Oversight of Prudential Regulators

We, uh, should I get a new one or a previous one? Or do you have to come over to get it off?

The Committee on Financial Services will come to order. Without objection, chairs authorized to declare recess the committee at any time. Today's hearing is entitled "Oversight of our Prudential Regulators." Without objection, all members will have five legislative days within which to submit extraneous material to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. The Trump administration is returning prudential regulators to their core regulatory and supervisory mission of promoting safety and soundness in the financial system. Today's hearing will provide an opportunity to discuss how their recent actions, priorities, and policies aligned with their statutory mission entrusted to each of them by Congress. We will also highlight the work of this committee to right-size prudential regulations for institutions of all sizes, focus on the supervisory framework on material financial risks, and facilitate the formation of new depository institutions. Prudential regulation should foster economic opportunity, support responsible lending, and encourage long-term growth while maintaining confidence across our banking system. A sound prudential framework must be transparent, appropriately tailored, and rules that are clear, efficient, and proportionate to the size, complexity, and risk profile of the institution. In my view, a one size fits all approach, by contrast, disproportionately harms community banks, credit unions, and our regional institutions. That's why this committee has held numerous hearings throughout the hundred and nineteenth Congress on our mission to make community banking great again, which has culminated in our proposed Main Street Capital Access Act. Many of the reforms contained in this legislation directly track the actions being taken before us today by our supervisory agencies. We also will highlight the progress being made to reverse some damaging Biden-era regulations and guidance that increase compliance cost, constrained lending, and threatened access to credit for American families and small businesses without providing clear benefits to overall safety and soundness. Among them was the original proposed BASIL-three end game, which would have significantly raised costs for homebuyers, consumers, and financial institutions without meaningfully improving financial stability. The revised BASIL-three proposal and the corresponding changes to the standardized approach and the GSIB surcharge will better align capital with risk, address concerns about gold plating, and increase lending capacity while maintaining a very safe and sound banking system. I'm also proud of the work that this committee has done into advance legislation to provide a functional regulation uh framework, regulatory framework for our emerging innovative digital asset ecosystem. The Trump administration has taken important steps to turn the page on the Biden approach to digital assets. These steps, including withdrawing burdensome supervisory non-objection regimes, providing greater clarity for banks using blockchain technology, and implementing the Genius Act to establish a clear framework for payment stable coins. The administration is demonstrating a commitment to supporting innovation while preserving consumer protection and orderly markets. Clear, predictable rules allow financial institutions to manage compliance, reduce unnecessary costs, and expand access to credit, and invest in innovation as our financial system consistently evolves, day after day, week after week. Policymakers must foster an environment that supports innovation while ensuring confidence in the strength and stability of our financial system. I look forward to our panel today, our discussion among members on both sides of the aisle, and I yield back the balance of my time. I now recognize the ranking member of our full committee, Mrs. Waters, for four minutes for an opening statement.

Good morning. Trump's reckless and unlawful war in Iran has cost every American four hundred and fifty dollars more at the gas tank. In parts of my district, gas is nearly seven dollars a gallon. Yet, when asked about this, Trump's reply is, quote, " Couldn't care less." Well, Mister Chairman, Democrats do care, and we urge this committee and the President to focus on affordability. It's not just gas. Families are also being crushed by rising rents, higher utility bills, and skyrocketing grocery prices, fueled uh by Trump's failed economic policy. But Trump doesn't care, and it shows when he's not ruining the economy, He's busy tearing down the White House to build a billion dollar ballroom, promoting Fight Night on the South Lawn, and trying to slap his name and picture on everything as if he were an idol to be worshiped. At the same time, his administration is busy dismantling the agencies and safeguards that protect consumers workers and small businesses. In fact, Since returning to office, Trump has launched the most aggressive, the most deregulatory campaign we've ever seen. His administration has gutted the consumer, Financial Protection Bureau, undermined the independence of our central bank, and handed Wall Street, big banks, fintech firms, AI companies, and crypto bros, partners, and the freedom to take risk with Americans' money. The consequences are already hitting working families. A recent report found that Trump's attacks on the CFPB alone have cost Americans nearly nineteen billion dollars in just one year. And while he has largely shut down the CFPB, Americans have filed more consumer complaints about predatory lending and other financial abuses in the past fourteen months. than the previous fourteen years combined. And it does not stop there. The prudential regulators here today have weakened mega-bank capital, stress testing, and other requirements designed to prevent another financial crisis. They are rubber-stamping bank mergers, rolling back the civil rights laws like the Community Reinvestment Act, and loosening guardrails for crypto and fintech businesses who act like banks, but don't want to be regulated as such. They have downplayed climate-related financial risk just in time for hurricane and wildfire season, and gone easy on bank executives and their pay skyrockets. Sadly, Republicans have stood by stood by and enabled all of it. Instead of standing up for families, Republicans idolized Trump, doing little to push back. when he weakens consumer protection and strips away the safeguards that prevent another financial crisis. Instead of addressing the affordability crisis, they side with Wall Street, mega-banks and crypto-bros. Committee Democrats are focused on lowering costs for working families and ensuring Americans can assess affordable mortgages, small business loans, and financial products. We're fighting to support our community banks and credit unions, and making sure consumers, not mega banks or other powerful corporations, come first. This is a difference between protecting the wealthy and the well-connected, and fighting for the American people in an economy that works for everyone. Mr. Chairman and members, you all know what I just said is the truth, and I wanna tell you

General, Ms. Thomas expired.

we are fighting against all of this deregulation.

The woman's time has expired.

Well, that's all,

I recognize the chair of the subcommittee on financial institutions,

but now it has expired. But I wanna tell you, I want

Mister Barr, for one minute.

Thank you, Mister Chairman, thank you to our witnesses also for joining us today. It's encouraging to see prudential regulators in this committee aligned in our work to re- to return regulation and supervision back to their core mission of safety and soundness. To realize this goal, banks and credit unions must be evaluated on objective, clear standards. That's why I introduced the FIRM Act, which prohibits consideration of reputational risk in the supervisory process, ensuring regulators' focus on material financial risks rather than subjective or process-oriented concerns. The same commitment to transparency in objective decision-making should extend to the merger approval process as well. The Bank Failure Prevention Act increases clarity in the merger process by setting clear expectations and timelines for merger reviews to prevent prolonged reviews and un- uh that unnecessarily consume time and resources. Ensuring a risk-focused regulatory system also requires tailoring requirements appropriately to the financial institution's size and risk profile I'm glad to see that the regulators listen to bipartisan calls from this committee and apply these principles in their agencies, including in recently Basel-three re-proposal.

Gentlemen, time has expired.

And it's Thank you. I yield back.

I now recognize the ranking member for the sub-commonal financial institutions, Doctor Foster of Illinois, you're recognized one minute for an opening statement.

Uh, thank you, Chairman Hill. America's banks and credit unions are operating during a time of unprecedented change in the financial system. Consumers and markets are moving faster than ever with improved access to information, twenty-four hour banking, and the reduced friction of modern payment systems and soon personal AI financial agents. Now, fintech partnerships promote innovation and competition, but come with unique risks. Banks and credit unions are also facing a wave of fraud driven by artificial intelligence while bad actors continue to exploit older banking tools, such as paper checks, for illicit purposes. Our prudential regulatory agencies must be agile and well-resourced to respond to these risks. Preparing for liquidity risks of internet-driven bank runs and cyber threats from emerging AI tools should be a top priority and our regulatory bodies need to maintain the necessary technology and human resources to do so effectively this administration's move to cut supervision and staff across Federal Reserve, FDIC, and OCC is a step in the wrong direction. Uh, thank you again, Chairman Hill, and I yield back.

Gentlemen, Hill's back. We're delighted today to welcome the testimony of our bank supervisory uh leaders, the Honorable Michelle Bowman, Vice Chairman of Supervision at the Board of Governors for the Federal Reserve System, the Honorable Jonathan Gould, our Comptroller of the Currency, the Honorable Kyle Hultman, the Chair of the National Credit Union Administration, and the Honorable Travis Hill,

Thank you, Chairman Hill, Thank you. Ranking Member Waters, and members of the committee. I want to thank you for the opportunity to provide an update on the Federal Reserve's supervisory and regulatory activities. Today my testimony will cover

By sharing, Jimmy will be a little closer to the mike, thank you so much.

Thank you. Today my testimony will cover three areas, current banking conditions, regulatory and supervisory reforms implemented since the committee's last hearing and our path forward as we continue to promote safety and soundness, and the stability of the US financial system. The banking system remains sound and resilient. Banks continue to report strong capital ratios and significant which position them well to support the US economy. Bank lending to households and businesses also continues to grow. The landscape for financial services has become more complex. NBFI lending has increased, raising competition for regulated banks without facing similar prudential standards. The financial c- system continues to adapt to advances in technology, including AI and cyber-related risks. The Fed is committed to working with banks as they navigate this complex threat environment. Since I last appeared before the committee, we have made substantial progress to modernize the regulatory and supervisory framework. And of course, community banks remain a priority. These banks provide critical financial services to their communities, supporting families, businesses, and the local economy. Earlier this year, bank regulators finalized a community bank leverage ratio framework. A broader range of qualifying banks can now use a simple leverage ratio to measure capital adequacy instead of the complex risk-based capital framework, with a CBLR at eight percent and an extended grace period from two to four quarters. In March, the bank banking agencies published proposals to modernize the U. S. regulatory capital framework. The proposals clarify requirements, align them with actual risks, reduce overlaps, and support credit, while also preserving strong capital levels. Turning to supervision, we are using a risk-based, tailored approach that is calibrated to each bank's size, complexity, business model, and risk profile. Our supervision focuses on a bank's material financial risks and its overall strength. Earlier this year, we launched a comprehensive review of all outstanding matters requiring attention. The findings showed that many MRAs cited deficiencies unrelated to bank safety and soundness instead of focusing on pers uh instead focusing on procedural or documentation shortcomings or departures from best practices that were designed for banks with very different business models and risk profiles. Often these best practices originated from the largest and most complex banks that were applied industry-wide. Under my leadership at the FFIEC, the agencies and state bank regulators proposed long overdue revisions to the CAMEL's ratings framework which was largely unchanged since nineteen seventy-nine. The revisions include a more transparent, objective approach that better captures material risks to a bank's financial condition and its overall strength. Innovation is essential to meeting customer expectations and maintaining a dynamic banking industry. The Fed is relying on a forward-looking approach that encourages innovation while maintaining appropriate safeguards. Additional work remains on multiple fronts. We are recalibrating thresholds across our re- our regulatory framework to account for economic growth and inflation. We are developing stablecoin issuer regulations as Congress directed in the Genius Act. We are also strengthening liquidity requirements to support banking system stability and to promote sound liquidity management. Our work follows three fundamental principle, or a a single fundamental principle. Appropriately calibrated regulations, strengthened banking conditions, financial stability, and economic growth, while maintaining the robust safeguards the American people expect and deserve. Thank you for the opportunity to appear before you this morning, and I look forward to answering your questions.

Thanks, the gentlewoman. Good, you're recognized for five minutes.

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. After the two thousand eight financial crisis, Washington too often sought to eliminate rather than manage risks, resulting in a less relevant and diverse banking system. This approach drove financial activities into less regulated and visible parts of our economy, making risks harder to monitor and mitigate. The Dodd-Frank Act, far from ending too big to fail, created a moat around the largest banks and introduced too small to succeed. Unelected bureaucrats discouraged prudent risk-taking and reduced credit availability in many communities. In particular, community banks suffered from these misguided policies. The number of banks with less than one billion in total assets declined by fifty percent. The OCC has introduced reforms to address this decline. We've removed fixed examination requirements, tailored examinations to actual risk, and imposed workday limits on examinations. We also created a supervision group focused on community banks. These actions, among others, represent a down payment on future reforms to promote a more relevant and diverse banking system. Community banks are not the only casualty of the post-Dodd-Frank banking system. In the years that followed, new bank formation in this country nearly ceased. From nineteen ninety to two thousand eight, the OCC received and approved over one thousand de novo charter applications. After two thousand eight, application volume and approvals fell by ninety percent. But the OCC is open for business again. The agency received as many applications in two thousand twenty-five alone as it did in the previous four years. For the first time in five years, a full-service national bank opened its doors. And we have conditionally approved ten more banks this year. This is the result of us once again following the law in our publicly stated procedures. The OCC is also returning to risk-based supervision rooted in law, and emphasizing examiner judgment, not arbitrary checklists. We are hard-wiring the foundations of supervision, such as the definition of unsafe and unsound practices, into regulation, and are reviewing past supervisory criticisms and enforcement actions to ensure alignment with our standard for material financial risks. But we, like the banking system itself, must always look towards the future. Our job is to facilitate, not stymie, responsible innovation. We are working to respond to comments on our Genius Act proposal and finalize it. Just as the National Bank Act brought an end to the wildcat banking of the eighteen hundreds, the Genius Act and our rule will help ensure appropriate consumer protections for stablecoin users. In other words, our regulation will help ensure that all OCC institutions are able to satisfy their obligations, including both deposits and stablecoins. The OCC is working to facilitate innovation outside the Genius Act as well. We, along with the other federal banking agencies, revised our model risk management guidance to avoid impeding banks' use of AI. We also plan to seek information from the public on what additional guidance would be helpful. Our banking system will only remain relevant and trusted if it resists pressure to deny access based on political or religious beliefs or lawful business activity. We have made considerable progress in reviewing the activities of the largest national banks and are investigating complaints complaints of alleged debanking consistent with the President's executive order. We will continue to follow the evidence and report on our findings as appropriate. We have moved quickly to fix long-standing problems of agency management. The OCC too often relied on costly outside contractors for many core IT functions. Since I arrived, we have eliminated the need for one hundred and sixty-five contractors saving seventy-five million dollars in the process. Our bank examiners also lacked modern technology to do their jobs. This summer we will begin replacing IT platforms from the early two thousands with modern tools. These efforts helped fulfill our core mission while reducing assessment costs. Since its creation during the Civil War, the OCC's nationwide banking markets created the economic union necessary to support the political union forged on the battlefields. We at the OCC are proud of our role, particularly as we celebrate our country's two hundred and fiftyth anniversary. But we take nothing for granted, and we work hard to support the growth and dynamism that have defined our federal banking system since its inception. Thank you.

Thank you, Mr. Gould. Mr. Hoffman, you're recognized for five minutes, sir.

Thank you, Chairman Hill, Ranking Member Waters, members of the committee. Thank you for the opportunity. As the current chair, I remain dedicated to serving in this role and no other until my successor is confirmed. President Chump has nominated Mr. John Cruz to the NCUA board. He's a seasoned, committed leader, track record of balancing innovation. In other words, he's well-suited for the role. I'm confident Mister Cruz will strengthen the agency even further, and I wish him best as he goes through the Senate confirmation process. Over the past year, NCUA has ex- experienced significant changes. My primary goals as chairman have been to leave NCUA, leave it ready to embrace their future, supporting a robust and innovative credit union industry and protect our share insurance fund, through effective, appropriate supervision that is focused on material risk. I'm also proud we delivered cost savings, averaging about nine thousand dollars per federal credit union, through our cost reductions. I pursued all of our goals by championing regulatory improvements, embracing innovations like stable coins, and improving our customer service. As digital currency and stable coins reshape the global financial system, credit unions have an opportunity to embrace this transformation from a solid foundation of safety and soundness. Stable coins can make payments faster, cheaper, and more inclusive. On May fifteenth, we announced a proposed rulemaking for permitted payment stable coin issuers, our second rulemaking required under the Genius Act. This rule puts credit unions on equal footing with banks. Credit unions are well poised to benefit from this long overdue update to America's payment system. As Americans be- uh, sorry, as stable coins become more widely adopted, we Americans may no longer be made fun of for speaking of how many business days a payment will take to settle. Every day is a business day with stable coins. All three hundred and sixty-five days of the year and all twenty-four hours of the day are equal in terms of sending payments with stable coins. Our tax refunds may eventually arrive on Sundays or holidays. And if we ever have a repeat of COVID in March, twenty twenty, Americans should be able to receive stimulus funds in a much more timely and secure manner. Beyond the consumer benefits, the big picture benefit of stable coins is maintaining the US dollar's status. The Janus Act should stimulate demand for treasuries, thereby lowering borrowing costs for both the US government and consumers. Even repo rates on treasuries may fall, all else being equal, given that the Janus Act allows for investing in treasury reverse repos, and treasuries are more attractive when they can be used to obtain cheap financing. And for all the debate about the effect on deposits held at our domestic banks and credit unions, a large portion of the money is expected to flow into stable coins from abroad. Over eighty percent of existing stablecoin usage is outside the United States. Cuz when Americans use the phrase dollar stablecoins, we tend to focus on the stablecoin part. Because stablecoins are a much better settlement token in dollars. They're a bit like using poker chips in that the transactions are easier, but they only work if they are indeed stable and interchangeable with US dollars. But for people abroad, it's the dollar part of the word, the phrase dollar stablecoin. That's what's important to them. We as Americans may have gotten so used to the dollar's global dominance that we don't notice what an advantage we have, but just ask the British what it's like to lose reserve currency status. But the Genius Act and dollar-denominated stablecoins are ways of striking back against those in Beijing, Tehran, or Moscow who continually push for the US dollar to be less important, less ubiquitous, and less useful. So I'm pleased to work with my colleagues here at the table to do our part in that effort. Turning to financial literacy efforts, that's a big part of the administration's observance of America's two hundred and fiftieth anniversary. Last month I joined my colleagues at this table for a financial literacy event hosted by the OCC. Uh, it was a wonderful opportunity to hear from banks and credit unions of all sizes, how they empower people and their communities by educating people of all ages from the elderly all the way to kids in kindergarten. I wanna note that my five year old has read both of these books, including the Berenstain Bears Visit the Credit Union. Um. Um. I spoke about how financial security is essentially an amazing product, and one that can be purchased on the open market via saving and investing. Today, approximately forty-three hundred credit unions serve over a hundred and forty-five million members of management and two trillion in assets. The industry is healthy and continues to balance innovation access and safety and soundness. As of the end of last year, the aggregate net worth net worth ratio, that's how credit unions refer to capital levels, was strong at eleven point three percent. Slightly higher than the year before, asset growth was a solid five percent, up from two percent growth. From a safety and soundness perspective, the system is in a good place. And finally, given my successor has been announced, I'd like to, and this is probably my last appearance before this committee, I wanna make one final point. Regulation falls hardest on the smallest institutions, but we are a better, more prosperous country cuz of the unique American system that contains over eight thousand banks and credit unions. Many of them serve niche communities. We don't wanna be one of those countries with four or five big banks like Canada. Um, we're best served with the system we have, with every corner of this country, every industry being served by a bank or a credit union. Uh, thank you, Mr. Chairman.

Thank you, sir, and thank you for your service since twenty twenty at the NCUA. We appreciate that. Chairman Hill?

Chairman Hill, Ranking Member Waters, and members of the committee, thank you for the opportunity to testify today about the FDIC's ongoing work to strengthen our regulatory and supervisory framework, while we continue to fulfill our core mission of insuring deposits promoting bank safety and soundness, and resolving failed institutions. Over the past year and a half, we have advanced a number of key policy priorities, including reforming supervision to focus on material financial risks, modernizing capital standards, improving our resolution readiness, and implementing the Genius Act, among others. Beginning with supervision reform, we issued a proposed role last fall with the OCC to define key terms related to supervisory criticisms which we are working to finalize in the coming weeks. In parallel, we have been conducting a comprehensive look back of all outstanding supervisory criticisms as we work to implement the new approach in a consistent manner. We have also been working with our FFIC counterparts to modernize the CAMELS rating system and we issued a proposal last month that would place greater emphasis on factors most critical to safety and soundness of institutions and better align the overall rating with the bank's true risk prof profile. With respect to capital standards, we recently issued two proposals to modernize risk-based capital requirements. These proposals improve risk sensitivity, simplify core components of the framework, and provide more appropriate capital treatment across mortgage, retail, and business lending. In addition, we finalized revisions to the community bank leverage ratio framework to incor- encourage broader adoption for community banks. We also continue to strengthen our our readiness to resolve failed banks. Among other things, we are working on changes to our resolution planning rule for insured depository institutions, and have taken steps to enhance the competitiveness of our bidding process. Relatedly, we are working to remove barriers for non-banks to provide capital in failed bank auctions, including rescinding a two thousand nine policy statement that imposed overly restrictive c- conditions on private capital investors, and exploring potential changes to the shelf charter process to allow a non-bank entity to act quickly in the event of a sudden unexpected failure. In the digital asset space, implement implementation of the Genius Act remains a top priority. We have issued proposed rules to establish an application framework, prudential requirements, and BSA and sanctions compliance for FDIC supervised stablecoin issuers. We are also advancing other important policy initiatives. These include modernizing BSA AML program requirements, updating our information disclosure rules, and revising model risk and third-party risk management guidance. to remove unnecessary barriers and encourage appropriate use of new technologies. We are all we are also reevaluating our bank merger review process to improve clarity, timeliness, and transparency, and are working to make the de novo application process more efficient. Earlier this year, we finalized a rule removing reputation risk as a basis of supervisory criticism. The rule makes clear that the FDIC will not require, instruct, or encourage an institution to close customer accounts or take other actions on the basis of a person's or entity's political, social, cultural, or religious views or beliefs. Constitutionally protected speech or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk. Finally, the FDIC continues to make prog progress in improving workplace culture. We have taken significant steps to improve accountability, enhance rep- reporting and response processes, and reinforce expectations for professional conduct across the organization. I remain committed to ensuring that the FDIC maintains a culture grounded in professionalism, accountability, and respect to ensure that our workforce continues to fulfill our important mission. Thank you for the opportunity to testify today. I look forward to answering your questions.

Gentleman Hill's back. Thank you all for your opening statements. We'll now turn to member questions. I recognize myself for five minutes for some questions. I referenced in my opening statement that among our core work on improving bank supervision and echoing some of the good work you're doing in each of your agencies, that we've been advancing a series of bills under our uh Main Street Capital Access Act, which we hope to bring to the House floor in in coming weeks. And you've touched on it in your hearings that our banking sector has faced numerous challenges ranging from a drought in new bank formation and thank you, Mister Gould, for setting the record straight on what the OCC's been doing there. A post-crisis prudential framework that's pushed activity away from banks and squeezed many of our community and mid-sized institutions uh from uh the rules that I think again are not effectively tailored and discriminate against uh home lending for example, to the politicization that we all witnessed of bank supervision and regulation in recent years. So now, fifteen years following the great financial crisis and the resulting Dodd-Frank Act, it warrants that we take careful assessment of what's happened in that past fifteen years and how we need to uh propose uh changes, and I think that is at the heart of the work we've done on Main Street uh capital access. So, let me ask uh each of the witnesses, start with you, Vice Chairman Bowman. Can you talk about how these principles in Main Street capital access mirror the work that's being done by uh the Federal Reserve and its supervisory process and how statutory changes can make that work durable and uh cement that effort to give the certainty to our financial institutions, depository institution management that they can count on that in the out years.

Well, thank you for that important question, uh Chairman Hill. As you know, as a former uh community banker, a former state bank commissioner, I am very committed to the community bank model and I appreciate your efforts to ensure that there's viability in this bank banking model going forward. Uh n- a number of the of the issues that are covered within your bill are are things that we are working on at the Federal Reserve and working together in the inter-agency context. One of those in particular is ensuring that asset thresholds are appropriate moving forward, uh and that are indexed for economic growth and inflation. So I'll I'll stop here.

Thank you. Thank you. Well, uh, Chairman Barr and I have uh just worked so hard on this over many, many years and we really appreciate the work at the agencies, but we're trying to put it into law. Uh, this our nation is best governed by by laws agreed to by the uh Congress and and not just on executive orders that vary radically between you know different executive branches. Recently the White House uh issued an executive order promoting access to mortgage credit. which underscored how tackling housing affordability requires not just more housing supply, but also better access to the financing. Let me stick with you, uh, Vice Chairman. Uh, do you agree that housing affordability depends not only on just whether homes can be built, but whether banks have the capacity, funding, and regulatory flexibility to undertake that one to four family construction? And you've heard me say, and we've said in this committee many times, six out of ten uh, home construction loans on bank balance sheets are by banks under ten billion and many of our largest institutions are just out of that business. So clearly there's a, there's a regulatory mix in there that I think is at the heart in some of the post-crisis decisions. Can you reflect on that?

Uh, yes, thank you for that question. I, uh, a few weeks ago I made a, or actually several months ago now, before the, we introduced the Basel per capital proposal, uh, I spoke uh in great detail about how a lot of the the mortgage origination and servicing business has left the banking system uh so as a part of that proposal we have more appropriately calibrated risk weightings for mortgage and and mortgage mortgage origination and mortgage servicing activities so that banks will be incentivized to or not disincentivized to uh to return hmm to the mortgage market to serve their customers um as a part of um support of that the uh president's executive order also uh limits some of the uh complexity related to uh to the origination of of mortgages uh and the paperwork required i think in totality those together will be very helpful for the banking system to to return to that very critical traditional bread and butter activity of mortgage origination

thank you well i think it's very important and it was in the joe biden last council of economic advisors report a whole acknowledging that, saying those were important changes to make. And ranking member Waters and I have collaborated on our road to twenty-first century housing bill which got three hundred and ninety-six votes here on the House floor but we believe that with that and with the tailoring of community banking proposals in it more needs to be done, and so I thank you for your comments. Let me recognize uh that ranking member from California of the full committee Miss Waters for her five minutes of questions.

Uh, thank you very much, Mr. Chairman. I um so focused on affordability um and um what our constituents are saying about their ability to have a decent quality of life. Let me ask each of the members here um could you tell me what city you're from and how much the gasoline prices are in your city, starting with Miss Feldman. What city?

Uh Congresswoman Waters, I live now in Arlington, Virginia, and gasoline is um is

I I'm sorry, I can't hear you. Did you say you will not answer that?

Oh, I'm sorry. No, I'm sorry. I live in Arlington, Virginia. So absolutely, I'll answer that. I uh inflation affects both households and businesses.

What city are you from?

I'm originally from uh Council Grove, Kansas, which is a very small community in central Kansas.

How much is gasoline in whatever city you wanna claim?

Uh well uh in Arlington it's about four four dollars and fifty cents a gallon, which is comparable to during COVID.

Let me move on, mister Gould. What city are you from?

Well, I'm originally from Lynchburg, Virginia, but I can't speak to the spri- I I haven't been there a while.

And how much is gasoline there?

I can't speak to the prices of gasoline there.

I'm sorry, I can't hear you.

I haven't been to Lynchburg, Virginia for a while where I was where I grew up, so I can't speak to the prices of gasoline there.

Okay, who's next on the list over there? What city are you from?

I'm originally from Bar Harbor, Maine. I think it's about four dollars.

What what's the price of gasoline?

Four and a quarter, four four dollars thirty cents around there.

Mr. Hill?

Um, originally from New York, uh, I don't know the exact price of gas, but I believe nationally it's around somewhere between four and five dollars a gallon.

Do you know what it is in California? Between six point three and seven dollars a gasoline gasoline. Seven dollars a gallon for gasoline. And I I I think it's important for uh

Order, please.

I think it's important for us to know exactly what's going on in America with affordability. And so that's why I'm asking you, if you know and understand what your constituents are paying, even if you're here in Washington, where you're really from, and where you're going back to, and how much they're paying. And it appears that there is not a consensus here that you all know what the cost of gasoline is. Um again it can cost six dollars or even seven dollars a gallon in California, and that's real money hitting family budgets, especially for those who need to drive to work. It has gotten so bad that one in ten American skipped a meal yesterday. Why? Because everything is too expensive, from putting gasoline in the car, to buying a home, to putting food on the table, wages are not keeping up with affordability, crisis fueled by Trump's reckless policies. Last year, Americans were taking out loans and buying now, pay later products to buy groceries. Do you know what that is? Do you know what buy now, pay l- pay later is? Do you understand how that works? Raise your hand if you understand it, and you know how it works.

I, yes, I know what buy now, pay later loans are.

Mister Gould, what did you say?

I said yes, I know what a buy now, pay, pay later loan is.

Would you tell your constituents right now what it means?

Well, my my constituents are the American public. I'm not a member of Congress, I'm not official.

That's right, it's the American public. What does that mean? Buy now, groceries, pay later, what does that mean?

Par- pardon me?

OK, all right, we'll move on. And do you know who is doing well? Corporate executives. Their compensation grew twenty times faster than working Americans last year. Did you know that, Miss Bauman?

Yes.

Did you know that, Mister Gould?

Not aware of the facts which you're talking about. Be happy to look into them.

OK. Their compensation grew twenty times faster than working Americans last year. Who knows that and who understands that? Mister Hill, did you know that?

Uh, like like the comptroller, we'd have to look into that, but happy to follow up.

Now we're not that far removed from a close call we had to, a big financial crisis when Silicon Valley, bank and two other regional banks failed three years ago. Community banks and credit unions are having a tougher time to compete with the mega banks. But looking at your actions, you seem to be doing all you can to make life easier for the biggest banks and their executives. This includes the Trump administration's efforts to shut down the Consumer Financial Protection Bureau. As a result, there are no exams being done of mega-banks to see if they're compliant with consumer protection laws. Does anyone think the mega-banks, which have paid hundreds of billions of dollars in fines for violating the law are now perfect angels? Are they doing OK?

Con- Congresswoman, the CEO of the biggest bank in this country.

General Wen- General Wen- the time has expired.

Chair,

Chair now recognizes our Vice Chairman of the Poor Committee.

Mr. Chairman, Mr. Chairman, Mr. Chairman, I have a point to make.

General from New York.

I just wanna submit for the record that California currently has the highest gas prices in the United States, averaging anywhere from five eighty to six dollars per gallon, Mister Mister Lawler, Mister Lawler, that's not a point of, not a point of order. because prices are driven up by high as excise taxes, Thank you, Mister Lawler. strict low emission fuel requirements, Thank you, Mister Lawler. The chair recognizes the Vice Chairman of the Full Commitment. and limited in state resources. Mister Lawler.

I, for the record, Mister Lawler,

Mister Lawler.

you're driven in by the war. You're driven you're driven in by the war.

Mister Chairman, please.

You're

General Manager.

The committee,

The same point of order.

the committee will try to work to understand California's,

We'll we'll try to work to understand California's,

Point of order,

California's,

California's,

California's prices,

I don't think point of order is where the country is.

California's, California's,

California's,

California's, California's,

California's,

California's,

California's,

California's,

Mister Chairman,

California's,

California's,

California's, California's,

Mr. Bargain.

point of order,

California's, California's, California's,

Mister Lawler is out of order,

Mr. Bargain.

and I ask for a point of order.

Mister, I've already ruled Mister Lawler out of order, everyone is out of order,

No, we're in order when we're talking about the American market.

the the the gentle, the gentlewoman's time has expired, the gentleman from the vice

I want more time. I need more time.

you i- I'll give you more time later.

All right, thank you.

If you have a friend that'll yield it to you, I know.

Well, thank you, Mister Chairman, and uh not to add to the cacophony, but I uh bought uh gas at three ninety-three a gallon at my local Sam's Club in Holland, Michigan on uh on Saturday and uh three ninety-nine was the predominant uh price I to have my own uh, understandings of why gas might be, uh, fifty percent more than that in California. But nonetheless, uh, I'm gonna start with, uh, with you, Vice Chair, uh, Bowman. Um, and, uh, I was gonna ask before we had launched into SVB, I was gonna ask you how's it going? But I think we see the state of how it's going all the way around. So, uh, let's just get right to SVB. Uh, it's been more than three years since the failure of Silicon Valley Bank, which was regulated at the federal level by the Federal Reserve System. The Biden administration uh had a limited review for its uh regarding the failure and it conducted by Fed's staff and hastily published only a week later or weeks later. Uh, it was used to justify a slew of misguided regulatory proposals that not only punished all the rest of the banks that actually acted as sources of strength and uh during the fallout, but also proposed to impose burdens on banks in ways that had nothing to do with SVB's failure. Uh, so Vice Chairman Bowman, now that we we have had the benefit of more time to reflect on the SVB failure, uh, I understand and appreciate that you've been uh commissioned uh to do an independent review. So, uh, are you addressing the aforementioned shortcomings in the independent review that we saw coming out of that staff-led uh Fed uh review and are you seeking the cooperation of those who were in positions of responsibility at that time as uh, as you were

Congressman, thank you for that question. I think it's very important that as we had the most costly bank failure in in history, at forty-two billion dollars, uh, at the cost to the DI to the DIF fund, that we understand exactly what the failures were in supervision and in bank management that led to the failures of of that institution and several others, uh, soon thereafter. Uh, what's important is that we identify those actions uh that were taken by supervisors that were uh that kept us from understanding the condition of the bank and acting appropriately and ti in a timely way. Um so it's my expectation that the that the group that's doing this uh independent review for us will engage with those who were responsible for overseeing supervision and the supervisory process during that time period.

And you felt it was necessary to do an additional independent review, not just rely on what had been hastily put together previously.

Yes, I committed to commissioning an external review, uh, during my confirmation process.

And who is leading that review?

Yes. Uh, it's a group called Starling.

OK, and they have presumably experience in this.

They have experience with, uh, with doing these types of, uh, uh, activities. Yes.

Excellent. OK, well, I appreciate your work on that, uh, because there are still lessons to be learned from that. Uh, and by the way, I echo the chairman's, uh, uh, uh, in concern about the lack of involvement on local banks with mortgages. I, when I graduated my OSO employable political science degree, I went into real estate full-time and I sat at the closing table many a time, uh, with those local community banks, uh, who held those mortgages in their portfolio. Uh, and I believe it made their risk assessment and their decision-making better, not worse. Um, Mister H- uh, Chairman, the other Chairman Hill, uh, let me go to this, I I've introduced re- legislation H R thirty four forty six, the FDIB, FDIC board accountability act to replace the CFPB uh director on the FDIC board, uh and instead require uh one FDIC board member to have actual experience with small banks with less than ten billion dollars. I I might actually nominate Mickey Bowman uh to join that with her experience as a community banker and a state regulator. Uh this bill was included in the mainstream uh act. How important is it for the FDIC board itself to include members with direct experience working with community banks, and could have the uh, could having the that expertise at the board level lead to better informed policy making.

Um, well thank you Congressman. Um, a as as you know the FDIC is the is the primary federal supervisor for the majority of community banks in America. Um, and so I think having direct experience with community banks is is vital, um, and would be extremely valuable for for the FDIC. Um, we would certainly welcome uh, Vice Chair Bowman if she wanted to join our board, though I think she is just more more important things.

She's gonna be the Marco Rubio of regulators, I think.

Uh

Yeah, one more hat. But well, it i- just seems to me that uh, while we have some colleagues calling this quote recul- reckless uh deregulation it seems to me that most should actually call this common sense. Uh, when I look at a CFPB director who's politically appointed versus an actual practitioner, I side with the practitioner. So with that, Mister Chairman, unless apparently I could have the ranking members extra time that she had been requested, uh, I will uh yield back to the Chair.

Chair recognizes the ranking member of our subcommittee on capital markets, gentleman from California. Mister Chairman, you're recognized for five minutes.

First, I want to comment on the proposal to create a two hundred and fifty dollar bill. Now, most Democrats are concerned about the proposal as to But the real question for me is who needs a two hundred and fifty dollar bill? Clearly, drug dealers in America face a major problem in dealing with large amounts of currency, and the issuance of such a bill would make their lives two and a half per uh times better. There is no other reason for the creation of a two hundred and fifty dollar bill. Basel-three, uh, is when you finally implement it, then your regulations is gonna have some unaffected, uh, unintended consequences. And I look forward to, uh, each of the regulators providing for the record, uh, what mechanisms you have for future ad- adjustments and recalibrations as you take your, uh, your vehicle out on the road and test drive it. Dodd-Frank kept America safe from two thousand and eight. It continues to keep America safe. And uh uh I uh see the uh in this room the uh picture of Barney Frank and appreciate all of the work that was done in this room to protect us from that meltdown. One hole in the uh uh in that uh bill was it left to the regulators how to deal with uh interest rate risk. And of course, the regulators failed to deal with interest rate risk. with regard to Silicon Valley Bank and others. Uh, this proposal moves us in the right direction in terms of mark-to-market for held-for-sale uh securities, but there needs to be a comprehensive review of interest rate risk, uh, looking not only at at uh uh held-to-maturity securities, but even very long-term uh non-marketable securities. The proposals uh for Bosible-three have had a a number of improvements. in the area of clean energy credits, uh, some progress on private mortgage insurance, and a whole lot of progress in dealing with the capital markets and fee income. So at least the regulators and your predecessors and you have listened to us. Mister Hampton, uh, you talk about government payments in stable coin. I can't think of a worse idea. Uh, it would sanctify an alternative to the US dollar, an alternative designed facilitate a tax evasion economy. Uh, and I would point out to all of our regulators here, that the genius act requires that there be no interest paid on stable coin. The smartest or at least the uh best paid lawyers in the country are being paid to try to evade that requirement. And I'm counting on you to write regulations that withstand that. Um, Mister Gould, thank you for talking about not debanking unpopular uh uh businesses. And uh I uh now have a question for uh Ms. Bowman. Um We're supposed to account for uh economic growth in drafting these regulations, uh the s- you use scoring methodology using a base year of twenty nineteen, rather than twenty fifteen. Uh, so you're not reflecting economic growth that occurred after the regulation process began. Uh, is there any justification to explain why the proposal does not account for economic growth from twenty fifteen to twenty nineteen? And how uh and and does that put us at a disadvantage in competing with foreign banks?

Well, I appreciate that question. Um, you're referring to the GSIB surcharge calibration.

Exactly.

Uh, uh, I'll I'll be honest with you, the reason that we started at twenty nineteen was because I in working with my board, to understand how I could get support for moving this proposal forward. This was the the the compromise that we were able to strike.

But what justifies not uh other than saying, well, we got together and we picked it, uh, what justifies uh ignoring growth between twenty fifteen and twenty nineteen?

Well, we also recognize that in twenty nineteen, uh, many of my board members stated that the level in the cap- and the level of capital in the banking system was just about right. So, uh, it was a as I said, it was a compromise. Uh, we did discuss and review. Going back to twenty fifteen, it would have lowered the capital requirements, um, to a level that some were uncomfortable with. So we we

Well, yes, the the chairman commented that the capital mark uh uh levels were just about right in twenty nineteen. So then you go back to twenty fifteen. Um, I'm I'm surprised you The only defense uh you have for this rule is Well, we got together and we discussed it and some people wanted to do it, so that wanted to go in one direction or the other direction. I don't think there's any reason not to uh to ignore the four years of economic growth,

General, general, this is Don, Mr. Sparta.

and I yield back.

Thank you for that, Mr. Chairman. Recognize the chair of our housing and insurance subcommittee, the gentleman from Nebraska, Mr. Flood, you're recognized for five minutes.

Thank you, Mr. Chairman, I'd like to focus my questions this morning on two subtopics. Number one, the rollout of the Basel three endgame proposal. and the implementation of the Genius Act for stable coins. I sent a letter with Senator Ricketts back in February requesting that you all address the cap on mortgage servicing assets as applied to the common equity tier one formula for banks across the country. This cap is a significant barrier, particularly for smaller banks that have very little capacity to participate in mortgage servicing with the cap. I was very pleased to see that the current proposal removes the mortgage servicing deduction entirely, And I do believe that this change will make it easier for institutions, both large and small, to participate in mortgage servicing. This question is for Vice Chair Bowman, Comptroller Gould, and Chairman Hill. Can you each address why you thought the cap should be removed on mortgage servicing assets in the proposal and then can you also talk about any other changes that you'd like to highlight in the rulemaking that you feel will help get banks back in the mortgage business? We'll start with uh, Ms. Bowman.

Thank you for the question. As I mentioned earlier, um, the mortgage servicing business and the mortgage origination business has been a very traditional banking activity, and is a primary uh source of uh relationship lending for community banks in particular. So we wanted to uh find ways to incentivize and encourage banks to return to the mortgage business so that they could serve their customers. This was one way that we could do that.

Thank you very much, Mister Gold.

Uh, thank you. Uh, yeah, I would just note that we made a number of changes post-two thousand eight that pushed some of these activities including mortgages uh outside of the banking system, I think to our detriment. If I could make a broader contextual point, if I may, um, last week uh Secretary Besant gave a tour de force spea- a tour de force speech um, at the Reagan uh Economic Summit. Some of you I think were were were there, entitled " While America Slept", and he linked specifically the connection between economic security and national security. a lot of what we are doing today, a lot of what I am doing at the OCC, is making sure that we are empowering banks and restoring to them to their proper role of being able to promote economic growth in this country which is essential to economic security which uh Secretary Besson has so eloquently linked it, is also essential to national security. So that is a broader context in which I think you should view many of the actions that I at least at the OCC am taking. Thank you.

Thank you, Chairman. Chairman Hill? Yeah. I I would just echo um that I think uh removing some of the obstacles to banks engaging in the mortgage mortgage businesses is extremely important. Um, one other piece of the of the Basel proposal that that is also I think very important is the improved versatility for mortgages that are held on balance sheet. Um, by uh tying it to to loan to value ratios, um, I think that will go a long way in encouraging banks to um originate and retain more mortgages and and and reduce the amount of mortgages that that are being funneled through the through the GSEs.

Thank you. Next I'd like to talk about the implementation of the Genius Act. In April the Department of Treasury issued an advanced notice of proposed rulemaking for determining whether an existing state-level stable coin uh regulatory regime is substantially similar to the federal regime uh pursuant to the Genius Act. This is the first step towards a process that will ultimately allow some stable coin issuers to be regulated at the state level. I passed a bill to make Nebraska the second state in the nation uh to ha- to allow state charter banks to custody digital assets. Uh, once these rules are finalized, an entity called the Stablecoin Certification Review Committee will review state laws to ensure they meet the criteria for Genius Act. Uh, the committee will be the Secretary of Treasury, either the Chair of the Federal Reserve or the Vice Chair of Supervision and the Chair of the Federal Deposit Corporation. Vice Chair Bauman, have you discussed this with uh Chairman Warsh? And do you know whether you'll be the representative from the Federal Reserve on the stable coin certification review committee or if it will be Chairman Walsh?

Well, thank you for including the Federal Reserve in in this initiative. Uh, we have not yet had the opportunity to discuss that, but it it it clearly is an important issue.

Thank you. It's important to me that we continue to keep this state and federal pathway in stable coins. Served in the state legislature for ten years, states are little laboratories for democracy and there's a lot of innovation that's that's happening there. Um, I guess with the remaining time I have, I would uh advise this committee that thanks to Nebraska corn, gasoline is forty percent cheaper if you use ethanol. And so uh if we wanna bring down gas prices, buy more ethanol, year-round E fifteen, and go Huskers. I yield back.

So many yields back. My pleasure to recognize the gentleman from New York, our ranking member of our House Foreign Affairs Committee, Mister Meeks, you're recognized for five minutes.

Thank you, Mister Chairman, and just to that, let me just say, I think it's uh just to get the record straight, since I am the ranking member on the House Foreign Affairs Committee that since the President's uh war of choice in Iran, across America, Americans are paying more than fifty percent, between forty and fifty percent more per gallon since the Iran war. That's according to the triple A. Just want that record to be clear that Americans are paying more across the country, including in Mister Lawless district, where it's uh about uh four fifty if I don't, if I recall correctly, cuz I'm in New York also. But let me ask this question. Uh, let me make this quote, folks. The business of banking is built on trust and confidence, competent bank supervision, as a prerequisite to restoring that trust and confidence. Does that statement sound familiar to anybody? No? Well, I'll tell you where the statement came from. That statement was made by Mister Gould back in twenty twenty three in front of this body in a subcommittee hearing. Do you recall that, Mister Gould?

I don't recall the the exact quote, but but it it it sure sounds like my words. Thank you, Congressman.

And would you stand by that today?

Uh, y- yes, and specifically I would note that we lacked competent bank supervision in the lead up to Silicon Valley Bank.

Okay, good. So you would probably also agree that competent bank supervision requires holding everyone to the same standard regardless of who they are. Is that also correct? Yes or no? Cuz I got

Is that is that to me, Congressman?

Yes, to you.

Well, uh, Congressman, I would note that we do tailor our regulation and supervision based on the nature of the bank and the complexity of the business.

OK, got you. So, I hear you. So let me give you an example then of uh what I believe equal standards should look like, and you tell me. There's a fintech company called Wise who doesn't seem to have any direct links with top officials in the administration, so they don't have any pull or anything of that nature. Uh, when its sponsor bank had AML problems, it was your agency who issued a consent order, and when Wise itself had AML problems, state regulators and the CFPB acted. So I think that the OCC seems to have the tools necessary to conduct adequate oversight. I think that they do have that. Now, mister Goal, Goal, can an applicant obtain an OCC charter without demonstrating adequate BSA or AML compliance? Yes or no?

Well, co- Congressman, um, the OCC's guidelines are established by statute and there are detail and exquisite

I just need to know, do they have to have BSA?

detail on that.

and or AML compliance?

Well,

Yes or no?

uh, co- Congressman, it's not as simple as a yes or no, and I think I'd be d- be d-

So they could be out of compliance.

I I'd be doing a disservice to the members of this committee if I pretended that it was as simple as a yes or no.

Okay, I just tried to say simple i- Let me

When we're talking about a bank that is still in formation,

Let me, let let me go this far then. Let me ask you this.

they don't actually have the S and O clients yet.

Let let me ask you this. Let's let's let's talk about something else then. Let's talk about President Trump and his son's crypto company called World Liberty Financial. That company applied to the OCC for a federal banking license to issue their own digital dollar. And at the same time, a foreign government-linked investor reportedly acquired nearly half of the company. And I'm sure you're aware that the crypto exchange Binance, which holds nearly ninety percent of the digital dollar issued by the world liberty financial, pleaded guilty in twenty twenty three to sanctions and money laundering violations. And it doesn't stop there. That same exchange permitted more than one billion dollars in cryptocurrency transactions to Iran and terrorist organizations. But that didn't stop the president and his sons from putting their flagship digital assets on the criminal exchange. And that same company directly involves and actively lines the pockets of the president's family today. So let's not beat around the bush, mister Go, because I'm going to ask you a few questions that I know you may wanna filibuster. Will you commit today that you will do your job as a regulator and ensure that the world liberty financial is held to the same level of scrutiny as every other applicant likewise before the OCC and 'cause this has given you an opportunity to prove if you're still working on behalf of the American people or have you ceded your role to serve as a fixer for the Trump family which is it, Mister Goal? Are you working for the American people?

No. Gentlemen.

Are you working for the Trump family? Time has expired.

Let the gentleman answer.

The gentleman can answer in writing. It's a good question. L- he'll answer it in writing, I think.

Now.

The chair recognizes the House majority whip, Mister Emmer of Minnesota, four or five minutes.

Thank you, Mister Chair, and thank you all for being here today. I'd like to start by commending the agencies for the meaningful improvements that have been made to the original twenty twenty three Basel three proposal. There's a significant amount of technical and highly complex work that went into developing this updated proposal. And we recognize that calibrating a modern capital framework requires careful judgment across a range of competing objectives. There is no hiding that the twenty twenty-three proposal cost serious heartburn across a broad spectrum of industries and political viewpoints, with criticism emerging from multiple sectors of the economy and spanning across party and ideological lines. Chief among those concerns was the " why?" US banks are some of the most resilient and well-capitalized in the world, yet former Vice Chair Barr and the rest of the Biden era prudential regulators believe that there needed to be higher capital required uh requirements without adequately demonstrating the need for them uh through quali- quantitative analysis. Unfortunately, all of this was done at the expense of everyday Americans. Higher capital requirements, reduced credit availability, increasing borrowing costs, and limiting access to financing for first-time homebuyers and small businesses. That said, it's evident that those concerns were carefully considered, and I believe this updated proposal is in a much better place today than it was two and a half years ago. One of those improvements is the continued focus on tailoring, uh, recognizing that not all institutions pose the same level of risk, and that regulatory frameworks should reflect difference in size, complexity, and business model. Vice Chair Bowman, as you move toward a final rule, how are you ensuring that the framework remains appropriately tailored and risk-sensitive over time so firms are not inadvertently captured simply due to growth, or broader economic changes?

Thank you for that question. I appreciate your uh your um praise, I think, on the the new Basel-three proposal. We

It was praise.

OK, great. I

I was also pleased by the way to see that the twenty twenty six proposal excludes client facing clear derivatives from credit valuation adjustment capital requirements. However, I noticed there isn't a full CVA exemption for end users, now with the proposal increasing capital on these transactions by ninety six percent. I, Vice Chair Bowman again, can you briefly walk us through your thinking on this, uh, as it's vitally important. to allow our farmers and ag businesses to hedge risk in the most effective way possible.

Uh, well I share your concern, this is a very important issue. Our comment period closes on June eighteenth, and we look forward to comments on this proposal to ensure that we've got the balance right in this particular area.

Well, and I I know you wanna get this done as soon as possible, but would you be open to additional feedback even from us on this issue?

Absolutely. We look forward to your feedback and would be happy to visit with you about that.

Uh, separately under the twenty twenty six proposal, category three and four banks must now include accumulated other comprehensive income in common equity tier one capital. It's my understanding that this change is subject to a multi-year phase-in. However, for banks that cross into category two, there would be an immediate inclusion. Uh, Vice Chair Bowman, how how are you thinking about structuring the final rule to avoid unintended cliff effects so firms can make an orderly transition into a new category without disrupting credit availability or market functioning?

It's not necessarily addressed in the Basel proposal, but there are a number of uh considerations that we're taking in in different forms, that uh would address the categories and the delineations of those categories as we're thinking about asset thresholds more generally.

Well, thank you. I see the time is is running uh short. I may have some things that I'll follow up with uh separate from the hearing. And with that, Mr. Chairman, I yield back.

Gentleman yields back. We're gonna suspend for a moment.

Who's next?

Sure, now rec is recognizes the ranking member of our subcommittee on digital assets, Mister Lynch of Massachusetts. You're recognized for five minutes.

Thank you, Mister Chairman. Uh, I, at this time I'd like to yield some time to, uh, the ranking member of the Foreign Affairs Committee. Uh, the gentleman from New York, Mister Meeks.

Thank you, Mister M- much. I just wanna go back to Mister Gu, uh, cuz he didn't have the opportunity to answer the question of whether or not he is working for the American people or working as a Trump fixer. Which one is it?

Well, thank you for the opportunity to respond. You can recite unsubstantiated allegation after unsubstantiated allegation, and you can attempt to pressure me as your Democratic college president.

Oh, it's not, I'm not I'm not reciting anything, I'm just saying that

When it's extraordinary extent

I know what, I gave you two examples, wise

and unprecedented extent, but we at the OCC will do our jobs to follow the law and to fight law ethics law.

I gave you wise and I gave you tough. So let me just ask you this, let me just ask you this.

Thank you, sir.

Let me just, let me just ask you this, uh, and I'ma give Mister Lynch back his time. So, if the OCC approves this application, will you commit that you will come back to this committee to personally and personally appear before this committee

Y- your

and explain your decision? Cuz we're talking about transparency here. Transparency for the American people.

Congressman.

Will you come back if you

Your your attempts to continue to pressure me

if you

are the only political pressure I felt you should want,

you are acting as

other than your Senate colleagues.

Well

That is very unfortunate and without precedent for an executive branching.

But I reclaim my time. I reclaim my time. I reclaim my time. Obviously, you will not come back. Obviously, you do not want the American people to see transparency. Obviously, you are

What we will obviously do,

false fixer, a yield time backer.

Congressman, is our job under the statute and consistent with our own safety procedures.

Reclaiming my time. Ms. Bowman, uh, I've got an overriding concern about uh just generally the the convergence of uh traditional banking where we have a lot of safeguards and guardrails, and uh what's what's happening in crypto. Uh, a- as I'm sure you're aware, We've we've been experiencing a so-called crypto crash uh uh recently. And uh I know that uh I know that the uh I Kraken was was recently, well, a while back was given a uh a Federal Reserve Master account. Uh that was that was granted even before we had the framework uh set up. Uh are we looking closely at at at what's going on with with Kraken and whether they're in full compliance given the nosedive that uh that uh Crypto has taken recently.

Thank you for that question. Uh Congressman Lynch, the Federal Reserve has a process for uh approving applications, a tiered approach for approving applications uh for access to the payment system. Our uh approach for Kraken was for a limited purpose and for a limited period of time. The Kansas City Reserve Bank approved that limited purpose application, and the twelve months will lapse uh early next year. We look forward to understanding how uh that entity will be using its access, very limited access,

OK.

to the payment system to understand how other similar entities might use that uh an account as well.

OK, that's that's fair. Thank you. Uh, I do want to comment though, each of the regulators has uh, rescinded its earlier guidance. Uh, so we go back a year and a half, two years ago. We we had a a a standard guidance to to banks just to use caution because crypto is a speculative asset, as we've have we've seen res- recently. And and yet, um, all the all of the lessons we've learned, you know, from going back to the Great Depression, the bank crisis, uh, uh, e- even even as recently as two thousand and eight, was to try to create stability uh in the banks. So those those missions seem to be in conflict. The the speculative asset act aspect of of crypto and yet the stability and safety and soundness of of these banks seem to be in conflict. And now we don't have the CFPB, so they're not a cop on the beat anymore. Uh, you've relinquished the one guidance that was out there uh that's that told banks, be careful. be careful about investing in in crypto. So so what are we what are we doing now? What's what's out there that's gonna protect depositors and and retail investors and and the banks themselves in terms of safety and soundness, now that we're we're not giving them that type of guidance?

One of the concerns that we had about that guidance was that it was much more broad than than the single issue that you're talking about. What we wanna make sure is that our banking system is positioned to adopt innovation where it's necessary for them to meet uh the expectations of their customers and consumers and to be able to be positioned to support the US economy as it's growing and it's evolving to adopt some of these technologies. As we are looking at our supervision of of bank banks under our purview at the Federal Reserve, we work closely with them to ensure that they're adopting innovation in a safe and sound manner, But that we're working together with them, uh, as we're working to develop our, uh, Genius Act responsibilities and introduce our frameworks.

Gentlemen's time has expired.

Okay. Uh, can I, can I just ask, uh, will, will there be a report at the end when, when Kraken, uh, when that period expires? And, and would you offer that to the committee?

Uh, I don't have anything for you on that right now, but I'd be happy to,

Jun-

to talk to the Kansas City Reserve.

OK.

Gentle- gentlemen's time is expired.

Uh, thank you. You're back.

Now recognize the gentleman from New York, Mister Lawler, five minutes.

Thank you, Mister Chairman, uh, I'd like to submit for the record an article from US News, a look at gas prices around the world, which explains why California has the highest gas prices in America.

Without objection.

Thank you, Mister Chairman, and thank you to our witnesses for your testimony today. I appreciate the work and leadership each of you has put into revising the original Basel-three proposal. I support the revised proposal. It represents a significant improvement. The new proposal attempts to address the overlap between risk-based capital and stress tests in the treatment of market and operational risk. While I appreciate the consideration behind the agency's approach, more comprehensive amendments to include stress testing would be needed to address this overlap fully. Vice Chair Bowman, how do you plan to more finely tune the requirements to optimize the balance between capital requirements and costs?

Well, uh the comment period on the Basel proposal and the other capital proposals, uh ends on January, uh sorry June eighteenth, and we look forward to reviewing all of the comments and would be happy to discuss any concerns that you have with you directly. Uh on other issues and other matters, we have the stress testing proposal has not yet been uh finalized. It will be hopefully by the end of this year, and we're uh optimistic. that we will address the overlaps that existed between the original stress testing framework and the Basel proposals as we're completing that work.

Uh, we've seen a dramatic rise in fraud, from AI-generated impersonation scams to criminals exploiting gaps in the telecom and payments ecosystem. The reality is that fraudsters are innovating faster than the system built to stop them. Uh, and consumers and financial institutions are paying the price. how can the government do more to help consumers and financial institutions prevent fraudsters from being successful?

Well, thank you very much for the for the question, Congressman. Um, the agencies together did a uh RFI last year, and from that RFI I think, or at least I've learned a number of things, including the necessity of increasing data sharing around fraud so that more stakeholders have access to potential fraud actors. Um, I think it was also a humbling experience, uh, because I believe that, at least again I learned that we, the OCC, are not alone, w- meaning we can't solve the problem on our own. This is something that transcends just the federal banking agencies and involves other aspects of the US government as well. And so, you know, as my colleague mentioned with the Fleck, you know, we also work together on financial literacy across the board. I would note here that, um, financial literacy is at least potentially a part of the solution and uh President Trump's accounts I think will be very valuable in that regard, since it teaches financial literacy at a young age. I actually signed up uh my my my youngest son for it the other day, so I'm excited about that. So again, I think this is gonna require a multifaceted approach across a number of government agencies to address. I recognize there are issues around um who bears the burden of some of these fraud events including just among and within banks across the industry. And I know there's been some tension between larger banks and smaller banks, and the OCC has, uh, given our, given the fact that we supervise many of the largest banks, has been attempting to facilitate some of those disputes.

Uh, last year you said that the failure to innovate is itself a risk, and I agree. Uh, but innovation also brings new risks that must be understood and managed. And AI is going to be a defining feature of the future of banking, from fraud detection to underwriting to compliance. The question is how we capture the benefits while guarding against bias, model drift, and operational vulnerabilities. So can you describe the approach you are taking to examine the use of AI and share your views on both the benefits and the risks associated with its development and deployment and what issues do you believe we should be monitoring more closely, as AI advances?

Well, I thank you very much for the question, and I think you you you you hit the nail on the head in terms of striking the right balance between innovation and safety. Um, obviously the president's spoken to this issue recently with an EO that came out, I think it just a couple of days ago. Uh, in terms of the OCC, you know, we view AI as both a potential opportunity, uh, both to improve how we manage our own agency as well as how we supervise banks, including larger banks, where it is very hard for us to do enough kind of statistical sampling and, and credit file reviews to get direct experience of the risks in those banks. Um, so AI is an opportunity. On the other hand, of course, as we've read about more recently in the newspaper, um, around things like mythos and other frontier models, we recognize they can also, uh, uh, be used to identify vulnerabilities. Um, so I think we at the OCC, working with Maine Treasury and, of course, our federal banking agency, uh, and and credit union, uh, colleagues want to make sure that frontier models in AI is also being used responsibly by banks of all sizes, as well as,

Gentlemen.

and more importantly, their service providers.

Gentlemen, time has expired. We now recognize the uh ranking member of the subcommittee on oversight investigations, Mister Green of Texas, for five minutes.

Thank you, Mister Chairman, I thank the ranking member, thank the witnesses for appearing. I would like to ask Vice Chair Powell a question. Uh, Vice Chair Powell, do you agree that As a general rule to control high inflation, the Fed will raise interest rates?

Congressman.

Mr. Green, who is the who is the question directed to?

Miss Bowman, excuse me.

Yep.

Thank you for the question, uh, Congressman Green. Uh, we we recognize that inflation has been well above two percent.

Uh, can I do this, please? Just as a general rule.

Yep.

If you have high inflation that you desire to control, do you raise interest rates as a general rule?

Well, Congressman, as you know, Congress gave us a dual mandate of maximum employment and price debate.

Uh, but I'm interested in the, I understand the dual mandate. Do you raise inter- are you, well, maybe you don't know. Do you know whether you would raise interest rates?

Well, I just discussed my framework for making decisions about monetary policy, which would include raising, lowering, or leaving the right business.

OK, would you raise interest rates if if inflation is high

it depends it depends on on the condition of the economy and all of the aspects that

and you wanna control it as a general rule when inflation is high and you want to control it would you raise interest rates

in certain circumstances yes we would

ok and um as a general rule would you want what would happen if you lowered the interest rates when inflation is high

well what we found during covid when we had inflation in excess of

And when you stimulate the economy, what happens? If you, if you have high inflation.

Inflation can continue to increase.

Inf- inflation continues to go up. Correct?

That's correct.

Okay. Well, if you have a president who desires to lower the interest rates for political purposes, and the Fed believes that the interest rate should be raised, then you will have a president who is at odds and who would probably increase inflation. I mention this because I'm concerned about the independence of the Fed. And you have a president who wants control of that process. If the president can control that process, the president can do something that can be very harmful to the economy, uh, especially this president. who do- does things to benefit himself as opposed to the people who actually, uh, need the benefit, which is the American people. I, um, I said Powell earlier. Uh, that's because I have such great respect for him. Uh, and I am absolutely a person who believes that he has done the right thing by standing up to this president. He has made a difference. He has shown us how one person who is bold enough to take a stand can make a difference for the American people. I believe so strongly in this that I will personally have a flag flown over the Capitol to support him and to acknowledge him for the courage that he has shown at a very difficult time in our country's history. He is no longer the chair. I trust that this this chair will have the courage of Chair Powell. And pardon me for initially starting with his name, but it was on my mind. Now, let's talk for just a moment about meme coins. Um, generally speaking, there is something that is known as the greater fool theory. Um, and uh this greater fool theory depends upon someone who has made a purchase, having another person pay more for that purchase than this someone that made the initial purse purchase. Uh, that's how you make your money. A meme coin is highly dependent on the greater fool theory, someone buying at a higher price than the person who bought initially. Uh, is there anybody who differs with me on that? Good. Because a meme coin means literally that you buy nothing when you make your purchase, but you do have the opportunity to either make money or lose money. Well, the president has found a way to manipulate meme coins and he and his family, they've made hundreds of millions of dollars with the manipulation of these meme coins. I stand against it and I also stand against the crypto criminals who are making it possible for this to occur. At some point, people who invest in nothing will get what they are purchasing. I'm going to protect the American people as long as I have the opportunity to do so. Yes, I'm Al Green, unbought, unbought, liberated Democrat, who's also unelected but is still fighting.

Gentlemen's

And you're back.

gentlemen's time has expired. I'll now recognize myself for five minutes. Mister Gould, in recent years merger reviews have often been conducted using competitive effects, analysis, that treat insured depository institutions as if they operate in an isolated marketplace, even as fintech lenders

Uh, thank you very much for the question. Thank you very much for the question. I mean, I mean, you're you're right that deposits are are and can be a poor proxy you're you're right that deposits are and can be a poor proxy of market power, particularly given the fact that many banks do compete with non-banks across a range of services services, excuse me. And that is why back in two thousand twenty, when the then uh Justice Department was re-evalua- re-evaluating their nineteen ninety-five bank merger guidelines, the OCC submitted a letter to that effect, making that very point that I've just made here today. We would, I think, continue to look uh to work with the DOJ um uh on and their antitrust team in terms of ensuring that when we evaluate mergers and we look to the DOJ for their advice on the competitiveness factors, that they are in fact ref- reflecting the fact that the the the banking system and the members of it compete with a much broader range of of of entities than they did say back in nineteen ninety five.

Can you give me like any idea on the analytical framework uh that you would think is most appropriate to insure that kind of the the the competition reviews reflect the full range of providers serving consumers?

Sor- sorry, I'd be happy to get back to you on that, but in general, the OCC looks to and receives guidance from the DOJ around that, so their antitrust department gives us advice on that.

Very good. Thank you. Vice Chair Bowman, you previously noted that the banks now competitively uh kind of compete uh directly with credit unions which i'm well aware of i've been in many meetings with bankers and credit unions um and fintech firms and other non-banks offering kind of similar financial products uh in the context of the bank merger reviews would it be helpful for the federal reserve to update kind of the competitive analysis to reflect the broader landscape and kind of including all of these different entities uh cause it probably would give us a better snapshot on the concentration of findings that probably match the reality of the markets out there right now.

Thank you for that question, Congressman. Yes, it would be incredibly helpful for us to update that merger analysis, especially the com- competitive factors and the the landscape of competition, and how we uh how we weight each uh presence of different types of entities in that review.

Very good. Mister Gould, I'm gonna go back to you, under the prior administration, the OCC's merger posture largely ignored the reality that small and mid- mid-sized banks face escalating compliance burdens and competition from regulated institutions uh we often hear that community banks say consolidation is no longer optional but uh almost uh means of survival out there um is uh is the survival mechanism due to compliance costs, and uh competitive asymmetrics what what how do you view that kind of landscape right now

uh uh thank you for the question just and just to make sure i understand right what you talking about kind of smaller banks or mid-sized regionals or just the whole gamut

yeah i mean when people come into my office and we visit with the banks it's it's kind of um a myriad of of discussion about uh what's developing kind of regionally in that in a state or how might they kind of better position themselves

Well, I I think it's definitely been the case, as the Vice Chairman noted, that some of the expectations, particularly supervisory expectations, have over time bled down since two thousand eight to smaller and smaller banks, requiring them to uh seek economies of scale so they can cover the cost of that additional supervision and compliance. Um, you know, we are and have been, and I think the the the other federal bank agencies as well, been been uh keen to address this too, which is to reduce some of those regulatory and supervisory burdens, at least where we have discretion to do so as authorized by Congress in statute, to uh alleviate some of those pressures, such that ultimately, if banks wanna merge or consolidate, consolidate that's a business decision for them. It's not solely driven by regulatory and supervisory considerations, but the needs of their customers and the evolution

Right.

of the markets that they purport to serve.

Right. Very good. I will yield back, and now I recognize the ranking member of the subcommittee on housing and insurance, Mister

Thank you, Mr. Chairman. Um, Mr. Bauman, uh, thank you, uh, in all of our uh witnesses for for being here. Um, over the last year and a half, I think, um, some of us, uh, Mike Flood, uh, chair of the housing committee, myself, uh, uh Chairman Hill, our ranking members, uh Maxim Waters, uh we we've spent uh a rather uh large amount of time uh putting together the twenty-first century Road to Housing Act. And amazingly, as some would probably say, uh magically, uh it passed the house three hundred and ninety-six to thirteen, which is uh almost uh weird, but uh we did. And so, I'm - I - I mention that only because I'm uh right now and mays- maybe most of my life preoccupied with issues uh related to uh housing. Um and the - the US uh Commodities Future uh Trading Commission uh put out a a a report a couple of years ago, and in uh that report uh they they uh essentially said climate change uh poses a major risk to uh the stability of the US financial system and to uh its ability to sustain the American economy. Um, climate change is already impacting um every facet of our economy, uh, including, uh, the the infrastructure, including, um, commercial and, uh, private, privately held, um, uh, property, uh, and agriculture. Uh, and and and twenty Twenty-one, the Financial Stability Oversight Council identified climate change as an emerging and increasing threat to US financial stability. Uh R- right now, um, some of us, and I uh I wish the whole the whole uh uh Congress would would uh focus on this, uh are are concerned about climate risk. Uh, and um trying to figure out right now uh given the the physical risk from severe weather events uh and and and transition risk associated with changing market tel- technologies and policies continue to affect financial institutions uh what specific steps uh can the Federal Reserve take or or uh or any of us uh to uh ensure that banks uh or uh appropriately identify this issue uh and uh that they monitor and manage climate change related financial risk. And can the uh federal res- I mean and and is the federal reser reserve committed to and involved in climate risk as it relates to financial world?

Thank you Congressman Cleaver for that question. The federal reserve does not climate change in its remit, but we do recognize that there are risks to banks and to their uh bank balance sheets from uh weather events and other uh related natural disasters. We do require our banks to mitigate for those risk and to take those into account as they're doing underwriting activities, but we don't see climate as a bigger risk than other related risks like um financial risks to the balance sheet but we do require our banks to pay very close attention. especially as they're thinking about real estate, where flooding often occurs, or um in agriculture contexts where bankers always have to understand the impacts of of related events on a a farmer's crops, uh for example.

Well, let me let me ask uh any of the other uh members, uh how do you assess the United States' current supervisory approach to climate related financial risk compared to our international peers? Phil?

Um, yeah, I think for the question, Congressman. Um, I we we we look at things similarly to the to the Federal Reserve. We do expect banks to be um prepared for risks in their operating environment, and that generally would include the potential for weather events. Um, historically, uh, extreme weather events generally has not presented safety and soundness risk to banks. we have no evidence of banks failing as a result of weather events that always could change in the future and so again we always want want banks to be prepared,

Yes, that's the point.

but but we don't view this as a risk that deserves outside's attention compared to other risks.

Thank you. Uh, yeah, thank you. Thank you very much.

Thank you, sir. I'll now recognize myself for five minutes. I'd first like to air us our uh Comptroller Gould on a question on the Genius Act, which we recently passed of course here in Congress. How is the OCC preparing to implement the uh genius act? Uh what is the time line? And what are the key rules that you'll put in place so that those folks who are in the stable core in business can have a clear direction in which to move forward?

Thank you very much for the question, sir. Uh, as you, as you probably know, we have proposed um a pretty significant rule making. Uh, the comment period closed. I think we received over three hundred comments. We're in the process of reviewing those comments as quickly as we can. and making changes and responding to those comments as necessary to make sure that our final output uh is something we're proud of and something that you know appropriately balances both the potential as well as some of the risks that uh many have noted associate with payment stable coins uh separately and and I I would say sir um you know we are very well well aware of the statutory deadlines that congress has imposed on us and we are doing our utmost to to meet those statutory deadlines um without compromising hopefully the the the quality of the work product Separately there are efforts underway uh uh other rulemakings that we're doing, including with Maine Treasury on the BSA email side, which are very important as well, and so those are also going on too.

You make - recognize the idea of the timeline. Are - do you feel you'll meet that congressional timeline?

Uh, s- s- s- sir, I - I - I - I couldn't uh in good faith uh tell you right now whether we will or will not, but we are working very hard. Our teams have been uh working almost since before the uh the law the law was signed in into uh uh excuse me, the bill was signed into law by the president, so we've been working very, very hard.

Uh, I'd like to ask Miss Bowen if I could, a a question um as as we're all recognized with the sharp rise in interest rates starting in twenty twenty two, uh banks like uh Silicon Valley Bank uh of course just simply failed. And I'd like to know from your perspective what are we doing now to mitigate those risks moving forward on liquidity issues uh capital balance sheets, you name it, what are we doing to to make sure that that might happen. I I we all recognize the challenges with interest rates as they rose dramatically in the previous administration, and and I know Chairman Powell's before us, in fact he asked answered my question, I asked him the question why did interest rates rise so quickly, his answer was pretty simple, he said the government's spending too much money. Uh but it that that being said, on the interest rate question and and the effect of SVB bank, what are we doing to mitigate those risks moving forward?

Well, thank you for that question. So, a few things that we've already done and and a few that are in train. The first is that we've just recently introduced our our Basel capital proposals, uh and the coming period ends uh on those June eighteenth. We look forward to reviewing uh the feedback on that. That proposal includes uh a provision on uh mark to market for AOCI and that may have some uh some impact on that. We look forward to comments. Uh the other issue is you mentioned liquidity. Uh together the the regulators are are working toward uh putting together a a proposal to address uh liquidity weaknesses and and requirements that uh we could look at going forward. The Federal Reserve is uniquely positioned in that we're both responsible for bank supervision but also for monetary policy. So it seems as though these things uh while unrelated, really are related as we saw uh during the COVID period when we were increasing interest rates on such a rapid basis, at such a large amount in uh in increments. As the the the governor responsible for the smaller bank portfolio, we were watching carefully that impact as we were increasing rates so dramatically and so quickly on the smaller banks. And we recognized that there were issues that were arising and we were working with our banks to one educate them about what our expectations would be going forward. And two, trying to understand fully what the impl- implications would be and and working to shock portfolios to understand the conditions that could arise that would be uh significantly detrimental to the banking industry. I think it's important that we have people with banking experience that serve in these roles. You know, I sit in the role of on the Federal Reserve Board that's reserved for someone with community banking or state bank commission experience and and I think that allowed me to see and understand in a than some of my colleagues did at the time.

Thank you so much. I'll just close with this, as as we've had this very kind comments about our former chair, Mister Powell, again in this very committee earlier this year, or maybe late last year, it was the recognition of the uh chairman that the reason why we had such high interest rates was just the out of control spending that took place in that time period and that was his own testimony when I asked him in this committee. Uh with that um the chair recognizes the ranking member of our subsequent

Uh, thank you, Mr. Chair, and to our witnesses. Uh, early last month, the Treasury Department convened an emergency briefing with the CEOs of America's GSIBS and other CEOs to discuss the cyber security risk of Anthropic's mythos model, which excels at finding and exploiting cyber vulnerabilities at an alarming rate. To date, Anthropic claims that the model has been used to find more than ten thousand high-end, critical-level security Um. Uh.

Thank you, Congressman Foster. This is a very important issue and one that we're working together on in the

No, I'm just, what has happened so far?

in the same. So I can't I can't disclose,

Which which

uh, who has h had access, but I can tell you that we're working both with service providers and within the banking industry to work together to understand what impacts uh we may need to have them mitigate and address. We have not ceased our cyber exams. In fact, we continue to work with our institutions to understand how they're planning to uh to

Ok, ok,

to respond.

but you're, but it's still it's unquestionably true that small small banks with their their private systems have not been uh uh given the same level of cyber defense that the large ones have which is not irrational but it seems to me that you're going to need a very clear position on this you're gonna have to define the defensive position perimeter and say this is a software stack that we're gonna defend to the best of our abilities and other other institutions that are using different software stacks are gonna have to Just accept that they're a lesser priority. Um, and I think there's there's a lot to be done here. I think first and foremost, frankly, uh, to have the federal government define an a software stack that we are going to defend. Uh, this is done on the cloud computing, uh, infrastructure. There are well defended, you know, the core, you know, even small banks use cloud-based systems, and at the heart of these small e- these these cloud-based systems are open-source software things that are are communally defended. and we're some of the highest priorities in defending when mythos hit. And so we, I think that it should be, uh all the regulators should uh should focus on and defining the set of software that we are going to defend the same way that the cloud infrastructure stuff is defended, um as open source projects. I think that's the best and and really um the only way forward on this, so I urge you to to think about that. Um yeah, um Controller Gould, um who's received what so far?

I'm I'm sorry, sir.

Yeah, but who's received, you know, who's got access to mythos of everyone?

Uh, s- s- sir, I I also can't disclose that.

In general terms.

Um, were there there's obviously been some field reporting,

But what fraction, what fraction of all of the entities under your

sir. Well, I I I I can't give you an answer on what fraction under all our entities,

program?

but but apropos to the conversation we had before the hearing started, sir, I, like you, am also concerned about the perception of a cyber-mote, again, real or perceived. uh around the very largest banks and I think particularly around the smaller banks, as well as midsize and regionals, it's very important for us to focus on the service providers that support them. Um I think this is going to be

Right.

Okay yeah, to that end um yeah, Mister Hauptman. You know, I've been working for years to try to get um you know, you to have visibility into the back office providers for credit unions. And which is so far, you know, not made it through Congress and we're gonna keep trying on that. But but you um have the back office uh to your knowledge have the back offices providers um that so many credit unions depend on have they at least been given access to mythos to defend themselves

I couldn't speak to who is using mythos or not I don't wanna disclose any of that but I will say this Anthropic like OpenAI they're both in San Francisco I think we should make sure that this country has a regulatory environment that we don't take it for granted those are American companies then you can easily convene a a meeting like the one you discussed it

I'm

Yeah, just main thing is that

I I agree, we just need we need policy clarity and we need

Yeah.

to have a well-defined uh defensive perimeter.

The next Meet Those may be in Beijing or Tehran or somewhere. I mean, it's not gonna work as well for us. We wanna make sure that those companies at least are American. But to your exact question, I can't dis- disclose who has access to Meet Those or not.

Okay, yeah, it's your help.

Um, yeah, cons- consistent with my colleagues, um, can't disclose who has access to what, but we'll just say this is something we're all keenly focused on and uh, recognize it's it's a vital issue for us to be focused on.

Yeah, alright, and so I don't have much time left, but I just wanna raise the point that I don't think that we are prepared for uh, a genetic AI bank run. That if you look at what happened in um, in Silicon Valley and and then ask yourself the question, what would have happened in the world where a genetic finance makes things happen, not at the speed of internet gossip, but the speed of a genetic AI, that would have caused the run to take not forty hours but forty minutes or forty seconds. We are not ready for that and you should come up with a plan to deal with that, because we can have that hearing now or we can have it later. I'm out of time now and yield back.

Chairman yields. The chair recognize the gentleman from Florida, Mister Donals, for five minutes.

Uh, thank you, Chairman. Um, thank you guys for coming in. Appreciate it. Um, Vice Chair Bowman, uh, what's the Fed's current view of the of the interest rate yield curve and the bond market overall? Uh, and I'd It's still forced a habit from my time uh working in the industry, looking at the ten year rate, uh seeing it around four, you know, about four hundred forty, four hundred forty five basis points, like what's the Fed's position and view of it right now?

So, uh, that yield curve is one of many things that we monitor and watch as we're monitoring economic activity in the United States uh for financial stability purposes and also to understand how the economy is uh is is performing.

It's true, but do you do you think that um you know there's work that can be done, whether it's here on Capitol Hill or even with the Fed itself, to try to find ways to uh bring some of those rates down, because obviously they go into they they directly correlate to borrowing rates, whether it's home m- home mortgages, auto loans, uh et cetera.

I think there are many things that play into the the y- yields that are paid on on treasury yields. I know that the treasury secretary has been very focused on this issue in particular. It goes beyond the Federal Reserve's remit to uh to affect the the yields on treasury bonds.

OK. Um, real quick, I know it's a priority um, you know, as you guys pr- continue to prioritize community banking issues and and tailoring our regulations, how would increasing the threshold for small bank holding companies free up capital capital for small business owners in the United States?

Well, we're very focused um among our inter-agency colleagues on making sure that the our requirements are appropriately tailored. This would include the small bank holding company statement. It could potentially uh free up a l- you know, massive amounts of capital, it could be reinvested in the communities that those banks serve.

Well, I'm glad you you state that because it's been obviously in this committee. Um, and quite frankly across America there's always a lot of dialogue of how small companies can have more access to capital and and my position has always been that uh the Dodd-Frank regulation, what it really did is it collapsed community banking in the United States, which is why small business owners, I don't really care what your politics are, but small business owners across the country have been really struggling to find ways uh to get more capital flow into their business. And and I think it's important for the members of this committee in particular, but for everybody on Capitol Hill, to really understand that heavy-handed financial regulation that is impacted and it has a major impact on community banks, directly uh diminishes the ability for a small business to be able to get that loan or get that working capital line of credit to expand their their enterprise. So I'm I'm glad that the the Fed is is taking that matter s- very seriously. Um, controller Gould, the OCC has been very active in reviewing fintech and digital asset related charters. Uh, what principles guide your evaluation of these nontraditional applicants?

Uh, thank you for the question, sir. The principles that guide are the statutory criteria and are publicly disclosed and unchanged for, for years and years, uh, Comptroller's licensing manual on charters. Uh, I would note that this, our licensing manual, including our procedures that do guide us are publicly stated and have been unchanged for over five years. Uh, unfortunately over the last few years, uh, under the Biden administration, we just did not follow them. So we are now following our own publicly stated procedures again. And I think you see the results. There is a lot of interest in new bank formation in this country. It is something we should celebrate, not be afraid of. It is what drives economic growth in your community, in your state, and across this country. And as Secretary Besson has said, it's critical to our economic security to have this economic growth.

Well, to f- to piggyback on that, uh, obviously there was a lot of, uh, I would say issues in the Biden administration, uh, at the OCC, um, and a lot of, quite frankly, um, creating reputational risk for the OCC. Like what actions have you guys taken to combat debanking efforts? and to remove that uh that reputational risk from supervisory programs.

Uh thank you, sir. Uh so one thing we did together with the FDIC was literally uh excise uh the use of reputation risk in our supervisory process. We excised it from our regulations. Uh we have also uh been working on implementing the president's EO on debanking. Uh we are into the what I would call the transaction testing phase, where we are investigating the largest national banks and allegations of debanking to confirm whether or not they actually happened, what might be a legal thy- theory of liability, to address them. Uh, so we are well advanced in that process, and as I noted in my my testimony, we will follow the facts where they lead us.

Well, I really appreciate that, and, Mister Hill, sorry I wasn't able to get to you. Nice podium, by the way. Um, but, you know, I, it, it, it is something that is critical. I think it's important for the American people to understand You do not want agencies of our government picking and choosing, who gets to operate in our financial economy. It has major chilling effects on the future of our economy. And we're the most stellar nation in the world. We need to remember the principles that got us there. Thank you guys for being here. I yield back.

Gentleman yields back. The chair recognize the ranking member of our subcommittee on national security, Miss Bethe of Ohio, for five minutes. You're recognized.

Thank you, Mr. Chairman. and Ranking Member, and thank you to all of our witnesses uh today. Uh, let me start with you, Vice Chair uh Bowman. Um, there have been reports about reduction in supervisory staffing and resources, which I I find deeply concerning. How much has the Federal Reserve reduced its banking examination staff over let's say the past uh several years, and what was the reason for those cuts? uh budgetary budgetary supervisory strategies, et cetera.

Congressman, thank you for that question, and I appreciate the opportunity to clarify. We have not reduced our examination staff at all. They are all resident within our Reserve Bank structure, across our twelve Reserve Banks. We have about four thousand staff that work within the twelve Reserve Banks. Where we have focused our

Is that adequate? Do you think that's adequate?

Sorry? Oh, uh, you know, I think as we're looking at the expectations that we have across the banking sys system going forward it may be too few I don't expect that it's too uh I don't expect that it's too many, certainly.

OK.

So, uh, we'll have a better understanding of that as we're moving forward uh and reviewing our footprint within the Reserve Banks.

L let me ask you uh that if we think it leans towards certainly it's not too many, how are fair lending examinations being impacted? uh, by that number or staffing cuts.

We think at this point, because we have seen some consolidation and we have fewer banks, uh, that we oversee over time, that, that, I, I don't expect that we will reduce that number, certainly. Uh, we certainly will need to refocus some of the work that we do because of the complexity of some of the services that are being offered or will be offered in the future, including AI, cyber security, uh, a number of different innovations. that that likely will begin to be offered within the banking system because of the Congress passing the genius act and other and other actions. So I think more to come on that, but uh we're certainly looking at that very closely.

OK, thank you. Uh, I'm gonna move on. Uh, Mr. Hill, we'll uh go to you to make it worth you standing there. We wanna make sure that we include you. Uh, but let me start, I I wanna talk about CRA, Community Reinvestment Act. As we're approaching fifty years from the inception uh of that, uh I am a a big proponent in full disclosure, have been around for a while, uh prior to being in Congress, uh working with financial institutions to to make sure that that is a standard, because as you know it includes the the community uh and evaluation for lack of a better word process, to make sure that financial institutions are making an investment. So, Chairman Hill, uh, last July the agencies released a proposal to repeal the Community Re- Reinvestment Act rule that was finalized in twenty twenty-three, uh, to revert back to the nineteen ninety-five, uh, regulations despite major changes in banking's, as we know over the last, uh, three decades, uh, that the twenty twenty-three rule addressed. Uh certainly we know um Chairman Powell, then Chairman uh Powell was uh very supportive and he was an advocate of modernization or modernizing uh the rule and so I've had a lot of time of working with folks like you, your predecessors and he on that. Uh so does your agency uh also said that you decided against uh undergoing a regulatory process to change the CR a regulations further. You wanna talk about that in any way, Mister Hill?

Uh, thank you for the for thank you for the question, Congresswoman. So um so a as you know the the rule that was finalized in twenty twenty-three has has never actually gone into effect. Um it was ruled by a by a federal court judge to have exceeded the the statutory authorities. Um the proposal that was issued last summer would codify rescinding that rule and reverting back to the to the nineteen ninety five rule which which has been in effect throughout this period um we have been evaluating a a range of possible options for next steps um which includes both finalizing the proposal from last summer but also considering other options for um proactive reforms um and that's something that we continue to to consider and um i think are are likely to decide on a path in the near future

does that mean that i could uh assume that you're not in favor of keeping the regulations the same. I mean, come on, it's twenty twenty six that we're gonna stay with nineteen ninety five. That can be a yes or no cuz my time's gonna run out.

Um, I I think we recognize that there are a lot of flaws in the nineteen ninety five rule, and so um uh considering options for for a new approach is is are things worth considering.

Thank you and thank you, Mr. Chairman. Now you're back.

Chairwoman yields the chair recognizes the gentleman from North Carolina, Mister Moore, for five minutes.

Thank you, Mr. Chairman. You know, in the last administration, prudential regulation drifted away from its core statutory mission of protecting safety and soundness toward subjective judgments and political priorities. That shift has caused unnecessary or created rather unnecessary uh uncertainty and imposed disproportionate burdens on the community and mid-sized institutions that drive credit formation uh we're now working to revive that principle of regulatory tailoring because requirements should match an institution's actual risk profile. Uh, Comptroller Gould, the OCC has proposed reducing exam frequency for smaller banks. The House has also passed a bill that I uh sponsored, the Trust Act, uh which would raise the consolidated asset threshold for well-managed community banks that qualify for an eighteen month uh exam cycle from, uh from, uh three billion to six billion dollars. Uh, what, how do you think that will improve the the the capacity without compromising uh, safety and soundness.

Uh, well, s- sir, first, um, thank you for your efforts on the legislative front. Um, obviously we can do what we can on the - on the regulatory side to make some of these changes but - but you can make them permanent so - so thank you for - for your willingness to - to - to push that. I think the reality is simply that as - as we've seen, uh, particularly post-two thousand eight, a lot of the burdens h- of the post-two thousand eight crisis regulatory and supervisory framework fell disproportionately on smaller banks. really imperiling their business models. And so anything we can do to kind of alleviate that, and I think anything you can do through statute would would be well taken by those, by those banks. Uh, the reality is that, I mean, I think that we have been, at least at the OCC, have not been allocating our examiner resources in all cases, that is, in a way that is proportionate to the risks presented by the actual banks, particularly smaller banks. So I think your, you, you know, your Again, I'm not familiar with all the details of your of your bill, sir, and happy to look at and get back to you, but I think it sounds like what your bill would do would would help us kind of constrain

Sure.

that.

Great. You know, one size all uh regulation has really distorted competition and discouraged institutions uh from growing past these arbitrary thresholds. Uh, recognizing this need, the committee also passed the TIER Act to update the statutory um tailoring thresholds and require federal banking agencies to periodically review and adjust the non-statuary thresholds as well. Vice Chairman Bowman, you've emphasized the need to strengthen tailoring across categories two, three, and four. What specific changes is the Fed considering to ensure mid-sized and regional banks are not subjected to capital and liquidity requirements that exceed their actual risk?

Well, thank you very much for that question. And as we uh very thoughtfully considered those thresholds uh within the the capital rules that we introduced back in March. Um, one we're looking forward to comments to see if we've got the balance right on how we're applying the standardized approach to the non-GSEVs uh throughout the banking system. But we're also approaching um the way that we're thinking about applying applications beyond capital, uh as we're looking at asset thresholds throughout the entirety of the banking system. That would include um the larger banks as well as the smallest banks.

Very good. You know, tailoring just isn't a bank issue. Uh, Chairman Hoffman, what steps is the NC NCUA taking to ensure regulatory tailoring for rapidly growing credit unions that may not resemble traditional models?

Sorry. Just in a past year and a half, we've done a a a true top to bottom review of a lot of regulations, some of which were outdated, some of which were counter to each other or redundant. Uh, we know that even just complying with them doing the paperwork uh, is an epic hassle. But we definitely want different kinds of credit unions. As an insurer, you want a diversified portfolio. We want them to do different things. So that's something that has been a struggle, but trying to have our examiners aware that doing new things in a different way uh, is positive. As an insurer, we don't want credit unions to look like each other.

Um, last November, Committee Republicans sent a letter to the federal banking agencies to ask that you undertake rulemaking to index the regulatory thresholds for the application of enhanced prudential standards, which are based on four categories of institutions. The Senate Banking Committee sent a similar letter earlier this year. Back in twenty nineteen, your agencies indicated that they plan to re-evaluate these thresholds periodically through the notice and comment process. But that hasn't happened since they were originally sent seven years ago, which underscores the need to index these thresholds moving forward. Looking at how the scope of the new Basel-3 proposal is limited to category one and two institutions. It's clear the agencies will continue to rely on the EPS categories and other prudential regulations which further highlights the need for indexing. So, Vice Chair Bowman, you've given many speeches and testified before this committee in support of adjusting these kinds of fixed thresholds, and how in the absence of indexing firms with stable growth and no change in risk profile, can cross asset thresholds and become subject to increasingly complex regulatory requirements. uh, and supervisory expectations. I believe Chairman Hill actually asked you about this when you testified last October. So can you give us an update on timing for when you and the other agencies will go through rulemaking to index the EPS thresholds?

We're currently working on that, hopefully in the near future.

OK. Any idea of a time line?

I really don't wanna commit to a time line. I, because I have a board that I have to work on.

Gentleman's time has expired.

Understood. Thank you. And with that, I yield back, Mr. Chairman.

Mm-hmm. Thank you. The chair recognized the ranking member of our task force on monetary policy, Mister Vargas of California, for five minutes. You're recognized, sir.

Thank you very much, Mister Chairman, ranking member, and of course the witnesses, thank you for being here. I think that earlier it was stated that Chairman Powell, during his testimony here, agreed that there was quote "out of control" spending. Uh, Chairman Powell never said that, never agreed to that. What Chairman Powell said that federal spending was quote, on an unsustainable fiscal path. And the reason I say that, I think that even though Chairman Powell's a Republican, even though I don't agree with him on many things, he's a very honorable and very good person, and I hope we don't put words in his mouth that he didn't say. And we don't create this aura about him that he isn't. I mean he's a very honorable guy. Again, I I actually don't agree with him on many things, but he's a very honorable guy. And I guess that's one of the things that I found disturbing here today. Um, we hear from witnesses today here who are professionals, people who have been appointed, and they use terms like "unelected bureaucrats", the " unelected bureaucrats do this", the " unelected" That's the jargon of politicians. That's the, and in fact, I asked AI about that. And this is what AI said, " The term " unelected bureaucrats " refers to career civil servants and government administrators who implement and manage public policy, but do not face voters at the ballot box. In modern political discourse, the phrase is frequently used as a pejorative shorthand to describe the perceived perceived lack of democratic accountability and regulatory overreach. Now it's interesting because I've been an elected official for almost thirty years. I faced the ballot box a lot, including yesterday, and of course I did very well, and I thank the voters of my district. Thank you very much. But let's have some respect for the professionals that do their jobs. And let's not have politicians doing professionals' jobs. I mean, I think that's very, very problematic. When you see idea logs placed in professional jobs. Now, for example, if I wanted to get an operation, I would want an unelected bureaucrat called a doctor to perform that, not an elected official like myself. And again, jargon matters here, language matters, so I hope we have a little more respect for people who are professionals. That being said, Vice Chair Bauman, I have great respect for you. Don't always agree with you either, but I do wanna ask you about private credit. I'd ask this. Banks have significantly increased their involvement in the non-bank private lending area, arena. which has led to some concern about spillover contagion and risk posed by the strong interconnectedness within our economy. In analysis the FED's the FED staff published in May of last year, they wrote, the lack of transparency in understanding the interconnectedness between private credit and the rest of the financial system makes it difficult to assess implications for systemic vulnerabilities. Now, could you comment on that, because I I do have some concern about that, where there's some gap in data. What have you been able to do or what are you looking at?

So this is an important issue that we've been looking very deeply into and trying to work with our regulated financial institutions to get a better sense of what the bank investment is into the private credit space. And since it's quite opaque, it's difficult to know, we have seen a rise in the investment from banks into the pri- into NBFIs in particular. But it's been very difficult for us to have a clear understanding of where that those funds have been flowing. Earlier this, uh actually last month, we introduced a data collection to assist our ability at the Federal Reserve, through our supervisory work, to understand exactly where those investments are going outside of the banking system into the NBFI space that will allow us to better understand and see more transparently how bank funding is is being uh used within the the non-bank space, particularly private credit.

Do do we have concerns, though, of where it is today? I mean, is this going to p- you know, pose a problem? Because the numbers are big.

Right. Well, I I gave a speech about this at Stanford a few weeks ago, uh, where it's a very small proportion of the lending categories within the banking system, but it is something that we need to know more about because it's very opaque, and which is exactly why we're asking for more information from our regulated institutions.

OK, thank you very much. And again, Mr. Chairman, I I hope that Again, professionals use professional language. Instead of political language. Let the politicians be the politicians, you guys be the professionals. Thank you very much, and with that I yield back.

And the gentlemen yields, the chair recognizes the chair of the House Republican Conference, Mrs. McQuain of Michigan, for five minutes.

Well, thank you. And thank you all for being here. Uh, appreciate your time. I I wanna talk a little bit about debanking. Um, which is very concerning for me. For years and years we heard horror stories about how regulators have pressured banks into cutting off businesses with industries that liberals don't like. Let me give you a couple facts. First, it was Operation Checkpoint where Obama administration tried to pressure banks into not doing business with firearm dealers. Then the Biden administration launched Operation Checkpoint, two point O where they pressured banks to pause services with cryptocurrency companies. Even the first lady in the president's own son um got denied a bank account, extremely concerning for me. So what I'd like to understand is a little bit of history on how we got there. So um Secretary Bowman or um uh Miss Bowman, can you explain how the guidelines encouraged banks to evaluate reputational risks, how that gave way to this issue of debanking.

Well, uh, Congresswoman McClain, uh, I'm first of all it's it's nice to see you again. I we visited a l a few months ago about mortgages,

Yeah.

uh, which we've made some progress on. Uh,

Yes, I appreciate.

but on this issue, uh, during the first operation choke point I was actually a banker, and was subject to scrutiny from the then FDIC, sorry, chairman Hill, uh, about the activities that we had, and it wasn't just limited to to the activities that you mentioned. We were scrutinized based on check cashing services and uh stand-alone ATMs and other types of uh businesses that some of our customers were engaged in at the time. Uh it is an inappropriate use of supervision uh to eliminate certain customers from the banking system, and it's something that uh we feel very strongly about. Clearly the president issued an executive order on this, And we're all working to ensure that that's no longer rep- uh a part of our supervisory processes.

Thank you. And that leads me into my second question, so thank you for that. So I know this is a top priority of the president. What actual steps have been taken to put a stop to this?

So if you'd like me to continue,

Yep. Please.

uh we just uh last week, I believe, we finalized uh a regulat- a regulation of inter-agency to remove uh, reputational risk from the work that we do at the Federal Reserve. We, or across the banking agencies. At the Federal Reserve we've also removed references to reputational risk from all of our guidances and our supervisory materials to ensure that that's not used as a basis for supervisory activities or criticisms going forward.

Or discrimination, I would say that.

Absolutely.

What, let's let's look internally now, what do we as Congress need to do to make sure that this discrimination doesn't continue to happen. You again.

Well, I could keep going on that. But I I think it's important to uh recognize that putting people in roles that are responsible for supervision of banks uh need to have some experience within the banking system and uh either as a supervisor or as a banker to ensure that

Okay.

we're not bringing ideology into the work that we do and that we're enforcing the law. Um, there are already laws on the books about anti-discrimination. Uh, th- these are not activities that we should have been engaging in from a supervisory perspective.

Thank you.

Well, well, thank you.

So, I'm gonna switch, thank you. Uh, I'm gonna switch to Mister Hauptman. Um, instead of one of the concerns that I have is instead of going through the formal rulemaking process, the Biden administration directed the NC uh NCUA to implement Regulat- regulation by enforcement. Um, which is very concerning to me. Uh, what is the NCUA doing to s- put an a stop or an end to this?

Yeah, regulation by enforcement to me is unethical. And nobody in this room would tolerate it in any other part of their life.

Amen.

Um, you're familiar in a small town where they have a speed trap, where you can tell the goal is to run up the tickets.

Yep.

Um, I before

Usually around the end of the month.

Yes, exactly. Um, none of us would tolerate it.

Right.

Um, it was rampant across a lot of regulators. Uh, even in my current job at N two A, I asked the CFPB uh about something that was brought to my attention and we'll enforce whatever the CFPB says and this is under Biden. And um, uh, he said, why don't you just send everybody that Wells Fargo settlement? That's what we were asking about. He says the Wells Fargo settlement with CFPB, is that, should we all follow what's in that now? And uh, they're asking me what do they do? And we have employees that are judged on that. And I think it's unethical, and again, we wouldn't tolerate it. We have a policy up on our website. Uh, it is known. Regulation by enforcement, uh, is unethical. It ends too way. It's unethical anywhere. But the main thing is that no enforcement ever sets policy.

Amen. Amen. And I know I'm out of time, so thank you, but one last thing I would like to say is I do think there needs to be consequences for people um for their actions and that might get some people's attention. Thank you all for your time.

Yield back.

Lady yields back. The chair recognizes the gentleman from Illinois, Mister Coston, for five minutes.

Uh, thank you. Um, just wanna correct something that was just said. A a bank that refuses to lend to somebody who's gone through serial bankruptcies and has been connected to finan convicted of financial fraud, is not debanking, that's risk management, um, it's diligence. Um, I appreciate you praising the Trump family, but that's not why they were debanked. Um, I think we all know that. Mister Gould, um, Twenty twenty five, the OCC uh issued a proposal that defined unsafe or unsound practices to focus on issues that cause material harm to financial conditions of institutions. In May of this year, President Trump issued an executive order saying that undocumented immigrants pose a structural credit risk. Has the OCC conducted any research establishing that extending credit to immigrants poses a material risk to institutions or the broader financial system?

Well, thank you very much for the for the For the question of confidence.

I'm just asking yes or no, cuz I got a bunch of stuff I wanna get through.

Well, Congressman, I'm not gonna give you a yes or no because I mean that doesn't make sense to me.

So you ha- you either have or haven't done the research.

Congressman, you're conflating two things, you're talking about a proposed rule and then a

No.

directive from the president asking us to issue guidance.

No, no.

We issue guidance all the time on potential safety and soundness risks.

Look, look, I'm I'm not, you don't you don't have to get, you don't have to get angry at me, that's just a yes or no question.

Congressman, as I said, I'm not giving you a yes or no.

Are are you going to do that research in response to executive order?

Congressman, on a regular basis we assess safety and soundness risks. And we issue guides to help review the cases.

Are are you looking at the risks of debanking immigrants if there's a capital flight out of the banking system?

We have concerns about anyth- any amount of, particularly levels of financial fraud in the banking system that we have seen in an average of eight citizens.

But that's that's not that's not the question. The the the i- i- immigrants immigrants commit crime

It is, it is absolutely tied into the question of the national commerce matter.

at a much lower rate than the native world population. You we're s- we're stipulating things because the president wants them to be true. You are responsible for the banking system. Are you doing the research?

Congressman, we are doing the research on a regular basis to

Can you provide that research to us?

safety and soundness risk to the system, including risks of financial fraud.

Okay, I I would love to, let me move along. Um, I wanna talk about the skinny master accounts that are um, and I'm in this moment I wanna get to you about some of this question. But I wanna stay with Mister Gould for a moment because the historically the master accounts have required that we have a bank charter, whether, you know, the tier one, tier two, tier three, um, a number of the people who have been preparing to apply for these master accounts have now been going through this OCC process for bank charters. And I I wanna just clarify with you, Mister Gould, because in your exchange with Mister Meeks, um, you'd, if I understood you right, you said that trust charter applicants don't necessarily need to demonstrate compliance with anti-money laundering rules. I think you said it's not as simple as a yes or no as you just did. But the OCC's chartering guidance specifically says that trust applicants must outline an AML compliance program. So do you wanna correct what you said to Mister Meeks? Or are you suggesting that you can get an OCC charter without a remote control?

Uh. Congressman, if you'll give me a moment to um to explain to you what's in our our Comtrollers licensing manual we have a two phase process to chartering a bank. Before a bank opens its doors for business, it obviously has to have an operational BSA AML compliance program. But in the first phase, that is the phase where we determine whether or not we're gonna preliminary conditional approval or not, and at which it has not actually opened for business and is not ready to open for business, we a bank does not by definition, that's one that's information, need to have a BSA ML compliance program.

So

We give them that second phase to develop the policies.

Well, so so here's the issue,

For the years it's been pretty personal.

and I wanna get to Miss Bowman. The If a bank, w- if you have to have a charter in order to get into a master account situation, the the OCC charters um the the don't require compliance with the CRA, don't require your parent companies to be to be subject to the Bank Holding Company Act, there are lower protections that are in there. And if you've got access to these master accounts, skinny or otherwise, you can move money through the system much more quickly. And the concern would be if you've got people who can move that money, but are don't otherwise have the kind of AML protections that we wanna have in the system. So, are are are we confident that this process, if if it's if it's too difficult for Mister Gould to give a yes or no, do they have the same equivalent AML that other charter banks will have? How are we protecting against making sure the people who get these skinny accounts can't use that as a way to bypass some of our AML protections?

Well, that's a good question. I I do want to recognize that one of my colleagues, uh, Chris Waller, uh, is responsible for payments on on the Federal Reserve Board.

Uh, understand.

I do serve on the committee for payments as well. I we did just issue a proposal, uh, publish a proposal. It does require BSA AML requirements as a part of that analysis. Uh, so it - it is not entirely accurate to say that there's no requirement for BSA AML procedures. Um, there's also not necessarily a requirement for a charter, a chartered entity, to be able to qualify for, uh, for a m- a master count, especially for one of the limited purpose ones, as we call skinny master counts.

Um, okay, I'm out of time, may wanna follow up with you, but you can stay in the person.

Be happy to follow up with you on that.

You're good, back. Gentleman yields back. The chair recognizes the gentleman from the great state of Iowa, Mister Nunn, for five minutes.

Well, thank you, Chairman Moore. I appreciate that, and thank you very much for this panel being here today. I wanna highlight, you know, folks back in Iowa right now, there's a Midwestern gal yourself there, Miss Bowman. Uh, community banks, credit unions, they provide the loans that keep us all farming. Uh, small businesses are growing and family budget's on track. The work your panel specifically has done here in refocusing supervision on real risk, tailoring regulations to size and complexity, and ending operation choke point two point O is exactly what our communities need. And I appreciate you guys all leaning forward on this. I spent most of my career as an intelligence officer, so I'll be very direct. AML modernization, it's long overdue. Every year financial institutions file more than four million suspicious activities reports, or SARs, twenty million currency transaction reports. yet fewer than one percent of these SARS is led to an investigation, and only five percent of the CTRs are very accessed by law enforcement. I think we all see the result of this, that is millions of reports, billions of compliance costs, and very little actionable intelligence to be able to go after. I would offer we need to be shifting quantity for quality in this area. In April, a joint AML CFT proposed rule would be a mea- was a meaningful step forward, but real reform requires enforcement. that evolves alongside the rules. Comptroller Gold, Chairman Hill, Chairman Hepton, can you provide a commitment for in uh basically helping us enforce this? I think we're all on the same page here. I just want a verbal here that we're all committed to making sure that that level of compliance goes forward. Chairman Gold?

Yes, sir.

Y- yes, we're happy to work with you and Treasuryman Finstead.

Absolutely.

Chairman Hill? Good. Um, look, I think, Chairman Gold, you highlighted here that this is a matter of national security, as well as what we can do on economic security. The specific changes would allow a community t institution to redirect compliance resources towards identifying genuine threats and bad actors. With that, I wanna highlight something that um my colleague across the aisle, Mister Kasten, raised a number of issues with you uh Mister Gold. I wanna give you first an opportunity to respond, I think you got cut off there, and then also talk about what we're trying to do on the enforcement side moving forward um So I'd turn over to you for op- any response.

Well, I mean, thank you very much. I mean, obviously, before a bank actually opens for business, it has to have an operational BSA AML compliance program that meets our standards. However, we have a two-phase program to how we charter a bank potentially. While a bank's information, it gets an early nod or not from us as to whether or not we think it has a reasonable chance of success. After it gets that nod or declination, as the case may be, Then it does the hard work of building the policies and procedures, hiring the people, raising the capital. This is just common sense. Um, and this is what we've always said we've done. We just haven't, in all cases in practice historically, lived up to our own stated procedures and the statutory criteria. Thank you.

I think that's very well said. And coming from the state of Iowa where we have some of the uh highest number of lenders as a percentage of capital in the country, our guys understand and get this. I don't think that we uh need to confuse the issue. We need to be able to go after a real AML modernization. Um, Vice Chairman Bauman, thank you first of all for hosting us, meeting with us one-on-one on a lot of these issues. Your board has done the revised uh work for proposal three proposal. The twenty twenty-three version would have squeezed credit to Iowa farmers home buyers and small businesses. The twenty twenty-six proposal corrects that overreach and a companion uh GSEB surcharge adjustment delivers the kind of tailoring that your committee has long or this committee has long called for and you have long called for. Together these proposals show what risk-based economically

This is one of the important areas that we identified in the original proposal from twenty uh twenty twenty three. I can't remember when it was originally introduced.

Yeah. No.

Um, but we've learned a significant amount from the number of comments that were submitted from that proposal. One of them is this important issue with agriculture and and commodities. Uh, we look forward to receiving comments through the the comment process. That process ends June eighteenth. And hopefully we've gotten the balance right in this uh proposal, but we look forward to understanding uh if it needs improvement or or if we've if we've aligned it correctly.

Very good. Thank you, chair.

Thanks.

Uh, mister chair, I'd just like to take a brief moment of personal privilege in my last thirty seconds here to say that um tragically I'm gonna be losing one of our top staffers Miss Caroline Sayers is headed off to work for. Miss McClain. She has been a leader here in the committee on um leading more bills than anyone else, other than you, Mister Chair. And so we're thrilled that Miss Sayers is gonna stay with us on financial services. But Caroline, wish you a lot of luck, thank you for everything you've done for the folks of Iowa back home, and good luck on your next mission. Team, thank you for being here today. Appreciate it.

Gentleman yields back. Chair recognizes the Gentleman from Michigan, Mister Leib, for five minutes.

Thank you so much, Chairman. Uh, Vice Chair Bowman, um Bloomberg and Reuters had reported in April that you met with uh, big bank CEOs. I i is that correct?

I'm sorry, I didn't understand what you said.

Bloomberg and Reuters had reported in April that you met with big bank CEOs like, uh, including JP Morgan, Chase and Goldman Sachs to direct their commenting strategy with Basel Bank.

Uh, I frequently meet with uh CEOs of all sizes with institutions.

You met with them in April.

Yes, I meet with a number of institutions.

OK. Well, this is important because I want

I did not direct about their comments for the rule.

Yeah. OK, well.

Our comment process is open until three.

Reclaim me my time. One second. I'm trying to explain to the public that you meeting with them is actually could be unlawful. I would like to submit for the record HBO HBO versus FCC,

No. Actually, that's not accurate. We're supervised institutions.

uh,

We meet with them regularly.

the war case to the, uh, record

Without objection.

It's our responsibility to meet with CEOs of our

Thank you. Bank Capital is the cushion that, I know,

regulated institutions.

but let me finish. Let me explain myself. I said I think it could be unlawful, so I'm just gonna explain myself. OK, I know, but it it's, I mean, if you were a resident of mine and you know that you met with the bank banks and right now it was reported that it was around commenting strategy re- regarding Basel Bank, you can say no, that's that's fine. Now, public commenting process is to promote transparency, to gather outside expertise and information. The purpose is not for regulators to increase their influence and manipulate the process. That's why HBO versus FCC is important here in the case law. In there it says quote um nineteen seventy-seven case, DC court ruled that once a proposed rule has been noticed, which it was, it was, Vice Chair Bowman, an agency official who is pr- may is or may reasonably be expected to be involved in the decision process should refuse to discuss matters relating to rulemaking proceedings with any interested private party. So that's what I put into the record, I just wanna notice that I I I I believe there are some, you know, concerns in regards to that, and I'll have you comment in a minute. Bloomberg wrote, Bloomberg again wrote, quote, " Bankers walked away from the exchange in the view that they should limit their public comment to constructive feedback." That's what they came out of that meeting with you with. Again, that was reported in April twenty third, night two thousand and six, and I would like to submit that for the record, the Bloomberg article, but you have

Without objection.

Thank you.

Thinkings that are all comments to the constructive feedback.

Will you co will you commit releasing your calendar and meeting logs to the public, Vice Chair Bauman?

I'm sorry, could you repeat that?

Will you commit to releasing your calendar and meeting logs to the public?

We're responsive to FOIA requests.

Oh, you want me to file FOIA? Would you like me to file FOIA?

If you'd like access to uh material from the Federal Reserve,

OK.

that's generally possible.

Yeah. So the meeting did happen, at least you acknowledge that.

I'm not sure what meeting you're referring to.

Did you I am referring to the meeting.

Like I said, I meet with bank CEOs

I am referring to the meeting

all the time.

uh in April. You met in April twenty twenty six. Did you meet with JP Morgan Chase and Goldman Sachs, yes or no?

Most likely, yes.

Yes. You did. You actually acknowledged earlier you did. I don't know if you realize that.

I, well, I meet with Fed officials on a regular basis.

So for the Fed officials to take, I know, but I'm just trying to explain to the public and educate them that they're,

These are not an appropriate meeting.

we have to, we have to follow the process, Vice

It's my responsibility as the oversight.

Vice Chair Bowman, I'm not the one who ran to Bloomberg and told them uh that somebody told them they could have constructive feedback either it was you or somebody else in the meeting.

I think if you've ever read a Bloomberg article, you'd know that they're not always accurate.

It doesn't matter.

In fact,

But look at the court record, follow the law.

rarely accurate, particularly those reporters.

Turning, Vice Chair Bowman. Turning to related concerns, section one seventy-one of the Dodd-Frank Act, also known as Collins Amendment, small all you want, people don't trust that kind of stuff. Created minimal capital requirements, y'all. One is large banks face stronger requirements than smaller banks. Two, capital requirements cannot be weaker than those in place at the time of Dodd-Frank's enactment. So serious questions here. Vice Chair Bowman or maybe Chair Hill, did your agency consider Collins' amendment, if so, why did you not

We're confident that our proposals are in compliance with the Collins Amendment, which requires that large bank uh capital is higher than that for smaller banks.

OK, great. If that's true, then will you commit to publishing the Federal Reserve's legal and qualitative analysis analysis of the Collins Amendment compliance before issuing the final rule?

We're happy to be responsive to comments that are filed in the comment process for this rule.

Will you re-release the analysis that you're c- You you just said you guys looked at it. Can you release the analysis? And I'm thinking

We look forward to reviewing this. If there's a comment, we'd be happy to be responsive to the comments.

Oh, I'm asking you all, your agency, if you would disclose It's okay, I'll file for you. Uh, will you re-propose the rule with a complete legal analysis so that the public can provide feedback on your reasoning?

General Willman's time has expired. Uh, appreciate the General Willman from Massachusetts. Chair now recognizes the General Willman from Florida, Miss Salazar, you're recognized for five minutes.

Thank you, Mister Chairman, and thanks to all of you for being here and giving us your time and your expertise. My name is Maria Salazar. I represent the city of Miami, a city that is full of uh banks and one of the most prosperous and prettiest cities in the country but uh also uh with a very large immigration um or immigrant population, living in the city of Miami. You know that on May nineteenth the White House issued an executive order that instructs treasury and the banking regulators to try to identify those people who are undocumented in the country and who use our banking system by opening up first of all a company then getting a tax ID number, and then going to a banking institution, and opening up a bank account. Um, I do not always agree with uh the White House immigration policies established um by this administration. Sometimes I do, sometimes I don't, but I believe that in this case, this uh new directive could be um could be damaging to the average American citizen. And that's one of the questions that I wanna pose to you. Republicans we stand for less regulation, less paperwork, less hurdle to do business. So um, Mister Gould, thank you for for being here and for answering our questions. In other words, do you believe, and tell me what's your personal opinion, that by having this directive coming from the White House you may be then turning into a CVP agent, not only a banking regular. What's your opinion on that?

Thank thank you for the thank you for the question.

Sure.

Um, and with with with respect, I I I think your concerns are overblown. Um.

They are over overblown?

Overblown, yes ma'am.

Okay, and tell me why.

I I'd be happy to tell you why. The as a supervisor of the US banking system, I expect it not to be used to facilitate illegal activities, whether it be financial fraud, or money laundering or anything of that nature, that is a long-standing obligation that we impose on banks. And I think it is an expectation that every American citizen has of its U. S. banking system that it not be used for these things. As we've seen, fraud is so rampant in this country, particularly in certain states and local uh localities, the president actually had to convene a task force to address financial fraud.

And I agree with you in that regard that the banking institution cannot be used by others who are not American but then reality could be p- p- p- theory may not be practice. How can you make sure that the average American will not be affected by now establishing another layer of regulation?

Well, m- m- ma'am, a couple of things. Obviously, w- you know, we at the OCC are certainly sensitive to regulatory burden. Um, in this area, as we are in all other areas, the the OCC and Financial Crimes Enforcement Network and the Federal Bank agencies more generally, expect banks to know their customers. That is an existing and long-standing statutory and regulatory ob- uh obligation. Banks have flexibility in the documentation that they use to establish the identities of their customers so we look forward to working with banks of all sizes to make sure that they continue to have flexibility to know their customers for these purposes as well.

But don't you think that that flexibility that obviously the banking s- the banking sector does not want any type of issues with the with the government, let's put it. you guys wanna follow, or the banks wanna follow what the, what the new laws are. So, if I ask you how much money will this be costing you, how many more individuals or or uh regulators you would have to be hiring, or um compliance agents I should say, in order to satisfy the regulators' uh desires. I mean it's more money, it's more paperwork. That's, that's the bottom line. Am I right or wrong?

Well again, I think it depends about how banks are gonna establish um compliance with guidance that we haven't yet to even issue. Um, so I I think it's probably appropriate to withhold judgment until we've actually done the work um working with uh Secretary Besson and the other federal bank HCs to actually issue guidance pursuant pursuant to the EO.

So what you're telling me is that you're you're not concerned with this new directive coming from the White House that this could create another burden, more paperwork, more money, more cost for the average banking credit union.

I

That's that's your you're telling me. You're not concerned.

I I I think it is a I think the president's EO is a common sense reaction to well understood and documented concerns uh that we are seeing in terms of a rise in financial fraud, money laundering, et cetera. And from my perspective, you know, as a safety and soundness supervisor, I do want to make sure that the banks I supervise understand the nature of the financial risks that their customers may pose.

But we do we do too, but then what is the difference between now and and my time is now and before. We were always in in the business of making sure that El Chapo does not have access to our banking system. But what is the difference between now and before then May nineteenth? And with that I close.

Well Uh ma'am I would I would just say that this EO focuses us on a well-known and understood issue and directs us to issue guidance directly addressing it. You know, we customarily issue

Good morning. Time has expired.

Right. Thank you for your time.

Sure, recognize the gentleman from South Texas. Mister Gonzalez, you're recognized for five minutes.

Thank you, Mister Chairman. And uh I'd like to thank everyone for joining us this morning. I um my my question is to um Miss Bowman. Miss Bowman, the Merchant Banking Modernization Act reflects a bipartisan recognition that current merchant banking rules no longer align with today's economic realities. Under the existing framework, financial holding companies are generally required to divest merchant banking investments after ten years, Even though many of these projects, particularly affordable ho housing and commercial revitalization and energy infrastructure, often require longer timelines to become financially viable, rising interest rates, inflation, labor shortages, and supply chain disruptions have only extended development timelines further. This legislation received bipartisan support in the House Financial Services Committee because members on both sides of the aisle believed providing greater certainty and the flexibility would help facilitate long-term investments in projects critical to economic growth and community development. Do you, ma'am, believe the Federal Reserve should consider providing more consistent flexibility around merchant banking holding periods rather than relying on a case-by-case extension to better support these long-term investments?

Well, thank you for bringing up this important issue. Uh, appreciate your concerns and would be happy to um take a closer look at your bill and uh perhaps uh have a conversation with you about ways that we could uh consider addressing your concerns

well thank you I would like to do that

thank you

um uh miss uh the my my next question is for miss Hopp Hopp mister Hopman uh mister Hopman thank you for joining us I I wanna take a moment to highlight the critical role critical unions play in South Texas where they provide access to credit for veterans, small business owners, and working families who might otherwise be left behind as a traditional banking system. As someone who has proudly championed this work, I'm honored to lead H R five O seven, the Veterans Member Business Loan Act, H R seventeen ninety-one, the Increasing Credit Union Lending for Business Growth Act, and H R seventy-six forty-seven. more opportunities for homeowners uh homeownership act alongside my friend uh Congressman Brian Fitzpatrick. These bills are about empowering credit unions to responsibly support local economies while maintaining strong protections for their members. My question would be, without asking you to weigh in on any specific legislation, do you believe carefully tailored lending flexibilities for groups like veteran first-time homebuyers and small businesses can be implemented consistent with safety soundness, and can responsible well-underwritten community lending strengthen both credit unions and local economies the local economies they serve.

As a general matter, yes. Yes, that is true. Uh, we want to be a country that has every niche covered, uh, I was probably well into my thirties before I realized how unique this country was, with having so many small depository institutions that serve various niches, including veterans. including immigrant groups, including various industries. We don't wanna be like Australia, which has four banks for the whole country, or Canada, which has six. Uh, we want to have all of these niches that are stable, and I think we're a better, more prosperous country because we do have banks that know soybeans and credit unions, um, that know the Broadway industry in New York, for example. So we wanna have every nook and cranny of this country covered with a financial institution that that meets its needs.

Thank you. I I agree with that. Thank you, and I I yield back.

Gentleman yields back. Chair recognizes the chairwoman who chairs our Capital Market Subcommittee. Miss Wagner, you're recognized for five minutes.

I uh thank you, Mr. Chairman. US banks play an essential role in our capital markets, not just as lenders, but as securities underwriters, liquidity providers, and through other market making activities. These institutions keep capital flowing and help ensure the, that borrowing costs are stable for families and businesses across the country, including my home state of Missouri. When the original twenty twenty-three Basel three end game proposal was released, many of us raised alarms that significant increases in capital requirements would have had drastic consequences for everyday Americans. Um, Vice Chair Bowman, I I have a question for you in that regard, but first, ma'am, um, I wanna give you an opportunity to answer more fully a a question that was posed by one of my Democrat colleagues regarding uh the process um of your meeting with stakeholders in our industry. Ma'am, please.

Uh, it's entirely appropriate for people from the prudential regulators to meet with stakeholders even when a proposal has been introduced or published for comment. Uh, there is a disclosure process that's required to say that there w- w- essentially a high-level view.

A disclosure process is

It it's a, yeah, it's just a reporting.

uh, yes.

Essentially we say that there was a conversation and and with which stakeholders.

Right.

It's entirely appropriate for us to do that.

I can't imagine anyone trying to impugn your integrity, ma'am. Uh, to hold you in the highest regard.

Thank you.

Uh, we also meet with such stakeholders, uh, and others, uh, in this, uh, uh, in this industry as we do our thoughtful deliberations. So I wanted to give you an opportunity to respond to that.

Thank you, I appreciate that.

Now, moving back to, um, the new Basel-three proposal. You've said the goal is to ensure that Each requirement quote " aligns with risk, achieves its intended purpose, and avoids creating unintended outcomes." How does this revised proposal strike the right balance of ensuring the resilience of the banking system while also mitigating any negative impact on US capital markets?

Well, uh, as, as you know, our proposal has been published. It was published in March and our Comment period ends in June on the eighteenth. We look forward to uh feedback on whether or not we've struck struck the right balance, especially with respect to capital markets. They're critically important to uh the US economy and its functioning, and we wanna make sure that nothing we do is impairing their ability to uh serve their customers and the US economy.

Great. Well, thank you very much.

Thank you.

Um, one of the central arguments behind my bipartisan Invest Act is that capital for early stage companies is to concentrated in a handful of coastal cities. Uh, this leaves entrepreneurs in places like Missouri's second congressional district without access to the financing that they need to get off the ground, and scale up. Bank lending to early stage companies, commonly referred to as venture lending, is An important piece of that puzzle. For entrepreneurs in places like St. Louis, a venture loan from a local bank can be the difference between literally a company growing into a thriving business um or not getting started at all. Uh, Comtroller Gold. Last December, your agency issued updated guidance on venture lending. This guidance states that the OCC's policy does not

Uh, yes, ma'am. So our prior guidance treated uh too often venture so-called venture loans as non-pass at origination. Venture. Which means that very few banks are gonna make loans that are classified in that negative way at origination, which of course dried up the venture lending industry and the small businesses that depend upon them. So we rescinded that guidance and replaced it with what I would view as more common sense approach.

I agree, much more common sense approach. I thank you for your answer. My time is expiring and I yield back to the chair.

Gentlewoman yields back, the gentleman from New York, Mister Torres, you're recognized for five minutes.

Thank you, Mister Chair. On March ninth, twenty twenty three, Silicon Valley banks saw forty two billion dollars in withdrawals in a single day, one quarter of the bank's total deposits. In a world where deposits can flee a bank at the click of a button, the Fed's slow-moving discount window can no longer keep pace with a fast-moving financial system. A Federal Reserve without an effective discount window is a little like a hospital without an effective emergency room. Imagine calling nine one one and no one responding. Or imagine calling nine one one and and indefinitely being put on hold. That seems to be the experience of the Fed's discount window. Uh, Chair, Vice Chair Bowman, the Federal Reserve has twelve Reserve Banks, each operating its own discount window. Do all twelve Reserve Banks have identical procedures?

They do not.

Do all twelve Reserve Banks maintain identical operating hours?

I I'm not aware specifically, but it's up to the Reserve Bank to to post their operating hours.

In the three years since the SVB collapse, has the Federal Reserve undertaken any effort to standardize discount window operations across the system?

I'm not aware of efforts to standardize the approach. I am aware of efforts to try to modernize the infrastructure.

Ha- have those efforts succeeded?

I I think we should probably ask the banking system whether they've succeeded.

My my frustration is the greatest problem is not that the Fed is failing to modernize the discount window. The greatest problem as far as I can tell is that the Fed is not even trying. Um, if you, do you have direct jurisdiction over

I do not.

OK. If you did, how long would it take you to fix it?

Uh, I think we have had conversations internally about how long it might take us to resolve that and we think it would be a period of months.

And yet it's been three years since SVB.

Correct.

So I think the American people have a right to be frustrated by the Fed's failure to modernize and standardize the discount window. Like, in my view, in order for the Fed to be a lender of last resort, not only on paper but in practice, it must be capable of responding rapidly to emergencies and rapidly injecting emergency liquidity. Is that a fair expectation?

I agree.

In April twenty twenty-six, the Federal Reserve sent a letter to US banks inquiring about their financial exposure to the private credit market. Is the letter in admission that the Federal Reserve has insufficient visibility into the full extent of the banking system's exposure to private credit?

Yes, as I was uh discussing with your colleague earlier, there are a number of opacities that exist between bank involvement and uh and where it e- essentially eventually lands in the non-bank financial space. We have just launched uh a and an a new uh data collection that will provide some more transparency and some specificity to where bank lending eventually uh ends up within the private credit space and within the non-bank space. We hope that that will provide us with a much better view on on where uh where the vulnerabilities might lie.

And in your view, what is the nature of the challenge confronting private credit? Do you think of it as a problem with liquidity? Or is there evidence of a deeper problem with credit quality? How do you think about the nature of the problem?

Well, I think private credit is a very important service. I think unfortunately, since the financial crisis, uh, back in the two thousand eight, two thousand nine period, some of the the restrictions that were put in place on banking activity, uh, kept them from being able to directly fund activities that have now migrated outside of the regulated banking space and into uh a more opaque market of non-bank financial institutions. So, uh, what we're trying to do with some of the capital, uh, rules w- especially with Basel three, was to bring some of that activity back into the banking system so that we have a much better view and an ability to supervise that activity. We did see from some of the bankruptcies and, uh, and and challenges last fall with several private credit funds, that there was, there were poor collateral management, there was, uh,

Yeah.

some fraud that was occurring, and then, uh, others, bankruptcies and a lack of uh clear disclosures i think um

and and uh and i i probably should nuance you know if you have a private credit fund that has excessive exposure to software right the problem is not private credit the problem is concentration in a single sector of the economy

it can be yes

undergoing technological disruption and concentration is dangerous in both public and private markets and so how should we think about the problem is it about private versus public or is it about concentration versus diversification is it about

i think generally it's about underwriting quality And if you're looking at a particular industry that may be more vulnerable to shocks or erosion of its uh previous positioning, then you should take that into account as you're trying to understand how you should structure a loan.

I see my, my time has expired, so.

Thank you.

Gentleman from New York yields back. The chair recognizes last but certainly not least, the distinguished chair of our house, Subcommittee on Financial Institutions, Mister Barr of Kentucky, you're recognized for five minutes.

Thank you, Mister Chairman, and thanks to our witnesses today uh for the good work that all of you all are doing. And Vice Chair Bowman, let me start with you and I want to follow up uh the line of questioning from uh my colleague uh the Vice Chair uh from Michigan, Mister Heisinger, about the external review that you have commissioned. And you commissioned that review of the supervisory and bank management failures that led to the twenty twenty-three collapse of Silicon Valley Bank and other institutions. You cited the inadequacy of the Fed's previous internal review, led by your predecessor Michael Barr, which was overly focused on non-core issues. The question I have is, is the consultant that you hired uh uh to conduct that external independent review, are they receiving the cooperation that they are owed by by the regulators at the Fed?

Um, my understanding is that this, uh, several people have refused to be interviewed.

I mean, that, that's very troubling to me. Uh, Congress wants answers. We need, in a bipartisan way, this committee deserves answers, objective answers, about what were the true supervisory and bank management failures that led to the collapse of the, uh, uh, of those institutions and the subsequent run-on deposits So, just to confirm, you're telling me that regulators at the Fed have not been sufficiently responsive to the consultant's requests.

At this point, as far as I know, yes.

OK. Well, let it be known at the Federal Reserve that Congress expects compliance with all requests from this consultant. That is our intention, and we applaud you for commissioning an independent external review of the supervisory failures that led to the collapse of Silicon Valley Bank, especially at the San Francisco Fed. Um, let me, let me move on to the importance of tailoring regulations. Chair, Vice Chair Bowman, when you last testified before this committee, you emphasized that indexing thresholds is critical, especially for community banks. That concern is one of the reasons why I introduced the Community Bank Tailor- Regulatory Tailoring Act earlier this year. That bill updates outdated regulatory thresholds for community banks to reflect nominal GDP growth preventing community banks and credit unions from facing higher regulatory burdens solely due to inflation and economic growth. Chairman Hill likewise recognized the importance of this issue by including this community financial institution indexing in the Main Street Capital Access Qu- uh Act. Uh, question, Vice Chair Bowman, do you agree that updating in statute These thresholds reflect inflation and economic growth is necessary to ensure community banks and credit unions are regulated based on their actual risk profiles, while also allowing regulators to be- better target supervisory resources toward institutions and activities that pose the greatest risks to the financial system.

I think it would be very helpful to have a statute that indicated uh that there should be uh an increase in the thresholds as well as uh an ongoing indexing, yes.

Uh, and the committee, uh, on on to Basel three, the committee has welcomed, uh, the Fed's efforts to incorporate bipartisan feedback and move toward a more balanced bank capital framework. Uh, I think, uh, your re-proposal deserves a lot of credit for inviting banks back into mortgage lending and servicing uh we do have an affordability crisis in housing uh in this country but as the chairman pointed out in his opening statement it's not just about, uh, inadequate supply, that's a problem with affordability but it's also about mortgage lending and a deployment of capital. Um, the proposal p- represents a significant improvement i- in this regard, ensuring that capital requirements are appropriately tailored to risk without unnecessarily restricting lending. Um, in your view, why is it important that capital requirements be carefully calibrated to risk? And, and what what effect ca- can an overly restricted capital standards have on the ability of Americans to access critical financing especially in, in the housing market?

So what we saw from uh the the original Dodd-Frank uh regulations or or the regulations that were written to support Dodd-Frank, one it improved capital in the banking system exponentially, but it also pushed a lot of activity outside of the banking system that was traditional safe and sound banking activity. So the what we've done uh through our capital proposals is to try to bring that activity back inside the regulatory perimeter, so the banks can engage in traditional banking activities in ways

Really, really quickly to Comptroller Gould. The OCC's recent rulings on preemption are very important. You've said that preemption isn't a big bank versus small bank issue, that even community banks benefit because there's no longer limited by arbitrary geographies. Quickly, can you speak to how defending a uniform framework framework advances a competitive environment for banks?

Uh, y- y- yes, sir. It allows more banks to compete with one another by creating nationwide markets in which they can compete on even terms.

Mister Barr, your time has expired.

Thank you, Mister Chairman.

Wanna thank our witnesses for their testimony today. We appreciate uh all of you being here and sharing your expertise with us, taking our our questions. Without objection, all members will have five legislative days to submit additional written questions to uh for the witnesses to the chair. Questions will be forwarded to the witnesses for their response, and witnesses we invite you to respond no later than July ninth. This hearing is adjourned.