SENATE COMMITTEE ON BANKING, HOUSING, & URBAN AFFAIRS
Hearing on Prudential Regulators
For questions on the note below, please contact the Delta Strategy Group team.
On February 26, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled, “Update from the Prudential Regulators: Rightsizing Regulation to Promote American Opportunity.” The witnesses in the hearing were:
- Michelle Bowman, Vice Chair for Supervision, Board of Governors of the Federal Reserve System (Fed)
- Travis Hill, Chairman, Federal Deposit Insurance Corporation (FDIC)
- Jonathan Gould, Comptroller, Office of the Comptroller of the Currency (OCC)
- Kyle Hauptman, Chairman, National Credit Union Administration (NCUA)
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways from opening statements and discussion.
Key Takeaways
- Multiple Republican Senators, led by Chairman Scott (R-SC), expressed appreciation for the banking regulators’ renewed focus on tailoring to ensure policies are designed to fit the unique nature of each institution. Chairman Scott said that he looks forward to a strong Basel III proposal and discussed that as the economy grows, the regulatory framework should modernize in a way that maintains safety while encouraging opportunity.
- Chairman Scott stated he appreciates the agencies rescinding Biden-era proposals and pointed to the Basel III Endgame, which he noted would have significantly raised capital requirements to the detriment of the economy. He emphasized the need for capital rules that reflect real-world risk without unnecessarily holding back lending and stressed that regulatory thresholds frozen in place for years do not reflect the size of today’s economy.
- Senator Rounds (R-SD) asked about the timeline for the new Basel III Endgame proposal. Bowman stated that the Fed is working with the OCC and FDIC to introduce the new Basel III proposal before the end of March, noting they have been working at record speed and have reached consensus. She noted that each element of the proposal is being considered rather than reverse-engineered to achieve predetermined outcomes. Gould noted the OCC is working with interagency partners to re-examine the Basel III rulemaking, emphasizing that regulation should safeguard the system, not smother it.
- Senator Britt (R-AL) asked whether the witnesses had considered the impact that Basel III could have on farmers’ ability to hedge risk in derivatives markets. Bowman stated she shares concerns about the agricultural community and acknowledged their feedback on previous proposals. Bowman confirmed they have taken that feedback into consideration for the upcoming Basel III proposal.
- Senator Hagerty (R-TN) stated U.S. liquidity requirements have become rigid and overly prescriptive, expressing concern that regulators have forced a one-size-fits-all framework and asking witnesses to commit to advancing meaningful liquidity rule reform. Bowman discussed how there are several reasons to revisit liquidity rules and that they are currently working on this with an interagency approach, including in regard to the importance of the discount window and other areas of liquidity.
- Senator Hagerty raised concerns that the Basel Committee is based in Europe, dominated by European regulators, and allows foreign bureaucrats to dictate rules for U.S. banks and credit markets, stating U.S. banks should have rules constructed by Congress, not outsourced to a bureaucratic committee. Bowman acknowledged growing governance concerns about the Basel Committee over the last seven years, noting actions inconsistent with its public charter, growing concentration, and reduced rotation of leadership across jurisdictions despite the Committee’s own standard of geographic and institutional balance. She stated she has brought these concerns to Basel leadership to ensure U.S. representation.
- Chairman Scott stated he looks forward to the agencies’ continued progress on implementing the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, noting that bringing stablecoins into clear, regulated frameworks strengthens consumer protections and ensures innovation happens in the U.S., not overseas.
- Senator Moreno (R-OH) asked whether banks offering rewards on stablecoins pose an existential threat to the banking system, referencing passage of the GENIUS Act. Hill and Bowman responded that banks continue to perform well, with Hauptman stating that nothing significant is currently happening with deposit flight. Gould noted that while there is a range of studies on deposit flight, any significant deposit flight would not go unnoticed and would trigger action due to posing a risk to safety and soundness. Hauptman discussed how disincentivizing stablecoin use would go against congressional interests, viewing broader use as leading to lower borrowing rates for everyone.
- Senator Lummis (R-WY) asked whether it is necessary to have explicit statutory authority for banks to engage in digital asset activities listed in Section 401 of the market structure bill. Bowman noted that under previous Fed leadership, requirements prohibited banks from engaging in these activities, but those have been rescinded under her leadership, adding that explicit authority could be helpful. Senator Lummis praised Fed Governor Waller for what he has done in terms of balancing innovation with a fast and safe payment system, emphasizing that the U.S. is in a global race to be the digital asset capital of the world. She highlighted her strong support for the Fed’s finalization of the payment account proposal and her hopes it is done as soon as possible.
- Bowman stated the Fed is working with banking regulators to develop regulations, including capital and liquidity requirements for stablecoin issuers, as required by the GENIUS Act. She emphasized the need to provide clarity on digital assets to ensure the banking system is well-positioned to support these activities.
- Hill highlighted that the FDIC has taken a more open-minded approach to banks offering products and services related to digital assets while maintaining the expectation that such activities are conducted in a safe and sound manner. He noted that the FDIC rescinded the Biden-era prior notification requirement for digital asset activities, which he stated served as a significant barrier to bank participation, and that they are actively working to implement the GENIUS Act requirements, having issued an initial proposal in December, with a more comprehensive proposal expected in the coming weeks.
- Hauptman stated the NCUA’s proposed rule for stablecoin issuers is already public, with the next rule on issuer standards in progress, emphasizing that stablecoins are a golden opportunity to stimulate demand for U.S. Treasuries and maintain the U.S. dollar’s status as a global reserve currency.
- Bowman stated that the Fed should be apolitical in its views and the way it implements policy and emphasized that Fed independence is of critical importance, while also noting that along with independence comes the responsibility for accountability and transparency.
- Democratic Senators, led by Ranking Member Warren (D-MA), raised concerns about the OCC’s bank charter approval process and specifically questioned World Liberty Financial’s (WLFI) application for a national bank charter. Senator Warren called for disclosure of WLFI’s holdings and questioned whether Gould would delay the review, given national security risks related to the UAE’s ownership of a U.S. bank and potential conflicts of interest.