▶ 0:16:33Chair Scott: Good morning and I would like to chat -- thank vice chairman goldman, cherry hill, comptroller gold and chair hauptman for being today. I would like to think the progress that we have made. We advance the firm act because banking decision should be made -- based on financial risk and not politics. President trump reinforce that through his executive order.
▶ 0:17:01Chair Scott: No law, no lawful business in anderson, south carolina or any place in america should be pushed out of banking considerations for shifting political wind or reputational risk. I appreciate your efforts to refocus bank regulation on core financial risks to keep our financial system safe, but also make sure that families and small businesses can still have access to credit.
▶ 0:17:31Chair Scott: Over the past several years rules did not make our system -- that did not make our system safe there have been piling up. They did not make americans safer and this overregulation had one effect. It made it harder for banks and credit unions to serve their customers. And when those institutions struggle, family struggle, small businesses struggle and first-time homebuyer struggle. Drug safeguards and economic growth are not opposites.
▶ 0:17:59Chair Scott: In fact, when our economy is growing and americans are working, saving, and investing, our financial system become stronger and not weaker. That is why getting the balance right actually matters a lot. One important step is making sure that capital rules reflect real-world risk without unnecessarily holding back lending.
▶ 0:18:22Chair Scott: I appreciate your agency's work to rethink biden era proposals like basil 3 and game that would have increased capital requirements to the detriment of our economy. We must ensure that the rules designed in washington do not make it harder for small businesses across the country to grow. Vice chairman bowman, I was encouraged by your comments about helping banks returned to mortgage lending.
▶ 0:18:53Chair Scott: That alliance with our work on the road to housing act, which is focused on reducing red tape and increasing housing supply so more americans can achieve the american dream of homeownership. We also need rules that keep up with the times. When the regulatory thresholds are frozen in place for years, they do not reflect the size of today's economy.
▶ 0:19:21Chair Scott: As our economy grows our regulatory framework should be modernized with it in a way that maintain safety while encouraging opportunity. I appreciate that the banking regulators have a renewed focus on tailoring to ensure that policies are designed to fit the unique nature of each institution. I sent a letter to the banking agencies yesterday in support of updating the bank regulatory tailoring categories based on nominal gdp. I look forward to seeing a proposal sometime soon.
▶ 0:19:52Chair Scott: I also want to commend the agencies are recent efforts to focus supervision on material financial risks and advance the independence and efficiency of the appeals process. This enables financial institutions to serve their customers effectively while maintaining safety and soundness. Having a robust process for appealing supervisory determinations is necessary to provide regulated institutions with due process and transparency.
▶ 0:20:21Chair Scott: Finally, I look forward to your agency's continued progress in implementing the genius act. Bringing dean -- digital assets and stable coins into clear, regulated frameworks strengthens consumer protections and ensures innovation at home in the united states, and not overseas. At the end of the day, the decisions made by this committee and banking regulators have real consequences.
▶ 0:20:51Chair Scott: They affect other families who can qualify for a mortgage whether a small business can expand. Whether communities across the country have access to the capital they need to grow. Our responsibility ends -- is to ensure that we have a banking system safe, resilient and focus on real financial risk while supporting economic opportunity. That is the balance we are working to achieve and I look forward to the hearing. Ranking member.
▶ 0:21:18Sen. Warren: Thank you. President trump has had more than a year to keep his number one campaign promise, to lower costs for american families, and boy has he failed. Costs are growing -- are going up and prices are up for groceries, utilities, health care, and the national association of homebuilders says that thanks to the tariffs it costs $11,000 more to build every new house in america.
▶ 0:21:50Sen. Warren: Meanwhile, job growth has slowed to a crawl, and 83,000 people working in manufacturing lost their jobs last year. Ordinary americans are squeezed hard, but it is a good time to be a wall street ceo. Last year the ceos of the six largest banks together earned more than a quarter of a billion dollars. In compensation.
▶ 0:22:15Sen. Warren: Those banks paid out more than 100 $40 billion in dividends and buybacks to wealthy shareholders. It is a record. The rich are getting richer and everyone else struggles. In the trump economy it is wall street first and american families last. We have seen this story before and we know how it ends.
▶ 0:22:39Sen. Warren: In the great financial class of 2008, 10 million families lost their homes, the unemployment rate skyrocketed to 10% and nearly $20 trillion in savings and retirement plans evaporated. Washington helped cause the crash by an imminent -- eliminating common sense guard rails that kept the banks safe and focused on serving communities.
▶ 0:23:05Sen. Warren: When the crash hit, washington bent over backwards to funnel trillions of dollars to bail out wall street. Wall street executives who deserved handcuffs were rewarded with golden parachutes. It was brutal capitalism for families on main street, socialism for billionaires on wall street.
▶ 0:23:26Sen. Warren: The memories of a family being thrown out of its home because of predatory mortgage or a 70-year-old grandmother coming out of retirement to work at walmart because her pension vanished did not fade, but wall street lobbyists and pilots of campaign cash have worked hard to erase them. Now they have their champion in the white house and he has assembled the team of wall street first regulators.
▶ 0:23:55Sen. Warren: Take the federal reserve vice chair for supervision, president trump and pointed her to the fed during his first term. She helps deregulate silicon valley bank and other large banks and a few years later, those same banks failed. The second, third, and fourth largest bank failures in U.S. history. And when she held accountable? No. President trump gave her a promotion.
▶ 0:24:21Sen. Warren: Now she and other regulators are implementing wall street's wish list. At the top of the list, weakening capital rules including stress testing. Thanks love debt and they want to make their beds to use other people's money so depositors and taxpayers are left holding the bag of things blow up. Capital rules require banks to fund loans and investments with some of their own money, so they have skin in the game in those decisions.
▶ 0:24:53Sen. Warren: Strong capital cushions help the economy by reducing the likelihood of financial crashes and taxpayer bailouts. Now, mega banks are drawing down their capital cushions through droop -- through higher payouts to wealthy executives and shareholders, increasing their risks.
▶ 0:25:14Sen. Warren: Regulators have rubberstamped mergers, allowed banks to engage in dangerous crypto activities, rescinded a key rule designed to drive investment and low income communities, eviscerated fair lending standards, and taken financial caps off of the beat, each cutting staff by 15 to 30%. The bank regulators terminated enforcement actions against j.p.
▶ 0:25:43Sen. Warren: Morgan, wells fargo, the group and goldman sachs while failing to identify new lawbreaking on wall street. Either wall street bankers have suddenly stopped breaking the law, or trump enforcers are keeping their eyes deliberately closed. I am betting on closed eyes. Warning lights in our overall economy are flashing red.
▶ 0:26:08Sen. Warren: President trump is bringing the next great financial crisis closer into view. Yet his regulators seem determined to serve only donald trump and his billionaire buddies. Thank you.
▶ 0:26:20Chair Scott: Thank you. Today we will hear from vice chair bowman. Chairman hale, comptroller gold and chairman hauptman. For are several -- semi annual update. Vice chairman, you are now recognized.
▶ 0:26:37Ms. Bowman: Thank you. Chairman, ranking member, and members of the committee, thank you for allowing me to testify on regulatory activities. I will focus on the current state of the banking sector and progress on my priorities. The banking system remains sound and resilient. Banks report strong capital ratios and significant liquidity buffers which position them well to support economic growth.
▶ 0:27:08Ms. Bowman: We are seeing continued growth in lending and a decline in nonperforming loans across many categories and strong profitability. Non-bank financial institutions increase their share of the total lending market creating strong competition for regulated banks without facing the same prudential standards. To compete effectively on both payments in lending the federal reserve is encouraging banks to innovate to improve their services.
▶ 0:27:33Ms. Bowman: We are working with the banking regulators to develop regulations that include capital and liquidity for stable coin issuers. We also need to provide clarity on digital as to ensure that the banking system is well placed to support these activities. The fed is working to tailor our regulatory and supervisory framework to accurately reflect the risk that different banks pose, particularly for community banks.
▶ 0:28:01Ms. Bowman: We cannot continue to push policy and supervisory expectations designed for the largest banks down to smaller and less complex banks. I support congress' effort to reduce burden on community banks including increasing static and outdated statutory thresholds that have not been updated for years.
▶ 0:28:21Ms. Bowman: The fed is taking actions to support community banks, together with the fbi and occ, we propose changes to the community bank leverage ratio to provide greater flexibility while preserving capital safety and soundness and we released more options for mutual banks. We are exploring streamlining the merger and acquisition and chartering application processes for smaller banks and updating the merger analysis to accurately reflect and analyze competition.
▶ 0:28:52Ms. Bowman: We are also modernizing and simplifying the regulation of large banks. The board released its proposal last october to enhance public accountability and ensure robust outcomes. The proposal includes disclosing stress test models, the design framework and 2026 scenarios. It ensures that future significant changes will benefit from public input prior to implementation.
▶ 0:29:19Ms. Bowman: The agency has finalized changes to the enhanced slr proposal, which helps ensure that leverage ratio requirements serve as a backstop to risk-based capital and requirements. The board is working on a proposal with the occ and fbi see to implement the 2017 basal agreement which will reduce uncertainty and provide kate -- clarity.
▶ 0:29:44Ms. Bowman: We are considering each of the elements rather than reverse engineering changes to achieve predetermined outcomes. As a part of the proposal we are considering approaches to differentiate mortgage risks that will benefit the entire banking system. The fed is also working to refine the surcharge and coordination with broader framework efforts.
▶ 0:30:08Ms. Bowman: The surcharge must be calibrated to avoid impairing the banking sector's ability to support the broader economy. Effective supervision must focus on factors that affect a financial condition of a bank including material risks to operations and stability of the broader financial system. Not material issues that distract from core safety and soundness. This requires a risk focused tailored approach.
▶ 0:30:32Ms. Bowman: Let me be clear, those core material risks include nonfinancial risks where they pose threats to safety and soundness, strong risk weather and credit, cyber or operations remains essential, and we will continue to examine for those. Focusing our resources on material issues that have historically correlated to bank failures will create a more effective oversight system.
▶ 0:31:00Ms. Bowman: The framework is also reviewed -- under review as is the bank examiner training program, establishing clear metrics and ensuring transparency and objectivity in our examinations. And enhancing training will improve our supervision. The board launched an independent third-party review of the 2023 bank failures. This review will objectively examine why our supervision fell short and deliver accountable findings to further strengthen our supervisory practices.
▶ 0:31:32Ms. Bowman: We have ended the practice of using reputational risk in our supervisory programs. You proposed a regulation to prevent supervisory influence from leading banks to the bank a customer due to their constitutionally protected political or religious beliefs or a business engaged in legal but disfavored activities. Thanks must be free to make their own risk-based decisions to serve individuals and lawful business is interference.
▶ 0:31:59Ms. Bowman: Thank you for the opportunity to appear before you today and I look forward to your questions.
▶ 0:32:03Chair Scott: Chairman hill.
▶ 0:32:06Mr. Hill: Chairman, ranking member and members of the committee thank you for the opportunity to testify. I appreciate the opportunity to report on the work to improve our regulatory and supervisory approach across a number of areas, while continuing to fulfill our mission of ensuring deposits, promoting the safety and soundness of banks and resolving failed institutions.
▶ 0:32:31Mr. Hill: The fdic has made significant progress in several areas including reforming supervision so it is less process driven and more focused on core financial risks, engaging in a thoughtful review of regulations, guidance and manuals, evaluating numerous aspects of our functions and promoting the prudent adoption of innovative technologies in the financial services sector. My written statement provides greater detail in each of these areas. I would likely -- I would like to briefly touch on them.
▶ 0:33:03Mr. Hill: Rivard -- regarding supervision we are actively changing our supervisory process to reorient more towards financial risk and improve aspects of our supervisory framework. Among other things we are reviewing comments received in response to our proposed rule issued with the occ that would define super dust certain key terms, and initiated a process to review outstanding supervisory criticisms and to close out those that do not align with the new approach to supervision.
▶ 0:33:33Mr. Hill: We are working with federal and state regulators on reforms to that rating system and issue guidelines to establish an independent office of supervisory appeals to adjudicate material supervisory determinations which we are in the process of standing up. We have also been engaging in a thoughtful review of regulations, guidance and manuals and making a number of improvements.
▶ 0:33:58Mr. Hill: With respect to capital rules, we finalized a rule to modify the enhanced supplementary leverage ratio to ensure that it serves as a backstop to risk-based capital requirements rather than a frequently binding constraint. We are reviewing comments to amend the community bank leverage ratio, to expand eligibility and encourage more immunity banks to opt in, and we are working with the federal reserve to modernize risk-based capital requirements including implantation of the 2017 basil
▶ 0:34:29Mr. Hill: Agreement which we expect to issue in the coming weeks. We have finalized a rule to index 37 regulatory assets -- aspects that dust thresholds and we want to include these in one or more of our future proposals. We rescinded our policy on bank mergers and work on additional improvements to the merger review process and analytical framework and we issued a final rule to significantly enhance the speed and clarity of the approval process for new branch openings.
▶ 0:35:00Mr. Hill: With respect to bank resolution, among other things, we modified our approach for large depository institutions based on lessons learned from the 2023 bank failures and expect to propose future changes -- further changes as part of the future npr.
▶ 0:35:18Mr. Hill: We have conducted dozens of outreach meetings with banks and their capacity as potential failed bank acquirers as we seek to improve the bidding process and remove obstacles to lower-cost bids. And we implemented a number of operational improvements including updating templates for contractual agreements which we invited public feedback.
▶ 0:35:41Mr. Hill: The fbi c has taken a more open minded approach with respect to banks who offer products and services while maintaining expectations that such activities are conducted in a safe and sound manner. Specifically, we rescinded -- rescinded the prior notification which presented a significant barrier and withdrew from several interagency joint statements including one that suggested the use of public distributed ledger systems was
▶ 0:36:12Mr. Hill: Inconsistent with safe and sound banking practices and we are actively working to implement the requirements of the genius act. We issued an initial proposal to establish a process in december and we expect to issue a more comprehensive proposal to implement other aspects of the law in the coming weeks. Finally, improving workforce culture continues to be a top priority.
▶ 0:36:36Mr. Hill: We have implemented a number of reforms to assure that those who engage in misconduct are accountable and work to ensure that the fdic as a place where employees are proud to work. We will work to drive economic growth and access to capital while fulfilling our critical role in promoting a safe, sound, and resilient banking system. Thank you for the opportunity to testify and I look forward to your questions.
▶ 0:37:00Chair Scott: Chairman gould.
▶ 0:37:03Mr. Gould: Thank you for the opportunity to appear before you. It is an honor to discuss the occ's work implementing the president's economic agenda by ensuring that the federal banking system is safe and sound and remains the world's most trusted, dynamic and resilient. Over 160 years ago president lincoln had a vision for the federal banking system to serve this country in economic ideals and he empowered the occ to oversee the system.
▶ 0:37:33Mr. Gould: Today it supervises more than 1000 institutions that hold 17.9 trillion dollars in assets, two thirds of all commercial banking assets and have more than 90 trillion under the administration. In the years since the financial crisis, washington too often sought to eliminate rather than manage risks resulting in a less relevant and diverse banking system. Unelected bureaucrats discourage prudent risk-taking, stifled innovation and drove credit out of reach for small businesses and communities.
▶ 0:38:04Mr. Gould: The dodd frank act, far from ending too big to fail and created a moat around the largest banks and introduced too small to succeed. Community banks with less than $1 billion in total assets have seen their numbers cut in half. They will benefit perhaps the most from a tailored framework that reflects a more rational risk tolerance.
▶ 0:38:27Mr. Gould: No american should be denied access to banking products and services because of political or religious beliefs or lawful business activity. We are implementing the executive order on guaranteeing fair banking for all americans by reviewing the activities of the largest national banks and investigating complaints of alleged debanking. We have pledged a rule to eliminate reputation risk which is a tool that is used to debank politically disfavored individuals and groups.
▶ 0:38:58Mr. Gould: We are intended that banks provide access to products and services based on an individualized objective and -- based criteria. Support functions have degraded posing a risk in our ability to execute our statutory mission. Outward signs of the decline include the hiring of a fraudulent chief financial technology officer and an email data breach that took nearly two years to identify and halt.
▶ 0:39:26Mr. Gould: These issues where the tip of the iceberg and fixing agency operations is top priority to me. We are working to ensure accountability for these failures and to recruit qualified and competent individuals. The occ is strengthening its supervision by returning to a risk-based approach rooted in law with an emphasis on examiner judgment and not arbitrary checklists.
▶ 0:39:50Mr. Gould: Examiners focused on issues that materially affect safety and soundness and we are codifying reforms to the matters requiring attention process, clarifying enforcement standards and ensuring that supervisory tools are used proportionately and predictably. The occ is working with our interagency partners to re-propose the baselii re-propose the baseli iii capitl rulemaking and investment act framework. They share a common grave -- common principle.
▶ 0:40:18Mr. Gould: Regulation should they regard the system and not smother it. We are focusing on market -- modernization and targeted relief for community institutions. These will make our regulatory architecture simpler, stronger and more accountable. Innovation has driven american finance from the telegraph to the block chain. The genius act as the effort to advance american innovation through payment stable coins and we look forward to comments on our proposal to implement it.
▶ 0:40:49Mr. Gould: We also welcome applicants for bank charters. Their renewed interest is a return to the norm and the sign of a healthy banking system. We will continue to evaluate applications on a case-by-case basis and in an evenhanded fashion, consistent with statutory factors and high supervisory standards.
▶ 0:41:10Mr. Gould: We will work with sue provides banks to clarify new ways for banks to conduct the very old business of banking and in group -- and embrace new technology like ai, ensuring opportunities are available to all banks who wish to take advantage of them rather than a privileged few. We will draw inspiration from their examples as we modernize our ins -- our activities are similar innovations.
▶ 0:41:36Mr. Gould: The federal banking system must remain dynamic, competitive and fair by providing a path for banks to address new technologies, ending politicized debanking, and modernizing supervision, we are ensuring the long-term relevance of the federal banking system. And we are restoring the historic balancing of prudence and progress.
▶ 0:41:58Mr. Gould: This is what we can envision, a federal banking system that serves all americans, drives are thriving economic union and stands ready to meet modern challenges.
▶ 0:42:08Chair Scott: Chairman hoffman --hauptman.
▶ 0:42:13Mr. Hauptman: Thank you for the opportunity to discuss the national credit union administrated. I was selected as the 13th chair. I would also like to thank the fcc chairman for my recent appointment to the public county of -- public company over dashboard. We are here to enable access to financial services by facilitating safe and sound credit unions.
▶ 0:42:41Mr. Hauptman: The 4300 credit unions have about $2 trillion in assets and serve more than half of the adults in america. Federal credit union serve the five states and state charges. The system is safe and sound with healthy levels of capital and moderate growth. One of our priorities is making sure that our own activities are fair and transparent. I am pleased to say that this past october we codified our policy of no regulation by enforcement.
▶ 0:43:09Mr. Hauptman: We had a good track record regarding regulation by enforcement so this is not viewed as a response to any particular actions. It is counterproductive for a deposit ensure to engage regulation by enforcement against the same people we ensure. This new policy states that enforcement action should never set policy, that enforcement does not take the place of rulemaking or guidance and that finds and press releases are not how the public is supposed to find out what is or is not a violation.
▶ 0:43:40Mr. Hauptman: Those policies are just basic american fairness and how most people think our government should operate. Every senator expects that in america, the secrets of events is supposed to be first, set speed limits, and then give out speeding tickets. With financial regulation that has not always been the case. We have witnessed regulators behave in ways clearly designed to boost their annual enforcement totals.
▶ 0:44:06Mr. Hauptman: I have personally witnessed americans asked agencies what the rules are in the regulator response, you will have to see what enforcements we take. That to put it mildly should never happen. So, I am proud that we are doing our part as a publicly available policy statements and one that is difficult to reverse in the future. We are rightsizing our agency to focus on safety in a few different ways. We are cap willing opportunities to foster innovation.
▶ 0:44:36Mr. Hauptman: As a first priority, we launched the deregulation progress -- project which is aimed at reviewing and revising regulations to remove any that are obsolete, duplicative, intended actually has guidance, or just unduly burdensome.
▶ 0:44:55Mr. Hauptman: It is a spring cleaning of sorts, something that is necessary -- necessary at any monopoly government agency where the pile of regulations and paperwork grows higher with little regard for cost. One thing I have learned in this line of work is that the only people who think compliance is easy are those that do not have to do it.
▶ 0:45:16Mr. Hauptman: We currently have 21 notices for proposal making available for comment four more closed and regarding the genius act, our rule on the application process is already public and the next rule on issuer standards is in process. We should be well poised to benefit from this long overdue update to america's outdated payment ecosystem.
▶ 0:45:41Mr. Hauptman: Beyond the consumer benefits, stable coins are a golden opportunity to stimulate demand for U.S. treasuries and to maintain the U.S. dollar's status as a global reserve currency. We as americans might've gotten used to the dollar's global dominance that we do not notice what an advantage we have. Ask the british what it is like when it is gone. The genius act and dollar-denominated stable coins are away at striking back against those in beijing or moscow who pushed for the U.S.
▶ 0:46:12Mr. Hauptman: Dollar to be less important, less ubiquitous and less useful. I am pleased to be working with my colleagues at the table to do our part of that important effort. My written testimony discusses the current state of the system and provides an overview of the state of the agency including our restructuring and details of work we are doing to empower credit unions and foster innovation. Thank you chairman and I look forward to your questions.
▶ 0:46:37Chair Scott: Thank you very much. We will start our questions this morning with senator kennedy.
▶ 0:46:44Sen. Kennedy: . Thank you for that courtesy. Madam vice chair. Credit should be given when it is due.
▶ 0:47:01Sen. Kennedy: I remember three or four years ago chairman powell and others were giving a report on the economy. Inflation was 9%. It was gutting the american people like a fish.
▶ 0:47:32Sen. Kennedy: Stevie wonder could have seen it coming. President biden asked and kong -- and congress consented. I did not, that we start spending money like it had the ballyhoo -- value of louisiana ditch water.
▶ 0:47:55Sen. Kennedy: Had president biden -- had we discovered life on mars when president biden was president he would have sent it money immediately and I remember the federal reserve sitting here and we are talking about what to do about it and he explained his plans and so many people said it was not going to work. I have read the white papers.
▶ 0:48:24Sen. Kennedy: You can get inflation down, but we are going to have to have -- we are going to have to suffer unemployment of 7, 8, or 9%. It did not happen, did it? We had a soft landing. And the federal reserve was in part responsible. In the best sense of the word for that.
▶ 0:48:58Sen. Kennedy: And, we do not applaud that enough. We can debate whether the chairman and vice chairman and others should raise or lower interest rates, and what we should do about quantitative easing or how many economists can dance on the head of the pin. But it is a fact we had a soft landing.
▶ 0:49:18Sen. Kennedy: Inflation is not down where we want but 2.7% is a hell of a lot better than 9%, without having to suffer 7, 8, nine, or 10% unemployment and the human misery that goes with it. So the fed did something right.
▶ 0:49:37Sen. Kennedy: On the other hand, what in god's name was the fed and some of your other agencies thinking when you allowed the banks to debank customers for reputational risk? Are you kidding me? Why did you allow that to happen?
▶ 0:50:08Sen. Kennedy: Because you did not like their politics? Or you did not like the products that they made? I mean, do you think it would be fair -- senator warren is not here. So I hesitate to talk about it. Senator warren was a distinguished professor at harvard university. Some people do not like harvard. Some people do not like their politics.
▶ 0:50:37Sen. Kennedy: How can you possibly allow a bank to have the option, and I am not saying that they did it, but to debank senator warren. I am using her as a hypothetical example, because you did not like the pilot -- politics. You can say the same thing about gun manufacturers, oil and gas, and anyone you did not like and you let the banks do it.
▶ 0:51:08Sen. Kennedy: What in gods name name were you thinking, madame vice chair?
▶ 0:51:10Ms. Bowman: I appreciate your concerns and I share them. I was not the vice chair at the time those decisions were made.
▶ 0:51:19Sen. Kennedy: Your institution went along with it. Your institution sucked it up like a hoover deluxe.
▶ 0:51:25Ms. Bowman: In my view it is never an appropriate activity. It is -- every american in this country should have access to public services, and they should not be limited with access to those services based on their political, religious beliefs or their engagement in a particular business that might be disfavored or is legal.
▶ 0:51:47Sen. Kennedy: This is not over yet. Thank you, Mr. chair.
▶ 0:51:51Chair Scott: Senator blunt ro chester.
▶ 0:51:58Sen. Blunt Rochester: Thank you to the chairman, ranking member and the witnesses. I will start with you before I turn it over to the vice chair, I have a bipartisan bill with senator hagerty, the credit union board modernization act. It simply upward -- updates board meeting requirements for well rated established credit unions.
▶ 0:52:29Sen. Blunt Rochester: It currently has 58 cosponsors in the senate. And, it passed the house last year by voice vote, do you think this is a good idea? I think the microphone is --
▶ 0:52:42Mr. Hauptman: Obviously congress said that years ago every 30 days they need to have a formal board meeting and it is somewhat unique. And we said we will do whatever congress says. They do find it odd that congress has ncua that they enforce a rule to say that this entity cannot function unless they have a formal meeting every 30 days. And congress tells ncua to enforce that.
▶ 0:53:13Mr. Hauptman: You know who does not have a formal meeting, congress or ncua. And there like when did congress say that, was it during their eight week recess. They find it odd and it is not something that is done. But we will do what congress says.
▶ 0:53:29Sen. Blunt Rochester: This is one of the credit union's top priorities. Since they do a lot for our communities as well as small businesses, I am glad to see that it has a lot of bipartisan support and we hope to see it pass in the senate as well. Vice chair bowman, I want to turn to the reserve of the so-called skinny payment accounts. I support payments innovation, but access to the core infrastructure is not a small privilege.
▶ 0:53:59Sen. Blunt Rochester: I want to understand the risks before expanding asset -- access. The fed payment systems also refer to payment rails including fed ach, fed wire and fed now, move trillions of dollars and underpin payroll and business transactions nationwide.
▶ 0:54:20Sen. Blunt Rochester: If -- do you agree that if a bad actor was granted direct access to those systems, that could increase risks related to fraud, illicit finance or operational disruption?
▶ 0:54:32Ms. Bowman: That is accurate.
▶ 0:54:33Sen. Blunt Rochester: And since those systems operate at scale and speed, problems can spread quickly when something goes wrong, correct?
▶ 0:54:43Ms. Bowman: Yes.
▶ 0:54:44Sen. Blunt Rochester: Today most non-bank payment firms access those rails through regulated banks which are checkpoints, including anti-money laundering controls and supervisory oversight. If a non-bank water granted direct access, that checkpoint would be removed. Would you agree that that increases the importance of the firm's own risk controls?
▶ 0:55:10Ms. Bowman: Yes, it is very important that any firm that has access to the payment system has two controls in place. Traditionally direct access has been limited to insured credential he supervised banks. The fed has discussed limited or so-called skinny accounts that would provide access without full master account privileges. We know that. Its direct access increases the speed and scale of harm when something goes wrong.
▶ 0:55:41Ms. Bowman: Why would it make sense to grant that access under light or than those imposed on banks?
▶ 0:55:48Ms. Bowman: We have a varro -- a very thorough structure in place that allows us to consider applications for master accounts. This particular access is contained within an rfi which we recently issued. Governor waller is responsible for this area within the federal reserve board.
▶ 0:56:13Ms. Bowman: He issued a request for information with a proposal that would allow for feedback that we would take seriously as we consider whether or not to create this account or how to access it or give access to it.
▶ 0:56:25Sen. Blunt Rochester: If the fed were to grant this access and then determined that the firm poses risks, does the fed have clear authority to expand or terminate that access?
▶ 0:56:36Ms. Bowman: We would need to ensure that we do have that access and we believe that we do.
▶ 0:56:41Sen. Blunt Rochester: We need to clarify that you do have the actual authority?
▶ 0:56:46Ms. Bowman: I think it would be helpful if it is not already clear, and I do not speak out of turn. We would need to look into that and understand what it would be.
▶ 0:56:55Sen. Blunt Rochester: I know in the four seconds three I have left I want to say how serious it is and we look forward to following up to make sure that authority exists and I yield back.
▶ 0:57:07Ms. Bowman: I share your concerns.
▶ 0:57:10Chair Scott: Senator rounds.
▶ 0:57:12Sen. Rounds: Thank you to all of you for appearing before us today. Vice chair, each of your respective agencies has taken steps to remove reputational risk as a component of federal supervision and examination to prevent law-abiding businesses from being de-banked for purposes other than financial standing.
▶ 0:57:37Sen. Rounds: My question for you is, as current chair of the federal financial institutions examination council, how do you make certain that frontline examiners are carrying out the regulatory policies and guidance established in washington when evaluating financial institutions on a case-by-case basis. And I am just going to say chair, I am asking you the same question as well.
▶ 0:58:02Ms. Bowman: Thank you. It is very important that each regulator understand the direction provided to their examiners when they are on the ground and implementing these regulations and imposing or grading against the guidance. So, I would make that the responsibility of each one of us here at the table as prudential regulators.
▶ 0:58:27Ms. Bowman: I would also say that we need to ensure and work to ensure that our examination programs, the examiner training programs offered within the structure are up-to-date and clear with directives that need to be contained within the curriculum that our examiners use when they are grading against these activities within our financial institutions.
▶ 0:58:50Sen. Rounds: Have you way -- have you a way to get feedback?
▶ 0:58:54Ms. Bowman: I speak to financial institutions on a regular basis. There is a very clear feedback loop that I have created with our regulated institutions and state member banks. Yes, when there are concerns I often hear them.
▶ 0:59:09Sen. Rounds: Chairman hill, same question.
▶ 0:59:13Mr. Hill: I would echo a lot of the comments from the vice chair. Ensuring that our examiners understand the changes in our approach and that it is being applied consistently across the country is a big area of focus. There are a number of things we are doing. We did issue specific instructions to examiners describing the new approach to supervision.
▶ 0:59:38Mr. Hill: We are working on faq's that we plan to release soon that will be updated on a continual basis. We have started to roll out training for examiners and there is a lot more that needs to be done from a training perspective. All of this will be iterative as we make changes to our supervisory approach. As we rollout changes to camels and we finalize the rule on unsafe and unsound practices.
▶ 1:00:06Mr. Hill: I have been traveling to a number of our regional field offices and talking to examiners directly. I think there are a lot of steps, but ensuring that examiners understand the new approach and that it is being applied consistently is critical for the reforms in place.
▶ 1:00:21Sen. Rounds: There is one other part of that, do you have a feedback loop not from the examiners but institutions themselves? Do you meet these folks?
▶ 1:00:31Mr. Hill: Similar, we do meet with financial institutions and have regular meetings with state banking associations and things of that nature so we do hear a lot of feedback from institutions as well.
▶ 1:00:46Sen. Rounds: Thank you. Governor bowman, vice chair bowman, when can we expect the new proposal of the basel iii and game?
▶ 1:00:59Ms. Bowman: We are working together with the occ and fdic to make sure we can introduce that proposal by the end of march.
▶ 1:01:07Sen. Rounds: That is good, it has been a long time coming.
▶ 1:01:10Ms. Bowman: It has been, but we have been working at record speed when we became the heads of our agencies.
▶ 1:01:17Sen. Rounds: You have been able to arrive at a consensus?
▶ 1:01:20Ms. Bowman: Yes.
▶ 1:01:21Sen. Rounds: Thank you. Also, vice chair, treasury yields serve as a benchmark for mortgages and many other forms of credit, thoughtful adjustments to leverage requirements including the tier one leverage ratio could increase the capacity to hold treasuries and deposits, improve liquidity and ease upward pressure on interest rates, particularly during periods of stress.
▶ 1:01:49Sen. Rounds: You previously indicated that you are open to considering further changes once the eslr proposal is finalized. Do you remain open to additional targeted adjustments, including to the tier one leverage ratio?
▶ 1:02:02Ms. Bowman: Is that a question for me?
▶ 1:02:05Sen. Rounds: Yes.
▶ 1:02:06Ms. Bowman: We are open to considering all suggestions and reviewing many aspects or all aspects.
▶ 1:02:13Sen. Rounds: Including tier one?
▶ 1:02:15Ms. Bowman: It is not something that we have not looked at but it is something we will consider reviewing.
▶ 1:02:20Sen. Rounds: Thank you.
▶ 1:02:22Chair Scott: Absolutely. Ranking member warren.
▶ 1:02:27Sen. Warren: Last month "the wall street journal" reported on a story on ties between donald trump and the top spot in the united arab emirates, who is the president's brother and the country's national security adviser. A few days before trump was sworn into office, this spot I spent half $1 billion to secretly acquire 49% stake in trump's crypto company.
▶ 1:03:00Sen. Warren: So, what does the uae's top spot I get for his money? The trump administration agreed to sell the uae our most sensitive ai chips, our own national security experts say that the uae and the companies might be a conduit for funneling high-tech to china. Technology that strengthens china militarily.
▶ 1:03:27Sen. Warren: Now, right now the crypto company world liberty has a bank charter application pending with the occ, an agency that the president controls. Comptroller gould, you run the occ, did world liberty disclose in its application that spy sheik's company was a shareholder?
▶ 1:03:51Mr. Gould: Thank you for the question and I will not discuss the specifics of any application.
▶ 1:03:57Sen. Warren: Are you telling us you will not tell whether they disclosed it? Do you acknowledge that it is supposed to be disclosed?
▶ 1:04:05Mr. Gould: Senator, unlike the last four years of the biden administration, under president trump's leadership we are doing what we say that we will do.
▶ 1:04:17Sen. Warren: Like all applicants for a bank charter, the occ regulations require world liberty to disclose all principal shareholders, which are persons with at least a 10% direct or indirect stake in the proposed bank. Those insiders must file a biographical and financial report with the agency. Failure to do so would be grounds for dismissal of the application.
▶ 1:04:46Sen. Warren: You have not dismissed the application, so I assume the disclosure was made. Will you show chairman scott and me an unredacted application, so that we can see that for ourselves and see that you are in fact following the law?
▶ 1:05:02Mr. Gould: The only thing for which I will commit is a following the established procedures outlined in the regulations that you provided.
▶ 1:05:09Sen. Warren: We are the banking committee and we have oversight. I would like to see, nonpublic, I would like to see that along with chairman scott. I would like to see that application just to ascertain the appropriate disclosures have been made. Will you commit to doing that?
▶ 1:05:29Mr. Gould: I would be happy to entertain the request and discuss with the team to make sure that we afford you the same privileges that we have afforded past administrations.
▶ 1:05:38Sen. Warren: I do not know if anyone has had to ask that because I do not think any president has had a pending bank application. President trump's crypto company is now at the center of perhaps the most disgraceful presidential corruption scandal in U.S. history. An american president sells out our national security to make money for himself. And if you grant world liberty a bank charter will be a party to that.
▶ 1:06:08Sen. Warren: Given the clear national security risks posed by uae ownership of a U.S. bank, president trump's huge financial conflicts that we have talked about, and your own conflict given that you serve at the pleasure of that same president, will you deny or at least delay review of world liberty's application?
▶ 1:06:32Mr. Gould: Consistent with my statutory obligations, we will process that application as we process all applications. The only political pressure I have felt from any part of the government is from you.
▶ 1:06:46Sen. Warren: Well, it is pressure to follow the law. If you follow the law, you will reject the president's application. As soon as you approve that application and we all know that you will, you go from being a cheerleader to president trump two and accomplish in his corruption. Let me see if I can get to one other problem and that is not just doing trump's bidding but also wall street's.
▶ 1:07:16Sen. Warren: We know vice chair bowman that reducing capital cushions at megabanks increases the likelihood of crashes in -- and taxpayer bailouts. I did some research and it turns out that your rulemaking would reduce capital at the largest banks by more than $200 billion or 23% for the big bank companies. I will submit a question for the record so that I do not go over.
▶ 1:07:44Sen. Warren: This is entirely contrary to your own comments that you would not put our nation at risk. You are doing so.
▶ 1:07:49Chair Scott: Senator moreno.
▶ 1:07:52Sen. Moreno: Mr. gould, does citibank present a national security threat to the united states of america?
▶ 1:08:00Mr. Gould: I will not comment on individual banks, but I am not aware of any of our banks presenting a national security threat. But we work with colleagues across the government in assessing those types of things.
▶ 1:08:14Sen. Moreno: But they have 5% ownership from the uae.
▶ 1:08:18Mr. Gould: I do not know the exact ownership.
▶ 1:08:21Sen. Moreno: I just want to clarify that. Shifting gears and I want to ask the four of you really quickly starting going -- starting with you and going down the line. Have you seen massive deposit flight from our banks?
▶ 1:08:33Mr. Hill: No.
▶ 1:08:35Ms. Bowman: No.
▶ 1:08:39Mr. Gould: No.
▶ 1:08:40Mr. Hauptman: No.
▶ 1:08:42Sen. Moreno: The genius act passed in august. And the fact that some institutions offering rewards on stable coins, does not pose an existential threat to the banking system.
▶ 1:08:55Mr. Hill: I know this is a pending debate before congress so we will wait until the too -- until the debate but large and community banks will continue to serve.
▶ 1:09:06Sen. Moreno: You are not feeling an existential threat right now?
▶ 1:09:10Mr. Hill: Again, I do not want to wade into the legislative debate, but banks continue to perform well.
▶ 1:09:18Ms. Bowman: I would agree with my colleague.
▶ 1:09:25Mr. Gould: I know there has been a range of studies purporting to show a range of outcomes arounds deposit flight. I for one cannot predict what will happen, but what I can say with some certainty is that any significant deposit flight for material deposit flight would not go unnoticed rightly by me, you or other and elected officials of this committee.
▶ 1:09:51Mr. Gould: If there were to be significant deposit flight, I believe that I and other regulators would take steps, since that would rise to an implicate safety and soundness concerns.
▶ 1:10:04Mr. Hauptman: There is nothing significant happening with deposit flight. I will say that. And stable coins as a general matter or anything that this incentivizes holding and using stable coins would run counter to congress' interest. The more that people use at the lower borrowing rates are for everyone. They are supposed to be dollar buying machines.
▶ 1:10:30Mr. Hauptman: So, as a general matter, anything that this incentivizes people to hold stable coins would be negative for congress's purposes.
▶ 1:10:38Sen. Moreno: If I could ask you may be from the prior line of questioning, have you seen any evidence that any of my democratic colleagues tried to influence the debanking of law-abiding citizens during the biden administration?
▶ 1:10:53Mr. Gould: Thank you for the question. We are still going through our process of investigating the activities or alleged debanking activities.
▶ 1:11:07Mr. Gould: It is certainly the case, thanks to the good work of chairman hill and his disclosures around some of the instruction that the biden era fdic was given to banks that they were using reputation risk to inappropriately lean on the banks. We are taking steps by eliminating these reputation risks.
▶ 1:11:28Sen. Moreno: And, I guess any of the three of you can answer if you want in order. J.p. Morgan chase last week admitted that it cut off 50 trump family bank accounts because "it needed to distance itself from president trump in its conservative political views." is that what the law requires banks to do? It is to feel the political wind and debank people?
▶ 1:11:57Mr. Gould: Without speaking about a specific bank, I am not aware of a law that requires it.
▶ 1:12:03Sen. Moreno: Your job to be clear in the last 45 seconds, your job at the federal reserve, fdic and -- it is to follow the law agnostic of political views. And when political views are injected through bullying and staff that jump from a senator's office into a regulator and back and forth, that is the kind of undue political influence that we do not want to, is that correct?
▶ 1:12:32Mr. Gould: That is correct, and we are trying to insulate our banking system from that type of activity.
▶ 1:12:40Sen. Moreno: And the federal reserve, no more important to make sure that the federal reserve is a body free of political influence?
▶ 1:12:50Ms. Bowman: Yes. We should be a political interviews and how we implement financial regulations.
▶ 1:12:58Mr. Hill: I fully agree as well.
▶ 1:13:00Chair Scott: Senator reed.
▶ 1:13:02Sen. Reed: Thank you very much Mr. chairman and for the witnesses for appearing today. The condition of giving mortgages or getting a mortgage from the bank typically has the number of pre-funded escrow account with a years worth of insurance and property taxes. Laws and at least a dozen states including rhode island require banks to pay consumers interest on these balances. And this is real money for my consumers.
▶ 1:13:33Sen. Reed: But the occ has proposed to exempt the biggest national banks, literally, from these state laws, and that would impose I think a cost on many consumers. It would save money for the banks. But, will you conduct an analysis on the impact of consumers over the course that they must pay. It is in the line of affordability.
▶ 1:13:59Mr. Gould: Thank you for the question. As you know, one of the reasons for the occ's existence for the treasury secretary and president lincoln was to establish nationwide markets and the hallmark of the occ is federal preemption which is not just a prerogative of national banks, but thanks to legislation passed in 1997 by congress but to state banks.
▶ 1:14:26Mr. Gould: So, our focus is ensuring the general principle that states do not have the ability to regulate national banks, and that is inconsistent with the whole reason for the occ. Inconsistent with decades of supreme court opinion. That is why we weighed in in that manner and it should come as no surprise to anyone that that is the occ's view. It has long been the occ's views.
▶ 1:14:54Sen. Reed: My question is, have you estimated the cost to consumers? Because one of the goals -- I heard about this tuesday night -- was to save americans from unnecessary costs. You are imposing a cost on them.
▶ 1:15:11Mr. Gould: Well, sir, the analysis is not that simple, because it also impacts the availability of mortgages in those areas, including in your home state. So, the level and degree of state interference in creating nationwide mortgage markets will actually interfere with the availability and cost of mortgages. We were intent on ensuring that there is --
▶ 1:15:39Sen. Reed: Interesting, because [indiscernible] in 50 years, and it is absurd to claim more access to credit. Mortgages are cheaper in rhode island than they are nationwide. Mortgages are 5.79% for a fixed rate and the national average is 6.56%. So, [indiscernible] has no impact.
▶ 1:16:11Sen. Reed: It has, presumably, a positive impact on mortgage rates. That is not an appropriate response. Let me turn to both Ms. bowman and Mr. gould. You agree that regulators must penalize banks if they violate the law and that these violations occur constantly. That is what is surprising.
▶ 1:16:41Sen. Reed: Because in the last several months the fed has lifted 12 consent degrees against globally-important banks. This includes foreign and domestic banks that have facilitated tax evasion, accounts with the ron, etc. Since your confirmation the [indiscernible] against important banks into reactions against crypto-focused banks.
▶ 1:17:06Sen. Reed: I don't find plausible that these banks have become models of acceptability. It seems as if you were just weakening your enforcement policies.
▶ 1:17:19Ms. Bowman: Senator reed, thank you for that question. It is important to understand that these enforcement actions and any mra's have been in place for a number of years and we have been working diligently with those institutions to help them understand what condition -- under what condition we would consider lifting any enforcement action or mra.
▶ 1:17:43Ms. Bowman: And so, if we have lifted any particular actions it is because over a long period of time those institutions have acted in a way that allowed us to understand that they have mitigated those circumstances. We have verified that with their internal audit and that has resulted in lifting particular actions.
▶ 1:18:03Sen. Reed: Will, one consent order was composed in bama -- in 2024. There was 18 months ago.
▶ 1:18:15Ms. Bowman: I would like to look into that a little bit more.
▶ 1:18:19Sen. Reed: Thank you very much.
▶ 1:18:26Chair Scott: Just to follow-up on senator moreno's question as it relates to growth after the implementation of the genius act and migrate staff did some research quickly to recognize the fact that the fourth quarter we saw deposits increase even after the implementation in august, and the expectation over a 12-month period from bankers themselves is that there will be further increases in deposits. So, the fear of deposit flight does not seem to be realized whatsoever.
▶ 1:18:59Chair Scott: So, that, really, from my perspective, is good news. You made a really good point that everything that encourages more dollar use is not only good for the economy, it is good for our reserve currency status in the world. It is something we should all into. So, really important.
▶ 1:19:20Chair Scott: I would also like to note that chair boozman -- chairman bowman has done a good job and I am happy to see -- which feels very soon and I'm thankful the four of you have been working together in a collaborative fashion to bring to us in the market new information. Capital has been increasing for the last several years.
▶ 1:19:48Chair Scott: We have always heard over and over again we have a -- we haven't found what we need. And then he goes up some more. My hope is that we will have a strong basil three -- sbasel 3 proposal. We must ensure that capital requirements do not prevent families from accessing the credit they need to buy a home.
▶ 1:20:15Chair Scott: We all are aware of the fact that the average age for first-time homebuyers is 40 years old. And that is devastating to so many americans, for so many of us the american dream, we see in our future as we are growing up is homeownership. Homeownership is the equity position we want in america. Everything we can do to make that accessible for those who are credit worthy, I think we are heading in the right direction.
▶ 1:20:44Chair Scott: We have worked on this medium in a bipartisan fashion on the road to housing legislation that passed through this committee unanimously and the senate unanimously. The road to housing is meant to expand housing supply, but to help spur demand at the same time. Can you elaborate on any efforts you see? You talked about making it easier for community banks to get back into the mortgage business. I would love to hear you elaborate on that topic more.
▶ 1:21:11Ms. Bowman: Thank you, senator scott. My initial banking experience was as a community banker in my family's over 100 20-year-old community bank. One of our core businesses was real estate lending for consumers. As a result of the dodd frank regulations and the cfpb regulations that were also put in place it became very difficult for us to change the way we did real estate lending to ensure we were in compliance.
▶ 1:21:41Ms. Bowman: As I was the bank commissioner in kansas I heard similar stories across the country from other bank commissioners as well that many community banks had exited that business and it is certainly devastating for consumers in those areas to not have a relationship with their lender.
▶ 1:22:00Ms. Bowman: So, we are very focused as we were thinking about the basel approach and ways we could right size the approach for residential mortgage lending so we could encourage the banks to get back into the mortgage business since it had significantly shifted to the non-bank mortgage origination space. I gave a speech about that last week.
▶ 1:22:26Ms. Bowman: I think there are other areas that need to be addressed as well and I think they are part of, as I mentioned in that speech, cfpb regulations that put onerous requirements and large fines on thanks for making mistakes in mortgage applications and things like that. It is important we think about this in a more broad manner and holistically as we approach thinking about banks getting back into the space.
▶ 1:22:51Chair Scott: I like to hold all senators to five-minute thresholds, so we can make sure everybody gets an opportunity to ask questions, so I will ask a question anyways. [laughter] nothing like a public hypocrisy.
▶ 1:23:13Chair Scott: You both, chairwoman and chairman hill, you have done a good job on the indexing I have been interested in. I hope we recognize it as our institutions get larger that systemic risk should be indexed to reflect reality in our economy. Can I count on you to continue your work on indexing? >> absolutely.
▶ 1:23:39Ms. Bowman: We are engaging deeply in this space and enjoyed your comments about gdp as the benchmark for indexing, and we will be hopefully proposing some changes to the asset thresholds and areas where we can tailor the way we approach regulation and apply it.
▶ 1:23:56Chair Scott: I now have to offer all of the members an extra six seconds. Thank you. Senator van hollen.
▶ 1:24:05Sen. Van Hollen: Thank you, Mr. chairman. Mr. gould, you serve at the pleasure of the president, right? And as senator warren mentioned just a few weeks ago, the trump family crypto company, world liberty financial, applied to you, the occ, for a national trust bank charter. Now, such a charter would help the company expand its digital asset business, right?
▶ 1:24:38Sen. Van Hollen: [no audio]
▶ 1:24:41Sen. Van Hollen: Alright, let me ask you this. Is there any precedent you know of where a business, a company in which the president of the united states or members of his family had an interest in was applying to the occ for approval of any kind of application?
▶ 1:25:00Mr. Gould: Sir, I have not looked, but I will say our licensing process, including our chartering process, is designed and administered by superb professionals --
▶ 1:25:14Sen. Van Hollen: It was a very some question. You don't know of any precedent?
▶ 1:25:18Mr. Gould: I have not looked, sir.
▶ 1:25:20Sen. Van Hollen: We've looked, we could not find any. That is why wanted to ask you. Isn't it true that if you were to deny this application that the president could fire you?
▶ 1:25:31Mr. Gould: Senator, if you are suggesting the president would do anything inappropriate or illegal then I reject it.
▶ 1:25:38Sen. Van Hollen: I am suggesting it. Because I want to talk about this company, and I'm not going to ask you about the review process you will go through, but I do want to ask you if you are familiar with some of the facts behind world liberty financial. Because it has been at the center of one of the most corrupt schemes we have witnessed during this administration. Here is what we know about world liberty.
▶ 1:26:03Sen. Van Hollen: Four days before donald trump's inauguration the brother of the leader of the uae -- the brother is known as sheik tahoon, who is a player within the royal family, made an investment into liberty. We are aware of that fact?
▶ 1:26:19Mr. Gould: Senator, again, I have not read all of the newspaper allegations. We process applications in a fair and evenhanded manner.
▶ 1:26:28Sen. Van Hollen: I want to know if you were aware of that fact. I guess the answer is, you are not?
▶ 1:26:34Mr. Gould: Senator, I would be happy to explain to have a licensing process works.
▶ 1:26:39Sen. Van Hollen: What I'm trying to get at is whether or not, if a company like world liberty financial has a corrupt origin, whether that factors into your decision-making. We just ask you this question.
▶ 1:26:55Sen. Van Hollen: Because after that $500 million investment four days before the inauguration the president's son, air controlled, went to the uae, and at that time one of sheik tahoon's companies made a 200 billion dollars investment in the company, which dramatically boosted the value of the family business. Were you aware of that fact?
▶ 1:27:18Mr. Gould: Senator, again, like this committee, the occ is returning to regular order. So, the procedure and diligence we do associated with any application for a charter is laid out and set forth in our comptrollers licensing manual.
▶ 1:27:34Sen. Van Hollen: Mr. gould, let's make this point. The president came in and fired the heads of, or participants in many commissions because he disagreed with them. So, we know what the president will do what is likely to come and I do think it is important that people understand the corrupt origins of this, because what happened was that after eric trump went to the uae and sheik tahoon's company pumped 2
▶ 1:28:07Sen. Van Hollen: Billion more dollars into the business, president trump went to the uae. He was one of his first overseas stops. This before he did he lifted the restrictions the united states has on the transfer of gary high end ai chips technology that had been in place with respect to the uae.
▶ 1:28:24Sen. Van Hollen: Restrictions that had been put in place because of bipartisan concern that the company that is run by sheik tahoon would divert that to china. -- technology to china. I'm not can ask you again because it sounds like you are not aware of this, although it has been very well documented.
▶ 1:28:49Sen. Van Hollen: So, my question to you is, as you look at this whole scheme, where it is clear the president of the united states relaxed restrictions on the transfer of high end technology to this uae company right after a different company, run by sheik tahoon, invested $2 billion into world financial, does any of that background factor into your decisions?
▶ 1:29:17Mr. Gould: Senator, so the background and factors we considered are detailed at length in the 130 one-page comptrollers licensing manual, which I would suggest you will read, because I know you are concerned about this issue.
▶ 1:29:30Sen. Van Hollen: Thank you.
▶ 1:29:32Chair Scott: Next will be senator tillis, but before he goes we are going to take a 22nd recess, so to speak, to set up a podium. I have always wanted to see how tall travis was, so this is an opportunity for me to figure that out. He is actually taller than I thought he was. Senator tillis, the floor is yours.
▶ 1:29:59Sen. Tillis: Just a parliamentary inquiry before start using my time -- what is the purpose of the podium?
▶ 1:30:08Chair Scott: He has a bad back.
▶ 1:30:10Sen. Tillis: I'm sure everybody was asking. >> appreciate the understanding.
▶ 1:30:17Chair Scott: I tried to cover it up.
▶ 1:30:19Sen. Tillis: You will have to sit for so long.
▶ 1:30:22Chair Scott: I tried to cover it up, but it didn't work.
▶ 1:30:25Sen. Tillis: That will take away the intrigue from the press. Governor bowman, how are you doing?
▶ 1:30:31Ms. Bowman: Good, thank you. How are you doing?
▶ 1:30:35Sen. Tillis: Good. I have some questions I may submit for the record. The staff have prepared good questions, but more of a general question for the regulators here. What have we learned and how have we apply those lessons to the silicon valley bank, what I think was an examination failure? In other words, we had to have done an after action.
▶ 1:30:58Sen. Tillis: We know there were multiple matters requiring attention and multiple matters requiring immediate attention. It should have been a dashboard blaring in the c suite, or at the san francisco fed. What have we learned from that and how are we applying things to any of the regulators?
▶ 1:31:18Ms. Bowman: Senator, I might start if is all right. We recently launched an external review of the silicon valley bank failures so that we can learn from an external, independent review of the activities that were undertaken within our supervisory responsibilities and how we missed the financial vulnerabilities that silicon valley bank manifested.
▶ 1:31:44Sen. Tillis: How long ago was that?
▶ 1:31:46Ms. Bowman: The failure was 2023.
▶ 1:31:49Sen. Tillis: I wonder why it has taken so long to get to an external review.
▶ 1:31:53Ms. Bowman: I think I'm the only one that was interested in embarking upon one.
▶ 1:31:57Sen. Tillis: And why would that be? We know the bank activities that svb were different, but why wouldn't there have been an interest before? We should be applying the lessons now versus trying to determine them. Do you agree with that?
▶ 1:32:13Ms. Bowman: I agree with that.
▶ 1:32:15Sen. Tillis: Tell me a little bit about, randy quarles had some ideas. He made some progress on some. What is your agenda for pressing on regulatory reform, right size regulations in your capacity?
▶ 1:32:30Ms. Bowman: What we're doing at the moment is focusing on financial risks. That is one of the big lessons we learn from the failure of silicon valley bank. We were distracted by other non-material issues, and there were 40 mra's issues that were not related to financial issues first -- for silicon valley bank.
▶ 1:32:53Ms. Bowman: We were refocusing our supervision and we are now laser focused on financial risks to ensure that silicon valley bank does not occur again.
▶ 1:33:01Sen. Tillis: This is may be a bit outside of your lanes, but how could that not be looked at as an examination and supervisory failure? If you agree with that premise, then why haven't we seen any changes in personnel for people as possible for that at the fed?
▶ 1:33:19Ms. Bowman: Actually, we have a significant number of people who have left the organization. Any of them were involved in that supervision.
▶ 1:33:29Sen. Tillis: At the highest levels?
▶ 1:33:30Ms. Bowman: At the highest levels.
▶ 1:33:32Sen. Tillis: Good to know. If we could get the record that which is publicly available for me, that would help. I have heard of exits, but it did sound like a systemic problem. You have to systematically go up the chain and eliminate people I personally think were asleep at the switch. I guess the last question I have for you has to do with some of the work.
▶ 1:33:56Sen. Tillis: The primary drivers of declining bank participation and mortgage origination in servicing markets. Give me your idea on how we fix that. What the drivers are and how we fix it.
▶ 1:34:05Ms. Bowman: I think the drivers have been, about a week ago before the community banking conference the risk weightings that were applied from the basal agreements on mortgage activity. It pushed a lot of activity outside the banking system into the -- outside of the regulatory perimeter.
▶ 1:34:28Ms. Bowman: We were proposing with the occ and fdic one part of the basel capital requirements will address those risks and better calibrate them to ensure that we provide appropriate risk weighting for that to ensure we don't have the excess is that existed in the financial crisis in the oughts, but that we can encourage banks to get into that business.
▶ 1:34:51Sen. Tillis: I'm about to run out of time, so I will submit other questions for the record, but I am working with the white house and members of the committee on trying to resolve the final steps so we can get to a mortgage formation bill for crypto.
▶ 1:35:11Sen. Tillis: The one thing I still have not been able to find much analysis on except for that which was commissioned by various stakeholders is to what extent we really do have a deposit migration risk if we don't get this right. So, we may also submit questions for the record for appropriate people.
▶ 1:35:33Sen. Tillis: Just to point me to a definitive resource, I'm not one of these guys that sees a risk spread and doesn't try to figure out how to create strategies for dealing with the risks, as they have been expressed by immunity banks. I will be looking for help there. I'm just looking for independent assessment for us to be able to move forward. Thank you, travis, I hope your back gets better.
▶ 1:35:54Chair Scott: Senator cortez masto.
▶ 1:35:57Sen. Cortez Masto: Think all four of you for being here. Let me just start, vice chair bowman, by saying the area you are focused on I'm concerned about. As the attorney general during the financial crisis it was a failure on not all of you, but your agencies. It was a failure countrywide. It was a failure all around. And the people that suffered the most with the american public.
▶ 1:36:25Sen. Cortez Masto: Whenever you are doing on the servicing side of that, I would be happily working with you to engage to make sure we get it right.
▶ 1:36:31Ms. Bowman: I look forward to your review of the provisions we will published by the end of march and look for to discussing that with you.
▶ 1:36:39Sen. Cortez Masto: Thank you. Let me talk about something that has just come up in the wall street journal. It recently reported that president trump is considering requiring banks to collect citizenship information from new and existing customers. The current new -- know your customer rules do not require financial institutions to specifically gather citizenship status, nor do banks routinely share this information with the federal government.
▶ 1:37:06Sen. Cortez Masto: So, let me start with chair hauptman. How will requiring people to provide a passport or birth certificate to open a bank account, how well that help them access a reliable place to store their money?
▶ 1:37:25Mr. Hauptman: We are not there yet. I don't believe anyone has contacted me about it I'm a but we are going to follow the ky see stuff. When it comes to opening accounts, there are bigger obstacles out there. The aml regime is perhaps --
▶ 1:37:40Sen. Cortez Masto: That's not my question. My question is, if this is implemented like the wall street journal says the ministrations looking at, my question to you is, how well requiring individuals to provide path ports or birth certificates -- passports or birth certificates to open an account, how that impacted their ability to have safe, reliable money in a bank? Will it have any impact at all?
▶ 1:38:06Mr. Hauptman: It strikes me as a hypothetical, but I will deal with any thing that comes down the pike.
▶ 1:38:11Sen. Cortez Masto: Mr. gould?
▶ 1:38:14Mr. Gould: Kyc obligations on banks --
▶ 1:38:21Sen. Cortez Masto: I know that, but not birth certificates, passports. I'm talking about to open a bank account, requiring a birth certificate for a passport and then sharing that information. It is very simple.
▶ 1:38:36Mr. Gould: Employers have to connect -- collect I-9 information, which includes that information to legally --
▶ 1:38:43Sen. Cortez Masto: And what if somebody doesn't have a passport or birth certificate? They not going to be oval to open a bank account?
▶ 1:38:51Mr. Gould: Just like with an I-9 I think there'll -- there are alternatives available. Thanks have found ways to another customer in durham current existing framework.
▶ 1:39:00Sen. Cortez Masto: Not if they are mandated to require birth certificates and passports. Are you telling me that if there is a piece of legislation or requirement by the administration except now mandated to provide that information they can get around it?
▶ 1:39:13Mr. Gould: I'm responding to your question about what extent it is a burden to collect additional information as part of the kyc process.
▶ 1:39:21Sen. Cortez Masto: I understand. Vice chair?
▶ 1:39:24Ms. Bowman: Thank you, senator. It was a pleasure to visit with you last week. Thank you for taking the time. I do want to say this is a matter for the administration. I don't think they have put something in place to require this and certainly will reserve judgment until there is something final for us to comment on.
▶ 1:39:43Sen. Cortez Masto: Ok.
▶ 1:39:46Mr. Hill: I think the article made clear that unless or until something is released by the white house this is speculation. Like vice chair bowman, we stand ready to implement new procedures if they come out, but at this point nothing has been issued.
▶ 1:40:01Sen. Cortez Masto: For any of you hearing from financial institutions, concerns about this policy? Are any of the institutions reaching out to and saying, I read this in the wall street journal and I'm concerned about this?
▶ 1:40:14Mr. Hill: No one has reached out to me.
▶ 1:40:15Ms. Bowman: I have not heard anything.
▶ 1:40:18Mr. Gould: I have not heard anything either.
▶ 1:40:20Mr. Hauptman: I have not. It is usually other regulatory issues that come up.
▶ 1:40:24Sen. Cortez Masto: I want to talk about cyber risk and I.t. Operational failures. I'm alarmed by the recent stories that more than half of U.S. banks delayed or scaled back a key payment project in the past year due to a deficit in internal expertise. Since 2023 the top nine banks faced 33 days of unplanned outages. As disruptive as these are there is potential risk for a cyber attack by a state actor exploiting fuller abilities in the outdated system.
▶ 1:40:54Sen. Cortez Masto: Does the analysis by bank examiners include an assessment of cyber vulnerability?
▶ 1:41:00Ms. Bowman: We examine for cybersecurity and readiness.
▶ 1:41:05Mr. Gould: As do we.
▶ 1:41:07Mr. Hauptman: Same here.
▶ 1:41:09Chair Scott: Senator britt.
▶ 1:41:12Sen. Britt: Thank you all for being here. Certainly appreciate what you were doing to restore credibility to the agencies you lead. I'm going to start with Mr. hill and Mr. gould. I know your agencies are conducting rulemaking to revise the flawed mra process. I obviously wrote a letter and I appreciate your attention to this. When we look back we have heard about svb what could have happened.
▶ 1:41:40Sen. Britt: We know there were over 35 outstanding mra's in that case. We need to make sure when we do this it matters and it is something people respond to. I appreciate your efforts and I wanted to see, do you have any kind of update for me on that?
▶ 1:42:04It'S Mr. Hill: The comment period closed at the end of december. We have been working to go through the comments. We have been engaged on moving forward with the final rule. Meanwhile, we have been doing a lot internally at the fdic. We did begin a process to start going through all of our outstanding -- we currently call them matters requiring board attention and other supervisory recommendations to begin the process of closing out those that do not align with the new approach. That is going to be a bit of an iterative process as we move to a final rule, but that process is underway.
▶ 1:42:33It'S Mr. Hill: Meanwhile, we are working on starting to roll out training for our examiners, to make sure that the full workforce understands the new approach and it is being applied consistently across the board.
▶ 1:42:45Mr. Gould: A similar approach at the occ.
▶ 1:42:48Sen. Britt: I'm going to add Mr. hauptman as well. You are all involved in 2155 and narrowly-tailoring that was necessary to allow financial institutions to continue to grow and expand and make sure that we are properly placing regulations and not just looking at size as some type of blunt force object.
▶ 1:43:14Sen. Britt: Rather looking at this and making sure that we are creating an opportunity for growth and thriving. I guess my question to you all, would you say that a bank, maybe a $100 billion bank, you are looking at all of the different sizes? You will even say a $1 billion bank should be treated differently than a $700 billion bank?
▶ 1:43:45Mr. Hauptman: Size is certainly an issue, but as an insurer we do not want them to be similar. As an insurer you want different business models.
▶ 1:43:54Mr. Gould: Yes.
▶ 1:43:56Sen. Britt: Mr. hill?
▶ 1:43:58Mr. Hill: Certainly.
▶ 1:44:00Sen. Britt: We continue to see these banks grow and evolve, and we want to make sure we modernize these regulations so that they include -- they don't have the static thresholds. Senator cruz and I introduced a bill on that, to index the $10 billion threshold in the durbin amendment so that institutions that were never intended to be subject to that rule are not subject to that rule. We hope we look at these outdated thresholds and make sure they make sense in today's current environment.
▶ 1:44:30Sen. Britt: I think I heard you talk about prudential standards, chair scott, so definitely agree with that as well. In addition to indexing risk weights I'm also incredibly important to calibrate. I hope you are considering this with your basel iii rulemaking. Vice chair bowman, you and I have had conversations about this. As we discussed homeownership I heard you talking with senator tillis about the mortgage rate risk.
▶ 1:45:00Sen. Britt: That is something you will have taken into consideration as you have made this basel iii more palatable in a way you can actually absorb it. Also, have you taken a look at hedging costs for farmers and what that happens with the agriculture community as a result of the previous administration? We heard a lot about the negative impacts that would have. Have you taken that into account?
▶ 1:45:27Ms. Bowman: Senator britt, I share your concerns about the agricultural community and their feedback. Yes, we have taken that feedback into consideration.
▶ 1:45:37Sen. Britt: Wonderful. Among other troubling provisions in the last administration's basel proposal that would have reduced credit capacity around I think about $150 billion per year and negatively impacted gdp growth, are you all, as you revise this rule, fully considering the broader economic impact, including the price of credit and anything with regards to gdp?
▶ 1:46:07Ms. Bowman: Yes. We have an extensive economic analysis that is included with the proposal.
▶ 1:46:13Sen. Britt: Everybody, yeah? Appreciate it.
▶ 1:46:17Chair Scott: Senator smith.
▶ 1:46:19Sen. Smith: Welcome, everybody. I would like to start with the community reinvestment act I will direct these questions to you, vice chair bowman. The community reinvestment act is a crucial tool for making sure financial institutions are providing credit in communities, especially underserved communities. It is so people can afford to buy a house or have access to buy a house, community development.
▶ 1:46:46Sen. Smith: The last time the regulations for the cra was updated was in 1995. Since then everything is so different that it was in 1995. I won't go through the whole history of the work that was done to update these regulations. I think it is fair to say that in minnesota most financial institutions, regardless of what kind, said we need an update to this.
▶ 1:47:15Sen. Smith: The fed and occ finally proposed a new rule, 2023. It was a big deal. Then the big banks filed a lawsuit challenging the rule in a district that was favorable. And your agencies decided not to defend that new rule. Now we have reverted back, as I understand it, to the 1995 regulations.
▶ 1:47:39Sen. Smith: Vice chair bowman, can you tell us, what is the status of this rescission of the proposed 2023 rule and what do you see happening next year?
▶ 1:47:46Ms. Bowman: Actually, my colleague, michael barr, governor barr, is responsible for the cra work at the federal reserve, but I can tell you that we joined the federal reserve joined with the occ and fdic in a proposal to rescind that rule and revert back to the 1995 -- the existing regulations at the time. I think my view on this cra proposal is clear.
▶ 1:48:15Ms. Bowman: It was overly broad and excessively burdensome, especially for community banks. It would have treated a $2 billion bank in the same way a $2 trillion bank was required to comply. I was not able to support it when it was introduced in the last administration. Sen. smith my question is, what happens now? Right now we are back to these 30-year-old regulations that predates online banking. Is that the best we can do, or do we go from here?
▶ 1:48:41Ms. Bowman: I think there have been a number of efforts to modernize the cra. The occ tried during the trump administration. It was rescinded by his successor. This rule was fairly overly broad and violated the law in many areas, and would have created excessive burden for community institutions in particular.
▶ 1:49:09Ms. Bowman: It is an important aspect and serving the community and providing access to financial services is important. But we have to do it in a reasonable and measured way. Sen. smith Mr. gould, the occ has provided some guidance to simplify how banks can use the strategic plan option for their performance evaluations. That includes options to make it easier for banks to submit online. At the same time, as far as I know there is no plan to update the way that the public can provide feedback on these strategic plans.
▶ 1:49:39Ms. Bowman: I think right now it still involves a bank posting the notice in the back of newspapers. Mr. gould, but the occ agree to post strategic plans on your boat -- your website so the public could review them and encourage banks to post those draft plans online so people can see them?
▶ 1:49:58Mr. Gould: I would be happy to explore that with my legal team. Just to add to the vice chair's points, we now have two successive administrations from different parties that have tried and failed to update, as you say, the 1995 regulatory framework, which, as you note, is outdated. We have two successive administrations that tried and failed.
▶ 1:50:21Mr. Gould: One of the things we are trying to do is, we are trying through the examination process and through introducing creative ideas like a cra simple fight strategic plan that mesh with the current regulatory framework to find ways to target and make more effective cra compliance. Sen. smith I am a strong supporter of community banks and I want to make sure they are not overly burdened as well.
▶ 1:50:50Mr. Gould: I think I would just -- I would like you to get back to me on this question of whether we can at least make it possible, so that people who want to know what these draft strategic plans are confined them without having to go through a bunch. That would be a something to do to modernize how information could be provided. I will follow-up with you on that, to make sure we can at least make that bit of headway.
▶ 1:51:19Mr. Gould: My view is that this community reinvestment act is a really important way to make sure we address one of the underlying challenges that a lot of people have, which is they do not have good access to lending. I would ask that we work to make headway on this. Thank you, Mr. check.
▶ 1:51:27Chair Scott: Senator hagerty.
▶ 1:51:30Sen. Hagerty: I will start with you, by chair bowman. The basel committee is headquartered in europe. It is dominated by european regulators. The european commission has formal representation of the committee. The united states does not. About what that means. We allow basel standards to be treated as constraints on regulators. If we allow that I think we are effectively outsourcing our regulatory responsibilities to the europeans.
▶ 1:51:58Sen. Hagerty: We are allowing foreign bureaucrats to dictate the rules of american banks. American credit markets and ultimately the american economy. Governor bowman, I would like to ask you, as you approach the basel implementation what governance is in place to make certain our financial regulation represents the views of the united states?
▶ 1:52:16Ms. Bowman: That is an excellent question and I appreciate that you have brought this up in this environment especially. The basel committee operates as a member-driven international standard-setting body for banks. It was created in 1930 as a way to manage world war I reparations. It has long outlived its original intent.
▶ 1:52:39Ms. Bowman: Legitimacy in my mind depends on transparent governance and balanced institutional representation among its participants and the participating jurisdictions. Public confidence in global standards is achieved only when they are established through transparent processes and by no single jurisdiction dominates how standards are written and implemented. We have long had growing governance concerns about the basel committee. The last several years especially.
▶ 1:53:08Ms. Bowman: Actions have been taken that is inconsistent with public charter and internal organizational rules. We have observed growing concentration and reduced rotation of leadership across jurisdictions, despite khamenei's own standard of geographic and institutional balance. These are number of things are brought to the attention of the basel leadership and discussions that are ongoing to ensure that there is representation, since the U.S.
▶ 1:53:34Ms. Bowman: Has the largest number of banks that are active in the global community and these are the ones that are targeted for oversight by the basel committee.
▶ 1:53:42Sen. Hagerty: I think american banks -- that the banking rules for our banks should be constructed by the american congress, not outsourced to some bureaucratic committee in basel. Turning now to liquidity. If you think about the liquidity requirements in the united states, they have become increasingly rigid and overly-prescriptive.
▶ 1:54:07Sen. Hagerty: The assumption of omniscience is worrisome as it incentivizes banks with institutional risk to adopt this one-size-fits-all framework. I'm concerned we have forced an outsourcing of what used to be a thoughtful end-specific approach. Our rightsizing these rules can improve financials ability and improve credit availability to american households. Can you explain why this is important and will you commit to advancing meaningful liquidity reform?
▶ 1:54:35Ms. Bowman: There are a number of reasons we need to revisit our liquidity rules, and that is something we are working on currently and will be doing with an interagency construct. We look forward to thinking deeply about the importance of the discount window and other areas of liquidity we can enhance and ensure that they are calibrated properly.
▶ 1:54:56Sen. Hagerty: Mr. hill, you would agree that we need to work on liquidity?
▶ 1:55:03Mr. Hill: Yes sir.
▶ 1:55:06Sen. Hagerty: I would like to turn to you now, comptroller gould. Genus act was signed by president trump. It directs the occ to play an integral role in a supervisory framework for stable coins. Do you feel there are additional tools you would need that are not granted through the genus act, tools you would need to build and enact a framework?
▶ 1:55:25Mr. Gould: We proposed in large measure our piece of the genus act implementation yesterday. We are very excited to have hit that milestone, and we look forward to comments on it. But at this point I am not aware that we need additional tools, but of course we have put out a proposal, so we welcome feedback and the members of this community -- committee, that where the authors of the law. In the public at large too.
▶ 1:55:59Mr. Gould: Throughout the common process a we feel we need something else we would of course alert you all.
▶ 1:56:03Sen. Hagerty: One thing I want to make sure is you have the tools. That they are sufficient for you to assess risks of any bank deposits that would take outside of the banking system.
▶ 1:56:16Mr. Gould: Yes sir. In the proposal, which I would emphasize is just a proposal -- and I'm sure will be improved -- I believe we have introduced and proposed measures in there that would address some of the concerns we have heard throughout this process.
▶ 1:56:34Sen. Hagerty: Got it. If I may take 30 seconds more, Mr. chairman? The work that is underway to restore the novo bank administration. It essentially came to a halt and finally the fdic data shows that the deposit insurance fund grew another $3.7 billion in the third quarter. That brings the reserve ratio even further beyond its minimum. As secretary bessent explained, the case for targeted reform is clear.
▶ 1:57:03Sen. Hagerty: I look forward to working with you all to implement a targeted expansion of basel insurance coverage for transaction accounts.
▶ 1:57:10Chair Scott: Senator kim.
▶ 1:57:14Sen. Kim: Comptroller gould, I want to start with you. You answered a number of questions about world liberty financial. He referenced the review of national bank charter process. It is a fair process. A manual, about 131 pages you are citing. I wanted to ask here, is there a formal policy at the occ requiring enhanced scrutiny when a foreign state official is involved that could very well undermine U.S. national security priorities?
▶ 1:57:44Sen. Kim: I just want to hear from you what is in the process and what is formal right now.
▶ 1:57:49Mr. Gould: Sir, I think in accordance with our existing licensee policies we pursue a risk-based approach around this. I would refer you to that end would be happy to look at it and get back to. I know you have sent some recent letters to me on that, so happy to follow-up with you.
▶ 1:58:08Sen. Kim: I would like to follow-up. Does the staff that reviews the national bank charter process, did they have top-secret security clearance and access to intelligence analysis?
▶ 1:58:22Mr. Gould: There are some officials within the occ that do. I would be happy to get back with you on where they sit precisely within the agency, but I would note that the licensing process around charters is a cross-disciplinary exercise that involves not only individuals within the licensing group or chartering organization, but also individuals from legal and individuals from supervision.
▶ 1:58:47Sen. Kim: Does it interact with the intelligence community? Do you yourself hold a top-secret clearance?
▶ 1:58:55Mr. Gould: I do, yes sir.
▶ 1:58:57Sen. Kim: I would like to send you some documents to review, given the nature of what is here. I would just ask you now, will you commit if I flag some documentation about g 42, about their connections that we have seen when it comes to china and technology, will you commit to reviewing that intelligence?
▶ 1:59:17Mr. Gould: If it is relevant to the licensing process, yes.
▶ 1:59:21Sen. Kim: Thank you. Chairman hill, I want to turn to you here. We have had conversations about the bank secrecy act. We have talked about our mutual support. Does that still stand?
▶ 1:59:33Mr. Hill: Yes sir.
▶ 1:59:35Sen. Kim: Ensuring bank compliance with the csa is a top priority for the ftse, is that correct?
▶ 1:59:41Mr. Hill: Yes. We also are working hard with the treasury department and other banking industries on a number of reforms to the bank's secrecy act program. But throughout the process the overall objectives will remain --
▶ 1:59:58Sen. Kim: The same? The ftse released a statement said -- that said it is important for the fdic to have examination processes and examiners with the skills to assess financial crimes and sanctions, risks posed by banks, third party affiliations. Do you agree with that assessment?
▶ 2:00:18Sen. Kim: I want to ask you, when we have seen large numbers of staffing cuts at the fdic -- I think on boards of 1300 employees, do you know how many of those terminated worked on bsa, aml, supervisory issues?
▶ 2:00:34Mr. Hill: I don't, but I suspect that number would be small. But I can get back to on that.
▶ 2:00:39Sen. Kim: I guess what I'm trying to figure out here is, do we have more or less examiners assigned to compared with a year ago, compared with the staffing cuts. Do you know that off the top your head?
▶ 2:00:52Mr. Hill: I don't, but as a general matter the number of productions to safety and soundness examiners, which I would include financial crimes in that broader rubric, was very small. There was not an area that we generally targeted for reductions.
▶ 2:01:08Sen. Kim: I'm hoping to continue to get your support to make sure we are staying strong on this, given the amount of challenges and threats we face. Will you commit to following up with me on that?
▶ 2:01:18Mr. Hill: Yes.
▶ 2:01:19Sen. Kim: Vice chair bowman, two of your colleagues, chair powell and governor lisa cook, are facing investigations or litigation. Are you concerned about the impact this has on the credibility of the federal reserve?
▶ 2:01:32Ms. Bowman: I can't, and ongoing investigations.
▶ 2:01:36Sen. Kim: I'm not asking you to. I'm asking you as a current fed governor to opine on whether these investigations are hurting the credibility of the federal reserve, an organization you are responsible for overseeing?
▶ 2:01:48Ms. Bowman: I can assure you I think the independence of the federal reserve is of utmost importance, but along with that comes the responsibility for accountability and transparency.
▶ 2:01:58Sen. Kim: I agree with that. I think it is important there is accountability. But you will say the independence of the federal reserve is important, correct?
▶ 2:02:06Ms. Bowman: It is critically important.
▶ 2:02:09Chair Scott: Senator ricketts.
▶ 2:02:12Sen. Ricketts: Thank you to all of our witnesses. In nebraska our banking system is built around regional and community banks and credit unions. Not the big banks. Then equipment purchases for farmers, extend working capital to small manufacturers and mainstream retailers. For many nebraska and families there is an institution that helps them get a mortgage or a home construction loan or refinancing. These institutions no they are.
▶ 2:02:44Sen. Ricketts: They are personally connected to them and have a relationship-based model that continues for the life alone. Escrow questions, hardship requests are all handled locally, not on some distant call center. Under the current risk-based capital framework they have non-advanced approaches to banks. Mortgage servicing assets are subject to a 25% aggregate cap in the calculation of core capital.
▶ 2:03:12Sen. Ricketts: The dollar for dollar capping charge above the 25% cap forces banks that maintain bigger mortgage operations to incur severe punitive charges or selloff, meaning they could have to cut existing valuable customer service relationships or turn away new customers in communities. Chairman hill, how much weight should be given to the impact that capital rules may have on the ability of smaller-insured institutions to compete or retain servicing?
▶ 2:03:42Mr. Hill: Senator, I think it is a major factor, and as a result it is something the banking agencies have been looking closely at. Vice chair bowman smoke -- spoke a couple of weeks ago and eloquently about the importance of banks being able to provide those functions with their customers. That is something we plan to include as part of our capital proposals next month.
▶ 2:04:07Sen. Ricketts: Thank you very much. I appreciate that, and vice chair bowman, thank you for your focus on thoughtful regulatory tailoring and your engagement to revisit the basel iii and again. You have emphasized that capital standards should be strong, but also appropriately calibrated to the size and complexity of the institution.
▶ 2:04:26Sen. Ricketts: I know you have talked about this already, but in the case of community banks -- in the case of a commune in the bank that is well-capitalized, can the msa cap be further tuned in a way that remains consistent with safety and soundness?
▶ 2:04:41Ms. Bowman: I think once we have introduced the baeza proposal we can have a conversation about other or not it achieves the desired goal and we would be happy, I'm sure all three of us would be happy to engage in the conversation.
▶ 2:04:54Sen. Ricketts: How long do you think before you get that?
▶ 2:04:58Ms. Bowman: We will have it introduced before the end of march, ideally. Don't want to get ahead of myself. [laughter]
▶ 2:05:06Sen. Ricketts: Ok. Raising the cap helps ensure that a more orderly and liquid market for -- can bring more stability in the single-family mortgage marketplace. That is one of the goals of our committee, to be able to do that. So, thank you, chairman bowman. I appreciate your engagement on this issue and I look forward to working with your staff on this.
▶ 2:05:34Sen. Ricketts: The fdic oversees the chartering and supervision of industrial loan companies. At the end of president trump's first term the ftse finalized significant revisions to the ilc framework. Those reforms strengthened. Company oversight and enhanced reporting requirements. Chairman hill, for banks that have been charted under those new regulations, would you assess that those regulations have been serving their intended purpose and improving the safety -- safety and soundness of the ilc sector?
▶ 2:06:06Mr. Hill: Thanks for the question, senator. Historically ilc's have been subject to higher regulatory standards. And they have also typically been required to enter into agreements with their parent companies that required the parent to serve as a source of strength.
▶ 2:06:24Mr. Hill: The 2020 rule codified some of those historical practices from the fdic, and it is a mechanism to ensure that ilc's which are not subject to consolidated supervision at the parent level are still operating in a safe and sound manner.
▶ 2:06:46Sen. Ricketts: You think the reforms are having their intended effect?
▶ 2:06:50Mr. Hill: Yes. [laughter] thank you, Mr. chairman. I yield back.
▶ 2:06:55Chair Scott: Senator warnock.
▶ 2:06:58Sen. Warnock: Thank you very much. We are one year out from the trump administration cutting the consumer financial protection bureau. The cfpb. The cfpb is the only federal agency dedicated to protecting americans' wallets and pocketbooks from scammers and predatory companies and financial services. But the cfpb is not just a consumer watchdog. It is also responsible for enforcing consumer protection laws for banks.
▶ 2:07:28Sen. Warnock: That have more than $10 billion in assets. This includes the biggest retail banks in the country. Including banks that millions of americans rely on, like wells fargo or bank of america. Vice chair bowman, yes or no, does the federal reserve supervise community banks, banks with less than $10 billion in assets for compliance with consumer protection laws?
▶ 2:07:53Ms. Bowman: Yes, senator. We do. Up until last spring I was responsible.
▶ 2:07:58Sen. Warnock: The answer is yes? Thank you. About the biggest banks? Banks like wells fargo or bank of america?
▶ 2:08:06Ms. Bowman: Yes, there are certain consumer compliance laws the regulators were responsible for enforcing among their institutions.
▶ 2:08:16Sen. Warnock: Do you agree that by law the cfpb is supposed to supervise these banks and make sure americans are not getting ripped off?
▶ 2:08:23Ms. Bowman: It is a shared supervision for some of these laws.
▶ 2:08:27Sen. Warnock: The cfpb plays an important role?
▶ 2:08:30Ms. Bowman: It does.
▶ 2:08:31Sen. Warnock: It has been scaled back. The trump administration has tried to fire about 1500 employees from the cfpb, reducing the headcount by roughly 80%. I'm very concerned about this assault on the cfpb that in my view has resulted in kind of a lopsided enforcement.
▶ 2:08:54Sen. Warnock: In addition to that, the administration's latest move, it seems to me, is to humiliate the remaining bank supervisory staff. In november the cfpb acting director, russell vought, announced that all cfpb examiners will be reading a " humility pledge. A humility pledge. Before every examination.
▶ 2:09:27Sen. Warnock: Chair hill, yes or no, do fdic examiners recite a humility pledge before any bank examination? Yes or no? Yes or no?
▶ 2:09:42Mr. Hill: Senator, we expect our bankers to treat all sir, I asked you a simple question. Yes or no, do you cite a humility pledge before every bank examination?
▶ 2:09:54Mr. Hill: No, senator.
▶ 2:09:55Sen. Warnock: Comptroller gould, yes or no, do occ examiners recite a humility pledge before they examine a bank?
▶ 2:10:05Mr. Gould: No.
▶ 2:10:06Sen. Warnock: Thank you. Vice chair bowman, same question for the fed?
▶ 2:10:11Ms. Bowman: I'm not familiar with the humility pledge you are referring to, but it is not something that our examiners are
▶ 2:10:18Dashed Line Sen. Warnock: So the answer is no? Thanks. Same question for the ncua. I'm sorry, sir, can you speak into the microphone?
▶ 2:10:28Mr. Hauptman: I'm nowhere -- I'm not aware of anything called a humility pledge.
▶ 2:10:33Sen. Warnock: Keep in mind, this committee has not gotten a chance to question acting director vote on any of these radical changes he has instituted to eliminate key consumer protections and to be clear, none of the four of you here today require examiners to recite a "humility pledge? You are hearing about that in real? Many of you?
▶ 2:11:00Sen. Warnock: So, it is clear to me that anyone watching this -- it is pretty clear to anyone who is watching this that this is intended to reduce the dignity, it seems to me, of the people holding these jobs. The people working to protect americans from abusive practices and making matters worse, in january the cfpb announced all examinations would be virtual, done entirely over a computer screen. This does not sound like an administration focused on protecting consumers.
▶ 2:11:28Sen. Warnock: Chair hill, do fdic exams typically require an in person component?
▶ 2:11:32Mr. Hill: Yes, senator.
▶ 2:11:34Sen. Warnock: Comptroller comes in question. Do occ exams require an in person component?
▶ 2:11:41Mr. Gould: They do, but during the biden administration with the telework status that we were not in banks -- like -- new -- new new new line
▶ 2:11:57Sen. Warnock: During covid. Do you require an in person component?
▶ 2:12:02Ms. Bowman: Not necessarily. Chair hauptman.
▶ 2:12:09Sen. Warnock: It is ironic to me that the only bank regulator that aims to supervise a financial institution through virtual examinations is the cfpb. It is clear to me that acting director vote is working just to meet the bare minimum of the law , and certainly is not trying to abide the spirit of the law and in every way he can it seems to me he is trying to hobble the efforts of this -- the cfpb to protect consumers. Thank you very much for your testimony.
▶ 2:12:41Sen. Warnock: >> the acting chair recognizes herself for five minutes. Welcome. Chair hill, I'm going to come visit we you -- with you personally. My questions will be related to how you are addressing the toxic work environment that was present under the previous administration at the fdic.
▶ 2:13:08Sen. Warnock: If we are making progress with regard to the manner in which employees are being addressed and dealt with. So, thank you for that. I will see you when that time rolls around. So, vice chair bowman, welcome. As you know, this committee has been wrestling with market structure for digital assets for quite some time. I want to focus for a minute on section 41.
▶ 2:13:41Sen. Warnock: Which lists digital asset-related activities that ranks are permitted to engage in. Is it necessary that we have explicit authority for banks to engage in digital asset activities and have it in statute? Is that important for economic opportunities and safety and soundness?
▶ 2:14:04Ms. Bowman: I can tell you that in my experience in the federal reserve we had implemented under the previous vice chair requirements that ended the ability for banks to engage in these kinds of activities. We have rescinded those under my leadership, so for the duration of that ability it could be helpful, but I would happy to visit with you about that after I learned more about the draft.
▶ 2:14:30Sen. Lummis: Thank you. There are three states that authorized deposits, in digital assets by thanks. There will be more if we can get this market structure legislation across the finish line. I will look for to those conversations later. Now, vice chair bowman, I wanted to turn to a wall street journal report that you disciplined federal examiners after they engaged in unprofessional conduct.
▶ 2:15:02Sen. Lummis: So, I reviewed your job description. And it says you are responsible for managing the division's supervision and regulation and its employees. So, isn't it literally your job to ensure that baking examiners -- bank examiners do their job under the law?
▶ 2:15:27Ms. Bowman: Yes.
▶ 2:15:29Sen. Lummis: We learned during the last administration that examiners have a lot of power, and they wield it, and they had guidance that stretched their ability to wield power. So, I'm glad you recognize that not even bank examiners should be above the law. Now, I want to make some remarks about the federal reserve's payment account proposal.
▶ 2:16:00Sen. Lummis: I think governor waller has done a really good job balancing innovation with a safe, fast, and inexpensive payment system. Every time I talk about faster, cheaper, he adds much safer, which I fully appreciate. Now I use all three terms when I talk about it. Faster, cheaper, safer.
▶ 2:16:26Sen. Lummis: So, the bank of england, european central bank and swiss national bank among other countries, have offered payment-only accounts. They offer them to eligible institutions and they have done it for years. So, for the U.S. to remain competitive in the payments space long-term, do we need the same type of structure?
▶ 2:16:53Ms. Bowman: That is a great question. Thank you for asking. I would want to defer to governor waller and the work he is doing to address some of the issues that have been raised with the structure for how we can store applications for master accounts.
▶ 2:17:08Ms. Bowman: I think the way he is working to address this is through the introduction of a potential skinny account that -- and have published in rfi a request for information for a number of different questions that we have raised to ensure that, should an account of this nature be offered that it consists of the appropriate safeguards and guardrails to allow for it togue a successful.
▶ 2:17:33Ms. Bowman: >> I want to acknowledge that if -- we should do this and we should do it quickly because we are in a race with other countries to be the digital asset capital of the world. This is instrumental and important to that discussion.
▶ 2:17:55Ms. Bowman: I strongly support the federal reserve finalizing the payment account proposal and I hope you do it as soon as possible. I hope my colleagues on this committee will also support that. Thank you very much. The chair recognizes the witness for five minutes. >> do you meet with individuals for the companies applying for this charter? >> it depends, senator.
▶ 2:18:28Ms. Bowman: My occ colleagues to on a regular basis. We could not do our job unless we met with applicants. >> who dear colleagues meet with? Founders? Lawyers? >> I believe it is a host of folks involved. Depending on the needs of the occ professionals processing the application. >> did you conduct background information?
▶ 2:18:57Ms. Bowman: >> the procedures we employ are detailed in our licensing manual, a public document. I would refer you to that for the process, time frames and level of review. >> to your knowledge, do you do a background investigation on senior officers? >> I'm not sure what you mean by background investigations.
▶ 2:19:27Ms. Bowman: We certainly look into the management team and their qualifications and capabilities. >> let me read you a quote. If there are any parents on c-span -- here is a quote. We can literally sell -- in a can, for $1 billion if the story is right. Because people will buy it. I will not question the right in the wrong of all that.
▶ 2:19:58Ms. Bowman: Do you know who said that? >> I'm not familiar with a quote. >> a gentleman named chase hero. >> I'm not familiar with the nature of the quote or the context. >> do you know who I'm speaking of? >> I do not. >> chase is this gentleman with a backward cap. I should probably not use the word gentleman. That is an exaggeration.
▶ 2:20:27Ms. Bowman: He is a cofounder of world liberty financial. This is from their website. Is this the type of thing you would ask about in a prefiling meeting or when you conduct meetings with applicants? >> I have heard a lot of outrageous statements including from folks on your side of the aisle. I would tell you that we apply our procedures in a consistent and evenhanded fashion and you are welcome to look at them yourself.
▶ 2:20:55Ms. Bowman: In particular but there is such inflamed partisan politics being played around applications at the occ, it is particularly important we follow established -- >> is a really inflamed partisan when someone says they will engage in basically fraudulent activity and -- have you had any such meetings with people of this nature or with this gentleman?
▶ 2:21:21Ms. Bowman: >> center, I will not discuss my personal meetings but my calendar has been foia'd and you can take a look. >> this gentleman seems to be involved with a lot of people who are fairly powerful. Donald trump, barron trump, to these people some familiar? Steve witkoff, alex witkoff.
▶ 2:21:53Ms. Bowman: I would urge you to take a serious look at the people who make up this company. Can I get your commitment to do background checks on everyone including Mr. herro? >> I will commit to do what we say in our established procedures and what we should be doing. >> moving on.
▶ 2:22:19Ms. Bowman: Would you agree that data transparency is a cornerstone of effective regulation? >> data transparency? How are you defining it? >> that is the definition of transparency in data that consumers are allowed to have and I'm sure some of the stuff you have been able to publish. I could give you a further example. Do you agree consumers to see how -- the things that people care about been trying to make decisions.
▶ 2:22:49Ms. Bowman: >> I think consumers are aware that entities have to have money coming in and out. Are you referring to the money coming in? >> it is talking about the ncua that has required credit unions to report fee incomes. Last year under your direction ncua stopped publishing income from overdraft fees. Is there a reason that happened? >> it only existed for one year.
▶ 2:23:22Ms. Bowman: For one year out of 55, that existed for four quarterly reports. >> what is the logic to why you changed it? >> it was already there. There are a lot of ways to break that down further. You could break it down the same as publicly traded companies. It was primarily done for the benefit of -- political benefit to try to change those fees. You represented area.
▶ 2:23:55Ms. Bowman: Charging for parking tickets. Way higher than people use with an overdraft. That is one reason people use overdraft, to pay government fees. >> dealing with local governments in arizona, I can break down there break down therir fees. Ncua still collects this data. >> the gentleman's time is expired. There is a vote opened.
▶ 2:24:25Ms. Bowman: Have you voted, sir? I haven't. Have you voted? You have not? Senator alsobrooks, have you voted? I will call on you and then we can wrap things up so I can go vote, too.
▶ 2:24:45Sen. Alsobrooks: I want to circle back to stable coin rewards. Many of us agree there is an important role for awards and incentives for stable coin adoption. We want to encourage innovation and that is why we have been at the table all along. This is a really important process.
▶ 2:25:11Sen. Alsobrooks: Our concern is offering a bank like product like a bank deposit without any protections or regulations that accompanied that product what that could mean for future deposits. I want to echo senator tillis' comments in requesting an independent analysis on future deposits light. In the interim we have to take the concerns seriously. We are early in the genius act implementation process.
▶ 2:25:42Sen. Alsobrooks: I appreciated your comments on monitoring deposits light. -- deposit flights. Any action you take would only be after it is already occurred. Is that correct? >> no. That is not correct.
▶ 2:26:01Sen. Alsobrooks: If you are look at our proposal we released yesterday, we have hardwired a number of things into our proposal that we believe would tend to reduce the probability of deposit flight or should it --
▶ 2:26:17Sen. Alsobrooks: I'm speaking specifically about the analysis. That would be after the deposit flight that had already occurred.
▶ 2:26:25Mr. Gould: I'm just noting that if deposit flight were to occur we would notice it.
▶ 2:26:38Sen. Alsobrooks: Several of my colleagues requested the national economic council director formally retract his suggestion that federal reserve staffs should be disciplined for an independent report which concluded tariffs are harming american businesses and consumers.
▶ 2:27:00Sen. Alsobrooks: I'm very concerned about the president's advisers interfering in the fed's work hiding economic data from the american people. Do you have any reason to dispute the fed's report including tariff prices -- that the tariff price increases are being passed along to consumers?
▶ 2:27:19Sen. Alsobrooks: >> I would say I'm not familiar with the report you are referring to but there have been a number of reports that have come to different conclusions about many different subjects, including this one. I would not comment on the comments of my colleagues or the administration.
▶ 2:27:38Sen. Alsobrooks: You do not dispute the report -- you agree or you disagree? >> I'm not familiar with that report. I have not read it.
▶ 2:27:49Sen. Alsobrooks: I have a question regarding deposit insurance. I want to mention the last time you were here, we spoke about deposit insurance. I am partnering with senator hagerty on bipartisan legislation to raise the deposit insurance cap for business checking accounts in a targeted manner to boost confidence among businesses and consumers.
▶ 2:28:19Sen. Alsobrooks: As we solicit stakeholder feedback we want to make sure this is a data-driven reform that does not raise premium cost. When you laughed a testified, you set a target -- not increase premiums on small banks and that any increased premiums on large banks would be small or immaterial. Secretary bessent indicated he agreed. Would you say whether or not you still agree that a limited increase is likely not to raise premium cost?
▶ 2:28:51Sen. Alsobrooks: >> I think what I said last time is it is possible it would not result in increases. There is a few pieces to that to think about. The first piece is if the ftse did not make any changes to its assessments, an increase in deposit insurance would not have any impact on small banks. It would have an impact on large banks.
▶ 2:29:20Sen. Alsobrooks: We would also need to think about the potential impact on the reserve ratio. From just a mechanical standpoint if you increase the amount of insured deposits in the system based on the way the reserve ratio is defined, that would result in a decrease in the reserve ratio.
▶ 2:29:36Sen. Alsobrooks: A possible small impact. One final thing I would like to get out. Echoing concerns for my colleagues. I want to be super clear here -- do any of you and your four agencies believe financial regulators or banks should be given the responsibility of enforcing immigration law? If you do, can you raise your hand. I would like the record to reflect -- >> senator.
▶ 2:30:07Sen. Alsobrooks: Thank you so much. >> does the ranking member hagerty further comments? Thank you. For senators who wish to submit questions, those questions are due one week from today, thursday, march 4.
▶ 2:30:31Sen. Alsobrooks: For our witnesses, you have 45 days from that date to submit your responses to the questions the receipt for the record. I want to think our witnesses for attending this hearing today and for providing very clear responses to the questions you received. We thank you kindly for your service to this country. This committee is now adjourned. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]