update on the Federal Reserve's supervisory and regulatory activities. Today, my testimony will
▶ 0:33:45Vice Chair, could you move a little closer to the mic? Thank you so much.
▶ 0:33:48Thank you. Today, my testimony will cover three areas. Current banking conditions, regulatory and supervisory reforms implemented since the committee's last hearing, and our path forward as we continue to promote safety and soundness and the stability of the US financial system. The banking system remains sound and resilient.
▶ 0:34:09Banks continue to report strong capital ratios and significant liquidity buffers which position them well to support the US Bank lending to households and businesses also continues to grow. The landscape for financial services has become more complex. NBFI lending has increased, raising competition for regulated banks without facing similar credential standards.
▶ 0:34:35The financial system continues to adapt to advances in technology, including AI and cyber related risks. The Fed is committed to working with banks as they navigate this complex threat environment. Since I last appeared before the committee, we have made substantial progress to modernize the regulatory and supervisory framework. And of course, community banks remain a priority.
▶ 0:35:00These banks provide critical financial services to their communities, supporting families, businesses, and the local economy. Earlier this year, bank regulators finalized a community bank leverage ratio framework. A broader range of qualifying banks can now use a simple leverage ratio to measure capital adequacy instead of the complex riskbased capital framework with the CBLR at 8% and an extended grace period from two to four quarters.
▶ 0:35:30In March, the bank banking agencies published proposals to modernize the US regulatory capital framework. The proposals clarify requirements, align them with actual risks, reduce overlaps, and support credit while also preserving strong capital levels. Turning to supervision, we are using a riskbased tailored approach that is calibrated to each bank's size, complexity, business model, and risk profile.
▶ 0:35:59Our supervision focuses on a bank's material financial risks and its overall strength. Earlier this year, we launched a comprehensive review of all outstanding matters requiring attention. The findings showed that many MRAs cited deficiencies unrelated to bank safety and soundness instead of focusing on pro uh and instead focusing on procedural or documentation shortcomings or departures from best practices that were designed for banks with very different
▶ 0:36:29business models and risk profiles. Often these best practices originated from the largest and most complex banks that were applied industrywide. Under my leadership at the FFIC, the agencies and state bank regulators proposed long overdue revisions to the camel's ratings framework, which was largely unchanged since 1979.
▶ 0:36:53The revisions include a more transparent, objective approach that better captures material risks to a bank's financial condition and its overall strength. Innovation is essential to meeting customer expectations and maintaining a dynamic banking industry. The Fed is relying on a forward-looking approach that encourages innovation while maintaining appropriate safeguards. Additional work remains on multiple fronts.
▶ 0:37:21We are reccalibrating thresholds across our our regulatory framework to account for economic growth and inflation. We are developing stable coin issuer regulations as Congress directed in the Genius Act. We are also strengthening liquidity requirements to support banking system stability and to promote sound liquidity management. Our work follows three fundamental principle or a a single fundamental principle.
▶ 0:37:49Appropriately calibrated regulations strengthen banking conditions, financial stability and economic growth while maintaining the robust safeguards the American people expect and deserve. Thank you for the opportunity to appear before you this morning and I look forward to answering your questions.
▶ 0:38:13Thank the gentleoman you're recognized for five minutes. Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to appear before you. It is an honor to discuss the Office of the Comproller 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.
▶ 0:38:37After the 2008 financial crisis, Washington too often sought to eliminate rather than manage risks, resulting in a less relevant and diverse banking system. This approach drove financial activities into less regulated and visible parts of our economy, making risks harder to monitor and mitigate. The DoddFrank Act, far from ending too big to fail, created a moat around the largest banks and introduced too small to succeed.
▶ 0:39:03Unelected bureaucrats discouraged prudent risk-taking and reduced credit availability in many communities. In particular, community banks suffered from these misguided policies. The number of banks with less than 1 billion in total assets declined by 50%. The OC has introduced reforms to address this decline. We've removed fixed examination requirements, tailored examinations to actual risk, and imposed workday limits on examinations. We also created a supervision group focused on community banks.
▶ 0:39:33These actions, among others, represent a down payment on future reforms to promote a more relevant and diverse banking system. Community banks are not the only casualty of the post DoddFrank banking system. In the years that followed, new bank formation in this country nearly ceased. From 1990 to 2008, the OC received and approved over 1,000 denovo charter applications. After 2008, application volume and approvals fell by 90%.
▶ 0:40:02But the OC is open for business again. The agency received as many applications in 2025 alone as it did in the previous four years. For the first time in five years, a fullervice national bank opened its doors, and we have conditionally approved 10 more banks this year. This is the result of us once again following the law and our publicly stated procedures. The OC is also returning to riskbased supervision rooted in law and emphasizing examiner judgment, not arbitrary checklists.
▶ 0:40:32We are hardwiring the foundations of supervision such as the definition of unsafe and unound practices into regulation and are reviewing past supervisory criticisms and enforcement actions to ensure alignment with our standard for material financial risks. But we like the banking system itself must always look towards the future. Our job is to facilitate not sty responsible innovation. We are working to respond to comments on our Genius Act proposal and finalize it.
▶ 0:40:59Just as the National Bank Act brought an end to the wildcat banking of the 1800s, the Genius Act and our rule will help ensure appropriate consumer protections for stable coin users. In other words, our regulation will help ensure that all OC institutions are able to satisfy their obligations, including both deposits and stable coins. The OC is working to facilitate innovation outside the Genus Act as well. We along with the other federal banking agencies revised our model risk management guidance to avoid impeding bank's use of AI.
▶ 0:41:30We also plan to seek information from the public on what additional guidance would be helpful. Our banking system will only remain relevant and trusted if it resists pressure to deny access based on political or religious beliefs or lawful business activity. We have made considerable progress in reviewing the activities of the largest national banks and are investigating complaints complaints of alleged debanking consistent with the president's executive order. We will continue to follow the evidence and report on our findings as appropriate.
▶ 0:41:59We have moved quickly to fix long-standing problems of agency management. The OC too often relied on costly outside contractors for many core IT functions. Since I arrived, we have eliminated the need for 165 contractors, saving $75 million in the process. Our bank examiners also lacked modern technology to do their jobs. This summer, we will begin replacing IT platforms from the early 2000s with modern tools.
▶ 0:42:25These efforts help fulfill our core mission while reducing assessment costs. Since its creation during the Civil War, the OC's nationwide banking markets created the economic union necessary to support the political union forged on the battlefields. We at the OC are proud of our role, particularly as we celebrate our country's 250th anniversary. But we take nothing for granted and we work hard to support the growth and dynamism that had defined our federal banking system since its inception.
▶ 0:42:55Thank you.
▶ 0:42:57Thank you, Mr. Ghoul. Mr. Hoffman, you're recognized for five minutes, sir.
▶ 0:43:01Thank you, Chairman Hill, Ranking Member Waters, members of the committee. Thank you for the opportunity. As the current chair, I remain dedicated to serving in this role and no other until my successor is confirmed. President Trump has nominated Mr. John Cruz to the NCA board. He's a seasoned committed leader, track record of balancing innovation. In other words, he's well suited for the role. I'm confident Mr. Cruz will strengthen the agency even further, and I wish him best as he goes through the Senate confirmation process. Over the past year, NCUA's experienced significant changes.
▶ 0:43:30My primary goals as chairman have been to lead NCA ready to embrace the future, supporting a robust and innovative credit union industry and protect our share insurance fund through effective, appropriate supervision that is bo focused on material risks. I'm also proud we delivered cost savings averaging about $9,000 per federal credit union through our cost I pursued all of our goals by championing regulatory improvements, embracing innovations like stable coins, and improving our customer service.
▶ 0:44:00As digital currency and stable coins reshape the global financial system, credit unions have an opportunity to embrace this transformation from a solid foundation of safety and soundness. Stable coins can make payments faster, cheaper, and more inclusive. On May 15th, we announced a proposed rulemaking for permitted payment stable coin issuers, our second rule making required under the Genius Act. This rule puts credit unions on equal footing with banks. Credit unions are well poised to benefit from this long overdue update to America's payment system.
▶ 0:44:30As Americans be sorry, as stable coins become more widely adopted, we Americans may no longer be made fun of for speaking up how many business days a payment will take to settle. Every day is a business day with stable coins. All 365 days of the year and all 24 hours of the day are equal in terms of sending payments with stable coins. Our tax refunds may eventually arrive on Sundays or holidays.
▶ 0:44:54And if we ever have a repeat of CO in March 2020, Americans should be able to receive stimulus funds in a much more timely and secure manner. Beyond the consumer benefits, the big picture benefit of stable coins is maintaining the US dollar's status. The Genus Act should stimulate demand for treasuries, thereby lowering borrowing costs for both the US government and consumers.
▶ 0:45:16Even repo rates on treasuries may fall, all else being equal, given that the Genius Act allows for investing in treasury verse repos, and treasuries are more attractive when they can be used to obtain cheap financing. And for all the debate about the effect on deposits held at our domestic banks and credit unions, a large portion of the money is expected to flow into stable coins from abroad. Over 80% of existing dollar stable coin usage is outside the United States.
▶ 0:45:41was when Americans use the phrase dollar stable coins, we tend to focus on the stable coin part because stable coins are a much better settlement token in dollars. They're a bit like using poker chips and that the transactions are easier, but they only work if they are indeed stable and interchangeable with US dollars. But for people abroad, it's the dollar part of the word, the phrase dollar stable coin. That's what's important to them. We as Americans may have gotten so used to the dollar's global dominance that we don't notice what an advantage we have.
▶ 0:46:09But just ask the British what it's like to lose reserve currency status. But the Genius Act and dollar denominated stable coins are ways of striking back against those in Beijing, Tyrron, or Moscow who continually push for the US dollar to be less important, less ubiquitous, and less useful. So, I'm pleased to work with my colleagues here at the table to do our part in that effort. Turning to financial literacy efforts, that's a big part of the administration's observance of America's 250th anniversary.
▶ 0:46:36Last month, I joined my colleagues at his table for a financial literacy event hosted by the OC. Uh it was a wonderful opportunity to hear from banks and credit unions of all sizes how they empower people and their communities by educating people of all ages from the elderly all the way to kids in kindergarten. I want to note that my 5-year-old has read both of these books, including The Barrenstein Bears Visit the Credit Union.
▶ 0:47:02I spoke about how financial security is essentially an amazing product and one that can be purchased on the open market via saving and investing. Today, approximately 4,300 credit unions serve over 145 million members and manage more than two trillion in assets. The industry is healthy and continues to balance innovation, access, and safety and soundness. As of the end of last year, the aggregate net worth net worth ratio, that's how credit unions refer to capital levels, was strong at 11.3% slightly higher than the year before.
▶ 0:47:30asset growth was a solid 5% up from 2% growth. From a safety and soundness perspective, the system is in a good place. And finally, given my successor has been announced, I'd like, and this is probably my last appearance before this committee, I want to make one final point. Regulation falls hardest on the smallest institutions, but we are a better, more prosperous country because of the unique American system that contains over 8,000 banks and credit unions. Many of them serve niche
▶ 0:47:58We don't want to be one of those countries where four or five big banks like Canada. Um we're best served with the system we have with every corner of this country, every industry being served by a bank or a credit union. Uh thank you, Mr. Chairman.
▶ 0:48:11Thank you, sir, and thank you for your service since 2020 at the NCUA. We appreciate that. Chairman Hill,
▶ 0:48:18Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to testify today about the FDIC's ongoing work to strengthen our regulatory and supervisory framework while we continue to fulfill our core mission of ensuring deposits, promoting bank safety and soundness, and resolving failed institutions.
▶ 0:48:36Over the past year and a half, we have advanced a number of key policy priorities, including reforming supervision to focus on material financial risks, modernizing capital standards, improving our resolution readiness, and implementing the Genius Act, among others. Beginning with supervision reform, we issued a proposed rule last fall with the OC to define key terms related to supervisory criticisms, which we are working to finalize in the coming weeks.
▶ 0:49:01In parallel, we have been conducting a comprehensive look back of all outstanding supervisory criticisms as we work to implement the new approach in a consistent manner. We've also been working with our FFIC counterparts to modernize the camel's rating system and we issued a proposal last month that would place greater emphasis on factors most critical to safety and soundness of institutions and better align the overall rating with the bank's true risk With respect to capital standards, we recently issued two proposals
▶ 0:49:31to modernize riskbased capital requirements. These proposals improve risk sensitivity, simplify core components of the framework, and provide more appropriate capital treatment across mortgage, retail, and business lending. In addition, we finalize revisions to the community bank leverage ratio framework to encou encourage broader adoption for community banks. We also continue to strengthen our our readiness to resolve failed banks.
▶ 0:49:56Among other things, we are working on changes to our resolution planning rule for insured depository institutions and have taken steps to enhance the competitiveness of our bidding process. Relatedly, we are working to remove barriers for non-banks to provide capital in failed bank auctions, including rescending a 2009 policy statement that imposed overly restrictive conditions on private capital investors and exploring potential changes to the shelf charter process to allow a non-bank entity to act quickly in the event of a sudden unexpected
▶ 0:50:27failure. In the digital asset space, implement implementation of the Genius Act remains a top priority. We have issued proposed rules to establish an application framework, credential requirements, and BSA and sanctions compliance for FDIC supervised stable coin issuers. We are also advancing other important policy initiatives.
▶ 0:50:46These include modernizing BSA AML program requirements, updating our information disclosure rules, and revising model risk and thirdparty risk management guidance to remove unnecessary barriers and encourage appropriate use of new technologies. We are we are also re-evaluating our bank merger review process to improve clarity, timeliness, and transparency and are working to make the denovo application process more efficient.
▶ 0:51:13Earlier this year, we finalized a rule removing reputation risk as a basis of supervisory criticism. The rule makes clear that the FDIC will not require, instruct, or encourage an institution to close customer accounts or take other actions on the basis of a person's or entities political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.
▶ 0:51:41Finally, the FDIC continues to make pro progress in improving workplace culture. We have taken significant steps to improve accountability, enhance reporting and response processes, and reinforce expectations for professional conduct across the organization. I remain committed to ensuring that the FDIC maintains a culture grounded in professionalism, accountability, and respect to ensure that our workforce continues to fulfill our important mission. Thank you for the opportunity to testify today. I look forward to answering your questions.
▶ 0:52:13Gentleman yields back. Thank you all for your opening statements. We'll now turn to member questions. I recognize myself for five minutes for some questions. I referenced in my opening statement that among our core work on improving bank supervision and echoing some of the good work you're doing in each of your agencies that we've been advancing a series of bills under our uh Main Street Capital Access Act which we hope to bring to the House floor in in coming weeks.
▶ 0:52:41and you've touched on it in your hearings that our banking sector has faced numerous challenges ranging from a drought and new bank formation and thank you Mr. Google for setting the record straight on what the OC's been doing there.
▶ 0:52:54A postcrisis credential framework that's pushed activity away from banks and squeezed many of our community and midsize institutions uh from the rules that I think again are not effectively tailored and discriminate against home lending for example to the politization that we all witnessed of bank supervision and regulation in recent years.
▶ 0:53:16So now 15 years following the great financial crisis and the resulting DoddFrank Act, it warrants that we take careful assessment of what's happened in that past 15 years and how we need to propose changes. And I think that is at the heart of the work we've done on Main Street uh capital access. So let me ask uh each of the witnesses start with you, Vice Chairman Bowman.
▶ 0:53:40Can you talk about how these principles in Main Street Capital Access mirror the work that's being done by the Federal Reserve and its supervisory process and how statutory changes can make that work durable and cement that effort to give the certainty to our financial institutions depository institution management that they can count on that in the out years.
▶ 0:54:05Well, thank you for that important question. Uh, Chairman Hill, as you know, as a former U community banker, a former state bank commissioner, I am very committed to the community bank model, and I appreciate your efforts to ensure that there's viability in this mo banking model going forward. Um, a number of the of the issues that are covered within your bill are things that we are working on at the Federal Reserve and working together in the inter agency context.
▶ 0:54:32One of those in particular is ensuring that asset thresholds are appropriate moving forward uh and that are indexed for economic growth and inflation. So I'll I'll stop here.
▶ 0:54:43Yeah, thank you. Well, Chairman Bar and I have just worked so hard on this over many many years and we really appreciate the work at the agencies, but we're trying to put it into law. this our nation is best governed by by laws agreed to by the uh Congress and and not just on executive orders that vary radically between you know different executive branches.
▶ 0:55:06Recently the White House issued an executive order promoting access to mortgage credit which underscored how tackling housing affordability requires not just more housing supply but also better access to the financing. Let me stick with you uh vice chairman. Uh do you agree that housing affordability depends not only on just whether homes can be built but whether banks have the capacity, funding and regulatory flexibility to undertake that one to four family construction.
▶ 0:55:35And you've heard me say and we've said in this committee many times six out of 10 uh home construction loans on bank balance sheets are by banks under 10 billion. And many of our largest institutions are just out of that business. So clearly there's a there's a regulatory mix in there that I think is at the heart in some of the postcrisis decisions. Can you reflect on that?
▶ 0:55:58Yes, thank you for that question. I a few weeks ago I made or actually several months ago now before we introduced the Basil capital proposal. Um I spoke uh in great detail about how a lot of the the mortgage origination and servicing business has left the banking system.
▶ 0:56:14Uh so as a part of that proposal we have more appropriately calibrated risk weightings for mortgage and and mortgage mortgage origination and mortgage servicing activities so that banks will be incentivized to or not disincentivized to uh to return to the mortgage market to serve their customers.
▶ 0:56:33as a part of um in support of that the president's executive order also uh limits some of the complexity related to uh to the origination of of mortgages and the paperwork required. I think in totality those together will be very helpful for the banking system to to return to that very critical traditional breadandbut activity of origination.
▶ 0:56:58Well, I think it's very important and it was in the Joe Biden last Council of Economic Advisors report, a whole chapter acknowledging that, saying those were important changes to make. And ranking member Waters and I have collaborated on our road to 21st century housing bill, which got 396 votes here on the House floor. But we believe that with that and with the tailoring of community banking proposals in it, more needs to be done. And so I thank you for your comments.
▶ 0:57:24Let me recognize that ranking member from California of the full committee, Miss Waters, for her five minutes of
▶ 0:57:30Uh, thank you very much, Mr. Chairman. I am so focused on affordability um and um what our constituents are saying about their ability to have a decent quality of life. Let me ask each of the members here. Um, could you tell me what city you're from and how much the gasoline prices are in your city? Starting with Miss Bowman. What city?
▶ 0:57:58Uh, Congresswoman Waters, I live now in Arlington, Virginia, and gasoline is um
▶ 0:58:04I'm sorry, I can't hear you. Did you say you will not answer that?
▶ 0:58:06No, I'm sorry. I live in Arlington, Virginia, so absolutely I'll answer that. I Inflation affects both households and city are you from?
▶ 0:58:15I'm originally from uh Council Grove, Kansas, which is a very small community.
▶ 0:58:19How much is gasoline in whatever city you want to claim?
▶ 0:58:22Uh well, in Arlington, it's about4 $4.50 a gallon, which is comparable to
▶ 0:58:28Let me move on, Mr. Gold. What city are you from?
▶ 0:58:31Well, I'm originally from Lynchburg, Virginia, but I
▶ 0:58:33How much is gasoline there? I
▶ 0:58:35I haven't been there in a while. I can't speak to the prices of gasoline there.
▶ 0:58:37I'm sorry, I can't hear you.
▶ 0:58:38I haven't been to Lynchburg, Virginia for a while where I was where I grew up. So, I can't speak to the prices of gasoline there.
▶ 0:58:45Okay. Who's next on the list over there?
▶ 0:58:48What city are you from?
▶ 0:58:49I'm originally from Bar Harbor, Maine. I think it's about 4.
▶ 0:58:52What's the price of gasoline?
▶ 0:58:54Four and a quarter. Four. $430 around
▶ 0:58:58Mr. Hill.
▶ 0:58:59Um, originally from New York. Uh, I don't know the exact price of gas, but I believe nationally it's around somewhere between four and $5 a gallon.
▶ 0:59:07Do you know what it is in California? between $6.3 and $7 a gasoline gasoline. $7 a gallon for gasoline. And I I I think it's important for
▶ 0:59:24order, please.
▶ 0:59:27I think it's important for us to know exactly what's going on in America with And so that's why I'm asking you if you know and understand what your constituents are paying, even if you're here in Washington, where you really from and where you're going back to and how much they're paying. And it appears that there is not a consensus here that you all know what the cost of gasoline is.
▶ 0:59:56Um, again, it can cost $6 or even $7 a gallon in California. And that's real money hitting family budgets, especially for those who need to drive to work. It has gotten so bad that one in 10 Americans skipped a meal yesterday. Why? Because everything is too expensive. From putting gasoline in the car to buying a home to putting food on the table, wages are not keeping up with affordability crisis fueled by Trump's reckless policies.
▶ 1:00:27Last year, Americans were taking out loans and buying now pay later products to buy groceries. Do you know what that is? Do you know what buy now pay later is? Do you understand how that works? Raise your hand if you understand it and you know how it works. Yes, I know what buy now pay later loans
▶ 1:00:48Mr. Ghoul, what did you say?
▶ 1:00:50I said yes, I know what a buy now pay later loan is.
▶ 1:00:53Would you tell your constituents right now what it means?
▶ 1:00:57Well, my my constituents are the American public. I'm not
▶ 1:01:00That's right. It's the American public
▶ 1:01:02What does that mean? Buy now. Groceries pay later. What does that mean?
▶ 1:01:06Pardon me.
▶ 1:01:12Okay. All right. We'll move on. And do you know who is doing well? Corporate executives. Their compensation grew 20 times faster than working Americans last year. Did you know that, Miss Bowman?
▶ 1:01:26Did you know that, Mr. Ghoul?
▶ 1:01:28Not aware of the facts what you're talking about. Be happy to look into
▶ 1:01:32Okay. Their compensation grew 20 times faster than working Americans last year. Who knows that? And who understands that? Mr. Hill, did you know that? uh like like the comproller, we'd have to look into that, but happy to follow
▶ 1:01:46Now, we're not that far removed from a close call we had to a big financial crisis when Silicon Valley Bank and two other regional banks failed three years ago. Community banks and credit unions are having a tougher time to compete with the mega banks. But looking at your actions, you seem to be doing all you can to make life easier for the biggest banks and their executives. This includes the Trump administration's efforts to shut down the Consumer Financial Protection Bureau.
▶ 1:02:16As a result, there are no exams being done of mega banks to see if they're complying with Consumer Protection laws. Does anyone think the mega banks, which have paid hundreds of billions of dollars in fines for violating the law, are now perfect angels? Are they doing okay?
▶ 1:02:33Congresswoman, the CEO of the biggest
▶ 1:02:35gentleoman's time is expired. Chair now recognizes our vice chairman full
▶ 1:02:39Mr. Chairman, I have a point.
▶ 1:02:40From New York,
▶ 1:02:41I just want to submit for the record that California currently has the highest gas prices in the United States, averaging anywhere per gallon because prices are driven up by high excise taxes, strict emissions. Chair recognizes the vice chair order. I'd like to say that the price has skyrocketed since President Trump has been in office. If that's a point of order, I'd like to make the same point.
▶ 1:03:09Just want to make sure the price point of order. Mr. Lawler is out of order. And I
▶ 1:03:21I've already ruled Mr. Lawler out of order. Everyone is out of order.
▶ 1:03:25Oh, we're in order when we're talking about the gentle woman's time has expired. The gentleman I need more time.
▶ 1:03:33I'll give you more time later.
▶ 1:03:34All right. Thank you.
▶ 1:03:35You have a friend that'll yield it to you. I know. I promise. I know.
▶ 1:03:39Uh the vice chairman of the full committee who is patiently waiting. Mr. Heisanga of Michigan. You're recognized for five minutes. Thank you.
▶ 1:03:47Well, thank you, Mr. Chairman. And uh not to add to the cacophony, but I uh bought gas at 3.93 a gallon at my local Sam's Club in Holland, Michigan on uh on Saturday, and 3.99 was the predominant uh price. I too have my own uh understandings of why gas might be uh 50% more than that in California. But nonetheless, uh I'm going to start with uh with you, Vice Chair uh Bowman.
▶ 1:04:14Um, and uh, I was going to ask before we had launched into SVB, I was going to ask you, how's it going? [laughter] But I think we see the state of how it's going all the way around. So, uh, let's just get right to SVB. Uh, it's been more than three years since the failure of Silicon Valley Bank, which was regulated at the federal level by the Federal Reserve system. The Biden administration had a limited review for it regarding the failure and it conducted by Fed staff and hastily published only a week later or weeks later.
▶ 1:04:45Uh it was used to justify a slew of misguided regulatory proposals that not only punished all the rest of the banks that actually acted as sources of strength and uh during the fallout, but also proposed to impose burdens on banks in ways that had nothing to do with SVB's failure. Uh so Vice Chairman Bowman, now that we we have had the benefit of more time to reflect on the SVB failure, uh I understand and appreciate that you've been commissioned uh to do an independent review.
▶ 1:05:14So uh are you addressing the aforementioned shortcomings in the independent review that we saw coming out of that staff-led uh Fed uh review? and are you seeking the cooperation of those who were in positions of responsibility at that time as uh as you were exploring the reasons why that happened?
▶ 1:05:34Congressman, thank you for that question. And I think it's very important that as we had the most costly bank failure in in history of $42 billion uh at the cost to the DI to the DIFF fund that we understand exactly what the failures were in supervision and in bank management that led to the failures of of that institution and several others uh soon thereafter.
▶ 1:05:56Uh what's important is that we identify those actions uh that were taken by supervisors that were uh that kept us from understanding the condition of the bank and acting appropriately and time in a timely way. Um so it's my expectation that the that the group that's doing this independent review for us will engage with those who were responsible for overseeing supervision and the supervisory process during that time period.
▶ 1:06:24And you felt it was necessary to do an additional independent review, not just rely on what had been hastily put together
▶ 1:06:31Yes, I committed to commissioning an external review uh during my confirmation process.
▶ 1:06:37And who is leading that review?
▶ 1:06:38Uh it's a group called Starling.
▶ 1:06:41Okay. And they have experience with uh with doing these types of activities.
▶ 1:06:47Excellent. Okay. Well, I appreciate your work on that uh because there are still lessons to be learned from that. Uh, and by the way, I echo the chairman's uh uh uh in concern about the lack of involvement on local banks with mortgages. I when I graduated my OSO employable political science degree, I went into real estate full-time and I sat at the closing table many a time uh with those local community banks uh who held those mortgages in their portfolio.
▶ 1:07:14Uh and I believe it made their risk assessment and their decision- making better, not worse. Um Mr. Chairman, the other chairman Hill, uh, let me go to this. I have introduced legislation HR 3446, the FDIB FDIC board accountability act to replace the CFPB uh, director on the FDIC board uh, and instead require uh, one FDIC board member to have actual experience with small banks of less than $10 billion.
▶ 1:07:42I I might actually nominate Mickey Bowman uh, to join that with her experience as a community banker and a state regulator. Um, this bill was included in the mainstream act. How important is it for the FDIC board itself to include members with direct experience working with community banks and could have the uh could having the that expertise at the board level lead to better informed policym?
▶ 1:08:07Um, well, thank you, Congressman. Um, as as you know, the FDIC is the is the primary federal supervisor for the majority of community banks in America. Um, and so I think having direct experience with community banks is is vital. Um, and would be extremely valuable for for the FDIC. Um, we would certainly welcome uh, Vice Chair Bowman if she wanted to join our board, though I think she
▶ 1:08:29she's going to be the Marco Rubio of regulators, I think. Yeah. One more hat.
▶ 1:08:34well, it it just seems to me that uh, while we have some colleagues calling this quote rec reckless deregulation, it seems to me that most should actually call this common sense. uh when I look at a CFPB director who's politically appointed versus an actual practitioner, I side with the practitioner. So with that, Mr. Chairman, unless apparently I could have the ranking member extra time that she had been requested, [laughter] uh I will uh yield back to the chair.
▶ 1:09:06Chair recognizes the ranking member of our subcommittee on capital markets. Gentleman from California. Mr. Chairman, you're recognized for five minutes. First want to comment on the proposal to create a $250 bill. Now, most Democrats are concerned about the proposal as to whose picture will be on that bill, but the real question for me is who needs a $250 bill.
▶ 1:09:31Clearly, drug dealers in America face a major problem in dealing with large amounts of currency, and the issuance of such a bill would make their lives two and a half uh times better. There is no other reason for the creation of a $250 bill. Basil 3 uh is when you finally implement it, then your regulations is going to have some unaffected unintended consequences.
▶ 1:09:57And I look forward to uh each of the regulators providing for the record uh what mechanisms you have for future adjustments and recalibrations as you take your uh your vehicle out on the road and test drive it. DoddFrank kept America safe from 2008. It continues to keep America safe.
▶ 1:10:18And uh uh I uh see the uh in this room the uh picture of Barney Frank and appreciate all of the work that was done in this room to protect us from that meltdown. One hole in the uh in that uh bill was it left to the regulators how to deal with uh interest rate risk and of course the regulators failed to deal with interest rate risk with regard to Silicon Valley Bank and others.
▶ 1:10:48Uh this proposal moves us in the right direction in terms of marktomarket for held for sale uh securities but there needs to be a comprehensive review of interest rate risk uh looking not only at at uh held to maturity securities but even very long-term uh non-marketable securities.
▶ 1:11:10The proposals uh for Bosible 3 have had a number of improvements in the area of clean energy credits uh some progress on private mortgage insurance and a whole lot of progress in dealing with the capital markets and fee income. So at least the regulators and your predecessors and you have listened to us. Mr. Hampton, uh you talk about government payments in stable coin. I can't think of a worse idea.
▶ 1:11:38uh it would sanctify an alternative to the US dollar, an alternative designed to facilitate a tax evasion economy. Uh and I would point out to all of our regulators here that the Genius Act requires that there be no interest paid on stable coin. The smartest or at least the uh best paid lawyers in the country are being paid to try to evade that requirement. And I'm counting on you to write regulations that withstand that.
▶ 1:12:07Um, Mr. Gold, thank you for talking about not debanking unpopular uh uh businesses. And uh I uh now have a question for uh Ms. Bowman. Um we're supposed to account for uh economic growth in drafting these regulations. Uh the you use scoring methodology using a base year of 2019 rather than 2015.
▶ 1:12:35Uh so you're not reflecting economic growth that occurred after the regulation process began. Uh is there any justification to explain why the proposal does not account for economic growth from 2015 to 2019 and how uh and and does that put us at a disadvantage in competing with foreign
▶ 1:12:57Well, I appreciate that question. You're referring to the GUI searchcharge calibration. Exactly. I'll I'll be honest with you. The reason that we started at 2019 was because I in working with my board to understand how I could get support for moving this proposal forward. This was the the the compromise that we were able to strike.
▶ 1:13:17But what justifies not other than saying well we got together and we picked it. Uh what justifies uh ignoring growth between 2015 and 2019? Well, we also recognized that in 2019, uh, many of my board members stated that the level in the cap the level of capital in the banking system was just about right. So, uh, it was a, as I said, it was a compromise. Uh, we did discuss and review going back to 2015.
▶ 1:13:45It would have lowered the capital requirements, um, to a level that some were uncomfortable with. So we we
▶ 1:13:52well yes the chairman commented that the capital mark uh levels were just about right in 2019. So then you go back to 2015. Um I'm I'm surprised you the only defense uh you have for this rule is well we got together and we discussed it and some people wanted to do it so that wanted to go in one direction or the other direction. I don't think there's any reason not to uh to ignore the four years of economic growth. I
▶ 1:14:18backspired. Thank you for that Mr. Sherman recognized the chair of our housing and insurance subcommittee. The gentleman from Nebraska, Mr. Flood, you're recognized for five minutes.
▶ 1:14:27Thank you, Mr. Chairman. I'd like to focus my questions this morning on two subtopics. Number one, the roll out of the Basel 3 endgame proposal and the implementation of the Genius Act for stable coins. I sent a letter with Senator Rickettts back in February requesting that you all address the cap on mortgage servicing assets as applied to the common equity tier one formula for banks across the country. This cap is a significant barrier particularly for smaller banks that have very little capacity to participate in mortgage servicing with the cap.
▶ 1:14:58I was very pleased to see that the current proposal removes the mortgage servicing deduction entirely. And I do believe that this change will make it easier for institutions both large and small to participate in mortgage servicing. This question is for Vice Chair Bowman, Comproller Gould, and Chairman Hill. Can you each address why you thought the cap should be removed on mortgage servicing assets in the proposal? And then can you also talk about any other changes that you'd like to highlight in the rulem that you feel will help get banks back in the mortgage business?
▶ 1:15:28We'll start with Miss Bowman.
▶ 1:15:30Thank you for the question. As I mentioned earlier, um the mortgage servicing business and the mortgage origination business has been a very traditional banking activity and is a primary uh source of uh relationship lending for community banks in particular. So we wanted to find ways to incentivize and encourage banks to return to the mortgage business so that they could serve their customers. This was one way that we could do that.
▶ 1:15:56Thank you very much, Mr. Gold.
▶ 1:15:58Uh thank you. uh you know I would just note that we made a number of changes post 2008 that pushed some of these activities including mortgages outside of the banking system I think to our detriment. If I could make a broader contextual point if I may. Um last week uh Secretary Bessant gave a tour to force spear speech um at the Reagan uh economic summit. Some of you I think were were there entitled while America slept and he linked specifically the connection between economic security and national security.
▶ 1:16:26A lot of what we are doing today, a lot of what I am doing at the OC is making sure that we are empowering banks and restoring to them to their proper role of being able to promote economic growth in this country which is essential to economic security which as Secretary Besson has so eloquently linked it is also essential to national security. So that is a broader context in which I think you should view many of the actions that I at least at the OCM taking.
▶ 1:16:51Chairman Chairman Hill. Yeah, I I [clears throat] would just echo um that I think uh removing some of the obstacles to banks engaging in the mortgage mortgage business is is extremely important. Um one other piece of the of the Basel proposal that that is also I think very important is the improved risens for mortgages that are held on balance sheet um by uh tying it to to loan to value ratios.
▶ 1:17:16Um, I think that will go a long way in encouraging banks to um originate and retain more mortgages and and and reduce the amount of mortgages that that are being funneled through the through the GSC's.
▶ 1:17:28Thank you. Next, I'd like to talk about the implementation of the Genius Act. In April, the Department of Treasury issued an advanced notice of proposed rulemaking for determining whether an existing state level stable to regulatory regime is substantially similar to the federal regime. Uh pursuant to the Genius Act, this is the first step towards a process that will ultimately allow some stable coin issuers to be regulated at the state level. I passed a bill to make Nebraska the second state in the nation uh to have to allow state charter banks to custody digital assets.
▶ 1:17:58Uh once these rules are finalized, an entity called the stable coin certification review committee will review state laws to ensure they meet the criteria for genius act. Uh the committee will be the secretary of treasury, either the chair of the Federal Reserve or the vice chair of supervision and the chair of the Federal Deposit Corporation. Vice Chair Bowman, have you discussed this with Chairman Walsh? And do you know whether you'll be the representative from the Federal Reserve on the stable coin certification review committee or if it will be Chairman Walsh?
▶ 1:18:28Well, thank you for including the Federal Reserve in in this initiative. uh we have not yet had the opportunity to discuss that but it it it clearly is an important issue.
▶ 1:18:38Thank you. It's important to me that we continue to keep this state and federal pathway and stable coins served in the state legislature for 10 years. States are little laboratories for democracy and there's a lot of innovation that's that's happening there. Um, I guess with the remaining time I have, I would uh advise this committee that thanks to Nebraska corn, gasoline is 40% cheaper if you use ethanol.
▶ 1:19:04And so, uh, if we want to bring down gas prices, buy more ethanol, year round E15, and go Huskers. I yield back. Gentleman yields back. My pleasure to recognize the gentleman from New York, our ranking member of our House Foreign Affairs Committee, Mr. Meeks. recognized for 5 minutes.
▶ 1:19:22Thank you, Mr. Chairman. And just to that, let me just say, I think it's just to get the record straight since I am the ranking member on the House Foreign Affairs Committee that since the president's uh war of choice in Iran across America, Americans are paying more than 50% between 40 and 50% more per gallon since the Iran war. That's according to the AAA.
▶ 1:19:47just want that record to be clear that Americans are paying more across the country including in Mr. the lawless district where it's uh about uh 450 if I don't if I recall correctly because I'm in New York also. But let me ask this Uh let me make this quote folks. The business of banking is built on trust and confidence. Competent bank supervision is a prerequisite to restoring that trust and confidence.
▶ 1:20:16Does that statement sound familiar to No. Well, I'll tell you where the statement came from. That statement was made by Mr. Ghoul back in 2023 in front of this body in a subcommittee hearing. Do you recall that, Mr. Gould?
▶ 1:20:36I don't recall the the exact quote, but but it it it sure sounds like my words. Thank you, Congressman.
▶ 1:20:41And would you stand by that today?
▶ 1:20:44Yes. And specifically, I would note that we lacked competent bank supervision in the leadup to Silicon Valley Bank.
▶ 1:20:49Okay, good. So, you would probably also agree that competent bank supervision requires holding everyone to the same standard regardless of who they are. Is that also correct?
▶ 1:21:04Yes or no? Cuz I got
▶ 1:21:05Is that Is that to me, Congressman?
▶ 1:21:07Yes. To you.
▶ 1:21:08Well, well, uh, Congressman, I would note that we do tailor our regulation and supervision based on the nature of the bank and the complexity of
▶ 1:21:16Gotcha. So, I hear you. So let let me give you an example then of uh what I believe equal standards should look like and you tell me there's a fintech company called wise who doesn't seem to have any direct links with top officials in the administration so they don't have any poll or anything of that nature.
▶ 1:21:37uh when its sponsor bank had AML problems, it was your agency who issued a consent order and when WISE itself had AML problems, state regulators and the CFPB acted. So I think that the OC seems to have the tools necessary to conduct oversight. I think that they do have that.
▶ 1:22:08Now, Mr. Gold, can an applicant obtain an OCC charter without demonstrating adequate BSA or AML compliance?
▶ 1:22:22Yes or no?
▶ 1:22:23Well, Congressman, um the OC's guidelines are established by statute and are detailed in exquisite. I just need to know, do they have to have BSA and or AML compliance?
▶ 1:22:36Well, uh, Congressman, it's not as simple as a yes and no. And I think I'd
▶ 1:22:40So, they could be out of compliance.
▶ 1:22:42I I'd be doing a disservice to the members of this committee if I pretended that it was as simple as I just try to
▶ 1:22:47when we're talking about a bank, let me go this farther. Let me ask you this. They don't actually have BS.
▶ 1:22:52Let me ask you this. Let's let's let's talk about something else then. Let's talk about President Trump and his son's crypto company called World Liberty Financial. That company applied to the OC for a federal banking license to issue their own digital dollar. And at the same time, a foreign government linked investor reportedly acquired nearly half of the company.
▶ 1:23:15And I'm sure you're aware that the crypto exchange Binance, which holds nearly 90% of the digital dollar issued by the World at Liberty Financial, pleaded guilty in 2023 to sanctions and money laundering violations. And it doesn't stop there. That same exchange permitted more than $1 billion in cryptocurrency transactions to Iran and terrorist organizations.
▶ 1:23:39But that didn't stop the president and his sons from putting their flagship digital assets on the criminal exchange. And that same company directly involves and actively lines the pockets of the president's family today. So let's not beat around the bush, Mr. Gold, because I'm going to ask you a few questions that I know you may want to filibuster.
▶ 1:23:59Will you commit today that you will do your job as a regulator and ensure that the world liberty financial is held to the same level of scrutiny as every other applicant like wise before the OC and because this has given you an opportunity to prove if you're still working on behalf of the American people or have you seated your role to serve as a fixer for the Trump family? Which is it Mr. Go? Are you working for the American people? Are you working for the Trump family?
▶ 1:24:28The gentleman answer
▶ 1:24:30the gentleman can answer in writing. It's a good question. He'll answer it in writing. I think
▶ 1:24:34now the chair recognizes the House Majority Whip, Mr. Emmer of Minnesota for five minutes.
▶ 1:24:40Thank you, Mr. Chair, and thank you all for being here today. I'd like to start by commending the agencies for the meaningful improvements that have been made to the original 2023 Basel 3 proposal. There's a significant amount of technical and highly complex work that went into developing this updated proposal and we recognize that calibrating a modern capital framework requires careful judgment across a range of competing objectives.
▶ 1:25:07There is no hiding that the 2023 proposal caused serious heartburn across a broad spectrum of industries and political viewpoints with criticism emerging from multiple sectors of the economy and spanning across party and ideological lines. Chief among those concerns was the why. US banks are some of the most resilient and well capitalized in the world.
▶ 1:25:31Yet former vice chair bar and the rest of the Biden era credential regulators believed that there needed to be higher capital require requirements without adequately demonstrating the need for them uh through qual quantitative analysis. Unfortunately, all of this was done at the expense of everyday Americans. higher capital requirements, reduce credit availability, increasing borrowing costs, and limiting access to financing for firsttime home buyers and small businesses.
▶ 1:26:00That said, it's evident that those concerns were carefully considered, and I believe this updated proposal is in a much better place today than it was 2 and a half years ago. One of those improvements is the continued focus on tailoring uh recognizing that not all institutions pose the same level of risk and that regulatory frameworks should reflect difference in size, complexity, and business model.
▶ 1:26:26Vice Chair Bowman, as you move toward a final rule, how are you ensuring that the framework remains appropriately tailored and risk sensitive over time so firms are not inadvertently captured simply due to growth or broader economic
▶ 1:26:42Thank you for that question. I appreciate your uh your um praise I think on the the new Basel 3 proposal. it was praise
▶ 1:26:51worked very very [snorts] diligently to ensure that we were striking the right balance between capital and and risk waiting requirements. Uh the way that we're working to ensure that we are capturing the right banks at the right levels is to ensure that there is an indexing uh for the the requirements and responsibilities. Uh we're using uh G uh sorry nominal GDP as our index weight for that.
▶ 1:27:17Okay, great. I I was also pleased, by the way, to see that the 2026 proposal excludes client-facing clear derivatives from credit valuation adjustment capital requirements. However, I noticed there isn't a full CVA exemption for endusers with the proposal increasing capital on these transactions by 96%.
▶ 1:27:40I vice chair Bowman again, can you briefly walk us through your thinking on this uh as it's vitally important to allow our farmers and a businesses to hedge risk in the most effective way possible? I share your concern. This is a very important issue. Our comment period closes on June 18th and we look forward to comments on this proposal to ensure that we've got the balance right in this particular area.
▶ 1:28:05Well, and I I know you want to get this done as soon as possible, but would you be open to additional feedback even from us on this
▶ 1:28:13Absolutely. We look forward to your feedback and would be happy to visit with you about that.
▶ 1:28:17Uh, separately, under the 2026 proposal, category 3 and four banks must now include accumulated other comprehensive income in common equity tier 1 capital. It's my understanding that this change is subject to a multi-year phase in. However, for banks that cross into category 2, there would be an immediate inclusion.
▶ 1:28:40Uh, Vice Chair Bowman, how how are you thinking about structuring the final rule to avoid unintended cliff effects so firms can make an orderly transition into a new category without disrupting credit availability or market It's not necessarily addressed in the Basil proposal, but there are a number of uh considerations that we're taking in in different forms that would address the categories and the delineations of those categories as we're thinking about asset thresholds more generally.
▶ 1:29:11Well, thank you. I see the time is is running uh short. I may have some things that I'll follow up with separate from the hearing. And with that, Mr. Chairman, I yield back.
▶ 1:29:19Gentleman yields back. We're going to suspend for a moment. Sure.
▶ 1:29:51now recognizes the ranking member of our subcommittee on digital assets, Mr. Lynch of Massachusetts. You're recognized for 5 minutes.
▶ 1:29:58Thank you, Mr. Chairman. Uh, at this time, I'd like to yield some time to uh the ranking member of the foreign affairs committee, the gentleman from New York, Mr. Meeks.
▶ 1:30:08Thank you, Mr. Bunch. I just want to go back to Mr. ghoul uh because he didn't have the opportunity to answer the question of whether or not he is working for the American people or working as a Trump fixer.
▶ 1:30:23Which one is it?
▶ 1:30:24Well, thank you for the opportunity to respond. You can recite unsubstantiated allegation after unsubstantiated allegation and you can attempt to pressure me as your Democratic college.
▶ 1:30:34I'm not reciting anything. I'm just I gave you two examples unprecedented extent. But we at the OC,
▶ 1:30:41I gave you wise jobs and I gave you
▶ 1:30:43You follow the law. Let me just ask you this ethics. Let me just ask you this.
▶ 1:30:46Thank you, sir.
▶ 1:30:47Let me just let me just ask you this. Uh, and I'm going to give Mr. Lynch back his time. If the LCC approves this application, will you commit that you will come back to this committee to personally and personally appear before this
▶ 1:31:07and explain your decisions because we talking about transparency here. Transparency for the American people.
▶ 1:31:15will you your attempts to continue to pressure me the only political pressure I felt? are acting as
▶ 1:31:21other than your Senate colleagues. That is very unfortunate.
▶ 1:31:24I reclaim my time. I reclaim my time. I reclaim my time.
▶ 1:31:28Obviously, you will not come back. Obviously, you do not want the American people to see transparency. Obviously, you are
▶ 1:31:37Well, we will obviously do Congress job under the statute and consistent with my
▶ 1:31:43Mr. Bowman. Uh I've got an overriding concern about just generally the the convergence of uh traditional banking where we have a lot of safeguards and guard rails and uh what what's happening in crypto uh as I'm sure you're aware.
▶ 1:31:59Yes, we we've been experiencing a so-called crypto crash uh uh recently and uh I know that uh I know that the uh I Kraken was was recently well a while back was given a uh uh Federal Reserve master account uh that was that was granted even before we had the framework uh set up.
▶ 1:32:24uh are we looking closely at at at what's going on with with Kraken and whether they're in full compliance given the nose dive that uh that uh crypto has taken
▶ 1:32:36Thank you for that question. Um Congressman Lynch, the Federal Reserve has a process for uh approving applications, a tiered approach for approving applications uh for access to the payment system. Our uh approach for Kraken was for a limited purpose and for a limited period of time. The Kansas City Reserve Bank approved that limited purpose application and the 12 months will lapse uh early next year.
▶ 1:33:04We look forward to understanding how uh that entity will be using its access very limited access to the payment system to understand how other similar entities might use that uh an account as well.
▶ 1:33:17Okay, that's that's fair. Thank you. Uh I I do want to comment though each of the regulators has uh rescended its earlier guidance. Uh so we go back year and a half two years ago we we had a a standard guidance to to banks just to use caution because crypto is a speculative asset as we've we've seen re recently and and yet u all the all of the lessons we've learned you know from going back to the great
▶ 1:33:47depression the bank crisis uh uh even even as recently as 2008 was to try to create stability uh in the banks. So those those missions seem to be in conflict. The the speculative asset AC as aspect of of crypto and yet the stability and safety and soundness of of these banks seem to be in conflict and now we don't have the CFPB. So they're not a cop on the beat anymore.
▶ 1:34:16uh you've relinquished the one guidance that was out there uh that's that told banks be careful be careful about investing in in crypto. So So what are we what are we doing now? What's what's out there that's going to protect depositors and and retail investors and and the banks themselves in terms of safety and soundness now that we're we're not giving them that type of One of the concerns that we had about that guidance was that it was much
▶ 1:34:46more broad than than the single issue that you're talking about. What we want to make sure is that our banking system is positioned to adopt innovation where it's necessary for them to meet uh the expectations of their customers and consumers and to be able to be positioned to support the US economy as it's growing and it's evolving to adopt some of these technologies.
▶ 1:35:09As we're looking at our supervision of of bank banks under our purview at the Federal Reserve, we work closely with them to ensure that they're adopting innovation in a safe and sound manner but that we're working together with them as we're working to develop our uh Genius Act responsibilities and introduce our frameworks.
▶ 1:35:29Gentleman's time is expired. Uh can I can I just ask uh will will there be a report at the end when when Kraken uh when that period expires and and would you offer that to the committee?
▶ 1:35:41I don't have anything for you on that right now, but I'd be happy to to talk to the Kansas City Reserve.
▶ 1:35:45Gentleman's time is yield back.
▶ 1:35:47Now recognize a gentleman from New York, Mr. Lawler. Five minutes.
▶ 1:35:51Thank you, Mr. Chairman. Uh, I'd like to submit for the record an article from US News, a look at gas prices around the world, which explains why California has the highest gas prices in America.
▶ 1:36:02Without objection.
▶ 1:36:03Thank you, Mr. Chairman, and thank you to our witnesses for your testimony today. I appreciate the work and leadership each of you has put into revising the original Basel 3 proposal. I support the revised proposal. It represents a significant improvement. The new proposal attempts to address the overlap between riskbased capital and stress tests in the treatment of market and operational risk.
▶ 1:36:26While I appreciate the consideration behind the agency's approach, more comprehensive amendments to include stress testing would be needed to address this overlap fully. Vice Chair Bowman, how do you plan to more finally tune the requirements to optimize the balance between capital requirements and costs?
▶ 1:36:46Well, the comment period on the Basel proposal and the other capital proposals uh ends on January uh sorry, June 18th and we look forward to reviewing all of the comments and would be happy to discuss any concerns that you have with you directly uh on other issues and other matters. We have the stress testing proposal has not yet been u finalized.
▶ 1:37:08It will be hopefully by the end of this year and we're uh optimistic that we will address the overlaps that existed between the original stress testing framework and the Basel proposals as we're completing that work.
▶ 1:37:22Now we've seen a dramatic rise in fraud from AI generated impersonation scams to criminals exploiting gaps in the telecom and payments ecosystem. The reality is that fraudsters are innovating faster than the system built to stop them. uh and consumers and financial institutions are paying the price. Controller Gold, how can the government do more to help consumers and financial institutions prevent fraudsters from being
▶ 1:37:51Well, thank you very much for the for the question, Congressman. Um the agencies together did a RFI last year and from that RFI I think or at least I learned a number of things including the necessity of increasing data sharing around fraud so that more stakeholders have access to potential fraud actors. Um I think it was also a humbling experience uh because I believe that at least again I learned that we the OC are not alone meaning we can't solve the problem on our own.
▶ 1:38:19This is something that transcends just the federal banking agencies and involves other aspects of the US government as well. And so, you know, as my colleague mentioned with the fleck, you know, we also work together on financial literacy across the board. I would note here that um financial literacy is at least potentially a part of the solution and uh President Trump's accounts I think will be very valuable in that regard since it teaches financial literacy at a young age. I actually signed up uh my my my youngest son for it the other day.
▶ 1:38:49So I'm excited about that. So again, I think this is going to require a multifaceted approach across a number of government agencies to address. I recognize there are issues around um who bears the burden of some of these fraud events including just among and within banks across the industry and I know there's been some tension between larger banks and smaller banks and the OC has uh given our given the fact that we supervise many of the largest banks has been attempting to facilitate some of those disputes.
▶ 1:39:17Last year you said that the failure to innovate is itself a risk and I agree. Uh but innovation also brings new risks that must be understood and managed and AI is going to be a defining feature of the future of banking from fraud detection to underwriting to compliance.
▶ 1:39:33The question is how we capture the benefits while guarding against bias, model drift and operational So can you describe the approach you are taking to examine the use of AI and share your views on both the benefits and the risks associated with its development and deployment and what issues do you believe we should be monitoring more closely as AI advances?
▶ 1:39:55Well, I thank you very much for the question and I think you you you hit the nail on the head in terms of striking the right balance between innovation and safety. Um, obviously the president spoken to this issue recently with an EO that came out I think just a couple days ago in terms of the OC.
▶ 1:40:10You know, we view AI as both a potential opportunity uh both to improve how we manage our own agency as well as how we supervise banks including larger banks where it is very hard for us to do enough kind of statistical sampling and and credit file reviews to get direct experience of the risks in those banks. Um, so AI is an opportunity.
▶ 1:40:31On the other hand, of course, as we've read about more recently in the newspaper um around things like mythos and other frontier models, we recognize it can also uh uh be used to identify vulnerabilities. Um so I think we at the OC working with Main Treasury and of course our Federal Banking Agency and and credit union colleagues want to make sure that frontier models and AI is also being used responsibly by banks of all sizes as well as importantly their service providers. Gentlemen, time is expired.
▶ 1:41:04We now recognize the uh ranking member of the subcommittee on oversight investigations, Mr. Green of Texas for five minutes.
▶ 1:41:12Thank you, Mr. Chairman. I thank the ranking member. Thank [clears throat] the witnesses for appearing. I would like to ask Vice Chair Powell a question. Uh, Vice Chair Powell, do you agree that as a general rule to control high inflation, the Fed will raise interest rates?
▶ 1:41:37Green, who is the who is the question directed to?
▶ 1:41:40Miss Bowman, excuse me.
▶ 1:41:42thank you for the question. Uh, Congressman Green, uh, we we recognize that inflation has been well above 2%.
▶ 1:41:49Could I do this, please? Just as a general rule,
▶ 1:41:52if you have high inflation that you desire to control, do you raise interest rates as a general rule?
▶ 1:42:00Well, Congressman, as you know, Congress gave us a dual mandate of maximum,
▶ 1:42:03but I'm interested in I understand the dual mandate. Do you raise interest? Are you Well, maybe you don't know. Do you know whether you would raise interest
▶ 1:42:12Well, I just discussed my framework for making decisions about monetary policy, which would include raising, lowering, or leaving.
▶ 1:42:18Okay. Would you raise interest rates if if inflation is high?
▶ 1:42:23It depends if you want to control it on the condition of the economy in all of
▶ 1:42:27as a general rule when inflation is high and you want to control it, would you raise interest rates
▶ 1:42:33in certain circumstances? Yes, we would.
▶ 1:42:36Okay. And um as a general rule, would you want what would happen if you lowered the interest rates when inflation is high? Well, what we found during COVID when we had inflation in excess of 9% by some measures having low low inflation or low uh federal funds rate uh stimulated the economy
▶ 1:42:57and when you stimulate the economy what happens if you if you have high
▶ 1:43:02inflation can continue to increase.
▶ 1:43:04Inflation continues to go up. Correct.
▶ 1:43:07That's correct.
▶ 1:43:08Okay. Well, if you have a president who desires to lower the interest rates for political and the Fed believes that the interest rates should be raised, then you will have a president who is at odds and who would probably increase I mention this because I'm concerned about the independence of the Fed and you have a president who wants control of that process.
▶ 1:43:38If the president can control that process, the president can do something that can be very harmful to the economy. Uh especially this president who do does things to benefit himself as opposed to the people who actually uh need the benefit which are the American people. I um I said Powell earlier. That's because I have such great respect for him. uh and I am absolutely a person who believes that he has done the right thing by standing up to this president.
▶ 1:44:08He has made a difference. He has shown us how one person who is bold enough to take a stand can make a difference for the American people. I believe so strongly in this that I will personally have a flag flown over the cap to support him and to acknowledge him for the courage that he has shown at a very difficult time in our country's history. He is no longer the chair.
▶ 1:44:34I trust that this chair will have the courage of chair Powell and pardon me for initially starting with his name but it was on my mind because I think so highly of him and I had planned to make these comments. Now let's talk for just a moment about meme coins. Um, generally speaking, there's something that is known as the greater fool theory.
▶ 1:44:56Um, and this greater food theory depends upon someone who has made a purchase having another person pay more for that purchase than this someone that made the initial p purchase. Uh, that's how you make your money. A memecoin is highly dependent on the greater fool theory. Someone buying at a higher price than the person who bought initially.
▶ 1:45:25Uh is there anybody who differs with me on that? Good. Because a meme coin means literally that you buy nothing when you make your purchase, but you do have the opportunity to either make money or lose money. Well, the president has found a way to manipulate meme coins. and he and his family, they've made hundreds of millions of dollars with the manipulation of these meme coins.
▶ 1:45:53I stand against it and I also stand against the crypto criminals who are making it possible for this to occur. At some point, people who invest in nothing will get what they are purchasing. I'm going to protect the American people as long as I have the opportunity to do so. Yes, I'm Al Green, unbought, unbought, liberated Democrat who's also unelected but is still fighting. Back.
▶ 1:46:18Gentleman's time is expired. I'll now recognize myself for five minutes. Mr. Ghoul. In recent years, merger reviews have often been conducted using competitive effects analysis that treat insured depository institutions as if they operate in an isolated marketplace.
▶ 1:46:37Even as fintech lenders, credit unions, farm credit institutions, and other non-bank uh financial firms now provide overlapping loan and deposit products at scale. um as uh the OC evaluates future transactions, how do you intend to incorporate kind of the non-bank competitors into the assessment of the market concentration?
▶ 1:47:01Uh thank you very much for the question. I mean, you're you're right that deposits are and can be a poor proxy of market power, particularly given the fact that many banks do compete with non-banks across a range of services services, excuse me. I mean, that is why back in 2020 when the then uh justice department was reevalu re-evaluating their 1995 bank merger guidelines, the OC submitted a letter to that effect making that very point that I've just made here today.
▶ 1:47:28We would, I think, continue to look uh to work with the DOJ um uh on and their antitrust team in terms of ensuring that when we evaluate mergers and we look to the DOJ for their advice on the competitiveness factors that they are in fact reflecting the fact that the the the banking system and the members of it compete with a much broader range of of of entities than they did say back in 1995.
▶ 1:47:55Can you give me like any idea on the analytical uh that you would think is most appropriate to ensure that kind of the the the competition reviews reflect the full range of providers serving
▶ 1:48:11Sir, sir, I'd be happy to get back to you on that, but in general, the OC looks to and receives guidance from the DOJ around that. So, their antitrust department gives us advice on that.
▶ 1:48:22Very good. Thank you, Vice Chair Bowman. You previously noted that the banks now uh kind of compete uh directly with credit unions, which I'm well aware of. I've been in many meetings with bankers and credit unions. Um and fintech firms and other non-banks offering kind of similar financial products.
▶ 1:48:44uh in the context of the bank merger reviews, uh would it be helpful for the Federal Reserve to update kind of the competitive analysis to reflect the broader landscape and kind of including all of these different entities? Uh because it probably would give us a better snapshot on the concentration of findings that probably match the reality of the markets out there right now.
▶ 1:49:09Thank you for that question, Congressman. Yes, it would be incredibly helpful for us to update that merger analysis, especially the com competitive factors and the the landscape of competition and how we uh how we weight each presence of different types of entities in that review.
▶ 1:49:26Very good. Mr. Gold, I'm going to go back to you. Under the prior administration, the OCC's merger posture largely ignored the reality that small and mid midsize banks face escalating compliance burdens and competition from regulated institutions. Uh we often hear that community banks say consolidation is no longer optional but uh almost uh means of survival out there.
▶ 1:49:52um is uh is a survival mechanism due to compliance costs and uh competitive asymmetrics. What what how do you view that kind of landscape right now?
▶ 1:50:04Uh thank you for the question. Just and just to make sure I understand you talking about kind of smaller banks or midsize regionals or just the whole PMT. Yeah, I mean when people come into my office and we visit with the banks, it's it's kind of a a myriad of of discussion about uh what's developing kind of regionally in that in a state or how might they kind of better position themselves?
▶ 1:50:26Well, I I I think it's definitely been the case, as the vice chairman noted, that some of the expectations, particularly supervisory expectations, have over time bled down since 2008 to smaller and smaller banks, requiring them to uh seek economies of scale so they can cover the cost of that additional supervision and compliance.
▶ 1:50:46Um, you know, we are and have been and I think the the the other federal bank agencies as well have been been uh keen to address this too, which is to reduce some of those regulatory and supervisory burdens at least where we have discretion to do so as authorized by Congress and statute to uh alleviate some of those pressures such that ultimately if banks want to merge or consolidate consolidate that's a business decision for them.
▶ 1:51:09It's not solely driven by regulatory and supervisory considerations, but the needs of their customers and the evolution of the markets that they purport to serve.
▶ 1:51:16Right. Very good. I will yield back. And now I recognize the ranking member of the subcommittee on housing and insurance, Mr. Clever of Missouri, for five minutes.
▶ 1:51:26Thank you, Mr. Chairman. [clears throat] Um, Mr. Bowman, uh, thank you uh, and all of our witnesses for for being here. over the last year and a half, I think um some of us Mike Flood, chair of the housing committee, myself, Chairman Hill, our ranking members,
▶ 1:51:56Maxine Waters. Uh we we've spent uh a uh large amount of time uh putting together the 21st Century Road to Housing Act.
▶ 1:52:10And amazingly uh some would probably say uh magically uh it passed the house 396 to 13 which almost uh weird but uh we did and so I I mention that only because I'm uh right now and maybe most of my life preoccupied with issues uh
▶ 1:52:40related to uh housing. Um and the the US uh commodities future uh trading commission uh put out a a report a couple of years ago and in uh that report they they uh essentially said climate change poses a major risk to uh the stability of the US financial system and to uh its ability to
▶ 1:53:10sustain the American economy. change is already impacting every facet of our economy, including um the the infrastructure, including um commercial and uh private privately held um uh property
▶ 1:53:41uh and agriculture. Uh and in in 2021, the Financial Stability Oversight Council identified climate change as an emerging and increasing threat to US financial stability.
▶ 1:53:58right now um some of us and I I I wish the whole the whole uh Congress would would focus on this uh are concerned about climate risk uh and um trying to figure out right now uh given the the physical risk from severe weather events uh and and and transition risk associated with changing market technologies and policies
▶ 1:54:28continue to affect financial institutions. Uh what specific steps uh can the Federal Reserve take or or any of us uh to uh ensure that banks uh are uh appropriately identified this issue uh and uh that they monitor and manage climate change related financial risk.
▶ 1:54:55and can the Federal Reser and and is the Federal Reser reserve committed to and involved in climate risk as it relates to financial world.
▶ 1:55:06Thank you, Congressman Clever, for that question. The Federal Reserve does not have climate change in its remitt, but we do recognize that there are risks to banks and to their uh bank balance sheets from weather events and other uh related natural disasters. We do require our banks to mitigate for those risks and to take those into account as they're doing underwriting activities, but we don't see climate as a bigger risk than other related risks like um financial risks to the balance sheet.
▶ 1:55:36But we do require our banks to pay very close attention especially as they're thinking about real estate where flooding often occurs or uh in agriculture context where bankers always have to understand the impacts of of related events on uh a farmer's crops for example. Well, let me let me ask uh any of the other members.
▶ 1:56:00How do you assess the United States current supervisory approach to climate related financial risk compared to our international peers Mr. Hill?
▶ 1:56:13Um yeah, I thank for the question, Congressman. Um we we we look at things similarly to the to the Federal Reserve. We do expect banks to be um prepared for risks in their operating environment and that generally would include the potential for weather events. Um historically uh extreme weather events generally has not presented safety and soundness risk to banks. We have no evidence of banks failing as a result of weather events that always could change in the future.
▶ 1:56:41And so we always want banks to be prepared, but but we don't view this as a risk that deserves outsized attention compared to other
▶ 1:56:52Thank you. Uh yeah, thank you. Thank you very much.
▶ 1:56:54Thank you, sir. I'll now recognize myself for five minutes. I'd first like to ask our uh comproller Gould on a question on the Genius Act, which we recently passed, of course, here in Congress. How is the OC preparing to implement the Genius Act? uh what is the timeline and what are the key rules that you'll put in place so that those folks who are in the stable core in business can have clear direction in which to move forward. Thank you very much for the question sir.
▶ 1:57:21Uh as you as you probably know we have proposed um a pretty significant rule making. Uh the comment period closed. I think we received over 300 comments. We're in the process of reviewing those comments as quickly as we can and making changes and responding to those comments as necessary to make sure that our final output uh is something we're proud of and something that you know appropriately balances both the potential as well as some of the risks that uh many have noted associated with payment stable coins uh separately and and I
▶ 1:57:51would say sir um you know we are very well well aware of the statutory deadlines that Congress has imposed on us and we're doing our utmost to to meet those statutory deadlines um without compromising hopefully the the the quality of the work product. Separately, there are efforts underway uh other rulem bankings that we're doing including with main treasury on the BSML side which are very important as well and so those are also going on too.
▶ 1:58:16You recognize the idea of the timeline are do you feel you'll meet that congressional timeline?
▶ 1:58:21Uh sir I I I I couldn't uh in good faith uh tell you right now whether we will or will not but we are working very hard. our teams have been working almost since before the uh the the law was signed in into uh excuse me the bill was signed into law by the president. So we've been working very very hard. Uh I'd like to ask Miss Bowen if I could a question as we all recognize with the sharp rise in interest rates starting in 2022. Uh banks like Silicon Valley Bank uh of course just simply failed.
▶ 1:58:50And I'd like to know from your perspective, what are we doing now to mitigate those risks moving forward on liquidity issues, uh capital balance sheets, you name it. What are we doing to to make sure that that might happen? I we all recognize the challenges with interest rates as they rose dramatically in the previous administration and and I know chairman Powell's before us. In fact, he asked answered my question. I asked him the question, why did interest rates rise so quickly? His answer was pretty simple. He said the government was spending too much money.
▶ 1:59:17Uh but that that being said, on the interest rate question and and an effect of SVB bank, what are we doing to mitigate those risks moving forward?
▶ 1:59:26Well, thank you for that question. So, a few things that we've already done and and a few that are in train. The first is that we've just recently introduced our our Basel Capital proposals uh and the comment period ends on those June 18th. We look forward to reviewing uh the feedback on that. That proposal includes uh a provision on uh mark tomarket for AOCI and that may have some uh some impact on that. We look forward to comments.
▶ 1:59:56The other issue is you mentioned liquidity together the the regulators are are working toward uh putting together a proposal to address uh liquidity weaknesses and and requirements that uh we could look at going forward. The Federal Reserve is uniquely positioned in that we're both responsible for bank supervision but also for monetary policy.
▶ 2:00:19So it seems as though these things uh while unrelated really are related as we saw during the COVID period when we were increasing interest rates on such a rapid basis at such a large amount in uh in increments as the the the governor responsible for the smaller bank portfolio.
▶ 2:00:37We were watching carefully that impact as we were increasing rates so dramatically and so quickly on the smaller banks and we recognized that there were issues that were arising and we were working with our banks to one educate them about what our expectations would be going forward and two trying to understand fully what the imp implications would be and and working to shock portfolios to understand the conditions that could arise that would be uh significantly detrimental to the banking industry.
▶ 2:01:07I think it's important that we have people with banking experience that serve in these roles. You know, I sit in the role on the Federal Reserve Board that's reserved for someone with community banking or state bank commission experience. And and I think that allowed me to see and understand in a different way than some of my colleagues did at the time.
▶ 2:01:27Thank you so much. I'll just close with this. As as we've had this very kind comments about our former chair, Mr. Powell again in this very committee earlier this year or maybe late last year. It was the recognition of the uh chairman that the reason why we had such high interest rates was just the out of control spending that took place in that time period and that was his own testimony when I asked him in this committee. Uh with that um the chair recognizes the ranking member of our subcommittee on financial institutions Dr. Foster for five minutes.
▶ 2:01:56Thank you Mr. Chair and to our witnesses. Uh early last month, the Treasury Department convened an emergency briefing with the CEOs of America's GIBs and other CEOs to discuss the cyber security risk of Anthropic's Mythos model, which excels at finding and exploiting cyber vulnerabilities at an alarming rate. To date, Anthropic claims that the model has been used to find more than 10,000 high and critical level security flaws in otherwise trusted software.
▶ 2:02:23Um, Anthropica has provided early access uh to Mythos to large companies including USGS so that they may scrub their software for vulnerabilities. Uh, but I worry that smaller financial institutions have not received equivalent access in a timely manner. So what's the policy here? Um, who exactly uh received access to mythos on what time scale? And I guess I'll just go down the line here with Vice Chair Bowman.
▶ 2:02:49Thank you, Congressman Foster. This is a very important issue and one that we're working together on in the
▶ 2:02:54I just what has happened so far.
▶ 2:02:56So I can't I can't disclose uh who has h had access but I can tell you that we're working both with service providers and within the banking industry to work together to understand what impacts uh we may need to have them mitigate and address. We have not ceased our cyber exams. In fact, we continue to work with our institutions to understand how they're planning to uh to Okay.
▶ 2:03:21But but still it's unquestibly true that small small banks with their their private systems have not been given the same level of cyber defense that the large ones have, which is not irrational, but it seems to me that you're going to need a very clear position on this. You're going to have to define the defensive position perimeter and say this is a software stack that we're going to defend to the best of our abilities. and other other institutions that are using different software stacks are going to have to just accept that they're a lesser priority.
▶ 2:03:51Um and I think there's there's a lot to be done here. I think first and foremost frankly uh to have the federal government define a software stack that we are going to defend. Uh this is done on the cloud computing uh infrastructure. There are welldefended, you know, the core, you know, even small banks use cloud-based systems. And at the heart of these small these these cloud-based systems are open-source software things that are communally defended and we're some of the highest priorities in defending when mythos hit.
▶ 2:04:20And so we I think that it should be all the regulators should uh should focus on and defining the set of software that we are going to defend the same way that the cloud infrastructure stuff is defended um as open source projects. I think that's the best and and really um the only way forward on this. So I urge you to to think about that. Um yeah, controller Google um who's received what so far?
▶ 2:04:45I'm sorry sir.
▶ 2:04:46Yeah. Who's received you know who's had access to mythos of everyone? Sir, I I also can't disclose that
▶ 2:04:52in general terms. well, there fraction of all of the entities under
▶ 2:05:00Well, I I I I can't give you an answer on what fraction under all our entities, but but appropo of the conversation we had before the hearing started, sir. I like you, I'm also concerned about the perception of a cyber mode, again, real or perceived around the very largest banks. And I think particularly around the smaller banks as well as midsize and regionals, it's very important for us to focus on the service providers that support them. Um I think this
▶ 2:05:23Okay. Yeah. To that end, um yeah, Mr. Hman, you know, I've been working for years to try to get um you know, you have visibility into the back office providers for credit unions and which is so far, you know, not made it through Congress and we're going to keep trying on that. But but you um have the back office to your knowledge have the back office providers um that so many credit unions depend on have they at least been given access to mythos to defend
▶ 2:05:51I couldn't speak to who is using Mythos or not? I don't want to disclose any of that. But I will say this anthropic like open AI they're both in San Francisco. I think we should make sure that this country has a regulatory environment that we don't take it for granted those are American companies then you can easily convene a com a meeting like the one you discussed
▶ 2:06:11that is the main thing is I
▶ 2:06:13I agree we just need we need policy clarity and we need to have a well- definfined defensive perimeter
▶ 2:06:18the next methos may be in Beijing or tyrron or somewhere and it's not going to work as well for us we want to make sure that those companies at least are American but to your exact question I can't disclose who has access to mythos or not
▶ 2:06:29okay yeah Mr. Sir Hill.
▶ 2:06:32Um yeah, cons consistent with my colleagues, um can't disclose who has access to what, but we'll just say this is something we're all keenly focused on and uh recognize it's it's a vital issue for us to be focused on.
▶ 2:06:43Yeah. All right. And so I don't have much time left, but I just want to raise the point that I don't think that we are prepared for uh agentic AI bank run. that if you look at what happened in um in Silicon Valley and and then ask yourself the question what would have happened in the world where aic finance makes things happen not at the speed of internet gossip but the speed of agentic AI that would have caused the run to take not 40 hours but 40 minutes or 40 seconds we are not ready for that and you should come up with a plan to deal with
▶ 2:07:13that because we can have that hearing now or we can have it later I'm out of time now and yield back
▶ 2:07:19gentleman yields the chair recognized the gentleman from Florida Mr. Donald's for 5 minutes.
▶ 2:07:23Uh, thank you, Chairman. Um, thank you guys for coming in. I appreciate it. Um, Vice Chair Bowman, uh, what's the Fed's current view of the of the interest rate yield curve and the bond market overall and I it's still force a habit from my time uh, working in the industry looking at the 10-year rate uh, seeing it around four you about 440 445 basis points like what's the Fed's position and view of it right now?
▶ 2:07:48So that yield curve is one of many things that we monitor and watch as we're monitoring economic activity in the United States u for financial stability purposes and also to understand how the economy is u is
▶ 2:08:04True. But do you do you think that um you know there's work that can be done whether it's here on Capitol Hill or even with the Fed itself to try to find ways to uh bring some of those rates down because obviously they go into they they directly correlate to borrowing rates whether it's home home mortgages, auto loans, uh etc.
▶ 2:08:23I think there are many things that play into the the yields that are paid on on Treasury yields. I know that the Treasury Secretary has been very focused on this issue in particular. it goes beyond the Federal Reserve's remmit to uh to affect the yields on Treasury
▶ 2:08:39Okay. Um real quick, I know it's a priority. Um you know, as you guys continue to prioritize community banking issues and and tailoring regulations, how would increasing the threshold for small bank holding companies free up capital capital for small business owners in the United States? Well, we're very focused um among our inter agency colleagues on making sure that the our requirements are appropriately tailored. This would include the small bank holding company statement.
▶ 2:09:07It could potentially uh free up a you know massive amounts of capital could be reinvested in the communities that those banks serve. Well, I'm glad you you state that because there's been obviously in this committee um and quite frankly across America, there's always a lot of dialogue of how uh small companies can have more access to capital and and my position has always been that uh the DoddFrank regulation.
▶ 2:09:31What it really did is it collapsed community banking in the United States, which is why small business owners, I don't really care what your politics are, but small business owners across the country have been really struggling to find ways uh to get more capital flow into their business.
▶ 2:09:47And and I think it's important for the members of this committee in particular, but for everybody on Capitol Hill to really understand that heavy-handed financial regulation that is impacted, it has a major impact on community banks directly uh diminishes the ability for a small business to be able to get that loan or get that working capital line of credit to expand their their enterprise. So, I'm I'm glad that the the Fed is is taking that matter very seriously.
▶ 2:10:12Um, Controller Ghoul, the OCC has been very active in reviewing fintech and digital asset related charters. What principles guide your evaluation of these non-traditional applicants? Uh,
▶ 2:10:24thank you for the question, sir. The principles that guide are the statutory criteria and are publicly disclosed and unchanged for for years and years. Comprollers licensing manual on charters. Uh I would note that this our licensing manual including our procedures that do guide us are publicly stated and have been unchanged for over five years. Unfortunately over the last few years uh under the Biden administration we just did not follow them. So we are now following our own publicly stated procedures again. And I think you see the results.
▶ 2:10:54There's a lot of interest in new bank formation in this country. It is something we should celebrate not be afraid of. It is what drives economic growth in your community in your state and across this country. And as Secretary Vesson has says, it's critical to our economic security to have this economic growth.
▶ 2:11:09Well, to to piggyback on that, obviously there was a lot of uh I would say issues in the Biden administration uh at the OC. Um and a lot of quite frankly um creating reputational risk for the OC like what actions have you guys taken to combat debanking efforts and to remove that uh that reputational risk from supervisory programs?
▶ 2:11:29Uh thank you sir. Uh so one thing we did together with the FDIC was literally uh excise uh the use of reputation risk in our supervisory process. We excised it from our regulations. Uh we have also uh been working on implementing the president's EO on debanking.
▶ 2:11:47uh we are into the what I would call the transaction testing phase where we are investigating the largest national banks and allegations of debanking to confirm whether or not they actually happened, what might be a legal theory of liability to address them. Uh so we are well advanced in that process and as I noted in my my testimony, we will follow the facts where they lead us.
▶ 2:12:10Well, I really appreciate that and Mr. Hill, sorry I wasn't able to get to you. Nice podium by the way. Um, but you know, I it it is something that is critical. I think it's important for the American people to understand. You do not want agencies of our government picking and choosing who gets to operate in our financial economy. It has major chilling effects on the future of our economy and we're the most stellar nation in the world. We need to remember the principles that got us there. Thank you guys for being here. I yield back.
▶ 2:12:36Gentleman yields back. The chair recognized the ranking member of our subcommittee on national security, Miss Batty of Ohio, for five minutes. You're Thank you, Mr. Chairman and ranking member, and thank you to all of our witnesses. Uh today, uh let me start with you, Vice Chair uh Bowman. Um there have been reports about reduction in supervisory staffing and resources, which I I find deeply concerning.
▶ 2:13:05How much has the Federal Reserve reduced its banking examination staff over let's say the past uh several years and what was the reasoning for those cuts uh budgetary budgetary supervisory strategies etc.
▶ 2:13:22Congressman, thank you for that question and I appreciate the opportunity to clarify. We have not reduced our examination staff at all. They are all resident within our reserve bank structure across our 12 reserve banks. We have about 4,000 staff that work within the 12 reserve banks where we have focused on
▶ 2:13:41Is that adequate?
▶ 2:13:42You think that's adequate?
▶ 2:13:44Oh, uh, you know, I think as we're looking at the expectations that we have across the banking system going forward, it may be too few. I don't expect that it's too uh I don't expect that it's too many certainly. So, uh, we'll have a better understanding of that as we're moving forward, uh, and reviewing our footprint within the reserve banks.
▶ 2:14:05Let me ask you, uh, that if we think it leans towards certainly it's not too many, how are fair lending examinations being impacted uh, by that number or staffing cuts? We think at this point because we have seen some consolidation and we have fewer banks uh that we oversee over time that that I I don't expect that we will reduce that number.
▶ 2:14:28Certainly um we certainly will need to refocus some of the work that we do because of the complexity of some of the services that are being offered or will be offered in the future including AI, cyber security, a number of different innovations that that likely will begin to be offered within the banking system because of the Congress passing the Genius Act and other and other actions. So I think more to come on that, but uh we're certainly looking at that very
▶ 2:14:57Okay. Thank you. Uh I'm going to move on. Uh Mr. Hill, we'll uh go to you to make it worth you standing there. We want to make sure that we include you. Uh but let me start. I want to talk about CRA, Community Reinvestment Act, as we're approaching 50 years from the inception uh of that.
▶ 2:15:17Uh I am a a big proponent in full disclosure been around for a while uh prior to being in Congress uh working with financial institutions to to make sure that that is a standard because as you know it includes the the community uh and evaluation for lack of a better word process to make sure that financial institutions are making an investment.
▶ 2:15:41So, Chairman Hill, uh, last July, the agencies released a proposal to repeal the Community Reinvestment Act rule that was finalized in 2023 uh, to revert back to the 1995 uh, regulations despite major changes in banking as we know over the last uh, three decades u that the 2023 rule addressed.
▶ 2:16:09Uh certainly we know um chairman pal then chairman uh pal was uh very supportive and he was an advocate of modernization or modernizing uh the rule and so I've had a lot of time of working with folks like you your predecessors and he on that uh so does your agency uh also said that you decided against uh undergoing a regulatory process to change the CRA regulation. ations further.
▶ 2:16:39You want to talk about that in any way, Mr. Hill?
▶ 2:16:43Uh, thank you for the thank you for the question, Congresswoman. So, um, so as you know, the the rule that was finalized in 2023 has has never actually gone into effect. Um, it was ruled by uh by a federal court judge to have exceeded the the statutory authorities. Um the proposal that was issued last summer would codify rescending that rule and reverting back to the to the 1995 rule which which has been in effect throughout this period.
▶ 2:17:11Um we have been evaluating a a range of possible options for next steps um which includes both finalizing the proposal from last summer but also considering other options for um proactive reforms. Um, and that's something that we continue to to consider and um I think are are likely to decide on a path in the near future.
▶ 2:17:32Does that mean that I could uh assume that you're not in favor of keeping the regulations the same? I mean, come on. It's 2026 that we're going to stay with That can be a yes or no because my time's going to run out. Um I I think we recognize that there were a lot of flaws in the 1995 rule and so um uh considering options for for a new approach is is are things worth
▶ 2:17:56Thank you. And thank you, Mr. Chairman. I yield back.
▶ 2:17:59Gentleoman yields. The chair recognized the gentleman from North Carolina, Mr. Moore, for five minutes.
▶ 2:18:04Thank you, Mr. Chairman. You know, in the last administration, credential regulation drifted away from its core statutory mission of protecting safety and soundness towards subjective judgments and political priorities. That shift has caused unnecessary or created rather unnecessary uncertainty and impose disproportionate burdens on the community and midsize institutions that drive credit formation.
▶ 2:18:27Uh we're now working to revive that principle of regulatory tailoring because requirements should match an institution's actual risk profile. Uh comproller Google the OC has proposed reducing exam frequency for smaller banks. The house has also passed bill that I sponsor the trust act which would raise the consolidated asset threshold for well-managed community banks that qualify for an 18month exam cycle from from3 billion to6 billion.
▶ 2:18:56uh what how do you think that will improve the the capacity without compromising uh safety and soundness?
▶ 2:19:03Uh well sir first um thank you for your efforts on the legislative front. Um obviously we can do what we can on the on the regulatory side to make some of these changes but but you can make them permanent. So so thank you for for your willingness to to to push that.
▶ 2:19:17I think the reality is simply that as as we've seen uh particularly post 2008 a lot of the burdens of the post208 crisis regulatory and supervisory framework felt disproportionately on smaller banks really imperiling their business models and so anything we can do to kind of alleviate that and I think anything you can do through statute would would be well taken by those by those banks.
▶ 2:19:39Uh the reality is that I mean I think that we have been at least at the OC have not been allocating our examiner resources in all cases that is in a way that is proportionate to the risks presented by the actual banks particularly smaller banks. So I think you're you know you're again I'm not familiar with all the details of your of your bill sir and happy to look at and get back to you but I think sounds like what your bill would do would would help us kind of constrain
▶ 2:20:06Great. you know, one size all uh regulation has really distorted competition and discouraged institutions uh from growing past these arbitrary thresholds. Uh recognizing this need, the committee also pass the tier Act to update the statutory tailoring thresholds and require federal banking agencies to periodically review and adjust the non-stuary thresholds as well. Vice Chairman Bowman, you've emphasized the need to strengthen tailoring across categories two, three, and four.
▶ 2:20:35What specific changes is the Fed considering to ensure midsized and regional banks are not subjected to capital and liquidity requirements that exceed their actual risk? Well, thank you very much for that question and as we uh very thoughtfully considered those thresholds uh within the the capital rules that we introduced back in March, um one, we're looking forward to comments to see if we've got the balance right on how we're applying the standardized approach
▶ 2:21:05to the non-GIBs throughout the banking system. But we're also approaching um the way that we're thinking about applying applications beyond capital uh as we're looking at asset thresholds throughout the entirety of the banking system. That would include um the larger banks as well as the smallest banks.
▶ 2:21:24Very good. You know, tailoring just isn't a bank issue. Uh Chairman Hopman, what steps is the NCUA taking to ensure regulatory tailoring for rapidly growing credit unions that may not resemble traditional models? Sorry. Just in the past year and a half, we've done a a true top tobottom review of a lot of regulations. Some of which were outdated, some of which were counter to each other or redundant.
▶ 2:21:50Uh we know that even just complying with them doing the paperwork uh is an epic hassle. But we definitely want different kinds of credit unions. As an insurer, you want a diversified portfolio. We want them to do different things. So that's something that has been a struggle. but trying to have our examiners aware that doing new things in a different way is positive as an insurer. We don't want credit unions to look like each other.
▶ 2:22:16Um, last November, committee Republicans sent a letter to the federal banking agencies to ask that you undertake rulemaking to index the regulatory thresholds for the application of enhanced credential standards, which are based on four categories of institutions. The Senate Banking Committee sent a similar letter earlier this year.
▶ 2:22:33Back in 2019, your agencies indicated that they plan to re-evaluate these thresholds periodically through the notice and comment process, but that hasn't happened since they were originally sent ago, which underscores the need to index these thresholds moving forward. Looking at how the scope of the new Basel 3 proposal is limited to category 1 and two institutions, it's clear the agencies will continue to rely on the EPS categories and other credential regulations, which further highlights the need for indexing.
▶ 2:23:01So, Vice Chair Bowman, you've given many speeches and testified before this committee in support of adjusting these kinds of fixed thresholds and how in the absence of indexing firms with stable growth and no change in risk profile can cross asset thresholds and become subject to increasingly complex regulatory requirements uh and supervisory expectations. I believe Chairman Hill actually asked you about this when you testified last October.
▶ 2:23:26So, can you give us an update on timing for when you and the other agencies will go through rulemaking to index the EPS
▶ 2:23:32We're currently working on that hopefully in the near future.
▶ 2:23:36Any idea of a timeline?
▶ 2:23:38I really don't want to commit to a timeline. I because I have a board that I have.
▶ 2:23:42Gentleman's time is expired.
▶ 2:23:43Understood. Thank you. And with that, I yel back, Mr. Chair.
▶ 2:23:46Thank you. The chair recognized the ranking member for our task force on monetary policy, Mr. Vargas of California, for five minutes. You're recognized, sir.
▶ 2:23:54Thank you very much, Mr. chairman, ranking member, and of course the witnesses. Thank you for being here. I think that earlier it was stated that chairman Pal during his testimony here agreed that there was quote out of control spending. Chairman Pal never said that, never agreed to that. What Chairman Pal said that federal spending was quote on an unsustainable fiscal path.
▶ 2:24:19The reason I say that, I think that even though Chairman Pal is a Republican, even though I don't agree with him on many things, he's a very and very good person and I hope we don't put words in his mouth that he didn't say and we don't create this aura about him that he isn't. I mean, he's a very honorable guy. Again, I I actually don't agree with him on many things, but he's a very honorable guy. And I guess that's one of the things that I found disturbing here today.
▶ 2:24:48Um, we hear from witnesses today here who are professionals, people who have been appointed and they use terms like unelected bureaucrats. The unelected bureaucrats do this, the unelect that's the jargon of politicians. That's the And in fact, I asked AI about that and this is what AI said. The term unelected bureaucrats refers to career civil servants and government administrators who implement and manage public policy.
▶ 2:25:17but do not face voters at the ballot box. In modern political discourse, the phrase is frequently used as a pjorative shortorthhand to describe the pursu perceived lack of democratic accountability and regulatory overreach. Now, it's interesting because I've been an elected official for almost 30 years. I've faced the ballot box a lot, including yesterday. And of course, I did very well, and I thank the voters in my district. Thank you very much.
▶ 2:25:43But let's have some respect for the professionals that do their jobs and let's not have politicians doing professionals jobs. I mean I think that's very very problematic when you see ideologues placed in professional jobs.
▶ 2:26:02Now, for example, if I wanted to get an operation, I would want an unelected bureaucrat called a to perform that, not an elected official like myself. And again, jargon matters here. Language matters. So, I hope we have a little more respect for people who are professionals. That being said, Vice Chair Bowman, I have great respect for you.
▶ 2:26:27Don't always agree with you either, but I do want to ask you about private I'd ask this. Banks have significantly increased their involvement in the non-bank private lending area arena which has led to some concern about spillover contagasion and risk posed by the strong interconnectedness within our economy.
▶ 2:26:45In analysis the Fed the Fed staff published in May of last year, they wrote, "The lack of transparency and understanding of the interconnectedness between private credit and the rest of the financial system makes it difficult to assess implications for systemic vulnerabilities." Now, could you comment on that because I I do have some concern about that. There's some gap in data. What have you been able to do or what are you looking at?
▶ 2:27:09So, this is an important issue that we've been looking very deeply into and trying to work with our regulated financial institutions to get a better sense of what the bank investment is into the private credit space. And since it's quite opaque, it's difficult to know. We have seen a rise in the investment from banks into the pri into NBFIs in particular, but it's been very difficult for us to have a clear understanding of where that those funds have been flowing.
▶ 2:27:36Earlier this uh actually last month, we introduced a data collection to assist our ability at the Federal Reserve through our supervisory work to understand exactly where those investments are going outside of the banking system into the NBFI space. that will allow us to better understand and see more transparently how bank funding is is being uh used within the the non-bank space particularly private credit.
▶ 2:28:03Do do we have concerns though of where it is today? I mean is this going to you know pose a problem because the numbers are big
▶ 2:28:10right? Well, I I gave a speech about this at Stanford a few weeks ago, uh, where it's a very small proportion of the lending categories within the banking system, but it is something that we need to know more about because it's very opaque and which is exactly why we're asking for more information from our regulated institutions.
▶ 2:28:28Okay. Thank you very much. And again, Mr. Chairman, I I hope that again, professionals use professional language instead of political language. Let the politicians be the politicians. You guys be the professionals. Thank you very much. And with that, I yield back.
▶ 2:28:46And the gentleman yields. The chair recognizes the chair of the House Republican Conference, Mrs. McQuain of Michigan for five minutes.
▶ 2:28:52Well, thank you and thank you all for being here. U appreciate your time. I I want to talk a little bit about debanking. Um, which is very concerning for me. For years and years, we heard horror stories about how regulators have pressured banks into cutting off businesses with industries that liberals don't like. Let me give you a couple facts.
▶ 2:29:16First, it was Operation Checkpoint where Obama administration tried to pressure banks into not doing business with firearm dealers. Then the Biden administration launched Operation Checkpoint 2.0 0 where they pressured banks to pause services with cryptocurrency companies. Even the first lady and the president's own son um got denied a bank account. Extremely concerning for me.
▶ 2:29:42So what I'd like to understand is a little bit of history on how we got there. So um Secretary Bowman or Miss Bowman, can you explain how the guidelines encouraged banks to evaluate reputational risks? how that gave way to this issue of debanking.
▶ 2:30:01Well, uh, Congresswoman Mlan, first of all, it's it's nice to see you again. We visited a a few months ago about mortgages and which made some progress on. But on this issue, uh, during the first operation chokepoint, I was actually a banker and was subject to scrutiny from the then FDIC, sorry, Chairman Hill, about the activities that we had. And it wasn't just limited to to the activities that you mentioned.
▶ 2:30:26We were scrutinized based on check cashaching services and uh standalone ATMs and other types of u businesses that some of our customers were engaged in at the time. Uh it is an inappropriate use of supervision uh to eliminate certain customers from the banking system and it's something that we feel very strongly about.
▶ 2:30:48Clearly the president issued an executive order on this and we are all working to ensure that that's no longer rep a part of our supervisory processes.
▶ 2:30:57And that leads me into my second question. So thank you for that. So I know this is a top priority of the president. What actual steps have been taken to put a stop to this? So if you'd like me to continue um we just uh last week I believe we finalized uh a regul regulation inter agency to remove uh reputational risk from the work that we do at the Federal Reserve.
▶ 2:31:25we or across the banking agencies at the Federal Reserve. We've also removed references to reputational risk from all of our guidances and our supervisory materials to ensure that that's not used as a basis for supervisory activities or criticisms going forward.
▶ 2:31:42Discrimination absolutely say that.
▶ 2:31:44What let's let's look internally now. What do we as Congress need to do to make sure that this discrimination doesn't continue to happen? you again. Well,
▶ 2:31:57I could keep going on that. [laughter] I I think it's important to recognize that putting people in roles that are responsible for supervision of banks uh need to have some experience within the banking system and either as a supervisor or as a banker to ensure that we're not bringing ideology into the work that we do and that we're enforcing the law. there are already laws on the books about anti-discrimination.
▶ 2:32:23Uh these are not activities that we should have been engaging in from a supervisory
▶ 2:32:29So I'm gonna switch Thank you. Uh I'm going to switch to Mr. Hoffman. Um, instead of one of the concerns that I have is instead of going through the formal rule making process, the Biden administration directed the N uh NCUA to implement regul regulation by Um, which is very concerning to me. Uh, what is the NCUA doing to put a a stop or an end to this?
▶ 2:33:00Yeah, regulation by enforcement to me is unethical and nobody in this room would tolerate it in any other part of their Um you're familiar in a small town where they have a speed trap where you can tell the goal is to run up the tickets.
▶ 2:33:13Um I
▶ 2:33:14usually around the end of the month.
▶ 2:33:16Yes, exactly. Um none of us would tolerate it. Um it was rampant across a lot of regulators. Uh even in my current job at NUA, I asked the CFBB uh about something was brought to my attention and we'll enforce whatever the CFBB says. And this is under Biden. And um he said, "Why don't you just send everybody that Wells Fargo settlement?" That's what we were asking about. We said, "Is the Wells Fargo settlement with CFPB? Is that should we all follow what's in that now?" And they're asking me, "What do they do?" We have employees that are judged on that. And I think it's unethical.
▶ 2:33:46And again, we wouldn't tolerate it. We have a policy up on our website. Uh it is known regulation by enforcement uh is unethical at NCUA. It's unethical anywhere. But the main thing is that no enforcement ever sets
▶ 2:33:58Amen. Amen. And I know I'm out of time, so thank you. But one last thing I would like to say is I do think there needs to be consequences for people um for their actions and that might get some people's attention. Thank you all for your time.
▶ 2:34:11Yield back.
▶ 2:34:12Lady yields back. The chair recognizes the gentleman from Illinois, Mr. for five minutes.
▶ 2:34:17Uh thank you. Um just want to correct something that was just said. A bank that refuses to lend to somebody who's gone through serial bankruptcies and has been convicted of con convicted of financial fraud is not debanking. That's risk management. Um it's diligence. Um I appreciate you praising the Trump family, but that's not why they were debanked. Um I think we all know that. Mr. Gould.
▶ 2:34:38Um 2025 the OC issued a proposal that defined unsafe or unound practices to focus on issues that cause material harm to financial conditions of institutions. In May of this year, President Trump issued an executive order saying that undocumented immigrants pose a structural credit risk. Has the OC conducted any research establishing that extending credit to immigrants poses a material risk to institutions or the broader financial
▶ 2:35:06Well, thank you very much for the for the for the question.
▶ 2:35:08I'm just asking yes or no because I got a bunch of stuff I want to get through.
▶ 2:35:11Well, Congressman, I'm not going to give you a yes or no because
▶ 2:35:13you either have or haven't done the
▶ 2:35:16Congressman, you're conflating two things. You're talking about a proposed rule and then a directive from the president asking us to issue guidance. We issue guidance all the time on
▶ 2:35:26Look, I'm not you don't you don't you don't have to get angry at me. This is just a yes or no question.
▶ 2:35:29Congressman, as I said, I'm not
▶ 2:35:31Are you going to do that research in response to the executive order?
▶ 2:35:34Congressman, on a regular basis, we assess safety and soundness risks and we issue guidance.
▶ 2:35:38Are you looking at the risks of debanking immigrants if there's a capital flight out of the banking system? We have concerns about any any amount of particularly levels of financial fraud in the banking system that we have seen in
▶ 2:35:51that's not that's not the question. The the immigrants immigrants commit crime at a much lower rate than the native one population. We're we're stipulating things because the president wants them to be true. You are responsible for the banking system. Are you doing the
▶ 2:36:05Congressman, we are doing the research on a regular basis. Can you provide that
▶ 2:36:09safety and soundness risk to the system including risks of financial fraud?
▶ 2:36:13I I would love to let me move along. Um I want to talk about the skinny master accounts that are um and in this moment I want to get to you about some of this question but I want to stay with Mr. Gold for a moment because the historically the master accounts have required that we have a bank charter whether you know the tier one, tier two, tier three. Um, a number of the people who have been preparing to apply for these master accounts have now been going through this OC process for bank charters.
▶ 2:36:42And I want to just clarify with you, Mr. Gold, because in your exchange with Mr. Meeks, um, you, if I understood you right, you said that trust charter applicants don't necessarily need to demonstrate compliance with anti-moneyaundering rules. I think you said it's not as simple as a yes or no as you just did, but the OCC's chartering guidance specifically says that trust applicants must outline an AML compliance program. So, do you want to correct what you said to Mr. Meeks or are you suggesting that you can get an OC charter without
▶ 2:37:10Congressman? If you'll give me a moment to um to explain to you what's in our our controllers licensing manual. We have a two-phase process to chartering a bank. Before a bank opens its doors for business, it obviously has to have an operational DSA AML compliance program. But in the first phase, that is the phase where we determine whether or not we're going to issue a preliminary conditional approval or not and at which it has not actually opened for business and is not ready to open for business.
▶ 2:37:38We a bank does not by definition that's one that's in formation need to have a BSAML compliance program. We give them that second phase to develop. Look, so so here's the issue and I want to get to Miss Bowman.
▶ 2:37:50The if a bank, if you have to have a charter in order to get into a master account situation,
▶ 2:37:56the the OC charters um the don't require compliance with the CRA, don't require your parent companies to be to be subject to the Bank Holding Company Act. There are lower protections that are in there. And if you've got access to these master accounts, skinny or otherwise, you can move money through the system much more quickly. And the concern would be if you've got people who can move that money but are don't otherwise have the kind of AML protections that we want to have in the system.
▶ 2:38:25So are are we confident that this process if if it's if it's too difficult for Mr. Gold to give a yes or no, do they have the same equivalent AML that other charter banks will have? How are we protecting against making sure the people who get these skinny accounts can't use that as a way to bypass some of our AML protections?
▶ 2:38:44Well, that's a good question. I I do want to recognize that one of my colleagues, uh, Chris Waller, is responsible for payments. Understand on the Federal Reserve Board. I do serve on the committee for payments as well. I we did just issue a proposal uh publish a proposal. It does require BSA AML requirements as a part of that analysis. Uh so it it is not entirely accurate to say that there's no requirement for BSA AML procedures.
▶ 2:39:12Um there's also not necessarily a requirement for a charter a chartered entity to be able to qualify for uh for a a master account especially for one of the limited purpose ones as we called skinny master accounts.
▶ 2:39:25Um okay I'm out of time. May want to follow up with you but
▶ 2:39:28be happy to follow up with you on that.
▶ 2:39:29Y back.
▶ 2:39:30Gentleman yields back. The chair recognizes the gentleman from the great state of Iowa, Mr. Nun, for five
▶ 2:39:36Well, thank you, Chairman Moore. I appreciate that. And thank you very much for this panel being here today. I want to highlight, you know, folks back in Iowa right now as a Midwestern gal yourself there, Miss Bowman. Uh, community banks, credit unions, they provide the loans that keep us all farming. Uh, small businesses are growing and family budgets on track.
▶ 2:39:52the work your panel specifically has done here in refocusing supervision on real risk, tailoring regulations to size and complexity and ending operation choke point 2.0 is exactly what our communities need and I appreciate you guys all leading forward on this. I spent most of my career as an intelligence officer, so I'll be very direct. AML modernization, it's long overdue. Every year, financial institutions file more than 4 million suspicious activities reports or SARS, 20 million currency transaction reports.
▶ 2:40:21Yet, fewer than 1% of these SARS has led to an investigation and only 5% of the CTRs ever accessed by law enforcement. I think we all see the result of this. That is millions of reports, billions of compliance costs, and very little actionable intelligence to be able to go after. I would offer we need to be shifting quantity for quality in this area.
▶ 2:40:43In April, a joint AML CFT proposed rule would be a me was a meaningful step forward, but real reform requires enforcement that evolves alongside the rules. Controller Gold, Chairman Hill, Chairman Hepton, can you provide a commitment for in uh basically helping us enforce this? I think we're all on the same page here. I just want to verbal here that we're all committed to making sure that that level of compliance goes forward. Chairman Gold.
▶ 2:41:09Yes, sir.
▶ 2:41:11Yes, we're happy to work with Maine, Treasury, and Vincent.
▶ 2:41:15Good. Um, look, I think Chairman Gold, you highlighted here that this is a matter of national security as well as what we can do on economic security. The specific changes would allow a community to institution to redirect compliance resources towards identifying genuine threats and bad actors. With that, I want to highlight something that um my colleague across the aisle, Mr. Castton, raised a number of issues with you, Mr. Golden. I want to give you first an opportunity to respond. I think you got cut off there and then also talk about what we're trying to do on the enforcement side moving forward.
▶ 2:41:45Um so I turn over to you for any response.
▶ 2:41:48Well, I mean, thank you very much. I mean, obviously before a bank actually opens for business, it has to have an operational BSA AML compliance program that meets our standards. However, we have a two-phase program to how we charter a bank potentially. While a bank's formation, it gets an early nod or not from us as to whether or not we think it has a reasonable chance of success. After it gets that nod or declination as the case may be, then it does the hard work of building the policies and procedures, hiring the people, raising the capital.
▶ 2:42:19This is just common sense. Um, and this is what we've always said we've done. We just haven't in all cases in practice historically lived up to our own stated procedures and the statutory criteria. Thank you.
▶ 2:42:29I think that's very well said and coming from the state of Iowa where we have some of the highest number of lenders as a percentage of capital in the country. Our guys understand and get this. I don't think that we uh need to confuse the issue. We need to be able to go after real AML modernization. Um Vice Chairman Bowman, thank you first of all for hosting us, meeting with us one-on-one on a lot of these issues. Your board has done the revised uh work for proposal 3 proposal. The 2023 version would have squeezed credit to Iowa farmers, home buyers, and small businesses.
▶ 2:42:58The 2026 proposal corrects that overreach and a companion uh GIB searchcharge adjustment delivers the kind of tailoring that your committee has long or this committee has long called for and you have long called for. Together, these proposals show what risk-based economically grounded capital reform looks like. Could you walk us through how a revised standard approach better captures actual risk profile particularly for agriculture and mortgage lending?
▶ 2:43:22This is one of the important areas that we identified in the original proposal from 20 2023. I can't remember when it was originally introduced. Um but we've learned a significant amount from the number of comments that were submitted from that proposal. One of them is this important issue with agriculture and and commodities. Uh we look forward to receiving comments through the the comment process.
▶ 2:43:44That process ends June 18th and hopefully we've gotten the balance right in this uh proposal, but we look forward to understanding uh if it needs improvement or or if we've if we've aligned it correctly.
▶ 2:43:57Very good. Thank you, Chairs. Uh Mr. Chair, I'd just like to take a brief moment of personal privilege in my last 30 seconds here to say that um tragically I'm going to be losing one of our top staffers. Miss Caroline Sers is headed off to work for Miss Mlan. She has been a leader here in the committee on um leading more bills than anyone else other than you, Mr. Chair. And so we're thrilled that Miss Sers is going to stay with us on financial services. But Caroline, we wish you a lot of luck. Thank you for everything you've done for the folks of Iowa back home and good luck in your next mission. Team, thank you for being here today.
▶ 2:44:27Appreciate it.
▶ 2:44:29Gentleman yields back. Chair recognizes the gentleoman from Michigan, Mr. Lee, for five minutes.
▶ 2:44:34Thank you so much, Chairman. Uh, Vice Chair Bowman, um, Bloomberg and Routers had reported in April that you met with uh, big bank CEOs. Is is that correct?
▶ 2:44:46I'm sorry, I didn't understand what you
▶ 2:44:48Bloomberg and Routers had reported in April that you met with big bank CEOs like uh, including JP Morgan Chase and Goldman Sachs to direct their commenting strategy with Basel Bank.
▶ 2:45:00I frequently meet with CEOs of all institutions. Yes, I meet with a number of institutions. This is important because not direct anyone about their comments for the rule. Our comment process is open and
▶ 2:45:12reclaiming my time. One second. I'm trying to explain to the public that you meeting with them is actually could be
▶ 2:45:21I would like to submit for the record HBO supervised institutions. We meet with them regularly.
▶ 2:45:28without objection.
▶ 2:45:29It's our responsibility. Bank capital is the cushion that I know but let me finish. Let me explain myself. I said I think it could be unlawful. So I'm just going to explain myself.
▶ 2:45:38Okay. I don't but it it's [snorts] I mean if you were a resident of mine and you know that you met with the bank banks and right now it was reported that it was around commenting strategy regarding Basel Bank. You can say no. That's that's fine. Now public commenting process is to promote transparency to gather outside expertise and information. The purpose is not for regulators to increase their influence and manipulate the process. That's why HBO versus FCC is important here in the case law.
▶ 2:46:09In there it says, quote, um, 1977 case DC court ruled that once a proposed rule has been noticed, which it it was, Vice Chair Bowman, an agency official who is may is or may reasonably be expected to be involved in the decision process should refuse to discuss matters relating to rulemaking proceedings with any interested private party. So that's what I put into the record.
▶ 2:46:37I just want to notice that I I I I believe there are some, you know, concerns in regards to that. And I I'll have you comment in a minute. Bloomberg wrote, Bloomberg again wrote, quote, "Bankers walked away from the exchange in the view that they should limit their public comments to constructive feedback." That's what they came out of that meeting with you with. Again, that was reported in April 23rd, 2006. And I would like to submit that for the record, the Bloomberg article. Without objection,
▶ 2:47:07consider all comments.
▶ 2:47:08Will you Will you commit releasing your calendar and meeting logs to the public, Vice Chair Bowman?
▶ 2:47:15I'm sorry. Could you repeat that?
▶ 2:47:17Will you commit to releasing your calendar and meeting logs to the public?
▶ 2:47:23We're responsive to FOYA requests.
▶ 2:47:25Oh, you want me to file FOYA?
▶ 2:47:29Would you like me to file FOYA? If you'd like access to material from the Federal Reserve, that's general.
▶ 2:47:35So, the meeting did happen. At least you acknowledge that.
▶ 2:47:38I'm not sure what meeting you're referring to. I am referring to,
▶ 2:47:40like I said, I meet with bankers referring to the meeting all the time.
▶ 2:47:45Uh, in April, you met in April 2026. Did you meet with JP Morgan Chase and Goldman Sachs? Yes or no?
▶ 2:47:53Most likely. Yes.
▶ 2:47:54Yes, you did. You actually acknowledged earlier you did. I don't know if you realized that. I well I
▶ 2:47:58for the fed official to I know but I'm just trying to explain to the public and educate them that they're these are
▶ 2:48:05It's my responsibility as the oversight.
▶ 2:48:08Vice Chair Bowman I'm not the one who ran to Bloomberg and told him uh that somebody told them to have constructive
▶ 2:48:14I think if you've ever read a Bloomberg article you'd know that they're not always in the court orders. Vice Chair Bowman, turning to related concerns, section 171 of the DoddFrank Act, also known as Collins Amendment, smile all you want. People don't trust that kind of stuff, created minimal capital requirements, y'all. One is large banks face stronger requirements than smaller banks. Two, capital requirements cannot be weaker than those in place at the time of DoddFrank's enactment. So, serious questions here.
▶ 2:48:44Vice Chair Bowman or maybe Chair Hill, did your agency consider Collins amendment? If so, why did you not disclose your legal
▶ 2:48:53We're confident that our proposals are in compliance with the Collins Amendment, which requires that large bank capital is higher than that for smaller banks.
▶ 2:49:02Great. If that's true, then will you commit to publishing the Federal Reserve's legal and qualitative analysis analysis of the Collins Amendment compliance before issuing the final
▶ 2:49:11We're happy to be responsive to comments that are filed in the comment process for this rule. Can you release the analysis that you're you you just said you guys looked at it? Can you release the analysis? And
▶ 2:49:22we look forward to reviewing this if there's a comment. We'd be happy to be responsive to the
▶ 2:49:26Oh, I'm asking you all, your agency, if you would disclose. It's okay. I file for you. Uh will you repropose the rule with complete legal analysis so that the public can provide feedback on your reasoning?
▶ 2:49:39Gentleoman's time has expired. Uh appreciate the gentleoman from Massachusetts. Chair now recognizes the gentleoman from Florida, Miss Salazar. You're recognized for five minutes.
▶ 2:49:48Thank you, Mr. Chairman, and thanks to all of you for being here and giving us your time and your expertise. My name is Maria Salazar. I represent the city of Miami, city that is full of banks and one of the most prosperous and prettiest cities in the country, but uh also uh with a very large immigration um or immigrant population living in the city of Miami.
▶ 2:50:10You know that on May 19th, the White House issued an executive order that instructs Treasury and the banking regulators to try to identify those people who are undocumented in the country and who use our banking system by opening up first of all a company, then getting a tax ID number and then going to a banking institution and opening up a bank account.
▶ 2:50:33I do not always agree with the White House immigration policies established um by this administration. Sometimes I do, sometimes I don't. But I believe that in this case, this uh new directive could be um could be damaging to the average American citizen. And that's one of the questions that I want to pose to you. Republicans, we stand for less regulation, less paperwork, less hurdle to do business. So, um, Mr.
▶ 2:51:02Ghoul, thank you for for being here and for answering our questions. In other words, do you believe and tell me what's your personal opinion that by having this directive coming from the White House, you may be then turning into a CVP agent, not only a banking regulator?
▶ 2:51:18What's your opinion on that?
▶ 2:51:19Thank you for the Thank you for the question. Um, and with with with respect, I I I think your concerns are overblown. Um,
▶ 2:51:27they are over overblown.
▶ 2:51:29Overbone. Yes.
▶ 2:51:30Okay. And tell me why. I
▶ 2:51:30I'd be happy to tell you why.
▶ 2:51:34The as a supervisor of the US banking system, I expect it not to be used to facilitate illegal activities, whether it be financial fraud or money laundering or anything of that nature. That is a long-standing obligation that we impose on banks. And I think it is an expectation that every American citizen has of its US banking system that it not be used for these things. As we've seen, fraud is so rampant in this country, particularly in certain states and local uh localities. The president actually had to convene a task force to address financial fraud.
▶ 2:52:03And I agree with you in that regard that the banking institution cannot be used by others who are not American. But then reality could be theory may not be practiced. How can you make sure that the average American will not be affected by now establishing another layer of regulation?
▶ 2:52:24Well, ma'am, a couple things. Obviously, you know, we at the OC are certainly sensitive to regulatory burden. Um, in this area, as we are in all other areas, the the OC and financial crimes enforcement network and the federal banking agencies more generally expect banks to know their customers. that is an existing and long-standing statutory and regulatory op uh obligation. Banks have flexibility in the documentation that they use to establish the identities of their customers.
▶ 2:52:53So we look forward to working with banks of all sizes to make sure that they continue have flexibility to know their customers for these purposes. Don't you think that that flexibility that obviously the banking the banking sector does not want any type of issues with the with the government let's put it I mean you you guys want to follow or the banks want to follow what the what the new laws are so if I ask you how much money will this be costing you how many more individuals or or uh regulators you would have to be hiring
▶ 2:53:23or um compliance agents I should say in order to satisfy the regulators uh desires is more money is more paperwork. That's that's the bottom line. Am I right or
▶ 2:53:34Well, again, I think it depends upon how banks are going to establish um compliance with guidance that we have yet to even issue. Uh so I I think it's probably appropriate to withhold judgment until we've actually done the work um working with Secretary Besson and the other federal banking agencies to actually is issue guidance pursu pursuant to the EO. So what you're telling me is that you're you're not concerned with this new directive coming from the White House that this could create another burden, more paperwork, more money, more cost for the average banking credit union. That's that's you're telling me you're not concerned.
▶ 2:54:04I think it is a I think the president's EO is a common sense reaction to well understood and documented concerns uh that we are seeing in terms of a rise in financial fraud, money laundering, etc. And from my perspective, you know, as a safety and soundness supervisor, I do want to make sure that the banks I supervise understand the nature of the financial risks that their customers may do. But then what is the difference between now and and my time is now and before?
▶ 2:54:30We were always in in the business of making sure that El Chapo does not have access to our banking system. But what is the difference between now and before that May 19th? And with that, I close. Uh ma'am, I would I would just say that this EO focuses us on a well-known and understood issue and directs us to issue guidance directly addressing it. You know, we custom
▶ 2:54:54gentle woman's time is expired.
▶ 2:54:57Right. Thank you for your time.
▶ 2:54:59Chair recognizes the gentleman from South Texas, Mr. Gonzalez. You're recognized for five minutes.
▶ 2:55:03Thank you, Mr. Chairman. And uh I'd like to thank everyone for joining us this morning. I um my my question is to u Miss Bowman. Miss Bowman, the Merchant Banking Modernization Act reflects a bipartisan recognition that current merchant banking rules no longer align with today's economic realities. Under the existing framework, financial holding companies are generally required to divest merchant banking investments after 10 years.
▶ 2:55:32Even though many of these projects, particularly affordable ho housing and commercial revitalization and energy infrastructure, often require longer timelines to become financially viable. Rising interest rates, inflation, labor shortages, and supply chain disruptions have only extended development timelines further.
▶ 2:55:54This legislation received bipartisan support in the House Financial Services Committee because members on both sides of the aisle believed providing greater certainty and the flexibility would help facilitate long-term investments in projects critical to economic growth and community development.
▶ 2:56:12Do you, ma'am, believe the Federal Reserve should consider providing more consistent flexibility around merchant banking holding periods rather than relying on a case-bycase extension to better support these long-term
▶ 2:56:26Well, thank you for bringing up this important issue. Uh, I appreciate your concerns and would be happy to uh take a closer look at your bill and uh perhaps uh have a conversation with you about ways that we could uh consider addressing your concerns. Thank you. I would like to do that.
▶ 2:56:45Thank you. Miss the next question is for Miss Hop Mr. Hopman. Uh Mr. Hopman, thank you for joining us. I I want to take a moment to highlight the critical role critical unions play in South Texas where they provide access to credit for veterans, small business owners, and working families who might otherwise be left behind as a traditional banking system.
▶ 2:57:10As someone who has proudly championed this work, I'm honored to lead HR507, the Veterans Member Business Loan Act, HR1791, the Increasing Credit Union Lending for Business Growth Act, and HR7647, more opportunities for homeowners, uh, home ownership act alongside my friend, uh, Congressman Brian Fitzpatrick.
▶ 2:57:34These bills are about empowering credit unions to responsibly support local economies while maintaining strong protections for their members. My question would be, without asking you to weigh in on any specific legislation, do you believe carefully tailored lending flexibilities for groups like veteran first-time home buyers and small businesses can be implemented consistent with safety And can responsible, well underwritten community lending strengthen both credit unions and
▶ 2:58:04local economies, the local economies they serve.
▶ 2:58:06As a general metal, yes. Yes, that is true. Uh we want to be a country that has every niche covered. I was probably well into my 30s before I realized how unique this country was with having so many small depository institutions that serve various niches, including veterans, including immigrant groups, including various industries. We don't want to be like Australia which has four banks for the whole country or Canada which has six.
▶ 2:58:30Uh we want to have all of these niches that are stable and I think we're a better more prosperous country because we do have banks that know soybeans and credit unions um that know the Broadway industry in New York for example. So we want to have every nook and cranny of this country covered with a financial institution that that meets its needs.
▶ 2:58:49Thank you. And I I agree with that. Thank you and I I yield back.
▶ 2:58:53Gentleman yields back. Chair recognizes the chairwoman who chairs our capital market subcommittee. Miss Wagner, you're recognized for five minutes.
▶ 2:59:00I uh thank you, Mr. Chairman. US banks play an essential role in our capital markets, not just as lenders, but as securities underwriters, liquidity providers, and through other market activities.
▶ 2:59:20These institutions keep capital flowing and help ensure the that borrowing costs are stable for families and businesses across the country, including my home state of Missouri. When the original 2023 Basel 3 endgame proposal was released, many of us raised alarms that significant increases in capital requirements would have had drastic consequences for everyday Americans.
▶ 2:59:50Um, Vice Chair Bowman, I I have a question for you in that regard. But first, ma'am, um, I want to give you an opportunity to answer more fully a a question that was posed by one of my Democrat colleagues regarding uh the process um of your meeting with stakeholders in our industry. Ma'am, please.
▶ 3:00:19uh it's entirely appropriate for people from the credential regulators to meet with stakeholders even when a proposal has been introduced or published for comment. There is a disclosure process that's required to say that there essentially a high level view.
▶ 3:00:36A disclosure process is yeah it's just a reporting essentially we say that there was a conversation and and with which stakeholders it's entirely appropriate for us to do that. I I can't imagine anyone trying to impugn your integrity ma'am. Uh thank
▶ 3:00:53We hold you in the highest regard. Uh we also meet with such stakeholders uh and others in this uh in this industry as we do our thoughtful deliberations. So I wanted to give you an opportunity to respond to that.
▶ 3:01:08Thank you. I appreciate that. Now moving back to um the new Basel 3 proposal. You've said the goal is to ensure that each requirement quote aligns with risk, achieves its intended purpose, and avoids creating unintended outcomes. How does this revised proposal strike the right balance of ensuring the resilience of the banking system while also mitigating any negative impact on US capital markets?
▶ 3:01:37Uh as as you know, our proposal has been published. It was published in March and our comment period ends in June on the 18th. We look forward to uh feedback on whether or not we've struck struck the right balance especially with respect to capital markets. They're critically important to the US economy and its functioning and we want to make sure that nothing we do is impairing their ability to uh serve their customers and the US economy.
▶ 3:02:05Great. Well, thank you very much.
▶ 3:02:06Thank you. Um, one of the central arguments behind my bipartisan invest act is that capital for early stage companies is too concentrated in the handful of coastal cities. Uh, this leaves entrepreneurs in places like Missouri's second congressional district without access to the financing that they need to get off the ground and scale up.
▶ 3:02:33Bank lending to early stage companies, commonly referred to as venture lending, is an important piece of that puzzle. For entrepreneurs in places like St. Louis, a venture loan from a local bank can be the difference between literally a company growing into a thriving business um or not getting started at all.
▶ 3:02:57Uh, Comproller Gold, last December, your agency issued updated guidance on venture lending. This guidance states that the OC's policy does not discourage banks from engaging in venture lending, but instead places responsibilities for those decisions with bank management rather than prescriptive agency standards. Can you speak to what was wrong with the OCC's previous 2023 guidance on venture lending and why this update was necessary?
▶ 3:03:28Uh yes ma'am. So our prior guidance treated uh too often venture so-called venture loans as nonpass at origination which means that very few banks are going to make loans that are classified in that negative way at origination which of course dried up the venture lending industry and the small businesses that depend upon them. So we rescended that guidance replace it with what I would view as more common sense
▶ 3:03:54I agree much more common sense approach. I thank you for your answer. My time is expiring and I yield back to the chair.
▶ 3:04:00Gentleoman yields back. The gentleman from New York, Mr. Torres, you're recognized for 5 minutes.
▶ 3:04:04Thank you, Mr. Chair. On March 9th, 2023, Silicon Valley Bank saw $42 billion in withdrawals in a single day, one quarter of the bank's total deposits. In a world where deposits can flee a bank at the click of a button, the Fed's slowmoving discount window can no longer keep pace with a fastmoving financial system. A Federal Reserve without an effective discount window is a little like a hospital without an effective emergency room. Imagine calling 911 and no one responding.
▶ 3:04:33Or imagine calling 911 and indefinitely being put on hold. That seems to be the experience of the Fed's discount window. Uh Chair, Vice Chair Bowman, the Federal Reserve has 12 reserve banks, each operating its own discount window. Do all 12 reserve banks have identical
▶ 3:04:52They do not. Do all 12 reserve banks maintain identical operating hours?
▶ 3:04:58I I'm not aware specifically, but it's up to the Reserve Bank to to post their operating hours.
▶ 3:05:04In the three years since the SVB collapse, has the Federal Reserve undertaken any effort to standardize discount window operations across the
▶ 3:05:14I'm not aware of efforts to standardize the approach. I am aware of efforts to try to modernize the infrastructure. Have those efforts succeeded?
▶ 3:05:26I think we should probably ask the banking system whether they've
▶ 3:05:30My my frustration is the greatest problem is not that the Fed is failing to modernize the discount window. The greatest problem as far as I can tell is that the Fed is not even trying. Um if you do you have direct jurisdiction over
▶ 3:05:44I do not.
▶ 3:05:45Okay. If you did, how long would it take you to fix it? Uh I think we have had conversations internally about how long it might take us to resolve that and we think it would be a period of months
▶ 3:05:55and yet it's been three years since SVB.
▶ 3:05:59So I think the American people have a right to be frustrated by the Fed's failure to modernize and standardize the discount window. Like in my view, in order for the Fed to be a lender of last resort, not only on paper, but in practice, it must be capable of responding rapidly to emergencies and rapidly injecting emergency liquidity. Is that a fair expectation?
▶ 3:06:21I agree.
▶ 3:06:23In April 2026, the Federal Reserve sent a letter to US banks inquiring about their financial exposure to the private credit market. Is the letter an admission that the Federal Reserve has insufficient visibility into the full extent of the banking systems exposure to private credit?
▶ 3:06:40Yes, as I was uh discussing with your colleague earlier, there are a number of opacities that exist between bank involvement and uh and where it essentially eventually lands in the non-bank financial space. We have just launched uh a an a new uh data collection that will provide some more transparency and some specificity to where bank lending is eventually uh ends up within the private credit space and within the non-bank space.
▶ 3:07:09We hope that that will provide us with a much better view on on where uh where the vulnerabilities might lie.
▶ 3:07:15And in your view, what is the nature of the challenge confronting private credit? Do you think of it as a problem with liquidity or is there evidence of a deeper problem with credit quality? How do you think about the nature of the problem?
▶ 3:07:29Well, I think private credit is a very important service. I think unfortunately since the financial crisis uh back in the 2008 2009 period some of the the restrictions that were put in place on banking activity uh kept them from being able to directly fund activities that have now migrated outside of the regulated banking space and into uh a more opaque market of non-bank financial institutions.
▶ 3:07:54So what we're trying to do with some of the capital uh rules with especially with Basel 3 was to bring some of that activity back into the banking system so that we have a much better view and an ability to supervise that activity. We did see from some of the bankruptcies and uh and and challenges last fall with several private credit funds that there was there were poor collateral management. There was uh some fraud that was occurring and then others bankruptcies and a lack of uh clear disclosures. I think um
▶ 3:08:24and and and I I probably should nuance you know if you have a private credit fund that has excessive exposure to
▶ 3:08:31right the problem is not private credit the problem is concentration in a single sector of the economy undergoing technological disruption and concentration is dangerous in both public and private markets and so how should we think about the problem is it about private versus public or is it about concentration versus
▶ 3:08:48I think generally it's about underwriting quality and if you're looking at a particular indust industry that may be more vulnerable to shocks or erosion of its uh previous positioning, then you should take that into account as you're trying to understand how you should structure a loan.
▶ 3:09:06I see my my time has expired. So,
▶ 3:09:09thank you.
▶ 3:09:10Someone from New York yields back. The chair recognizes last but certainly not least, the distinguished chair of our House Subcommittee on Financial Institutions, Mr. Bar of Kentucky. you're recognized for five minutes.
▶ 3:09:23Thank you, Mr. Chairman, and thanks to our witnesses today uh for the good work that all of you all are doing. And Vice Chair Bowman, let me start with you and I want to follow up uh the line of questioning from uh my colleague, the vice chair uh from Michigan, Mr. Heising, about the external review that you have commissioned and you commissioned that review of the supervisory and bank management failures that led to the 2023 collapse of Silicon Valley Bank and other institutions.
▶ 3:09:50You cited the inadequacy of the Fed's previous internal review led by your predecessor Michael Bar which was overly focused on non-core issues. The question I have is is the consultant that you hired uh uh to conduct that external independent review are they receiving the cooperation that they are owed by by the regulators at the Fed? Uh my understanding is that uh several people have refused to be interviewed.
▶ 3:10:21Okay. That that's very troubling to me. Uh Congress wants answers. We need in a bipartisan way. This committee deserves answers, objective answers about what were the true supervisory and bank management failures that led to the collapse of the of those institutions and the subsequent run on So, just to confirm, you're telling me that regulators at the Fed have not
▶ 3:10:51been sufficiently responsive to the consultants requests
▶ 3:10:55at this point, as far as I know. Yes.
▶ 3:10:58Okay. Well, let it be known at the Federal Reserve that Congress expects compliance with all requests from this consultant. That is our intention and we applaud you for commissioning an independent external review of the supervisory failures that led to the collapse of Silicon Valley Bank, especially at the San Francisco Fed.
▶ 3:11:25Um, let me let me move on to the importance of tailoring regulations. Chair, Vice Chair Bowman, when you last testified before this committee, you emphasized that indexing thresholds is critical, especially for community banks. That concern is one of the reasons why I introduced the Community Bank Regulatory Tailoring Act earlier this year.
▶ 3:11:45That bill updates outdated regulatory thresholds for community banks to reflect nominal GDP growth, preventing community banks and credit unions from facing higher regulatory burdens solely due to inflation and economic growth. Chairman Hill likewise recognized the importance of this issue by including this community financial institution indexing in the Main Street Capital Access Act.
▶ 3:12:07Uh question, Vice Chair Bowman, do you agree that updating in statute these thresholds to reflect inflation and economic growth is necessary to ensure community banks and credit unions are regulated based on their actual risk profiles while also allowing regulators to be better target supervisory resources toward institutions and activities that pose the greatest risks to the financial system.
▶ 3:12:30I think it would be very helpful to have a statute that indicated uh that there should be an increase in the thresholds as well as an ongoing indexing. Yes.
▶ 3:12:40Uh and the committee uh on onto Basel 3. The committee has welcomed uh the Fed's efforts to incorporate bipartisan feedback and move toward a more balanced bank capital framework. I think uh your reproposal deserves a lot of credit for inviting banks back into mortgage lending and servicing. Uh we do have an affordability crisis in housing uh in this country, but as the chairman pointed out in his opening statement, it's not just about uh inadequate supply.
▶ 3:13:07That's a problem with affordability, but it's also about mortgage lending and uh deployment of capital. Um the proposal represents a significant improvement in this regard, ensuring that capital requirements are appropriately tailored to risk without unnecessarily restricting lending.
▶ 3:13:24Um, in your view, why is it important that capital requirements be carefully calibrated to risk and and what what effect can an overly restricted capital standards have on the ability of Americans to access critical financing, especially in in the housing market?
▶ 3:13:40So what we saw from uh the the original DoddFrank uh regulations or the regulations that were written to support DoddFrank one, it improved capital in the banking system exponentially, but it also pushed a lot of activity outside of the banking system that was traditional safe and sound banking activity. So what we've done uh through our capital proposals is to try to bring that activity back inside the regulatory perimeter so that banks can engage in traditional banking activities in ways that are not.
▶ 3:14:09Really really quickly to comproller ghoul the OC's recent rulings on preeemption are very important. You've said that preeemption isn't a big bank versus small bank issue that even community banks benefit because there's no longer limited by arbitrary geographies. Quickly, can you speak to how defending a uniform frame framework advances a competitive environment for banks? Uh yes sir. It allows more banks to compete with one another by creating nationwide markets in which they can compete on even terms.
▶ 3:14:34Mr. Bar, your time is expired.
▶ 3:14:36Thank you Mr. Chairman.
▶ 3:14:37Want to thank our witnesses for their testimony today. We appreciate all of you being here and sharing your expertise with us. Taking our our questions without objection. All members will have five legislative days to submit additional written questions for the witnesses to the chair. Questions will be forwarded to the witnesses for their response and witnesses, we invite you to respond no later than July 9th. This hearing is adjourned.