SENATE FINANCE COMMITTEE
CONFIRMATION HEARING FOR TREASURY NOMINEE
For questions on the note below, please contact the Delta Strategy Group team.
On July 22, the Senate Finance Committee held a hearing to examine the nomination of Jonathan McKernan to be Under Secretary of the Treasury for Domestic Finance. Chairman Crapo’s (R-ID) opening statement is available here, and Ranking Member Wyden’s (D-OR) is available here.
Below is a summary, prepared by Delta Strategy Group, of the hearing, which includes several high-level takeaways from opening statements and discussion.
KEY TAKEAWAYS
- Chairman Crapo (R-ID) highlighted that as a member of the Board of Directors at the Federal Deposit Insurance Corporation (FDIC), McKernan opposed burdensome rulemakings, such as the Basel III Endgame Proposal. He emphasized how sensible guidance in areas involving financial institutions, federal debt finance, financial regulation, and capital markets better ensures financial stability, alongside the growth and resilience of the U.S. economy.
- Chairman Crapo asked McKernan how he would streamline oversight and reduce unnecessary burdens if confirmed, considering the growing complexity and overlap in regulatory requirements for financial institutions. McKernan agreed with Chairman Crapo and emphasized the need to continually revisit the financial regulatory framework to ensure that it is aligned with the actual risks those trying to regulate face. He stated that the key to that is tailoring regulation to the risk profile associated with the financial institution or the capital markets activity, highlighting the role of tailoring.
- In response to Senator Marshall’s (R-KS) question on tools at Treasury’s disposal, McKernan stated that the most important way to drive growth is to revisit the financial regulatory system and ensure it is well-tailored to the goals of financial regulations. He highlighted the need to ensure that requirements reflect an updated and accurate understanding of risks regulated, with the guiding principle of modernizing regulatory requirements to be aligned with risk. He emphasized that such is not about weakening requirements, but about ensuring the system achieves safety and soundness, mitigates risks to financial stability, protects consumers, and does so efficiently and fairly.
- Senator Blackburn (R-TN) raised concerns about Operation Choke Point 2.0 and the broader trend of debanking, asking what McKernan would do to ensure, both in the supervisory and regulatory space, a level playing field for legitimate digital asset businesses. McKernan responded that debanking is wrong and should not be something that regulators are driving. He highlighted how the administration has already encouraged the removal of reputational risk from the supervisory framework, which banking regulators have executed on, framing how reputational risk is no longer a basis for supervisory criticism as a big step forward. He noted that there is more work to be done and that it involves changing the culture of supervision by being clear about what the supervisory policy is, namely, banks being encouraged to bank lawful businesses, alongside a process for monitoring and verifying examiners’ compliance with such supervisory policy.
- Senator Cortez Masto (D-NV) questioned McKernan on whether it is important for the Federal Reserve to set interest rates independently of and without interference from Congress or the President, with McKernan responding that monetary independence is a cornerstone of the U.S. economic prosperity.