SENATE BANKING COMMITTEE & HOUSE FINANCIAL SERVICES COMMITTEE HEARINGS
Overview
For questions on the note below, please contact the Delta Strategy Group team.
On February 11, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the Federal Reserve Board’s (Fed) Semiannual Monetary Policy Report. Fed Board of Governors Chair Jerome Powell’s testimony is available here.
Powell’s Senate Committee hearing was followed by a House Financial Services Committee hearing on February 12 to complete his delivery of the Congressionally mandated monetary report.
Below is a summary of the Senate and House Committee hearings on the Fed Monetary Policy Report prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and witness testimonies as well as a summary of the Q&A portion of the hearings.
Key Takeaways: Senate Banking, House & Urban Affairs Committee Hearing
The following is a summary of the main topics explored in the hearing. Each is discussed in further detail in the Discussion section below.
- Chairman Tim Scott (R-SC) raised the need to address how to promote greater accountability and transparency into the Fed’s supervisory functions. Senator Hagerty (R-TN) voiced concerns that the Fed is straying from its mandate by embracing partisan policies, emphasizing that it calls for political scrutiny, which undermines Congressional authority and oversight.
- Chairman Scott questioned the Fed’s claims that banks are free to serve crypto customers. Scott cited concerns about federal banking agencies, particularly the Fed, using reputational risk as a tool to push the debanking of certain legal industries and law-abiding citizens for political reasons unrelated to safety and soundness. Powell committed to taking a fresh look at debanking concerns within the discussion surrounding Operation Choke Point 2.0, and to working with the Committee and the incoming Vice Chair (VC) of Supervision to revise the Fed’s supervision manuals.
- Chairman Scott said the Fed is not being a fair referee by advancing partisan positions, and Senator Rounds pressed for an update on the Basel III Endgame rulemaking process. Powell reaffirmed the Fed’s commitment to establishing a global standard which ensures U.S. banks remain competitive and emphasized the need to collaborate with incoming leadership at the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to finalize a reasonable Basel III Endgame framework, engaging in regulatory reset that maintains the Fed’s neutrality and promotes liquidity, fairness, and economic growth.
- Senator Mark Warner (D-VA) warned about “regulatory creep” beyond the traditional boundaries of financial regulation, referencing Senator Hagerty’s GENIUS Act and highlighting concerns about how regulatory agencies might be overstepping their authority in shaping digital asset policies. Powell responded that the Fed supports efforts to create a clear regulatory framework for stablecoins and emphasized the importance of a structured, constructive regulatory process rather than piecemeal rulemaking, reaffirming that stablecoin oversight was necessary and that the Fed would support efforts to develop a comprehensive regulatory approach.
Key Takeaways: House Financial Services Committee Hearing
- Republicans, led by Chairman Hill (R-AR), discussed progress on pending rules within Basel III Endgame regarding liquidity and operational risk, with Powell reaffirming his commitment to collaborating with incoming agency leadership. Representative Barr (R-KY) questioned whether the Fed should prioritize economic competitiveness over international regulatory harmonization, with Powell defending the Basel framework as a global regulatory floor that prevents a race to the bottom.
- Representative Lucas (R-OK) warned that rising federal debt burdens can destabilize markets, urging the Fed to modify the Supplementary Leverage Ratio (SLR), which they failed to make available for comment in 2021. He highlighted that the U.S. now processes eight times more debt with half as many major market makers.
- Powell acknowledged that the growing amount of U.S. Treasuries are outpacing intermediation capacity and agreeing that SLR adjustments could help address declining market liquidity. Representative Barr and Powell agreed on the necessity of an enhanced supplementary leverage ratio (eSLR) to account for the increases in bank liquidity in the capital markets and expand U.S. banks’ ability to provide Treasury market liquidity.
- Senator Timmons (R-SC) emphasized that regulations on stricter capital requirements, liquidity buffers, and compliance costs under Dodd Frank increase the costs and burdens on banks to engage in treasury market operations, highlighting the economic risks of U.S. Treasury market system reliance on foreign banks. Powell agreed that the trend of increased capital costs in supporting U.S. Treasury market activity, especially for low-risk, low-return activities, results in low intermediation and a relative lack of liquidity.
- Republicans voiced concerns about the Fed Board’s decision to delay major rulemakings until a new VC for Supervision is confirmed, with Hill criticizing the outgoing VC for Supervision’s push for a one-size-fits-all prudential regulation approach that disregards the Congressional mandate for tailored regulation based on institution size, complexity, and risk profile.
- Many Representatives raised concerns about potential conflicts within the Fed’s dual-mandate responsibilities, questioning whether its independent monetary policy decisions could be influenced or constrained by Fed regulation and supervision of banks due to the potential for regulatory actions impact liquidity, credit availability, and overall financial stability.
- Several Representatives, including Representative Huizenga (R-MI), raised concerns about inflation, the impact of tariffs, and financial market stability considerations in Fed rate cut decisions with an awareness of transitory inflation.
- Democrats, led by Representative Lynch (D-MA), warned that unregulated and mismanaged crypto activities contribute to bank instability, citing Signature Bank and Silicon Valley Bank failures. Powell reaffirmed the Fed’s commitment to preventing similar failures by addressing risks such as long-term underwater securities and an unstable deposit base dominated by uninsured deposits.
Opening Statements & Testimony
Senate Banking Committee Chairman Tim Scott (R-SC)
The Fed has the power to influence markets and shape the financial future of hundreds of millions of Americans, which is why it is meant to remain independent and free from political pressure. The Fed has been susceptible to politicization under the Biden administration with too much focus on climate change over supervision. Bank regulators continue to operate in a black-box framework with little oversight. The FDIC under President Trump recently released previously unseen supervisory documents confirming that Biden’s Operation Choke Point 2.0 was real, despite prior assurances it would end. This has led to an unfair playing field where legal businesses and law-abiding citizens face disastrous consequences, with banks pressured to cut services to digital asset firms, political figures, and conservative-aligned businesses. This practice goes against the principles of fairness and market access. Basel III uncertainty has sidelined capital, with a healthy economy requiring capital and liquidity, not regulatory overreach. An independent agency, like the Fed, is not a fair referee if they are being weaponized by partisan agendas through debanking crypto, bank stress tests, and green financing. We need a clean slate, and a right-sized financial regulatory framework focused on economic growth.
Senate Banking Committee Ranking Member Elizabeth Warren (D-MA)
If Elon Musk and his OMB director succeed in dismantling the CFPB, it would effectively eliminate consumer protections, while misleading and conflicting statements from Treasury Secretary Bessent suggest an attempt to shift blame onto the Fed. The Fed merely executes Treasury’s instructions and lacks both the knowledge and legal authority to override potentially manipulated transactions. The Fed has to address its dual mandate of promoting maximum employment and stable prices. To correct the course of overly elevated interest rates in the name of reducing inflation, the Fed must begin cutting interest rates, starting with a meaningful reduction next month.
House Financial Services Chairman French Hill (R-AR)
Over the past four years, inflation has significantly impacted Americans, with today’s dollar purchasing only $0.83 of what it did in January 2021. This erosion of incomes and savings stemmed from irresponsible fiscal policy, supply chain disruptions, and, in my view, the Fed’s delayed response in keeping rates too low for too long. The adoption of flexible average inflation targeting post-pandemic proved ill-timed. As the Fed reviews its monetary policy framework, it must incorporate lessons from the past four years and anticipate future risks. While progress on inflation has been made, the “last mile” remains the hardest, with inflation still above target and risks of resurgence looming. Given already high prices, Americans cannot afford further increases in essentials like groceries and gas, which could force the Fed into another tightening cycle, making borrowing unaffordable. The task force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, led by Representative Lucas, was formed to ensure Fed actions remain scrutinized and focused on price stability. Additionally, concerns over the Fed’s independence in bank regulation have grown, particularly regarding VC Barr’s partisan approach to Basel III rulemaking, which threatens American banks’ competitiveness. The Fed must correct course and preserve its independence for the long-term benefit of the American people.
House Financial Services Ranking Member Maxine Waters (D-CA)
Trump’s new taxes on steel and aluminum will further drive-up prices, adding to the uncertainty and chaos. Trump’s threats of import taxes, frozen housing assistance, federal workforce cuts, and his Project 2025 agenda to eliminate the Fed all pose serious risks. His ongoing attempts to erode the Fed’s independence, demanding immediate rate cuts, and Musk’s attacks on monetary policy raise further concerns. Chair Powell’s recent decision to eliminate initiatives under Trump’s influence signals a troubling shift; the Fed must stand firm against any effort by Musk and his allies to infiltrate its systems and data.
Chair Frank Lucas (R-OK); Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity
While there are differences in approach, a bipartisan guiding principle is that maximizing economic growth is key to prosperity, opportunity, and improving quality of life. The Fed’s actions and monetary policy play a crucial role in economic stability, with an ongoing framework under evaluation. This presents an opportunity to assess the Fed’s toolkit and its broad influence on Americans, with the newly created Task Force allowing for deeper exploration of these critical issues that deserve our attention.
Ranking Member Juan Vargas (D-CA); Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity
Research shows that independent central banks outperform politically motivated ones in carrying out their mandates. The Fed’s independence is essential to maintaining maximum employment and stable prices, a dual mandate that, despite criticism, has served Americans well. It has not hindered the Fed’s substantial progress in reducing inflation while avoiding a recession many saw as inevitable.
Jerome Powell, Chair of Federal Reserve Board of Governors
The Fed remains focused on achieving the dual mandate goals of maximum employment and stable prices for the benefit of the American people, with a strong overall economy. Inflation has moved much closer to our two percent longer-run goal, though it remains somewhat elevated. A wide set of indicators suggests that economic activity continues to expand at a solid pacem and that conditions in the labor market are broadly in balance and are not a source of significant inflationary pressures, with strong labor market conditions helping narrow demographic disparities in employment and earnings. Inflation has eased significantly over the past two years but remains somewhat elevated relative to our two percent longer-term goal. Longer-term inflation expectations remain well-anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. We do not need to be in a hurry to adjust further because the policy stance is now significantly less restrictive, and the economy remains strong.
Reducing policy restraint too fast or too much could hinder progress on inflation, while reducing it too slowly or too little could weaken economic activity and employment. The Federal Open Market Committee (FOMC) will assess incoming data, the evolving outlook, and the balance of risks in considering rate adjustments within the target range. If the economy remains strong and inflation does not move sustainably toward two percent, we can maintain policy restraint for longer, but if a market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we could ease policy accordingly. We are attentive to the risks on both sides of our dual mandate and are well positioned to deal with economic uncertainties. The Fed is conducting the second periodic review of monetary policy strategy, tools, and communications that guide the approach to achieving Congressionally mandated goals of maximum employment and stable prices. This review focuses on FOMC’s statement on longer-run goals and monetary policy strategy, as well as its policy communication tools. The Committee’s two percent longer-run inflation goal will be retained and is not a focus of the review, which is expected to conclude in late summer. The Fed remains committed to supporting maximum employment, bringing inflation sustainably to our two percent goal, and keeping longer-term inflation expectations well-anchored.
House Financial Services Committee Hearing – February 12
Discussion
Chairman Scott (R-SC): Will you commit to working with this Committee to end debanking, including working with the new VC of Supervision once appointed to revise Fed supervision manuals to remove reputational risk as a tool to weigh in on political topics? Powell: Yes.
Chairman Scott (R-SC): Why are Fed employees are held to a different standard compared to the private sector, and what are you planning to do to take accountability for Fed failures in supervision? Will you commit to working with me as Chairman to make sure that financial regulations do not impose burdensome and costly barriers for banks to engage in the regulatory framework? Powell: We did a lot in response to the events associated with Silicon Valley Bank. There was a lot of focus on process and on governance and controls and not enough focus on basic bread and butter of banking, such as credit risk, liquidity risk, and interest rate risk. We try to avoid imposing excessive burdens, but there is agreement that it is necessary and fair to take a fresh look at debanking. We do not intentionally do these things, but sometimes regulation leads to unintended consequences, and we need to be working on avoiding that.
Senator Warren (D-MA): Why is the Fed about to propose a rule that directly contradicts the fact that complete knowledge of stress test models could lead to a model monoculture and increase the correlation of risk in the system, rendering the stress tests useless? Powell: The ground has shifted very substantially in administrative law, and we need stress tests to remain resilient to that. We are making changes to accomplish that.
Senator Rounds (R-ND): Could you provide an update on the Fed’s progress in finalizing the Basel III Endgame rulemaking process? Powell: We remain committed to completing the Basel III Endgame. We think it is good for U.S. banks and economy that there be a global standard beneath which foreign banks cannot fall below, which was one of the big ideas behind the Basel Committee approach. We await leadership arriving at the OCC and the FDIC in order to sit down with them and work our way through to a Basel III Endgame proposal. We can do this reasonably and quickly consistent with the Basel requirements and other large jurisdictions.
Senator Rounds (R-ND): Has the playbook been revised since the failure of Silicon Valley Bank, and can we expect that it will be revised? Powell: It has been revised in a lot of ways, with one example being that supervisors did not follow through aggressively enough on things that they had said and not focusing enough directly on what was a very large amount of interest rate risk, a large portfolio of long-term securities matched up with an unstable funding base. It was a bank run, which was incredibly damaging, but we learned a lot from it and are determined to do better.
Senator Cortez Masto (D-NV): What would be the Fed’s role in enforcement of consumer protection if the CFPB was shut down, and what would that look like for regulatory jurisdiction? Powell: We still retain supervision over all the holding companies and of Fed member banks in our mandated collaboration with CFPB in supervising large banks. We have no jurisdiction or role in consumer protection unless you are a Fed member bank that has $10 billion or less in assets. We have residual enforcement authority, but we do not have examination authority.
Senator Kennedy (R-LA): Do you think debanking on the basis of reputational risk is fair? Powell: No, I am troubled by the quantity of these reports. One theory is that banks are just very risk averse around the Bank Secrecy Act and money laundering because we are so tough on them, which makes any reputational risk worth not taking on a client. We are taking it out from a manual we had been using on account access for master accounts because reputation risk needs to be thought about more fully.
Senator Reed (D-RI): Is disregarding the projected inflationary effect of tariffs wise policy? Powell: The standard case for free trade logically still makes sense, but it does not work when we have one country that does not play by the rules. It is not the Fed’s job to make or comment on trade policy, all we can do is react to it in a thoughtful and sensible way to fulfill our mandate of stable monetary policy.
Senator Reed (D-RI): Could you give us some insights on how we can improve financial stability by more appropriately regulating synthetic wrist transfers as potential danger to the banking? Powell: It is a good thing if a bank wants to transfer risk off its balance sheet. What you want to ensure is whether the risk was really transferred, which was the problem during the global financial crisis as appeared so but did not accomplish a transfer of risk. We see this coming, and we have been looking at these transactions on an ongoing basis.
Senator Ricketts (R-NE): To rein inflation and federal spending, how should we address the federal balance sheet that was expanded to a record of $9.8 trillion, and will the Fed continue to this course of unwinding the balance sheet? What kind of conditions would have to happen for you to start going back to quantitative easing (QE)? Powell: We intend to slow and stop the decline when reserve balances are somewhat above the level that we judge consistent with so-called ample reserves. The most recent data and the feel of the markets is definitely the reserves are still abundant, as they are at about the level they were at when runoff started because the runoff really happened out of the overnight repo facility as a reverse repo. It is ongoing, and we are not yet where we are headed. We cannot put a number on it because you cannot directly know the demand for reserves other than by observing behavior in the market and then putting a buffer on it. QE is a tool we tend to use when we are at the effect of lower bound and cannot cut interest rates anymore, nothing like the current situation. It is a different test for stopping quantitative tightening, but we would use QE going forward only in a situation where rates are at zero and we are a long way from zero. If things were to remain stable, I will work to continue to unwind the balance sheet through quantitative tightening, but I cannot give you a range on it.
Senator Ricketts (R-NE): What kind of conditions would have to happen for you to start going back to quantitative easing (QE)? Powell: QE is a tool we tend to use when we are at the effect of lower bound and cannot cut interest rates anymore, nothing like the current situation. It is a different test for stopping quantitative tightening, but we would use QE going forward only in a situation where rates are at zero and we are a long way from zero. If things were to remain stable, I will work to continue to unwind the balance sheet through quantitative tightening, but I cannot give you a range on it.
Senator Warner (D-VA): How do we think about stablecoins in terms of comparability to other activities? Should they not have the same regulatory structure? Powell: We definitely support efforts to create a regulatory framework around stablecoins. Stablecoins may have a big future with consumers and businesses, but we cannot know that now. It is important for the development of stablecoins to be within a regulatory framework.
Senator Lummis (R-WY): Do you commit to disciplining or removing any staff that are found to have engaged in debanking activity that further Operation Choke Point 2.0 or other misconduct? Powell: I cannot make an open-ended commitment, but my colleagues and I are troubled by the growing number of cases of what appears to be debanking. We are determined to take a fresh look at that and have taken steps to address it, such as taking reputational risk out of one of our manuals.
Senator Hagerty (R-TN): With swap markets beginning to price in fewer cuts this year, do you see evidence of a higher neutral rate emerging at this point in market concerns? Powell: Yes, I believe based on evidence that the neutral rate will have risen.
Senator Banks (R-IN): How does the Fed take the trade deficit into account in your decision making? Do you commit to following the data and not prejudging any outcome in regard to the economic impact of tariffs? Powell: The trade deficit does not directly affect our mandate goals. I will follow data just as I did in 2018 and 2019.
Senator Gallego (D-AZ): What is the threat to economic stability with potential cost increases from threatened 25 percent tariffs on imported goods from some of the U.S.’s larger trading partners? With very few rate cuts anticipated, could tariffs have an impact on rate calculations? Powell: Tariffs are not the Fed’s wheelhouse. The cost to the consumer will depend on facts that we do not have yet regarding the specific effects on exporters, importers, businesses, and consumers. Rates cuts as a possible outcome will depend on specific facts about the extent and duration of the tariffs.
Senator McCormick (R-PA): How is U.S. Treasury holder behavior changing as debt increases? Powell: There are many Treasury buyers, but they will factor in assessments of the future supply, which is why the term price has increased this year, although it is lowering following the election.
Senator McCormick (R-PA): How are you thinking about reducing the volatility of the results and increasing transparency on the stress test? Powell: On transparency, we are going to release the models and put them out for comment. In terms of volatility, we are going to release the stress test scenarios before they are implemented. We averaged the changes over a few years because the stress capital buffer can be moving up and down, and it will all be available for public comment.
Senator Moreno (R-OH): Do I have your commitment that if you are the Chairman of the Fed System, we will never have a central bank digital currency? Powell: Yes.
Senator Moreno (R-OH): How and when can we get to a scenario where we can wire money 24/7? Can you commit to allowing businesses to use FedNow in order to transact 24/7 and settle payments by the end of this year? Powell: That is coming, but slowly. The Fed can do it through FedNow and provides that service between two banks, but others want to provide it too. We are falling behind other countries in that regard. On the commitment, I believe businesses can currently use FedNow or an RTP system, but I will confirm that for you.
Senator Moreno (R-OH): What advice would you have for us in creating policy so that we can ensure we block out bad actors, from financing illicit activities, such as terrorist organizations, from U.S. financial systems? Powell: We enforce anti-money laundering (AML) laws very strictly, but it is harder to nail down illicit transactions when it is happening overseas. It is a problem we spend a lot of time on because we also do not want to compound the issues around debanking.
Senator Cramer (R-ND): Due to the necessity of advancing a new Basel III proposal, how would updates to regulation impact the ability of the regional banks to compete with the big Wall Street banks, and what factors we consider in ensuring that we have a competitive banking system? Is there anything in Basel III exercise that ensures that competitiveness of small banks, and that a diverse banking system is maintained rather than consolidated? Powell: Our banks are well-capitalized. Basel III was not supposed to be an exercise in raising capital in U.S. banks. There is work to do, but I believe we will get there fairly quickly. We do not want to inadvertently decrease the competitiveness of small banks, but there are many factors like consolidation that affect their ability to compete.
House Financial Services Committee Hearing – February 12
Republicans, led by Chairman Hill (R-AR), discussed progress on Basel Committee considerations and updates in addressing Basel III Endgame, with Powell reaffirming his commitment to collaborating with incoming agency leadership. Chairman Hill raised how Basel III Endgame proposals interact with other pending rules, whether they are on liquidity or operating risk, noting the centrality of proposal comments.
Powell reiterated his commitment to ensuring financial privacy and a stable funding basis, with the Fed focused on the basics of banking: credit risk, interest rate risk, and liquidity risk. He also continued to highlight FedNow real-time payment system.
Chairman Hill (R-AR) discussed the Fed’s bank regulation and supervisory function, noting the outgoing VC for Supervision pushed new regulations that would move the U.S. towards a one-size-fits-all approach in prudential regulation. He emphasized that this would disregard the Congressional mandate clearly established for regulators to tailor bank regulation based on an institution’s size, complexity, and risk profile.
Chairman Hill and Representative Huizenga voiced concerns about the Fed Board’s announcement that it does not intend to take up any major rulemakings until an incoming VC for Supervision is confirmed, following former VC Barr’s resignation, with Hill highlighting that the Board of Governors has the responsibility for and oversight of bank supervision policy. In response, Powell emphasized that regulators need to carry on with their Congressionally mandated regulatory and supervisory duties. He also noted that the Fed does not need an individual VC to complete its work, referencing prior experiences where decisions went through the full Board with effectiveness and less volatility in regulatory approach with more decision-makers in the process rather than a pendulum swing.
Several Representatives raised how important it is for inflation and the adverse consequences of tariffs to be factored into the Fed rate cute decision-making process and considerations of financial market stability measures. Representative Huizenga questioned Powell on whether the last policy framework limited the Fed’s response to raising inflation, with Powell responding that they did not raise rates because they thought the inflation was transitory.
Representative Lucas highlighted how the raising federal debt creates long run challenges and burden for future U.S. generations with an onerous burden, but it also creates a challenging environment for the markets. He discussed with Powell what conditions determine the ideal level of ample reserves regarding the use of QE to address expanding Treasury markets. Many Representatives questioned whether the Fed’s independent monetary policy can function alongside Fed regulation of banks.
Representative Lucas called for the Fed to look into modifying the SLR, noting that the Fed did not follow through on promises to invite comments on SLR in 2021. He also emphasized that the U.S. has eight times as much debt to process, with only half as many major market makers. Powell referenced concerns about the levels of liquidity in the U.S. Treasury market due to the number of U.S. Treasuries growing faster than intermediation capacity, stating that the Fed needs to reduce the effectiveness of the SLR to address it.
Representative Barr raised whether the Fed’s approach should be international regulatory harmonization or economic competitiveness. Powell highlighted that a Basel framework creates a global floor and levels the starting point of competition so there will not be a race to the bottom.
Representative Rose (R-TN) raised the need for more alignment of credit risk transfer (CRT) treatment between banks and government-sponsored enterprises (GSEs) in Basel III proposals, requesting guidance on how to clarify and harmonize capital rules to promote financial stability and competitiveness.
Representative Davidson (R-NC) stated that the Fed is effectively gold plating the standards, questioning Powell on why the U.S. is holding way more reserves than required and the purpose of interest on excess reserves (IOER) if the market is not being distorted.
Democrats, led by Representative Lynch, emphasized the dangers of unregulated and mismanaged crypto activities leading to bank collapses, referring to Signature Bank and Silicon Valley Bank failures. Powell expressed the Fed’s commitment to working with banks to avoid failure characteristics, such as long-term, underwater securities, and an unstable deposit base largely composed by uninsured deposits.
Ranking Member Waters (D-CA) raised how the U.S. is the only country with a Presidential ban on Central Bank Digital Currency (CBDC), emphasizing that partisan agendas blocked the formation of a bipartisan agreement on stablecoins. She highlighted that the broad definition under the recent EO on DeFi could be extended from CBDC. Powell noted that the Fed is not engaging in work regarding a retail CBDC and rejects the notion of a wholesale CBDC.
Representative Waters also emphasized the importance of protecting the CFPB and the Fed from DOGE interference. She and Powell agreed that any attempt to dismantle individual Fed Offices, under Dodd Frank, would fall under the ultimate authority of Congressional jurisdiction. Representative Sherman (D-CA) referenced that abolishing the dual mandate is included in Project 2025.
Senator Timmons (R-SC) raised how regulations on stricter capital requirements, liquidity buffers, and compliance costs under Dodd Frank increase the costs and burdens on banks to engage in treasury market operations, emphasizing the economic risks of a U.S. Treasury market system that rely on foreign banks for proper functioning, and as a national security threat. Powell agreed that there is a trend of increased capital costs of supporting market activity especially for low-risk, low-return activities, which results in low intermediation and a relative lack of liquidity, pointing to the necessity of an eSLR to account for that in increasing bank liquidity in the capital markets.