HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on Oversight of Prudential Regulators
For questions on the note below, please contact the Delta Strategy Group team.
On December 2, the House Financial Services Committee held a hearing entitled “Oversight of Prudential Regulators.” Witnesses in the hearing were:
- Michelle Bowman, Vice Chair for Supervision, Board of Governors of the Federal Reserve System
- Jonathan Gould, Comptroller, Office of the Comptroller of the Currency (OCC)
- Kyle Hauptman, Chairman, National Credit Union Association
- Travis Hill, Acting Chairman, Federal Deposit Insurance Corporation (FDIC)
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
- Committee Chairman Hill (R-AR) outlined the need to reverse and rework regulations and guidance from the previous administration’s burdensome Basel III Endgame proposal and its excessive capital requirements within efforts to create more regulatory transparency and certainty. Financial Institutions Subcommittee Chairman Barr (R-KY) highlighted how, as Basel III is finalized, it is critical to ensure that U.S. capital standards are risk-based and evidence-driven for the promotion of competition and support of credit availability.
- Bowman, Gould, and Hill discussed how the Federal Reserve (Fed) is working on a proposal with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit insurance Corporation (FDIC) on a Basel proposal more consistent with the 2017 version of Basel III to reduce uncertainty within rulemaking and provide clarity on capital requirements with a risk-focused perspective from the bottom up. Bowman stated that, in its previous iteration, Basel III would have destabilized the banking sector. She also noted that the risk weights initially assigned were an over-calibration of the risk, stating that without a recalibration, the framework will not be adopted.
- Representative Lucas (R-OK) questioned how, in finalizing the Basel III re-proposal, the agencies will consider capital requirement implications on Treasury market liquidity and functioning. Bowman responded that the Fed is in the process of reviewing the capital framework by looking at all four capital pillars, including the recently finalized supplementary leverage ratio (SLR) and enhanced supplementary leverage ratio (ESLR), as well as the Global Systemically Important Bank (G-SIB) surcharge proposal. She emphasized that it is critically important that proposed frameworks include stress testing, as well as avoid impairing the ability to support the Treasury market and its functioning.
- Representative Lucas (R-OK) stated how the government shutdown, quantitative tightening (QT), and a reluctance to use the Fed’s Standing Repo Facility (SRF) have raised concerns about reduced liquidity in the Treasury market. Hill raised how 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, with Representative Lucas citing how it serves as a back stop to risk-based requirements rather than a binding constraint on intermediaries.
- Hill referenced how the FDIC rescinded the Biden-era notification requirement for digital asset activities and how it had served as a barrier for banks’ participation in these activities, alongside the withdrawal of interagency joint statements on distributed ledger systems as inconsistent with safe and sound banking practices, the public release of supervisory correspondence to provide transparency, and initial work on implementing the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. He also raised how the FDIC is considering the recommendations included in the President’s working group on digital asset markets report released in July, and is currently developing guidance to provide additional clarity regarding the regulatory status of tokenized deposits.
- Bowman discussed how Congress has directed the Fed to provide a pathway and a framework for banks if they choose to engage with digital assets, highlighting that banks should be able to engage in stablecoins and digital assets as Congress provides authority to do so. When asked by Representative Davidson (R-OH) if the Fed is engaged in developing a central bank digital currency (CBDC), Bowman responded that Congress would have to provide the authority for the Fed to do so.
- Representative Liccardo (D-CA) questioned whether Bowman supports the GENIUS Act’s requirement that stablecoin issuers hold reserves in relatively safe assets to minimize valuation fluctuations, with Bowman citing Congress’ delineated range of options for stablecoin issuers to use as potential reserves, with an emphasis on them being stable, auditable, and immediately accessible. Representative Liccardo also asked whether it would be sensible to allow stablecoins to be backed by commodities, with Bowman stating that it is for Congress to decide and Hill citing how the GENIUS Act is prescriptive in what qualifies as eligible reserves.
SUMMARY
Opening Statements and Testimony
Chairman French Hill (R-AR)
We can reduce the duplicative or untailored burdens on financial institutions of all sizes to ensure that they can continue to thrive in an increasingly competitive market, with a focus on enhancing clear, tailored rules of the road, fostering competition, and ultimately serving the best interests of consumers and businesses. It is crucial that prudential regulators remain focused on their core mission to safeguard the fundamental stability, safety, and soundness of our financial institutions rather than on trendy distractions. It is important to reverse costly, ill-conceived Biden era regulations and guidance, most notably, the original Basel III Endgame proposal. We must continue the momentum toward transparent regulatory certainty and broader market competition, working 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 timely merger review process. 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.
Ranking Member Maxine Waters (D-CA)
The Trump administration is dismantling the very institutions that keep costs low and the economy stable, including by undermining the independence of the Federal Reserve, forcing independent agencies to serve his personal interests, and unlawfully shutting down the Consumer Financial Protection Bureau. 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. I hope each of our banking regulators who are here today assert your independence and help us navigate out of this mess before it is too late.
Financial Institutions Subcommittee Chairman Andy Barr (R-KY)
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. I have introduced legislation, the TIER Act, to index these thresholds to nominal GDP, preserving rigorous requirements where they belong while preventing regulatory bracket creep that diverts resources away from communities, small businesses, and farmers. As Basel III Endgame is finalized, 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.
Financial Institutions Subcommittee Ranking Member Bill Foster (D-IL)
There are old risks like excessive risk taking and hidden leverage can cause, but also modern, innovative, yet untested financial products can have if they are 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 Agenda AI will quickly change how financial institutions and their customers behave and how they manage risk. We have already seen that in the 2023 banking crisis, the collapse of FinTech, the FinTech syntax, and recently, the failure of critical infrastructure that disrupted the commodities market.
Michelle Bowman, Federal Reserve Board Vice Chair for Supervision
Non-bank financial institutions continue to increase their share of the total lending market, providing strong competition to regulated banks without facing the same prudential 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 are working 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. I also support improvements to the AML framework that will assist law enforcement while minimizing unnecessary regulatory burden. The Board recently released a proposal to enhance public accountability and to ensure robust outcomes of our stress tests. Recently finalized changes to the enhanced SLR proposal for U.S. G-SIBs 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, which will reduce uncertainty and provide clarity on capital requirements. The Fed is also working to refine the G-SIB surcharge framework, which 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. Further, the Board removed reputational risk, 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 be free to make their own risk-based decisions to serve lawful businesses without interference.
Jonathan Gould, Comptroller of the Office of the Comptroller of the Currency (OCC)
Today, the OCC supervises roughly two-thirds of all U.S. commercial banking assets, and the GENIUS Act now extends our remit to certain payment stablecoin issuers. Since the 2008 financial crisis, Washington too often sought to eliminate rather than manage risks, resulting in a less relevant and diverse banking system that discouraged prudent risk-taking, stifled innovation, and drove credit out of reach. Far from ending “too big to fail,” Dodd-Frank 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. We have already proposed a rule to eliminate reputational 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 is working with our interagency partners to repropose the Basel III capital rulemaking and improve capital standards. 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.
Kyle Hauptman, Chairman of the National Credit Union Association
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. We must avoid the perception and the reality of regulation through enforcement, with our policy against no regulation by enforcement defined in very simple terms. To right-size 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. 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.
Travis Hill, Acting Chairman of the Federal Deposit insurance Corporation (FDIC)
The FDIC is actively implementing changes to our supervisory process to reorient our focus more toward material financial risks and to improve other aspects of our supervisory framework. The FDIC has also been engaged in a thoughtful review of our regulations, guidance, and manuals. 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, 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 Fed and OCC to modernize risk based capital requirements, which includes implementation of the 2017 Basel Agreement. 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, 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, 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. 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 additional clarity with respect to the regulatory status of tokenized deposits.
DISCUSSION
Chairman Hill (R-AR): With the Committee supporting the use of existing statutory authority to tailor enhanced prudential standards and index thresholds for Category II–IV banks, do you expect to undertake this effort, and how are you approaching its timing and sequencing? Bowman: 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 effect that Congress intended in S.2155, and we are evaluating indexing the thresholds in considering broadly our work on the regulatory framework.
Chairman Hill (R-AR): Do you think Congress should require the capital planning thresholds under Reg YY to be regularly reviewed by statutory agreement or automatically indexed, such as to inflation, rather than relying on periodic agency review? Bowman: Indexing is a critical part of the regulatory framework. It would be helpful to have a regular cadence for reviewing those thresholds, and it is appropriate that we do so now.
Chairman Hill (R-AR): Do you believe the Fair Exams Act is necessary to give a statutory basis to an independent exam appeals process, as originally promised under the 1994 Riegle Act, given its inconsistent application over the years? Hill: Additional clarity from a statutory perspective would be very helpful. I would strongly encourage Congress to continue to look at that.
Chairman Hill (R-AR): What is the statutory minimum reserve ratio for the Deposit Insurance Fund (DIF)? If deposit insurance coverage were raised significantly, would the FDIC need to raise assessments to maintain its statutory minimum reserve ratio, given the large increase in the denominator? If they do not collect the revenue to meet the reserve ratio minimum, do you think that could put the DIF at some risk? Hill: The reserve ratio is defined as the net worth of the deposit insurance fund divided by insured deposits and the minimum ratio set by statute is 1.35 percent. If no other changes are made and the denominator goes up, then that is correct. In order to achieve the same reserve ratio, the revenue coming into the DIF would have to increase. On the revenue collection, that is a complicated question
Representative Lucas (R-OK): Since you have adjusted the ESLR, would you consider adjusting other leverage ratios as well? Bowman: We are widely reviewing all of our authorities and are vested in the success of the Treasury market, including the intermediation by our largest banks, which is why we have finalized the ESLR proposal; Gould: I share your concerns of the impact of overly complex capital regulation that we have seen following 2010, in particular how it has in many cases caused banks to pull back from their historic role of market intermediation. There is the cost of complexity associated with overwrought capital regulation and the ability of that overwrought capital regulation to impede crisis management when there is an issue; Hill: 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.
Representative Lucas (R-OK): 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 Federal Reserve’s report that the banking system is well capitalized? Do you expect to increase capital levels? Bowman: We are in the process of reviewing the capital framework by looking at all four of the pillars of capital, including the SLR, which we have just finalized and addressed. It is critically important that whatever the frameworks are that we create, and the other pillars that we are working on and reviewing, include stress testing, which we have introduced proposals on this year. The G-SIB surcharge will be a part of that, as well as the Basel III proposal that we are currently working on.
Representative Lucas (R-OK): Would you expect the reserve ratio to decline if Congress were to increase deposit insurance for non-interest-bearing transaction accounts over a ten-year framework? Hill: The way the phase-in period works in the Hagerty–Alsobrooks bill in the Senate, there is a lot of uncertainty around any predictions that we would make. Based on the projections that our staff put together, the expectation would be that the reserve ratio would grow more slowly over that ten-year period rather than decline.
Representative Sherman (D-CA): Can you confirm that you are not directing those you oversee to withhold or discourage transaction accounts for lawful businesses, as was alleged under Operation Chokepoint? Can you assure us there is no Operation Chokepoint going on here? Bowman: It is very important that all Americans have access to financial services, especially if they are engaged in legal activities, and if they are engaged in disfavored activities, that should not disqualify them from banking services. We are very cautious and reviewing our actions over the past few years to ensure that we were not engaged in those activities.
Representative Wagner (MO): Regarding the Basel III P-factor changes that disproportionately impacted U.S. banks versus foreign counterparts, what is the Fed doing to ensure that these types of excessive and unaligned requirements do not appear in the final proposal? Bowman: We are currently working with 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 Basel 2017 agreement, so that we are not going beyond the scope of that agreement unless it is to the benefit of U.S. institutions.
Representative Barr (R-KY): With the Fed, OCC, and FDIC planning to reintroduce a Basel III rulemaking in 2026, will you commit to undertaking a holistic review of the capital stack to account for double-counting and other duplicative capital regulations? All: Yes.
Representative Barr (R-KY): Are the agencies planning to issue a proposal that predetermines a capital-neutral outcome even if some risks continue to be overcapitalized? Bowman: We do not have a preconceived notion about where we will land with our capital requirements based on this holistic and comprehensive review we are undertaking. We are looking at it from a risk-based approach by each factor and category of risk.
Representative Scott (D-GA): How is the Fed approaching tailoring reforms across different business models? Do you see a risk that the 2019 thresholds, if not updated or indexed, could pull additional institutions into regulatory categories that do not accurately reflect their risk profiles? Bowman: It is important that we reflect the actual risk of an institution, including its size and the complexity of its business model, when we are thinking about how we should apply regulatory and supervisory requirements.
Representative Scott (D-GA): What is your view on the certain risks of indexing various asset-based thresholds to nominal GDP? Bowman: We are currently in the process of trying to determine whether or not the categories that we have established continue to be fit for purpose and that they are appropriate for the banks that are currently supervised within those categories.
Representative Scott (D-GA): When you refer to “modernization,” are you proposing greater risk sensitivity, or are you weakening oversight for certain banks? Given a period of high inflation with stagnant real growth, would indexing thresholds risk accelerating increases in regulatory thresholds? Bowman: As we have created regulations in response to our responsibilities under Dodd-Frank, it is important that we are looking at whether or not some of them or all of them are successful and whether they are fit for purpose. What we understand and the experience that we have in implementation is that there is a lot of overlap, duplication, and conflicting regulatory requirements. These are what we are trying to address in our modernization and exactly the kinds of scenarios that we are considering as we are thinking more broadly and comprehensively about whether or not our current capital framework and our delineation of those categories continue to be appropriate.
Representative Loudermilk (R-GA): Does the proposal in the Financial Reporting Threshold Modernization Act to raise the currency transaction report (CTR) threshold from $10,000 to $30,000 and index it to inflation align with your goal of alleviating reporting burdens on financial institutions of all sizes? Do you believe it is feasible to immediately index the CTR threshold to inflation instead of gradually increasing it over time? Hill: Those thresholds have not been changed for many years, and the amount of reports that are filed by financial institutions is extremely large. Those regulations are under the purview of Treasury, so I would defer to them on the specifics, but indexing thresholds make a lot of sense to review.
Representative De La Cruz (R-TX): Is there an update on the reforms the Fed is considering to modernize the discount window’s operations and technology, following your 2023 comments on the need to address vulnerabilities exposed during that year’s stress tests? Bowman: The discount window is something we learned a great deal about with respect to its functionality during the Silicon Valley Bank experience and failure. One thing that we have recognized, and we are engaging with our FHLB colleagues on, is the importance of being able to move collateral quickly from the FHLB system into the discount window system. We are doing a significant amount of work to modernize our capabilities and operations in that space among many other issues and areas, but that is the most critical.
Representative Rose (R-TN): Due to the 2023 bank failures and the limited tools available to stop deposit runs once they begin, what additional authorities or operational tools does the FDIC believe are needed to allow a single bank to fail while maintaining confidence in the broader financial system? Hill: I 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. 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. What 2023 demonstrated was that fast-track procedures are still far too slow for the speed at which bank runs can spread.
Representative Huizenga (R-MI): As the FDIC 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 DIF? Hill: Absolutely, that is the goal. We are taking a number of steps to try to improve the bidding process to facilitate more, better, and lower-cost bids, and to bring more capital into the bidding process. The ultimate objective of all of it is to reduce the cost of the DIF and increase the likelihood of stabilizing transaction options in the event of large failures.
Representative Davidson (R-OH): How is the Fed turning the page on Operation Chokepoint and approaching bank participation in all markets, particularly digital assets? Bowman: We are all engaged in implementing the President’s executive order on debanking and taking actions as a result of the directives within that executive order. We have eliminated reputational risk within our examination context and within our supervisory function, whether that is in guidance or in regulation. We have rescinded anything that included the word reputational risk and removed it from the Fed’s vernacular and within our supervisory context. We are also conducting an audit of supervisory and banking activity so that we understand whether we have met those expectations and so that we can do so going forward. We are 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.
Representative Davidson (R-OH): Is the Fed still engaged in developing a central bank digital currency (CBDC), despite the executive order prohibiting its development? Does the Fed consider itself subject to the executive order banning CBDC? Bowman: There are parts of the Fed that continue to be engaged in activities related to global work on CBDC within the construct of the Bank for International Settlements and our participation in some of their work on innovation. Congress would have to provide the authority for the central bank, specifically the Fed, to engage in the creation of a CBDC.
Representative Meuser (R-PA): Do you plan to examine the Tier 1 leverage requirements and the G-SIB surcharge as part of your effort on right-sizing capital? Bowman: We are looking at the entire capital framework and the capital pillars in a comprehensive way. We will have a G-SIB surcharge proposal and have already introduced the SLR, as well as the stress testing, in addition to Basel III. We are making progress on all of these different capital pillars, and we are not reverse-engineering an outcome. We are looking to do risk assessments that would allow us to set these calibrations according to risk. I agree that Basel III would have greatly destabilized our banking community in its previous iteration.
Representative Meuser (R-PA): What changes have you implemented or planned at the FDIC to prevent future regulatory overreach? Hill: 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 on serving those industries.
Representative Casten (D-IL): Has the FDIC begun analyzing the potential impact of stablecoin adoption on deposit outflows, with Treasury’s April report estimating over $6 trillion in possible outflows? Hill: That is certainly something that we are paying a great deal of attention to. I do not think anybody knows what type of impact deposit flows into stablecoins could have on the system. I know there are estimates, but those are basically guesses.
Representative Casten (D-IL): How is the FDIC interpreting the Senate-added language in the GENIUS Act giving stablecoin holders a priority claim over other creditors? How would you resolve potential conflicts if that language places stablecoin customers ahead of insured depositors during a bank run? Hill: That language is applicable if the stablecoin issuer fails, not if a bank fails. From our perspective, we would still have our normal authorities and priority in the case of a bank failure.
Representative Torres (D-NY): To what extent do you view the entanglement of private credit, banking, insurance, and multitrillion-dollar AI CapEx as a potential source of systemic risk? Bowman: It is something that we have been watching very closely to see how the AI industry and its investment has been evolving. We have seen an increase in asset levels and their valuations over time, and it is something that we continue to watch.
Representative Torres (D-NY): What is the objective, empirical basis for determining the “Goldilocks” level of capital requirements? Is there a specific number or standard against which we should evaluate competing claims that the system is either under- or sufficiently capitalized? Bowman: We can look back at the capitalization of the banking system prior to the financial crisis and determine that that clearly was not the right level of capital in the system, with the work that was done as a result of Dodd–Frank as clearly improving the levels of capital and liquidity. I do not know that we know a specific number.
Representative Kim (D-CA): Will you commit to a level playing field as you contemplate the changes to the regulatory process and supervision of foreign banks in the U.S.? Bowman: It is absolutely appropriate for us to ensure that there is a level playing field for foreign banks and their participation in the U.S. economy and in economic activity. This is certainly something that we will continue to keep in mind as we are reviewing our capital framework and the regulatory framework more broadly.
Representative Steil (R-WI): Given the Basel Committee’s high-risk weighting for digital assets, recent remarks by its Chair calling for a different approach, and the Bank of England’s decision not to adopt that treatment, alongside passage of the GENIUS Act, do you view the Basel framework as unnecessarily punitive? Bowman: The risk weights that were initially assigned prior to me joining the Basel Committee were an over-calibration of the risk. My hope is that there will be a recalibration of it at some point, or we will not join in adopting that framework.
Representative Steil (R-WI): How important is the CLARITY Act being done to being able to follow congressional intent rather than engage in enforcement actions to drive forward policy, as under Chair Gensler? Hauptman: Regulation by enforcement is unethical. Our regulation by enforcement policy is simply defined as no enforcement ever sets policy.
Representative Liccardo (D-CA): Do you support exploring expanded access to the Fed’s payment rails for eligible non-bank FinTech institutions by 2026, with concerns about access to FedNow and the ability to do so without having to contract with or partner with a bank? Bowman: We have currently a construct for the approval of different varieties of institutions with different risk categories. The third category does apply to non-depository institutions, and there are certain parameters around that decision framework as part of our master account application review framework. I support exploring it.
Representative Liccardo (D-CA): Do you support the GENIUS Act’s requirement that stablecoin issuers hold reserves in relatively safe assets, such as deposits, Treasuries, and demand currency, to minimize valuation fluctuations? Bowman: Congress has given a range of options for stablecoin issuers to use as potential reserves. It would be important that they are stable, auditable, and immediately accessible.
Representative Liccardo (D-CA): Would it make any sense to allow stablecoins to be backed by commodities? Hill: The GENIUS Act is fairly prescriptive in what qualifies as eligible reserves, and I do not believe there are commodities that would qualify. Congress set up a model where stablecoins are backed by super safe reserves. One could imagine different models where there were different types of reserves, but then one might have other mitigating factors as part of the regulatory framework; Bowman: That is for Congress to decide.
Representative Gabarino (R-NY): Will you commit to revisiting the securitization capital requirement, rather than rubber-stamping the Biden-era proposal to double it from fifty percent to 100 percent, by conducting data-driven analysis and evaluating its quantitative impact on consumers, including the cost and availability of credit? Bowman: We are taking a fresh look at our responsibilities to implement the Basel III framework, and are reviewing the comments received, with many reflected in that proposal. We want to make sure that there is empirical evidence that supports the issues, the calibrations, and the factors that are included within the capital framework.
Representative Gabarino (R-NY): Will you commit that your Basel III re-proposal will take into account the business models of foreign banks and also appropriately align the actual operational and other risks posed by Foreign Banking Organizations (FBOs)? Bowman: Yes, it is something that we are reviewing and considering.