Vice Chair Bowman, I appreciated your brief conversation last week and learning you support diversity, equity, and inclusion. In the past you have remarked indicating that support to minority depository institutions, that is MDIs, women-owned depository institutions, and community development financial institutions is, quote, an important part of the Federal Reserve's mission to provide a safe, sound, and accessible banking system that protects consumers. So accordingly, do you support the Trump administration's efforts to get rid of the CDFI fund? What would that mean for these CDFI banks that provide access to credit in rural communities that the Fed oversees? And by the way, I understand you get a list of words you can't use when you're dealing with this direction of the president. What do you think about this?
We definitely recognize the important role that CDFIs play in their unique role in expanding access to capital and to financial services. The Federal Reserve continues to have a program that supports CDFIs from a technical perspective which is called Partnership for Progress, and these are important investments that the Federal Reserve continues to make.
I want to thank all of you for being here today, and I know that I'm asking you some questions that puts you in a very difficult situation at a time when the president of the United States does not recognize you as an independent agency. This is a central bank of the United States of America under control somewhat now by the president of the United States who owns cryptocurrency and his family, and he's trying to influence and is influencing the rules of the game. And so I'm just outraged by it. I am absolutely outraged that at a time in the history of the United States of America with other countries looking at us, that we are in a position where we don't have an independent central bank, that the president of the United States is in a direct conflict of interest and is brazen about it, who's raising all of the money that he can possibly raise at the time that he's the president of the United States. Thank you for being here. And my question to you are almost unfair because there's nothing you can do about it. But somebody's got to do something about it. I yield back the balance of my time.
The gentleman yields back and we now call on the gentleman from Oklahoma, the chair of our task force on monetary policy and the Treasury Market Structure, Mr. Lucas, for five minutes.
Thank you, Mr. Chairman, and thank you to our witnesses for being here today. I want to first applaud you all for addressing the ESLR so that it serves as a backstop to risk-based requirements rather than a binding constraint on intermediaries. As chairman of the task force on Treasury market resilience, I am keenly interested in making sure our capital framework doesn't disincentivize participation in the Treasury market. I'll start with Vice Chairman Bowman, then Controller Gould and Acting Chair Hill. You've adjusted the ESLR. Would you consider adjusting other leverage ratios as well?
Congressman, at this time we're widely reviewing all of our authorities and certainly are invested in the success of the Treasury market, including the intermediation by our largest banks, which is why we have finalized the ESLR proposal. So absolutely, we would be happy to look at anything that you might like us to consider.
Two points, Congressman. One, as you probably know, we are in the process of adjusting, or at least proposing to adjust, the community bank leverage ratio. More generally, I share your concerns of the impact of overly complex capital regulation that we've seen following 2010. In particular, how it has in many cases caused banks to pull back from their historic role of market intermediation. I've also seen firsthand in March and April of 2020 the cost of complexity associated with overall capital regulation and the ability of that overall capital regulation to actually impede crisis management when there's an issue, as we saw in April and March 2020.
All I would add is just to say, as you note, the final rule on the ESLR was intended to remove disincentives for institutions to provide Treasury market intermediation and other low-risk types of activities. We have a proposal out to modify the community bank leverage ratio, and we'll continue to reevaluate other pieces of the capital framework.
On that same topic, the government shutdown, quantitative tightening, and a reluctance to use the Fed standing repo facility have raised concerns about reduced liquidity in the Treasury market. Vice Chair Bowman, as you finalize the Basel endgame proposal, how will you keep in mind the implications of the capital requirements on Treasury market liquidity and functioning given the Fed's report that the banking system is well capitalized? Do you expect to increase capital levels?
I think we're currently in the process of reviewing the capital framework by looking at all four of the pillars of capital, including SLR which we've just finalized and addressed. As my colleagues mentioned, we jointly proposed the CBLR which is designed to help community banks. It's critically important that whatever the frameworks are that we create and the other pillars that we're working on and reviewing, stress testing which we've introduced a few proposals on this year, the GIB surcharge will be a part of that as well as the Basel 3 proposal that we are currently engaged in working on. It's critically important that all of the work that we're doing does not result in impairing the ability...
Congress were to increase deposit insurance for non-interest-bearing transaction accounts over a 10-year framework. The way the phase-in period works in the Hagerty also Brooks bill in the Senate, there is a lot of uncertainty around any predictions that we would make. But based on the projections that our staff put together, which again are subject to considerable uncertainty, the expectation would be that the reserve ratio would grow more slowly over that 10-year period rather than decline. But again, want to emphasize that there's a lot of uncertainty around those projections. One final thought to Chair Hill. I continue to hear frustration from small banks in Oklahoma that during the bank failures of March 2023, the FDIC stepped in to backstop depositors, but the same action wasn't taken to a bank in Lindsay, Oklahoma, the very next year. The difference in the FDIC's actions was because the banks that failed in 2023 were too big to fail while the bank in Lindsay was gentle.
Thank you, Mr. Chairman. Gentleman from California, Mr. Sherman, the ranking member of our capital market subcommittee, recognized for five minutes.
I want to start by associating myself with the ranking member's comments. The potential for corruption, well, the actuality of corruption was well explained. I want to point out here that so far we've seen Silicon Valley Bank go down because it wasn't forced to mark to market its securities which had declined in value, and bank regulators had to have this attitude that those bonds were worth what you paid for them which was more than you could sell them for. Bank regulators haven't solved this problem. We'll wait for another Silicon Valley Bank and another disaster and see how we react to that one. Operation Chokepoint is something that I think has been rejected by some of us on both sides of the aisle. It's one thing for a private individual to decide they want to boycott this or that entity, and the Supreme Court seems to think that even corporations have First Amendment rights. But when the government presses a bank not to provide transactions accounts to a legal business because that business is in coal or payday lending or is Planned Parenthood, that's when government is going way too far. Can I hear from each of the regulators that you are not telling the banks you regulate or the credit unions you regulate that they will be disfavored because they provide transactions accounts to businesses that are unpopular on the left, the right, or somewhere else. Let me just go down the list. Miss Bowman, can you assure us there's no choke point going on here? It's very important that all Americans have access to financial services, especially if they're engaged in legal activities, and if they are engaged in disfavored activities that should not disqualify them from banking services.
So we are very cautious and reviewing our actions over the past few years to ensure that we were not engaged in those activities.
I believe if any of the other regulators disagree with that, let me know. Let me go on to the next question which is for the credit unions. We've got these credit union board members serving as volunteers. I raised the issue with your predecessor on the issue of why not allow them to get reimbursed for the child care costs that they incur to attend board meetings. And in July of 2024, I was told in light of my question, you're going to consider the issue. How long is it going to take you to decide that the board members can get reimbursed for child care?
Congressman, I want to credit you for pressing that issue. You are correct. It's relatively uncontroversial. It's not an issue at banks or most for-profit because you can just pay the board members. As you said, they're volunteers and it's a relatively small dollar thing.
I hope that you move forward in weeks instead of years on that, but I've got to go on to the next question. I ask unanimous consent to put into the record an article from Business Insider, August 8th, 2025.
This article states that Mr. Palmer Lucky in a fundraising memo to investors claimed that his bank charter would be approved on a speedy timeline because of his political network and the bank's close ties to regulators. Now, this is an interesting situation because if the memo was lying, that is securities fraud. You can't go to prospective investors and say we're going to be successful if you're making it up. On the other hand, if he was telling the truth, that is much worse because it means that because he's part of what is described in the article as a million-dollar program to give money to Republicans, he was going to get his bank charter approved much more quickly by the OCC. So I'll ask Mr. Gould, since I assume he didn't use political connections to get his bank charter approved more quickly. Have you begun a securities fraud or have you talked to the SEC about securities fraud when a man raises money for his bank by claiming that you're a corrupt organization?
Well, I'm not familiar with all the allegations made in that article, but I can assure you that the OCC treats any applicant or potential applicant in...
So if somebody said they were going to get favorable treatment and put it in their offering memorandum, would that be securities fraud that you wouldn't care about?
Again, Congressman, I'm not responsible for the securities laws and I'm not familiar with that.
I would hope that you'd mail a letter to the SEC and I will get you the article which would be part of the record.
Gentleman yields back. The chair recognizes the gentlewoman from Missouri, the chair of our capital market subcommittee. Miss Wagner, you're recognized for five minutes.
Thank you, Mr. Chairman. Throughout my time in Congress, one of my top priorities has been to protect our most vulnerable from financial exploitation and fraud. As part of my work as chairman of the capital markets subcommittee, I have been very proud to champion the Financial Exploitation Prevention Act which would provide a powerful tool to protect senior investors and ensure that their retirement accounts are safe when they need them the most. Vice Chair Bowman, you have spoken often on the issue of fraud and in particular check fraud, which has grown substantially over the past several years. In 2022, financial institutions filed 680,000 suspicious activity reports related to check fraud, an increase of over 700% from just a decade earlier. While check use has decreased in recent years, around three quarters of retirement age individuals still use them regularly. You highlighted that while check fraud has been a well-known problem for several years, regulators have been slow to address the harm that it does to banks, especially community banks, as well as consumers and businesses that are often its victims. What actions do you think regulators themselves can take to address check fraud and what areas, if any, would require congressional action?
Well, thank you for addressing that very important issue. As a former community banker, I recognize that every time I speak with community bankers, this is one of the top issues that they continue to bring up year after year. So one of the first actions that I took as the Vice Chair for Supervision was to move forward with my colleagues in an interagency request for information to the public about check fraud and payments fraud more generally. So we're in the process of reviewing those comments. We've formed a working group and our intention is to expand that to other areas of the administration so that all of those that may have some sort of authority over the activities that are a part of reviewing check fraud or fraudulent activity can come together to understand how we can take better action and to mitigate.
Well, I thank you for that and I hope that you'll keep my office and myself in the loop when it comes to regulatory actions and also any kind of congressional action that we can take. It's a big problem and one that I'm very focused on.
I look forward to working with you on that.
Thank you. Earlier this Congress, in response to the previous administration's burdensome proposal on the Basel 3 endgame, I sent a bipartisan letter highlighting concerns with the proposal's treatment of securitized assets. Specifically, the Biden administration went much too far in its changes to what is known as the P factor, which would have led US banks to require double or even triple the capital set aside that was required of banks in Europe and other jurisdictions even when US banks would have dealt with the exact same assets. Thankfully, the Trump administration is reworking its Basel 3 endgame proposal to shore up the international competitiveness of American banks and free up capital to provide credit to home buyers, small businesses, farmers that would otherwise have been locked up under President Biden's proposal. Vice Chair Bowman, what is the Fed doing to ensure that this and other changes that add unnecessary red tape do not make it into any new Basel 3 endgame proposal?
Well, I'd love to address that question. Obviously, I've provided a lot of public statements about the previous efforts on the Basel rule. We currently are working together with my interagency colleagues to move forward with a Basel proposal that works from a risk-focused perspective from the bottom up to create a rule that would be more consistent with the 2017 agreement so that we're not going beyond the scope of that agreement unless it's to the benefit of US institutions.
Well, I hope you pay particular attention to this P factor. I'm very concerned at what the Biden administration did and going way too far in that regard. Acting Chair Hill, the FDIC under your leadership has done great work to ensure its regulations, including the asset thresholds that are used to determine supervision requirements, are tailored to fit the many different financial institutions under its purview. I have several questions in this regard, but I'm over my time, so I'm going to submit them to you and I look forward to your response. Mr. Chair, I yield back.
I thank the gentlewoman. Please answer those questions as you have time and instruction. Now call on the gentleman from New York, the ranking member of our House Foreign Affairs Committee, Mr. Meeks, you're recognized for five minutes.
Thank you, Mr. Chairman. I actually just want to state that I think that the ranking member's questions were fair, not unfair. They were very fair and important because anytime you know a person is the president of the United States of America, he's not a king, and an independent agency should be able to look at him to make sure that things are fair. So I think it was very important those questions, not unfair, Madam Ranking Member, very fairly important. Let me turn my attention to Vice Chair Bowman because I appreciate your outlining your plan to help community banks succeed and grow. And you described community banks in the past as, and I quote, the foundation of our financial system. And you've explained the unique value that community banks bring to the financial system, their proximity to their customers and their understanding of local credit needs, and why they fill gaps that our larger institutions often overlook. And these institutions support rural areas, urban neighborhoods, and small towns that keep families and small business connected to loans and basic financial services. That kind of access in underserved communities is critical for economic stability and to try to create jobs and other things in local communities. Is that not correct?
That is absolutely correct. And as a former community banker, I can attest that they do that on a daily basis, every minute of every day.
Now, we also have institutions that are designed specifically for underserved communities. Our CDFIs and MDIs, and they often step in when traditional lenders don't. So again, I want to follow up on one of the questions that Ranking Member Waters asked. Would you agree that these institutions play a critical role in the banking ecosystem?
Yes, we recognize the value of CDFIs and the unique role that they play in providing financial services to underserved areas.
So with CDFIs and MDIs, you have spoken about improving the de novo chartering application process for community banks. Is there any reason to think that MDIs would be excluded from the improvements you are considering?
Of course, they would be included because they're depository institutions and they're eligible for all of the programs that the Federal Reserve provides.
Thank you for that. And Mr. Gould, you said in your testimony that the OCC has taken steps to curb what you describe as debanking on the basis of politics or ideology, and you have suggested that prior administrations targeted politically disfavored industries. Now, hopefully we're going to avoid any double standards here. Can you identify any industries that the current administration has taken actions against that might raise the same concerns?
Congressman, thank you for the question. The current administration, or at least the OCC, is focused on making sure that discrimination on the basis of politics or religion has no place in the federal banking system. So no, I cannot identify any current examples.
You cannot? That's very interesting to me. That's not been my impression when I look at some of the activities of the current administration going against some of its political individuals. That seems to be the opposite direction of this current administration. Does the OCC have any safeguards in place to ensure that the current administration does not apply regulatory pressure to industries it disfavors? Because we've seen this administration being very outward about those it disfavors. It never shies away from saying exactly that. So do you have anything in place? As we've seen under both President Obama and President Biden's administrations, examiners use reputation risk at times.
Congressman, both the OCC and the FDIC proposed a rule eliminating reputation risk.
Have you conducted any internal review to ensure consistency?
Well, Congressman, we've looked at the past actions of the OCC, particularly around Operation Chokepoint 2.0, and we disclosed correspondence between the OCC and banks around crypto activities in redacted form. So yes, we have conducted an investigation into our own activities historically.
Gentleman's time is expired. Gentleman from Kentucky, Mr. Barr, the chair of our financial institutions subcommittee. You're recognized for 5 minutes.
Thank you, Mr. Chairman. The Dodd-Frank Act established a number of regulatory requirements for community banks with 10 billion or more in assets. In the 15 years since its passage, the economy has grown, meaning that banks must also grow to compete and stay competitive against their largest peers. But the thresholds on community banks have remained the same. That's why I'm drafting legislation that indexes certain regulatory thresholds for community banks to nominal GDP. I often hear from community banks that the costs of complying with these regulatory requirements impede them from growing past the 10 billion threshold, leaving them unable to compete and grow, which threatens the survival of the community bank ecosystem altogether. Specifically, the Durbin amendment is the most costly and burdensome requirement that these smaller banks face. Vice Chair Bowman, does the current $10 billion threshold disincentivize community banks from growing? And what does this mean for the competitiveness of the community banking sector?
In my experience working with community banks that are approaching the 10 billion threshold, it certainly does disincentivize their growth. It gives them few options to be able to address the additional supervisory requirements that are imposed at that threshold level.
Yeah, that's my experience as well talking to larger community banks in Kentucky who are approaching that 10 billion threshold, growing organically and in a healthy and safe and sound manner, but then because of the Durbin amendment and some of these other regulatory triggers at 10 billion, they want to grow but they have to rapidly expand their balance sheet and increase their presence in new markets and activities and new business lines to account for the additional interchange costs that they would face over 10 billion. I would think that this would raise financial and reputational risk. Vice Chair Bowman, is this counter to regulators' safety and soundness mandate? And would indexing the Durbin amendment and some of these other requirements and these other thresholds allow banks to grow in a more organic and safe way?
Indexing as a general concept is an important improvement that could be applied to especially the community banking space, but I think it also could be helpful for other sizes of smaller institutions as well.
Well, thank you for that. Last Congress, many of my colleagues and I worked tirelessly to bring to light concerns with the Basel 3 endgame proposal, including traveling to Switzerland to speak to the Basel committee where they agreed with members of Congress, a bipartisan delegation, that the US proposal from your predecessor, Vice Chair Bowman, proposed gold plating requirements on American financial institutions compared to their global peers. Fortunately, that proposal was never finalized and the Fed, OCC, and FDIC plan to reintroduce a rulemaking in 2026. To all of the bank regulators here, Vice Chair Bowman, Controller Gould, and Acting Chair Hill, will you commit to undertaking a holistic review of the capital stack to account for double counting and other duplicative capital regulations on US firms?
Absolutely. We're doing that now.
Thank you. And are the agencies, to all of you again, are the agencies planning to issue a proposal that predetermines a quote capital-neutral outcome even if some risks continue to be over-capitalized?
We don't have a preconceived notion about where we'll land with our capital requirements based on this review, this holistic, comprehensive review of capital that we're undertaking. Now, we're looking at it from a risk-based approach by each factor and category of risk.
Well, let me just reclaim my time because I'm running out. My view to all of the regulators here on this issue of capital neutrality is that an America First banking regulatory agenda should not seek to just achieve international regulatory harmonization for harmonization's sake. Instead, it should seek to advantage American economic competitiveness. Of course, safety and soundness, of course, making sure our banks are well capitalized, but we should not just simply be looking for international harmonization in the implementation of Basel 3. We should be focused on economic growth as we balance economic and financial stability as well. Final question. Final question to Mr. Gould, Controller Gould. We're seeing a massive increase in energy demand because of AI data centers and the race for AI. This scenario implies significant stress on the US power grid that will require major investments in generation, transmission, and grid infrastructure. I want to talk to you about removing reputational risk from your regulatory oversight agenda. Does that mean you're going to be able to greenlight bank lending to the sources of the most reliable and affordable energy, including coal, coal mining operators and utilities interested in investing in coal?
The gentleman's time is expired, and we ask the controller to respond to the gentleman in writing, please.
Thank you. The gentleman from Georgia is now recognized. Mr. Scott, you're recognized for five minutes.
Thank you very much, Chairman, and Vice Chair Bowman. Welcome. But I'm concerned about the versatility of our financial system here and what we're dealing with is not just one pattern. I want to give you an opportunity to explain, for example, the Fed, how the Fed is approaching tailoring these reforms and its impact on the different business models. You have lenders, you have banks, you have credit unions, and we have got to be very exact and very careful when you come and legislate...
Yes, I think it's important that we are reflecting the actual risk of an institution, including its size and its complexity, the complexity of its business model, when we're thinking about how we should apply regulatory and supervisory requirements to each of those unique institutions. And in addition to some of your supervisory predecessors, a broad section of members on this very committee believe that indexing various asset-based thresholds, for example for category 2, 3, and 4 banks to nominal GDP, does present some risk.
Tell us about what you feel about these risks.
I think we're currently in the process of reviewing our entire regulatory framework and trying to determine whether or not the categories that we've established continue to be fit for purpose and that they're appropriate for the banks that are currently supervised within those categories. It's important that we understand the challenges that they face but also the businesses and the risks, the business services and risks that they present to the economy and the support that they provide to economic growth. So these are all things that are important for our review, especially of the capital program.
Well, I follow some of your comments and let me ask you this. When you say, as you've said, you use the word modernization, are you proposing more risk sensitivity? Are you simply weakening oversight for some banks and not the others? Wouldn't a period of high inflation with real stagnant real growth push these thresholds up faster? Explain the complexity.
Thank you for the opportunity to clarify the work that I'm doing at the Federal Reserve Board. As we discuss the opportunity to modernize our supervisory and regulatory framework, it allows us to look backward at the last 15 years. As we've created regulations in response to our responsibilities under Dodd-Frank, it's important that we're looking at whether or not some of them, or all of them, are successful and whether they're fit for purpose. As a part of that, what we understand and the experience that we have in implementation is that there's a lot of overlap, there's a lot of duplication, and there's a lot of conflicting regulatory requirements. Those are things that we're trying to address in our modernization.
Well, let me ask you this finally while I have a few seconds. Have you modeled how quickly, for example, category 2 and 3 thresholds would rise in high inflation scenarios? And could a bank in today's category 2 or 3 jump out of enhanced prudential requirements within just a few years without reducing its risk profile at all?
These are exactly the kinds of scenarios that we're considering as we're thinking more broadly and comprehensively about whether or not our current capital framework and our delineation of those categories continues to be appropriate. I look forward to working with you. I'm very interested in...
I look forward to working with you, too. Thank you.
Thank you very much, Mr. Scott. The gentleman from Georgia yields back in order for me to call on another gentleman from Georgia, Mr. Loudermilk, you're recognized for five minutes.
Well, thank you, Mr. Chairman, and thank you for this hearing and everybody here. This is incredibly important, especially since a lot of the discussion these days is about affordability. I asked a large gathering of businesses of all sizes and different types of businesses in the Atlanta area recently, what is the largest impact or the largest cost that generally is passed on to your customer? And without exception, they all said government regulation. That is the number one cost, especially regulations that are not applicable to their business or their business model but yet still mandated and compliance and reporting is required by government. Another area though is outdated regulations, and that's one area that I've been working on. Acting Director Chair Hill, I know that you devoted a portion of your testimony to reform proposals related to the Bank Secrecy Act and specifically to allow institutions to reallocate resources away from lower value reporting to higher reporting. I have been working on this especially with the Bank Secrecy Act and adjusting the financial reporting threshold. In fact, my bill is entitled the Financial Reporting Threshold Modernization Act, which would increase the currency transaction report from the grossly outdated $10,000 number to a $30,000 threshold, but index that to inflation going forward. Is an idea like this one that aligns with your goal to alleviate the reporting burden on financial institutions of all sizes?
Sure. Thanks for the question, Congressman. Those thresholds have not been changed for many years, and the amount of reports that are filed by financial institutions is extremely large. So I think taking a close look at this makes a lot of sense. Those regulations are under the purview of the Treasury Department, so I would defer to them on the specifics, but I think this makes a lot of sense as something to look at.
My bill in its current form would increase the CTR from 10,000 to 30,000 then index to inflation. However, would you think it would be feasible to immediately index the CTR to inflation now, which if it had been adjusted periodically would be at $87,000 or around there? Do you think that's feasible instead of gradually increasing it?
Again, on the specifics, I would defer to the Treasury Department, but I think as a general matter, indexing thresholds is something that makes a lot of sense.
I'll just throw this out to anybody on the panel. The same question, but also I think there's concern among law enforcement that this could hinder their enforcement activity. However, at the same time, we keep hearing that looking for someone doing something wrong is like looking for a needle in a haystack, but yet we keep increasing the size of the haystack. My suggestion is to decrease it. Do you feel that lowering or raising the threshold would actually help or interfere with law enforcement? Anybody have a thought on that? Okay. I'll move on then. Chairman Hoffman, it's good to see you again. Had a great conversation last week. I know that this is something that we talked about, the modernization of the Bank Secrecy Act. What are you hearing from credit unions around the country when it comes to compliance costs to prepare CTRs and SARs? Do you think that there's a case to be made for increasing thresholds and indexing it to inflation?
I can definitely tell you that the least enjoyed part of running a small institution is complying with BSA/AML in general. When you ask why a small institution merged with another or sold out to another, it is frequently the very first thing that you hear. And these are patriotic Americans who want to fight crime just as much as anybody else, but that burden is significant.
Okay. Thank you. And in light of the amount of time I have remaining, I don't think it's adequate time to go into the next set of questions. So I'll submit those for the record and yield back.
Gentleman from Georgia yields back. Gentleman from Massachusetts, Mr. Lynch, who's our ranking member on the subcommittee for digital assets, financial technology, and artificial intelligence. You're recognized for five minutes.
Thank you, Mr. Chairman, and to the ranking member. I want to thank all the witnesses for your willingness to work with the committee and help us with our work. Supervisor Bowman, I read a transcript of your remarks in Madrid at the international banking conference that was hosted by Santander, and a couple things just jumped right out at me. I got to admit they sounded a little bit crazy. So I want to make sure you actually said these. You told the conference that it is critically important that traditional banks can engage fully and compete with non-bank financial institutions when it comes to cryptocurrencies. Is that correct?
I don't believe I specifically said cryptocurrencies.
Oh, no. They said cryptocurrencies. Yes. Multiple times on crypto. That's not in question. I think I misspoke because the work before us is on digital assets that the Congress has directed us to provide a pathway and a framework for banks to be able to engage or for engagement in digital assets.
Yeah. But here you said, and I have the transcript here, you said you thought it was critically important that they compete, that traditional banks compete with non-bank financial institutions when it comes to cryptocurrencies. That's what you told the people in Europe in Madrid. And I'm just, it sounds crazy because you're a prudential regulator. You're supposed to be protecting depositors. You're supposed to be making sure there's safety and soundness, that there's sufficient capital reserves, things you just mentioned, Dodd-Frank. And it's just, I'm dumbfounded to hear that. And I just want to clarify, is that the Trump administration policy now that traditional banks should be into crypto?
I want to just go back to what I said earlier. It was not my intention to say crypto. It was that we're engaged in working when we're talking about things like stablecoins. That's what I meant to refer to if I misspoke.
These are speculative assets though. They're speculative assets.
That we've been directed to engage in regulatory promulgation by Congress.
They're speculative assets and you again are a prudential regulator that's supposed to try to take the risk. There's a couple of times in our history where we've had regulators encourage banks to engage in speculative activity. One was when we had 9,000 banks fail back in the early 1930s. The second time, and I think you might have been up here on the Hill when in 2008 when we allowed banks to speculate in the subprime mortgage market and some very exotic derivatives.
Actually I was living in London at that time. I was not engaged in...
I was here. I was here. So anyway, those are two examples of when we allowed banks to speculate and it was a total disaster. And I think, you know, I got to be fair with you. I think that that's a crazy idea to allow traditional banks. Remember, we're bailing them out. We're bailing them out. We don't want banks to be taking unreasonable risks. We want customers and depositors to have confidence in our banking system. And so I'm just hoping that you're not embracing that policy.
My view is that community banks, other banks should be able to engage in stablecoins and other digital assets as Congress provides authority to do so. And that as we're required to, we're able to provide guardrails or regulations that allow for appropriate safety and soundness activities to be engaged.
Just square the surface with me though. You know, we've got an asset that has extreme price volatility and you're inviting banks to engage in that. How does that make the bank safer by injecting digital assets into their mix? How do you even quantify what the reserve level should be when you've got an asset that's inside that bank, multiple banks, right? And this stuff could blow up. And it just, like I say, it dumbfounds me that we have a prudential regulator that's suggesting such a thing.
Well, the GENIUS Act requires us to promulgate regulations to allow for these types of activities.
The vice chairman will respond more fully to the gentleman's question in writing. Chair now recognizes the gentlewoman from South Texas, Miss De La Cruz, you're recognized for five minutes.
Thank you, Chairman Hill, for holding this important hearing today and thank you to the witnesses for being with us. I represent a rural community and largely Hispanic community in deep South Texas. So our community and our regional banks are very important to understanding the needs of South Texans. That being said, Acting Chairman Hill and Controller Gould, you both have an important but difficult task of trying to right the ship at the FDIC and OCC respectively after the Biden administration spent years directing our prudential regulators to focus on things outside your core mission. As you know, the culture of the FDIC and OCC impacts the work your examiners do and in turn impacts the ability of our community bankers to serve their clients and constituents. There's often a discussion solely around the number of examiners you employ, but as I am sure you would agree, ensuring that we have experienced examiners is very important. In your new roles, can you share how you plan to address the young and often inexperienced bank examiners that you may have? And I'll start with Acting Chairman Hill. Is this an issue that you've seen since arriving to the FDIC?
Sure. Thank you for the question. That's absolutely something that we are very focused on. The retention of experienced examiners is something that the agency has been focused on for a number of years. We are considering and putting in place a number of options to ensure that we are doing everything we can to retain experienced examiners.
Give me an example of some of those options.
Sure. We have one item that we're going to include in our budget for next year that's going to create a new grade level for examiners that reach a certain level of experience.
And for those watching television right now, what does a grade level mean?
Essentially it would mean a higher level. They would graduate to a higher level of pay and it would accrue to their sort of retirement, etc. And so we have other things similarly when it comes to retention payments and things like that. Essentially to ensure that examiners as they achieve a level of experience, we want those individuals to stay with the agency because they are people that know the institutions they supervise, know the local conditions, etc.
Sounds like we have some work to do right there. And Controller Gould, would you agree that this is an issue at the OCC as well?
Well, thank you very much for the question, Congresswoman. I generally think we have very talented examiners across the board. We created, just in the four months I've been there, I created a community bank supervision portfolio again dedicated to the needs of community banks. I've already been on two community bank exams, including one down in Texas. Haven't been as far south as your district, but look forward to getting there. But twice down to Fort Worth, Dallas area. I do think examiner training is very important. We want to make sure we have the resources and training for the next generation of examiners, particularly around new and innovative technologies that some of the banks may be choosing to engage in going forward.
Wonderful. It sounds like we need some work there in the FDIC and possibly even the OCC, but making sure that we have experienced examiners is very important, especially when it comes to our community and our regional banks. I have a minute of time here, so I'm going to go on to the next question. Vice Chairman Bowman, last year you called on the Federal Reserve Board to tackle and identify issues that were exposed during the bank stress test in the spring of 2023, including updating the discount window, and you've spoken a little bit about that. I have a piece of legislation, the Bringing the Discount Window into the 21st Century Act. Could you share a quick update on the reforms the board is still considering to update when it comes to the discount window's operation and technology?
Thank you for the opportunity to discuss the important tool of the discount window. It is certainly something we learned a lot about its functionality during the Silicon Valley Bank experience and failure. One thing that we have recognized and we're engaging with our FHLB colleagues is to recognize the importance of being able to quickly move collateral from the FHLB system into the discount window system. So we're doing a lot of work to modernize our capabilities and our operations in that space among many other issues and areas, but I think that's probably the most critical.
Thank you so much. I yield back.
Gentle lady's time has expired. With that, the gentleman from Texas, Mr. Green, who is the ranking member on the subcommittee on oversight and investigations. You are recognized for five minutes.
Thank you, Mr. Chairman. I thank the ranking member as well. I thank the witnesses for appearing today. I must say that I associate myself with the comments of the ranking member. What she said took more than intellect. There are many people with the intellect to say what she said, but only a few with the courage to say what she said. It was one of the finest moments that I've seen since I've been on this committee and I'd like to salute her and associate myself with the comments. As you know, there's a war for currency supremacy. And this war exists because the US dollar is the reserve currency of choice for the world. It's the global reserve currency. As such, its importance cannot be underestimated. Permit me, Madame Vice Chair Bowman, to ask you, could you kindly explain as tersely as possible the importance of the role of the dollar as a global reserve currency to our economy?
I agree with you and I'm sure all of us in this room agree with you on the importance of this supremacy of the dollar as a global world currency. Dollar policy is within the remit of the Treasury Department. So other than the work that we do with US Treasuries and those auctions, that's the remit of Treasury.
But why is it so important? We often say that it's important but we don't get to the nuances associated with the statement. Why is it so important? When the dollar is the reserve currency, that means other countries need and use and want the dollar as a part of their...
I think it's important that we are reflecting the actual risk of an institution including its size and its complexity, the complexity of its business model, when we're thinking about how we should apply regulatory and supervisory requirements to each of those unique institutions. And in addition to some of your supervisory predecessors, a broad section of members on this very committee believe that indexing various asset-based thresholds for example for category 2, 3 and 4 banks to nominal GDP does present some risk.
Economic activities, and that's critical to the future of the United States of America and our ability to continue to maintain our current role and status in the world.
How important is it as it relates to imposing sanctions on countries that are doing things that are harmful to our economy?
I'd love to talk to you about sanctions, but that is way outside my agreement. So I would refer you to the Department of the Treasury on reserve currency.
If you agree with this statement, I'm not saying you do, but if you did, would you have the courage to tell the president that he is harming our dollar as a reserve currency? Would you have the courage to do that?
I agree with you. It's critically important for the central bank to remain independent, but I don't have anything for you on the other.
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The members of the cabinet as they sit around the room with the president and how they all take great pride and pleasure in telling him how great he is. I think that there will have to be some one of few among you who will have the courage to say to this president, you're making a mistake. If he doesn't hear persons who have that kind of courage, our economy is going to suffer as it is suffering. Someone has to have that kind of courage. Let me ask you, Mr. Gould, do you have that kind of courage?
Thank you for the question, Congressman. I believe the president selected me and the Senate confirmed me for this role because I was the best person for the job. I believe I would be doing a disservice to him and to the American public if I did at any opportunity fail to give my best advice, and I will always do so. Thank you.
I'm honored that you would say so. Thank you. And I would hope that others of you would adopt that language. The president can't harm you. Stand up. I yield back.
The gentleman's time has expired. With that, the gentleman from Tennessee, Mr. Rose, is now recognized for five minutes.
Thank you, Chairman, and I appreciate Chairman Hill and Ranking Member Waters for holding this important hearing, and thank you to our witnesses for being with us today. Chairman Hill, have you had an opportunity to read Treasury Secretary Bessent and Senator Bill Hagerty's Wall Street Journal op-ed from October 30th titled 'How to Make Main Street Banks Great Again'?
I did read it. The authors, as you know, argue that the current regulatory framework and the perceived government guarantee for the largest banks have created a 'too small to succeed' environment for community and regional institutions. They call for raising the FDIC insurance limit to level the playing field. Do you agree with their assessment of this competitive imbalance, and do you agree with their proposed solution?
I think there are many challenges that the smallest banks face today. Among those challenges include things like the cost of compliance and the cost of technology. We are taking a number of steps through our existing authorities to try to ensure that we have a regulatory framework in which the smallest banks can succeed. When it comes to deposit insurance reform, I think it is a worthwhile conversation to be having. We have avoided taking any formal positions on any specific piece of legislation, but I would note that the amount of insured deposits in the system as a proportion of overall deposits has come down pretty significantly. I think it makes sense for Congress to be evaluating the potential for deposit insurance expansion.
Thank you, Controller Gould. I often hear from community banks in Tennessee and across the country that their treatment varies depending on which OCC program or office supervises them. In recent months, the OCC has issued several bulletins aimed at community banks, such as bulletins 2025-24 and 2025-29, which seek to reduce unnecessary supervisory burdens and refocus exams on material financial risks. Both bulletins explicitly define a community bank as a financial institution with less than $30 billion in assets and state that banks meeting that definition are covered by the aforementioned bulletins for bulletins labeled as applying to community banks. Can you confirm that those bulletins apply consistently to all community banks under OCC supervision that meet your definition, regardless of whether they are overseen through the community, midsize, large, or specialty supervision programs?
Our goal would be to apply those bulletins consistently to all banks engaged in a community bank business model. Now, there are some banks that may be small in asset size but nevertheless are engaged in activities that are not consistent with a traditional community bank business model. For example, significant payments activities, where we would treat them a little differently. Again, we would revert back to our historic risk-based supervisory approach.
Thank you. I appreciate that insight, and I would just reaffirm that it's so important that these banks get consistent guidance and that it doesn't appear that the examiner or the program or the region of the country that they're in is in some way affecting the supervision that they're getting and the way that their examinations proceed. Chairman Hill, looking back on the bank failures from 2023, it's clear that once a deposit run begins, supervisors have very few tools to stop it. What tools does the FDIC believe it would need, either operationally or through expanded authority, to allow an individual bank to fail while still shoring up confidence in the broader system?
Sure. I fully agree that our tools are fairly limited. The primary tool that was used in 2023 was invoking the systemic risk exception, which under the current statute limits us to essentially protecting creditors and depositors of the institution that failed. I think there could be some merit in allowing regulators to have the authority to provide a time-limited deposit or other debt guarantee across the system. I think if Congress were to do that, we'd want it to be time limited with guardrails in place. Currently, there is a process where Congress can do that through FRA fast-track procedures, and I think what 2023 demonstrated was those fast-track procedures are still way too slow for the speed at which bank runs can spread.
Thank you. My time is expired. I yield back, Mr. Chairman.
The gentleman's time has expired. The gentleman from Missouri, the ranking member of the subcommittee on housing and insurance, Mr. Cleaver, is recognized for five minutes.
Thank you, Mr. Chairman. I want to associate myself with the comments issued earlier by the ranking member, Ms. Waters. Mr. Gould, your memo to us had me read it several times because one part of it just leaped from the pages into my mind. It's recorded on page one and two, the first two paragraphs, when you said that no American should be denied access to banking products and services because of political or religious beliefs. I'm curious about whether or not we have any evidence that there's been political discrimination in banking, and if there is, if you could help me understand it.
Well, thank you for the question, Congressman. I think it should be an uncontroversial statement saying that we should not condone any discrimination.
I apologize. I'll ask it another way.
Does political discrimination exist in the American banking system? And if so, if you would give me an example, it would be helpful.
Congressman, thank you again for the question. As I noted also in my opening statement, we're in the process of looking at the activities over the last few years of the largest national banks. It's premature for me to comment on the results yet of that review, but I will, of course, upon its completion, inform this committee and the public of what we find.
So, do you believe that there has been political discrimination on a potential customer applicant? I just want to know. This is not a hostile question.
Again, Congressman, as I just stated, we are in the process of reviewing the activities of the largest national banks where there have been allegations of political debanking, and I look forward to sharing the results of that review when it's complete with you all.
So, debanking is actually preventing someone from receiving banking privileges. I want to know if there's... Okay, I want to ask another one, because it's really something I'm concerned about, and that's religious banking. In your statement, you mentioned, and I agree with you, that religious beliefs should not be included in or practiced by banks. I've already written several papers on religious discrimination. I don't know how religion can enter into the banking system and there's discrimination. Can you help me?
Yes, sir. So again, I'm aware of allegations of a number of religious organizations, charitable organizations that have alleged debanking over the course of the last few years. We have been sifting through our own OCC complaints as well as working with third parties and other government agencies to sift through complaints of religious discrimination. That is also something that we will be reviewing and sharing our results with this committee when we're done.
We have no evidence that that has occurred.
Sir, I wouldn't go so far as to say that. I would just say that there are a number of allegations of religious debanking that have occurred and been made to the OCC as well as to other government agencies. It would be premature, while the review is still ongoing, for me to conclude as to whether or not they actually happened until I've completed it.
Well, I applaud you for the investigation, because one of the things that the president did early on was to eliminate departments in various agencies who had the responsibility for looking for exclusion and discrimination. Thank you, Mr. Chairman.
The gentleman's time has expired, and I will be recognizing myself now, Acting Chairman Hill. Let me start with you. In 2024, after substantiated allegations against former FDIC Chairman Martin Gruenberg, an independent report concluded that there was a lack of accountability, fear of retaliation, insufficient prioritization of workplace culture, and an abuse of power dynamics at the FDIC. We did hearings on that. In addition, a staff report released by this committee last Congress noted that the next FDIC chairman will need to, quote, 'undo years of damage to morale and culture at the agency,' close quote. You've been on the job in an acting capacity for the past year. What steps have you taken, even in that acting capacity, to ensure that the FDIC makes good on the recommendations made both by this committee and, just as importantly, maybe even more importantly, the Cleary report?
Sure. Well, thank you for the question. Let me start by saying that harassment and other forms of misconduct have no place at the FDIC or any other workplace. Fixing the culture at the FDIC has been a key priority throughout this year. I appreciate all the work and oversight that you and your team have done.
Are the employees receptive to it? I mean, it was bad, and both sides recognized that it was bad.
Fully agree. I think there is widespread commitment at the agency to turn the page on the problems of the past. There's been significant turnover in leadership at the agency. We have an entirely new board. About half of direct reports to the chair have turned over this year. We've replaced a large number of managers across the agency. We prioritized accountability, which I think was really the key root cause of the problems, which is that there were many cases where either people didn't report things because they didn't have confidence in the process, or they did report things and people were paid off with settlements and the wrongdoers didn't have accountability. We have taken a number of steps to set up new offices, new processes in place to ensure that when there are allegations, there's a process, there are independent investigations, and that there is discipline appropriate for the misconduct.
Glad to hear that. You don't strike me as the type of person who is going to scream at their employees as they're coming in about trivial things. I appreciate that. Switching topics, but staying with you. Earlier you talked about the failed bank resolution framework being a worthwhile conversation to have. Two weeks ago, the committee held a hearing on proposals that would make changes to the deposit insurance framework. While the issue is far from settled, I think it's important that we don't dismiss how interconnected the debate between deposit insurance is with bank resolution in bank failure scenarios. It makes sense to have a wide range of institutions lined up to bid on failed banks, increasing the proceeds received by the FDIC for its sale and then lowering the potential costs to the deposit insurance fund. Is this something that you and I discussed in 2023 during the banking turmoil? I know this is something FDIC has been looking at. I saw Mr. Gould's head pop up because you're going to be a part of that as well. You noted that the FDIC has developed a seller financing program for non-bank bidders to increase competition by including private equity firms and other non-bank entities. Do you believe this would ultimately reduce the cost to the deposit insurance fund?
Absolutely. That's the goal. We're taking a number of steps to try to improve the bidding process to facilitate more and better and lower cost bids and trying to bring more capital into the bidding process. The ultimate objective of all of it is to, A, reduce the cost of the DIF, and B, increase the likelihood of stabilizing transaction options in the event of large failures.
Right. So my bill, the Enhancing Bank Resolution Participation Act, directs the FDIC and OCC to jointly study the feasibility and utility of shelf charters, meaning pre-approved, ready-to-go entities that are a capital-raising vehicle to bid on failed banks, and on modifications that could be pursued and modified the bidder qualification. In the last 30 seconds here, do we need to address the bank resolution framework at the same time as the FDIC network?
Thank you for the question. I do share many of the concerns that the Acting Chairman has stated publicly around the resolution execution capabilities that were on display, or the lack thereof, in the March 2023 timeframe. Certainly I support more robust public disclosure around what occurred during that timeframe so that Congress can then inform itself as to whether it needs to act from a statutory standpoint.
Right. My time has expired. Without objection, I would like to submit this letter from a joint trade statement for the record regarding our hearing today. Hearing none, so moved. My time has expired, but we are going to take a brief pause here as a committee. The minority is aware of this as well. We're going to pause briefly while we adjust the witnesses' microphones. We will return shortly. With that, we take this pause.
I'm prepared to resume. The gentleman from Illinois, Mr. Foster, who is the ranking member of the subcommittee on financial institutions, is now recognized for five minutes.
Thank you, Mr. Chair. I'll start with Chair Bowman. I just want to thank you and your fellow board members for the series of conferences that you've held in recent months. I was pleased to be able to attend two of them, one on the future of community banking and another on the future of payments. It was really great to be able to sit there and actually talk to the boots on the ground in these very important emerging and traditional industries. I urge my colleagues, if they get a chance, to attend those and to try to do everything you can to encourage member attendance. I frankly learned a lot. Now, one issue that came up repeatedly in both conferences was issues of fraud costs and the cost of preventing fraud. The OCC, FDIC, and Board of Governors recently issued a request for information on potential actions to address payments fraud. I regularly hear about this from community bankers in my district all around Illinois about the challenges they face with identity theft, payments fraud, largely identity theft, and check fraud. The comment period closed in mid-September for this, and I know that bankers are anxiously looking forward to the next steps. Controller Gould, do you have any initial takeaways from the RFI that you can share, and what can we expect in terms of next steps from your agency and when might we see them taken?
Well, thank you very much for that question, Congressman. In the four months I've been on the job, that is certainly an issue, fraud, that has risen to the top of my to-do list. It was not something that I was hearing nonstop five years ago when I last worked at the agency. Back then, it was cannabis banking when we met with community bankers, but now it's fraud, and I appreciate the seriousness of the issue. I think a lot of the things that we can do are probably steps that we have to take across the federal banking agencies and even beyond. Speaking just for the OCC, one thing that I have heard repeatedly from smaller banks is concerns around check fraud, where the very largest banks, which happen to be national banks, are seemingly or allegedly very slow in refunding money owed to small banks. We have been to date facilitating those complaints and making sure that the very largest national banks are responding in a timely fashion. That's something I would like to look into further. More generally regarding the RFI, I think that's something we need to work on across our three federal banking agencies and possibly beyond. But I think it's something that, from the OCC's perspective, we understand is extremely important given the volume and how it's impacting smaller banks in a disproportionate manner.
Yeah. Do any other witnesses have comments on the whole issue? A huge part of this is online payments fraud. A big part of that is identity theft, and the tool at hand is your cell phone and digital driver's licenses. If you are able to present online a Real ID-compliant digital driver's license, which the technology is in everyone's cell phone, you can pretty reliably prove that you are who you say you are even in an online transaction. That stops the hackers in their tracks, at least for fraud that scales. I urge you to keep pushing on both of those. Checking is a huge problem, and the responses of banks, and just raise our game in electronic online identity verification, that could be a huge cost savings. One thing I heard about at that conference a lot was just the huge amount of costs that banks incur for trying to make sure that online transactions are valid. Another thing that came out was a lot of discussion at the payments conference of the implementation of the GENIUS Act. One thing that came up with the small community banks was the worry that interest-paying stablecoins would have the potential of pulling deposits out of particularly small community banks. There are some estimates that say that interest-bearing stablecoins could cause more than $6 trillion of deposits to leave the banking system, particularly the small banks that are often the only source of business investment in small towns. I was just wondering, even though we had a nominal prohibition of paying interest on what got voted out of this committee, it actually took the crypto industry about two days to figure out how to effectively pay interest on this. Is this something that you think you're going to need congressional action on to prevent this from happening? Anyone wants to take a bite of that? Do we need legislation? If you could answer for the record, how serious you see this problem, because I just heard about it uniformly. The small community bankers that were present at that conference were terrified and angry about the threat. This is essentially the reemergence of narrow banking that the Federal Reserve has traditionally objected to for exactly this.
The gentleman's time is expired.
I now recognize myself for five minutes. Look, in this committee, I want to say thanks for you all being here today, thanks for your preparation and for your testimony. But in this committee, we've been hammering home a simple truth: America's financial institution and our system thrives when regulators stick to safety and soundness, not targeting political rivals or picking winners or losers in the marketplace, weaponizing the laws and frankly the lack of laws in our government. Under the Biden administration, we saw Operation Choke Point 2.0 resurrected from the Obama administration where Choke Point 1.0 was. We saw it in full swing. Regulators were weaponizing reputational risk to bully banks into debanking political rivals, crypto innovators, stablecoin pioneers, and everyday folks just trying to build a future. It wasn't about risk. It was about control. But here's the good news: the Trump administration is slamming the door shut on that nonsense. Many of you are in place to just follow the law and apply even-handed regulations. Thank you. We've withdrawn poison pill guidance that banned reputational risk from exams, and we're ready to unleash American leadership in our financial sector, including our digital asset sector. Today, I want to lock in the progress and make sure there's no Choke Point 3.0 or anything like that underway. Vice Chairwoman Bowman, how is the Federal Reserve turning the page on Chokepoint and approaching bank participation in all markets, particularly digital assets?
Well, as you mentioned, all of us are engaged in implementing the president's executive order on debanking and taking actions as a result of the directives that were contained within that executive order. What we have done specifically at the Federal Reserve is that we have eliminated reputational risk within our examination context and within our supervisory function, whether that's in guidance or in regulation. We have rescinded anything that... and edited out the word 'reputational risk.' So it no longer is a part of the vernacular at the Federal Reserve and within our supervisory context. We're also conducting an audit of supervisory and banking activity so that we understand whether we've met those expectations and that we can do so going forward. We're also reviewing the past activities at both the Board and at the Reserve Banks to identify actions that would be inconsistent with the executive order. We're also contemplating moving forward with a proposal that's similar to what the OCC and the FDIC have put forward to ensure that this is a durable change, and on a proposal, an NPR on eliminating reputational risk from banking.
Yeah. Thank you. The Federal Reserve recently talked about a change to master accounts, potentially making them more accessible with a more concrete set of rules. How would that work?
We're currently exploring the options that we have within our regular framework for master account consideration. It's something that could potentially be available as we're currently reviewing how that could be effective in a limited construct.
All right. And then lastly, you mentioned that you're following the president's executive order, but one of the other executive orders with respect to digital assets is no development of a central bank digital currency. Obviously, at some point, portions of the Federal Reserve have been engaged in that. Is the Federal Reserve still engaged in developing a central bank digital currency?
There are parts of the Federal Reserve that continue to be engaged in activities related to global activities on central bank digital currency within the construct of the Bank for International Settlements and our participation in some of their work on innovation.
Does the Fed consider themselves subject to the president's executive order banning central bank digital currency?
We believe that there is no authority that Congress would have to provide... the authority for the Federal Reserve specifically to engage in creation of a central bank digital currency.
Thank you. Controller Gould, under President Trump's Fair Access Rule, banks cannot deny services to an entire lawful industry. Has the OCC seen any evidence since January 2025 of national banks continuing to debank crypto firms?
We're still in the process of going through the complaint data that we've received in accordance with the president's EO. I'm aware of some anecdotal reports, and you've kind of answered an adjacent question there, but I'll just also add that you've alluded to cannabis banking, marijuana banking. I'd love to submit a question for the record there to see where the state of play is. Are banks still blocking customers who are engaged in lawful marijuana activities? Because nearly every state, whether you like it or not, has made some form of marijuana lawful in those states, and we haven't synced up at the federal level. So I'd love to catch up on how we're doing that. My time has expired, and I now recognize the gentlewoman from Ohio, Ms. Beatty, who is also the ranking member on the subcommittee for national security.
Thank you, Mr. Chairman, and to our ranking member, and more importantly, thank you for being here today. A lot of tough questions that you've had today because we're in tough times. But let me start with following up on something that my colleague on the other side, Ann Wagner, alluded to in talking about the some 682,000 cases of check fraud. As we know, fraud and scams are robbing American families of their hard-earned savings. It's the number one concern that I'm hearing from banks and credit unions in my 3rd Congressional District. This summer, I was really pleased to see that the FDIC, the Fed, and OCC issued a request for comments to address payment and check fraud. We also know that Congresswoman Maxine Waters, last Congress, introduced House Bill 9303, the Protecting Consumers from Scams Act. My question to you, and I'll start with you, Ms. Bowman, and quickly work down to you, Mr. Hill, what are your topline takeaways from the comments submitted? And what target areas are you looking to prioritize? So, are there any target areas? Yes or no? And if so, give me at least one, and then we can get to it.
Yes, this is a critically important issue. I think some of the most important areas that we should be focusing on is account openings.
Excuse me. One area for us to focus on again is the relationship between the largest national banks and payment processing and check refund returns and the community banks.
I will say that Congress passed the GENIUS Act, and one positive of blockchains, especially public blockchains, is they eliminate some of these issues that can happen with other forms of payment. If you're asking about check fraud, obviously it's been around since we've had checks.
And I'm aware that the harm isn't just those who are defrauded. It's the regular credit union member who is saying, 'Why can't you cash my check? Can you just give me the money? It's a certified check. Why don't you give it to me?' And it is not their fault nor their credit union's fault why that is the case, why there is a delay. We try to circulate on our website every new fraud that there is, from romance scams to check fraud.
Mr. Hill, thank you, Congresswoman. I fully agree this is a big and growing problem. We are working very closely with our peer agencies as part of a working group. I fully agree with the comments from Vice Chair Bowman and Acting Comptroller Gould. We are continuing to work through the comments and happy to follow up with more takeaways.
And I'm glad you said follow-up because I would like you to stay in contact. This is very important, I'm sure, to all of us. But in my district, I'm being held accountable for what am I doing? It appears to be more prevalent now that we're seeing this. So, I would like to have some contact. I have my legal counsel and financial person, Sierra, here. This is something you're going to hear over and over from me. Let me quickly go to the next question. For you, Acting Chairman Hill, Vice Chairwoman Bowman, and Comptroller Gould, I'd like to start with some questions on cybersecurity. We've addressed that a lot today and the risk posed by third-party service providers and other technology solutions. As we know, cyber adversaries not only target financial institutions but also federal regulatory agencies. What are the steps you're taking to enhance the cybersecurity of your agencies and effectively notify financial institutions when there's a breach of confidence and sensitive information that regulators collect from financial institutions?
Okay. You want me to pick somebody?
Okay. And... I'll be happy to start since I certainly raised the issue, and unfortunately the OCC was the victim, right?
The data breach that went on for almost two years.
When we learned of the breach back in February, we engaged extensively with the banks that we supervised to let them know what we were doing, how we were addressing it, what information was exposed. I will say that in addition to bringing on board multiple forensic technical experts to analyze the issue and to make recommendations to ensure that the risk of this happening again has dramatically decreased, I actually turned our recommendations into... Unfortunately, my time is up. So, do you all agree? Can he be the spokesperson for you all? And if it's a no, you can get back to me.
Okay. Looks like you have some friends. They don't. I yield back.
Thank you for your efforts to maintain stability in our financial system in a way that protects consumers, reverses harmful one-size-fits-all policies, and provides much needed clarity to our community banks and credit unions. This hearing is critical. Vice Chair Bowman, I would like to begin with you. The Federal Reserve's recent finalization of revisions to the large financial institutions ratings framework is viewed by many as a common sense and long-overdue improvement. Ensuring that banks are not judged solely on their single lowest component score will create a more accurate and balanced assessment of institutional health. Could you speak to the Federal Reserve's plans to implement this reform and how we should expect it to be faithfully and consistently implemented by examiners?
Thank you for allowing me to provide some additional information and context to our large bank financial rating system. When the system was initially introduced in 2019, it allowed for a single deficiency. There are three categories that it consists of: governance and controls, capital, and liquidity. The initial framework allowed for a deficiency in one of those categories, not requiring it to be as a financial matter, but any of those categories could determine a bank to be not well-managed. As we know, and as we saw in Silicon Valley Bank's failure, banks fail for a number of reasons that are highly predictable and always related to their financial condition. It's important that we're not artificially judging an institution to not be well-managed if we're not reviewing their financial health as a part of that determination.
Thank you for that. Turning now to the need for greater regulatory tailoring. I want to thank you, Vice Chair Bowman, and you, Chair Hill, for supporting efforts to refine our regulatory regime and for advancing the policies that this committee and our colleagues in the Senate have worked on throughout the year. I consistently hear from banks and credit unions in my district that an overly burdensome regulatory framework forces them to divert time and resources away from serving their communities. At the same time, I recognize that limited resources pose challenges not only for financial institutions but also for the agencies charged with supervising them. Reforming standing policies such as the community bank leverage ratio, along with implementing initiatives like my Smart Act, will strengthen our financial system and allow institutions of all sizes to better support their customers. Chair Hill, as we consider these efforts, how does your agency plan to improve the consistency and clarity of the supervisory process? And would legislation such as the Smart Act and the Trust Act help conserve agency resources in a way that ultimately enhances the quality of supervision?
Thank you, Congressman, for the question. We are engaged in taking a close look at many aspects of our supervisory process. Trying to promote more consistency and clarity across the board are key goals that are informing many of the activities that we have underway. The proposed rule we issued with the OCC that would define 'unsafe or unsound practice' and 'matters requiring attention' is partly intended to achieve more consistency across exam teams. Our supervisory appeals process that we've proposed is also intended to promote more consistency among other things. With respect to the legislation, certainly happy to work with you and your office on providing feedback on anything that would be helpful.
Sure. Thank you for that. Finally, I want to turn to digital assets. Your agency's plans for implementing GENIUS and the broader conversation around future market structure legislation. In August, I hosted roundtables in my district with stakeholders from across the financial sector. A consistent theme was the future of crypto legislation and how traditional financial institutions are preparing to participate in this evolving market. These legislative efforts have the potential to reshape our financial system and reduce unnecessary intermediaries. As this work moves forward, it is essential that our financial institutions remain informed and fully equipped to adapt so that they are not left behind. Chairman Hoffman, you and I discussed GENIUS implementation a few months ago, and I would appreciate an update on the NCUA's preparedness. I would also welcome your thoughts on how we can more effectively educate credit unions in South Carolina about the work underway in Washington.
Well, Congress has given us a deadline, I believe, of July 18 next year. It is my intention to work with my fellow regulators to meet that deadline. Obviously, that's going to be proposed rules and then final rules. We're sitting here on December 2nd. Don't have either one of those yet. So, between now and July, it's supposed to happen. My guess is the first thing you'll see is... I believe the first rulemaking mentioned is how to apply to be an issuer, which for credit unions would be credit union service organizations because they don't have subsidiaries.
Thank you for that. I'm out of time. With that, I yield back. Thanks.
Thank the gentleman. The gentleman from California, Mr. Vargas, who is also the ranking member of the task force on monetary policy, is now recognized for five minutes.
Thank you very much, Mr. Chairman. I want to thank the chairman and also the ranking member, in particular the ranking member. I think what she said today was not only true but courageous. It's sad, but I do think we're living through a pretty shameful moment in our history. I think that is how history is going to see it. I think a lot of the people that are here today, ten years from now, are going to see themselves as Liz Cheneys and Adam Kinzingers, but they weren't. We allowed all this corruption to go on, and it's sad. I've been in politics for a long time. I got elected back in 1993. It's interesting in a hearing like this, normally what happens: politicians, we make a statement, and our statement is pretty political, as mine just was, and then normally we go to the professionals, and then the professionals give us information that's very important for us to make decisions. But it's seldom the case that the professionals use the jargon of politicians. That's been the case most of the time that I've been here, with the exception of today. I was very interested because some of the jargon that was used today—'unelected bureaucrats,' by the way that's called professionals—'the weaponization of finance,' all of this jargon is jargon that is used by politicians that shouldn't be used by professionals, and we saw that today. I think that's disappointing. Anyway, I wanted to say that because I do see a sliding right now of professionalism in the government, and I think it's sad, and also intellectualism, frankly. I mean, I see today, we're trying to figure out if what we're doing at sea right now is legal or not. It's the equivalent of bayoneting the wounded when you have survivors on a ship and you hit them again. Clearly, war crimes. This is what happens when we deprofessionalize the government and those that are supposed to carry out the laws. Anyway, I was disappointed in some of the jargon here today, and I'll leave it at that. Now, I do want to turn to climate change. I think climate change is something that's interesting because I have been around a long time, and used to be that no one believed in it. Now, a lot of people do. So, I'd ask you guys, how many of you believe in climate change? I'll start with you, Mr. Hill, because you're closest to me.
Want to go down the line?
Climate is changing. That's correct, sir.
Okay. Is it—But it is changing. Okay. I won't go into the human aspect, but you do think the climate is changing. Yes.
Our view on climate change and natural disasters, which are risks to financial decisions, is that the local communities are best served to address it. Nobody in Florida or Puerto Rico needs me to tell them they have hurricanes.
Sir, whether you call it global warming or climate changing, yes, I understand that the climate is changing.
I think climate change is, excuse me, climate change is an important policy question, and natural disasters and events happen all the time. I'm from Kansas, so I'm particularly familiar with things like tornadoes and floods.
And yet you guys are pulling back from that information. It seems like now you're not participating like before. Is there are there no financial risks then? You are the credentialed regulators. You don't see risks here in climate change? I mean, you mentioned it. Well, I'm from California, too. Fires. It's interesting. People never talk about Kansas or places where they get hail, because actually hail is some of the largest damage that you see in insurance. It's actually hail. You're going to see more and more of that because of climate change. I think it's going to affect the mid-part of the country significantly. But I think it's a real risk. I think most of humanity thinks it's a real risk, except for us today. Would anyone like to comment on it? Mr. Gould, go ahead, sir.
So, I think it's not that these events are not risks. It's that they're not more important risks than other risks that banks face. We believe that banks have been facing these risks. Obviously, I'm a community banker from a mostly rural and agricultural bank where farmers are the most optimistic people on the planet who have to mitigate and manage what the weather gives them every year. They've been managing for these risks for the entirety of the banking system. It's not that they're not important risks; it's that they're not more important than other material risks.
Okay, we could disagree on how important it is, but just lastly, I would like to say I hope you don't slide into this unprofessional jargon. Keep it tight, as they say when used to play football. Don't slide off and start to speak like politicians. Thanks again. With that, I yield back.
Thank the gentleman. The gentleman from Pennsylvania, Mr. Meuser, who is also the chairman of the Oversight and Investigations Subcommittee, is now recognized for five minutes.
Thank you, Mr. Chairman, and certainly thank you to all of you. This is very important and worthwhile, so it's appreciated. Comptroller, Vice Chair Bowman, Chair Hill, and Chairman Hoffman, thank you. First, on Basel 3 endgame: we need capital rules that strengthen safety and soundness without limiting access to capital for large and small businesses. Second, this committee's debanking report validates our concerns. Last Congress, Biden regulators pressured many banks, or co-opted them, to comply, and lawful Americans lost access to banking services. Mr. Chairman, I ask unanimous consent to enter into the record the majority staff debanking report entitled 'Operation Chokepoint 2.0: Biden's Debanking of Digital Assets.'
I appreciate Comptroller Gould, Vice Chair Bowman, and Acting Chair Hill's early action regarding the debanking by eliminating reputational risk, which our colleague Representative Barr's bill, the FIRM Act, has codified in order to achieve fair access to banking. The private sector has a role to play as well, of course. Third, financial fraud and scams are rampant, and this committee is committed to a government, private sector, and whole-of-society effort to protect consumers, seniors, veterans, young people, small businesses, everyone out there. It's a top priority for my subcommittee on Oversight and Investigations. Vice Chair Bowman, I'd like to start with you, please. You've been very clear on Basel 3 endgame—very refreshing, as a matter of fact—that it can have real benefits if calibrated properly for bank lending, especially for community and regional banks. In your view, how can right-sizing capital requirements that primarily affect larger banks help support small business and agricultural lending?
If we're speaking specifically about Basel 3, it's important to understand that the approach that we're taking limits the application of Basel 3 required participants to the largest banks. Those requirements would not apply to the smallest banks unless they chose to opt in to that framework.
Okay. Let me ask you this then. Do you plan to examine the Tier 1 leverage requirements, the G-SIB surcharge, the CCAR requirements, as part of your effort to right-size capital?
We're looking at all the capital framework and the capital pillars in a comprehensive way. We've already worked to address the community bank leverage ratio by setting it at the statutory floor that Congress provided us. I think there are a number of different categories that we're looking at. We'll have a G-SIB surcharge proposal. We already introduced the SLR. The other is the stress testing, in addition to Basel 3. We're making progress on all of these different capital pillars. I would definitely tell you that we're not reverse engineering an outcome. We're looking to do risk assessments that would allow us to set these calibrations according to risk.
Okay. Thank you. To be clear, the Basel 3 would have greatly destabilized our banking community and not helped community banks nor helped larger banks in its previous proposal's iteration.
All right. Controller Gould, the debanking report this committee issued yesterday detailed how Biden regulators pressured banks to debank crypto.
Energy, firearm companies, as well as politically disfavored groups, resurrecting Operation Choke Point that started under Obama. What recommendation do you have for private entities to ensure they have eliminated any internal systems or policies implemented to comply with the Biden era regulatory pressure?
Thank you for the question, Congressman. As I noted before, we're still in the process of reviewing complaints and conducting our review. I would say in general, though, that over-reliance on negative news searches, which is I think sometimes a feature of reputation risk, could, again in an over-reliance situation, be problematic, as well as categorical prohibitions on performing or providing financial services and products to lawful business activities.
Okay. Thank you. Chair Hill, the FDIC under the previous Chair Gruenberg issued pause letters asking banks to cease all activity with crypto companies. What changes have you initiated and have planned for the FDIC to prevent regulatory abuse in the future?
Well, thank you, Congressman. First and foremost, we undid the policies of the past few years. So we rescinded the guidance that required prior approval. And we now treat digital asset activities just like any other novel activity where banks are expected to manage the safety and soundness risk but otherwise have no prohibitions to serving those industries. I think promoting durability of our policies is something that is always a consideration. And so we are considering a number of steps to try to ensure that these types of things won't happen in the future.
Thank you. My time has expired. I yield back, Mr. Chairman.
The gentleman's time has expired. Now, it's my pleasure to recognize the gentleman from Illinois. Mr. Casten, you're recognized for five minutes.
Thank you, Mr. Chair, and thank you for the quick bit of exercise from the ranking member. Thank you all for coming. In 2023, former Vice Chair Barr said that the 2023 bank failures caused a reassessment of the viability of uninsured deposits as a funding source across the banking system. The 2024 FSOC raised further concerns about some banks' reliance on uninsured deposits and that it could make them more vulnerable to runs. Acting Chair Hill, I think you had raised this concern in your Senate confirmation hearings, and if I'm getting this right, you had specifically said that the FDIC doesn't even have the data necessary on the amount of uninsured deposits above and below the various thresholds other than the $250,000 limit. Without getting into details, I'm curious, in your time in this role, have you directed the FDIC to start trying to get that data?
I have long believed that more granular deposit data would be useful for a number of purposes.
And just because I'd love to get into what you're doing, I'm just curious if you've initiated any process there or not.
I would say there have been conversations. I've raised this at the FFIEC, that's where most reporting is done through. But I would say at this stage, I know there are institutions that are collecting data, but we have not taken...
Okay. So still important but haven't done it yet. The New York Fed recently issued a paper saying that they're noticing deposits are flightier right now, and specifically in response to interest rate changes, finding that there are run risks particularly when rates go up. The Wall Street Journal reported recently that wealth management clients are more likely to pull deposits out and chase higher yield when interest rates are rising. So Vice Chair Bowman, I guess what I'm wondering is, is the Fed doing anything to monitor what happens if those risks run out of the traditionally regulated financial system to private banks, to other alternative investment vehicles? Are you doing any enhanced review of where that deposit flight might go?
To the extent that we're aware of that, as a part of our work on financial stability, we monitor as much as we can according to the data that we have, and we're able to see the transit of funding throughout the system. I'm not sure that we have specific data about whether it's going from the financial institutions into any particular entities. We don't collect data that would tell us that. We would be able to determine if funds have left the financial system, though, through call report data.
Yeah. And I guess I don't mean leaving the financial system, but we've got this surge of private banking, all sorts of different types of things that are deposit, but not within where the FDIC or others would have oversight. And my concern is that if we got a lot of dollars that are in some other part of the system and we're not monitoring it, that that is a risk at some point. I'm particularly concerned about how this all affects stablecoins. As Mr. Foster noted, there's a Treasury Department report in April that stablecoin adoption could result in over $6 trillion in deposit outflows. There are a number of other reports that have said that. I guess, Acting Chair Hill, do you all have good data on how stablecoins may affect deposit outflows? Have you started looking at that question?
That is certainly something that we are paying a lot of attention to. I don't think anybody knows what type of impact deposit flows into stablecoins could have on the system. I know there are estimates out there. I think those are basically just guesses.
Well, let me ask a more specific question then, because I think this may answer whether or not there's likely to be deposit flows. There was language that the Senate added to the GENIUS Act that I think creates a huge problem for your agency. It says that the claims of a customer with respect to payment stablecoins shall have priority over the claims of any other person other than the claims of another customer with respect to payment stablecoins. So if there's a bank run and you have customers of stablecoins with deposits in a bank that are not insured, that language would suggest that they have a senior claim. Have you made any effort to interpret that language? How are you going to deal with the conflict if we get in a situation like we got into in 2023 when Circle's deposits were sitting there in uninsured accounts and there was a run? Should a stablecoin depositor assume that you are going to place that customer in a senior position to insured depositors?
I would have to go back and look at the statute to make sure I'm correctly understanding it, but my understanding is that language is applicable if the stablecoin issuer fails, not if a bank fails. And so from our perspective, we would still have our normal authorities, our normal priority in the case of a bank failure. That's just the provisions that would apply to a bankruptcy proceeding if a stablecoin issuer fails.
We could use some clarity, particularly as there's, as the Chair and Ranking Member had noted, there's some shadiness as far as who is making these deposits.
I thank the gentleman. Your time is expired. The gentleman from Texas, the chairman of the House Small Business Committee, Mr. Williams, you're recognized for five minutes.
Thank you, Mr. Chairman, and good to see all of you today. Thank you for being here. The previous Basel 3 Endgame proposal would have substantially raised capital requirements for an already well-capitalized banking industry. One of my main concerns with the previous proposal was the negative effects these requirements would have on small business lending. Under the previous proposal, credit would...
Credential supervision to this core mission. We saw what happens with the failure of Silicon Valley Bank when supervisors fail to keep their focus on the obvious, in plain sight, material financial risks. This hearing will also emphasize the important reversal of costly, ill-conceived Biden-era regulations and guidance which would drive up costs and drive access for services down for American home buyers and small businesses. Most notably, the original Basel 3 Endgame proposal. I'm proud of the work the committee has done to advance legislation to provide clarity for the digital assets marketplace, streamline supervision, increase access to capital and deposit funding, ensure a fair supervisory appeals process, and establish a timer merger review process, among many others. It's critical that we continue this momentum towards transparent regulatory certainty and broader market competition. Clear, consistent rules reduce compliance costs for banks and credit unions. When these institutions can navigate regulations without ambiguity, they can allocate their resources more effectively, making loans cheaper, and investing in customer service, technology, and innovation that benefits our entire economy. This committee has held numerous hearings throughout the 119th Congress to learn about how the actions of the regulators are affecting community banks and credit unions and their ability to serve our customers. We have heard time after time about the positive developments occurring at your agencies as well as further ideas about rightsizing the supervisory and regulatory environment. As in the past, this Congress must find modern ways to enact effective and clear guidelines and expectations to enable financial institutions to operate in an increasingly diverse and dynamic financial system. I look forward to your testimony today and I yield back the balance of my time. I now with pleasure recognize the ranking member of the committee, Mrs. Waters, for a 4-minute opening statement.
Thank you very much, Mr. Chairman. Thank you to our witnesses for being here today. During the Thanksgiving break, a lot of us heard the same thing from our constituents. Buying the groceries for Thanksgiving dinner was much, much more expensive this year. On top of that, Trump's weakening economy is squeezing families so much that many are concerned that they will need to pull back on holiday spending. After all, didn't Trump say that the children only need $2 and that the $2 might cost more? With economic policies like these, Donald Trump is the Grinch who stole Christmas. But Democrats aren't the only ones raising alarms. Republican Representative Marjorie Taylor Greene, who until recently was a diehard Trump supporter, acknowledged that under the Trump administration, the cost of living has become unbearably high. Corporate interests are prioritized over the needs of the working class. Small businesses are hurting, and the American dream is slipping out of reach. We were all promised lower costs on day one of Trump's term. Instead, his administration is dismantling the very institutions that keep costs low and the economy stable, including by undermining the independence of the Federal Reserve and forcing independent agencies to serve his personal interest. Americans were promised a reduction in credit card interest payments. Instead, Trump and the Republicans are unlawfully shutting down the Consumer Financial Protection Bureau, the only federal agency focused on making sure that big banks and other financial institutions treat Americans fairly. As if that weren't enough, Russell Vought, who has told private audiences of his plan to illegally end the CFPB, announced last month that CFPB examiners will be forced to recite a so-called humility pledge, essentially forcing them to bow down to big banks before daring to carry out their jobs to examine them. While I'm happy that our committee is following the law to finally have what should be a semiannual hearing with the Fed Vice Chair of Supervision, I remind Chairman Hill that it has been 18 months since the CFPB director last testified before this committee, a delay which is wholly unacceptable. I'm concerned that our banking regulators have been anything but independent, prioritizing Trump's deregulatory policies that will leave our banking system vulnerable to another Silicon Valley Bank type failure, if not worse. But it's not just handouts to mega banks. The Trump family has spent more time putting money into their own pockets than working for the American people. In fact, Trump and his family have received nearly $2 billion in cash gifts and crypto profits while our regulators work on crypto rules that could legitimize this corruption. We all know the adage that silence is complicity. And I'm deeply disappointed by the ways in which my colleagues on the other side of the aisle have remained silent and enabled this president's policies. I hope each of our banking regulators here today will assert your independence and help us navigate out of this mess before it's too late. I yield back.
The gentlewoman yields back. I recognize the chair of our subcommittee on financial institutions, Mr. Barr of Kentucky, for a one-minute opening statement.
Thank you to our witnesses today. It's encouraging to see new leadership at credential regulatory agencies committed to re-evaluating needless burdens on our financial institutions. For years, Congress and our financial regulators have set regulatory thresholds intended to align oversight with actual risks to financial stability. But because these thresholds are often static, they inevitably sweep in more institutions as the economy grows, capturing firms that were never intended to be treated like the largest, most complex banks. That's why I've introduced legislation, the TIER Act of 2025, to index these thresholds to nominal GDP, preserving rigorous requirements where they belong while preventing regulatory bracket creep that diverts resources away from community banks, small businesses, and farmers. Additionally, as you finalize the Basel 3 Endgame, it is critical to ensure U.S. capital standards are risk-based, evidence-driven, and supportive of credit availability. Gold-plating international standards and massively hiking capital requirements would restrict lending, reduce market liquidity, and weaken, not strengthen, our financial system. I urge credential regulators to work with Congress toward a framework that is transparent, analytically sound, and aligned with the realities of a growing economy. I yield back.
The gentleman yields back. I recognize the ranking member of our subcommittee on financial institutions, Dr. Foster of Illinois, for a one-minute opening statement.
Thank you, Chair Hill and Ranking Member Waters. The panel before us today has the important responsibility of supervising our banking system, not only for known risks, but also emerging risks that threaten the stability of the American financial system. As the ranking member of the financial institution subcommittee, but also as a member who joined Congress in March of 2008 on the eve of the financial crisis, I understand the damage that not only old risks like excessive risk-taking and high leverage can cause, but also modern, innovative, yet untested financial products can have if they're allowed to operate unchecked. Your agencies will have to adapt to a rapidly changing financial system and ensure that stability and innovation go hand in hand. Innovative financial products and digital assets, private credit, third-party technology firms, and developments like agentic AI will quickly change how financial institutions and their customers behave and how they manage risk. We've already seen that in the 2023 banking crisis, the collapse of fintech Synapse, and recently the failure of critical infrastructure in my district that disrupted the commodities market. So I look forward to this important discussion of modern credential regulation and look forward to hearing how your agencies plan to adapt to these changes in the financial system. Thank you. I yield back.
The gentleman yields back. Today we welcome the testimony of the Honorable Michelle Bowman, Vice Chairman of Supervision for the Board of Governors of the Federal Reserve System; the Honorable Jonathan Gould, Comptroller of the Currency; the Honorable Kyle Hauptman, Chairman of the National Credit Union Administration; and the Honorable Travis Hill, Acting Chairman of the Federal Deposit Insurance Corporation. We thank each of you for joining us today. Each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Vice Chair Bowman, you're now recognized for five minutes.
Chairman Hill, Ranking Member Waters, and other members of the committee. Thank you for the opportunity to testify on the Federal Reserve's supervisory and regulatory activities. I'll focus on the current state of the banking sector and progress on my priorities as the Vice Chair for Supervision. The banking system remains sound and resilient. Banks continue to report strong capital ratios and significant liquidity buffers, which position them well to support economic growth. We are seeing continued growth in bank lending, a decline in non-performing loans across most categories, and strong profitability. Notably though, non-bank financial institutions continue to increase their share of the total lending market, providing strong competition to regulated banks without facing the same credential standards. To compete effectively with non-banks on both payments and lending, the Fed is encouraging banks to innovate to improve their products and services. We're working together with the other regulators to develop regulations for stablecoin issuers as required by the GENIUS Act. We also need to provide clarity on digital assets to ensure that the banking system is well placed to support these activities. The Fed is working to tailor our regulatory and supervisory framework to accurately reflect the risk that different banks pose to the financial system, particularly community banks. We cannot continue to push policies designed for the largest banks down to the smaller, less risky, and less complex banks. I support congressional efforts to reduce burden on community banks, including increasing static and outdated statutory thresholds that have not been updated for years. I also support improvements to the AML framework that will assist law enforcement while minimizing unnecessary regulatory burden. The Fed is taking action to support community banks together with the FDIC and the OCC. We recently proposed changes to the community bank leverage ratio to provide greater flexibility while preserving strong capital and safety and soundness. We also released new capital options for mutual banks. We are exploring streamlining the merger and acquisition and de novo chartering application processes for smaller banks and updating the board's merger analysis to accurately reflect and analyze competition among small banks. We're also in the process of modernizing and simplifying the Fed's regulation of large banks. The board recently released a proposal to enhance public accountability and to ensure robust outcomes of our stress tests. The proposal includes disclosing stress test models, the design framework, and the 2026 scenarios. It ensures that future significant changes will benefit from public input. The agency recently finalized changes to the enhanced SLR proposal for U.S. G-SIBs, which helps ensure that leverage capital requirements serve as a backstop to risk-based capital requirements as it was originally intended. The board is working on a proposal with the OCC and the FDIC to implement the 2017 Basel agreement. This will reduce uncertainty and provide clarity on capital requirements. We're considering each of the elements rather than reverse engineering changes to achieve predetermined outcomes. As a part of this proposal, we're considering approaches to differentiate mortgage risks that will benefit the banking system as a whole. The Fed is also working to refine the G-SIB surcharge framework. The surcharge must be calibrated to avoid impairing the banking sector's ability to support the broader economy. Effective supervision must focus on factors that affect a bank's financial condition, including material risks to bank operations and the stability of the broader financial system, not immaterial issues that distract from core safety and soundness. This requires a risk-focused, tailored approach to supervision and regulation. The Fed is considering a regulation to clarify standards for enforcement actions based on unsafe and unsound practices, matters requiring attention, and other supervisory findings. Focusing our resources on material issues that historically have correlated to bank failures will create a more effective oversight system. The CAMELS framework is also under review, as is the bank examiner training program. Establishing clear metrics for CAMELS components ensures transparency and objectivity in our examinations, and enhancing examiner training will improve our supervision. In addition, the board recently finalized revisions to the large bank rating system that addresses the mismatch between ratings and overall firm conditions. Further, the board removed reputational risk from our supervision, and we are considering a regulation to prevent supervisory influence from leading banks to debank a customer due to their constitutionally protected political or religious beliefs or a business engaged in legal activities. Banks must remain free to make their own risk-based decisions to serve individuals and lawful businesses without interference. Thank you again for the opportunity to appear before you today. The Fed is in the FOMC blackout period, so I will not be able to discuss monetary policy during today's hearing. With that in mind, I look forward to your questions. Thank you.
Thank you, Vice Chairman. Comptroller Gould, you're now recognized for five minutes for your oral remarks.
Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to appear before you. It is an honor to discuss the Office of the Comptroller of the Currency's work implementing the president's economic agenda by ensuring that America's federal banking system is safe and sound and remains the world's most trusted, dynamic, and resilient. Over 160 years ago, President Lincoln had a vision for a federal banking system to serve this country and its economic ideals, and he empowered the OCC to oversee that system. Today, the OCC supervises more than 1,000 institutions that hold $6.7 trillion in assets, or roughly two-thirds of all U.S. commercial banking assets. And the GENIUS Act now extends our remit to certain payment stablecoin issuers. In the years since the 2008 financial crisis, Washington too often sought to eliminate rather than manage risks, resulting in a less relevant and diverse banking system. Unelected bureaucrats discouraged prudent risk-taking, stifled innovation, and drove credit out of reach for small businesses and communities. Far from ending too big to fail, the Dodd-Frank Act created the moat that supercharged the growth of the very largest banks and introduced too small to succeed. I intend to restore balance, reset our risk tolerance, focus supervision on material financial risks, and free banks to lend, invest, innovate, and grow responsibly. Community banks in particular will benefit from a better tailored, proportional framework that meets their specific needs. We are ending the weaponization of finance. No American should be denied access to banking products and services because of political or religious beliefs or lawful business activity. We are currently implementing the president's executive order on guaranteeing fair banking for all Americans by reviewing the activities of the largest national banks and investigating complaints of alleged debanking. We have already proposed a rule to eliminate reputation risk from supervision, and we are intent on ensuring banks provide access to products and services based on objective risk-based criteria, not politics or ideology. The OCC's support functions have degraded over the last four years, posing a risk to our ability to execute our statutory mission. Outward signs of this decline include the hiring of a fraudulent chief financial technology officer in 2022 and an email data breach that took nearly two years to identify and halt. Upon arriving at the agency in mid-July, it became clear that these two issues were symptomatic of others, and fixing agency operations became a top priority for me. To that end, we are working to ensure accountability for these failures and to recruit qualified and competent individuals. Supervision must be clear, credible, and consequential. We are cutting away procedural clutter and returning to risk-based supervision rooted in law with an emphasis on examiner judgment, not arbitrary checklists. Examiners will focus on issues that materially affect a bank's safety and soundness. We are also codifying reforms to the matters requiring attention process, clarifying enforcement standards, and ensuring supervisory tools are used proportionately and predictably. The OCC is working with our interagency partners to repropose the Basel 3 capital rulemaking and improve capital standards. We are evaluating opportunities to improve the Community Reinvestment Act framework, including developing a simplified strategic plan to ease compliance for community banks. We're also advancing BSA/AML modernization and targeted burden relief for community institutions. These actions will make our regulatory architecture simpler, stronger, and more accountable. Innovation has driven American finance from the telegraph to the blockchain. The GENIUS Act represents Congress's effort to integrate payment stablecoins safely into our regulated banking and financial system. The OCC is drafting rules that balance innovation with prudence. Beyond payment stablecoins, we continue to clarify new ways for banks to conduct the very old business of banking and adopt new technologies like AI to ensure these opportunities are available to all OCC-supervised banks rather than a privileged few. We are modernizing OCC operations through technology, data, and AI, delivering more efficient supervision and lower assessment fees to create cost savings that flow back to banks, their customers, communities, and businesses. The federal banking system must remain dynamic, competitive, and fair. By providing a path for banks to embrace new technologies in a safe and sound manner, ending politicized debanking, and modernizing supervision, we are ensuring the long-term relevance of the federal banking system. We are restoring the OCC's historic balancing of prudence and progress. This is what Lincoln envisioned: a federal banking system that serves every American, supports a thriving economy, and stands ready to meet modern challenges. Thank you.
Thank you, sir. Chairman Hoffman, you're recognized for five minutes for your oral remarks.
Thank you, Chairman Hill. Ranking Member Waters, members of the committee, thank you for the invitation to discuss the operations, programs, and initiatives of the National Credit Union Administration. I'm grateful to President Trump for selecting me as the 13th Chair of NCUA. NCUA's mission is to enable access to financial services by facilitating safe, sound, and resilient credit unions. The 4,300 credit unions in America serve over 143 million Americans with over $2 trillion in deposits. Federal credit unions serve in all 50 states, and 45 states have state-chartered credit unions, not to mention Guam, Puerto Rico, and the U.S. Virgin Islands. The credit union movement was a grassroots effort to expand financial services and provide low-cost credit to groups and communities that were otherwise excluded from the financial system. The origins of the movement drive the foundational difference between cooperative credit unions and banks. Credit unions are owned by their member-owners. And like all cooperatives in America, most of which are not credit unions, they do not have shareholders. Credit unions can only serve their members, other credit unions, and credit union organizations. By law, the types of financial services they are offered face certain limits. The law caps the interest rate credit unions can charge at 18%. That's quite a bit lower than banks are allowed to charge. It limits the number of business loans and restricts their investment authority. Just as credit unions are unique among financial service providers as cooperatives, NCUA is a little bit distinct from our fellow regulators in that we are both the regulator and insurer for most credit unions. When acting as a regulator, the NCUA is charged with regulating, chartering, and supervising federally chartered credit unions. When acting as an insurer, we're charged with managing and protecting the share insurance fund. Both state and federally chartered credit unions are eligible for insurance from NCUA. In other words, for credit unions, NCUA is the OCC, FDIC, and the Fed all rolled into one, because in addition to being a regular insurer, we're also a source of emergency liquidity through the Central Liquidity Facility. The CLF provides member credit unions with a source of loans to meet their liquidity needs. NCUA must meet its statutory obligations with awareness that overregulation can stifle innovation and growth in a way that could threaten the viability of the credit union system. Our regulatory activities must be fair and transparent. For example, we must avoid the perception and the reality of regulation through enforcement. I am proud that it is NCUA policy against regulation by enforcement, defined in very simple terms. In America, the sequence of events is: write rule, then enforce. It's worth noting that as an insurer, NCUA's incentives are aligned with the success of the credit unions we regulate. While the agency is not regulated by enforcement as a matter of practice or policy, we're proud to have an official public policy. It is on our website. It flows through the examiner manual, and it merely extends the same protections that our civil servants have under civil service law to the institutions that we regulate. To rightsize our approach to safety and soundness, the NCUA is doing several things to capitalize on the opportunities created by the Trump administration to foster innovation. As a first priority, NCUA is reviewing its regulations to remove any that are obsolete, overly prescriptive, or unduly burdensome. We have a new strategic plan that guides our priorities through 2030. And a couple months ago, we invited credit unions to share their ideas on how to strengthen the system, to highlight future issues, and tell us what they would change about our strategic plan. We're using that feedback to ground our planning for Main Street priorities. Our plan will focus on safety and soundness, protecting the fund, and creating space for credit unions to innovate responsibly, especially in leveraging artificial intelligence and digital assets. My written testimony discusses the current state of the credit union system and provides an overview of the state of the agency. It also details the work we're doing to empower credit unions and foster innovation. Thank you, Mr. Chairman. I look forward to the committee's questions.
The gentleman yields back. Acting Chair Hill, you're recognized for your five minutes of oral remarks.
Chairman Hill, Ranking Member Waters, and members of the committee, thank you for the opportunity to testify today. I appreciate the opportunity to report on the FDIC's recent work to improve our regulatory and supervisory approach across a number of areas while continuing to fulfill our core mission of ensuring deposits, promoting the safety and soundness of banks, and resolving failed institutions. Over the past 10 months, the FDIC has made significant progress in several areas, including reforming supervision so it is less process-driven and more focused on core financial risks, engaging in a thoughtful review of our regulations, guidance, and manuals, re-evaluating numerous aspects of our resolution and receivership management functions, and promoting the prudent adoption of innovative technologies in the financial services sector. My written statement provides greater detail in each of these areas, but I would like to briefly touch on each of them. Regarding supervision, the FDIC is actively implementing changes to our supervisory process to reorient our focus more towards material financial risks and to improve other aspects of our supervisory framework. Among other things, we have issued a proposed rule along with the OCC that would define certain key terms related to supervisory criticisms, are working with federal and state regulators on reforms to the CAMELS rating system, issued a proposal to establish an independent office of supervisory appeals to adjudicate appeals of material supervisory determinations, and modified our continuous examination program, including by raising the threshold from $10 billion to $30 billion in assets, among other changes detailed in my written statement. The FDIC has also been engaging in a thoughtful review of our regulations, guidance, and manuals, and we have already taken several significant steps with respect to capital rules. We finalized a rule to modify the enhanced supplementary leverage ratio to help ensure that it serves as a backstop to risk-based capital requirements rather than as a frequently binding constraint. We proposed targeted amendments to the community bank leverage ratio to expand eligibility and encourage more community banks to opt in, and are working with the Federal Reserve and OCC to modernize risk-based capital requirements, which includes implementation of the 2017 Basel agreement. We have also finalized a rule to raise and index 37 regulatory asset thresholds, and we continue to evaluate other thresholds within our regulations to be included in one or more future proposals. We rescinded our 2024 statement of policy on bank mergers and continue to work on additional improvements to the merger review process and analytical framework. And we issued a proposed rule to significantly enhance the speed and clarity of the approval process for new branch openings, which we expect to finalize later this month. With respect to bank resolution, the FDIC has, among other things, modified our approach to resolution planning for insured depository institutions based on lessons learned from the 2023 bank failures, conducted dozens of outreach meetings with banks in their capacity as potential failed bank acquirers as we seek to improve the bidding process and remove potential obstacles to lower-cost bids, and implemented a number of internal operational improvements throughout the course of the year. The FDIC has also taken a more open-minded approach with respect to banks that offer products and services related to digital assets while maintaining our expectation that such activities are conducted in a safe and sound manner. Specifically, we rescinded the Biden-era prior notification requirement for digital asset activities, which served as a significant barrier to banks' participation in these activities. We withdrew from several interagency joint statements, including one that suggested that use of public distributed ledger systems was likely inconsistent with safe and sound banking practices. We publicly released hundreds of pages of supervisory correspondence to provide transparency regarding the prior administration's misguided approach to digital assets, and have begun work to implement the GENIUS Act. In addition, we are also considering the recommendations included in the report issued in July by the president's working group on digital asset markets, and we are currently developing guidance to provide clarity with respect to the regulatory status of tokenized deposits. Thank you for the opportunity to testify today, and I look forward to your questions.
I thank each of the panelists today. We'll now turn to member questions, and I recognize myself for five minutes for questioning. When President Trump in his first term signed S 2155 into law, there was broad bipartisan recognition from Congress that the federal banking supervisors needed to tailor their rules based on an institution's size, complexity, and risk profile. I want to applaud each of you and your work at your agencies for your continuing effort to return to this standard, which was regrettably rejected by many of the supervisory leaders in the Biden administration. Vice Chairman Bowman, the committee recently sent a letter to the regulators to support what you're doing using your existing statutory authorities to further tailor the application of enhanced credential standards for Category 2, 3, and 4 banks, as well as to index regulatory thresholds for those categories. Is this something that you and your colleagues expect to undertake, and what are you thinking about in terms of sequencing and timing?
Thank you, Chairman Hill. That's a very important issue, and I think over the years I have strongly supported the concept of tailoring regulation to the size, complexity, and risk of institutions. I do plan to review our tailoring framework and our approach to ensure that it has the intended effect that Congress intended in S 2155, and we are evaluating indexing the thresholds as we're considering broadly our work on the regulatory framework.
Well, in the past, Reg GG, which outlines the capital planning thresholds, I think the last time President Trump was in office, the agencies agreed to review that indexing periodically. Do you think Congress should set that it be done automatically with inflation or some other measure? We seem to spend a lot of time here debating that, and shouldn't it just be regularly reviewed by statutory agreement and indexed maybe in accordance with inflation? Would that be better?
I think that indexing is a critical part of the regulatory framework. We've seen incredible growth in the money supply as well as the assets of the banks over the last few years. In fact, during COVID, there was an exponential growth in the size of financial depository institutions. So it would be helpful to have a regular cadence for reviewing those thresholds, and I think it's appropriate that we do so now.
